Energy Capital Podcast

The full video is on YoutubeTexas isn’t just projecting future load growth; it’s happening now. Maura Yates of Mothership Innovations set the stage for our discussion at GCPA’s Fall conference earlier this month in Austin. “We are looking at meters that are 800 megawatts on a single meter… that’s crazy. We used to think 10 megawatts was a big deal…” She also cut through the headline noise: “The next three years are really critical… This is the them we are hearing at this conference: it’s a near term discussion… We have a big, urgent discussion ahead of us.”How much of the 200 gigawatt large load queue is real and how much will actually come in the next few years?Hayden Stanley of Good Peak brought the developer’s eye to the near term. He sees a “whole new layer of infrastructure” coming as the grid gets smarter and more coordinated, but warned that SB6 complexity and behind-the-meter buildouts can slow timelines.Tom McGinn with EnergyWell focused on “lifting the system load factor” with tools people don’t have to think about, built on “optimizing interval-level usage to respond to price signals.” He added a sober note: in the next few years, mass-market customers could get squeezed by rising load in the short term, though he thinks in the longer term, Texas will have continued investment in the grid and new technologies and abundance for consumers.Zach Dell of Base Power Company reframed things taking a much longer view:You’ve got to make large investments with a long-term time horizon. And I think there are really strong precedents for this kind of orientation in other parts of technology. You saw Uber do it in transportation, Amazon in commerce, SpaceX in aerospace. We’re taking a similar approach to energy where we’re making 10, 20 year investments, both in terms of the technology that we’re developing, but also in terms of how we think about policy. Base has added 100 megawatt-hours in the short time it’s been in business and is now adding 20 megawatt-hours per month. Large loads are coming but so is innovation across the grid.Timestamps* 00:00 – Opening* 01:00 – Guest introductions* 03:30 – Load growth happening now much faster than expected* 04:30 – Critical discussions are about the next 2-3 years* 07:00 – Smarter grid, higher load factors, new infrastructure layers* 09:00 – Potential bearish load growth over the next few years* 10:30 – Thinking long term about resiliency and costs * 12:00 – Is ERCOT still working to remove roadblocks? Are process changes needed?* 17:00 – Smart meters enable design innovation and response to price signals* 19:30 – Demand-side flexibility from batteries: “price down, reliability up”* 22:00 – Base Power’s scale, the new factory in Austin* 24:00 – Gigawatt scale virtual power plants (VPPs)* 25:00 – Inflation Reduction Act repeal* 26:30 – The advantage of distributed, smaller scale (<10MW) battery projects* 28:00 – Senate Bill 6 and the case for a more bearish demand growth case* 30:00 – What could slow down load growth* 33:00 – Data problems with large load demand response* 34:00 – Audience question: Data center water use, closed loop design* 36:30 – Audience question: Doug’s one top policy change, would it be a carbon tax?* 37:30 – Audience question: Zach- when will you expand to California?* 38:30 – Audience question: Will grid tech still advance if there’s not load growth?* 40:30 – Closing ResourcesPanelists & Company* Maura Yates LinkedIn, Company Page & LinkedIn* Hayden Stanley - Bio, Company Page & LinkedIn* Zach Dell - LinkedIn, Company Page & LinkedIn* Tom McGinn - Linkedin, Company Page & LinkedIn* Doug Lewin - LinkedIn, YouTube, Twitter, Bluesky, and ThreadsBooks, Articles & Podcasts Discussed* Load Growth: What States Are Doing to Accommodate Increasing Electric Demand (EPRI) PDF (Clean Energy States Alliance)* NRG’s Gigawatt VPP in Texas with Travis Kavulla (Energy Capital Podcast) * Shape Load Perfectly, Inject Energy Optimally with Sonnen’s Blake Richetta (Energy Capital Podcast)* The Year the Texas Legislature Changed the Energy Game Forever by Russell Gold (Texas Monthly)* ERCOT CEO Pablo Vegas Board Presentation:TranscriptDoug Lewin (00:06.464)It’s great to be here this morning. Hope everybody’s doing great. It’s been a great couple of days. Really want to thank Gulf Coast Power for again putting together such a great event. I think my first Gulf Coast Power was like 15, 16 years ago. This is the 40th anniversary. It’s amazing to see you guys still going so strong. This has been a great conference. I’ve learned a ton, caught up with a lot of people. I am Doug Lewin. I do a couple of different things, but one of the things I do is I host the Energy Capital podcast. We are recording this today and we’ll release it as an episode. For those that are listening later, we are in Austin at the AT&T Conference Center at the Gulf Coast Power Conference. So I have four amazing panelists here. I can’t wait to get into this discussion. We’ve got a lot to talk about, but would each of you just briefly introduce yourselves and your companies so folks kind of know who you are. You want to start at the end? Go ahead, Zach.Zach Dell (00:58.366)Hey everybody, I’m Zach Dell. I’m co-founder and CEO of BASE Power. BASE is a retail energy provider and battery developer based here in Austin. Started the company about three years ago. Our mission is to lower the cost of electricity for all. And we do that by developing technology solutions, hardware, software, and the like to help rebuild the infrastructure here on the power grid in Texas and beyond.Doug Lewin (01:20.458)And I’ll just say I did record a podcast with Zach. It was like a year ago, more than a year ago now. Two years ago. Was it really that long ago? Wild. So for those that want to know more about BASE, you can go back, whether you’re in the room or listening later, you can go back and listen to that one. Go ahead.Tom McGinn (01:35.16)Hi, I’m Tom McGinn. I’m Senior Vice President of Energy Trading at EnergyWell. EnergyWell operates a few different load-serving entities in competitive markets in the US, along with offering software and consulting services to other market participants. I’ve been working in competitive markets for almost 20 years now across all the competitive ISOs in the US, kind of at the intersection of the wholesale and retail functions in those companies. So yeah, happy to be here with everyone.Doug Lewin (02:03.694)Thanks Tom. Hayden.Hayden Stanley (02:05.486)How’s it going? My name is Hayden Stanley. I’m the co-founder and COO of GoodPeak. We’re involved with building out distributed generation assets in ERCOT. We’re vertically integrated. And we’ve recently also entered the digital realm with data centers. So excited to be here today.Maura Yates (02:22.466)Maura Yates, the co-founder and CEO at Mothership Energy and Mothership Innovations. We are a retail electricity provider and ERCOT market service provider to large loads and load-serving entities across ERCOT. So everything from billing and operating services to QSE services, but again, really focusing on large complex loads across ERCOT.Doug Lewin (02:44.61)Such a great panel, so much knowledge and experience and lots of different experiences and different businesses represented here. So let’s just start at a very high level with a question I like to ask on the podcast. Zach, I don’t remember if I asked you this one two years ago. I probably did, but it’d be interesting to compare and contrast your answers if I did. It’s one of my favorite questions, which is just to kind of look ahead four or five years. You know, sometimes I think 10 and 20 years is like too far. Who knows? It’s anybody’s guess, but four or five years far enough away that we’re not talking about tomorrow or next week or even next year. You’re looking like a 2030 kind of view. What do you think is really going to change in this Texas market? What are the technologies you’re kind of most excited about? And I think even let’s talk a little bit about what are some of the roadblocks and obstacles to getting to that vision. You want to start?Maura Yates (03:32.526)Sure. So for those who know me in the room, they know that I’ve participated in the market for a while and done everything from resi in the kilowatts all the way up to now megawatts and gigawatts. So we’ve seen this really crazy, interesting evolution, especially the integration of renewables into ERCOT. And I was reflecting with somebody last night about where we saw the market in 2013. 2025 was so far out. And did we see where we were, you know, 12 years ago? And I think in general, we kind of had a sense, yeah, this is where we were going to see a lot of renewables come online. We had a good idea of where generation was going, but I don’t think we had a good idea of where load was going. Obviously the latest incentives to move business to the state have really helped drive that. And not only did we not see where load was going, we didn’t see the scale at which load was going there. Like we are looking at meters that are 800 megawatts on a single meter. That’s crazy. That’s insane. We used to think 10 megawatts was a big deal. Now 10 megawatts is like, I don’t know if we have time for 10 megs. That feels really small. So I mean, we’ve seen this really, really rapid shift and this change in trajectory in terms of where we’re seeing this market go. And so when we talk about the next five years, it’s really interesting. It’s going to be, I think, much faster the rate of change than what we’ve seen perhaps the last five years. We saw the last five years coming. I don’t know if we saw the next five years coming. So when I think about what’s going to happen, I think the next three years are super critical. The next three years will dictate what happens in five years. So when I really think about what I’m focusing on or where Mothership is focusing, we are focusing on the next two to three years and say, what is going to happen in the next two to three years? Because that will absolutely determine what we see in ‘28, ‘29, ‘30. And again, I think this is the theme that we’re hearing at this conference, largely a conversation about the queue and what’s going to happen with large loads, what’s happening as a result of SB 6. This is the conversation. It’s a very near-term discussion. It doesn’t mean that all the other discussions don’t need to keep happening. We need to keep having the conversations around how do we manage our really elastic peaks with residential volatility. We still need to have those conversations, but we have this really big urgent conversation in front of us of, what do the next two to three years look like? Because that will then dictate the tale after that. I mean, 190 gigs in the queue, we know that’s not real. Like, that’s not what our future looks like in the next five years. What part of that is real? Maybe 5, 10%, maybe 10%, maybe 15%, maybe 20%. What do we actually think generation can keep up with? What is practical? What is feasible? And so I don’t know what’s going to happen in the next five years. Every month we get closer to that five-year benchmark, I’ll be a little bit more willing to wager. But right now, I see the conversation of, we have a jam. We can’t get to the numbers that we’re talking about by 2030. We’re too jammed up. If I think maybe another 10, 15 gigs by 2030, maybe in the next two to three years, three, four or five gigs, I don’t know. It depends on again, how we handle and how we manage through the stuff that’s jamming up right now. I think this gets to the innovation conversation that we can talk through more later, but yeah, two to three years.Doug Lewin (06:42.956)Yeah, before we go to Hayden, just kind of a thread to pull on there a little bit is, you know, there’s 190 gigs in the queue. I think part of the problem we’re having is everybody is talking about the gigawatts and not necessarily the gigawatt hours or terawatt hours, right? And we started to see that shift at the ERCOT board meeting last week, Pablo Vegas, CEO. And yesterday here, ERCOT Chair Bill Flores talked about the very same thing, showed the same slide that we are seeing increased use and consumption while demand has actually not increased the last couple of years. Part of that’s weather, but I think part of that is changing use patterns, which is something I think we’ll talk about a lot here, is like freeing up some headroom for some of those AI data centers. Hayden, what are you looking at for 2030?Hayden Stanley (07:28.686)Well, I mean, I think over the next five years, we’re certainly in a race to win the AI race. You know, that’s ultimately going to be enabled by power. You know, power is maybe one of the largest waves created by AI. Interestingly enough, it does enable it. So I think that that’s paramount that we achieve some of these goals. You know, when I think five years from now, I think that there’s going to be a lot of innovation that’s going to play a really big role. I think that there’s going to be a lot more, the grid’s become smarter, there’s going to be more communication, more alignment. You’re mentioning, like demand not increasing, but a lot more consumption that just seems like efficiency to me. And, you know, I think things like that are amazing. I think that we’re in a situation where I look at infrastructure maps a lot and I think there’s going to be a whole new layer added on. I don’t know if you guys play with those, but you turn on one layer, another, another. I think there’s a whole new layer of infrastructure that’s about to be added to the map. And it’s really exciting how all of that gets to be thought about and created and developed. So happy to be a part of it and try to help.Doug Lewin (08:30.382)It’s a fun time to be part of it. I love the way you said that, that just sounds like efficiency to me. Because I think part of what is happening with discussions on energy efficiency is that actually using more electricity can be energy efficient, right? Particularly if you’re using it for industrial purposes or transportation electrification. Like it’s a good thing to use more as long as you’re using it at the right times and as long as we can move it around. Tom.Tom McGinn (08:53.686)Yeah, I mean, I think we’re talking about just kind of lifting the system load factor as a whole, which, you know, hopefully has benefits downstream for recovery of system-wide costs. You know, I think maybe to take a slightly more pessimistic view of what the next five years might look like. You know, we heard previously the backlog around getting new thermal generation online, system loads going up. We’re likely to see kind of increased just base load heat rates at least just through the higher system load factor. Resiliency seems like it’s going to be a continued household concern. Part of me is concerned about what happens to the mass market in this kind of wave of new load. Are they going to get run over for lack of a better term? Are they not going to have adequate representation at some of these policy settings where they don’t have the sophistication to manage load like some of our other large load customers that we talked about today? Yeah, I guess I’m short term a little concerned about what that looks like. I think long term with the continued innovation and the investment in the grid and other technologies kind of coming down the pike here that we would expect to see kind of a return to the abundance that Texas consumers have enjoyed thus far.Doug Lewin (10:12.224)Yeah. And I appreciate that little dose of, I wouldn’t even call it pessimism, just like realism, right? That there are concerns for residential consumers. I don’t know. And it’s actually, I think it’s very smart. I wrote down something Chairman Gleason spoke here at this conference on Monday. And he said, we need to make sure consumers are empowered, not just protected. Right? So like consumer protection is in the DNA of every PUC, but how do you actually think about consumer empowerment? Consumers want to save on their bills. They want to be more resilient, as you said, which is probably a great tee up for Zach. Your customers want to be more resilient. Zach, no, just kidding. Start with the 2030 question. Yeah.Zach Dell (10:52.462)I’ll be honest, I and the team at BASE, we think a lot more about 2040 than we do about 2030. And there’s plenty of good reason to think about ‘26 and ‘27 and ‘28 and the near term, but our mission as a company is to drive price down and reliability up. And we’re not talking 5% improvements, we’re talking 50% improvements, right? I’m using round numbers here, but we want to make a really big impact on those two metrics. And so to do that, you’ve got to make large investments with a long-term time horizon. And I think there are really strong precedents for this kind of orientation in other parts of technology, right? You saw Uber do it in transportation, Amazon in commerce, SpaceX in aerospace. We’re taking a similar approach to energy where we’re making 10, 20 year investments, both in terms of the technology that we’re developing, but also in terms of how we think about policy. And I think that this long-term orientation, this long-term planning, whether it’s building factories and building engineering teams and working on new technology that’s never been done in this industry, or it’s kind of mapping the policy roadmap to what is the grid of 2040, 2050 look like. That’s where we spend our time less about the 18 months, 24 months, 36 month timeframe. So that’s kind of how we think about the problem.Doug Lewin (12:04.014)All right. So let’s come back to this side, Maura. I want to ask you something. I saw a quote you gave in Texas Monthly. It was an article about restructuring that Russell Gold did. He quoted you as saying, ERCOT doesn’t put up roadblocks, it removes them. Do you remember saying this?Maura Yates (12:20.642)When was this article? I might have a different response.Doug Lewin (12:23)‘23. That’s what I want to ask you. Is that still the case? And I’m curious, like what are the emerging technologies you’re working on? Where are there roadblocks that are actively being removed and you’re excited and where are there roadblocks that actually we need? There’s been a lot of talk here last couple of days about stakeholder process, collaboration, and I think ERCOT is a great place for that. So what are some of those roadblocks that need to be removed to get these next emerging technologies to market?Maura Yates (12:47.628)Sure, and I certainly don’t want to point fingers at ERCOT. ERCOT has a lot on their plate. I am not one of the projects that’s in the queue directly impacted by some of the stuff going on. It’s a broader issue outside of ERCOT. I think ERCOT is also sometimes maybe doesn’t get the right direction or other things. So certainly don’t want to take a controversial position on that. In terms of where these roadblocks are, I think the roadblock largely right now is in my eyes a process-driven roadblock, right? We again work on a lot of large load projects. Some of these large loads are located behind the meter, private use networks. Some are just large loads trying to get interconnected that might have been further along in the interconnect process and now are going through a restudy. And when I think about the challenges to getting our portfolio done, it’s really just clarity on what do we need to do? Like, what are the steps to get there and what is the process to get there? And it sounds like a very simple resolution, but I think everybody here who’s stuck in that would probably say, yeah. That’s what I don’t understand is what’s the process to get there. So it feels as if there needs to be some effort to really look at, again, I know I’m pointing out the obvious, people work on this every day, an overhaul to the process and how we approach this problem. You know, we’re going through standard or normal means, whether it’s the standard rulemaking process or other, I understand that there are regulatory requirements, but perhaps we approach this challenge differently. Everybody’s confused on how to move forward. Nobody’s quite sure on where projects stand. That seems to be the challenge right now, a large challenge. Maybe we look at that differently because it doesn’t seem like we have resolution in sight. And to us, that’s the biggest question. That’s the question of how many of those gigawatts get built, right? Like, that’s the question we’re all asking is what’s going to get built? And the question of what’s getting built is, I don’t quite know what’s getting studied or how I have to get this studied to understand what capacity I have so that I can actually go get lending and actually get it built by 2027 or by the timeline that I need. So to us, this is a process conversation. Like the innovation needs to happen from how we are deploying and how we are understanding what that process is to get a large project built.Doug Lewin (14:56.674)Yeah. And obviously when you said that a couple of years ago, right? Like these new data centers were kind of a gleam in everybody’s eye. It was starting to be talked about a little bit, but only barely.Maura Yates (15:05.006)Yeah, the technologies I was worried back in 2023, we were working a lot with everybody on the stage and having conversations about residential-sized technologies and how do we get an integrated home into the market, right? Something that wraps in the electricity bill, very similar to the value proposition Energy Well and BASE are offering. Like, how do we get those types of technologies into the market? To me, ERCOT still is the great playground to have those conversations. I think ERCOT and the DG, the DER space and the work that we’ve done over the past decade has been a really great welcoming space to bring these technologies.Tom McGinn (15:40.344)Smart meters are leaders to that, usually enabling technology that a lot of other markets don’t have.Maura Yates (15:45.922)We’ve done a great job at that and ERCOT’s done a great job at that and they have allowed a lot of innovation in that space and I love working on those technologies with these people for that reason. The challenge that we have again is back on large load right now and large load is shifting this market so dramatically because one data center is the equivalent of a huge aggregation.Doug Lewin (16:05.646)Yeah. And Tom, let’s actually go to you next sort of picking up on that. You were saying, did you say smart meters and Smart Meter Texas? So this is something I’ve been kind of obsessing about lately. I did a podcast with Sonnen and Blake Richetta, he had this great phrase where he said, shape load perfectly, inject energy optimally. I’ve been thinking about that a lot because that’s really what is going to happen on the resi side. There’s so much, I think in the common understanding and even in industry circles, they’re like, customers aren’t going to do this stuff because you’re asking them to do something when you’re talking about shaping load. A lot of that is going to be done by the very AI we’re talking about trying to accommodate. Can you talk a little bit about the innovation in mass market retail? You have a lot of experience in that area.Tom McGinn (16:53.496)Yeah, just to pick up on the thread that Maura started earlier, the smart meter ubiquity throughout the market, the way that ERCOT transparently settles load to those meters enables a lot of product design innovation, at least in our market. I think what we’ve moved to now, I think early product design that leveraged Smart Meter Texas was really build design-driven or, you know, things like TOU products, index products. We’ve moved past that. I think there’s some interesting learnings there, but you know, the future of leveraging this type of technology is I think going to be done by physical products that make the market participation of mass market customers effectively effortless or invisible to them. You know, Blake’s point about perfectly shaping load and optimally dispatching is I think kind of echoing the earlier point about lifting the system load factor. I think just more efficiently using the grid that we have. You know, Zach’s going to be able to go into much more detail about the specific battery operations behind a company like that. But I think they’re all related and whether it’s whole home batteries or whole circuit batteries that are starting to come to the market or smart thermostats or smart EV charging or any of the things like that. They’re all kind of sitting on the same baseline technology of optimizing interval-level usage to respond to price signals.Doug Lewin (18:28.462)And these are resources that we’ve barely tapped at all. Like even on cars, I’m kind of amazed at, this thing gets talked about a lot, but there’s more than, that’s a rough back of the envelope, but there’s probably about 20 to 25 gigawatt hours of batteries rolling around on four wheels in the state of Texas right now. And we’re just like charging them whenever.Tom McGinn (18:46.19)This is an opinion, but I think part of the reason we haven’t seen more done with that data is just that for the most part, people don’t want to think about this stuff. They get home from work and they turn on their stove or have to do their laundry. They don’t want to check the app for price signals. And so we’ve been lucky to have this kind of multi-year environment with a couple of hiccups of very low pricing, especially relative to the rest of the country. And so it hasn’t spurred the type of innovation that you may expect. I think recent challenges around resiliency and some concern about what future volatility looks like is leading to kind of a different approach now where we’ll see more physical products come to the market.Doug Lewin (19:26.99)So Zach, I think that’s like a perfect tee up to ask you about, you know, again, the last couple of days, there has been a very consistent theme through all the different sessions. It was in Hollub Blues’ keynote yesterday, flexibility, flexibility, flexibility, right? And so the demand side has this enormous potential. You guys are focused on that residential mass market. Can you talk a little bit about the flexibility that you’re bringing to market? Pick up on those themes of what are you seeing consumers actually want out of this? And also, I’m just interested also from you in kind of how the go-to-market is working as far as competitive versus vertically integrated, because I know you guys are doing some in both. So if you have a mind addressing that too.Zach Dell (20:06.2)Couple of questions there, I’ll try to touch on all of them. I think the panel kind of touched on this, what do customers want? This is a pretty simple question to answer. They want their bills to go down and their lights to stay on, right? So, price down, reliability up. And that’s really our North Star as a business. How do you achieve this kind of flexible, reliable outcome at the max? You have the biggest possible battery on the home. Right? So we make the biggest battery in the market. Our next generation battery will be an even larger battery. Right? So why? Well, because we want to add as much capacity to the grid as possible. That capacity can be used to take the home off the grid in times of high prices. That capacity can be used to serve the grid in the same times, but more capacity is better. Right? So that’s really how we think about it. I think it’s pretty straightforward in terms of go to market. The way we think about this is we have one technology stack, hardware, software, firmware, we can talk about that. It’s vertically integrated and we’re building a factory and all that fun stuff, but the whole technology stack is aimed at these North Stars of price down, reliability up. That’s true in our deregulated gen-tailer business, and that’s true in our utility partnership business, where we go provide that same technology stack, the hardware, the software, the firmware, to regulated utilities, and then they get to go deploy that technology in their service territory to do what? To drive prices down and to drive reliability up, right? So it’s the same value proposition, same technology stack, different business model. We think that the long-term future of the company actually is more so focused on being a technology vendor to the utilities than just a deregulated gen-tailer in Texas. And we’ll grow the gen-tailer business in Texas. We’ll do it in other markets. We might do it in other countries. But the vast majority of the grid in the United States and the world is regulated and for good reason, right? And we can talk about why. And so we want to be the preferred partner to those utilities and really their outsourced R&D function. So the technology is the same, the value proposition is the same, the business model is just a little bit different.Doug Lewin (22:09.582)And you just, I don’t know if you can’t answer this, can’t answer it, but the size of the batteries, you said they’re getting bigger. Like, what are we talking about?Zach Dell (22:15.394)Yep. So our current product is a 25 kilowatt hour system that we primarily, if there’s room and the customer wants it, which they typically do, we install in parallel. So it gets you to 50 kilowatt hours.Doug Lewin (22:24.908)You get a couple days even in fair weather.Zach Dell (22:27.634)Our next generation product is a 40 kilowatt hour battery that we again install in parallel often to get you to 80 kilowatt hours. So that’s massive amounts of capacity on a per home basis. And then we’ve recently announced our generator integrated product. So we actually have a portable generator integration for our current product where you can take a $500 portable generator that you can buy on Amazon and you can plug it into your BASE battery. Obviously that portable generator isn’t able to power the whole home, right? But the BASE battery is and you can use that generator to charge your battery to keep you powered through a long duration outage. So we’ll continue to develop new technology like this to extend duration, add more capacity on a per home basis, which we think really is the way to solve kind of both of these problems that you’re highlighting.Doug Lewin (23:09.324)Before we go to Hayden, just also just want to give folks a sense of the scale of this, because I sort of hear this a lot is like, well, we’re doing so many batteries on the bulk side. What is the demand side? Can you talk about the scale you’ve reached so far and kind of the pace you’re going at as far as adding this? Yeah.Zach Dell (23:23.15)We’re growing fast. We’ve got over 100 megawatt hours on the grid here in Texas, rapidly approaching 200 megawatt hours. We’re adding over 20 a month. We think around this time next year, we’ll be on the order of 100 a month. So we’re building a factory here in Austin, capable of four gigawatt hours a year. That’ll be our first factory, which is really kind of not a prototype factory, a way for us to, we think about things in terms of crawl, walk, run, right? So develop the technology, test it, then make sure it works, then scale it up. Factory one will be sizable, four gigawatt hours is not small. Factory two will be much larger. And we’re already thinking about that and making some investments in that direction that we’ll be able to talk more publicly about soon. Yeah, I mean, I think we’re the fastest growing battery developer in the state, certainly, and probably the country. And we’ll continue to grow at that deployment rate over the next couple of months.Doug Lewin (24:11.022)And part of my reason asking that question is just, I’m hoping to the audience in the room and to those that are listening to the podcast, the scale of this is really starting to, I’m hoping it’s starting to take hold with folks. Like the podcast I have coming out tomorrow, Travis Kavulla from NRG, they’ve got a one gigawatt VPP they’re working on. He said on that podcast, they were at, I think at 150 or something like that, 100, 150 somewhere in their megawatts already. You’ve obviously got Tesla out there, Swell and Octopus. We are starting to see gigawatt scale. There’s already six gigawatts of distributed assets already out there that ERCOT has measured. So when we’re talking about these large numbers of growth on the bulk system, we also need to be thinking about the distributed system as scaling. All right, Hayden, I want to ask you something sort of obviously related, but a little bit different and actually hasn’t been talked about a ton at the conference here, but you know, it’s a big deal in Texas and nationally is the repeal of the IRA. What does that mean for you guys and your changing business and sort of the pace and economics of building new gen in ERCOT?Hayden Stanley (25:17.652)Sure. Well, that’s a really easy one. I’ll take that one head on. Sure. So, you know, there’s probably folks that are on both sides of it, you know, on one side, you know, we want large degrees of security, on the other side, there’s a lot of people who just don’t want the rules to change. Yeah, you know, I understand both sides of people who want it and don’t want it. I’m really glad that I get to be in the position of someone who gets to respond rather than having to make the decision on the legislation. So I get to, you know, Monday morning quarterback over here, but you know, I think that ultimately what happens is it levels the playing field and in doing so it creates more competition and it allows there to just be a lot of innovation and the best business model wins and you get to figure out what that is. And that’s happening in real time and it allows, you know, smart and agile teams to be really creative and push innovation into the space. I think ultimately customers win whenever there’s a lot more competition. So that’s great. I think that, you know, in doing so we like to be highly competitive ourselves. The best way you can do that, serving power is you can either figure out ways to make more money or you can figure out ways to save money. And so figuring out ways that we can synergize our operations, we are vertical, we do our own EPC. We try to have the lowest net build cost out there. And so that’s really something that we really focus on. It’s easier to save a dollar than it is to earn one because earning one’s risky and other things.Doug Lewin (26:41.432)So you see one of the main things about the repeal of the IRA being sort of driving efficiency.Hayden Stanley (26:44.85)Driving efficiency, you know, that’s on one side. Efficiency is on one side of it. Cost savings is on one side of it. You know, another thing is, you know, we really focus on the DG level. So we’re deploying 9.9 megawatt assets and you know, would I rather have a 100 megawatt or 200 megawatt asset or 10, 10 megawatts or 20, 10 megawatts? I think I would take seven 10 megawatt sites over one 100 just because you get diversification of risk and the portfolio effect. But with that being said, we’re more so looking at this 9.9 megawatts of interconnection capacity as a resource. And, you know, the prior business models of the past are not set up for the future. And we are pairing resources. We are stacking advantages to be prepared for these non-scarcity years, such as 2024, 2025. We’re really focusing on the intrinsic value of the assets that we’re building. And if they’re not underwritable from an intrinsic view, it’s not something that we’re interested in. So we’re really trying to create more value and being more innovative in our own deployments in order to survive those years. You know, we somehow entered the data center space. We really couldn’t help ourselves. We came by, came across a site that has literally everything you need. 138, 345 kV lines, plus three natural gas pipelines, 20 minutes from a major metro area with a lot of acreage, right? It’s something that we’re like, hey, we’ve got to get involved with this. And even with everything on site, the data center world, it’s complex. It’s a very complex animal. And having to bring all the power behind the meter and the complexities of SB 6 and how the TSPs are viewing load versus co-located generation, it’s creating a scenario where you have to paint this power story and these systems are complex, especially getting them online. And so I think that I may have a view of ERCOT where, you know, maybe the demand story isn’t so bullish and maybe it’s a bit more bearish because there’s potential for delays for regulatory compliance and things of that nature. And what happens with all of these things, you know, it’s a lot of demand, but they’re all bringing really big plants behind them. What does that really look like? So we’re having the view into kind of that demand side with still building generation assets. We’re really preparing for non-scarcity years and really focusing on intrinsic value. And that’s kind of how, you know, a repeal of a certain regulation just kind of forces you to think differently across your entire business portfolio.Doug Lewin (29:20.302)All right. So in just a couple of minutes, we’ll go to questions from the audience. Before we do that, though, I want to also ask you, Maura, related to that, right? Hayden’s talking about a lot of the complexity that could really slow that down. I know that’s a lot of what you guys are dealing with. So you guys are putting together a dashboard to kind of look at all the different things that are going on. So what do you see as you’re talking to people out there as far as, what are those roadblocks? If you take more of a bearish case, you look ahead to 2030, like we haven’t built out as much data centers as we all maybe hoped or thought, what’s kind of got in the way. And that way we can sort of anticipate it and hopefully not let it happen.Maura Yates (29:57.816)Sure. So if we get to 2030 and we’re kind of cruising along still seeing the same steady load growth, I think one of the things we need to clearly continue to evolve is our data use and our data around some of these more remote sites. So one of the challenges we have is we’re seeing a lot of load growth in remote areas. And as a result, we don’t have the same quality of data that we were talking about earlier. We have wonderful quality of data on our residential loads, which is great because they drive a lot of the volatility in the market. We want to see how those behave. And again, the real-time behavior is really important on those. But at the same time, we also have a lot of these large loads and—sorry for being the large load voice on this panel—but we have a lot of these large loads where we don’t have data visibility and granular visibility into what’s happening. Not all these loads have an EPS meter or the right metering infrastructure for us to see that data even, you know, five days in arrears if they don’t have the telemetry or a QSE on site.And so I think as we continue to move forward, we have to understand how we use data better and we get good data off really important assets. Again, that sounds like a really obvious point, but it’s not working well enough right now. So we need to continue to work on how we get data off some of these larger assets in the market. I think one of the other things that we want to be thinking through is also just—we spend a lot of time in legal and in contracting and how you create contracts that are nimble and grow and evolve with the market as there are uncertain times. I think, again, through all these large loads and working through contracts that perhaps have tenor that extends beyond this five years that we’re talking about. So how do you create a contract that is de-risked for all parties, able to go get lending, that also recognizes and acknowledges the market’s going to change in the next five years and we don’t know, and the market’s specifically going to change around things that impact your load? And so I think the other thing that we’re trying to focus on is the perfection of contracting and how you create the right contract and document set for a very, very boutique product. Every site has different needs. Every site has different lenders. Every site has different operations. So how do you evolve that contracting structure so that five years from now, you’ve got all these participants in the market who have been trying to get in for five years, but in a structure that supports reliability, supports performance, and doesn’t drive bankruptcies and a whole other kind of next generation of problems to solve.Doug Lewin (32:22.04)That’s really interesting. I think most people think about the data problems as being more on the residential side. Maybe it’s just me, maybe I’m just totally off base on this. I think of the big customers—data is something everybody’s got. But it’s a brave new world, right? These are developments, like you said, 800 megawatts. We haven’t seen anything like this.Maura Yates (32:41.902)We just launched a platform that we built off of our own internal operations because it’s how we look at data and we really care about how these large loads behave. And we really care about it at an interval basis. And when you don’t have that data at an interval basis, what’s the other data you need to look at? So it’s something that we think is super important and we’re trying to lend our learnings to the market to also have access to the best data available today.Doug Lewin (33:06.584)So before we go to the questions, anything y’all want to say in response to each other?Tom McGinn (33:09.558)I have a question about what you just brought up, if you don’t mind. So are you saying that, let’s say you have a very large load that is committed to be price responsive or something like that, let’s say you have a price spike, the large load curtails, but your initial data is going to show what?Maura Yates (33:27.918)Sometimes it shows in our large loads that that load never curtailed in our initial settles. And again, I’m not trying to put ERCOT in a hot spot, so please don’t take it that way. But sometimes based on the load profile, based on, again, the meter and the communication available at that site that’s available to the TDSP—it might not be the TDSP’s fault—that load, we won’t get actual meter data until that meter is read 30 days on the 30-day mark. And that’s when we actually see how it behaves. So our initial settles might not reflect the price-responsive load actually curtailing. It might actually be settled off of a profile settlement, which is, when you think about it, these are really large loads, a big piece of...Tom McGinn (34:04.716)Huge dollars on the initial settle, but you’re working capital flow to support that.Doug Lewin (34:10.446)All right. Okay. So let’s go to some of the questions here. Let’s see. So I’ll go with the one that’s upvoted the most in the room. No one seems to talk about the water issue. There seems to be a lack of water, which will prevent generation from coming online. It’s also—there’s water associated with data centers, obviously. So that’s a really good point. Water is often sort of overlooked. Does anybody want to take that one?Maura Yates (34:30.893)There’s a reason we haven’t talked about it, I guess. None of us want to—I’m not a developer. I’m going to absolutely punt to the developers of those assets. But I do know through the permitting process and through a lot of the AHJs, they’re looking at the water requirements. And I think there’s a lot of technical evolution in terms of cooling technologies out there to require less water.Zach Dell (34:51.534)Yeah, I’m certainly not an expert on this topic. There are some very smart people working on water problems in Texas. In fact, my sister is working on this and spending a lot of time thinking about it. Our generation technology requires 0.0 gallons of water. So there certainly are—I think the cooling point, Maura, is a good one. And that was a challenge that data centers face. If you’re looking—I mean, why is Northern Virginia a place where all these data centers go? There’s a bunch of things, there’s permitting things and real estate implications, but a lot of it is the climate. Texas is very hot, as we all know. You do have to cool down these GPUs and that does take a lot of water. But not all generation technologies do require water. Obviously data centers are not necessarily generation, they’re load obviously. So, but yeah, it’s a complicated problem and I certainly don’t have any...Doug Lewin (35:32.12)I do think it’s a really important point. It’s not actually talked about a lot with renewables and storage—that there really is minimal water there. Obviously water use is mostly agricultural and the power sector is a slice, but it’s—other than washing some panels and stuff like that, you do get major water savings from renewables. Do you want to say something on this one?Hayden Stanley (35:53.006)Sure. Yeah. A lot of the data centers are moving to closed-loop designs to alleviate that. They’re building these things in the desert, but on the power gen side, a lot of the behind-the-meter thermal—I mean there’s certainly a requirement where you need water to operate those.Doug Lewin (36:09.056)And I think the trade-off there, right? If you’re reusing the water, you’re going to use more power because you’ve got to keep that water cooled, right? So there are these trade-offs.Hayden Stanley (36:17.964)Right. And some assets use more than others do. So if you’re using different types of thermal, they require different levels of steam.Doug Lewin (36:28.962)All right, somebody’s asking a question of me that got upvoted. Is this a tough question? Should I ask myself? What would be your one policy you’d implement in Texas if you could? A carbon tax? No. Incentive for clean dispatchable resources? There has to be some ambitious policy post-IRA. What is it? So I would think probably half this group can probably guess what I’ll say, which would be a real focus on getting rid of resistance heat and putting in high-efficiency heat pumps. And I’d like to see that done with market-based solutions where we actually have some price discovery, where it’s not just like pick a price and pay this incentive. We don’t know, are we paying too much? Are we paying too little? Introduce some competition into the demand side. I’m supposed to be the moderator. Any—y’all want to say anything about that?Tom McGinn (37:13.422)I’ll echo your point. I agree with you. I think the resistance heating or just inefficient heating in general in the mass market space is a serious issue that we see in risk management and load forecasting and stuff like that. So I agree completely.Doug Lewin (37:26.528)And it very much relates to what we were talking about earlier with shaping load, perfectly adjusting energy optimally. You’re not shaping load perfectly if in the wintertime a house is using 10 kilowatts and an apartment’s using five kilowatts all through the night. We’re not shaping that load. And it’s those peaks that we’ve got to be able to manage to be able to bring data centers and all kinds of other stuff on. Okay. There’s one for Zach. Zach, when are you expanding to California?Zach Dell (37:51.468)We’re working on it. We will share more about our expansion plans outside of Texas in the coming months, but we’re talking to regulated utilities in a number of states that have expressed interest in our technology, California being near the top of the list. So I don’t have a firm date for you. My hope is 2026. I’m pretty confident that we’ll be able to—I’m quite confident that we’ll be moving outside of Texas in 2026. I’m hopeful that California will be one of those states because California is a place that obviously has a massive need for batteries given the penetration of solar.Doug Lewin (38:19.662)This is a question from the audience. The panel’s outlook is pretty bearish about demand growth in ERCOT, but bullish on the technological innovations on the supply side. Will the technology be deployed without the demand?Maura Yates (38:29.39)I think so. That’s what ERCOT is known for. Back to that earlier comment that I still stand by from 2023. ERCOT is the right place for experimenting with products and technology and testing how a market responds. I think as we introduce new price signals, we’ll start testing other ways new technologies behave with the RTC plus B. What does that do? Does that introduce new technical innovation? But I think we continue to be really right for that.Tom McGinn (38:54.38)Yeah, I don’t think anyone’s bearish on load growth. Load growth is already here, right? And so, I mean, the existing infrastructure is aging, load growth has happened. There’s questions about how much future load growth there will be, which I think are valid given the state of the interconnection queue. But yeah, I just wanted to push back on bearish load growth.Hayden Stanley (39:15.33)Yeah, I think that the projections are what? A hundred percent increase by five years or something crazy. So, I mean, I think that it’s the relative nature of it—maybe where we should backtrack the pace of this—but the growth is still going to be very, very, very high relatively. So I wouldn’t say the outlook is bearish.Zach Dell (39:35.758)Yeah, I would add, I would go back to the first point I made, which is we think more about 2040 than 2030. So yeah, we are going to continue building technology to drive price down and reliability up. And what happens next year and the following year matters, but is not really where we’re focused. We’re making long-term bets. And I think my hope is that other technology companies take the same approach because that has worked out really well in other industries.Doug Lewin (39:55.982)Yeah, I think the only bearishness you’re probably hearing is just like, how are all these rules around SB 6 going to get worked out? There’s a lot of uncertainty. Is that going to kind of slow things down? But to your point, a 25% increase—we were like 400 terawatt hours four years ago. We’re probably going to be just short of 500 terawatt hours in 2025. Again, I think we need to think big, like, you know, maybe even doubling that number in a six to ten year kind of a horizon, but really managing that peak. If we get to where we’re double the peak, but not triple the consumption, then we’ve done something very wrong. All right. Maura, Hayden, Tom, Zach, thanks for being here. Please join me in thanking the panel for a great discussion.Thanks for tuning in to the Energy Capital Podcast. If you got something out of this conversation, please share the podcast with a friend, family member or colleague and subscribe to the newsletter at douglewin.com. That’s where you’ll find all the stories where I break down the biggest things happening in Texas energy, national energy policy, markets, technology, policy. It’s all there. You could also follow along on LinkedIn. You can find me there and on Twitter, Doug Lewin Energy, as well as YouTube, Doug Lewin Energy. Please follow me in all the places. Big thanks to Nathan Peavey, our producer, for making these episodes sound so crystal clear and good, and to Ari Lewin for writing the music. Until next time, please stay curious and stay engaged. Let’s keep building a better energy future. Thanks for listening. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.douglewin.com/subscribe

Watch the Conversation on YouTubeHeadlines warn that data centers are straining the Texas grid. The reality is more interesting: data centers — through their own flexibility and by supporting distributed flexibility markets — can strengthen the grid.I explored that topic and a lot more with Astrid Atkinson, CEO and co-founder of Camus Energy and former senior reliability engineer at Google. At Google, she led teams responsible for keeping the world’s search engine online, matching computing load to available capacity across continents. Her lessons from that experience translates well to the grid: reliability doesn’t come from scale alone. Reliability comes from flexibility and orchestration.Astrid calls it “grid orchestration” which means coordinating and optimizing both supply and demand in real time all the way down to homes and businesses, but starting with better data and better management of the distribution grid. We’re moving toward a more decentralized network of flexible resources: batteries, EVs, thermostats, and yes, data centers. We’re going to need a much smarter, much better orchestrated grid.Texas already has the raw material for this shift.Rooftop solar, batteries, and EVs are scaling faster than ever. We now have over 6 gigawatts of distributed resources in ERCOT, roughly the size of six large power plants.But they’re not well coordinated and that disorganized integration means we’re leaving cost savings and reliability benefits on the table. Part of the problem is that market signals aren’t flowing to distributed resources at a level near their actual value.That’s where data centers could potentially come in.If data center developers fund load flexibility, they could potentially put money into consumers’ pockets and increase their speed to interconnection. [D]ata centers fundamentally are not really budget constrained for getting these things built. They’re really time constrained. And so, I think in there is the opportunity to start thinking about off-market or kind of secondary market opportunities to get value for flexibility, both from the site itself, but also from you, me, batteries [and other DERs]… Astrid’s experience offers two key lessons for Texas:* Automation must be simple and local. The best systems don’t depend on constant central control. * The biggest savings aren’t in wholesale prices, they’re in avoided infrastructure. Flexible demand can defer costly upgrades to poles and wires, easing pressure on bills.We’re seeing movement in the right direction, ERCOT’s efforts to integrate distributed energy resources, electric cooperatives piloting new demand response tools, and increasing talk of creating distribution-level markets where buyers and sellers can trade flexibility directly.Texas has always led by embracing what’s next before anyone else believed it could work. This is the next frontier: flexibility, orchestration, and coordination of DERs.“There’s never been a more exciting time to work in this industry,” Astrid said. She’s right. We have the tools, the data, and the entrepreneurial spirit. What we need now is the will to connect them.The path forward isn’t about choosing between growth, affordability, and reliability. If we build smart, Texas can have it all.If this perspective resonates, share it with someone who cares about where Texas energy goes next and subscribe to stay part of that conversation.Watch the Interview Here:Timestamps:* 00:00 – Intro* 02:30 – Astrid’s background and Camus* 05:00 – Google reliability lessons* 06:30 – Texas load growth reality* 11:00 – Contracting flexibility, framing the problem* 12:30 – Internet-scale orchestration parallels* 14:30 – Major reliability event takeaways* 18:00 – What a flexible grid requires* 20:00 – Paying Texans for household flexibility* 27:30 – Visibility before control (DSO layer)* 31:30 – Intelligent automation, local control* 34:00 – Value is in avoided T&D spend* 38:00 – Co-ops and munis as testbeds* 46:30 – Edge markets and price signals* 56:30 – Bills down, capacity up, resilience* 58:30 – Closing thoughts Resources:Guest & Company* Astrid Atkinson (LinkedIn)* Camus Energy, (LinkedIn)Company & Industry News* “So What Does Camus Do Exactly?” (Camus Energy blog)* Camus wins Innovation Challenge Award at Data Center World (Camus Energy)* Access “Getting ahead of the EV tipping point” AES and Camus White Paper (Camus Energy)* Voltus “Bring Your Own Capacity” Announcement (Voltus)* ERCOT Selects GE Vernova to Help Drive Innovation in DERs Announcement (ERCOT)* ERCOT Grid Research, Innovation, and Transformation Announcement (ERCOT)* Community pressure mounts against CPS disconnection policy, rate structures (San Antonio Express News) * National Energy Assistance Directors Association. Energy Hardship Report.* Google’s new plan to keep its data centers from stressing the grid (Canary Media)* Texas law gives ERCOT authority to disconnect data centers in emergencies (Utility Dive)* Texas data center buildout, stranded-cost risks and planning challenges (Utility Dive)* MIT: Data center flexibility can cut costs, emissions vary by region (Utility Dive)Related Podcasts by Doug* How Load Flexibility Could Unlock Energy Abundance (with Tyler Norris)* Why the Old Utility Business Model Doesn’t Fit Anymore with Lynne Kiesling (Part 1)* AI, Outage Risks, and Market Opportunities with Lynne Kiesling (Part 2)* YouTube clip — Texas Grid Growth Depends on Data Center Flexibility: Related Substack Posts:* ERCOT and Texas Need a Different Kind of Growth * Demand-Side Resources Could Enable Load Growth* March 4, 2025: Data Centers, Nukes, VPPs, and MoreTranscript:Doug Lewin (00:05.356)Welcome to the Energy Capital Podcast. I’m your host, Doug Lewin. My guest this week is Astrid Atkinson. She is the CEO and co-founder of Camu Energy. The conversation was a really great one. We got into one of my favorite topics these days, which is how can data centers coming onto the grid actually increase the reliability of the grid and improve affordability for customers? So we talked a lot about data centers potentially actually creating funds to get demand reductions and demand flexibility in people’s homes and businesses that would put money back into their pockets while strengthening the grid, giving data centers speed to power. We talked about particularly the DSO model, distribution system operator model, and what that might mean in the United States. These are common in other parts of the world, but we really don’t have designated entities in the US that are DSOs. We talked about intelligent automation and how processes being automated can actually make it easier for human operators. The economics of DERs, distributed energy resources, so much of the value of DERs is the potential reduction in cost in the distribution system. Transmission distribution utilities have so many different investment opportunities, but how do you prioritize those to make sure that you are rate-basing the most important for reliability and expansion and all of the things that we need while also ensuring that where distributed energy resources might defer or even make unnecessary the need for additional investment that you are tapping those distributed resources. We even got into ERCOT’s demand response proposal, which is live right now at ERCOT, the ADER pilot in Texas. We covered a whole lot. Astrid is incredibly smart, brings a wealth of experience to this area and really enjoyed spending this hour with her. I hope you’ll enjoy it as well. Please like, rate, and review this wherever you listen to your podcast. Share it with friends, family, and colleagues. And thank you so much for listening.Astrid Atkinson, welcome to the Energy Capital Podcast. So excited to have you here. So excited to learn from you. You are a wealth of knowledge on so many of the issues I love to talk about and work on. Why don’t we just start, if you would, just tell the audience a little bit about yourself and Camu and also your background coming out of Google and how your work there kind of informed what you’re doing now.Astrid Atkinson (02:22.046)Hi, it’s great to be here. Yeah, absolutely. So I’m CEO and one of the co-founders for a company called Camu Energy. And we provide grid software primarily for grid operators, but also we work with folks that are developing assets that need to get connected to the grid as well. So thinking both about how we manage the grid, but also about how we plug people into it. My background prior to co-founding this company about six years ago was on the big tech side. I was at Google for a really formative period from about 2004 until I started the company in 2019. And that was a period of time during which Google and the tech industry went through a really massive period of growth and just a fundamental change in how we think about software, the role of software in the world, and also the physical infrastructure that we use to provide that. So I was really fortunate to be part of the original push towards data center scale computing and cloud scale computing when that was being invented. I was part of the team that helped build the internal cloud that powers all of Google’s public facing products today. And in particular, I spent the majority of my career there on a team called Site Reliability Engineering, which deals with basically the interface between physical and built infrastructure. So data centers, networks, et cetera, the computers and servers that actually do work for software systems, and then the software and data infrastructure that we use to operate and manage those. My team was responsible for about five years for Google’s public-facing web presence, Google’s homepage. If you went to google.com to see if your internet was working between about 2007 and 2012, I was running the pager-carrying team, carrying a pager myself, which was responsible for maintaining five nines of uptime for that service. And, you know, we’d get woken up at three in the morning if it went down. So really strong tie between like direct kind of hands-on operation, but also building the software and systems and data that made all of that possible on a distributed infrastructure of unreliable parts and thinking about the role of the network, the data center, computers, and also the software to make all of that go. So when we started Camu, a big part of the goal for that was to leverage some of what we had learned about running global scale distributed systems and put that to work and thinking about how we manage the grid. There are a lot of parallels.Doug Lewin (05:11.832)Yeah. I mean, first of all, Site Reliability Engineer, like, do you say that whenever you walk into a utility to meet with them? You’ve got to have like instant credibility because they feel seen, like you understand what their job number one is, right? You couldn’t have Google just like go down or crash. It had to stay up. And during that period, you’re looking at this kind of decentralization, right? Of infrastructure to actually, if I’m understanding right, to increase reliability, less sort of single points of failure, more distributed architecture for resiliency and reliability. It sounds a lot like what we’re dealing with on the grid.Astrid Atkinson (05:50.22)Yeah, absolutely. I will definitely say that the operations background has been really helpful when we talk to utilities. It’s actually part of the reason I was interested in working with utilities in the first place is that I really liked that part of my job, thinking about critical infrastructure, thinking about how you design systems in ways that can add complexity, but still also increase reliability and resilience. So that’s been actually one of the things I love most about working with utilities.Doug Lewin (06:16.034)So you guys are very focused on, if I’m understanding right, distribution grid, distribution side. Like how fast are we seeing distributed energy resources? I mean, that’s a lot of the work, right? Is this orchestration? Like what is the pace of change that you’re seeing out there?Astrid Atkinson (06:33.206)Yeah, well, I will firstly say that we have in the last year started doing a lot more work on the interface with the transmission side and transmission system change as well. And a big part of the reason for that is that we are seeing a tremendous pace of change and that’s coming from a bunch of different forces, but load growth is probably the most urgent piece of it.Doug Lewin (06:55.106)I’ve heard about that. It’s happening, right? Yeah.Astrid Atkinson (06:57.87)A lot of that’s coming in from the data center side. And that’s particularly interesting to me and to my team because we know data centers. Data centers are a friend of mine. We spent a lot of time thinking about how you build them, how you run them, how you build reliable systems on top of them. And probably upwards of 50% literally of my team’s time in any role that I held at Google was optimizing data center utilization so that Google could make the most possible practical use of their limited compute resources. So these questions around, you know, how do we get more power? How do we get more compute capacity? How do we do that really quickly? Were actually a really big part of my job on the tech side as well. And it’s been kind of fun and really interesting to see like those two worlds come together.Doug Lewin (07:56.91)Yeah. So we’re seeing big data center growth in Texas. I think the growth of what we’re seeing in distributed energy resources is a little slower, but still quite fast. We’re up to, as of the end of last year, the end of 2024 is the most recent data I believe I’ve seen. We were at like 6, 6.2 gigawatts, something like that. So obviously with a peak demand of like 85, it’s not quite 10%, but it’s, you know, it’s not nothing either. And the growth, particularly in the solar and battery sectors. Although distributed natural gas, as you’d imagine in Texas, right, a lot of like generators, particularly in Houston, growing pretty rapidly too. So we’re seeing all kinds of increase in distributed assets here. You work around the country and I believe even around the world, you’re from Australia, so you have a view there. Like, are we seeing kind of exponential kind of growth rates? Is this happening? And where are sort of the hotspots for DERs you’re seeing?Astrid Atkinson (08:52.694)I think the growth rate in the US obviously varies regionally depending on local incentives and kind of where the communities are at and those kinds of things. I would put the US on the lower end of DER growth relative to Australia being at the very kind of high end where in many parts of their market, they’re upwards of 50% of local capacity served from rooftop solar kind of at peak. Wow. The UK is sort of somewhere in between. They have really, I think, increasingly robust programs around leveraging flexibility, particularly thinking about using that to manage limited grid capacity. And then if you look at places like Europe, there’s a lot of quietly pragmatic innovation in thinking about how do you get big fleet charging sites connected to the grid? Well, of course you’d throw a battery in. And you don’t really hear that as part of the big conversation about like DERs. But even in our work in the US, in the last few years we’ve been increasingly focused on growth in the sort of larger end of the DER spectrum. Thinking about the role that flexible assets can play, not just thinking about like solar and rooftop solar and thermostats and those kinds of things. There’s definitely a place for demand side management. But starting to really look at whether there are opportunities to get more flexibility out of things like C&I solar or backup power, batteries that folks are putting in as part of the power portfolio, industrial sites, manufacturing, those kinds of things. Thinking about the role that really big flexible assets like data centers can play. And a big part of the reason for that is just that if you don’t actually focus on getting those things connected with flexibility, they just get plugged in as big dumb loads. We have a lot of issues with load growth. And every time we plug in a new industrial facility or site without contracting flexibility from the batteries that they also have on site for resilience purposes, like a butterfly loses its wings. Like God kicks a puppy.Doug Lewin (10:59.467)Yes, bad outcomes all around, yes.Astrid Atkinson (11:01.474)Yes. Yeah. Yes.Doug Lewin (11:02.989)So let’s talk for a minute. We’re definitely going to talk about data centers and orchestrating flexible loads and all that stuff. I want to start at a little bit of a higher level. And can you just describe, I’ve heard you use the phrase many times in past podcasts you’ve been on and conferences and things like that, talking about grid orchestration. This is a term I really love because we’re starting to see these very high penetrations of distributed energy resources, whether they be very large or very small, it does require some amount of orchestration. Can you talk about what that actually kind of means in practice?Astrid Atkinson (11:37.378)Yeah. So, you know, in its broadest sense, the idea of orchestration is the idea that there should be mechanisms for managing supply and demand in something like real time, used broadly at all levels of the grid. And so, you know, when we think about the mechanisms that we have for managing supply and demand on the transmission side, those are pretty mature and pretty robust. In a lot of ways, what an ISO is doing is basically orchestrating those things day ahead in real time to make sure that we’ve got reliable power supply.Doug Lewin (12:09.592)On the supply side.Astrid Atkinson (12:09.16)On the supply side, yes, treating demand as effectively like a constant. Yeah, okay. And so there’s been plenty of digital ink spilled on the idea that as we progress through the energy growth, energy transition, whatever you want to call it, adding controls on the demand side give us that much more optionality and flexibility in terms of how we solve that supply and demand matching problem. I want to give a little bit of perspective from my past work in this space, working at Google, because Google actually has incredibly robust systems for matching supply and demand in real time. And we actually started in a place very similar to where the grid is at today, where, believe it or not, demand was originally considered inflexible. It came in when it came in, usually result of people waking up, getting to work, using the internet, Googling stuff, and a lot of the system operation role was thinking about flexing supply to make it. We had some tools the grid doesn’t like, you know, computers don’t blow up if they’re underloaded, but they do crash if they’re overloaded. So you don’t have quite the same real time balancing problem that the electrical system has, but it’s not dissimilar either. It was like, if our hose of load is coming at you all the time, and then you have to think about orchestrating your resource mix, like this data center, that data center, like these server pools, these server pools to be able to meet that need. And if you get it wrong, the whole system crashes and then all your operators are really sad and you lose money. And so, you know, we kind of started in this place where demand was inflexible the same way that it is in the grid. And in order to meet the kind of scale and growth and system demand and load that we were seeing, which increased some probably 10,000 to a hundred thousand times over during the time I was working on these systems, we had to start thinking about moving away from a peak driven capacity planning model. This will sound really familiar.Doug Lewin (14:00.544)Yes.Astrid Atkinson (14:00.544)Where you’re thinking about N plus one, N plus two capacity for the service as a whole in every region, very statically provisioned. So like these servers might sit idle most of the time, but we need them for that like one day a year when demand goes up by like a hundred times for some, you know, Michael Jackson dying was actually really big. This is how long I’ve been doing this.Doug Lewin (14:28.91)2009, right? It was summer, summer 09, I believe.Astrid Atkinson (14:32.296)It was a big reliability event for us. And so the system is provisioned to that sort of peak, and plus two, so you could take a data center out for service, and you could tolerate a failure. And that was tremendously expensive. When I said that we spent a lot of my time optimizing server usage, a lot of it was about saying, hey, could we move away from the statically provisioned capacity model to one in which maybe we have some tools to flex demand? Maybe we could just shunt some of it off. Maybe we could shed some, maybe we could think about changing our capacity planning model so that we can distribute these statically shared resources today between multiple users. Maybe we can over-provision parts of the system. All of these things are going to sound really familiar to folks who work in the grid space.Doug Lewin (15:19.15)I mean, so, so, so familiar, right? Like, so many p-Astrid Atkinson (15:22.726)Yeah. And we had to do literally all of it. We did all those things I just described. We also moved a lot of resources to edge serving. So both what I think of as inner edge, which you could think of as being capacity and equivalent to capacity in substations. It’s still owned by Google, but it’s closer to where the user is. So you’re actually saving optimizing network capacity at that point that had to be done for video. And also third party edge, which you could think of as being like residential battery or something like that, where it’s like serving capacity that’s located off network, basically sacrificial capacity, but you can use it as a tool in different ways to kind of increase the steady state efficiency of the system. So we had to do a tremendous amount of work on this because of the volume of growth that we were seeing was so large that there was nothing to do other than get creative.Doug Lewin (16:14.72)I just love like in general the parallels between things that people aren’t necessarily connecting and actually there was the term, you know, implied parallel, but actually like connecting them. And that is just such a fascinating one because it really is so close when you talk about like static, what did you call it? Static capacity or something along those lines, like the move from that kind of static system to a much more dynamic distributed flexible system obviously is so, so close to a lot of the changes that we’re seeing. So I think one other thing I want to talk about and just kind of introduce to the audience, most of the audience will have heard this term, but I think it’s important to kind of define terms at the outset and something you’ve talked about a lot. Before, I do want to talk about data centers and their power needs much, much more, but there’s one more thing I want to talk about before that. You’ve written some papers on this on DSO, Distribution System Operator. Can you talk a little bit about what that concept is and how it’s relevant to the challenges that we’re looking at on the system? And then we can dive a little bit into sort of who in Texas is a DSO, but first, what is it?Astrid Atkinson (17:22.379)Yeah, so DSO is the idea of having a version of the system operator that applies at the distribution level. So, you know, there’s a few different models for what that could look like, but most typically we’d be talking about like the distribution utility taking on something more like a system operator role and probably optimizing locally for services within that grid, while also acting as part of a larger system is kind of the most typical version of that. You asked about definitions of orchestration. And so, you know, if the idea is to be able to have controls over supply on the one hand and demand on the other, and to be able to flex both of those intelligently against each other in real time and over time, which is the actual definition I’d give you of orchestration. You need an orchestrator, like something that can actually take an intelligent view of those system needs, and that needs to extend all the way into the distribution side because that’s where the demand is mostly connected. So if we think about what would it take to actually be able to flex demand in that broader system operator model, you’ve got to go to where the demand is. And that is in the distribution grid for the most part.Doug Lewin (18:29.388)Yeah, it’s interesting when I bring this up, you know, in like tweets or LinkedIn posts, I inevitably get some kind of reply that is along the lines of all this DER kind of stuff is just so complicated. We just need to build enough dispatchable generation and just have that meet load. Two problems with that. One, just as you were describing with Google, like when they were trying to do this for data center capacity, it is very, very expensive. And even for an entity trying to do this, Google.Astrid Atkinson (18:57.39)Tremendously expensive.Doug Lewin (18:58.698)Right. Even for an entity like Google, making a lot of money, obviously, like not terribly starved for cash. Like nobody wants to just waste money. That’s not right. Like we are supposed to be using, we’re supposed to have an efficient economy because that creates wealth, right? So A, it’s wasteful and inefficient. B, it is also in many important ways, not as reliable and resilient because again, you have more of kind of the single points of failure, which is one of the things that we saw during winter storm Uri is like a major problem on the gas system, gas plants freezing up, wind turbines freezing, like these big generators and big systems failing. If you had had more edge systems that could have continued to operate, particularly, and I think kind of in this, in some of the maybe, not first wave, probably already into a first or second or third wave, whatever, but in some of the early stages, making sure critical infrastructure, your hospitals, your police stations, your communications facilities and water treatment facilities all have those kinds of generating assets also makes the system more reliable and more resilient. But it is challenging, right? Because then you used to have a system where you kind of knew here’s where that generation is coming from. I can maybe not count on my hands, but like, you know, there’s like a hundred or 200 points and like, I know where they are and they’re telemetered and I know what’s going on at them. Now you’re talking about this world where there’s millions. So we don’t want to minimize the challenge, but if we do it right, if we get that orchestration piece right, we can have a lower cost, higher reliability system. Correct?Astrid Atkinson (20:33.838)Absolutely. And so firstly, I think it’s really important to keep that goal centered that we want a low cost, high reliability system. And so there’s going to be a bunch of choices about how we operate it that comes from that. But it’s certainly true that adding more local storage capacity that’s co-located with loads is a big way that we get that. I went through this myself. I’m in an area of California that saw a lot of power outages over the last number of years. We had one year that was so bad that we had 45 days of power outage between New Year’s and March 30th.Doug Lewin (21:07.982)You’re in PG&E service territory, right?Astrid Atkinson (21:09.97)I am. But it’s also a particularly challenging mountain region. And I will say, in PG&E’s favor, that the reliability profile has improved. But also, I own batteries now. Like many of my neighbors and many of your neighbors, one set of experiences with that kind of outage, even as a household, is enough to motivate investment in local storage. And when you look at that from the perspective of folks who have a real obligation to the community or there’s public infrastructure that’s dependent on having power, like water treatment facilities, emergency response, those kinds of things, they really kind of have an obligation to look at investing in those resilience capabilities. And so in some ways, yes, that makes the grid more complex. But on the other hand, that’s a complexity that we must embrace. But the good news is that if we think about it from a system design perspective that also provides us with all of these extra tools to think about increasing reliability for the system as a whole. So, you know, you sort of talked about the complexity of adding all this stuff, all these points of control. How do we think about managing them? One of the biggest things that we went through during that massive scaling period at Google was thinking about how to manage what we talked about as cognitive bandwidth for people building and operating the systems. Because if you’re going through, you know, adding hundreds, thousands, tens of thousands, millions of new like subservices, different components, I think we counted at some point that I had 10,000 different product teams that were customers of my shared infrastructure. The traditional way of scaling that and the place that we are in the utility industry today is to say like, look, we can add more operators maybe, but we can’t add them infinitely. Maybe we can put a halt to the complexity, but the only real way to cope with that is thinking about better tooling for the people building and operating within the system that manages that complexity down. And so there’s a really important critical role for intelligent automation within this system that is going to make it possible to deal with that kind of scale. You know, the scale that’s coming into the grid is significant, but it’s not the only place we’ve ever dealt with this problem, right? Like there are a lot of parallels to things we’ve dealt with within the kind of broader tech space. We have the technology. We don’t have the technology necessarily within the grid landscape today, but this is a tractable problem. We can get this done. But thinking about it from the perspective of managing that complexity so that human operators can continue to reason about the system and make good human decisions, I think is a really useful lens when we think about what kinds of solutions are most helpful.Doug Lewin (23:58.702)I think what you’re talking about and tell me if you were going in a different direction and I just missed it. But like, I think what you’re talking about effectively is like, effectively like using AI as a tool to make things better and in a sense, having some intelligence, you just said intelligent automation in the system, which is, I mean, there’s different ways of saying these things, but like, if you have AI that has sort of layered it, because again, you’ve got millions of little points. I think who knows if this is two years, five years, 10 years, 15 years away. But refrigerators with mini batteries, air conditioners are now starting to get sold with mini batteries in them. We’ve already got in Texas, and we’re way behind other states on EV adoption. Though EV adoption is happening here at a fairly good clip. I think we’re up to 400,000 vehicles, which is probably something like 25 gigawatt hours of batteries rolling around on four wheels in the state of Texas. To coordinate and orchestrate all that stuff basically needs to be done in an automated way enhanced by artificial intelligence with some human. Okay, go ahead. Yes, please correct me.Astrid Atkinson (25:07.84)So I actually want to put a pretty heavy caveat on the role of actual AI in the sense that people are thinking about it when they talk about that today in appropriately intelligent automation. And the big reason that the AI technologies that are literally really exciting people at the moment and driving a lot of this like load growth and the people think about when you say AI really mostly LLMs, they’re large language models. There’s a lot of things that people mean when they say AI.Doug Lewin (25:37.026)True.Astrid Atkinson (25:37.026)LLMs are not particularly useful for these types of operational problems because they make s**t up. Sorry, you might have to edit that. They make things up. So when I talk about intelligent automation, what I really mean is intelligent in the sense of intelligently applied.Doug Lewin (25:57.39)Okay.Astrid Atkinson (25:57.39)There is definitely a role for AI technologies. Some of them are very boring. Things like really effective forecasting, really benefits from AI technologies, right? For sure. Complex system modeling and anything that really requires complex pattern recognition is a really good candidate for having AI applied to produce much better results. And these are all critical inputs to operating these more complicated systems effectively. There’s also a really important role for applying intelligently considered system design in the sense that you can add relatively simple local automation that makes the big problem a lot easier. So for example, the challenge of building a centrally managed, centrally monitored, centrally controlled orchestration system that both manages transmission system capacity and your fridge, a very big one.Doug Lewin (26:36.224)Yes.Astrid Atkinson (26:36.224)Like that’s not something that’s easy to sort of do well in one central system. But if you take a slightly different view on that and say like, hey, maybe the fridge’s job is managing the fridge. Maybe what we need to do is give that fridge enough inputs just to know like, is there going to be a storm such that you need to charge your battery ahead of time instead of like operating in a steady state, just like charge and discharge. Now the job of the fridge is handled. You know, likewise household level controller can apply to that and can respond to that sort of signal. But if it’s cut off from the central brain, the house will just do the right thing in that case. And again, a lot of parallels to the way that we thought about this in terms of like data center scale computing. Like if a Google data center is cut off from the herd, it can continue to operate in steady state without access to the central brain. By doing the last sensible set of, you know, the last set of instructions that it got, which it gets periodically around how to distribute and serve load is usually safe to operate on in a steady state under most circumstances for most services. And most disruptions are relatively short. It can rejoin the herd later and go do the right thing again. And so when we think about designing control systems, thinking about layers of abstraction. This gets back to your question in a moment of who takes the role of system operator and what does that look like? It becomes really important because you can make this problem a lot simpler by taking kind of a layer cake view of it, right? Like your fridge battery manages your fridge, your house battery or control system manages your house. Perhaps your distribution system operator’s control system manages the distribution system and does things like intelligent load shedding in emergency conditions, manages things like charging and then dispatching localized battery, manages things like optimizing within local areas of the grid to maintain efficiency under most conditions, but then drop some stuff off if we really need that capacity back for a peak. Those ideas that are really human ideas actually, around like layers of abstraction and managing complexity, are going to be a really big part of that future system. Our AI LLM friends will have important small roles to play. But I think it’s useful to think about the system design piece first and then where you apply those technologies second when we think about the role they’ll play.Doug Lewin (29:09.102)No, no, that makes a lot of sense. And really, there’s different technologies that are going to be brought to bear, kind of a little bit on the different sides of the meter, I suppose. And is it fair to say you guys at Camu are much more focused on kind of the distribution utility side of the meter? There really isn’t. Yeah, I mean, I honestly, I think both sides need more focus. It makes a lot of sense to pick a focus and you could obviously do a lot worse than focusing on the distribution system, which seems to be behind a little bit. I mean, we’ve seen this, right? I mean, that was one of the biggest problems with Winter Storm Uri. You talk about intelligent load shedding. There was no, I mean, no is too strong a word, but it wasn’t very intelligent the way it happened, right? I think it’s fair to say.Astrid Atkinson (29:33.112)But yeah.Astrid Atkinson (29:50.679)Not very.Astrid Atkinson (29:56.962)I think we’ve all learned a lot from recent emergencies, whether it’s wildfires in California or Winter Storm Uri around the need for better tools for this.Doug Lewin (30:06.882)Yeah, and basically if you’re doing like a hierarchy of need, like the fridge battery is a cool concept, but like getting like load shedding on the distribution system right, that like people aren’t dying because they’re freezing in their homes is higher on Maslow’s hierarchy, you know, or however you want to say that. Okay, great. So I do want to talk about AI. You’ve been kind of teeing this up the whole time and like sort of large loads, how those are playing in sort of grid management and some of the opportunities that come from that. So let’s just start there, just start talking about what you see as the opportunities there. I have some ideas I want to bounce off you, but rather than lead the witness, why don’t you start with what your ideas are top of your head. Yeah.Astrid Atkinson (30:48.736)Yeah, well, you know, we started our company with a real focus on orchestration within the distribution environment. So thinking about orchestrating those end user resources, whether that’s thermostats or batteries or, you know, EV charging or whatever. And I think there’s a really important role that that’s going to play. You know, I mentioned the importance from a system design perspective of having levers of control on load. But one thing that makes it really hard in the market today is that the economics are just really not exactly there in most utility markets and regions to actually be able to pay for those flexibility services in a way that incents their creation, maintenance, and growth at very large scale. Most regions will have some sort of demand response program. It kind of pays for you to flex like two to 10 times a year. That is actually a really big help to the grid. But it doesn’t really provide the sort of financial incentive that you would need to get like everybody signed up, nor does it really provide like opportunities for system optimization that would allow the kind of really rich set of control points and kind of efficiencies of scale that let you do things like optimize substation utilization by, you know, turning all the knobs. That’s been like an industry goal for so long and we’re just not there. And a big part of the reason for that is that the economics aren’t there either. We’ve done this analysis with a few different utilities, but we published a white paper with AES a couple of years ago, their Indiana utility, basically analyzing the long-term impact of load growth as a result of electrification, particularly EV adoption in their case, in terms of the time to upgrade for every single component on the grid driven by potential EV load growth. Like when would you have to upgrade the conductor, the transformer, the substation, et cetera, for every component with the intention of effectively quantifying like, okay, well, if you could manage the growth, could you avoid the upgrades? How long and what would you save if you did? And that was really intended to kind of get at this core question about like, what is the value of flexibility? And is there more out there than we can reach through demand response type programs today? And what we found in that analysis was that about three quarters of the value of demand flexibility is locked up in basically capital deferral. There is a tremendous amount of value in being able to manage load growth, even down to the very edges of the distribution system, in terms of not having to update every transformer over the next five years, if you can manage those additions. And that’s cool. That could inform different programs that potentially incent people to participate in VPPs, demand flexibility programs, all of those sorts of things. But boy, we’re just like nowhere close to being able to do that in most utilities today. Like this is a pipe dream as it stands for most utilities today. There’s not a regulatory structure that really supports that kind of incentive. So we’re sort of stuck with this place where it’s like, okay, you can pay like pennies for demand response and then you have to pay something to the software provider and then to the VPP operator and then back to the people who participate. And it’s just like not there. And this is all a long way of saying that if you could figure out how to unlock the value that that flexibility provides from a poles and wires perspective, you actually might be able to use it in the way that it could be used. And so this is where I think the data center boom and large load additions are really interesting. And this is like kind of a long way around to that.Doug Lewin (34:29.214)So worth it.Doug Lewin (34:29.565)It is so worth the journey. Take your time. The beauty of podcasts. We’re in no hurry, Astrid.Astrid Atkinson (34:36.022)Yeah, so we simultaneously have this situation arising where suddenly a lot of people want to build a lot of data centers. And our ability to meet that need, both from an overall power supply perspective, but also from a like, poles and wires, and every part of the system perspective, it’s not yet clear how we’re going to do that. But asking those loads themselves to be flexible certainly gives us more optionality. And you’ve had a couple of recent podcast guests talk about different ways that flexibility can be an unlock for being able to add those resources more cost efficiently from a network perspective as well as from a capacity perspective, open the door to oversubscription on both sides, those kinds of things. And there’s also an incentive on the data center side, they want to get connected quickly. When I worked at Google, the reason that we were doing all that optimization for data centers was not because Google wanted to save money on building new data centers. It was because we literally couldn’t build enough quickly enough to meet Google’s organic load growth demand. Like there was no other way to scale Google services than becoming more efficient. And what we’re seeing playing out in the market now is that suddenly data centers are willing to consider flexibility. They’re like, hey, if I could flex, could I get connected sooner? And that conversation is starting to play out, especially in Texas.Doug Lewin (35:57.228)Yes.Astrid Atkinson (35:57.228)I think what ERCOT is doing on this is really, and the Texas legislature is doing on this is really interesting. But it’s also just really being driven by business need from the data center. But it’s tricky because the reason they want to build that capacity, same as back in the day, Google wanted that capacity, is so they can run their business. And the opportunity cost of not having that capacity available is very, very, very high. We estimate that it’s on the order of $7 billion a year for a gigawatt-sized site for a hyperscaler. And that applies both to delays in building, but also it does kind of apply to not using the site once built. So there’s this opportunity that data centers have maybe to get connected more quickly by providing flexibility, especially at the site and getting creative about the ways that they power that, whether that’s local generation, on-site storage, flexing within data centers to load those kinds of things. But I think there’s also a really interesting opportunity to leverage other kinds of flexibility. So we started to see this emerge. There was an announcement just this week from Voltus and Cloverleaf that they’re put together a third-party VPP program to provide flexibility basically alongside, but entirely separately from the data center itself to start offsetting some of that load. And I think that’s really interesting because data centers fundamentally are not really budget constrained for getting these things built. They’re really time constrained. And so like, I think in there is the opportunity to start thinking about like off market or kind of secondary market opportunities to get value for flexibility, both from the site itself, but also from, you know, you, me, my battery or your fridge, which I think is really new and interesting.Doug Lewin (37:41.27)So, so interesting. So many different questions based on that one. But I think one of the things I’m thinking about is, you said like off market or secondary market. I am generally obsessed with markets, but I’m now in a particularly obsessive moment about markets, largely because of the podcast I recorded with Lynn Kiesling and then her recommendation to read. Well, I think I brought it up as she recommended I read it, this Hayek biography and looking at like, you know, the time that he was sort of forming his economic theories in the thirties were like, everybody was into central planning. I didn’t realize until I read this book, like how much like Western Europe was like central planning is the thing. And again, like interesting parallels and connections to be made to what’s going on on the grid right now. And obviously you need some planning of a grid, particularly when you’re talking about things like high voltage lines and things like that. But there’s so much of this that could be done through markets. So one thing Astrid that’s going on right now that I think is a very interesting connection to what you’re talking about, literally today, the day we’re recording, October the 3rd, there was a meeting I haven’t listened to yet, but I will soon, the Wholesale Market Subcommittee at ERCOT was discussing a proposal that ERCOT put forward for residential demand response. And the way they did it was they said, we’re going to, we just want to pay $140 a kilowatt year for 500 megawatts. Now $140 a kilowatt year, right? Most houses have about a kilowatt of demand flex from their thermostat, maybe from one or two other things. Maybe it’s a kilowatt and a half, but that’s $140 per year that then the load serving entity has to somehow share with the customer. So that’s probably going to come down to $50 or $70 if it’s halfway, right? Then that’s 70 bucks for a customer to have their air conditioning cycle. That’s not per month, that’s per year. I’m talking about like five, six bucks a month. Like, I just don’t think that many people are actually gonna say, I don’t wanna be pessimistic. I wanna be real clear. I’m being careful to say this whenever I talk about this. I give a ton of credit to ERCOT for recognizing residential demand response, residential demand flexibility. These things are important. And that’s great. They made a really important first step there. But I think part of the problem they’re having Astrid, and frankly, I think they’re having this on the aggregated distributed energy resource pilot we have as well, which is a pilot to get stationary batteries in folks’ garages into the ancillary service market. Well, the ancillary service market is a tiny sliver of the overall market. So when I hear you say three quarters of the value from this AES study were in capital deferrals. Like if we can’t get after that part, if all we’re dealing with is the energy portion and the ancillary service portion, well in Texas, distribution rates, if they aren’t already half or a little more than half of the bill, they will be very shortly, right? The energy portion of the bill keeps dropping largely because of renewables, but also because of low cost gas. There’s obviously a multitude of factors and T&D keeps going up. So that’s just a long way. You gave a long answer. I’m asking a very long question, but basically I think the question is like, how do we get to that? And how do we get to the point where there is a price signal for the value that these distributed resources, whether they be on site with a data center or whether they be in this kind of secondary market, but that it is a market where somebody isn’t just picking a flat number per kilowatt year and a flat number of megawatts. There could be many times that number of megawatts available at a much lower rate, but we wouldn’t know it because they’re not really setting it up as a market. And this stuff is hard. I don’t expect you to have an answer to this, but I just wanted to kind of explore it more and unpack it more, because I think everybody’s trying to figure this out, including ERCOT.Astrid Atkinson (41:29.708)Yeah, I’d give maybe just like kind of a two part answer to your question, which is to say that there’s sort of a practical and technical component to this, which is like, is there an entity that wants to take on the problem of potentially forming such a market or incenting retail level participation in the broader optimization of the system in this way? And so that’s kind of one piece of it. And from that perspective, it’s actually really cool to see ERCOT moving quite seriously in that direction.Doug Lewin (41:58.316)Yes.Astrid Atkinson (41:58.316)There was an announcement just this week also that they recently did a procurement for software capabilities for real-time monitoring for DERs across the state. And I will tell you that from my operations background, visibility should always come before control. So I think that was something that we’ve been tracking for a while. We actually participated in that bid, although sadly we didn’t win it. But I think that definitely demonstrates concrete commitment from ERCOT to start really thinking about putting in place mechanisms that could answer the second part of your question, which is, could we actually use a market instead of these fixed incentives that we’re stuck with today? And I think this is where the potential role of the data centers comes in, because the market has two sides. The reason that construct that you just mentioned is kind of unappealing is because they’re not paying very much. When it’s hot and I’m running my air conditioner. I have to admit that having a smart thermostat and also not being entirely clear at various points with different programs going on, like what programs I might be signed up into, every time it’s a little warm in my house, I’m like, is Google turning down my thermostat? Even though I worked at Google and I know they’re probably not, except maybe by accident. So that problem of thinking about like, what would you actually have to pay for people to be willing and excited to participate in these programs is a very real starting place. And I think today that price is nowhere near being realized.Doug Lewin (43:30.254)That’s my sense, yeah.Astrid Atkinson (43:30.254)But, you know, markets typically do have two sides. Like, what would a hyperscaler bid to be able to, in the broader sense, potentially connect a load that otherwise would have to wait five to seven years because they’re buying gas turbine parts or waiting for a large transmission system build out or something like that. We know that in some cases, folks are willing to think about flexing their own loads, but a lot of data centers will also say that that’s not really feasible for them. Although I think the rise of co-locating generation assets or flexibility provides tools even for the folks who don’t feel like they can turn down loads. But there’s kind of a toolbox of mechanisms of flexibility where maybe data centers are willing to really self-manage this within their own site. But maybe they prefer to just worry about their own stuff and pay somebody else to reduce their load. And that’s where it’s not exactly getting to that capital deferral value of flexibility.Doug Lewin (44:32.17)We still gotta figure that part out.Astrid Atkinson (44:32.17)Part of the value stack. Maybe a new part of the value stack. But what you really have is this ability to turn opportunity cost into perhaps a direct-to-consumer payment. If you had the data center bid into the other side of that and be like, look, I’m willing to offer $500 for someone to flex a kilowatt year at this moment, now that’s more like a market. And I think that’s really interesting.Doug Lewin (44:58.262)I love this for so many reasons. I mean, number one, you know, affordability is a big, big, big deal, right? I mean, Texas has fairly low rates, though our bills, just as a function of it being so hot, so many days of the year, even with low rates, our bills are quite high. And we are seeing, there was an article, I’ll put it in the show notes so that if I get it wrong, people can look up exactly what it is and I’ll put it in there that I was wrong if I was wrong. But I think it was something like, I think it was earlier this year, CPS Energy in San Antonio said something like one out of six of their customers was in arrears.Astrid Atkinson (45:26.55)Yeah.Doug Lewin (45:26.55)And that is not uncommon, right? NASUCA, the state utility advocates organization had some similar numbers out last year. There’s a real problem. And you have a system in Texas, it’s different everywhere, but in Texas, you can really reduce your bills by moving your load around the four coincident peaks. And that’s probably going to change. But there’s also emergency response service. There’s all these different ways that large users, Bitcoin mines, big industrial manufacturers, data centers can reduce their bills. There’s a very small amount of residential opportunity there. So this would create that. This would help put money into people’s pockets, help the data centers, especially those that for whatever reason can’t really move their load around or markets or what’s that?Astrid Atkinson (46:17.484)Who care about affordability.Astrid Atkinson (46:20.218)There’s an argument being made for actually caring about affordability and overall system costs as well.Doug Lewin (46:25.408)Absolutely. And this is what markets are for, right? If you’re a data center developer and you’re like, okay, I’m going to put all this backup gen and storage and all this stuff on site. But if the next increment of that costs more than whatever this other distributed market is, and this other distributed market’s putting money back into the pockets of people living in this state, and I know I need public support to be able to build these data centers, it just kind of one of those, one of those sort of like stereotypical win-win-win-wins. I do want to talk about the capital deferral part, but anything else you want to say about that before I go there?Astrid Atkinson (47:01.678)Well, yes, actually, I would say that some of this is kind of speculative and forward looking, but the thing that I like about it is that there is a lot of motivation to get stuff done quickly in this space. And that’s a little bit unique in the sorts of changes that we’ve been managing in the grid and kind of power industry more broadly. We’ve been talking about local markets for forever, but they haven’t been strongly incented. And I think the thing that is potentially a little bit different about this moment is that there is a tremendous sense of urgency from those large loads. And so, you know, it’s a multi-part problem and a multi-part solution, but starting to really kind of socialize and fix the idea that like flexibility requirements when they connect and flexibility opportunities to connect more quickly could unlock a lot of good is a really helpful thing to have in people’s heads.Doug Lewin (47:50.036)Absolutely. And so let’s just extend that for just a minute to the distribution grid. Like you said, markets have to have like a buyer and a seller. So in the example you’re giving there, the data centers could be the purchaser, could be the sort of counterparty. What I’m thinking about on the distribution side is starting to get to a system where, and this has been talked about a little bit at the legislature, particularly post-Beryl, where there were some discussions around like performance-based regulation and aligning the financial interest of utilities with the financial interests of their customers, of having the Public Utility Commission, maybe with some assistance from ERCOT as they’re getting this, you know, their GE Vernova comes on and starts looking at, you know, getting them visibility into distributed energy resources, is to be able to stack up, like, what are the different investments you’re making on the distribution grid? To be very clear, distribution utility is still going to make a lot of money. Like the investor-owned utility is still going to, there’s so much investment needed here. We’re not having a death spiral discussion right now. Right? Like it’s not, it’s like, it’s not going to happen. Like the grid needs a lot of investment. Utilities are not starved for investment opportunities, but there could be some of those that could be obviated, deferred or obviated by smart orchestration of distributed resources. So maybe in that sense, you know, the PUC and ERCOT working with the utilities are identifying a couple of projects that look because of that visibility, they’re getting into the distribution grid. Like these are really high potential to have distributed energy resources meet the need. Thus, you’re not socializing the cost of tens or hundreds of millions of dollars. Instead, private capital is going in to pay for resources at people’s homes and businesses. It isn’t socialized to the whole system. So that’s preferable. And then there actually is some payment from the distribution utilities because while that is a payment, that payment would be socialized and rate-based. It could be far less than what they were gonna spend otherwise. And we know what that amount, we know what they’re gonna spend. Like that is a knowable, right? It’s an empirical matter. They’re going to recover it in rates. I don’t know. Could that work or is that just too complicated?Astrid Atkinson (50:01.998)Yeah, I think it could. So a couple of things on that. Firstly, local utilities or distribution utilities or all utilities, you know, they do have their own set of incentives for how they make a profit, you know, really focusing around capital expenditure and rate of return on that. And so, you know, on one of your previous episodes, Lynn Kiesling was talking about, you know, the alternate perspective of perhaps like a rate cap or usually referred to as a totex model, where instead of looking at just like CapEx, you’re actually looking at the whole cost structure for the utility and thinking about, you know, look, it’s the utility’s business to optimize between like operating expense versus like build out or whatever. You just have to, you know, basically provide a good service and, you know, we’ll think about the overall rate of return being a function of all of those things, which I think is very useful. But I don’t think we necessarily have to change everything about how we regulate utilities for there to be a really good case for things like investing in alternatives to physical infrastructure upgrades. The way that we like to think about this is not exactly capital deferral, but rather capital efficiency. So utilities don’t really have a shortage of opportunities to do upgrades at this point. To some degree, their business structure encourages them to do upgrades. What they have is more like a target rich environment that’s starting to cause issues with affordability, right? It’s like, there’s only so much you can pass along to ratepayers, reasonably speaking. And utilities now need to be increasingly careful about making sure that where they’re investing, it’s in places that have kind of the most public good or benefit the broader set of ratepayers. And so that does, I think, create inherent incentives to start thinking about ways to optimize, especially the very edges of the grid. And so I think it does create some incentives around things like managing edge resources and taking advantage of technology management stuff to think about how we can defer or even completely avoid local upgrades through more efficient edge management. And I think there’s a lot to be done there. What I will say is that a bigger blocker in my mind than the regulatory structure to doing this today is actually the current state of software and data capabilities within utilities. And now I’m a little biased on this because I run a company that provides software and data capabilities.Doug Lewin (52:25.71)I was just going to say we’re right back into your wheelhouse. So I see what you did there. No, but you’re right. It actually is a real issue. You can’t do this kind of thing without that really strong.Astrid Atkinson (52:35.138)Right.Astrid Atkinson (52:35.768)And most utilities today don’t have the data capabilities that they would need to be able to say, on a really robust and ongoing basis, this is exactly what we expect to spend on every piece. These are the potential efficiencies. This is the counterfactual if you managed it. And even looking at it on more of a kind of operations basis and thinking about moving towards a DSO, most utilities don’t have the ability to see even really what’s happening with rooftop solar, let alone kind of all the things that are getting plugged in. And the state of the art from a software perspective in the industry is not great. Most of these systems are coming from large legacy providers. They’re mostly running on-prem, even where they’re not. You know, they don’t really have the same kinds of scale and kind of robust large system capabilities that certainly we relied on when I was running large systems at Google and every equivalent provider does. When I was an operator at Google, I could see every one of the hundreds of thousands to millions of machines that were forming the collective fleet that were serving all of my web search requests. If we had a local outage, I’d get notified right away. I could drop into any single server and take a look at it. But I also had really robust tools to do things like analyze the flows of traffic across different parts of the network to drop into high performance analytics tools and say, there’s a pattern of outages here that are causing this system problem where this area has blinked out. Those kinds of capability, we are in the stone age in terms of what’s available to grid operators today to do those kinds of things. And I really think that without those capabilities, it’s very hard to envision a more dynamic way of managing like real physical reliability considerations like blowing up transformers, right? To trust software to not blow up a transformer is a really big change in the way that utilities do things. And it’s true that changing their regulatory structure to allow them to pay for software would be nice because that’s typically on the opex side today, which is not part of the rate base.Doug Lewin (54:50.444)Yeah, to put a finer point on that, like today, if they just take the transformer out and put a bigger transformer in or just add a second or third or fourth transformer, whatever it is, they’re getting 9%, 10%, 11% on every dollar they spend. If they go through all this trouble to upgrade their data systems and figure out exactly how these distributed energy resources are working and maybe even bring a few more onto the grid so that then they don’t need the transformers, congratulations, now you don’t get paid.Astrid Atkinson (55:18.466)Yep. Like even for a utility that absolutely wants to bring really intelligent solutions to saving money for ratepayers, that is a structural disincentive. That’s a real problem.Doug Lewin (55:28.938)Yes.Doug Lewin (55:28.938)So just one last thing on this, and I know we’re nearly out of time, but I think this is really important in the Texas context. So Texas is mostly a competitive market with monopoly, fully regulated transmission distribution utilities. Most of the conversation we’ve just had is sort of about that world, but also 25% of Texans or so are served by municipal utilities or co-ops. That’s not a small number of people. It’s like whatever, six, seven million people in the state. How does this look for those folks? Those are basically like vertically integrated, not exactly because there’s G&Ts and retail only co-ops and stuff like that. But basically in some ways it should be simpler, maybe not easier for all the reasons you just said, because the data is far behind and all of those issues. But at least in the sense that like, if you’re a CPS Energy, like you own generation, you own the poles and wires, you have the customer relationship. So with the huge caveat, you got to do a lot of work with data. Like you should be able to create a virtual power plant type of a thing within your service territory to save money on transmission distribution, save money on generation, put money back into your customer’s pockets, free up capacity so that then you can bring data centers into your service territory. What am I missing there and how are you thinking about that in Texas? And also just as part of that, I think you are doing work with a co-op in Texas. So it’d be interesting to hear about that before we end.Astrid Atkinson (56:53.142)Yeah, we currently do do some work with a co-op in Texas in the Dallas area. And so I think the situation for co-ops and munis is in some ways really rich with opportunity and in some other ways, I think really difficult. We’ve done quite a bit of work with co-ops. We kind of got our start working in that part of the market because they actually do have quite a bit of flexibility because they are vertically integrated and also because they have a very unambiguous charter within their community, they’re nonprofits, a lot of what they do is really directly tied to service to their member owners. And they have both the tools and the obligation to keep rates low within thatSo, you know, the things that they don’t have, they are typically really resource strapped. They’re usually small organizations. They don’t have a lot of time and usually, you know, functions that would have a 50 person team in a large utility might have like a fraction of a person’s time in a co-op. So it’s hard for them to take on challenges that are really resource intensive. On the other hand, we loved working and continue to work with folks in the co-op sector because if you can actually go in and help them out with the heavy lift of moving data around and getting it assembled and stitching over gaps and all of those kinds of things, they have all the same data sources and many of the same challenges that larger utilities do. And they can sometimes move a lot more quickly. Part of the thing that was great about us starting our work with co-ops is that we developed really robust capabilities for doing things like stitching together data sets. And we actually used a lot of like kind of small AI to fill in gaps within data and all of those kinds of things that helped us out a lot as we’ve begun working with larger utilities as well. The thing that’s really, I think, difficult for co-ops is that they can end up with the short end of the stick in situations where there’s a lot of risk or a lot of money moving around. And particularly like Winter Storm Uri put some of the Texas co-ops into situations where they basically went bankrupt because they-Doug Lewin (58:47.924)Yeah.Astrid Atkinson (58:47.924)Because they had contract structures in place that obligated them to pay for power that maybe wasn’t even necessarily available to provide service. And it’s a very complex situation, but they are not necessarily in a really fantastic position to benefit from the efficiencies of scale of things like the ERCOT market, but are sometimes in a situation where they end up bearing some of the costs. And we saw those impacts from Uri radiate up into Colorado and over into Arizona with gas shortages and price spikes and kind of all of the above. I think they’ve got their own challenges, but what is fantastic about co-ops is they’re very responsive to customer needs. And so, you know, that can show up in innovation and affordability. That can also show up in innovation and thinking about like how to bring on a large load that you could help offset like costs for everybody else on the system, maybe help that large load get connected more quickly. So I think we’re still going to continue to see a lot of innovation, perhaps disproportionately on the co-op side. There’s a lot of them and they could try different things, but I also think they’re managing, you know, some really significant increasing challenges around system costs as well that have to be balanced there.Doug Lewin (01:00:20.788)That makes sense. And I think it also speaks to why it might make more sense to have these distributed markets either linked to each other somehow or have like a broader market because you could get a data center going to a co-op territory and you could get some residential or just distributed demand side reductions in that service territory, but it also may not have that large of a load period. So like even if you offset 100% of the load, it might only be 100 or 200 megawatts. Like...Astrid Atkinson (01:00:48.398)Honestly, the data centers that we’re talking about dwarf most of the co-ops that I’ve worked with in terms of overall load.Doug Lewin (01:00:54.158)Right. So we need to make sure that those folks, if there is some kind of market, this distributed market, they have a chance to participate and lower their bills, period. And there might be others as well.Astrid Atkinson (01:01:05.614)Absolutely. And so this is where I think ERCOT has a really unique position.Doug Lewin (01:01:05.614)Yes.Astrid Atkinson (01:01:05.614)Because they are in a good position to do something like that.Doug Lewin (01:01:14.326)And they did, and we’ll put a link in the show notes announced just days before we recorded this, not only the data piece you talked about, but the launch of their, it’s called GRIT. I forget what the acronym is, but it’s innovations and they’re like research and innovation technology, something like that. And DERs were like, it was one of the first two or three things on their list of things they really want to get into. So I do think this is a really, really fruitful area. And we’re going to see a lot of growth, a lot of dynamism in, I think. Astrid, you’ll be at the center of it. Your thought leadership on this, the leadership of your company, I think is really interesting and I’m looking forward to keeping in touch with you and learning more about the company as it grows. Before we end, is there anything that I should have asked you that I didn’t or anything else that you’d just like to say in closing?Astrid Atkinson (01:02:00.29)I think it’s a really interesting time in the industry today, and I think we’re likely to see a lot of changes in the next couple of years. You know, there’s really, I think, never been a more exciting time to be working in this industry. I’m really happy to be part of the conversation. Thanks for having me on the show. I really appreciate it.Doug Lewin (01:02:16.844)Yep, thanks for all you do, Astrid. Appreciate you.Astrid Atkinson (01:02:19.832)Thank you.Doug Lewin (01:02:22.392)Thanks for tuning in to the Energy Capital Podcast. If you got something out of this conversation, please share the podcast with a friend, family member or colleague and subscribe to the newsletter at douglewin.com. That’s where you’ll find all the stories where I break down the biggest things happening in Texas energy, national energy policy, markets, technology policy. It’s all there. You can also follow along at LinkedIn. You can find me there and at Twitter, Doug Lewin Energy, as well as YouTube, Doug Lewin Energy. Please follow me in all the places. Big thanks to Nathan Peavey, our producer, for making these episodes sound so crystal clear and good, and to Ari Lewin for writing the music. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.douglewin.com/subscribe

The federal 30% solar tax credit has driven demand for solar but it’s about to expire. And when it does, some worry the bottom will fall out of the market. But what’s actually emerging looks less like a collapse and more like a shift which could lead to bigger growth down the road.In this episode, Bret Biggart, CEO of Freedom Solar, offers a grounded look at how a major Texas-based installer is adapting in these uncertain times. Freedom Solar began in Austin and now operates across Texas, one of the fastest-growing residential markets in the country.The Texas Energy and Power Newsletter is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.Biggart notes that while the tax credit’s end will make sales more difficult, other forces like rising power prices and better financing tools are keeping solar within reach. New third-party ownership models are allowing companies to use commercial incentives to maintain homeowner savings, smoothing out the post-credit transition.That’s not the only shift underway. Consumer protection has become a growing focus for regulators after years of aggressive door-to-door sales and subcontracting issues. A recent Texas bill aims to bring more transparency to the process, ensuring buyers know who is selling, installing, and servicing their system. The Texas Legislature also made it easier to build with faster permitting. And storage is quickly moving from luxury to standard: 67% of Texans get storage with solar from Bret’s company now. The number is 90% in Houston. Freedom Solar is also expanding into efficient HVAC systems like heat pumps, which cut energy use and increase comfort.There are still challenges ahead. Equipment costs, tariffs, and permitting inconsistencies remain barriers and the ending of the tax credit is an undeniable headwind. But after Winter Storm Uri and Hurricane Beryl, Texans put a high value on resilience and the flexibility of distributed systems has massive value for the grid. Even as incentives fade, technology keeps improving, and Texans want reliable, resilient, and affordable power.That’s what this moment represents, not the end of the solar story, but its maturation.If you found this perspective useful, share it with a neighbor and subscribe for more grounded insights on Texas energy and policy each week.Timestamps* 00:00 – Introduction* 01:45 – Guest intro and background, origin of Freedom Solar* 05:00 – Importance of in-house salespeople and customer-first processes* 07:30 – Impacts of federal budget bill, end of tax credits* 11:00 – Long term implications for solar, rethinking the business * 13:30 – Third party ownership, pre-pay PPAs and other structures to lower costs* 17:30 – Transferring solar and solar payments when selling a house* 20:00 – Consumer protections and stopping bad sales practices* 25:00 – Some Texas bills that make it easier to build and install solar + storage, problems with implementation* 31:00 – Attachment rates of storage is up to 67% statewide and 90% in Houston * 33:30 – An integrated demand side: solar + storage + heat pumps* 39:30 – Difficulties for customers trying to get heat pumps* 43:30 – Heat pump cost differential from minimum performance HVAC* 46:30 – Supply chain, tariffs, domestic content* 51:00 – Two main variables for solar economics: cost to install and cost of electricity * 53:00 – The value of resilience* 56:00 – ClosingResourcesGuest & Company• Bret Biggart - LinkedIn• Freedom Solar Power + LinkedInReferenced During the Show• Solar legislation passed in Texas’s 89th Session (summary)• New law cuts red tape for rooftop solar and batteries (SB 1202) + Bill Text• TDLR: Residential Solar Retailers program (SB 1036) overview• Texas Legislature passes Residential Solar Retailer Regulatory Act (SB 1036)• Do Solar Panels Increase a Home’s Value? | The Wall Street Journal • Texas Energy Poverty Research Institute’s Community Voices survey• Sara DiNatale’s award-winning series on solar sales | San Antonio Express News• Heat pumps, heat pumps, heat pumps! NoahpinionRelated Podcasts by Doug• Resistance is Still Futile: Exploring Heat Pumps with Eric Wilson• How Load Flexibility Could Unlock Energy Abundance with Tyler Norris• Know Before You Go Solar with Sara DiNataleRelated Substack Posts by Doug• The End of Solar & Battery Manufacturing in America?• Rapid Demand Growth Outpaced by New Supply in Texas• Energy Scarcity• Helping the Grid by Helping CustomersDoug’s Platforms• LinkedIn• YouTube• X (Twitter)TranscriptDoug Lewin (00:05.87)Welcome to the Energy Capital Podcast. I’m your host, Doug Lewin. My guest this week is Brett Biggart. He is the chief executive officer of Freedom Solar Power. Freedom is one of the largest solar companies in the country, top 10 by size, around 500 employees, and probably the largest or among the largest within the state of Texas. I thought it was a good time to do an interview with a solar entrepreneur, given all the changes going on with the tax credits. But here’s somebody who’s employing a whole lot of people, is worried about the future of the industry, partially because of some of the changes made in DC, but is determined to innovate and is in fact doing that around financing where there are tax credits that can continue for leased systems for the next couple of years. Also innovating by starting up Freedom HVAC to complement Freedom Solar because HVAC is by far the largest use inside Texas homes. So linking that with the power generation for his business made a lot of sense. So we talked a lot about how companies can innovate. We also talked about some of the legislation that was passed during the session to remove permitting barriers, a bill that was passed to increase consumer protection, which Brett actually advocated for. We covered a whole lot of ground. I hope you enjoy the show. Please give us a five-star review wherever you listen, and please share the recording with anybody who you think might want to listen. That is one of the ways we grow fastest is through organic growth and sharing. So please like and share the podcast with anyone you know. With that, enjoy the show.Brett Biggart, welcome to the Energy Capital Podcast. Excited to have you here. Been reading your tweets and posts and seeing your name in news stories for quite a while. You guys are a pretty big deal in the solar space in Texas. You built quite a business over the last decade or so, a little longer than a decade. At this point, why don’t you just start by telling us a little about yourself, just briefly about Freedom Solar, origin story, size, scope, all that kind of stuff.Brett Biggart (01:47.704)Thank you for having me.Sure. I guess the short version of this is Adrian Buck and I started Freedom Solar probably around 15 years ago. And I had kind of come out of the sort of professional finance world after business school. I actually got sober—that was sort of the catalyst thing in full transparency. And I got sober and I was trying to figure out what to do with my life, as many of us come to those junctions. And I moved back to Austin where I’m from, where I grew up, and the idea of starting a solar company kind of came to me and I started to do some research and try to figure out sort of as a customer, what’s the value proposition for a customer trying to go solar. And I couldn’t figure out the answer to that question. You know, I couldn’t get people to call me back. I was sort of doing the math, you know, there were tax credits and there were local rebates and trying to think about kilowatt hours. It took me about two weeks to sort of get to the answer of like, what does this cost and what is the sort of payback, the economics of it.That was sort of a light bulb moment. Like, wow, there’s got to be other people out there that have a similar situation that are just trying to quickly understand the economics to make a decision. Does it work or not? And so Adrian and I—I met him and we sat at a Mexican food restaurant and I sort of said, look, I think I’m going to start a solar company and here’s why. Sort of fragmented. People don’t really explain it very well. Don’t know how to finance it, sell it. And I’ll never forget this. He sat across from me and he says, “Okay, I get that. Like I’ve been doing this for—I was the first NABCEP certified guy in Texas and I’ve been running installation crews and doing installs and designing systems for a while now, but I don’t even like people.” Okay. So this sort of behind the scenes, you know, profile of a guy who’s very technical and very detail oriented, doesn’t quite frankly like to deal with people. And so we sort of got together at that moment and started out of his garage.And so that was whatever it was 15 years ago.Doug Lewin (04:08.152)So him more on the technical side, you more on the people side, basically.Brett Biggart (04:11.852)Yeah, clearly. And so we were like, let me see if we can go put together a way to explain this to customers in a way that wasn’t explained to me, which is a clear kind of quick way to get to a yes or no, it either works or it doesn’t. And then his skill set to go install the solar and do a great job and sort of bend over backwards on the quality side. You know, we started building the business in the first year. We were like, okay, wait a minute. We just did a million dollars. Whoa. High five. Unbelievable. And then the next year we sort of did $8 million and we kind of high-fived and said, whoa, this is sort of growing.And Austin has always been sort of a leader, certainly in Texas, I would say, as it relates to renewable energy. And so they had a good program here. So it was a good place to start. And then we sort of expanded across Texas, San Antonio, Dallas, Houston, and then just grew the business and sort of realized what we did that was unique was everybody that works still at Freedom Solar is an employee. So we don’t subcontract the work. We manage the quality.And so our salespeople are W-2 employees and our installers are obviously the same. And so in an industry that is sort of gotten to a point where those two things tend to splinter, you have like sales organizations and install organizations. And I’ll speak to that later maybe, but that sort of creates an incentive structure that doesn’t put the customer first as maybe I had characterized. Yeah. I think we’ve seen that over the last five years sort of explode into a real problem.And so we kind of always stuck to our knitting of keeping it in-house, mainly just to control the quality. And so we’ve been real fortunate. You know, I feel like a lot of businesses being in the right place at the right time. And certainly to start the business, we were in the right place at the right time. And the interest level of solar just sort of grew with the business. And we were sort of the beneficiary also of being in Austin, Texas and in the state of Texas where the population was growing and people were coming and interested.And so we’ve sort of grown it into a pretty decent-size business. It’s sort of a $200 million top-line business. It was 300—count it at 200. And we primarily serve Texas. Got a commercial business that sort of does projects all over the country, but really heavily focused in Texas and then also Florida.Doug Lewin (06:22.626)And even within Texas, you’re doing both residential and commercial systems.Brett Biggart (06:26.702)That’s right.Doug Lewin (06:29.77)And roughly how many employees, how many installations, a few other just stats or...Brett Biggart (06:33.442)Yeah, sort of 500 employees roughly and 30,000 customers we have today and then 500-ish commercial installs that have been completed. So.Doug Lewin (06:46.64)That’s got to put you on the higher end of like solar as far as like the—if you were to like rank the size of solar companies, you’ve got to be up there on the short list, at least of those within Texas, right?Brett Biggart (06:55.968)Yeah, we’re—I think we’re probably top in Texas. In the U.S. we’re sort of kind of bounce around the seven, eight kind of size. Okay. Top 10, but sort of just right in there, depending on the year. Okay.Doug Lewin (07:07.822)Okay, so definitely want to talk to you about the sort of like culture and the sales culture, right? We’ll get into that. Sara DiNatale—I interviewed her for the podcast—did that award-winning series on some of the things going on in the sales world. So we’ll come back to that in a minute, but let’s actually just kind of start with like, okay, we’re recording end of September 2025. We are obviously now in this sort of post-O3B, the one big beautiful bill that has put this very aggressive sunset on the tax credits. Obviously that’s sort of like the obvious place to start, and the question I think everybody has on their minds: what is the biggest solar installer in Texas doing to kind of adjust to that new reality? So maybe kind of level set with like where we are. When are the tax credits actually going away? There are, if I’m understanding all of this right, and I follow this very closely and I’m still a little confused by it, but the third-party ownership piece, I think stretches for a couple of years. So talk a little bit about where the tax credits are and then sort of how you’re adjusting as a solar company and living and then hopefully thriving under the new rules.Brett Biggart (08:16.128)I’d say for those that don’t—I’ll just paraphrase the big, beautiful bill and sort of the biggest impact, which is the 30% tax credit going away at the end of this year for residential projects. So it’s sort of a dramatic cliff, right? If it’s not done by the end of the year, it goes to zero starting in January in terms of tax credits that are available. So I would say the expectation of what is going to happen to the market—if you read annual reports and people that really follow this, it sort of ranges between anywhere from like a 60 to 70% kind of cliff in terms of drop of demand starting in 2026. So that is certainly the scary big 800-pound gorilla that we deal with in business, which sort of adds to the complication of it is now everyone wants solar. So if you were on the fence and you were considering it, you were sort of in the pipeline for the last two years and you know, you and your wife are thinking about it, I don’t know—now’s the time to do it. Like definitively the time to do it. And so many people understand that and are kind of flooding us with projects. So you have this bad news situation followed by a huge increase in demand with a short runway to get it done, which is the end of the year. So from a business perspective, we sit in weekly meetings here at Freedom Solar and we’re like, wow, this feels like the good old days. Customer acquisition cost is low, close rates are good, people are interested, but it’s a sort of a short-term bubble, right? And so nobody can get—Doug Lewin (09:46.444)Sugar rush, right? It’s like all at once.Brett Biggart (09:48.918)Nobody can get too excited about it because we all know there’s something coming, you know, a couple months ahead. And so there’s been the ramp up right now. And then, you know, what I think about the impact of the tax credit going away, I would say as an immediate thing, it’s bad. I would say, because it puts too much of a halt on an industry that sort of—these are businesses, Freedom Solar is not a recurring revenue business. So, you know, if we do a great job for you and we install solar at your house, you won’t talk to me again for 25 years. That’s the reality of it. So every month you’re sort of hitting the flywheel, trying to make these businesses go with new sales. And so to have a 60, 50, 70% cliff is a very big drop. Not to mention that’s on the heels of a two-year run that’s also been a huge decline from interest rates, from, you know, consumer confidence, maybe be the best way to put it. But I think over the last two years, many people have said, you know, we’d rather go on a trip to Padre this summer or something rather than do solar. So that’s sort of all playing in the background. Then you get the beautiful bill, which kind of like puts a big hard stop and a date on it. And so then we have to sort of rethink our business a little bit. It’s sort of what we’ve been doing at Freedom Solar, which is what do you do and what do you think that cliff looks like? I would say long-term, I actually liked the idea of the tax credit going away.I long for a business that provides enough value and economic upside to customers that it doesn’t need any incentive. Yeah. So I’m actually pro that. How that happens, I would have chosen a slightly more, you know, step-down kind of process to it, but it is what it is. So long-term, I’m less worried about the implications of it. And why I say that is if you take all these renewable things offline, you think about utility scale and big solar projects and wind projects that move the needle—you cover ERCOT, you know how much this, you know, on a day-to-day basis contributes to our power. Yeah. In the power stack, it’s a meaningful amount depending on the day, right? 30, 50, it’s a real number. And so as you start to...Doug Lewin (11:56.166)The day we’re recording, like, solar was 40% for four, five, six hours today. I mean, it’s really—it’s very significant.Brett Biggart (12:03.758)People don’t know that. I mean, I think that the common misconception is it’s like a 4% contribution. You’re like, no, it’s—it’s 40. Not anymore. And so I think as projects sort of fall, the renewable stuff at scale sort of slows down and you are forced to use natural gas in most cases to go power much of the state. The price of power goes up. And so as the price of power goes up, you see this offset to the 30% tax credit that will happen at some time in the future. And so the question to me is sort of like, when does that happen? Every utility in Texas that we operate in estimates a 5% increase in electricity prices next year. I’m sure. And probably a lot more. But for sure, five even in municipal utilities like Austin Energy or CPS. And in Austin Energy, it’s a five-year, 5% step-up.And so you can sort of do the math there and figure out, okay, in a couple of years, we work back to a price of power being pushed up where the 30% tax credit is sort of offset. So, you know, how to get from here to there is sort of our tactical question as an entrepreneur. And the solar industry has done a great job surviving. I’ve been doing this for 15 years. So I feel like that’s maybe, I don’t know, 30 or 40 years in regular business life cycles, but there’s sort of a sort of a cockroach mentality. And I include myself in that sort of negative connotation, which is a will to survive, you know, no matter how difficult the situation may be. And I would say the way the big, beautiful bill was written and sort of a third-party window that was left open, so to speak, in sort of a burning house situation of like, okay, we’re taking away the tax credit, the house is on fire. But you’ve got this third-party ownership window, which sort of opens.And what does that look like and is there a ladder out and does that work? What I’d say today is there are lots of creative structured finance products that are coming to market that take advantage of the tax credit that exists on the commercial side for the next couple of years and allows that to flow through to the residential side. Now I don’t think that’s Trump’s intent personally, but that’s what’s going to happen. And if you were to look at the economics, this was sort of the aha moment for me. A project that is $18,000 after the tax credit in 2025, you take that exact same project in 2026 and you do the exact same project in Houston, Texas, for example. And you use a prepaid PPA. That project is $14,000. Because that project can take advantage of domestic content adders. There’s some regional areas like Houston where their traditional oil and gas industries get an additional 10% tax credit.Doug Lewin (14:59.154)Wait, that stuff is all still there? The like energy communities?Brett Biggart (15:02.398)That stuff is all still there. Wow. And you can take advantage of it through the commercial side. So if I’m a customer, I do a prepaid PPA, which means I buy the power on the front end. I pay $14,000. It’s a PPA. So a third party owns the system. They service the system. So they guarantee the production.Doug Lewin (15:23.246)Which is nice for the homeowner, by the way. Which is great for them. Yeah, you don’t have to worry about certain—they have to monitor its performance and all that and maintain it.Brett Biggart (15:31.074)That’s right. And they’ve got, you know, it’s actually more guarantee for the customer that the system will do what it’s supposed to do. And then at the end of the five-year period on year six, it transfers to the homeowner at no cost. So that’s just an illustration to show there are creative structured finance ways to go solve this problem. And so if I look at—back to the cliff again and we say, okay, well how steep is the cliff in January?I sort of don’t know the answer to the question, although I’ll tell you I’m less worried about the cliff today, given these new products that are coming online than I was two months ago. Because I think the economics to the customer are quite frankly, in the example I just gave you, not only are they the same, they’re better. Can a customer understand that? Those are all questions I don’t know the answer to. Mathematically, that’s the case.Doug Lewin (16:23.394)Yeah, and look, I think also, like, you know, when you’re talking about like 5% increases, typically, like, for instance, I did a podcast with Energy Innovation, and they did some modeling and showed that, like, residential bills were going up 20% over a—I can’t remember if it was five or 10 years, whatever the period was. But they made the point to say that’s 20% over and above what it would have been otherwise. So without O3B, like, bills were going higher just because of energy inflation, right? We’ve already seen everything’s getting more expensive from eggs to cars. And then you add tariffs to it and all that kind of stuff. Like you got even more inflation happening, more cost inflation of various goods and services, and then add to that now the tax credit’s gone. So I think that’s exactly right. I think we’re going to see much higher bills and having those kinds of structured finance and making that very intelligible to customers, helping them do that math and understand what that means. Brett, one of the things I wonder about is transferability. So like if you do that, you sign this sort of PPA and a third party owns it, and then you sell your house after two years or four years or whatever the period is, is it easier, harder or the same for then a new homeowner to like pick that up?Brett Biggart (17:39.104)It’s super easy. They’ve got the transferability. There’s sort of a pre-qualification piece to it, or you can just buy out whatever’s left on the lease or the loan, depending on what timeframe it falls into, but it is transferable.Doug Lewin (17:50.796)Yeah. You could buy it out, like, if you’re a homeowner and you’ve just sunk all that money in and then you leave in a period—I think this is one of the biggest barriers to a lot of homeowners. Like how long am I going to stay in the house and how long is that payback? What are you seeing with your customers? I understand what you said about like, we would sell them something every 25 years, but presumably you live in a community where you’re selling a lot of these. Okay. Are customers telling you, yeah, when I sold the house, I was able to get more money for the house because of the solar panels or they paid off the rest of it? Is it a mixed bag or some people saying it made it harder to sell? What are you hearing?Brett Biggart (18:25.742)Yeah. So it’s a little bit of a gray statistic, but the Wall Street Journal did a great article a couple of years ago about solar systems and the value that they provided in the resale to a home. And so if you had two homes that were identical on the same street and they’re just on the opposite sides of the street, one has solar, one does not—exact same home—the one that had solar on it was like $4,000 for every kilowatt that you put on the home in additional value to that. Now, I say that’s great because that’s California where you’re paying whatever, 26 cents a kilowatt hour.Doug Lewin (18:56.622)Oh, 26 would be a bargain in California. I think you’re paying like 35 or 40. Right, exactly.Brett Biggart (19:01.016)Yeah. And it peaked to me at 60, right? There is some increase in the value of the home, but I haven’t seen any studies done in Texas. Typically what happens is real estate agents contact us and say, okay, what’s the deal? There’s a solar system on this house. What does it do? And you sort of provide them with some modeling and say, look, this is going to save X amount over the remainder of the next 10, 15 years. And they sort of price that into the home.Doug Lewin (19:24.61)Got it, got it, yeah. So it is kind of a mixed bag, but yeah, I think that’s an interesting one, particularly as we start to get into talking about third-party ownership and these different kind of creative structured finance. I think as much as possible—as if the sales process and education process wasn’t difficult enough—helping homeowners understand that piece of it, because I think that is a big barrier for a lot of folks. I want to ask you also about—so we touched on this a minute ago, but I want to make sure we don’t lose this point, because I think this is very important for listeners, particularly those that are either considering solar themselves or know one of their family members or neighbor, whatever, friend from college, whatever. And a lot of the listeners of this podcast are in the energy industry. So they’re probably people that are getting a lot of these questions from their friends. And one of the things I tell people when I’m asked about this is ask the company, how is your sales structure set up?Is it commission-based? Are the employees in-house? Are they outside contract? Because some of the stuff that I read in that Sarah D’Natale series, it was really wild. I mean, some of the sales culture stuff is just terrible. Just selling people systems that were sized completely inappropriately for their house and all that kind of stuff. I know you were very outspoken when that series came out that like, your company is called Freedom Solar. You’re not a guy that wants big government regulation, but this is a clear case where consumers do need some protection. There was a bill passed during the last session, but you guys do things differently. Can you just talk about, A, what your company does, and B, a little more broadly from an industry perspective, what should consumers look for in a company to make sure they’re not going to be taken advantage of?Brett Biggart (21:09.644)Yeah. Let me start by saying to your point, you know, the name of our company is Freedom. I never thought I would be some outspoken advocate for regulation. You know, never in my wildest dreams. If you would have told me five years ago, you’re going to be very outspoken about demanding regulation in an industry that you operate in. But that’s what I was doing in the last year. And I would say the reason for that—I don’t, you know, it’s hard to put a finger on it and say, well, let’s give everyone the benefit of the doubt maybe for the sake of this comment, which is you have an industry that was set up with a very low barrier to entry. And so if you have an in-home sales organization, which are typically sort of aggressive by nature—think of selling you encyclopedias in the sixties. If anybody comes to your door is sort of an aggressive sales thing. I would never buy anything where someone came to my front door personally. Never. Never have. Never would. Right. And they’d probably get chased off. But there are people that do sort of shockingly. And those people tend to be the ones that are most taken advantage of, which is someone shows up at the door and sort of promises the moon in terms of what a solar system can do, how much it’s going to save you, sort of willing to say whatever it takes to get you to sign on the dotted line to commit to it. They’re paid 100% commission based on whatever the price of that contract is. So they’re incentivized to do one thing. They’re, you know, they came from wherever they were to Texas to go do this for a summer, for example.And they’re trying to make as much money as they can. So they’ll sort of, you know, the temptation to say a bunch of nonsense is there very heavily. They’re incentivized to get a bigger contract. And then they take that contract. Once you’ve signed it as a customer in sort of unknowingly, I think in most cases, they just turn around and sell that contract to a subcontractor to go install the work. So in its worst version, you have someone selling something that is incentivized to sell it as expensively as possible—Doug Lewin (22:34.944)Yeah, not good.Brett Biggart (22:35.362)—to say whatever it takes to do that, which is totally ridiculous. And then turn around and throw that contract to an install company who’s incentivized to do what? To install it as cheaply as possible to make whatever margin they can on it. In both of those cases, you have two outstanding opportunities to get your face ripped off as a customer. One on paying too much and two on getting a lousy installation. And that’s what’s happened.Right. And so that sort of happened in a prolific way. And so I think from a customer perspective, you know, you want to go look and look at reviews online, the sort of basic things that we all look at, and then also really understand who is doing the work. If I have a problem in two years, is there a throat to choke? Who is doing the work and who’s responsible?Doug Lewin (23:54.968)Are they going to pick up the phone when I call? Is there going to be somebody on the other end of that when I call?Brett Biggart (23:59.67)And so I, you know, hate to say, but the sort of idea of, you know, historical performance indicates some kind of future prediction kind of applies here, which is, you know, if you’re buying solar from someone who’s based in another state far away, it’s a sales organization. Your chances of those guys being around is pretty low. And so sort of some basic due diligence around contracting, who’s doing the work, making sure it can’t be subcontracted, warranty work, performance obligations, those kinds of things. And then just sort of a gut check, which is go online and read some reviews and see what people say and start with the worst ones. You know, I hate to say that, but that’s sort of, let’s just start at the bottom of the pile here and work my way backwards. Just doing that basic exercise will eliminate, in my opinion, sort of 80% of the people that are out there. Yeah.Doug Lewin (24:53.31)Yeah, that makes a lot of sense. So you said you’re pro-regulation on that one. I think that one was Senate Bill 1036, if I got it right. We could put a link to the bill in the show notes. There were also some that removed some regulatory burdens. And here’s where, you know, I’m guilty like every other human being sometimes of negativity bias, but let’s give the Texas legislature some credit for passing Senate Bill 1202 and 1252. I think it was 1202 was the one you were keyed into more, but you can correct me if I’m wrong, but both of them make it easier for homeowners and business owners that are trying to put in backup power systems. Can you talk a little bit about that? And I also think it’s just kind of fascinating, Brett, like the juxtaposition here. We’ve got a state government that’s trying to make it easier for people to get these systems while unfortunately on a lot of levels, maybe not with the tax credits a little bit on the residential side, but even the bulk solar level, you got all these federal agencies now trying to make it harder.So shout out to Texas for trying to make it easier for people to get energy resources at their place. But do you want to talk about 1202 and/or 1252 from the recent legislative session?Brett Biggart (25:58.542)Yeah, I think to your point, those were both sort of bright spots that came out of the legislature, which were—I think the intention here is about how to speed the process along in terms of a customer says, yes, I’d like to go solar. They sign a contract. I’m ready to move forward. What happens next? Most customers don’t know what happens next, but what happens next for a residential project is a lot of different steps, right? You’re involved with local jurisdictions. So AHJs, which 1202 addresses—Doug Lewin (26:26.15)AHJ’s authority having jurisdiction, right? So that’d be like your city or county or whoever. Not county usually, but usually—Brett Biggart (26:28.628)—utilities, rebates, paperwork, federal stuff in terms of tax credits to your point. So sort of federal, state and then AHJ, and add utilities to that. And then by the way, there’s also homeowners association. It’s usually a city. It’s like 653, I think, in Texas. Wow. So a lot of them. And so you have this weird mix to your point of like, okay, you’ve got basically every, you know, every level of sort of jurisdiction involved in one residential transaction—federal government, the tax credit, state here, and then, you know, a utility and an AHJ, and then maybe an HOA if you live in an HOA.So we kind of handle all that for the customer and going through that process. That process on average, if you said, yes, I want to go solar Brett, I’m going to buy—I’m going to sign a contract today, it’s roughly 120 days till the project is done. 120 days. That is all a function of sort of those hoops, submitting paperwork and permitting documents and you know—Doug Lewin (27:32.562)And this is for something, by the way, that like, you know, the United States, we’ve been installing tens, hundreds of thousands of these things for like a decade or more. Like we know how to do this. It’s fairly standard. Like this is not some big, massive engineering project. This is not a data center. Yeah. Yeah.Brett Biggart (27:50.23)This is a straightforward, you know, residential home improvement project. Yeah. But it takes 120 days. Why customers care about that to state the obvious is one, who likes to pay for something and have to wait 120 days? I don’t know about you, but I don’t. Yeah, no. More importantly, if you add to that in our business, hundreds and hundreds of projects a month that are on that sort of spectrum, you’re adding cost.And so it just drives the price of solar up. So how do you make this happen faster? And so I think the intent of 1202 is like, listen, on the front end, when you’re submitting a permit, there’s a quicker way to get a turnaround. There’s a sort of a required quick turnaround, but there’s a small detail to this. I won’t—I don’t want to get bogged down on it, but it’s a qualified person. You could use a qualified person in the AHJ to approve the permit. So that’s one part of 1202.And the second part is to conduct the inspection. So a third party could be involved. So if you’re in a little AHJ, they don’t have a lot of resources. They make a list of what is a qualified person. And that’s sort of the sticking point of this, which is if you’re an AHJ and you’re like, hey, wait a minute. I’m in Plano, Texas, for example. And I don’t want the state government to tell me what to do. We have our own process here by God and that’s what we’re going to do. They make the qualified person so difficult to qualify that they hold all the keys to the cart. So I think the intent was to make it go faster. I think there are some AHJs who are participating in that and doing a great job. And I think there’s others that are sort of digging their heels in saying the state government didn’t tell me what to do. We’re the local jurisdiction. And so we’re whatever we are, 25 days into that bill being adopted. So it’s a little early to tell, but I’ll tell you it’s sort of a mixed bag of jurisdictions that are like, oh yeah, of course, rubber stamp. That’s what the state said. And then others that are like, no, no, no, no, no, no, authorized project. Here’s the laundry list of things that that requires.Doug Lewin (29:53.142)Yeah. So kudos to Chair Schwertner, Vice Chair King for passing, respectively, those two bills. But it may be that the work is not done with those, that there may need to be some tweaks in the next session or just ironing out some of the implementation. I mean, like this is always the way with legislation, people. I think there’s this idea out there among the general population that if a bill is passed, then it’s just done. That’s just law. But there’s implementation, which is actually like 90%. Passing the bill is one thing, how it’s actually interpreted and implemented in the real world is often a whole different thing.Brett Biggart (30:26.112)You know, if you were to say though, if that bill in a perfect scenario where you have an AHJ that makes it easy to endorse what that bill says, it probably takes on average four weeks off the process, which is pretty good.Doug Lewin (30:39.97)Yeah. Yeah. That’s great. Let me ask you something just slightly different here. I noticed a couple of months ago, you guys launched Freedom HVAC. I’m really interested in this. Look, I think, you know, there’s a huge potential here. I think this has been missing for a long time, Brett, that you’ve got solar and storage. And I want to ask you about storage too, by the way. Maybe you could talk about that in the same answer. Like how much are you doing solar alone versus solar and storage? But to the point, to start to see the demand side as more of this integrated kind of thing as opposed to just solar on the rooftop, getting the storage along with it, and then having that heat pump that the solar is actually powering. Of course, you can get into like EV charging. There’s all these different ways that these kinds of things can go as these technologies are developing. But talk a little about your thinking behind being a solar company to now also being solar and HVAC. How much of that was sort of prompted by what you were seeing happening in DC with tax credits, how much of that was separate, and then a little bit of your vision for how those things fit together, solar storage on the one side and kind of HVAC and other things that people are using on the other.Brett Biggart (31:51.598)Okay, so I’ll start with storage for a second. You asked the question, what is—we call it attachment rate. How many customers that buy solar also buy some sort of battery backup system? I can answer that question. It’s about 67% across our portfolio.Doug Lewin (32:05.858)Wow. Now, is that over like the last year? Because I assume like five years ago it was nothing close to that, right?Brett Biggart (32:11.286)I was going to say five years ago, literally it was single digits. Yeah. I would go so far as to say that probably four years ago it was still single digits. Yeah. And then it started to kind of creep up and then all the things happened, right, that we lived through. Uri and all the kind of storm weather events and all of a sudden it sort of exploded. At the same time, a lot of advancement with battery backup stuff started to be released. So Tesla has a new Powerwall 3 that came out. So 67% attachment rate in Texas is sort of outrageously high. It’s really good. And so it tells you that people really care about resiliency and this backup power idea. And so we sell Powerwalls in most cases, but several different things. Enphase makes a battery as well. And so there’s several different things that we sell related to the product side, but the attachment rate is sort of—in places like Houston, in Houston last month, it was 90%. 90% of the people in Houston want some form of battery backup, which is...Doug Lewin (33:14.186)Those folks have been through Uri and Beryl. They’re, yeah, even more so.Brett Biggart (33:18.894)So it’s really become a big part of the mix. So we continue to like focus on that as it relates to battery backup. And then as we sort of think about the whole solution, what are we doing here? To your point, you know, we’re putting kilowatt hours on the roof through a solar system and okay, maybe you’re storing some kilowatt hours in a Powerwall. Okay, great. But you’re consuming the same amount of electricity in most cases. And oftentimes you’ve got an HVAC solution that is very old or antiquated. And so we started to look at the HVAC market and what’s going on here and sort of what’s the technology. And it became evident to me that we at Freedom Solar talk about sort of complicated things, microinverters and kilowatt hours and lifetime savings and degradation and sort of the world in kilowatt hours. And here you are with an HVAC and in many cases you have some builder-grade model that just turns on and turns off. It’s a single speed and it’s super inefficient.So, you know, the bad analogy I’d use is sort of like building a race car and putting a motor in this thing that’s got a souped-up motor, which would be your solar system, but then putting old tires on it and saying go burn a couple laps on the track. It’s like, well, it’s not going to go that great. It’s a little bit of the same thing, which is can you come inside the home, which on average is 52% of your electricity consumption is your HVAC.Doug Lewin (34:40.846)In Texas, yeah, easy, right?Brett Biggart (34:43.628)So what is happening in this world? And so we started to dig into that sort of at the beginning of the summertime. And I was sort of shocked that there are a lot of products that are available. You mentioned heat pumps is probably the best example. And that was actually the thing we sort of walked into, which is if you have an energy-efficient home, you have a solar system on the roof and a heat pump that’s heating and cooling it. And you’ve got a little backup storage. You got a great solution. You’ve got a really good energy-efficient solution that is going to take the worry of sort of storms, electric bills, all the things we sort of characterize. You’re going to solve that problem completely. And so is there a way that we could come into the home, so to speak, and solve this HVAC thing? And so 90 days ago we launched an HVAC division and there are parts about that business that I’m just like so giddy over. I don’t want to geek out on this call and tell you, like how I characterize—Doug Lewin (35:41.475)Please do. No, geeking out is all I do on this show. Yeah.Brett Biggart (35:45.686)I told you that the average day, the timeline for a solar system is 120 days. So yes, 120 days, we put a solar system on your roof. You have an HVAC problem. We come up with a solution, we solve it in the morning and we install it the same afternoon and it’s done. And so this whole speed-to-solution sort of timeline is like compressed into what I sort of used to say in the solar industry, it’d be a dream to sell it on a Monday and install it on a Tuesday. Like I couldn’t imagine a world where that takes place. Now in the HVAC thing, we get to do that. The other part to it is there are a lot of technology advancements that have happened in the HVAC world. Heat pumps, the great one, where you can have a very efficient electricity system running your heating and cooling, put a solar system on your roof, offset those kilowatt hours and you have a great 25-year savings sort of energy solution. And so there’s microinverters in these things. There’s all kinds of different variable speed solutions that are available. And most people just don’t know, you know, it sort of feels to me, at least like the solar industry did sort of 15 years ago. And I think that it sort of speaks to the customer because it’s a different dynamic in many cases, right? If you’re an HVAC customer, this happened to me. We’re sitting around in my conference room with smart lawyers and we’re talking contracts and risk and da da da da, paralysis by analysis about HVAC. I go on a trip and my HVAC goes out in the upstairs of my house. Do you know the only question I had? How quick can someone be here?Doug Lewin (37:23.672)I mean, especially like the vast majority—I don’t know what happened with yours, but obviously the vast majority of HVACs break when it’s super hot, right? Or super cold, right? Like what are the other—right? Like you need it. Nobody wants to wait. Nobody can wait. I mean, it’s just like unsafe to wait a week, right? You have to replace it as quick as possible.Brett Biggart (37:44.856)And then if you also kind of overlay that with our customer base of 30,000 people, they’ve all spent sort of $35,000 on average for a solar system on their roof. They already understand kilowatt hours and long-term savings and peak demand things and all of the sort of techy things that you need to kind of wrap your head around and make that big investment. So let’s go to those customers and explain to them there’s better solutions that are available for your HVAC.And so that’s what we’re doing. We’ve spent 90 days so far spinning it up and getting it going, getting it kind of fine-tuned in Austin. We launched in Houston, October 1st, and then go into Dallas. It just fits together perfectly in my mind in terms of the solution being sort of on your roof and inside your home. And then it sort of fits our skill set, which is we’ve been talking about solar, which is kind of complicated. We can apply those same things to the HVAC world to explain higher efficiency solutions that are available for customers. And our customers tend to understand that stuff. There are people that are probably on this call—Doug Lewin (38:47.942)—people that are just doing life.Brett Biggart (38:49.873)Yeah, that’s right.Doug Lewin (38:55.564)And we do have a good mix. We got some folks that aren’t like energy professionals too. So I will say just real quick on this, Brett, I mean, you know, heat pumps, for those that aren’t totally familiar, right, it is in some ways, it’s a new technology because it’s like coming down the cost curve and there’s advanced versions of these, like you were saying with the inverters in them so they can respond to a signal. The best way I think I’ve heard it described, it’s a little bit like continuously variable transmission, right? Where like it’s got infinite speeds as opposed to that on-off.But in some ways, it’s an extremely old technology. It’s what your refrigerator does. It moves heat around instead of actually creating the heat. The physics people will get really mad at me since it’s neither created nor destroyed. But basically, you’re moving heat instead of creating it. So I’ll tell you, Brett, I have heard from a number of people that have tried to buy heat pumps. And many of them did. But it was a very difficult process for them. I think you have identified an interesting thing here because a couple different friends have told me they had to go through five, six, seven different HVAC companies that they called, each and every one of them trying to talk them out of getting an advanced heat pump because basically because they’re not used to selling them, they don’t have a lot of experience with them. And I don’t mean to tar a whole industry here. Like these are people that have been working with a certain technology for a long time and they know it well and they’re good at what they do. But I would say—and this happens in every industry. It’s not just HVAC. Like when new things come onto the market, there is this kind of period of people trying to figure out. And it is hard for a customer that wants to get what I think is clearly a superior and highly energy-efficient technology. People are really struggling out there. So it’s exciting to know that you’re doing this and really kind of prioritizing the heat pump. I’ll tell you, I talk about solar and storage a lot.I think in this century, heat pumps are—you know, how do you rank these things? Maybe solar is more important than heat pumps, but like on anybody’s short list of technologies that are really going to transform energy, like LED lights were five or 10 years ago, like heat pumps are coming. They’re going down the cost curve. Their adoption rates are going up. I believe a year or two ago was the first year that heat pumps actually passed gas furnaces for installations in the United States. It’s kind of a moment for heat pumps right now.Brett Biggart (41:19.052)Yeah, I agree. And I had this very similar experience, which was, you think about solar complementary and a heat pump solution, it sort of fits perfectly, hand in glove, right? And we’re like, okay, well, why don’t more people not have heat pumps was sort of the question we were asking. And so we did the same thing, which was sort of secret shopped and kind of called around and had the same experience you just described, which is somebody shows up, “Well, we kind of know the builder-grade thing. And so, you know, it’s sort of like you’re on the side of I-35 with a flat tire, you know, just put a tire on here, any tire. I don’t care. Just get me back on the road.” But if you’re in a situation where you’re not in that dire situation, you’re not like sort of a gun to your head, have to make a decision. And you’re sort of a forward thinker, like many people I’m sure on this call are. And you make that investment thinking sort of long-term, it’s sort of a no-brainer. It’s sort of a no-brainer, no matter how you cut it. We say the same thing. We think the moment for heat pumps is now going forward and it’s really complements sort of what we do. So it’s a good fit.Doug Lewin (42:19.788)Yeah. I think the other problem I’ve heard from people that are trying to get heat pumps is even if they can get past that barrier with the HVAC company where they’re not trying to talk them out of it. When they get past that barrier, then they’re like, okay, great. We could move forward. We’ll have this heat pump for you in two weeks because like they’re not stocking them. They’re stocking the builder-grade stuff, code requirements stuff. I assume you guys are—you’re saying you can install it the same day. So are you guys—is that part of the business model is actually having the heat pumps closer and being able to install them quickly?Brett Biggart (42:51.63)Yeah, you know, on the first day of business school, my professor at Rice walks in and he says, “I’m going to teach you everything you need to know about business right now. Every company is either cheaper, faster or better. Pick two. You can only be two of those things at one time. No one can be three of those things.” You know, sort of basic things. You know, I have to retell myself the answer to those questions every day, which is speed is part of our solution, better quality and speed, which is to say, you know, the builder-grade solution is great for somebody that’s just not really our customer necessarily. So yes, we have them in stock and we can same-day those. So yeah.Doug Lewin (43:29.122)What are you seeing? And I know this is a hard question to answer, because it’s context and every house is different. It depends how you size it. There’s a million variables. But in the aggregate, on average, what are you seeing as far as the price differential between just the basic sort of it-meets-code-but-not-much-else HVAC system versus a heat pump? Of course, it gets even more complicated, right? Because it can do two things. It can replace both your furnace and your HVAC. So obviously, there’s a lot of variables here, but if you could speak generally about it, that’d be helpful, I think.Brett Biggart (44:00.942)I’m just in sort of a generalization, I would say it’s sort of a $13,000 solution—base kind of thing—to compare that with sort of a super efficient, also does your heating $20,000 solution.Doug Lewin (44:13.592)So wait, so $13,000 is what you would be doing. I’m sorry, which one was $13,000 and which one’s the heat pump?Brett Biggart (44:19.412)$13,000 is sort of the lower end or medium end, sort of just single two-stage kind of HVAC. Heat pumps are sort of around $20,000.Doug Lewin (44:26.784)Okay, okay, so about a 50% price premium at this point. That’s interesting. I would encourage folks to look at it, particularly if you’re in that place where the HVAC’s starting to give out, it’s struggling, get ahead of that, do your shopping, do your research. Now, whether you go with Freedom or somebody else, be ahead of that, get familiar with these technologies. And you got an HVAC that’s been eight or 10 years, you think you still got five years, watch this technology, watch that space, because I do think we’ll see learning curve. We are seeing that like price reductions in heat pumps, not as dramatic as like the 90% reduction in solar, 90% in batteries over 10 years, but still pretty significant learning curves as the technology progresses and as the manufacturers ramp up.Brett Biggart (45:14.67)No, I think you’re right on the money. And you know, the sort of savings is sort of 30, 40%, you know, as you think about heat pumps versus other things. So it’s just sort of the mentality of how you think about things. Do I want to just go on the car lot and buy the cheapest car on the lot? I don’t know many people that do that. I’m sure there are some, but you’re sort of solving for more things than that. Most of the time when you’re making a buying decision and your HVAC is sort of—should certainly be part of that calculus.Doug Lewin (45:42.53)Part of what it does too, right, is like the comfort. If you’re having comfort issues inside your house, a lot of that is driven by—there’s a lot of different things. That could be uneven insulation. It could be a million different things, but one of the things with the standard HVAC is it’s on or off. That’s it. So when it turns off and while the thermostat is waiting to register that the temperature has actually gone up before it turns on, you’re going to be uncomfortable for a little while. And if you’ve got a bunch of people in your house and there’s body heat, so that’s going to get even worse.With this, you have that continuously variable. So instead of 100 or zero, it might be running at 60% and then drop down to 40 and come back up to 50. You’re going to be much more comfortable inside the house with that. Brett, I want to ask you too about—and we’re almost at time, but I think this is something folks are thinking about. I’m certainly wondering about how a business owner thinks of this. Obviously, there’s just so much uncertainty right now, particularly with regards to tariffs. And I saw in a couple of articles you had talked about how you guys had, if I’m getting this right, I think you had procured some of your stock, like the solar panels, particularly ahead of time. That doesn’t last forever. But how are you thinking about managing that supply chain risk? I mean, you’re a large solar installer. You got 500 employees. You’re doing this scale of installation. Now you’re getting into HVAC. How are you thinking about tariffs and supply chain issues? It makes my head hurt even asking the question. I feel for you.Brett Biggart (47:07.246)As if the exterior market, right? The decisions of consumers is not enough volatility or incentives. Oh, well within here, there’s also a lot of volatility, which is how you procure equipment. And so I would say, I mean, this is my honest answer about it. It is so hard to predict what is going to happen in that arena. We got lucky is what I’ll say. And we procured a bunch of equipment, you know, from the beginning of the year, which lasted us through the end of this year. And then it’s going to be gone. And so then the question is, okay, well, would you like to bet on a horse? Is there some solution here for whatever the thesis is that you want to go spend whatever $10 or $20 million to procure equipment, just to bet against? I would tell you that I wouldn’t do that at the moment. I’m not doing that at the moment.Doug Lewin (47:57.56)Too much uncertainty, right? And that speaks to a bigger problem for our economy. If a lot of business owners are doing that same thing, they’re not spending money. That’s problematic.Brett Biggart (48:05.09)Yeah. And so it’s wild. I’ll just use an example, but the majority of the modules that we sell today are the ones I procured at the beginning of the year. There’s a handful that are sort of in leases because—here’s the other variable. There’s lists of ABLs that are required for lease products. So if what I just told you is true, which is 2026 will look more like a third-party owned solution for customers, then the list of what you can use is definitely constrained to what’s approved by those lenders. Yeah. Okay. Yeah. So that’s a shorter list. And then within that shorter list, what is considered to be U.S.-made because there’s an additional tax credit for U.S.-made. And what does U.S.-made mean to get the domestic content adder piece? Well, you know, it’s this, that—we changed our mind. We’re at different tax opinion. It’s sort of so gray at the moment that, you know, I just—I’m not taking a bet right now. And the price of modules right now at this moment just went through the roof because of all the demand that’s in the market right now. And so once that burns off, right, and we get to the end of the year, the tax credit goes away. There’s some sort of cliff, which is hopefully more like a slight downturn, but some decline of some sort. Who stays and who can make it?You know, the tide’s going to go out and you’re going to really see who can be there. And it’s sort of hard in this industry. You know, you’ve covered it. I’ve been living it for 15 years. SunPower, which was an investor in Freedom Solar, albeit a small one, less than 5%, was a $10 billion company three and a half years ago. $10 billion company. Filed bankruptcy, went from Chapter 11 to Chapter 7, sold its assets and is worth zip. Nothing.Sunova, financing business, Houston, similar situation. So you look around and you say, what are the characteristics of a company that’s going to last? And it’s sort of hard to navigate that at this moment, given what we’ve just seen, which is if you said, “Well, if they’re big, they’re going to last.” Well, that’s not true. Yeah. They might fall harder. And so the thing that keeps me coming to work every day and sort of still very jazzed about the solar industry is it feels a little bit like, you know, if you can make it through these as a business owner, these challenges that we’ve been faced with for the last two and a half years and sort of the big, beautiful bill was the last punch in the face. Hopefully if you can make it through these things, I feel like the horse has left the stable for solar. I mean, I still feel like the economics are good in most places. People understand that it’s the right thing to do by the environment. There’s a lot more reasons to say yes than no.That’s still true. The economics just went up by 30%. You know, it got 30% more expensive at face value in 2026. Do I believe that comes down? Yes. How quick? I’m not sure, but pretty quickly. And I think the industry is going to be forced to drive costs down. And I think panel manufacturers are going to have to be very sharp-elbowed and very competitive on pricing. And I think that along with what you mentioned, sales commission things, sort of like the soft cost stack of solar, what it costs. Because remember, there’s a super easy understanding of solar, which is the economics of solar are driven by two things. What’s the price to install it on a price-per-watt basis? And what is my price of electricity? Right. And so that’s it. There’s lots of other things in the middle that sort of, you know, maybe bridge a gap to finance it. But at the end of the day, that’s it. And if the cost to install it is consistently coming down and the price of power is consistently going up, that makes the economics better for people. And I think what I said on my left hand, which is the cost coming down is sort of bumpy, right? All of a sudden price of panels went up and there’s sort of some short-term volatility. The general long-term trend of that year over year is sort of being pushed down. And I think the tax credit going away forces that to really be pushed down—everybody in the value chain to provide a very efficient, cost-effective solution. So that means the price of solar is going down and the price of power is for sure going up depending on where you are. It’s a—if I sort of back up and say, okay, I mean, there’s a lot of short-term pain here, but is there something on the other side of this that’s really valuable or really consequential in terms of moving the needle? I think that’s what we’re trying to do here is just move the needle by putting solar on as many houses or locations as we can.I think that opportunity actually becomes really prolific in the years ahead.Doug Lewin (52:59.446)I think that’s spot on in the sort of two different lines. The cost of solar coming down, the cost of power going up, I think is a huge part of the story. And then I think the other major tailwind that particularly distributed solar and storage, and if you can integrate that with stuff like heat pumps that we were talking about, is that resiliency piece. And I was really struck by the Texas Energy Poverty Research Institute does this Community Voices survey. I’ve talked about it a few times on this podcast before. Interviewed 6,000 Texans, asked them what their top priority was between reliability, resiliency, affordability, and sustainability. And they defined reliability as the grid having enough supply to meet demand. Resiliency is the ability to take a punch. Like the extreme weather, you can keep power on at your house. Resiliency was number one. And reliability was actually number four. I think this is like the policymakers are all focused on reliability. Understandable because of Winter Storm Uri, it was such a traumatic thing. But the consumer, I think rightly, is seeing it as if there is a Winter Storm Uri, if there’s a Hurricane Beryl, any of those things happen. If I’ve got solar and storage in my house, I’m going to be all right. So that’s the other one that like there is a value to resilience. Like how exactly a customer values that is a really hard thing to pin down, but it sure as hell ain’t zero.Brett Biggart (54:17.814)No, I asked the question around this place probably a year and a half ago. And the question was, why do people go solar? And so a lot of scurrying around. It was hiring a consulting firm with a bunch of very smart MIT computer science guys. And so they did a bunch of surveys. And they finally came back to me. They said, “Okay, we have your answer.” I was like, “Wow, I can’t wait. I spent hundreds of thousands of dollars for this answer. Please tell me.”And the answer is not dissimilar from what you just said. Number one reason people go solar—energy independence. The idea that I can control my destiny is a really innate thing. And it’s certainly a Texas thing. Yep. And so that sort of changed my mindset a little bit about the business because I would have thought the answer was different, quite frankly. And so to hear that was sort of an eye-opening experience, which is like, okay, well, energy independence. Okay, well, how do we define that? You know, people buy generators every day. Texas is the biggest generator provider. Generac is an example in the country. There’s no payback on a generator. That’s just an independence thing. That’s it.Doug Lewin (55:33.582)You could say the resilience value for a whole lot of people is at least that $10,000 to $15,000 they’re paying for a generator. They’re willing to pay for it because they’re not getting any other benefit out of it. That’s right.Brett Biggart (55:44.034)That’s right. It sort of changed my thinking about what the motivation of people are, particularly in Texas, but it makes a lot of sense. I think there’s more and more stuff that’s becoming available to sort of suit that solution. It’s not just one thing. It’s sort of a combination of things in my mind. Yeah.Doug Lewin (56:02.336)And what is the value of resiliency. Well, this has been a lot of fun. We went longer than I intended. But Brett, is there anything I did not ask you that I should have? Anything else you want to say in closing?Brett Biggart (56:12.79)No, no, this has been super fun and I really appreciate it. Thanks for having me. I’m honored.Doug Lewin (56:16.856)Yeah, thanks for being on the pod, Brett. Appreciate you.Doug Lewin (56:21.784)Thanks for tuning in to the Energy Capital Podcast. If you got something out of this conversation, please share the podcast with a friend, family member or colleague and subscribe to the newsletter at douglewin.com. That’s where you’ll find all the stories where I break down the biggest things happening in Texas energy, national energy policy, markets, technology policy. It’s all there. You can also follow along at LinkedIn. You can find me there and at Twitter, Doug Lewin Energy, as well as YouTube, Doug Lewin Energy. Please follow me in all the places. Big thanks to Nathan Peavey, our producer, for making these episodes sound so crystal clear and good, and to Ari Lewin for writing the music.Until next time, please stay curious and stay engaged. Let’s keep building a better energy future. Thanks for listening. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.douglewin.com/subscribe

Texas load is rising fast, supply chains are tight, and the cheapest near-term resource is demand we shape intentionally. But are the right economic signals there to bring this resource to scale?Texas has a highly competitive power supply market, but the demand side is severely underdeveloped. In my conversation with Travis Kavulla, former Montana PSC Chairman and current leader in retail innovation, we explored how Texas can unlock the cheapest near-term resource by shaping demand on purpose.Retailers now have both the data and tools to automate flexibility in homes and small businesses. That’s the fastest way to keep bills in check and the lights on during tight hours.“The incentives are there for sure… when spot prices rise above a flat retail rate, the incentive flips, and it’s valuable for both the retailer and the customer to reduce.”Smart Meter Texas enables interval settlement, and connected devices like thermostats, EVs, and batteries can now respond automatically. This is finally real.Retailers are competing not just on price, but on automation. NRG has moved its virtual power plant strategy to the center of its retail offering, pairing Vivint installations with demand response.“We announced a one-gigawatt goal… and hit 150 megawatts this year.”That flexibility hedges against the most expensive hours and brings value directly into customers’ homes. ERCOT has also proposed a program, capped at 500 MW, that pays households for reducing use in the tightest hours. It helps offset hardware costs and puts residential customers on more even footing with large industry.Our system should reward shifting, not just saving — using more when power is plentiful, less when it’s scarce. That avoids overbuilding while meeting growth from data centers, electrification, and hotter summers. Winter risk is just as much a demand issue as supply. Resistance heating drove massive spikes during Uri. Heat pump retrofits can improve reliability and affordability, but without targeted support, private markets may underinvest.Transmission costs are another sticking point. Large customers can avoid charges by guessing peaks, shifting costs onto everyone else. Residential customers use about a third of the energy but pay half of transmission, which rose more than 120% in a decade. Reforming 4CP so costs align with who drives grid build-out would be fairer.Texas can build a true two-sided market. Let competition automate flexibility in millions of homes, fix cost signals, and target winter risk directly. That’s how we keep bills manageable, stay reliable, and grow with confidence.If this breakdown was useful, share it with a friend or colleague, and subscribe so you don’t miss the next Texas-focused grid update.Timestamps* 00:00 – Introduction to Travis Kavulla* 02:00 – Introduction to NRG* 04:00 – ERCOT competition and demand side incentives* 06:30 – The importance of Smart Meter Texas* 09:00 – Innovation from competition, telecom and airlines analogies* 12:00 – Importance of demand flexibility both from AI and residential sectors* 15:00 – Rate design for shifting use* 17:00 – Increasing load factors, how using more energy can be energy efficient* 19:00 – NRG’s VPP with Google / Renew Home and their progress toward their 1 GW goal* 23:00 – Integration with smart home technologies* 25:00 – The potential for customers to lower prices* 28:00 – Sponsor: Aurora Energy Transition Forum* 28:45 – ERCOT’s residential DR proposal, why ERS doesn’t work for small customers* 32:00 – Why NRG has broken from other generators to support residential DR* 34:00 – REPs in Texas’ energy efficiency programs * 38:00 – Can we leverage markets to reduce wintertime outage risk through energy efficiency?* 41:00 – Part of the cause of Uri outages was extremely high demand, difficulty * 44:00 – Lack of focus from Utility Commissions on demand side* 46:00 — Sponsor: Intersolar and Energy Storage North America* 47:00 — Utilities are incentivized to spend on capital but not on operations* 52:00 – Why and how transmission cost allocation and 4CP should change* 57:00 – ClosingResourcesGuest & Company• Travis Kavulla: LinkedIn• NRG Energy: Website, LinkedInReferenced in the Conversation• Travis’ University of Chicago Syllabus: Utilities and Electricity Markets: Regulation in the United States • Book: Prophets of Regulation• Travis’ ESIG Whitepaper: Why is the Smart Grid So Dumb?An Audit Report on Critical Infrastructure Activities at the Railroad CommissionNRG’s filing post-Uri on wintertime demand with resistance heat 100% higher than summertime demand, referenced in my very first Substack article: 2022 Cold Snap Shows Resistance is FutileCompany & Industry News• NRG, Renew Home, and Google Cloud announce plan for a 1 GW Texas VPP • NRG to buy 18 gas plants from LS Power in $12B deal (Reuters)• NRG wins nearly $800M in Texas Energy Fund loans for gas plants (Houston Chronicle)Related Podcasts by Doug• The Name of the Game is Flexibility• Creating a Distributed Battery Network with Zach Dell📄 Related Substack Posts by Doug• Texas Load Growth, Challenges and Opportunities• ERCOT CEO says we need all resources• New Residential Demand Response Proposal in Texas (Grid Roundup #74)• Solar, Storage, Gas, and VPPs in Texas (Reading & Podcast Picks)🌐 Doug’s Platforms• LinkedIn• YouTube• X (Twitter)📅 Upcoming Events / Sponsor Information• October 21: Aurora Energy Transition Forum• November 18-19: Intersolar and Energy Storage North AmericaTranscriptDoug Lewin (00:05.656)Thanks everybody for being here and thanks Travis for doing this, really appreciative to SPEER for putting on this great event. As Liz said, I was director of the organization for—I was going to say several years. I think it was many years, five years. It’s great to see the organization growing and thriving and see all of you involved. For those that are listening to the podcast later, we are at the SPEER Industry and Policy Workshop in Austin, Texas. And I’m really thrilled today to have Travis Kavulla here. Travis, I’ve been meaning to interview you for the pod for a while anyway, and I think this is a great setting and crowd to have this conversation because I don’t think there’s anybody better to sort of talk about how retail electric providers, right? A really dynamic market here in Texas with how many different retailers are there?Travis Kavulla (00:51.534)80, 100? Many. Many. We love all of our competitors, we love competition, but there are a lot.Doug Lewin (00:56.682)Exactly. It’s a very thriving market. There’s a lot of different choice for customers, particularly in the Houston, Dallas, Fort Worth, Corpus Christi, Laredo, et cetera, parts of the state that are served by competition. And to really get into how energy efficiency and distributed energy resources can be advanced using competition and using retail electric providers, I think there’s nobody better than Travis for this. So Travis is vice president of regulatory affairs at NRG. He was commissioner and chair of the Montana—you guys call it the PSC there, ours obviously would be the PUC. He was also president, I believe was the title, of NARUC, National Association of Regulatory Utility Commissioners. So truly a thought leader in this space. Please join me in welcoming Travis Kavulla to the SPEER Workshop.Travis Kavulla (01:43.822)Thank you, Doug. Thank you, audience. We need those little things that say, “applaud” up here, I feel.Doug Lewin (01:50.318)I’ll just ask. We’ll just do that. It’ll be fine. All right. So first of all, anything before I get into some of the questions I’ve got for you, anything else you want to say by way of intro? As far as your background, maybe actually just like a brief word on NRG. I don’t want to assume folks know necessarily what NRG is. You guys are obviously a very big company, most probably do, but maybe give a little more background of yourself if you like and NRG.Travis Kavulla (02:11.342)Sure. So NRG is a retail electric provider in the state of Texas and all other states that allow customers of electricity and in some places gas, though not Texas, a choice in their provider. We’re also a power generator in the state. We sign a lot of power purchase agreements with third parties. And then we have a large natural gas marketing business. And relevant to this conversation, a smart home company that’s one of our most recent acquisitions called Vivint. So we operate basically across the United States, mostly in the competitive markets for power and gas. We have about 8 million customers across North America and a sizable chunk of generation as well. And then you got my bio down, Doug, but one of my passions is teaching. I teach, I’m a lecturer at University of Chicago as well, where I teach on—my syllabus is available for all of you to download for free. It’s a course on utility regulation and the design of electric power markets, which is sometimes not always intuitive. So that keeps me fresh with the youths, I’ll have to think.Doug Lewin (03:11.278)Clearly. You know, it’s funny you say that because I actually taught a semester at the LBJ School and I leaned pretty heavily on your syllabus, which is excellent. And anybody wanting to understand the history of regulation of the electric industry and how competition came about, like there’s probably no better place to look than your University of Chicago syllabus.Travis Kavulla (03:29.866)I’m pretty great, but I’m wearing the orange socks in your and the venue’s honor today rather than maroon.Doug Lewin (03:35.394)We much appreciate that. Thank you. All the Longhorns in the room want to clap for that? There’s only a couple of Longhorns. We’re at the University of Texas campus. Maybe they’re Aggies. So by the way, in the syllabus I used, your “Why is the Smart Grid So Dumb?” was in my syllabus. We’re going to talk about that paper you wrote, which is one of the best papers on this topic. But okay, but before we get into all that, and before we get into NRG’s own plans to have a virtual power plant, let’s just start at a little bit of a higher level. So ERCOT, I think it’s safe to say certainly in America, possibly in the world, and I’d actually be interested in your thoughts on that, is either the most competitive market or one of the most competitive markets. But there’s still a ways to go because what’s missing as you laid out in that great paper, “Why is the Smart Grid So Dumb?”—the demand side, there’s a lot of competition, obviously on supply, very fierce competition going on. There’s a lot of competition for getting the customer, for winning the customer on the retail side. But if you’re going to have this, as you talk about a lot, two-sided markets, supply and demand, that demand side isn’t really there yet. So can you talk a little bit about what is sort of working with ERCOT’s competitive market, how that kind of fits and compares to other markets and that kind of missing piece?Travis Kavulla (04:50.382)Yeah, so I always think about these questions in terms of is there an incentive and if there is, can people act on that incentive? So the incentives that are present in the ERCOT market are very real. Most customers in the competitive territory of ERCOT sign up for a flat rate plan of some kind. Some people sign up for time of use plans, but most people are on a flat rate and by that I just mean they pay a retail price of, call it 15 cents a kilowatt hour around the clock. Now the spot price of energy, the stuff we have to purchase to supply our end use customers, the spot price sometimes goes well above 15 cents a kilowatt hour or $150 a megawatt hour, if we’re defining it in megawatt hour terms. And when that spot price rises above the average retail rate of revenue that I would collect as a retail electric provider, the incentives switch over. We go from suddenly being a retail electric provider where I’m usually wanting to sell you more of the thing to make more revenue and more profit to having the opposite incentive. Suddenly, if I could, I’d like to actually not have you using that electricity because my cost is actually exceeding the amount of revenue I’ll collect from you. But that’s obviously not the typical thing. We’ve signed a contract and you have as a customer an unlimited option to use as much energy as you care to for 15 cents in my hypothetical example per kilowatt hour. But when that gap grows wider and wider still, it suddenly produces enough possible cost savings to make it worthwhile for me to rebate something to you to try to reduce your consumption. And it’s worthwhile for you, who would ordinarily probably be unconcerned about taking affirmative actions to reduce your use—it becomes worthwhile for you to do so. So the incentives are there for sure. And then the question is, can people really act on them? And in previous iterations of responsive demand, the answer would have been no. You didn’t have the metering to be able to register people’s consumption on any kind of a real-time basis. And then you wouldn’t have the back office settlement equipment software to actually process people’s bills on that kind of interval basis. That problem has been overcome in Texas. Smart Meter Texas retains and compiles a central repository of all smart meter data and you can read and settle people’s bills on that minute interval basis. Then the question becomes, well, do we have the technology? Is there sufficient automation in the system to allow people to do this so that they’re not having to take manual interventions that they wouldn’t do or would annoy them? But is there something automated in the system where, say, their smart thermostat can automatically respond or be subject to dispatch instructions from the retail electric provider to be able to adjust the temperature in a way that doesn’t require affirmative customer interventions, but with their overarching consent? That problem has also increasingly been solved. And we also finally see the flourishing of a lot more distributed energy resources in this market. Electric vehicles, home battery systems, rooftop solar, and other types of equipment that have turned consumers gradually from being kind of a passive demand side into being much, much more active. And the final ingredient to this is the fact that you do have this competitive retail market where suddenly retail electric providers are not just competing strictly around kind of the average retail price or on marketing, but on what kind of cool things they can get into your home and automate. That’s become a really important characteristic and in fact is the defining feature of certain REPs that we see entering into this market. And that actually, that last thing is what makes Texas really unique. You just don’t see that really nowhere else in the United States and only in a few places around the world. It’s pretty cool what’s going on here.Doug Lewin (08:45.198)Yeah, and I think a lot of that, Travis, and I know you obviously work all around the country, is a lot of the regulators in different markets are not sort of willing to kind of trust that function, that consumers can shop, that consumers can make informed choices. Obviously, you need consumer protection there and all those sorts of things, which I would argue Texas has. It can always be improved, can always be iterated on and made better. But at the end of the day, customers in Texas can now choose between, and I’m going to do something that’s like impolite and rude and name some of your competitors, but like some of them have been on the podcast before, Base Power, Octopus, David Energy, Tesla has its own retailer, right? So you see this—like there’s many, many more. I encourage people to go look at Power to Choose. You can see all the different offerings that are there, but what you’re talking about here, right, is this move from kind of a pure commodity, like I’m just delivering you a kilowatt hour and you’re competing to get one tenth or one one hundredth of a penny lower, to services—do you want a battery at your house? Because you’re getting tired of having outages. Are your bills consistently high and you’re worried about energy efficiency? Like retailers can offer those services and find that market fit. Right?Travis Kavulla (09:58.21)That’s right. And when regulators and policymakers decided to demonopolize these markets, they usually did so in tandem with telecom, which is, I think, a relevant example. And there were lots of debates. A lot of people skeptical of the demonopolization of AT&T, for example, questioned whether there would really be consumer interest and consumer protection. Why would people be interested in aggressively shopping around for long distance calling service? It just wasn’t that exciting. But we saw in the liberalization of the telecom market a technology revolution that ultimately ended in smartphones and a complete transformation of that industry. Electricity has well lagged behind that. But I think in the emergence of these distributed energy resource-based retail offerings, you’re beginning to see a trend line happening on the power side that has been consummated on the telecom side. So very exciting time to be in this industry for that reason.Doug Lewin (10:54.762)And you actually, I think through the University of Chicago syllabus turned me onto the book, Prophets of Regulation, P-R-O-P-H-E-T-S, Prophets of Regulation. It had a whole chapter, which is great, on Alfred Kahn from New York. And like people forget, I was talking to my kids about this the other day and I’m not quite old enough to remember this though it did happen during my lifetime. Many people in this room will remember this. There was a time when the government decided exactly how many planes could fly from point to point per day and exactly what the price would be. Right. And it was actually a Democratic administration under Carter that changed it. So we’ve seen in a number of different industries that competition can have all kinds of benefits. So what I want to get into next, Travis, is I think everybody’s hearing, if you’re around electricity, you’re around the electric industry, you’re hearing about data centers and this big load growth. It’s not just data centers, right? We’re seeing industrial electrification. Summers are getting hotter. So we’re seeing increased air conditioning use. We’re getting all of these different rising loads, transportation, on and on. But data centers is kind of the one driving the conversation and understandably so. I had a podcast with Tyler Norris a couple of months ago about his paper with his team at Duke that focused on if you had, I think the number was something like 1% of hours of data centers were flexible, you could free up a hundred gigawatts of capacity, like roughly 10% of the peak demand of the United States. In Texas, that number was 15 gigawatts, which is actually closer to 20% of peak demand. But everybody’s kind of focused right now, Travis, and not in a bad way, but I think maybe in a too limited, narrow way of not seeing some of the other possibilities, on the data center flexibility themselves. But the flexibility doesn’t have to just come from data centers. It could come from residential customers and small commercial customers. So take any part of that that you want, but I would love for you to talk about why at this moment with rising load growth is flexibility on the system, demand response, DERs, all those kinds of things, so important?Travis Kavulla (12:53.91)Yeah, I mean, we could have a long discussion about how much demand is going to grow, but we can probably stipulate for the purposes of this conversation that it will grow, right? And it has been growing, right? In most parts of the country, it’s a question of are we going to reverse a trend of decline and see growth? In Texas, it’s like how much more compound growth are you going to get year on year? And even if one-tenth of the ERCOT market forecast materializes, that is a step change in terms of demand growth in this industry. But then when you look to the question of what will supply that incremental growth? You know, it’s no secret that supply chain challenges, be it in the labor force, in turbine equipment, in batteries, is a real challenge. I mean, NRG is going to be bringing online new power generation, three gas plants over the next couple of years. But we were able to do that because we were paying for a place in line with one of the major turbine manufacturers for a good long while before that. So I’m confident that supply will eventually be able to catch up to demand, but the low hanging fruit really is then demand flexibility in the meantime. And you’re going to see emergent price signals from the ERCOT market that really begin incentivizing demand response in a big way. And to your point, it really, in a sense, it doesn’t matter where demand growth is arising from, because we’re all in this market together, right? So demand flexibility that comes out of a residential, a small commercial business, or a data center has the same rate of compensation, but different levels of obtainability, I suppose, within this market. And that’s what’s really created a focus for us recently on residential demand response, because we actually see that due to the technology transition I was earlier describing as being largely untapped relative to some of the larger commercial and industrial premises where demand response is a much more mature industry.Doug Lewin (14:52.566)And part of that is the incentive structure that exists right now. So, right? Like you were talking earlier about the 15 cent flat rate, right? So what is part of that for the customer and for the retailer that you cannot avoid is the flat rate for the transmission distribution charge, right? So it doesn’t matter whether it’s two in the morning, four in the afternoon, or it’s a winter morning or sun is going down and things are really scarce on the grid. Four or five, six cents, depending on what part of the state you’re in is flat for T&D. And you’ve written about that again in that great paper, which I can’t recommend highly enough. “Why is the Smart Grid So Dumb?” You had this phrase, “smart meters, dumb rates.” So, which I love. In Texas, like there’s some ability to deal with that with retailers and you see this, most of it’s probably nights and weekends, right? That’s probably the most common offering in Texas for those that are listening that aren’t from Texas. You can get these rates that are like basically free at night. I don’t actually live in a competitive area, so I don’t actually know, but something like that.Travis Kavulla (15:54.208)Buy a different house in a place that was competitive. I mean, come on. I know, that’s right. And to that point, I mean, there are some time of use offerings in the market. They tend to be free nights and weekends. But in general, rather than handing down the time varying price signal directly to the consumer, you instead have what we’ve seen in the retail market here anyways, is that you have properly incentivized retailers acting around the incentive that I earlier described, and they will take on the onus of automating sources of demand flexibility and try to capture that incentive, passing along savings then to consumers in the form of an adoption rebate or an ongoing rebate or a lower retail rate.Doug Lewin (16:36.194)Because I think really where we’re headed with this, and you were talking earlier about like if only one tenth of the demand projections of ERCOT, because ERCOT’s projecting I think 65-ish additional gigawatts of demand in the next four or five years, which is insane, right? Like an 85 gigawatt peak going to 150 in four or five years. But I think too often what we’re not talking about are the number of terawatt hours. So if we can start to—and this is where like the comparisons to some other industries get kind of interesting, right? Because when the airlines were fully regulated, it was very common to have 30 or 50% capacity. How many people have been on a plane lately with 30 or 50% capacity, right? Like they’re usually full, especially the longer you go, the fuller they are. So we need to be thinking about that. We have a system in ERCOT, which again, I think a very efficient market overall, still like 53% load factors. So really what we’re talking about here is designing rates that actually incent more use. And I know I’m in an energy efficiency crowd, I know this is a little bit—Travis Kavulla (17:35.982)Gonna get something thrown at you, Doug.Doug Lewin (17:39.352)But I would argue, and I am as big in energy efficiency, I’ll put my energy efficiency bona fides up against anybody. I am a deep, deep believer in energy efficiency. Part of energy efficiency is using more when that electrified use is more energy efficient. Transportation’s a great example. You’re not losing—and there’s all sorts of industrial applications. You don’t want to lose that waste heat. So really what we’re talking about here is trying to use more when there’s plenty and less when there’s not, so that we’re not going all the way up to 150 gigawatts in four years, but we’re still seeing all this growth in use, not necessarily peak demand.Travis Kavulla (18:17.89)Yeah, that’s right. So the system has a ton of fixed costs embedded in it, right? That don’t vary regardless of how much energy is used on the system. And there’s sort of a great division problem at the heart of utility regulatory economics. And it’s pretty simple. It’s math even I can do where you take the total dollars of fixed costs and you divide it by how much throughput there is on the system. And the quotient is the rate. That’s how much on a per kilowatt hour basis you’ll have to pay to recover the fixed costs. So the more volume you can use relative to those fixed costs, without tripping over and incurring a lot of additional fixed costs, the more efficient the system you have.Doug Lewin (19:00.842)Meaning lower cost because you’re spreading those costs out. Yeah. Okay. So that is all a big setup to, I think what I’m sure a lot of people in the audience and listening wherever they’re listening to their podcasts want to know about is NRG’s big plans for a virtual power plant. Because that really is like, that’s what a virtual power plant kind of is. It’s two things, right? It’s adding that supply in some cases, if you’ve got batteries or you can use an EV or that demand response can act as supply. But again, as you wrote in that, “Why is the Smart Grid So Dumb?”—part of the problem is we’re always trying to treat demand like it’s supply. And so part of what you’re also trying to do is treat demand like demand and actually shape it. The podcast I did with Jigar Shah, Blake Reketa said, “shape load perfectly, inject supply optimally.” Right. And so that’s really what a virtual power plant is kind of doing, like bringing up use during those lower points, bringing it down during the higher points, and where there is a battery or something like that, injecting it at just the right moment. So you guys are going down this road in a major way in a partnership with Google. You have a goal to get to a gigawatt by 2035. I’m hopeful you guys are going to hit that even way ahead of 2035. But talk about what is that offering and what it means for customers.Travis Kavulla (20:16.556)So since 2013, NRG has been allowing people to bring their own smart thermostats or to buy one as an incentive to join our retail electric provider’s demand response program. But candidly, it was always kind of a side program adjacent to some of our retail offerings. And last year we decided instead to put that really in the center of our retail electric offerings into the market, announcing this one gigawatt goal with Renew Home. And what really makes it work for us, I think, is the acquisition of Vivint, the smart home company that has a strong base of employees who can actually go out and install demand response-enabled smart thermostats into people’s homes. We’ve probably all had this experience. I know I’m enrolled in my utility’s energy efficiency program, which gives me like a free box of light bulbs occasionally that arrives on my doorstep, like in a FedEx package, whether I need them or not. And I hate to admit it, but the last box I received, I think four years ago, is still sitting there unopened and it’s now the stand for my laptop so that people are not having to look up my nose on Zoom. It is being used for its socially optimal purposes perhaps, but so being able to actually ensure that from the warehouse to people’s homes, you have this installation taking place gives us a lot more confidence in our ability to reach a goal like that. And then when we think in an increasingly supply constrained, candidly more expensive market environment for supply, we consider our virtual power plant really as a hedge against demand. Because you really, you know, when you begin thinking about this as a substitute for a gas peaker or for the purchase of an on-peak block of power that doesn’t actually fit very well against people’s air conditioning use trend, or against battery drawdowns, those things have an awful lot of capital expenditures behind them. And yeah, so do smart thermostats, but those smart thermostats look in some ways like a much better fit, a much better hedge against residential consumption than any of those other things, which are much more capital intensive. So to your point, you know, we started this, we announced this last year. This year we hit 150 megawatts of the goal, which is a ramp up several times our original expectations of where we would be in 2025.Doug Lewin (22:47.522)You’re already at 150 this year for 2025. That’s 2035.Travis Kavulla (22:52.334)I am prevented from making any statement as well. I mean, the current retail offering we have out there, and I think one of the reasons it has succeeded is that because people—I mean, we are all interested, I’m sure, in our smart thermostat and I have an app for my smart thermostat and I’m constantly adjusting it remotely. But most people don’t take the same kind of pleasure in just adjusting their thermostat all day long on their phone.Doug Lewin (23:20.098)You are a little different in that respect.Travis Kavulla (23:22.268)So our retail offering that’s in the market now we call Vivint Home Essentials. And in addition to getting the thermostat, people get a doorbell camera where you can watch people come and go for home security purposes or knowing when packages are arriving. And you get an app that, let me tell you, our engagement with that app, people check it on average more than a dozen times a day for the doorbell camera, but not for their energy use. But it is also the gateway into people taking a more active role in understanding their energy use. And it’s what gets people in the door to get that smart thermostat to begin with. And as long as you are an NRG retail electric provider customer, you get the Vivint Home Essentials package for free. So again, I think it’s one of these innovations you see arising from a competitive retail market, and it’s allowing us to gain trust and customer retention and value to customers, not just in the energy space, but across a wider economy of smart home in a way that plays back and adds value to them on the energy side and ultimately reliability to the grid.Doug Lewin (24:33.07)Yeah, that’s amazing. So 150 megawatts, obviously not a small number. That’s a good chunk. So, and yeah, 15% of the way to your goal for 10 years from now. I also just want to just dive a little deeper into the point you just made when you’re thinking as a load serving entity, because this could apply, by the way, also to municipal utilities and co-ops. They’ve got a load to serve. They’ve got to go to the market and find that block that is going to serve that customer in those really difficult to serve times. Maybe the sun’s going down and it’s 110 degrees out. It’s a winter morning, all those kinds of situations that cause a lot of panic and stress to people that are serving load in the industry. You can go out and buy that. You could build, buy. There’s lots of different things you can do, but this option, not only could it actually be better suited because you are bringing in this sort of untapped resource in the form of demand response. It’s also then that the customer is receiving some remuneration, whether it’s the thermostat itself or some ongoing payment. And one can sort of envision as this develops and becomes a more mature market, as markets are wont to do, you start to see where customers’ prices are, right? Some customers are just very willing to—like, maybe they’re not at home a lot. They travel a lot, you know, it’s just a very low price to reduce on that peak. Others are like, I have an elderly family member or whatever. There’s a price, but it’s going to be higher and maybe you’ve got to pre-cool my home for that. And those market preferences start to get discovered and all that’s interesting. But I think the main point I want to make is where that capital is flowing is then into the customer. That’s huge, right? Especially as, as you said, prices are likely going higher as we’re getting more demand on the system. Affordability is a huge problem all over. And Texas has pretty low rates, but we have pretty high bills because of usage. So are you guys seeing that? Are customers actually able to reduce their bills yet? Or at this point, is it more like get the device and then the savings are coming later? What are you seeing in that?Travis Kavulla (26:42.646)Yeah, I mean, people are able to monetize their demand flexibility right now. And it’s, you know, not just us, but other retail electric providers who are exploring ways to do this. But I agree with your hypothesis that we’ll see increasingly more depth into what people are doing in that way. For now, it has just been an important psychological change. I mean, to be fully candid, I started with NRG six years ago and, you know, I joined a company that thought of itself as a power generator. And our corporate DNA, whatever it once was, it really is not that anymore. I mean, we—very kind of quick change in our DNA. And I think now we view ourselves as just much more customer centric. And I think that will be to the great advantage of big interests in this market to stop thinking of themselves as people who are producing something for the passive consumption of a big group of customers and really thinking about what customers need, what they want, how you can more efficiently serve them in a challenging market environment.Doug Lewin (27:46.956)More energy services than merely energy supply. Absolutely. Okay. Before we get back to the conversation, a quick word from our sponsor. The second annual Aurora Energy Transition Forum is returning to New York on October 21st. Participate alongside senior leaders from utilities, finance, government, and technology to address America’s energy transition challenges and solutions. You can explore grid reliability, AI’s impact, capital flows, and strategic investments all in one high-level gathering. You can register now and also find Aurora’s excellent research, including several great presentations on Texas and Texas energy at their website, www.auroraer.com. That’s A-U-R-O-R-A-E-R.com, and we’ll have a link in the show notes. Now let’s jump back into the conversation. All right, so I don’t know how much folks in this room are following this, but ERCOT has put forward a proposal to get more demand response. So to its credit, ERCOT as an institution has figured out that in order to really have a—you can fill in the blank with a lot of different words—reliable, resilient, affordable, sustainable, you put a number of different words in there, you do need this two-sided market, you need demand. So they have proposed NPRR 1296. Can you talk a little bit about what that program is and what your thoughts are? Obviously, it’s going to go through different iterations. It’s going to change. But as it’s currently proposed, what are your thoughts?Travis Kavulla (29:18.71)Yeah. So ERCOT has an existing demand response product, ERS—Doug Lewin (29:24.558)Emergency Response Service.Travis Kavulla (29:35.058)Thank you, Doug. And it’s safe to say that even though it’s hypothetically open to all customers, that really it has been taken up by larger commercial and industrial customers.Doug Lewin (29:35.058)And as a matter of fact, at the ERCOT board meeting a couple days from when we’re recording, this will happen next week, 22nd, 23rd, something like that, there is a slide on ERS that shows where it’s all going and about half is Bitcoin. And then there’s lots of small slices. And I didn’t see any of those slices named residential.Travis Kavulla (29:52.962)Right. So the proposal we’re talking about is ERCOT’s attempt to make things, I think, a little bit more equitable and participatory for residential customers in their market. Candidly, it’s not a large proposal. It’s 500 megawatts capped, or if you translate it into volumes, 9,000 megawatt hours. But what it would do is make some kind of a payment when during the tightest supplied hours, the peak net load hours, residential customers reduce their consumption relative to a representative sample of customers. So because of smart metering, you have a very good sampling cohort of residential customers. And when the group of enrolled residential customers in this program reduce their use during tight hours of supply, their retailer would be paid a bonus in essence, augmenting the value of this demand response into the market. I think that’s an important step because it does put residential customers on a more even footing with the large commercial and industrial customers. It also addresses one problem that does exist in this market for residential demand response. And it’s a feature, not a bug. But, you know, of course the premise of competitive retail markets is that customers can choose and customers are frequently choosing to go back and forth between retailers. What that means for retailers who are making investments in smart thermostats is that if I give a customer a smart thermostat for free, pay for someone to install it, and then the next year the customer, as is their right, chooses to go to another provider, I’ve just stranded an asset. And maybe that year was a weak one in the energy market, so the smart thermostat didn’t actually pay for itself. You end up losing money. So this is a revenue stream that is an offset, I would say, against some of the hardware costs that are necessary to facilitate residential demand response en masse. Retailers are going to still have to bear a lot of their own program operating costs, a big chunk of the hardware costs. But this is sort of a nudge realizing that it’s unlike a power plant where, you know, the power plant can’t just grow legs and walk away from you. I own it for goodness sakes. But realizing that the capital stock in smart thermostats and other DERs doesn’t work the same way, this is a little nudge to get that over the hump. And, you know, looking at it, and we’ll have a study coming out soon, you would see a lot faster still adoption of enrolled smart thermostats in retailers’ programs. If we did this, it would probably double or triple the gross margin available to pay for program costs and to rebate to customers. So it’s a big step in the right direction. There are disagreements about it, and this is an example, frankly, of where NRG has departed from some of its generator brethren. I think if you’re looking at this as a pure power generator, you’re saying, well, wait a minute, that’s going to erode the scarcity prices in the ERCOT market that are intended to send me signals for my investment in power generation. And although I, to some degree, agree that it will have a somewhat erosive effect on those scarcity prices, I ultimately get myself on the side of this program because we are really in an all hands on deck moment. And I might not feel this way if we were not living in a moment of profound demand growth, but right now it seems prudent, is the word I would use, to really have programs like this. And I think ERCOT actually deserves some credit for not just having, as we’ve often seen, a bunch of little programs that function to funnel money to large customers or to generators without paying any attention to the possible contributions to reliability of residential customers. It’s really great to see them taking a leadership role in that respect.Doug Lewin (33:34.382)Yeah, I agree. So you said that program, it’s going to be 500 megawatts, right? I think they’re capping it at 500. You said with your VPP, where you aim to get a thousand by 2035, you’re up to 150 in the first year or second year, whatever it is. And you’re just one retailer. I think the main thing I’m thinking about with this is just as we need flexibility in the market, I’m hoping ERCOT will be flexible with its design because I think there’s probably ways to use those dollars even more efficiently to create and/or stimulate markets for load-serving entities, but you can’t learn unless you do. So I’m glad they’re getting started and not just like studying the thing to death. So that’s good. Related to that, again, we’re at the SPEER Policy and Industry Workshop. There’s a lot of discussion here about the utility efficiency programs. Texas has utility efficiency programs that have existed since the market was restructured back in ‘99, or maybe it started a couple years after that, whatever, 2002, somewhere in there. So, over 20 years, a couple hundred million dollars in spending. As a retailer, are you all able to access some of those funds to solve the exact problem you were talking about? It’s like, how do you get the devices in that serve the whole market, even if they leave you? Although, does the next load-serving entity use that? There’s questions there, it is difficult. But how is that working as far as like utilities working with the competitive providers who actually have the relationship with the customer? Because some things, and again, I’m mindful that some folks in the room aren’t from Texas and don’t work here every day. A lot of listeners are from different parts of the country or the world. In Texas, the bill is not generated by that regulated transmission distribution utility. When they get a bill, they see your brands like Reliant or Green Mountain or the others I mentioned earlier, or TXU or whatever the brand is. So that’s the one who actually is interfacing with the customer. What are you guys seeing as far as opportunities there? And what would you like to see going forward that maybe could stimulate more of these demand side resources?Travis Kavulla (35:37.966)Yeah, and you’re right. I mean, the whole premise of Texas’s restructuring is that the retail customer relationship is between the retail electric provider and customers. And companies that do distributed energy resources for a living, some of them have decided in their Texas exegesis to reinvent themselves as retail electric providers, even though that’s probably not the business model they would have anywhere else in the country. And that is, again, because of Texas’s leadership role and commitment to having this vibrant retail market. So I do think it’s important to channel activities through that market rather than have, you know, multiple different business models trying to serve people in a retail relationship. You know, credit to CenterPoint and Oncor over the last couple of years, they’ve included in their energy efficiency implementation plans some funding for smart thermostat hardware that channels through the REP. There are similar programs for some of the C&I efficiency programs as well. You know, just in my history of being a regulator myself, the thing that I’m always on the lookout for in these energy efficiency programs is a sometimes, and I’m not saying this exists in Texas and I don’t know much about Oklahoma, so forgive me, but I’ve definitely seen it in other places where energy efficiency and demand response providers working in these utility programs end up not seeing the actual end use customer as their customer because they view the utility as their customer. They’re a vendor to the utility or the revenue comes from the utility. It’s the utility who can hire and fire you as a supplier into that market. And that seems like the opposite of the model that you would want and not one that ultimately is going to produce good outcomes for customers. So I think in the way Texas designs these programs, because I agree with you, I think that there should be some level of public support to address what might be a market failure in certain respects, but I think it would be a mistake not to try to more leverage the competitive retail market and to augment that market and to try to kickstart it and get retailers thinking more about customer-centric solutions. So that’s the frame of mind that I approach those programs with.Doug Lewin (37:55.19)Got it. So for those that are interested in these utility efficiency programs and what ERCOT is doing, whether through the DR rollout that they’re just starting, the aggregated distributed energy resource pilot that’s been going on for a longer time, or any number of different issues, there will be meetings coming up over the next couple of years of the Texas Energy Waste Advisory Council. This was from a bill, I think it was HB 5323. It might’ve been a Senate bill that passed, but whatever it was, it will create this council to get into exactly these kinds of issues. Because I do think as we talked about earlier, I’ll read just a very brief quote from that, “Why is the Smart Grid So Dumb?” You said a lot of times the programs should move away from saving energy across all hours and focus on investments that can activate demand at times when energy is scarce. So I think of like everything we’ve been talking about, but also a sort of a pet peeve of mine that most in the crowd will probably know where I’m going next. Resistance heat and heat pumps. This is one of the biggest problems we have in Texas. And I talked about it here at this conference a year ago with Chairman Gleeson of the Texas PUC that we have this major problem of winter nights and mornings. It’s still a problem. And I want to be clear. I think if we got the exact same temperatures and system as Winter Storm Uri, the outages would not be as deep, I do think there would probably be outages. And one of the reasons I say that is there was a state auditor report just out last month about the Railroad Commission inspections of the gas fields. And out of 8,700 inspections, they communicated with exactly two people. Communicated. So that means even like not just violations, just like saying, hey, here’s something you could do better. They only sent two out of 8,700. I’m worried about the gas field still. I think that ERCOT and PUC, as you know, as a generator, have done a really good job with the power plant inspection piece. So there’s three main problems: gas supply, power plants, and then demand. And we still haven’t really addressed, in my view anyway, that demand piece. There are increased utility efficiency programs for heat pumps, but as of the last date I’ve seen, it’s a couple of years old. We’re talking about differences of going from like 10 megawatts of savings to 20. When ERCOT commissioned a study from—I know you’re wearing your Longhorn socks today, but shout out to our Aggie brothers and sisters—20,000 megawatts of economic potential is out there from heat pumps. So what I’m getting at is, is there a way while we’re doing this work on DR, ERCOT’s doing this work on DR, you guys have this VPP—is, I think it’s fair to say more focused on thermostats. Is there a way to leverage competitive forces to get to the permanent DR, the permanent demand reduction in the form of moving from resistance heat to heat pumps, which, and I’m going to turn it over to you. I know this is like the longest question ever asked, but which I would point out is not just a reliability improvement, but affordability too, because in those wintertime periods where you’re using resistance heat, if you’re in an apartment, that 5kW strip is just running. You’re using 5kW flat out through the night. It’s a major affordability issue too. So huge opportunity. So is there a way that we can use markets to actually drive energy efficiency investment and improvements?Travis Kavulla (41:20.418)Yeah. So to your point, I think sharp-shooting those summer peaks that tend to occur even within the same summer can produce a lot of savings opportunities year on year because of the design of ERCOT’s energy-only market. I don’t want to call that easy, but that’s something that’s very investable with some of the augments that we’ve talked about before from ERCOT and energy efficiency programs. You know, it’s a lot harder just from a kind of a private capital economics perspective, you know, to justify demand response investments to contour demand, to try to prevent an event that we hope will never happen again. But if it does, it’s likely not going to happen year on year on year. Thank God. And so, you know, when I look at problems of economics like that, that does seem to call for, you know, probably a different approach, more public spending, some kind of justification for some other way because it may not, other than consumers being willing to make private investments directly into heat pumps, you may not see at least the retail electric provider market form around that. But I do agree with you, Doug, that it’s a problem. And I know you looked at some of our load analysis after Winter Storm Uri. NRG studied 5,000 residential customers in the Texas north load zone. These were electric heat customers and they were not interrupted during Winter Storm Uri. They were some of the fortunate ones who were on circuits that were not interrupted, but it gave us the opportunity to see how much electricity they were using. Probably with resistance heat, and at the height of that storm, those customers were using something like two times the electricity that they would be using on like a 90, 95 degree day for air conditioning. So that is a huge amount of electricity usage. And when we look back at Uri, you know, it had two parts, right? It was supply going missing due to fuels and generation. It was also just demand soaring to astronomical levels and not being able to be supplied. So I share your concern and, you know, I don’t throw around the term market failure loosely, but it is difficult to get an energy-only market to make, you know, solid demand side investments to hedge against a one in 10, one in a hundred year, whatever we’re calling it event.Doug Lewin (43:49.9)Yeah. And this is something I’m hoping does come out through that Texas Energy Waste Advisory Council and the PUC. Now to its credit, we’ve given some praise to ERCOT. I’ll heap some praise on the PUC too for going from one part-time person a few years ago on energy efficiency to a division of three, three and a half folks working on energy efficiency. So if we can really kind of train those programs on what is that big weakness by getting the solution out there, heat pumps, which then also help in the summer too, right? There’s just, there’s all these check marks where no matter what the box you’re trying to check, heat pumps really check a whole lot of those.Travis Kavulla (44:27.639)And a shout out just because I come from a commission background. I know we have some commission staffers here today. Thank you for your public service. And I’ll say, you know, the Texas commission is in the unique position of regulating because it is an intra-state market for generation, both the wholesale market and ERCOT, as well as the demand side. But for people listening to this podcast elsewhere, I often encounter utility commissions and they seem so focused on basically making themselves into a stakeholder complaining about what an RTO that’s subject to FERC jurisdiction is doing on the market design. Sounds awful. And they spend like less than 5% of their time focused on demand side issues, which are exclusively jurisdictional to state governments in the United States, but have really not had an appropriate amount of attention paid to them. They have attention, and I’m getting on the soapbox, and this is the premise of the “Why is the Smart Grid So Dumb?” paper. They pay attention to them when it comes time to make capital investments in advanced metering. But then, and this doesn’t apply to Texas, but a lot of other places, then those advanced metering investments really don’t get used to transform the customer experience in any meaningful way. The capital productivity of those investments is very low.Doug Lewin (45:43.886)A quick thank you to our sponsor for supporting the Energy Capital Podcast. Hey, everyone. Doug Lewin here. I wanted to let you know about the InterSolar Energy Storage North America Conference and Expo, which will be happening November 18th and 19th up in Grapevine. On the first day of that, to open the conference, I’ll be on a keynote session, 18th in the morning. It’ll be called Power Policy and the Path Forward: Texas Legislation in the National Context. This is a great place to go if you’re interested in what’s going on in Texas, what’s going on nationally. This panel is going to be incredible. I’m excited to be on it, but I’m definitely bringing the average down. There’s going be all kinds of great speakers on that one. And throughout the two days, I will also be moderating a panel on Texas’s $1.8 billion program to put microgrids and backup power at critical facilities. That’ll be in the afternoon of the 18th and I’m staying through the 19th. So hopefully I will see you there. Let me know if you’re gonna make it. Look forward to either meeting you or catching up there. InterSolar and Energy Storage, North America, Grapevine, November 18th, 19th. Be there. All right, let’s get back to the show.Doug Lewin (46:50.178)On the point of talking about public utility commissions and what they do. You do these great presentations. Anytime you do them, I try to go through them, even though there’s some like repetition in there. It’s great as a reminder for me. And I was looking at one you did in, I think it was Virginia recently as different states are sometimes because the legislature tells them to, sometimes by their own volition, commissions are looking at what actually is performance-based regulation. And when you talk about “Why the Smart Grid So Dumb,” the utility, obviously the smart meters are rate-based, right? So you put out the device and you get your nine and a half, 10, 10 and a half percent on all of the smart grids that are put out there. Actually using the smart meters to reduce consumption, to help customers reduce their bill, to make the grid more reliable, those things aren’t necessarily incented though they could be. So can you talk a little bit about, let’s in the context of this conversation, like, are there elements of performance-based regulation that could actually help stimulate some of the demand side activity we’ve been talking about?Travis Kavulla (47:59.35)Yeah, I think so. It’s a long putt to get there because we’re starting from a situation, honestly, which looks very different from probably the ideal end state. But yeah, to put it simply, you’re correct. I mean, in most of the United States, basically nearly all states, you have a regulatory regime called cost of service regulation. And the premise is pretty simple. The more capital I spend as a utility, the more profit I make. Spend more, make more. Meanwhile, if I use the capital assets more efficiently that I’ve invested in, there is no additional profit for me. And what it actually might mean is that I obviate the need for future capital investments. So perverse incentive. Don’t want to do that. And there’s a whole family of incentives that are bad that flow out of this. I mean, you will never make more profit as a regulated utility than you will the very first year that you own something. Whereas of course in most ordinary businesses, right, you want to own it free and clear. And then it’s all cashflow from whatever you’re using that capital asset to do. So we’ve managed to bake our way into a system where the incentives are probably not well aligned with consumer outcomes. And in fact, over the years we’ve in certain states, we’ve almost made it worse because the one disciplining factor would have been a lag between the time a utility spent money on capital investments and when they could ultimately start getting it recovered from ratepayers. And nowadays, many commissions have cost adjustment clauses or trackers or factors that basically cause those investments to be recouped almost as quickly as they are made. And that further diminishes any incentive a utility might have to make operating expenditures patch in for what would otherwise be filled in with capital needs. And the final consideration, very relevant to this audience, to businesses like mine as well, because you earn no return on your operating expenditures under cost of service regulation. You get them recouped, but you don’t earn a return on them. It creates an incentive basically for the utility to own literally everything they would need to do rather than to contract with third parties for anything. And if, you know, ultimately they do have to contract with third parties, then they might come in and ask for margin on that too, but typically they would earn no return. So a better way of doing this, and it’s, I think, well documented in the literature, it’s what I had to say in Virginia, you know, is probably to try to put utilities on some kind of a budget and have them manage to that budget over a sequence of a number of years. And that would give them a profit motive, because I’m not saying we should just make utilities behave more efficiently. I’m a great believer in incentives. It would give them a financial incentive to engage in the same logic of trade-offs that every other business in the economy does, deciding whether to do CapEx or OpEx, deciding whether to do it yourself versus hiring someone else to do it. And I think ultimately that would lead to, you know, a much more customer-centric place. This is not to say that the grid doesn’t need a lot of capital investment. Clearly it does. But we want actors behaving and making trade-offs intelligently.Doug Lewin (51:17.794)And as I’ve talked about a lot on the pod and written about a lot, the fastest rising part of the electric grid as far as costs is distribution. So, and this is relevant to Texas. We don’t have to deal with the cost of service for generation, which is great, at least within ERCOT. There’s a very active thing, right? With Entergy and then PUC just put a cost cap on their generation in East Texas. But in ERCOT, we don’t have to deal with that on generation, but obviously do on distribution and transmission. So all of what you’re talking about there, those trackers, like all of that exists in Texas. So this conversation is very relevant here. The one last thing I want to ask you about, and it’s not a small thing, but we can at least kind of tee it up. And this is going to play out over the next year, year and a half in Texas, but is the 4CP system. So when you talk about transmission distribution utilities and how they’re actually collecting that revenue from customers, there’s a strong market signal to the very large customers to reduce their use during the four coincident peaks, June, July, August, September. If they reduce that down to zero, theoretically, they could pay basically no transmission distribution charge. You’ve written about this again, this is in that “Why is the Smart Grid So Dumb?” The idea that Texas policymakers had to not have residential customers exposed to that, right, is like, these are not necessarily sophisticated customers to your point. They’re looking at the front door on the app, not the energy use a dozen times a day, and they shouldn’t have to look at energy use a dozen times. They should have to look at energy use no times a day if they so choose. But there are entities in Texas that could have that price signal of reducing at peak. So we are going to go through a process because the legislature has basically told the PUC to review 4CP and possibly redo it, which is going to happen in the second half of next year. Can you just talk a little bit about, again, as a retail electric provider, actually, at least as I read your paper, wanting that exposure and risk because it could bring more of that two-sided market, bring demand into the market?Travis Kavulla (53:20.718)Yeah. And I think that might be kind of a future step from where the process is now, but I guess I’ll confine myself for the moment to just talk about the status quo, which I think is pretty unfair. And you’ve described it well, which is that we have effectively faced large industrial customers with an incentive that ranges between what amounts to $10,000 and $20,000 a megawatt hour that they’re able to avoid in costs if they correctly guess and get offline during those four 15-minute intervals of 4CP. And by and by what that has done is created a system where a lot of the fixed costs of the grid are effectively shifted onto other customers. And to your point, those customers have no ability, even if they wanted to, to avoid those costs. And that’s led us to a situation where residential customers in the competitive market in Texas use a third of the energy, but they pay for half of the transmission grid. And this is especially acute because the total costs in the transmission system have risen dramatically, like 120% over the last 10 years.Doug Lewin (54:27.448)Transmission and distribution, it’s both.Travis Kavulla (54:30.872)Yep. And so three times the rate of inflation. And then we’re now talking about spending another $30 billion in the transmission system, which will double the ERCOT transmission revenue requirement.Doug Lewin (54:43.246)So we have to fix that.Travis Kavulla (54:44.786)We have to fix it and the legislature deserves a lot of credit for including that provision in Senate Bill 6 to address large load issues and giving it to the commission to kick off. So the first step in this process I think is probably just to fix the upstream allocation of those costs to try to make sure and maybe it’s just going from 4CP to 12CP or something which would bring in—Doug Lewin (55:07.074)Winter months, which would be great.Travis Kavulla (55:09.051)And we know the grid is not just planned for the summer, right? It’s kind of a year-round thing we’ve got going on here. And so that broadens the base and would lead to a more likely outcome where transmission rates would still be tied in some sense to a demand-based allocation, realizing that some investments in the system transmission grid are related to peaks, but it would broaden the base substantially and lead to a more equitable allocation between residential customers and everyone else. I know it sounds wonky, but this topic is kind of the major affordability issue in Texas energy today because while I know we’re concerned about rising supply costs, ultimately supply costs work on fundamentals. And once you get supply, those costs fall. In my experience, I haven’t seen a lot of regulated costs go up and down over time. They tend to be unidirectional up. So while we’re busy fixing the incentives and trying to control some of those costs to begin with, we should also be very attentive to how those costs are getting allocated. And it’s especially acute. This is my last comment on the soapbox because so much of the incremental spending on the grid is being done on the premise that we need it to serve the growth in large customer loads. So it would be especially wrong to then have an allocation system where the very customers we are building out the grid for are allowed to avoid those costs. We cannot have that in good conscience.Doug Lewin (56:37.486)This will be one of the biggest issues at the PUC over the next year, year and a half. And just to go a little further on your comment about the legislature, I also give a lot of credit to the legislature for not trying to prescriptively handle this in legislation, which would have been a mess. So kudos to the legislature for tasking the PUC to do it. Sorry, PUC, but it’s an important job. All right. Thanks to SPEER for bringing everybody together. Please all join me in thanking Travis Kavulla for being here today.Doug Lewin (57:04.856)Thanks for tuning in to the Energy Capital Podcast. If you got something out of this conversation, please share the podcast with a friend, family member or colleague and subscribe to the newsletter at douglewin.com. That’s where you’ll find all the stories where I break down the biggest things happening in Texas energy, national energy policy, markets, technology policy. It’s all there. You can also follow along at LinkedIn. You can find me there and at Twitter, Doug Lewin Energy, as well as YouTube, Doug Lewin Energy. Please follow me in all the places. Big thanks to Nathan Peavey, our producer, for making these episodes sound so crystal clear and good, and to Ari Lewin for writing the music.Until next time, please stay curious and stay engaged. Let’s keep building a better energy future. Thanks for listening. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.douglewin.com/subscribe

In Part 1 of my conversation with economist Lynne Kiesling, we traced how monopoly utilities and central planning helped electrify the country. That model worked. Economies of scale and guaranteed returns brought capital into the system, and within a few decades, nearly every home had electricity.But the world has changed. Technologies are smaller, decentralized, and more flexible. Risks are more complex. Consumers expect more than just “the light turns on.” In some areas, the old model now creates perverse incentives: rewarding capital spending over performance, insulating utilities from risk, and slowing innovation.So the question is: what comes next?In Part 2, we explore how markets can evolve beyond wholesale and retail competition to tackle the next frontier: risk allocation, demand-side flexibility, and performance-based regulation. And we look at how AI-driven data centers are testing the limits of the old model while creating new opportunities for Texas to lead.Markets as Error CorrectionMarkets don’t just allocate resources, they correct errors.As Lynne explained:“If someone has made an investment and… we’ve built too many gas power plants, and we’re not earning profits on that, that’s a signal to me that I need to take my money and put it somewhere else.”That’s how we avoid repeating mistakes. Yet in the utility model, many risks never reach shareholders. After Hurricane Beryl, for example, CenterPoint admitted its failures but still posted a billion dollars in profits. Consumers bore the outage costs, while investors stayed insulated.The missing piece: markets for risk. Today, outage risk, rate risk, and weather risk aren’t fully priced or traded. Post-Uri, some generators took huge hits while others profited. That’s markets working. But for regulated utilities, risk rarely lands where it should.Of course, markets don’t solve everything on their own. Consumers need protection against fraud and market manipulation, and regulators still have a vital role in setting guardrails. The goal isn’t to remove oversight, but to let markets do what they do best, deliver solutions faster than central planning.Demand FlexibilityFor decades, demand seemed inelastic. People flipped a switch, the light came on, and rates averaged out costs. But digital automation has changed the game. Devices from EV chargers to air conditioners to fridges can now respond to prices automatically.“We could find that there is a lot more latent flexibility on the demand side that would not inconvenience or discomfort consumers.” - Lynne KieslingImagine refrigerators with backup batteries. When the grid is stressed, those batteries could keep food cold without drawing power, creating resilience for the household and flexibility for the grid.Markets can unlock this value. Today, no one pays you for your fridge’s flexibility. But if performance-based regulation and transactive energy systems take hold, millions of small, automated actions could add up to major resilience.Performance Over SpendingRate-of-return regulation rewards utilities for spending capital, not necessarily for delivering better outcomes. Lynne contrasted that with price-cap or performance-based systems:* Rate-of-return: utilities get a guaranteed return, no matter the outcome.* Price-cap: utilities must meet quality requirements under a certain cost* Performance-based regulation: rewards improvements in reliability, efficiency, or customer service, usually removes incentives for capital spending and removes disincentives for operational expenses“If I were rewriting utility regulation, there would be a penalty structure on your ROE depending on your [reliability] scores.”- Lynne KieslingAligning incentives with performance instead of capital spending could drive innovation from transmission and distribution utilities.AI and Data Centers: The Demand TsunamiPerhaps the most urgent shift is the rise of AI and hyperscale data centers. The International Energy Agency projects global data center demand will double by 2030.In the U.S., McKinsey forecasts a 23% compound annual growth rate through 2030, adding 400 terawatt hours of new demand, the equivalent of adding another Texas in just a few years.Utilities, designed for less dramatic acceleration, can’t match that pace. Data centers are already seeking alternatives: onsite solar + storage, natural gas peakers, geothermal pilots, and even small modular reactors.Texas has a leg up. In many states, large customers are captive even for their generating resources to the monopoly utility. In ERCOT, they can contract directly with generators. That flexibility is why AI companies are flocking here and why Texas can continue to lead.The Texas Energy and Power Newsletter is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.From Capacity to CapabilitiesThe old system was built on capacity: how many megawatts you could generate or consume at peak. But AI and automation are shifting the paradigm.Most data centers won’t run at full tilt 24/7. Their true value — and the value of generation — lies in capabilities, how much load (or supply) they can flex, when, and where.“Capability and flexibility, with that intersection with time and location, that is kind of everything going forward.” - Doug LewinTexas must evolve its mindset. It’s not just about building more capacity. It’s about enabling capabilities: flexibility, automation, and responsiveness that can balance reliability and cost in real time.Final ThoughtsTexas built a world-class wholesale market by letting price signals communicate. The next step is to let that principle flow into risk markets, demand-side markets, and distribution markets.Markets, as Lynne Kiesling reminded us, are a discovery process. If we reward performance, enable innovation, and let capabilities speak louder than capacity, Texas can not only handle the AI and data center surge — we can do so while increasing reliability and lowering costs for residential and small commercial customers.That’s how we keep build out the grid and meet the challenges of the 21st century.If this resonated, share it with a colleague who cares about Texas energy. And if you haven’t yet, subscribe for more conversations and insights on the future of the grid.Sponsored by Aurora Energy ResearchAurora Energy Research provides leading analysis of global electricity markets. Explore their insights on the Energy Unplugged podcast and join their Energy Transition Forum in New York on October 21. Details at auroraer.comTimestamps* 00:00 – Welcome and Part 2 overview* 01:30 – Why central planning doesn’t work; next frontier: demand side* 04:30 – Markets as error correction, markets for risk including for fully regulated monopoly utilities* 08:30 – Demand flexibility via automation vs. customer actions* 12:00 – Transactive energy and user-friendly customer interfaces* 14:00 – Price cap regulation and performance-based regulation* 17:00 – Metrics for price cap and performance-based regulation* 20:30 – Sponsor: Aurora Energy Transition Forum* 22:30 – How AI data centers are reshaping demand* 25:30 – Make-or-buy decisions for AI infrastructure companies* 30:00 – Contracting for power in Texas* 32:00 – Crusoe, flare gas to power* 34:00 – Data center flexibility: reducing peak while overall energy use increases* 35:45 – Why we should talk about capabilities not capacity* 37:00 – Closing, where to find Lynne* 38:00 – Credits and thanksResourcesGuest• Lynne Kiesling - LinkedIn, Knowledge Problem (Substack)Company & Industry News• Google, Kairos Power, TVA collaborate on advanced nuclear• Reuters, Google to buy power from Kairos SMRs• Google, Fervo geothermal project operational• Crusoe secures 4.5 GW for AI data centersBooks & Articles Discussed• Alfred Kahn – The Economics of Regulation (two volumes)• IEA report on data center energy consumption • McKinsey report estimating 23% CAGR in U.S. data center electricity demandRelated Energy Capital PodcastsRelated Substack Posts by Doug• Why Are Utility Bills Rising So Fast?• Large Load Queue Has Tripled in Texas (Grid Roundup #76)• Solar and Storage Help Reliability (Grid Roundup #68)• Rapid Demand Growth Outpaced by New Supply in Texas (Grid Round #70)• Energy Pragmatism, A Path to Abundance🌐 Doug’s Platforms• Substack• LinkedIn• YouTube• X (Twitter)TranscriptDoug Lewin (00:06.05)Welcome to the Energy Capital Podcast. I’m your host, Doug Lewin. This is part two of my interview with Lynne Kiesling. She is a professor and historian of economics at Northwestern University and a non-resident fellow at the American Enterprise Institute. She is one of the smartest people on markets, particularly electric markets, anywhere. If you haven’t listened to part one, go back and listen to that first, because we get into some of the history, kind of bringing us up to the present. And then in this conversation, we talk a whole lot about the state of current electric markets, data centers and AI demand, risk allocation, and why that really matters for the grid of the future. You know, obviously this is a discussion going on all around the United States and around the world. And a lot of folks think that it doesn’t apply to Texas because we do have competitive generation and retail, but there is the potential for markets and price discovery on the distribution grid. And that is, as I talked about in the previous podcast with Charles Hua, the fastest rising part of the cost of the grid is on the distribution side. And even in a state as competitive as Texas is, there is no competition on that side. And there is a really important set of questions which we get into here as to whether or not that should remain the case. So with nothing further, enjoy part two of my discussion with Lynne Kiesling. And as always, please, please like and share the Texas Energy and Power Newsletter, the Energy Capital podcast. Please become a paid subscriber if you aren’t already—get access to lots of paid episodes that otherwise aren’t available, as well as great roundups, reading and podcast picks, the full archives, and leave us a five-star review wherever you listen. With that, enjoy the show. Thank you.And I just think that sometimes, particularly in the systems where they’re fully vertically integrated utilities, you are putting the regulator in a position where they have to be perfect and they can’t. That’s why central planning doesn’t work. So what I’m trying to figure out is like, what is the next evolution of competition? Because I think Texas—and again, you study this stuff all over the world, so correct me if I’m wrong—but I think Texas is pretty cutting edge on wholesale and retail competition. It seems to me like that next frontier is the demand side, is the distribution grid. Is the next frontier something different? But if it is that, how does some amount of that price discovery and system of telecommunications that a market actually begins?Lynne Kiesling (02:38.466)Yeah, I agree with you on the demand side. We’ll come to that. The other thing that I think a lot of people who aren’t economists—and even a lot of economists actually don’t think about this—but a lot of people who don’t think about markets don’t necessarily realize that the other important role that markets play in our lives is error correction. Right? So if someone has made an investment and they’ve, you know, we’ve built too many gas power plants, we’re not earning profits on that. That’s a signal to me that I need to take my money and put it somewhere else. That’s a really, really important and fundamental role for helping us to get the most benefit out of what we do. And that’s important.The other thing that—and I think this is really crystallized post-Winter Storm Uri and Winter Storm Elliott in PJM—with the kind of growing concern about winter peaking and summer peaking systems, where it just used to be summer peaking, is one of the things that these dynamics are revealing to us is that we’ve designed electricity markets. And I’d use the word “design” deliberately because we as humans have been engaging in exchange for 14,000 years. And so exchange and markets are a very evolved, emergent social phenomenon. And so over the course of 14,000 years, we’ve developed certain practices, certain behaviors, certain things that evolve into rules that get codified into laws and get codified into market design. A lot of that gets reflected in the fact that these electricity markets are very designed, but it’s because they’re kind of born in captivity. They’re not emergent phenomena.But one of the rules that is very—and I would argue the thing that has been the most crucial deliverer of benefit to consumers and of producer surplus—is just the move to security-constrained economic dispatch. So if you say, “All right, we’re going to run the power flow optimization and you generators, you submit your bids and we’re going to stack you from lowest to highest bids and we’re going to run the power flow. And that’s how we’re going to tell who gets dispatched.” I mean, that in and of itself, even if you didn’t do anything else, that would account for most of the benefit.The place that we haven’t—and Uri and Elliott have really revealed this to us—the place that we haven’t really done as good a job is we haven’t paid as good of attention to markets for risk and that we have very incomplete markets for risk allocation. So things like the ability for a gas supplier to claim force majeure—and so force majeure is a big wedge that fractures risk allocation. And the fact that we as customers bear outage risk, we bear rate risk on the regulated portions of the bill. And frankly, and here I’m channeling my colleague Josh Macy in saying this, the utility shareholders are insulated from a lot of those risks because of the kind of utility ROE dynamic. And so figuring out and digging into how we can do a better job of assessing risk and allowing for transactions in risk to be better is, I think, the next frontier on that side, even before we get to demand. But in SCAD, when you think about security-constrained economic dispatch in markets, that’s the supply side and there’s the demand side. And that demand side, as I know you and I have both written about for years—and I mean, you are fantastic on this post-Uri, especially about how much unexpressed flexibility there is in the diversity and heterogeneity of consumer behavior. And digital automation makes it easy to access that. We need to just do it.Doug Lewin (06:51.534)Now all the plates are spinning on my end. I’m like, okay, which of these threads do I want to pull on? There are so many. Risk market—do you want to go a little further on that? Because I actually think in Texas, Uri, of course we didn’t have outages during Elliott. It wasn’t nearly as cold or as icy or the duration wasn’t as long. But during Uri, yes, there were aspects of that. A large amount that was securitized and spread around all the consumers. But on the generation side, a lot of generators took major, major hits. And some generators did very, very well. So I would argue that there’s some amount of that risk that is being communicated—again, back to the system of telecommunications. That price signal is there.Interestingly, though, back to the distribution utility, if you look at Hurricane Beryl, CenterPoint’s performance—by their own admission, they’ve said this in their hearings, I don’t want to just beat up on them here—they’ve said it, that “we failed.” It was a failure, right? A couple hundred thousand Houstonians were without power for a week. Did they suffer financially for that? I don’t think so. I listened to their investor calls—maybe not everyone, but most of them. And I think they had a billion dollars in net profit in the year after Hurricane Beryl. So again, I really think so much of it is on that fully regulated utility. And again, I do not mean this to beat up on them. They have a very important function and I think they’re going to be hyper relevant in our system for a long, long time to come. The question is, how do you create markets? What a market for risk would look like for a regulated utility is something I frankly hadn’t really thought about before. So thanks for that. Now you’ve got my brain spinning on that one.I will say on the demand side, in those markets, you said earlier in this conversation that—and I think what you meant was more like in the early days, but I want to clarify—you said something along the lines of like demand has proven to actually not be super flexible. And I think for most of the history of electricity, that’s true. I think where we are now, just as you were saying, with all the automation, with chips and so many different things, with batteries and so many different things, I think this is going to be one of the big mega trends that we’ll see. Fridges just being delivered with batteries in five to ten years. This will be out on the internet and in five to ten years, people can tell me I was an idiot or I was Nostradamus or whatever. But like, you know, I think like electric induction stoves are going to have batteries built into it. Like we’re going to have batteries all throughout our homes because customers are going to demand it because they’re just not willing to throw out a fridge full of food every time the power goes out, and batteries are cheap enough now that it doesn’t cost that much to integrate it. And then the question becomes, well, wait a minute, if every fridge has a battery in it, what does that mean for the grid? But there’s no market. My fridge is dispatchable, right?Lynne Kiesling (09:59.65)Give me a contract. My fridge is dispatchable.Doug Lewin (10:02.178)But seriously, where is the... So I think there’s a market for that based on the resilience value of that battery alone. I think consumers would pay for that. Again, I don’t make many predictions for your quote about Yogi Berra. It’s probably stupid, but I’ll make this one. I think we’re gonna see that because there’s a resilience value in it. If there’s a market that values that battery, then you create a virtuous cycle, right? I would think it virtuous for the consumers, virtuous for grid reliability—might not be virtuous for the utility if the regulation, if the incentive structure is not correct. So this is what I’m trying to get at: how do we align those incentives? And this was in your “Markets as Minds,” your number two lesson for regulators was “reward performance,” right? Not technology. So how do we get to this performance-based system? What do we need to do there?Lynne Kiesling (10:58.818)We’ve been trying for a long time. So many things. In the electromechanical, you know, pre-’90s power systems, right, the value proposition to the customer is I flip the switch and the light goes on, and it’s a mechanical thing. And so if you want to send me a price signal, say to turn up or down my thermostat or my air conditioner, I need to physically be there and do it. And that’s a pain in the neck. And I have a life. I’m not going to do that. And so for the twentieth century, right, the value proposition is—and we got habituated to this value proposition of you don’t have to think about your energy. You flip the switch, you’ll pay a volumetric price, and in a well-designed regulated rate, it’s a two-part tariff. Thank you, Ramsey pricing. Thank you, Boiteux. In an ideal world, you pay your fixed costs in a fixed charge and your energy charge in a variable cost, but a lot of times that all gets swished together into one single volumetric rate and that causes distortions in and of itself.And so in that universe, of course, between kind of behavioral economics saying we’re habituated to this through regulation and through averaged fixed rates and plus the ubiquity of electricity, demand is going to be inelastic for sure. But with digital technologies for automation, with remote control, with the ability to schedule, and of course the stuff I work on with Transactive Energy where you can have the devices in your premises themselves be programmed to be price responsive and automated. So they have automated price response. And so for the engineers, this is PID control theory, right? You can use the price, that emergent discovered price, as the device control signal, right? You set dead bands around the temperature setting. You set dead bands around where you do and don’t want your fridge temperature to go. And otherwise, you figure out a user-friendly interface for enabling devices that are gonna be meaningful, right? Like your HVAC, your water heater, your electric vehicle, obviously. So vehicle to grid, you know, bi-directional V2G fits in this category as well.Just enable a local energy market to exist and enable retailers to offer me products and services that enable me to have my devices participate. And I can figure out the ways that that works for me. And again, it’s going to be trial and error. Just like Hayek said, you know, I’m going to maybe set some trigger prices and find out that, oh, I don’t want to have that because it makes me uncomfortable after two hours, or I need to set this price higher or this price lower. But you figure that out. And I think we would find that there is a lot more latent flexibility on the demand side that would not inconvenience or discomfort consumers. And I think we want to go through that discovery process that it would be beneficial. And as you say, having a more performance-oriented regulation would do that.In the UK, they use price cap regulation. And you’ve got rate of return regulation and price cap regulation. And performance-based regulation is kind of on the continuum between them, right? Because the price cap regulation is basically you go through the same kind of revenue requirement exercise as you do for rate of return regulation. But you just say, “Okay, here’s the revenue that we’re going to approve you to earn, and we’re going to ratchet it down by a little bit every year because you’re going to get more efficient because you’re good at what you do. And you figure out how to run your business. We’re not in the business of figuring out for you how to run your business.” And so I think, yeah, moving it more in that direction would get us the kind of stuff that you and I are talking about.Doug Lewin (15:07.246)In the UK system, or in a system that’s similar to that—it doesn’t have to specifically be about the UK, but it could be—if they come in underneath that beyond just what the regulator expects for efficiency, do they get to keep a percentage? They keep it. So the incentive is to actually... They keep all of it, or don’t they need to give some back to consumers? Don’t they share that?Lynne Kiesling (15:29.898)It has changed over time. They may still have a savings sharing thing. And this is where—this is not a book recommendation for everyone because this is a bit in the weeds—but Alfred Kahn, right? Sort of the poster child for public utility regulation. The guy who famously, after being in the Public Service Commission in New York, under Jimmy Carter in the Carter administration, went to Washington and was the chief of the Civil Aeronautics Board when we were still regulating airlines. And he kind of looked around and he’s like, “Why are we doing this?” And even though he’s a kind of, you know, center-left Democrat, he’s like, “We shouldn’t be doing this.” And he navigated the economics and the politics in such a way that we closed an entire regulatory agency and turned out the light, limed the soil, done.Doug Lewin (16:20.706)I mean, honestly, it’s one of the reasons why I love this area, this issue area. It’s like Democrats, Republicans—at various times, liberals, conservatives, centrists, moderates, whatever—will embrace competition and other times not. I think it’s really just one of those fascinating areas that defies the usual conventions. But what’s the book? Is it “Profits and Regulation,” or is it...Lynne Kiesling (16:43.286)He wrote a book called “The Economics of Regulation,” two volumes. And he has a very important part where he defines what are the dimensions of regulation. And the one that is always important and I think doesn’t get as much attention as it deserves is defining the quality level of the service provision. And so under rate of return or price cap regulation, you want to define the quality level of the service that customers are going to receive. And it’s a little difficult as systems get more complicated. But under price cap regulation, yeah, I mean, you have to meet a quality requirement, and then if your costs are lower, then you keep some or all. I don’t remember the exact details of the difference.Doug Lewin (17:30.126)Give me an example of a quality requirement. What does that mean?Lynne Kiesling (17:33.378)The nerdiest one is just voltage and frequency, right? Your voltage and frequency have to be in these bands. I’ve seen some conversations around some of the failure to trim trees and the wildfire issues as being a failure to provide quality service.Doug Lewin (17:52.61)So outage minutes, right? Just like loss of load hours on the distribution system caused by extreme weather. Like those could be one of those. And I mean, that is fascinating to me, right? Again, like we really, as far as I can tell—and I’m sure you’ll let me know and people in the comments let me know if I’m wrong—that does not really exist, certainly in Texas. I can’t speak to other states, but like, you know, Oncor is in a rate case right now. I don’t think there’s any discussion of, “If your performance improves, if the outage minutes...” I was in a news story, Spectrum News did, and it was about Base Power, how some homeowners in Plano had gotten a Base Power system because they were experiencing outages at their home like every few weeks. It was just like routine and they complained about it, but nothing got better. So they spent some money to get Base. That’s a cool innovation in the competitive market where instead of spending ten grand on a battery, they could spend 700 or a thousand or whatever it is and some amount per month. And they sign up with a new retail electric provider. They’ve got a battery. That’s a cool example of the market delivering a product that it’d be hard to imagine a regulator like dreaming up, but that’s what markets are good at.But I just wonder, like, I don’t even know if Oncor is—there are different areas in DFW that have different munis or whatever—but there are certainly areas where outages are higher. Is there any kind of performance metric that’s like, “Hey, you want to 10.5% rate of return? Well, you’re going to have to hit this benchmark and then you can get it.” It’s wild to me that that conversation is nowhere.Lynne Kiesling (19:28.682)I mean, in theory, reliability is the most of the service quality metric: the SAIDI and SAIFI, right, duration and frequency of outages. If I were the benevolent social planner and got to rewrite the public utility regulation, one of the things would definitely be that there would be a penalty structure on your ROE depending on your SAIDI and your SAIFI scores. But there might be some reasons why I’ve never been nominated to the PUC. Ha ha ha!Doug Lewin (20:00.422)Man, that would be fun to watch, Lynn. I would endorse such a nomination.Lynne Kiesling (20:05.752)But on your point about price cap, we don’t have anything like this. There is a price cap regulated utility in the United States, in Iowa. Iowa is a vertically integrated state. I think it’s called MidAmerican.Doug Lewin (20:17.164)Okay, that’s a Buffett company. That’s interesting. Okay.Lynne Kiesling (20:19.926)Yes, it is. And they, I think, generally have good performance, not strikingly different from other utilities, but as a data point, there is one.Doug Lewin (20:35.63)Before we get back to the conversation, a quick word from our sponsor. You’ve probably heard on previous episodes of the Energy Capital Podcast my discussions with Aurora Energy Research. They’re one of my favorite research outfits, doing tremendous work looking at electric markets around the world. They also have a great podcast called Energy Unplugged, and they will be hosting their second annual Aurora Energy Transition Forum in New York on October 21st. They’ll have senior leaders from utilities, finance, government, technology. They’ll be talking about grid reliability, AI’s impact, capital flow, strategic investments, all in one high-level gathering. It’s an event you’re not gonna wanna miss. You can register now by visiting Aurora’s website. There you can also find all of the great research I was referencing earlier. It’s www.auroraer.com. That’s A-U-R-O-R-A-E-R.com and we’ll have a link in the show notes. Now back to my conversation with Lynne Kiesling.Okay, so a couple of things I want to talk about: data centers. You’ve written a lot about data centers. Really, data centers is almost like a misnomer at this point. I’m trying to say more and more like AI infrastructure or hyperscalers, because there are data centers that are 10, 20, 30 megawatts and they’re still being built. But really we’re talking about something much, much bigger and really kind of transformational. You’ve written a lot about them. You wrote an excellent series, I believe last year.Lynne Kiesling (21:59.448)Last summer.Doug Lewin (22:00.404)In one of your pieces, you talked a lot about hyperscalers’ make or buy decisions, and how these AI infrastructure companies, AI companies themselves, are quote, “redesigning the market itself, creating new hybrid forms tailored to their economic and operational realities.” Talk a little about the market impacts that data centers are having. You’ve written about it. We’ll put links to your articles so people can go back and read those. I’m also just interested, like, as we’re recording in September 2025, like what are you looking for? Like what are the kind of canaries in the coal mine or whatever that you’re looking for for how this is going to play out? Are you looking for announcements from AI data centers? Are you looking for decisions from PUCs, bills from legislatures? Like what do you think is gonna really sort of shape the future of AI power use in the US?Lynne Kiesling (22:49.102)I think it’s all of the above and it’s going to vary a lot by state, but I have some statistics for the magnitude of this. So recently the International Energy Agency put out a report and they estimate in 2022 that actual data center energy consumption was 460 terawatt hours. And their forecast, because they do not obey Yogi Berra’s rule, their forecast is that in seven years in 2030, that that would more than double and the data center energy consumption globally would go up to 945 to over a thousand terawatt hours. So more than doubling in eight years.Looking in the U.S. specifically, McKinsey did some estimates and they estimate that in the seven years from 2023 to 2030, because we’re all benchmarking on 2030, the compound average growth rate of energy consumption from data centers is going to be 23%. Wow. So that’s a lot. I mean, this is an industry where like 3% a year is a big number. And over that seven years, that itself will amount to 400 terawatt hours of additional electricity consumption. So the demand growth is here and it’s not going to go away anytime soon.Doug Lewin (24:11.598)This last year, by the way, was like 460 terawatt hours total. So when you talk about adding 400 terawatt hours, we’re looking at adding a Texas worth of power consumption in the next five, six years.Lynne Kiesling (24:23.794)And for various reasons, I think this is an anomaly in the history of investor-owned utilities, both in terms of magnitude and pace. You know, growth in construction happened more slowly. And it’s as you would expect for a network infrastructure industry that they scope projects cautiously. They design and engineer them carefully and build them carefully. And that takes time. And so both from prudence and just the business model, but also culturally, just the kind of culture of the utility, I don’t think utilities, the vertically integrated utilities that own generation, that they are going to be able to build enough generation fast enough to enable the tech companies to meet their speed to power requirements because a data center build is 18 months to two years.And so if a utility is going to build a power plant and it’s going to take eight, nine, ten years versus two years, that mismatch is a challenge. And so not surprisingly, data centers are going to look to alternatives. And there’s a big field within institutional and transaction cost economics literature that focuses on the make or buy decision. This is kind of an area of economics where we study vertical integration. And so if you’re a firm and you do a thing, you basically decide, you know, do I want to buy the supplier of the input to my thing? And so that’s the make or buy decision.And this all goes back to Ronald Coase, along with Hayek, my other favorite economist. And Coase very famously created the field of transaction cost economics. And it’s his analysis that I was putting into play when we were talking about quarantining the monopoly, that all these technological changes are reducing transaction costs and therefore making market exchange possible and profitable where it wasn’t previously. And I think that is the case in this question of data centers’ make or buy power. And this is naturally happening in ERCOT because ERCOT has quarantined the monopoly. And so if you want to buy generation, you don’t go to the regulator’s utility. You go to a power provider and you go to like an NRG or someone else. And I’m going to shout out Enchanted Rock while I’m being a Texas booster.And so I think kind of the economic calculation for the tech companies, and when we say make or buy in economics, I don’t mean that they literally make, that they change their business into vertically integrating into becoming a power producer as well as a tech company, right? That’s a vertical integration that would require lots of assets on their balance sheet that are different from the other assets they operate. It would require different HR.Doug Lewin (27:19.084)You know what though? Well, I wonder though, like, I mean, we might see that. I’m not saying it’ll happen, but like with the Magnificent Seven, quote unquote, I mean, you kind of already see it with like Tesla, right? They’re also an AI company that has their own storage, right? Like, I mean, Musk famously in Memphis was like putting little temporary gas plants up and stuff like that. So, I mean, you could start to see that though with some of those companies. If AI takes off, which is a huge if, that’s another market, right? Another back to that system of telecommunications. Like they may or may not make as much money as they think, but assuming they make as much money as they think they’re going to make, you could start to see some of these companies buying EPCs and you know, any number of different companies and just say, “Yeah, we’re just going to bring that function in-house. You guys did such a great job for us over here in this place and in this place and we can see you can replicate it. Come on in-house and build these for us all over the place and now our competitor can’t access your product either.” I mean, wilder things have happened. I’m not saying it will happen, but it could.Lynne Kiesling (28:21.486)You make a persuasive case. I’m more persuaded than I was before. But I think in the more immediate term, it’s going to be through long-term contracts. “Here’s my land. I’m building a data center. I want you to build your power plant on my land and serve my facility.” And there are all sorts of interesting design aspects of that. And this is the other thing about the supply chain issues that, you know, gas turbines are on like a seven-year supply chain at the moment. Substation transformers are also on a five to six-year timeframe. And so if you are talking about building grid capabilities to be able to connect off-site generation to large loads, some of those pieces of infrastructure are also going to be hard to get in the near term. So I think on-site is going to have to happen.And I think the progression is going to be start with solar and here I am predicting when I said I wasn’t going to predict. But what looks logical to me is building solar and storage, unless you’re a huge 500-megawatt data center, that’ll probably serve you okay. So start with solar and storage because you can build those quickly. I think there’s a role for natural gas. And you know, I’m absolutely a portfolio diversification in the generation mix person.Yeah. And so Google’s a great example of this where, you know, they’re partnering with Fervo Energy to investigate geothermal. You know, if that geothermal capacity is in Nevada, you’re building data centers in Reno, you know, build a transmission line there. Sure. So there’s that, but then there’s also the investment they have with Kairos in piloting the small modular reactors.Doug Lewin (30:10.05)Yep.Lynne Kiesling (30:13.806)So I think there’s a technology pipeline here across time. And I think there’s a technology pipeline, but there’s also a contractual pipeline. And I think we’re going to see this vertical integration or not question come up. And historically, this is a big challenge for the vertically integrated regulatory system. Because historically, if you want to own a piece of land and you have a data center and you want to have someone come and build generation that isn’t the utility that serves you, they’re going to come and knock on the door and say, “Excuse me, you can’t do that because we have an obligation to serve you and therefore you have an obligation to be served by us.” And so traditionally, the way regulation has been implemented, even large load customers are captive customers. And so I think we’re in the middle of working out how that is going to evolve over time. It’s going to have to evolve.Doug Lewin (31:09.644)Well, it’s going to have to evolve. I think in the meantime, while it’s evolving, Texas has a huge leg up on other states, right? For sure. It’ll be like music to the ears of the governor and the economic development office and lots of local governments all around the state. Like, we have a leg up because you don’t have to go do the whole “mother may I” thing. You can contract and have your power. Like you said, like 18 months to build a data center, like you can get solar and storage in that period of time. You might be able to get smaller gas peakers, reciprocating, maybe not an 18 to 24, but maybe it’s three or four years. Then, so yeah, I mean, but the point is you can do that. You can go to the market and procure what you need, right? Through a contractor, a company like an Enchanted Rock or a Lancium or Crusoe, all these different companies that are doing this right now. Whereas in a lot of other states, you’re just left to like kind of the whims of the regulatory process.Lynne Kiesling (32:05.838)Since you mentioned Crusoe, I want to make one last pitch for A, Texas, and B, one of the things that I love about their business model, right? Because it’s just straight-up market-based. But part of what they’re doing, because they’re siting in the Permian a lot, right? They’re building data centers in the Permian. And so part of the value proposition and part of their mission is to use gas that would otherwise be flared because if you’re out there in the Permian and you’re pulling up oil and gas together and there’s not enough pipeline capacity for the gas, there’s not enough storage for the gas, you got the oil, you flare the gas. And both for economic and environmental reasons, flare gas is extremely costly. And so they’re like, “Hey, that gas you were going to flare, we’ll buy that from you. Power our data center.” That alignment of economic and environmental incentives through market investment just makes my heart sing.Doug Lewin (33:06.722)Totally. And to take it even further, they’re also doing solar and wind and batteries. I put this in an article I wrote that Crusoe was at that White House meeting on their AI action plan. They had the slide with the wind turbines up there. It really is that diversified energy portfolio. And then to bring it full circle and we can wind down on this, there’s the whole demand flexibility piece of this too.Right? So like, you know, there is real value in that. So if you’re an AI company that is procuring these different resources and you know, within your load, within your demand, you can reduce... There is the Tyler Norris and the researchers at Duke, that team that did that great study of like, if you have flexibility within Texas, it was 1% of your hours of flexible 15 gigawatts of new load coming on the system.Like there literally is a value to that demand flexibility that we haven’t quite priced into the market yet. So this is something that I think—I could absolutely be wrong. Again, predictions are tough, especially about the future—but I think data centers actually and AI infrastructure more accurately will start to bring more demand flexibility into the market just because it’s going to become necessary. When you were giving all those numbers of terawatt hours, I think one of the biggest mistakes we’ve made, including in Texas, and this continues, is we keep talking about AI and their loads in terms of megawatts and gigawatts instead of in terms of gigawatt hours and terawatt hours. Because you’re getting all that load does not mean that your peak demand is necessarily going up. Exactly. In peak demand in Texas, really, at least in the summertime, it’s a big issue in the wintertime, but in the summer it’s not that big an issue anymore because we have so much solar.It’s kind of more net peak. So we really want to look at like having more terawatt hours is good. That’s spreading costs around the system more if there’s a whole other set of questions. Like, if we do it right, it’s spreading costs around the system, it’s economic growth and all that. It’s that gigawatt number at the constrained hours, which aren’t that many hours that you really want to be looking to control. So if you could do that, now you’ve opened up huge additional amounts of potential for your state.Lynne Kiesling (35:29.272)This is another one of the things I think is going to evolve and it’s going to be tough because it’s a deeply culturally embedded piece of how we do this. I think the data center demand flexibility conversation illustrates something I’ve been thinking about for a long time, which is I think we need to move away from thinking about capacity to thinking about capabilities. The more we just try to shoehorn everything into capacity because capacity is a concept that was relevant to that electromechanical technology set. And now with digital, like I know from talking to folks in the industry, if you’re building a data center and you’re in the conversation with the utility, the utility is going to ask what’s your peak demand going to be, and you’re going to give them the biggest possible number if you’re running that data center all out, because that’s what you need to do for your own operations planning.Most of the time you’re going to be running at like 60 to 80% of that. And so it’s that what are you capable of in terms of your behavior? And that’s going to matter so much more than capacity given the diversity of the especially digital technologies that we have now available for controls and automation.Doug Lewin (36:48.718)Yeah, capability and flexibility and with that intersection with time and location, right? Like that is kind of everything going forward. Lynn, this is amazing. I loved this conversation. We went a lot longer than I intended, but I’m glad we did. Is there anything I didn’t ask you that I should have or anything you just want to say in closing?Lynne Kiesling (37:08.802)No, I’ve loved this. I’ve enjoyed our conversations in person before, and now I’m glad we get to do it here as well. So thank you for inviting me.Doug Lewin (37:16.994)Lynn, thanks so much for doing this and thanks for all you do. I really can’t encourage listeners enough to go check out Knowledge Problem and just wherever. Lynne right, you’re doing some writing as a non-resident fellow at American Enterprise Institute, so people can find your stuff there. Anywhere else they should look to find your stuff, Lynne?Lynne Kiesling (37:33.794)The Knowledge Problem Substack is the best place to find me. Great. I’ve got other kind of academic papers and stuff, and once I get a little less busy, I’m going to try to start kind of distilling them on the Substack.Doug Lewin (37:49.25)You drop these little things into all your little articles. “This is coming in a future article.”Lynne Kiesling (37:54.636)And at some point I’m going to have to deliver on them.Doug Lewin (37:57.215)Because otherwise I’m going to write you and I’m going to call you and be like, “Lynn, I’m looking forward to that paper.” Great. We’ll put a link to Knowledge Problem. I also recommend it through my own Substack. It really is great. I’ve learned so much from you over the years. Thanks for all you do and thanks for being on the pod.Lynne Kiesling (38:11.598)Thank you.Doug Lewin (38:14.2)Thanks for tuning in to the Energy Capital Podcast. If you got something out of this conversation, please share the podcast with a friend, family member or colleague and subscribe to the newsletter at douglewin.com. That’s where you’ll find all the stories where I break down the biggest things happening in Texas energy, national energy policy, markets, technology policy. It’s all there. You can also follow along at LinkedIn. You can find me there and at Twitter, Doug Lewin Energy, as well as YouTube, Doug Lewin Energy. Please follow me in all the places. Big thanks to Nathan Peavey, our producer, for making these episodes sound so crystal clear and good, and to Ari Lewin for writing the music.Until next time, please stay curious and stay engaged. Let’s keep building a better energy future. Thanks for listening. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.douglewin.com/subscribe

Over a hundred years ago, the monopoly business utility model emerged as the one that could attract sufficient capital to electrify everything.The monopoly utility business was championed by Thomas Edison’s protégé and early leader of ComEd in Chicago, Sam Insull.It worked. By mid-century, most Americans had power.But today, competition for generation and retail have shown that monopolies are not necessary. Texas is a poster child for for competition but even Texas has little competition on the distribution side — and the cost of distribution is skyrocketing with no ability for competitors to offer alternatives that could save consumers money.The monopoly model literally rewards utilities for spending more capital, even when smarter, cheaper options exist.In my conversation with economist Lynne Kiesling, we traced the arc from Insull’s vision to today, and talked about where the system is showing serious signs of distress. And we discussed how that could change…How We Got Here: Edison’s MachineEdison designed complete systems, from generators to the lamp in JP Morgan’s house. Insull scaled that model in Chicago, betting on economies of scale (bigger plants) and scope (serving factoreis, homes and electric trolleys together to increase system utilization and load factors).That became the vertically integrated monopoly: a single company, fully integrated, would keep costs low. Legislatures around the country formalized it, spreading the monopoly-utility model far and wide.It was the right model for the time. America needed electrification, and investors needed stable returns.“Economies of scale and scope… that’s your natural monopoly right there.” - Lynne KieslingWhy It Worked Then and Why It Doesn’t NowThe framework assumed three things:* Bigger plants are always cheaper.* Vertical integration and central planning are essential.* Utilities should earn guaranteed returns on new capital.That fit a world that wasn’t yet electrified and needed massive centralized power plants. But two revolutions were disruptive to the monopoly model:* Gas turbines: By the 1980s, combined-cycle plants made smaller, flexible generation competitive and lower cost than bigger centralized plants. The “dash to gas” in the 2000s proved it.* Digitalization: Sensors, controls, and standards cut transaction costs. Coordination no longer required vertical integration.Price Discovery: The LinchpinEconomist Friedrich Hayek described prices as a “system of telecommunications.” ERCOT proves it daily. When scarcity prices spike, batteries discharge, generators ramp up, demand response kicks in. Investors see those signals and commit capital for more resources.“Markets are a discovery procedure… trial and error with your own capital is how we get the most benefit.” - Lynne KieslingEvery bet on future conditions shapes tomorrow’s incentives. That’s why Texas leads in storage growth, retail innovation, and is attracting new gas peaker plants, too.But here’s the catch: we don’t allow price discovery work at the distribution level.The Last Monopoly MileTransmission and distribution remain monopoly domains. Under today’s rules, utilities earn more by spending more. Propose a $50 million substation, get it approved, earn a return. But what if a portfolio of distributed resources (e.g. batteries, EV charging, demand response) solved the same problem for half the cost?In most states, including Texas, that option isn’t tested. Regulators just green-light the $50 million.That’s why Lynne calls for “quarantining the monopoly”: keep exclusive rights to the poles and wires, but open competition for solutions at the grid edge.Final ThoughtsTexas already showed the world that wholesale competition works. Volatility spurs investment, spreads risk to investors, and drives down long-term costs.The next frontier is distribution. If we quarantine the monopoly to the wires while opening structured competition for everything else, we’ll see faster innovation, more reliability per dollar, and lower bills.That’s the Texas way: pragmatic, innovative, and willing to lead.This is just Part 1 of my conversation with Lynne Kiesling. Next week in Part 2, we’ll dive into data centers, AI demand, and why risk allocation will define the grid’s future.Timestamps* 00:00 – Introduction* 02:30 – Why history matters today* 05:00 – Edison’s vision for a fully integrated electric system* 07:30 – Insull’s bargain: regulate us but grant a monopoly & don’t municipalize* 10:30 – Was monopoly the right solution then?* 16:30 – Natural monopolies: economies of scale and scope* 20:00– Outdated assumptions, Texas competition* 22:00 – Rate-of-return regulation, capital bias, and technology innovation* 26:30 – The changes brought by combined-cycle gas plants and digitalization* 30:00 – Quarantine the monopoly, price signals* 31:30 – Do conservatives still support competitive markets?* 33:00 – How and why arbitrage lower prices* 34:30 – Distribution system efficiency and utility incentives* 37:00 – “Markets are a discovery procedure”* 40:00 – Let volatility speak, Texas choices* 42:00 – What’s the next frontier of competitionResourcesGuest & Company• Knowledge Problem (Lynne’s Substack) • Lynne Kiesling (Northwestern, Personal site, Santa Fe Institute, Books & Articles Discussed• The Merchant of Power: Sam Insull, Thomas Edison, and the Creation of the Modern Metropolis• Power Loss: The Origins of Deregulation and Restructuring in the American Electric Utility System by Richard F. Hirsh• Hayek: A Life, 1899-1950 by Caldwell and Klausinger• Competition as a Discovery Procedure, F. A. Hayek (QJAE translation)Related Substack Posts by Doug•Why Are Energy Bills Rising So Fast? A Conversation with Charles Hua • Creating a Distributed Battery Network with Zach Dell• The Energy Capital Podcast, Episode 1 with Will McAdams• Texas’ Load Growth Challenges and Opportunities, with Arushi Sharma FrankThe Texas Energy and Power Newsletter is a reader-supported publication. To receive new posts and support my work, consider becoming a paid subscriber.Doug’s Platforms• LinkedIn• YouTube• X (Twitter)TranscriptDoug Lewin (00:05.356)Welcome to the Energy Capital Podcast. I'm your host, Doug Lewin. My guest this week is Lynn Kiesling. There are few people in the electric industry I like reading and listening to more than Lynn. I'm kind of ashamed it took me this long to have her on the podcast, but better late than never. She is the director of the Institute for Regulatory Law and Economics at Northwestern University. She is a non-resident senior fellow at AEI, the American Enterprise Institute.The reason I wanted to have her on the podcast is I think she is sort of the academic expert par excellence on markets. She really understands markets inside and out. She has been as influential talking about transactive energy, talking about distributed energy resources and how they can participate in markets. She's been talking about these things more than just about anybody, talking about them eloquently.and really kind of pushing the envelope on what needs to happen in electric grids and electric markets for innovation. Obviously, with a focus on Texas and the electric market there, we split this into two parts. In the second part, which you'll hear next week, we got into all kinds of different stuff about data centers and their impact on electric grids, what they'll mean for competition. This was a ton of fun and a very wonky, deep conversation that I think you're going to enjoy. And more importantly,learn a lot from. Lynn is just a fantastic teacher and it was great to spend this 90 minutes with her. So you'll have 45 minutes today, another 45 next week as we go deep into the roots of electric competition and what it means for energy transition, affordability, reliability and all of that. So with nothing further, here's Dr. Kiesling.Doug Lewin (01:51.82)Lynn Kiesling, welcome to the Energy Capital Podcast.Thank you for having me, I'm glad to be here.I love reading your articles on Substack and knowledge problem. You obviously are an economist par excellence. are doing just great work on electricity systems and the evolution of electricity systems, competition, technology. You hit on all the things. Before we get into all that though, I think it helps to kind of ground people in like the, some of the history of all this and you're, you're an economist.but you're also a bit of a historian. So before we start talking about data centers and DRs and electric vehicles and all these cool technologies, you've written a lot, and I think just really eloquently and clearly, and I think you've done a great public service with that, about how the system of regulation we have, which is now well over 100 years old, is kind of showing some of the signs of its age. And is it quite keeping up with the technology and maybe needs to evolve?So can you talk a little bit about where we came from, sort of how we got that system, what defines that system, and where it's just kind of not fitting with where we're at right now?Lynne Kiesling (03:06.52)Well, thank you. I appreciate that. And I like the metaphor, you know, feeling like as I get older, my joints are creakier. And I think that's true about our institutional framework. Yeah. It's not just bodies. It's, know, the, kind of organic metaphor is relevant here. And for folks who, and especially maybe for students who are thinking about career paths, you know, I'm an academic by temperament and by career choice. So.You know, my fields in graduate school were industrial organization, because I went to graduate school to study electricity and with John Panzer at Northwestern. But then I got there and just got gripped by the love of economic history. And so I kept studying technology, but I actually worked in economic history. And then my other field is mechanism design, which is where the market design stuff comes in. So yeah, I have a love of history andand it's been part of my professional work. This industry has, I think, some of the most fascinating history and it helps think both industry professionals, but also policymakers and regulators if they understand some of the history of the industry that they are engaged in. And it's definitely something that I get a lot of good feedback on, which we can talk about in a second. But the late 19th century,in a lot of places, well, in Britain in particular, but in the US especially, the late 19th century is this cauldron of innovation. And we think of it as this kind of great man history of the iconic titans of Alexander Graham Bell running to the patent office so that he could patent the telephone and all of these things. And that's pretty much the dynamic between Bell and Edison, Thomas Edison was in all of these different technologies.It's like the race to patent, race to patent. And so you get this really vibrant, rivalrous innovation. And at the same time, you get these iconic approaches to innovation and how innovation should proceed and what the goal should be. And so Edison in particular was really committed to number one, developing electric lighting as a commercial service and as an engineered system. And number two,Lynne Kiesling (05:31.714)developing it as an integrated system. And so, you know, some people today when they're sort of snarking about the lack of innovation in regulated utilities, they will say, well, you if Thomas Edison came back today, he'd recognize the system we have. And, you know, yeah, I guess that's true in kind of a snarky way, but in a really profound and meaningful sense, he envisioned the design of power systems asfully integrated systems where you put the fuel in the generator all the way through to Edison Electric owning the lighting fixtures in your home, in his first customer's home, which was JP Morgan. JP Morgan, right. And so that integrated system from a systems theory and an engineering perspective, Edison really brought that to the party. We've had the path dependence from that. has shaped the business model. It has shaped how we've designed regulation.And it was a success. One of the folks who worked for Edison was Sam Insull, who he sent to Chicago or, well, Sam took himself off to Chicago and said, I'm going to turn Edison Electric into something big in Chicago. And he famously interacted with the progressive era, the formers of the time, because the way power systems were getting built in cities was through getting a franchise from the city council.It was kind of notoriously corrupt. And so the progressive era reformers said, well, we have to counter this corruption. And this is the big is bad, trust-busting era. And so they countered this and said, well, we need to municipalize all these. These should be public utilities, publicly owned. And Edison and Insull and this growing investor-owned utility industry thought differently.And he gave this famous National Electric Lighting Association speech, I think in 1898, where he basically says, the private investor owned electric utilities, we should accept regulation so we don't get municipalized. But the other thing that I think a lot of people don't think about when they think about this era is that the investor owned utilities really benefited from regulation.Lynne Kiesling (07:55.95)because it got them out of having to pay a lot for their debt service. Because how do you get a consolidated Edison in New York or a Commonwealth Edison in Chicago? You buy out all your competitors. And turn of the century, in Chicago, there were like 34 competing electric utilities and all the wires. And when you have that cost structure with economies of scale, there's no way all 34 of those companies are going to be able to hang in that industry.And so someone's going to go bankrupt. Who's going to buy them up? It's going to be Sam Insull and fire sale prices. And that's how you get this. So they were insulating themselves from having to pay more to get more debt to buy up their competitors, while also insulating themselves from expropriation from those who want to municipalize them. So that kind of foundation is important.Yeah, Insull is one of my absolute favorites because he's such a fascinating, first of all, historical character, the whole arc of his career coming over as a young man from the UK and becoming Edison's right hand man. Like literally in the first day off the boat, Edison recognizes this guy has a mind for organization. And Edison was that like stereotypical like absent-minded genius. Like his business affairs were a mess. Insull got all that organized, works for him for decades. Does really well.has like huge opportunities to make way more money, but goes to Chicago and is like, I'm betting on myself and builds this into this huge massive empire, which then all collapses in the depression. He dies penniless in the subway. So like that's the 62nd version. There's so much detail in there that is so fascinating. But one of those is the way he kind of broke those franchises with the, with Chicago city council, which, know, like they were not just gonna let him.come in and do his thing, they were trying to strong arm him out. And when they tried to strong arm him out, he went out and bought up all the patents for all the equipment. And then it was like, hey guys, you want to give me a franchise now? Just total baller stuff. Like it's really wild to read about. But I think the main point for this conversation, right, is that monopoly utility business model that he made a speech about in 1898 and I think was able to...Doug Lewin (10:16.974)with ex-suit in 1907 somewhere right around there or something like that in Illinois. And then like wildfire right over the next six, seven, eight years, like basically every state in the US or something like 44 or 45 states, something like that within a period of seven, eight years had done the same thing. And you have this monopoly business model. So is it fair to say, I was gonna state this, but I'm gonna ask it as a question, because I'm actually really curious what your answer is. If you have a different perspective, I truly would love it, because I really...admire the depth of your intellect on this stuff. I usually say that that was the right business model for the time because of exactly kind of just what you said, right? Like to not have a super high cost of debt, you want to be attractive to capital markets. Well, if you have a monopoly, that's pretty attractive thing. And the whole point in the 1910s, 20s, 30s, all the way through 50s and 60s, because people forget, I had Rick Perry on the podcast once and he said,when he was born in the late 1940s, early 1950s, they didn't have electricity at his house. Like people forget this, but like it took a long time to electrify. So you want to attract capital. Was that the right system for the time? And then I think more to the point, like why does it not fit today? In what ways does it fit? And in what ways does it not?Oh, I love that. Yeah. And Insul, there are some ways that I think Insul has really got dealt the bad hand of history. His bankruptcy, the whole 1930s New Deal, the holding companies. I think Insul's very underappreciated. So I agree with you on that. And to his credit, I will say the kind of big progressive era movements, right? The Sherman Antitrust Act and the Grange movement and all of this, you know, big is bad, robber baron.rhetoric. It does paint this picture that these companies are rapacious and just in it for what they can get. And they forget that economics is about exchange and exchange is really about mutually beneficial cooperation. know, give me that which I want, you shall have this which you want. Right? That Adam Smith, you know, if I'm going to succeed in making a living by selling something to you, I have to get in your mind and think about what you want.Lynne Kiesling (12:34.08)And Insull was really good at that in addition to his tactics about patents and intellectual property. And he flat out said throughout his entire time, we want to grow by enabling universal electrification. And if we price electricity too high, that's not going to happen. And so we want to make electricity affordable for everyone so that everyone will have electricity. And there is an embedded assumption in there aboutprice elasticity of demand. But over time, we have evidence that the price elasticity of demand for electricity is pretty low. And so really, the way to make the most revenue is by having a higher price. So it's not clear that he got his elasticity estimates right.Well, wait, I want to double click on that one. So like in the early days, right? What Insull did was he, and he was starting to figure this out when he was working with Edison, but he really brought it to fruition in Chicago. He came in, I think with this very much in mind when he started in Chicago. We'll say you got all these fixed costs, right? And like that time, right? The peak on the system was when the sun went down, cause was like, it was all lighting pretty much, right? And so you have this system that like could accommodate.power demand 24 hours a day, but it's pretty much being used two or three or four hours, sun goes down and people are sitting around talking or reading their books or whatever, and they don't have to burn kerosene indoors and all that kind of stuff. But then he starts going to the factories, the traction companies, like the electric trolley companies and all that stuff. Yeah, and saying, hey, how would you like power for less than what it costs to...The Chicago Transit Authority.Doug Lewin (14:19.854)maintain the horses that are pulling the trolleys, or less than what it costs to burn the coal on site at your factory, or whatever the thing was. I mean, that was like the early days of industrial rates, right? I mean, it was just like it was a system utilization thing. So maybe it's not the same as elasticity of demand, but it's related, right?Exactly. And you are getting to one of the things that was really genius. And I will say the commercial and the engineering development of power systems was far ahead of the actual economics, right? The economics came, you know, a decade, 15 years later. Insole, first of all, he's definitely gutsy. You know, he sends a telegraph, I assume, to GE in New York and says, Hey, I want to build an enormous coal-fired power plant.what was outside of Chicago and is now Pilsen neighborhood in Chicago. And I want it to be this big. Can you build me a generator for that? And the engineers at GE are like, dude, there's no way we could build anything that big. And he's like, come on, you're engineers. You could do this. And so then they do. And they build Fisk power plant, which was at the time the largest power plant ever built. And so he's out there with these really gutsy moves. one of them is the, go into the traction company and go into the Chicago Transit Authority and saying,I hear you guys are talking about electrifying and building your own generation, which was pretty common at the time for urban railways to do. Rather than you incurring that cost, just buy from me and I'll cut you a deal. And so these two moves, right, building FISC and electrifying the CTA, illustrate the two conceptual pillars of the economics.Because the theory that underlies regulation is called natural monopoly theory. And the two pillars are economies of scale, right? Build that massive honkin power plant and keep it running as much as you can given maintenance and whatever. And that just drives down the average cost per unit. There's your economies of scale. Economies of scope is the other pillar. And that's where you use a set of assets to produce two different products and that the combinedLynne Kiesling (16:35.502)cost of producing those two from that set of assets is lower than the cost of producing one with one set and the cost of producing the other with another set. so economies of scale and scope put the two together. You know, got your chocolate, you got your peanut butter, and that's your natural monopoly right there. And to your question, it certainly was the right business model given the technology. And I thinkA lot of business models and technologies and regulations are co-determined, right? And so there's a historical determinism to the path that we end up on. And so I think given the way that technology developed, it was useful. And as you say, through the 1940s, 50s, and then plateauing in the 1960s, there's a great book. Have you read Richard Hirsch's book, Power Loss? Yeah. I'm full of book recommendations for everyone.No.I love it. I love that. Yeah, that's great.But the first recommendation I always make to everyone is Richard Hirsch. He's a historian of technology at Virginia Tech. I think he's emeritus now. And this book is Power Loss. And he has really good data on essentially how the power systems hit a technological plateau in the 1960s. And then you get the weirdness of nuclear. And what he's doing is he's building the backstory to why PURPA was passed in 1978, know, with all the oil crisis and everything in the 70s.Lynne Kiesling (18:01.708)and then the impetus for restructuring in the 1990s. And so if you're interested in why we end up restructuring, he's your man.Okay, definitely. I will read that. Anything you recommend. I should be careful because I know you got a lot of books. It may take me a while. All right. So you wrote a great piece called The Invisible Price Tag of Yesterday's Regulation, about exactly all of this. And I'll just read a little bit from it. Early 20th century regulation was built for a capital intensive centralized grid designed for universal service and exploiting economies of scale and scope. Three outdated regulatory assumptions now hinder innovation. So this is where kind of we're getting into likewhere it doesn't quite fit. So whether or not it was right for the time, we could talk for endless, infinite amounts of time about that. But I think it would be inarguable that it at least did what it needed to do in the sense that we were electrified. mean, the United States with a few rare Native American reservations of colonias in South Texas, there's still some places that it's still problematic, but like 99 % or even 99.5%, right?electrified, it kind of did what it was supposed to do. Of course, you could talk about co-ops and TVA and LCRA and all that as there's public power as part of that discussion too. But now we're in an era where the utility business model of spend a dollar, earn 10 % or 12 % or whatever it is, this, what you call embedded asset bias, that there is a bias to spend more.Again, in the early days, really useful because you needed a whole lot of capital spending and you needed to raise that capital. Now we're in an era where like with all the data center conversations, there's certainly a whole lot of money being spent. But I think there is this question that is being begged. I'm begging people to ask this question. We have seen competition, I believe, certainly we're all products of our experience and our environments and...Doug Lewin (20:01.836)working within Texas for the last 20 years, I have seen firsthand how competition certainly in wholesale has worked really well. Retail, think it's a little bit more of a mixed bag, though we are seeing a lot of innovation, the base powers and the octopuses and the David energies and all these companies that are coming even like NRG, like the big legacy of Houston light and power when it was split up and then became.Reliant like they're doing virtual power plants and offering customers different kinds of rate products for so you're seeing this innovation in the retail and I think there's this important question here as to what functions within the regulated model and I'm speaking about Texas. have monopoly transmission distribution utilities. Are there functions that they have that might make sense to actually have some form of competition even if it's some kind ofregulated, simulated competition, but something to have a price discovery as to whether or not the dollar the utility is going to spend is the most efficient dollar. I know this is something you've thought about a lot and written about a lot. So let's talk about that a little bit.And I'm glad you used the phrase price discovery because I think that is the linchpin for all of this. know, a lot of people are like, well, why markets? You know, when we had it, everything vertically integrated, it was easy with unbundling and markets and having to worry about resource adequacy and accreditation. And this is all very complicated. Why? And the linchpin is price discovery. So starting at the capital intensive end and then moving forward.This is a industry with rate of return regulation and rate of return regulation started as a feature has now developed some characteristics that I think are bugs. And those bugs have to do with incentives to innovate incentives for new technology adoption. And there's a lot of assumptions that go into rate of return regulation. The first is that you have economies of scale and scope. The second assumption is the vertically integrated structure.Lynne Kiesling (22:11.278)which for our purposes goes generation, high voltage transmission, low voltage distribution up to the meter. And I think it was the Energy Policy Act of 2005 maybe that defined the metering function as belonging to the regulated utility. Because at the time, in the early 2000s, we were having this conversation about precisely your question andThere's a lot of analogizing that goes on between telecom and electric because they're on similar trajectories from the 1880s onward, but there are differences. And so at the time we're like, well, we all have these and if the value proposition to the customer, if you go to get a mobile phone is sign it to your contract with me and you'll get a free phone. And why can't we do that with meters? And why can't we haveinteroperable revenue grade meters, but that maybe is another conversation. But that decision got made by Congress that that's not going to happen. The metering function is part of the regulated footprint. So we start with this vertical integration and rate of return regulation means that the utility's revenue requirement is its operating costs plus its asset base, the capital it invests in, in order toprovide the goods and services that it does to its customers, plus a market benchmarked rate of return. So in theory, that little r, that rate of return, is just completely market benchmarked on some typical market opportunity cost of capital. Because it's meant to be, okay, I'm going to spend $100 on capital in this industry. What's the return I would get if I were to go use that $100 and invest it somewhere else?And that benchmark is what we are supposed to be using in rate of return regulation. So in theory, it's that little R.Doug Lewin (24:13.58)supposed to be. Are we using it? can't. Go on. Keep going where you were going to go. Don't let me derail you. OK.could talk about that.Lynne Kiesling (24:20.918)I am not the person with the evidence on that. are others who are doing work on that that I would recommend you to. So that's the theory. And it does work great if you're trying to build out a capital intensive network to electrify a large country. That's the right set of incentives. And I think we did succeed. But the capital bias does have consequences when you have technological change. And I think we are really learning.right now just how technologically contingent our regulations are. And the regulation that was designed for the asset class that we had in the 1920s, 30s, 40s is much more contingent on those assets than we thought. That iron in the ground, you go to a regulator, you say, want to build a power plant. Here's the design, here's the spec, here's the cost.We've built a billion of these, here are the kind of transformers. And so if there's any kind of cost creep, it's going to be contained by the fact that the actual technology class has a fairly narrow scope. But now we have technological change that is qualitative in nature, is qualitatively different. And it has two categories, right? One is generation. And so not onlyAnd this is not only renewables, right? We could talk about renewables, but we can also bracket them and put them to the side. We can leave renewables out of this discussion and it would still be relevant because the pivotal technological change was the combined cycle gas turbine in the 1980s. And what that did was it really made that economies of scale and generation much less monolithic. And so the combined cycle gas turbine makessmaller, more nimble natural gas power plants competitive with hydro and coal and nuclear. And they have different cost structures, but they can compete because they do things differently. And if you have market rules that allow for price discovery and you see the different prices over the course of the day,Lynne Kiesling (26:41.666)those different assets will express their different relative values and be able to make money.Which is by the way, Texas has like 40 to 50 gigawatts of gas combined cycle all 25 years old because when wholesale market competition happened, those rushed in because they were the dominant technology. Like that's what the market chose. Yeah.Yep, dash to gas. so, yeah, for two decades, the wholesale supply stack in ERCOT has been really long natural gas. And then that's even before fracking, right? So before the shale revolution, the shale revolution amplifies that and then extends it to other parts of the country because of natural gas pipeline networks and fracking in other places. Like I'm from Pittsburgh, so I'm a Western Pennsylvania booster.And so, know, Marcellus Shale has made something similar in Pennsylvania. then the second category of technological change that's been qualitatively different is digital. And so all of the digital technologies are like the connective tissue. And so we can use it within an existing utility footprint for distribution automation, right? So you put sensors in your substations and they send information back to the control room.or sensors so that when a line goes out, you know, when a line trips, you find out and it doesn't have to be me calling you to tell you that my power is out. And then around the grid edge, digitalization enables the kinds of connectivity and interconnectivity that we've experienced with the internet and these things. So all the mobile devices havingLynne Kiesling (28:25.822)Interoperable technology standards and common interfaces means that, you and this is a bit of systems theory here, what used to have to be a tightly coupled integrated vertical system from generator to wires to meter, because it was all run by the same company and each piece of technology dependent on the other. But now with digitalization, we can have these common interoperable standards.And that reduces the costs of having different parties actually own and operate the different parts of the system. Or in econ speak, this reduces transaction costs in a major way. And so this is the economic argument for why the regulated footprint should shrink to just the wires. Is that, know, generation is competitive. I mean, we see that in ERCOT and other places, but I would argue ERCOT is the better example.You know, Texas is also the example of retail being able to be competitive if you let it. And there's a paternalism there around, do customers really understand the value proposition? And it's a really complicated system. And so we have to pay attention to that and make sure that customers do understand and that retailers create goods and services and contracts and offerings for them that they can understand and benefit from.and that any role for regulation is going to be in the background there providing the backstox for the credit checks, the anti-fraud, the consumer protection stuff. So that's my argument too in my favorite phrase, quarantine the monopoly. That the economies of scale and scope are still in the wires and the wires have the network economics aspects as well.I want to talk about that more. So quarantine the monopoly is an interesting phrase and I think you've described it well. Just to kind of like summarize, you basically like, because monopolies don't have that price discovery aspect to it, there isn't market competition. There isn't the ability to say, we're going to spend this $1 here. Let's figure out if there'sDoug Lewin (30:43.702)a way to do it for 50 cents or 75 cents or 90 cents or whatever. You could do that on the generation side. You had this great quote in your piece called Markets as Minds where you quoted Friedrich Hayek as describing prices as a system of telecommunications, which I find really... Have you read the new Hayek biography, the one that just came out a year or two ago? I bought it the other day and it arrived and it's like a thousand pages and I'm really intimidated. I do want to get to it.but maybe I'll let you read it first and you can. Probably, it's like out just in the last year or two.Tell me.Lynne Kiesling (31:18.946)Yeah, even better, that's volume one. And it only goes up to like 1960.I really want to understand Hayek, I don't know if I could commit to a multi volume. Okay. Well, stay tuned, dear listener.I'm not just saying this because Bruce Caldwell is a friend of mine, but it is very well written. And if you are interested, and I generally don't read biography, but really well written biography that tells you something about the social and economic and the political history of the time, as well as telling you about the person.Yeah, I am really fascinated by that because the book he's most known for, right, is Road to Serfdom, right? And it's this whole, like, I think there's a really fascinating thing right now in conservatism, right? That like, because he's one of the founders of conservatism, and it was this like very anti-authoritarian and free market thing kind of mixed together. And we're in a weird time where I can't really tell if conservatives still believe in that or not. I don't know.Yeah, that doesn't really map anymore. And I mean, he's got this famous essay and is, think, actually at the back of Constitutional Liberty, which he wrote in 1960, this famous essay called Why I Am Not a Conservative. Oh, wow. And so it's interesting and it's still contested, right? Because does he mean he's not a conservative in the European, you know, like the German historicist sense or in the American sense, which is more kind of British wig historically? And so the political theorists will stillLynne Kiesling (32:54.176)have conversations about this. But yeah, if you're interested in those kind of questions.We should talk. I will read it eventually. I've got a long stack of books. I'm more ambitious in my book buying than I am realistic. it's okay. Ambition's not a bad thing. So Hayek describes prices as a system of telecommunications. So we have that right now, right? In Texas, particularly in the wholesale market, in the retail market, there is this very intense right now on a day-to-day basis, right? Anytime you open upthe ERCOT app or just go to ERCOT.com and look at the dashboard. You could see the prices on there. When there's a very intense communication going on and people trying to figure things out, know, it really struck me. You know, you get these moments where, and I'm very sympathetic to legislators, particularly in Texas, where they're part-time legislators, they're paid $600 a month, they've all got other jobs or they're retired in some cases, but most of them are working other jobs. They've got a thousand different issues they're dealing with. So I'm sympathetic.But there was this whole discussion around arbitrage in the market and they made it sound like it was the worst, most evil thing. The legislators were like, you mean that they're like buying low and selling high, like you're, you know, selling at higher prices when they're buying it lower and like, and I understand that instinct cause it does sound bad, but you have this great core. say every act of arbitrage flattens price volatility, reshaping tomorrow's market conditions and incentives. Right? So we've seen this in Texas whereTwo summers ago, and even last summer, a lot of days of really high prices, signals to build more particularly storage, but a lot of gas, not a lot, some gas peekers and a whole lot more entering the queue. Our queue for gas peekers is 150 % larger than it was one year ago. And that's because of this system of telecommunications. There is literally a signal that is coming through the noise to generators that like.Doug Lewin (34:47.938)hey, these prices are high. Well, now they're lower. So now there's another signal and you have this kind of give and take that is happening there. I want to hear your thoughts on all of that and for you to explain more about why arbitrage is actually a good thing and all those things. Where I was going with this though is we don't yet have that on the poles and wires side of things, particularly on the distribution side of things. And there are examples, you wrote about an example in New York.I can't remember exactly, maybe you can describe it. was a while ago you wrote about it, but it's top of mind for you. But it's something along the lines of like, I think it was Con Ed got some kind of performance incentive bonus for actually integrating DERs into their systems such that they were spending less money. So the regulator says, you're going to need to spend, and I'm making up numbers isn't the actual example, but you're going to need to spend like $50 million on this set of upgrades in the distribution system.But if you go out and find that there's EV managed charging and storage in people's garages and energy efficiency and all of these things that can be done, and you wouldn't need to spend that 50 million, you could provide incentives to customers which lower their bills. And then it only costs just picking a number 25 million. So it's like half as much. So even the non-participants are benefiting from that. Then we would give the utility a bonus on that of whatever the number is, five million, seven million.Still, the total of that 25 million spent on the distributed energy resources plus their incentive would be far less than what they would have spent on that infrastructure. But where we are right now in Texas and I think in the vast majority of places is that system of telecommunications doesn't exist. We can't discover if there's an alternative to that $50 million, so we just spend the $50 million.I think that's exactly right. And you've got so many things going on in my head.Doug Lewin (36:38.016)A lot of plates spinning in the air right now.lot of plays. So the price discovery and one of the ongoing conversations that we have in electricity economics, energy policy regulation is around these questions of market design. And I think that we've got a lot of evidence showing that the move to wholesale power markets has been beneficial for consumers, generated a lot of consumer surplus.generated a lot of producer surplus, right? There's been profits. Although, as with anything else, with that dash to gas, right, the marginal return on the next additional investment in a gas turbine is going to get lower and lower the more and more of them you have. And so you had bankruptcies as well. But that's one of the features of markets. Sure. Not a bug, a feature, is that people risk their own capital and not rate payer capital.Bingo.to figure out what the right amount. And of course, you're never gonna know that in advance, right? Markets are a discovery process. Well, discovery procedure is Hayek's exact language, but markets are a discovery procedure and you figure things out and it's trial and error because the world is very dynamic and systems are very complex. And so trial and error and risking your own capital is how we have the best potential for flourishing.Lynne Kiesling (38:04.238)And of course, there are institutional design details that matter around consumer protection and fraud and all of that. But high-level broad brushstroke, know, Marcus says discovery procedure are really important. But that's one reason why I think an important piece of the conversation we have, a little less so in ERCOT, but much more so in the other RTOs, is about price fidelity. The only way this really shows up in ERCOT isthat we have these federal production and investment tax credits for wind and solar, the PTC and the ITC. And of course, those are slated to sunset fairly aggressively. So we'll be doing the experiment to see just how much of an impact.Any predictions, Lin?No, I'm not. I'm with Yogi Berra. Predictions are really hard, especiallyabout the future. Yeah, no, I get you. You're too smart for that.Lynne Kiesling (39:01.646)But in like PJM, for example, a few years ago, you know, they had this enormous controversy because some of the states in the PJM market were implementing renewable portfolio standards and implementing state policies that were favorable to wind and solar. And that was having distortionary effects in wholesale price formation. And soThe PJM put in this maximum offer price rule, MOPR, which was very unpopular and very poorly designed, and they've repealed it. But it does reveal an important fundamental truth, which is the fidelity of that pricing system, that telecommunication system, those price signals, is really important. And so we should figure out ways to implement our policy objectives that don't interfere with prices.Yes.Doug Lewin (39:55.758)Well, and you wrote about that in that same Markets as Mine piece, where you had a lesson for regulators, and the number one lesson you had on there was let volatility speak. Price spikes are not market failures. They're distress signals that mobilize flexible resources. And it's interesting because Texas really is, I I give just a ton of credit for Texas policymakers. A lot of times people say to me, it's amazing that Texas has got all these renewables and battery storage.without the policy to support it. And I'm like, well, okay. There was a renewable portfolio standard back in 99. It was increasing to five. it was satisfied a long, long time ago. think by 2010, we'd reached it. But it is a policy choice to have a market. It is a policy choice to have a market that has a very high price cap. That is a policy decision. And I think it's the right one because it does...Like you said, it puts the investor dollar at risk instead of putting all that burden on the rate payer. And I do believe that is one of the reasons we have lower costs here is because that price discovery continues to happen and that volatility has been allowed to work. It certainly hasn't been smooth, right? There's lots of times where that gets called into question, but I think time and again, it has proven itself and then prices drop real low.and then investment starts to slow and then they get high again. It's this whole process of communication. And here's one of the things that I think is most important about this and I think is high Echean and you can correct me if I'm wrong, but it's like, there is no human being that is smart enough to figure all this out. This is the fundamental flaw in central planning, right? And it's why markets work better is because as clever as we are, we're pretty clever species, none of us is...wise enough, smart enough, has perfect information enough to say, this is the exact, I see these conversations all the time. One of the most common like Twitter comments and LinkedIn comments is, we should build more nuclear. It's like, well, do you know that? Like, have you done all the price discovery? Like in some of them, to be fair, like some people are entrepreneurs with nuclear companies and they are putting investor capital at risk and taking, and that's great. And I don't have the wisdom to say,Doug Lewin (42:12.812)that's a smart investment or that's a dumb investment, that's what markets are for, right? And I just think that sometimes, particularly in the systems where they're fully vertically integrated utilities, you are putting the regulator in a position where they have to be perfect and they cannot do that. That's why central planning doesn't work. So what I'm trying to figure out is what is the next evolution of competition? Thanks for tuning in to the Energy Capital Podcast.in the cute.Doug Lewin (42:40.204)If you got something out of this conversation, please share the podcast with a friend, family member or colleague and subscribe to the newsletter at douglouen.com. That's where you'll find all the stories where I break down the biggest things happening in Texas energy, national energy policy, markets, technology policy. It's all there. You could also follow along at LinkedIn. You could find me there and at Twitter, Doug Luhman Energy, as well as YouTube.Doug Lewin Energy, please follow me in all the places. Big thanks to Nathan Peeby, our producer, for making these episodes sound so crystal clear and good, and to Ari Lewin for writing the music. Until next time, please stay curious and stay engaged. Let's keep building a better energy future. Thanks for listening. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.douglewin.com/subscribe

In this discussion, Charles Hua, Director of Powerlines, sheds light on the alarming surge in energy bills across the U.S. He reveals that rising costs stem primarily from transmission and distribution infrastructure, not from renewable energy generation. Hua emphasizes the need for consumer participation in regulatory processes to ensure fairness and affordability. With utilities focused on capital investments that drive profits, he advocates for modernizing regulations and exploring energy efficiency solutions to help alleviate financial pressures on households.

This is a free preview of a paid episode. To hear more, visit www.douglewin.comThis is my recent presentation on the latest trends in Texas energy and power for subscribers called the “Texas Power Rush,” followed by a Q&A.

This is a free preview of a paid episode. To hear more, visit www.douglewin.comSan Antonio is one of the fastest growing cities in the country and have requests to interconnect AI infrastructure and data centers that would triple their size. With that growth comes a simple but daunting challenge: how do you keep the air conditioning on while growing the economy and keeping bills affordable?CPS Energy, the nation’s fifth largest municipally owned utility, sits at the center of this challenge. Rudy Garza, CPS’s president and CEO, has spent the last two decades in Texas energy. In this episode, we talked through retiring old coal units, acquiring 1.7 gigawatts of gas plants, adding renewables and batteries, leveraging demand side resources, and preparing for a wave of new demand from AI data centers.As Rudy put it, Texas needs it all right now. The question is how to balance affordability, reliability, and growth in a rapidly changing landscape.A Utility in TransitionCPS Energy serves 1.4 million customers and maintains some of the lowest combined electric and gas rates in Texas. They return hundreds of millions of dollars each year to the city budget, while also managing 6,000 MW of peak demand and a portfolio of about 10,000 MW of generation.That portfolio is shifting fast. CPS retired its Deely coal units in 2018, is converting one of the Spruce coal units to gas by 2028 while closing the other, and has plans to retire the aging Braunig and Sommers units within five years. These changes create both opportunity and risk. As Rudy said, you cannot run 1960s-era plants forever and expect reliability.By the numbers* Customers: ~1.4 million total; ~1.0 million electric, ~0.4 million gas* Peak demand: roughly 6,000 MW, growing ~150 to 190 MW per year* Portfolio today: ~8,000 MW dispatchable plus ~2,500 MW renewables* Recent acquisition: 1,700 MW of gas at roughly $500 per kW versus $2,400 to $2,700 per kW to build new* Solar: 730 MW contracted or in construction, with another 500 to 600 MW in the pipeline* Storage: 520 MW secured, tracking toward more than 1,000 MW* Wind: 400 MW request for proposals in market* Demand response: about 250 MW per event, split roughly half residential and half commercial* Customer reality: about 60 percent low to moderate income; CPS targets modest, occasional asks near 5 percent when neededIf this was useful, share it with a colleague or neighbor. It helps more Texans find practical solutions.

Sometimes I get to bring you a conversation that really feels like a turning point.This week, I sat down with Bill McKibben, one of the most respected voices in climate and energy. His new book, Here Comes the Sun (out today! order it here), is different from his earlier work. Bill has long been known for sounding the alarm. But this time, he’s bringing something else: optimism.Why? Because solar and other clean technologies are no longer “someday.” They are scaling now — all around the world — faster than anyone predicted.Solar’s Exponential TakeoffIn 2009, The Economist predicted it would take 20 years for solar to scale up by an order of magnitude.It took six.Today, the world installs 230–240 gigawatts of solar every six months. That’s two massive coal plants’ worth of clean energy every single day.This isn’t fringe. This isn’t boutique. It’s mainstream power.Think Costco, not Whole Foods. Bulk, cheap, ready-to-go.Everywhere from Pakistan to Texas: A Global StoryThe shift is happening everywhere.* In Pakistan, rooftop solar grew so fast that in just 8 months, citizens built the equivalent of half their national grid. Farmers led the way, cutting diesel use by 35 percent in a single year.* In Texas, oil and gas operators in the Permian are connecting to the grid or tapping wind and solar because it is cheaper than running diesel generators.When energy is more affordable, more reliable, and easier to deploy, people adopt it. That is true from Karachi to the Concho Valley.The Texas Energy and Power Newsletter is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.No Longer “Alternative Energy”We’ve used the phrase “alternative energy” for wind and solar for decades. Now it means something different: natural gas and coal are the alternatives and renewables + storage are the most common, even dominant, resources.Last year, 90% of new power plants built worldwide were clean energy.Oil and gas remain vital and will continue to play an important role, but the growth is in clean energy.Leading With People’s Needs, Not Just ClimateHere’s the pivot that excites me most.If we lead with “climate crisis,” people shut down. Either they don’t agree it’s happening and check out, or they get it and feel depressed and stressed out.But if we lead with better lives and lower bills, people listen:* Half of Texans report they are choosing between food, medicine, and electricity. Renewables lower costs.* EVs aren’t sacrifices. They are smoother, faster, and cheaper to fuel.* Heat pumps aren’t compromises. They reduce stress on the grid, make homes more comfortable, and lower consumers’ energy bills.When we talk about clean energy in terms of savings and resilience, people connect. And those benefits also happen to reduce emissions.This is not about jerseys or tribes. It’s about abundance.Land, Liberty, and Local BenefitsOpponents often argue renewables take up too much land. But the math tells a different story:* 1 acre of corn for ethanol → fuels an F-150 for ~25,000 miles.* 1 acre of solar panels → powers an F-150 Lightning for 700,000 miles.That’s not even close.And the benefits are tangible:* Ranchers and farmers are keeping land in the family thanks to wind and solar leases.* Rural schools are funded by clean energy tax revenue.* Cattle graze happily under turbines, even using them for shade.This is energy independence at the community level — red state, blue state, doesn’t matter.A Race Between Challenge and OpportunityWe’re living two stories at once:* Bad News: By June 2023, Earth had entered the hottest 12-month stretch in 125,000 years.* Good News: That same month, humanity began installing over a gigawatt of solar per day.The race is on. The question is not if we transition. It’s how fast.The outcome depends on how quickly we build. We now have the tools to create cleaner, cheaper, and more reliable power. The question is whether we will use them fast enough.Bill put it bluntly: “We can’t stop global warming. But we can stop it short of breaking civilization.”Why Policy Still MattersThe economics are overwhelming, but politics can slow things down.* Texas became a leader in wind power because of transmission investments made two decades ago.* The oil and gas industry poured $500 million into lobbying and ads last year.* Rooftop solar in the U.S. still takes months to permit, compared to days in places like Australia.* And yet, local politics in Texas are shifting as communities fight for renewables that pay their bills.This is where action, at the state and local level, can accelerate the inevitable.The lesson is clear: smart policy can clear barriers so Texans can benefit sooner.The MomentAfter 700,000 years of burning things for fuel, humanity is finally learning to power itself directly from the sun.That’s not just about climate. It’s about freedom, prosperity, and better technology.Bill McKibben’s new book, Here Comes the Sun, captures this moment with story after story of how fast change is happening. It’s out now, and I can’t recommend it highly enough. He’s also helping organize a national day of action called Sunday on September 21st. Learn more at sunday.earth.If you got value from this, please share it with a friend, colleague, or family member and consider subscribing. The more people who see clean energy for what it is, the future, the faster we’ll build it.Transcript* 00:00 – Introduction * 02:30 – Why Bill is uncharacteristically optimistic* 04:30 – Very few people understand how much progress has been made: renewables are no longer “alternative”* 8:00 – The story of Pakistan’s solar surge* 11:00 – We’re in a different world because from steep learning curves for renewables and storage* 14:00 – Energy as a service instead of a commodity* 17:00 – Is the oil and gas industry getting what they wanted out of President Trump?* 20:00 – China is adopting clean energy and dominating those industries* 23:00 – Why leading with climate change is not a leading strategy* 26:00 – Leading with benefits of new technologies in this “epochal moment”* 29:00 – Not everyone can strike oil, but everyone can strike wind or sun (or both)* 30:00 – Agrivoltaics: “shade is a valuable commodity” * 34:00 – Sun Day: September 21* 37:30 – June 2023: hottest month on record to that point AND first month when world installed one gigawatt per day* 39:30 – Is it time for progressives to embrace permitting reform?* 43:00 – Is progress more likely at federal or state & local levels?* 48:30 – Closing Thoughts & Call to ActionResourcesBill McKibben’s Work* Book: Here Comes the Sun by Bill McKibben - (new release on the global solar revolution, packed with stories and stats).* Substack: The Crucial Years: Bill’s ongoing essays on climate, energy, and activism.* Sun Day! On the equinox: September 21Articles and Essays Referenced* The New Yorker (2025): Published an excerpt from Here Comes the Sun, surprising even seasoned climate experts with how fast solar is scaling.* Telegraph article on Texas, including John Davis, former Texas Republican legislator, who said he “struck wind” on his Menard ranch — wind leases now account for 40% of his income.* Mother Jones. Yes in Our Backyards — why it takes months in the U.S. but days in Australia.* Dallas Federal Reserve Quarterly Survey: Candid insights from Texas oil and gas executives on drilling economics and policy.Global and National Examples* Pakistan rooftop solar boom: Citizens added the equivalent of half the national grid in just 8 months (Google Earth images showed rooftops filling with panels). Diesel sales dropped 35% in one year.* California: Used 40% less natural gas for electricity than it did two years ago in summer 2023, evidence of rapid scaling of renewables.* China: 1/2+ of all cars sold last month came with plugs. EVs there now cost as little as $12,000, far below U.S. prices.* Australia: Rooftop solar installed as low as ~50 cents per watt vs. $1.50-3 or more in the U.S. due to faster, simpler permitting.* Vatican City: Building a solar farm outside Rome to become the first fully solar-powered nation.Concepts and Data Points* “Costco vs. Whole Foods” analogy: Solar has shifted from being a premium product to being the cheapest and most abundant option.* Agrivoltaics: Using solar arrays alongside farming. Examples include:* Cattle grazing under turbines and sheep around solar panels.* French vineyards report 60% higher grape yields with panels providing shade and moisture retention (pv magazine).* Corn ethanol vs. solar comparison:* 1 acre of corn for ethanol = ~25,000 miles of fuel for a Ford F-150.* 1 acre of solar panels = ~700,000 miles in an F-150 Lightning EV.* Balcony solar in Europe: Millions of apartment dwellers in Germany have adopted “plug-and-play” solar panels. Legal in Utah as of 2024 thanks to bipartisan legislation.Organizations and Initiatives* Texas Energy Poverty Research Institute (TEPRI) — Community Voices Survey found half of Texans are choosing between food, medicine, and power.* Sunday: National Day of Action — September 21, 2025 (Fall Equinox). Learn more at sunday.earth.* Conservatives for Clean Energy (Southeast U.S.): Helped persuade Florida Gov. Ron DeSantis not to block rooftop solar.Podcasts and Media Recommendations* Ezra Klein Show: Episode with Jesse Jenkins and Jane Flegal on energy transition and permitting reform (highly recommended).* Energy Capital Podcast: Previous episode with Octopus Energy CEO on new utility business models.TimestampsDoug Lewin (00:06.722): Welcome to the Energy Capital Podcast. I'm your host, Doug Lewin. My guest this week, I'm very excited to tell you, is Bill McKibben. I've been reading things that Bill has written for literally decades. One of the smartest guys out there talking about issues related to energy, the environment, and climate literally for 40 years. And he has written a great book called Here Comes the Sun. By the time this comes out, the book will be available for general purchase wherever you buy books.Do get it, I think you'll really like it. It's actually a pretty easy read, a couple hundred pages, not super long, but just absolutely dense, full of great vignettes and stories of Bill's travels to different places around the world and what he's seen going on with solar. Just a quick little stat that he drops into the book: The Economist in 2009, when we had 23 gigawatts of solar around the world, predicted it would take 20 years to increase that by an order of magnitude. It took six. And this year, well ahead of that 2030, we are installing that much solar, 230, 240 gigawatts every six months globally. Not only did it not take 20 years, we're deploying that much twice per year. This book is just full of all kinds of stuff like that. Pretty much every concern when they say or argument you hear about solar, there's too much land, it's not recycled and ends up in landfills. He takes on every single one of those in individual chapters. Really love this book. Do order it. But first, listen to my conversation with Bill. We obviously on brand talked a whole lot about Texas, but we talked about Pakistan and China and all sorts of places and aspects of the solar story around the world. I hope you enjoy it.As always, please, please, please leave us a five star review wherever you listen. It really does help grow the audience. Please share this with friends, families, and colleagues. And with that, please enjoy my conversation with Bill McKibben.Bill McKibben, welcome to the Energy Capital Podcast.Bill McKibben (02:11.49): Doug, what a pleasure to be with you and to get to say thanks in person for the amazing work you've been doing these last few years.Doug Lewin (02:19.0): Bill, that means so much coming from you. I've been reading your stuff for years, even decades. You're just a tremendous source of knowledge and wisdom and really appreciate you taking time to be on the podcast and appreciate you writing this fantastic book. Here Comes the Sun, which we'll talk about a lot of different things, but obviously we're going to talk about the book. I can't recommend it highly enough. It is just a great shot in the arm, but kind of a shot in the arm, not shot out the arm. Let me correct that. Shot in the arm of optimism and sunny optimism. I gotta say though, this is like maybe a little out of character for you. So like what's going on? Why are you so hopeful and excited?Bill McKibben (03:00.342): Well, it is true. You know, I had the, some ways, maybe the bad luck to write the first book about what we now call the climate crisis, what we then called the greenhouse effect back in the 1980s. So in some ways, my career over 20 subsequent books has been professional bummer outer of people for which I make no apologies. This is the most important thing that's happened in the course of our species' existence on the planet. And we need to understand it.Finally, right now, even though from my point of view, there are many, many, many big bad things happening in our country and on our planet. In certain ways, I never remember a moment more fraught than this one. I am saddened by what's going on in our nation. And I have the interesting task at this moment of helping bring people news of the one big good thing that's happening on planet Earth. And that's finally, finally the breakout of clean energy, the thing that we've been waiting for and hoping for and working for for a very long time. And now a combination of activism and engineering has brought us to a moment when there's this extraordinary thing happening. And my experience is that almost nobody knows about it. You know, a cut from this book came out in the New Yorker earlier this summer, long chunk. And I heard from person after person, and I'm talking about people who've been very active in the energy climate world for a very long time. And they were saying the same thing over and over again. I had no idea that this was happening. I had no idea how fast this was going. And I think that it's one of the really important points that we have to get across right now for all kinds of important political reasons is this stuff is no longer alternative energy. We should toss that framing far away. We should tear down the walls of that particular ghetto. This is the common sense, straightforward, obvious way to power the planet going forward.There's a very good reason that 95% of the new generation capacity on planet Earth last year was clean energy, sun, wind, batteries. And I mean, you're close to a big part of that story in the Lone Star State, which in some ways, as I say in the book, is the most amazing part of that story, since it's happening literally in the hydrocarbon capital of planet Earth. And yet the economics are so remarkable that even without what should be all kinds of obvious reasons to support it environmentally, it's nonetheless making its case. So it's not that I think we're out of the woods. It's not even that I think we're necessarily going to do this in this country. It's that for the very first time in the four decades where we've been worried about climate change, we have something that's scalable in ways that'll make a difference. The fact that California is using 40% less natural gas to produce electricity this summer than they were two years ago is the single most optimistic statistic that I've heard. Those are the kind of numbers that if they spread around the world, start to knock tens of a degree of how hot the planet eventually gets. And at the same time, they're liberating lots and lots of people from their dependence on expensive and precarious sources of energy is a beautiful part of that story too.Doug Lewin (07:10.87): Yeah. You know, look, I think one of the things that I think is so interesting about this moment, and you just hit on it directly when you were talking about the New Yorker article, right, that like, I still feel like this is not known. When people talk about alternative energy, they still generally mean wind and solar. We really do need to turn that upside down. Like gas is becoming alternative energy. Doesn't mean it's not valuable and we won't use it sometimes, but it's kind of the alternative. And then the economics, which I think, I think it was chapter four, which was probably my favorite chapter because I'm such a nerd and I love the economic stuff and you just lay it out so well. And I think the chapter right after that, you get into can the rest of the world afford it? Because you hear that all the time, right? This almost like trope that's rolled out all the time. They're like, well, there's no way Africa is ever going to get to the level of prosperity that we have unless there's fossil fuels. And it's like, that's crazy. It's exactly upside down because you need big centralized infrastructure in the world has failed over and over and over again to build that kind of scale in Africa, but decentralized, like the move we made in telecom to mobile phones, like that actually has a chance of working. Let me, it looks like you want to say something. I will let you respond to that. There is a question in there, but go ahead and respond and then I'll ask.Bill McKibben (08:26.926): I just want to say, I think you're absolutely right. And you can tell because people, as it were, voting with their feet or with their rooftops. The story that really just blew my mind was what happened in Pakistan over the last year or so. About a year ago in Pakistan, energy analysts started saying something weird is happening because demand for electricity on the national grid is dropping. As you know, as an energy analyst, humans never use less energy. Demand number always goes up, they say. So the fact that it was dropping was befuddling what was happening here. And then good analysts started looking at pictures on Google Earth. And if you looked at the rooftops of Lahore or Karachi or Islamabad, you could literally watch solar panels spreading like mushrooms after a rainstorm in the woods.The growth was literally week to week. In the course of eight months last year, Pakistanis built the equivalent of half the country's national electric grid by themselves. And when I talked to people and said, how did people even manage to do it? Obviously, the key component was cheap Chinese solar panels coming across the border with China. But how did they put them up? Well, it turns out that there are three or 400 great TikTok videos with Hindustani music in the background where people explain how to snap this stuff together and how to put it up. DIY. And the bottom line there, the number that killed me was that, I mean, I've spent some time in rural Asia. So I know that the soundtrack of Village Asia is diesel generators humming along to pump those deep tube wells that were the residue of the Green Revolution in the 60s.That diesel is usually the biggest input for farmers. It's expensive. Farmers were the first people to really start doing this in Pakistan. They often lack the money to build the steel supports that we're used to seeing for solar panels. They're just buying them, laying them on the ground, pointing them at the sun. Diesel sales dropped 35% last year in Pakistan. In one year, those are the kind of numbers that change the world.Doug Lewin (10:53.814): Absolutely. And I, you know, I had a sense that we were quote unquote winning. And I want to talk about what winning means in a minute, because I don't mean that, you know, team jerseys, like it's not a zero sum game. Humanity, all of us are winning. When I started to hear more and more that oil and gas operators in the Permian basin were trying to hook up to the grid as fast as they could to abandon those diesel generation, gensets and units, because it is more expensive to use those and the input cost of producing a barrel of oil includes the cost of the energy it takes to actually, so it was kind of like, I mean, I had seen all the numbers and I knew solar was coming, but that was one of those moments where I kind of went, s**t, this is really happening.Bill McKibben (11:36.384): It is just fascinating. And it's going to take us a while to wrap our heads around it because we're so used to the idea of energy as commodity, as something that you go discover and put in reserves. But the idea that energy now is going to be more than anything else, kind of the product of human intelligence. The fact that the learning curves are so steady and so steep for these technologies, that they get cheaper and cheaper with each passing quarter. Most of the global warming era, we lived in a world where fossil fuel was cheap and clean energy was expensive. That's why so much activism had to be about trying to put price on carbon, trying to divest from fossil fuels so that the cost of capital would rise, trying to slow the expansion of fossil fuel infrastructure on and on. But sometime about five years ago, we crossed that line, that flipped, and now we're in a different world, and the parameters of that world are going to keep shifting in the same direction. Fossil fuel is not on a learning curve. Fossil fuel was always pretty cheap, but if anything, it gets more expensive because now you have to go deep beneath the ocean or down and frack the subsurface geology or whatever it is to get at it. I mean, the coal is further back in the coal mine and it takes more effort to get. This stuff just gets easier all the time. The one real critique of the economics here, I think, is that it's almost so cheap that it's difficult to make a big profit on it. And so it's going to be more difficult to mobilize some of the investment if that's sort of how we're doing it. You've seen Brett Christopher's good book about this, The Price is Wrong, but the price is so cheap that I think places like China are quickly figuring out that the whole world looks different on the other side. Manufacturing, like just the daily cost of living, like all the things that we do in this world with energy become so radically less expensive once we've built this out, that it's as if you're living in a different world.Doug Lewin (14:04.556): Yeah, it's interesting. I still think there's going to be plenty of opportunities, entrepreneurial opportunities. It just, it is, I think, a move away from the commodity, as you talked about a minute ago, and more to services. And this was the most recent podcast I just put out was with the CEO of Octopus. And I did one with Base Power. These kinds of companies that are starting to think of, what do people really want beyond the commodity? Because if the commodity becomes so cheap, which it might. It's happening. It's still, I think, debatable whether or not that happens, right? But certainly the evidence is pointing that way. So then it kind of becomes what are the services you can offer and how do you actually...Bill McKibben (14:45.688): There was an instructive story in the paper yesterday about one of the big Australian utility coal firms making a huge investment in batteries, just saying, clearly one of our markets is disappearing and another is emerging. I think in general, not to sound too hippy-dippy about all this, but I do think that there's something fascinating about imagining a world that runs on energy that can't really be hoarded over long times held in reserve. It's a fun mental game to play to try and think what the geopolitics of planet Earth would have been like over the last 50 years if oil was not a particularly valuable product. I mean, human beings are good at fighting about things, but even human beings are going to have a hard time figuring out how you fight a war over sunshine. So there are some big interesting differences emerging.And of course, I'm not the only one that realizes that, nor you. Much of American politics over the last year is explicable by the fact that people in the oil and gas industry looked at the fact that California was suddenly using 40% less natural gas and panicked. It was just about exactly a year ago that candidate Trump was saying, give me a billion dollars and you can have anything you want to the oil industry. They ponied up more like half a billion when you add in all the advertising and lobbying and direct donations. Clearly that was enough, but they're getting everything that they wanted. But my...Doug Lewin (16:28.546): Well, sort of, no, actually it's really fascinating. Yeah, they're getting some of what they wanted, with some of like the, well, some of them, not to paint with too broad a brush with the IRA repeals and some of that kind of stuff. But I think this is a really important, but like the drill baby drill stuff does not work to them to your whole point of like, you need some scarcity for higher prices. And one of the things I love and I recommend it to anybody who's interested in energy is look at the regular reports that come out of the Dallas Federal Reserve, which really tracks oil and gas. And they do a quarterly survey and they publish the comments they get. And the comments are withering, you know, like oil and gas executives just saying the policy of this administration towards oil and gas doesn't make sense. I think there's some buyer's remorse. And we heard this before the election. Exxon CEO said, gave an interview on CNBC and said, I don't know what drill baby drill is a policy actually means because once you drill enough, then the prices go down and what happens when the prices go down, people don't drill as much. So you get caught in a quandary there.Bill McKibben (17:31.606): Well, yes. And truthfully, I think that they waited too long. We're past the point of no return at some level in the transition to clean energy, partly because it's such a global phenomenon. I think the interesting thing to watch is going to be what happens with LNG export, because clearly that's where this industry has based its growth story on going forward. We're going to export endless amounts of LNG out of the Gulf of Mexico to the rest of the world. And obviously Trump is doing his best to help with that. You know, place after place, the tariff negotiation has ended up with people promising to buy hundreds of billions of dollars worth of LNG. But my guess is that while that may be a short term boost, a kind of sugar high, it's probably not going to last.A, because it's running counter to these economics, but B, because if you're the ruler of some Asian country someplace and you look at this, do you really want your energy future tied to the increasingly fickle and erratic American government? Do you really want to put yourself in a place where Donald Trump can decide that your Supreme Court did something he didn't like and so he's cutting you off? My guess is that you're going to see almost the opposite reaction of what they want over time.Doug Lewin (18:59.618): There's a lot of different businesses, a lot of different sectors, including energy, where folks are asking themselves, do you want to rely on the fickleness of the American government right now? But to come back to the point of LNG, and this is where I do think we will see gas become more and more of that alternative energy is because again, the more you export, the more scarce it becomes and the higher the price goes, right. And we see this EIA just came out with a couple of days ago, a new short-term outlook that has gas prices up in the four and a half, five dollar range. The last two years, it's been like two bucks. So it's weird. We're actually seeing, you talked about gas being down in California, and that's part of the reason it is more expensive this year. We're seeing solar and wind way up in Texas. Unfortunately, we're seeing coal up too, and gas down, because demand is rising so much faster here than California. We're seeing everything rise except for gas, and that's with it only being like, three and a half, four bucks. If it gets to four and a half, five, I think you see even more solar and wind. I want to pivot a little bit, but did you have anything you want to add to that? Is it okay if I pivot?Bill McKibben (20:05.91): No, just to say, I do think that it's really important for people to bear in mind what a global story this is. And it's not just the energy sources themselves, it's the appliances that make use of them. So the fact that half the cars sold in China last month came with plugs dangling from the end is an extraordinary part of this story. There's no story...Doug Lewin (20:34.247): And they're not going back, right? It's not like it's gonna dip below 50%. It's only going up from here.Bill McKibben (20:39.158) Once you've built the infrastructure, I mean, these are, the story is these are better machines, you know. An electric vehicle is better. I've driven one for years. I would never go back for anything, nor would I get rid of the heat pump in my house and replace it with a furnace and an air conditioner. You know, this is better stuff that also happily happens to be better for the world. But any story about global oil demand 10 years down the road depends on everybody in China deciding they want to drive, I don't know what, a Bronco or something with a gas tank. And that's just not going to happen. In fact, the opposite is going to happen.Doug Lewin (21:19.31) They would have to pay like 40, 50,000 bucks for, especially after the tariffs the other way. And then like the electric vehicles in China are down to 10, $15,000 for like a really, really nice car.Bill McKibben (21:30.574) 12 grand, you can buy a car that does stuff American cars can't do. The future now, sadly, gets written at the Shanghai auto show, not the Detroit auto show. And all of this, I will just add, as a patriotic American, pisses me off. I grew up in Lexington, Massachusetts. My summer job was giving tours of the battle green, where the American idea was first defended in blood.Doug Lewin (21:59.02) I've been there. It's a great site, by the way. I loved it there. It was awesome.Bill McKibben (22:02.446) And the fact that the country that invented the solar cell and the country that invented the lithium ion battery is just surrendering. It's not that China is going to eat our lunch. It's we're catering the lunch. We're sending over a bunch of waiters in red caps to serve lunch to the Chinese. And it is absolutely maddening and should be to any red-blooded American to watch that happen.Doug Lewin (22:33.078) Yeah, we're going to put a pin in that. Hopefully we'll have time to come back to that. If not, we'll be back on the podcast at some point in the future. We'll talk about petrostates versus electrostates and what it means that China is dominating the supply chain for not just EVs and solar panels, but transformers. There's a big, big issue there that we've got to deal with as a country. But I don't want to lose the earlier point, which you were just saying, this was the pivot I wanted to make and you made it excellently, which is the EVs are better, the heat pumps are better. This to me, we're at a critical inflection point in dealing with climate change. That if we lead with climate change, and it feels like, I mean, you pretty much said this in the book. You certainly were like going right up to it. And I think even beyond it, like pushing the boundaries here a little bit. I want to push the boundaries a little further, Bill. And look, I want to be really clear. We can't ignore the climate science. I spend a good part of my, any given week reading what's coming out and different climate scientists, Andrew Dessler down here in Texas. I could give a long list of the people that I look to that are really, really smart. Also in Texas, thank you.Bill McKibben (23:33.486) And hey ho. You've got a good Texas contingent.Doug Lewin (23:39.34) I really could, I'm going to stop myself from naming them because then I'd leave somebody out and somebody will get mad at me. But they're Legion and they're smart and the contribution they're making is important and it should not be ignored. And when we think about the mass of people, right, the general public that is not reading about climate science, they're trying to live their lives. More than half of Texans are struggling to pay their energy bill because it's too high. There was a great survey out of Texas Energy Poverty Research Institute. I'm going to have Margo, the director of that organization, on the podcast next month. It'll be a must listen. They did this community voices energy survey right at about 50% of Texans are reporting that they're choosing between their food, medicine, and power. And I think if we lead with climate change, it's very depressing. It is a hard thing. It is complicated, and it is depressing as hell. And so people are just like, I have so many problems in my life and now you want me to deal with this and I have no power to deal with that. Now flip that around and say, hey, what is happening to deal with climate change? You don't even have to think about it to deal with climate change. These are technologies that lower your energy costs, give you a better, smoother, faster ride in your car, keep your house more comfortable at lower cost in extreme heat, especially winter, whatever. Like that pivot, I feel like is where you're going here. It would just had me so excited reading this book because you obviously are a pivotal figure within those that are working on climate change. I think we have to get back to like, what is the purpose? Where does this end? What is the vision? What is the light at the end of that tunnel? If we successfully deal with climate change, it's not privation and higher prices and you know, you're putting on extra layers to stay warm in the winter. It's none of that. It's actually energy abundance, really an end of scarcity for a lot of different things.Bill McKibben (25:47.67) So I think you're absolutely on the right track. I want to say a few things about climate that I think are important here. I don't think it's going to go away in any way, in part because those feelings of privation are now directly linked to what's happening to the climate. I mean, the fact that Texans are having to use so much expensive energy has a lot to do with the fact that the temperature now pins at 100 degrees beginning in May and stays there till October, and obviously comes with all the kind of tragedies that you all have dealt with in the Hill Country. I also think that human beings are complicated and that we make a mistake sometimes in assuming that we work just on a kind of economic cost benefit analysis when we think about the world. Humans like to be engaged in the process of making the world a better place. Care deeply about a world that works better for their kids and such. And that's why it's exciting that the one thing that we can do about climate change also happens to be a beautiful thing that we can do for everybody's future. The epochal moment that we're at shouldn't be washed over. Right now, in the 2020s, after 700,000 years of humans merrily setting things on fire, we're at a point where we don't need to do that anymore. And that comes with extraordinary benefits. The climate is perhaps the most abstract of those. One of the least abstract is that we don't need to be causing hundreds of thousands of cases of childhood asthma across this country every year anymore by sending up the cloud of particulates that come when you burn fossil fuel. That's a big help, especially in places that are hot and poor. But we also have this chance of building a future that is in our own control, which is another thing of great emotional appeal to people. Most people don't have their own supply of coal or gas or oil, you know, at least since John D Rockefeller, a great deal of the intense and now grotesque inequality that marks our planet has derived from the fact that we depend on these few outcroppings of fossil fuel scattered around the world. The people who control them become richer and more powerful than is wise for our democracy or wise for our economy. Imagining a world where instead communities have some control over that. I was so struck by your reporting earlier this year during the state legislature session in Texas when people started appearing out of rural Texas saying, don't do this stuff on solar. This is how we pay for our schools now. That revenue source is what keeps our otherwise remote rural impoverished community going. That could be true for the entire...Doug Lewin (29:04.726) I just want to interject to say at one of my favorite phrases that I've just ever heard on anything is from John Davis, a former Republican legislator. He was a chairman in the house, Republican in the aughts and I think into the early teens. He's got a ranch out in Menard about three hours west of Austin. There's no oil and gas on his ranch. He's a, I think he's fourth generation, maybe fifth. And he was getting ready to like get to the point where he was not going to be able to keep his ranch. He just couldn't keep up with the expenses of it. Cattle wasn't bringing enough money in. He was heartbroken, but it was like, it was a financial decision he's gonna have to make. And then he said, as he describes it, I struck wind. He didn't strike oil, he struck wind. He's got seven wind turbines. There's a great article in the Telegraph, we'll put a link in the show notes where he says, you know, 40% of his income now is coming from those seven wind turbines. And the cattle graze right around the wind turbines and don't have any problems. This whole thing of like taking away farmland, like. The cattle are perfectly happy. They go and get shade from the tower at certain times of the day, and that's about all that affects them.Bill McKibben (30:09.026) Let's don't overlook that at all, because it turns out that that's one of the really fun parts of this story.Doug Lewin (30:15.252) End of your book, by the way. The whole section on land is just so well done. Yeah.Bill McKibben (30:19.636) Agrivoltaics, we live on an overheating planet where shade is actually a really useful commodity all of a sudden. You don't have to look very far on the internet to find lots of pictures of sheep and cows happily lolling in the shade of solar panels. I will say to anybody listening that the word to the wise, don't put your goats in there. They like to chew the cables and they enjoy trying to jump up on the panels themselves. Keep the goats away, but everything, I mean, the French have figured out that they're increasing yields of wine grapes 60% by sticking them in fields where you get more shade and of course more moisture retention as a result. And I think that this part of the story, people are starting to understand a little better. If I go to my grave having only explained one thing, it would be that we could take the land currently used to grow ethanol in this country and cover it with solar panels and provide more energy than the US will ever use. The insanity was driven home for me standing in a field in Illinois with a farmer who put part of his acreage into solar. He said, you know, we grew a lot of ethanol, a lot of corn for ethanol here. One acre of corn grown for ethanol every year produces enough to drive my Ford F-150 about 25,000 miles. So not nothing, but one acre of that same land covered with solar panels with other stuff in between, but covered with solar panels produces enough electricity to take my Ford F-150 Lightning, the EV version, not 25,000 miles, but about 700,000 miles. When you start getting those kind of figures in your head, you'd get the sense of what's possible here. And you get the sense of how easily this can and does cross ideological lines. That's what I've been loving about your reporting from Austin. And it's not the only place. One of my favorite stories this year is about, and it's not like a crucial central part of the solar story, but it's a really good one. In the last couple of years across Europe, this stuff called balcony solar has just taken off for apartment dwellers. It is apparently several million Germans have gone to whatever the German equivalent of Best Buy is and plunked down a few hundred euros and come home with a solar panel that they hang from the balcony and just plug straight into the wall. And they're producing 20% of the power they use maybe. That's illegal everywhere in this country, except in that progressive bastion Utah, where two months ago, a libertarian state senator said, why can the people of Hamburg and Frankfurt do this and not the good people of Salt Lake and Provo? You know, I don't like this. And so unanimously, the state legislature passed the enabling legislation. And I now have a steady diet of videos on YouTube of Utahns hanging their balconies, solar panels off and plugging them in and generating power. If you're a good liberal, you may love the idea that we're networking the groovy power of the sun. If you're my home is my castle kind of guy, you may like the idea that you're now actually independent of the big powers and able to, you know, run your own.Doug Lewin (34:00.306) Maybe you like both. Absolutely. We can take both.Bill McKibben (34:03.412) We're all Americans, so we have a little bit of all of this in us. And it's why we're doing this Sunday thing in September, this big national day of action on September 21st, the fall equinox, just to try and drive this message home. And we kicked it off with a little ceremony at Old North Church in Boston, where we hung a solar powered green lantern up in Paul Revere's steeple because this is such a possibility. And that kind of liberation story, revolution story, is so akin to what I've always thought of as the kind of American spirit. And so antithetical to what at the moment I think too many people are perceiving as where we just try to hold on and never change to what we have now. You know, if we're the country on coal, then we're going to power it on coal forever. Well, I mean, you know, as I say, I grew up in Lexington. If that had been our attitude, we'd still be speaking with British accents and sending money off to the king.Doug Lewin (35:12.694) And using whale oil and kerosene and yeah.Bill McKibben (35:16.236) Yeah, yeah. This is the moment. And it's great fun for me. My other identity, in a sense, I guess, is as a Christian. I've been a Methodist Sunday school teacher much of my life and that sort of thing. And so I love the idea that we're getting energy from heaven, not from hell, you know, that the good Lord saw fit to hang this big ball of burning gas 93 million miles up in the sky. And now we have the wit to make use of it. I was very taken by the news a couple of weeks ago that Vatican City is now going to become the first fully solar powered nation on earth. They just broke ground on a big solar farm outside Rome. And given the nature of solar power, within a few months, they will have finished this project and the Vatican City will be running all on solar power. So for me, the climate story is in the middle of all of this. And the only reason that we're doing the kind of activism that we're doing is we have to make this transition as quickly as possible. Unlike our other political issues, the thing that makes it different is it's one that comes with a hard physical deadline. Once we melt the whole Arctic, it's not like someone has a plan for how we're going to freeze it back up again. And that's about where we are now. We're watching in real time the degradation of the climate. So absent that, we could all just sit back. I could sit back and say, well, 40 years from now, we're going to run the planet on sun and wind because it's so obviously economically the thing to do. And economics eventually erodes politics and wins. The trouble is, is if it takes us anything like 40 years, then the planet that we run on sun and wind and batteries is going to be a broken planet. So that's the one place where I think we need to keep reminding ourselves that this good news story is happening at the same time as a very bad news story. And they're very deeply connected. So deeply connected that it's almost like a Hollywood script. June of 2023 was the month when temperatures around the world really began this acceleration, this spike. That was the month when climatologists were saying, this is the hottest temperature we've seen in 125,000 years. And every month since has been the hottest October, the second hottest May, whatever. We've stayed up at this very elevated place. June of 2023 was also literally the same month when human beings started putting up more than a gigawatts worth of solar panels every day around the world. A gigawatt being the, I mean, one can talk about nameplate capacity on it, but being the rough equivalent of a coal fired power plant or something. A very large one, yeah. So these two things are happening right now. And we have no idea how this race comes out. We know that we're not going to stop global warming. It's too late for that. Much damage already done, much more to come. But what we're playing for is the ability to stop it short of the place where it just cuts civilizations off at the knees. And even that's an open question and we don't know. But I think that your original point was right, that by itself, that has not been enough to move our political system in the ways that we would need it to move. This is an extraordinary opportunity that comes with cheap, clean energy. And so the shorthand that I've been using for people that help get it across is to say, we've spent a long time thinking of this stuff as like the whole foods of energy. It's nice, but it's pricey. We need to get it through everybody's minds that this is the Costco of energy. It's cheap. It's available in bulk. It's on the shelf, ready to go.Doug Lewin (39:37.4)So, it hasn't been enough politically. I want to read a little part. This is from towards the end of the book, not right at the end, but a little quote you had here. You said, we're finding enthusiasts around the world, not for net zero by 2050 or dramatic reductions in carbon emissions or any of the other phrases that have come to define the climate debate. It's not that those things aren't important. They are. It's that they don't really offer a positive vision of the world we might build. I agree with this a thousand percent. And I want to tie this together with what I thought was just a great podcast that I recommend everybody listen to. The Ezra Klein Show, the one he did with Jesse Jenkins and Jane Flagel, who I think are two of the brightest minds in energy out there. You were just talking a minute ago, Bill, about Utah and about what is effectively a little bit of a deregulatory action, right? Making it easier for people to plug and play a solar panel. If it's configured that way and it can work in a normal socket and provide power, again, they're doing this all over the world. It's not dangerous. Why wouldn't we give the people the freedom to do that? Basically, what I'm getting at is we are getting to a point that to deal effectively with climate change, to deal effectively with the rising temperatures and the heat and all that comes from that, we are going to have to build a lot. And the environmental movement has existed for decades to really stop infrastructure from being, but that's, that's an oversimplification. It hasn't existed a hundred percent for that. But I think it's fair to say a lot of the orientation of the environmental movement. And it's not, I'm not saying that as like a bad thing. There was a move in Texas 20 years ago to build 11 coal plants. I was a long time ago, like trying to stop those. And I'm glad I did. We shouldn't have built those. So it's not a bad thing to stop some infrastructure from being built. But now we're at this point where like, my God, to get out of the mess we're in, we got to build and we got to build a lot. And I just wrote an article on this talking about energy pragmatism and how maybe it's not crazy. Although there's a little voice inside my head telling me it is crazy to think we could get any sort of bipartisan energy, you only have to read any newspaper any day, it'd be like, how is that possibly going to happen? But we've been polarized before and energy does seem to be an area where bipartisan agreement can happen. But that of course means that progressives are going to have to give something to get something. So you could take any part of that when you want, but I think the main question is, is this a time where progressives, where people that are concerned about climate change should be actively working with conservatives on what motivates them to come up with some kind of a bipartisan energy framework that might be able to propel us forward.Bill McKibben (42:33.422) Sure. First thing is I've done a lot of writing in the last couple of years about just what you're talking about. And with the case I've been trying to make, among other things, is that people who, like me, old white people should stop suing to stop things they don't like. Solar farms, wind, you know, I am so tired of the I don't want to look at it argument, which actually is behind an awful lot of the opposition to renewable energy. And it's shameful at this point and should be abandoned. I don't think, frankly, anything useful is going to happen in Washington. I see no sign. Politics aside, it just seems to me that the place has been abandoned to a kind of nonlinear uninteresting thinking in every way. But I do think that state by state and city by city across this country, there are all kinds of ways to work this out. One of the things we're really concentrating on at Sunday is permitting reform at the local and state level. Because among other things, I mean, and this is sort of most obvious with rooftop solar, our system's just absurd. I mean, if you live in Australia or Belgium or something, you can call up the contractor on Monday and say, I want solar panels on my roof. And by Friday, they're up there plugged into the grid producing power. Here, it's a months long odyssey. $1 a watt in Australia. It's a third the price. 50 cents a watt increasingly in Australia. I mean, it's really unbelievable. And as it turns out, I wrote a long piece for the progressive magazine Mother Jones, pointing out that this is mostly down to absurd regulation. We have 15,000 municipalities and county commissions and stuff that all have their own sets of codes. They do these inspections on the roof as if you were building something dangerous. Clearly, this is not dangerous. If there were an epidemic of solar panel rooftop fires across Australia, trust me, Fox News would be covering them 24 seven. Okay. This is no more dangerous than putting in a refrigerator, but we treat it as if it's, you know, I don't even know what someone wants applying to build like a toxic waste dump on their roof.Doug Lewin (44:54.412) It's an electrical appliance and we have batteries in all like at our computers at our phones and that we treat a battery in the garage.Bill McKibben (45:02.026) We're not used to doing this and so not able to do it. And so I think we can change those things in lots of places. And I've really been enjoying working sort of across, there's a group called Conservatives for Clean Energy in the Southeast. They were really the ones who persuaded Governor DeSantis in Florida not to put the kibosh on solar there. And the Sunshine State is actually now beginning to put up solar at a semi-respectable rate.Doug Lewin (45:32.366) It's literally called the Sunshine State.Bill McKibben (45:35.266) Yes. One of the things that always amuses me is that Vermont, where I am, which is not the sunshine state, has for decades had one of the highest levels of solar penetration in the country, just because people are that way. But we can do this. And so I think that your analysis is correct. And I think that if and when sanity returns to Washington, it will probably return with a kind of different flavor of thought around that kind of regulation. That said, the baleful effect that the fossil fuel industry has on our political life is just worth bearing in mind all the time. And they're very good at taking things and twisting them in their favor. So the one part of the IRA that is going to survive, for instance, is the boondoggle stuff that Joe Manchin put in at the behest of the fossil fuel industry. We're gonna spend tens, maybe hundreds of billions of dollars on what are really kind of absurd, expensive projects like carbon capture from coal-fired power plants and things like that. Money that if you spent it on renewable energy would return 10 times the climate benefits, but also 10 times the economic benefits. So I understand why people are reluctant to help an industry on the decline try and maintain its advantage through political gamesmanship. That said, this is a transition. And there are communities that depend on fossil fuel and people that... And we need to figure out how to make that work. Exactly right.Doug Lewin (47:20.91) A lot of them in Texas.Bill McKibben (47:26.22) We need to figure out how to make that work, and I think we can. I think the thing that we can't figure out how to make work is a forever return for Exxon's shareholders. I was really struck last year when Darren Wood said, quite frankly, in response to the obvious question, why don't you guys build a lot of renewable energy or an energy company? He said, we don't do it because it doesn't offer above average returns for our investors. They've had a hundred years to realize above average returns. It's about time for the rest of us to realize the kind of savings and freedom that comes from not relying on energy that can be hoarded, held in reserve, doled out month by month for another check.Doug Lewin (48:18.092) I know I need to let you go in a minute. Two quick points, and then I'm going to ask you if there's anything else you want to say before we end. One, Exxon is investing in lithium mining in certainly in Arkansas, maybe in Northeast Texas. So even they're changing. Two, I think as far as DC goes, obviously nobody has a high opinion of Congress right now. I mean, the polling puts Congress slightly below the plague or something like that. But I think there are, particularly in the Senate, a lot of folks that understand that if we severely limit the build out of wind and solar, it will affect many of our other national goals, including winning the AI race with China, which is very important to the Trump administration and a lot of folks in Congress. Like, I still have this like, it may be a very thin thread of hope that there might be some ability to have a bipartisan bill like in 2005, like in 2007, 2015. So I'll let you respond to that and then, I know I need to let you go if there's anything else you want to say.Bill McKibben (49:22.967) I'll just say, I hope a few of them grow a spine and are willing to stand up to the White House on some of this. Yes. And we'll see. But that's why we're doing things like Sunday. It's really important to demonstrate across the country that there's an understanding and a desire for this future. And if we change the politics even in small ways, then that has the possibility for the kind of outcomes that you're describing.Doug Lewin (49:52.334) Bill, if people want to know more about Sunday, they can go to, what is it, sunday.earth? And it's going to happen on September 21st. Is that right?Bill McKibben (49:59.174) Sunday.Earth. Exactly right. You got it just right. Doug, let me just say such thanks for what you do. You're doing it in the most important place in the world and just in exactly the right key. So many, many thanks.Doug Lewin (50:13.902) I really appreciate you. We will put links to where folks can read your excellent substack. Can't recommend that highly enough. And then here comes the sun, depending on when we put this out, it'll either already be out or you could pre-order it.Bill McKibben (50:27.875) It's out next week, so yeah, I am glad you enjoyed it.Doug Lewin (50:31.352) So it'll probably already be out. Make sure you order it and we'll put links to other places people can find you. Bill, thanks so much for doing this. This was a pleasure. Thank you.Bill McKibben (50:39.545) Our real pleasure. Thank you all. Take care.Doug Lewin (50:43.288) Thanks for tuning in to the Energy Capital Podcast. If you got something out of this conversation, please share the podcast with a friend, family member or colleague and subscribe to the newsletter at douglewin.com. That's where you'll find all the stories where I break down the biggest things happening in Texas energy, national energy policy, markets, technology policy. It's all there. You can also follow along at LinkedIn. You can find me there and at Twitter, Doug Lewin Energy, as well as YouTube, Doug Lewin Energy. Please follow me in all the places. Big thanks to Nathan Peavey, our producer, for making these episodes sound so crystal clear and good, and to Ari Lewin for writing the music.Until next time, please stay curious and stay engaged. Let's keep building a better energy future. Thanks for listening. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.douglewin.com/subscribe