Just a note to let you know that we’re taking the week off — no content, which means no mailbag episode for December. I kinda forgot that I’m going to be in DC with family all week and won’t have time to record anything. But please, keep leaving your questions. Expect a super-mailbag in January, with my co-host Lisa back in the booth.
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I've been thinking about what to offer by way of year-end reflections, but honestly, I don’t have much. I feel pretty profoundly out of sync with the country right now — the zeitgeist, the vibes, what have you. Everything seems too ugly and stupid to bear. It is a dark time for America and it seems likely to get much darker before it’s over.
That is why I’m so grateful I get to do the work I do at Volts. Though the sky is dark, each guest — each story of cleverness or courage or public spirit — is a lantern, a light against the gloom. And if I can’t quite see the landscape clearly any more, if I can’t make out a happy ending through the tenebrous murk, at least each lantern provides enough illumination to make it to the next.
I hope you will stick with me on this journey in coming years, one foot in front of the other, from lantern to lantern, toward a brighter world.
And I hope you all find some measure of peace this holiday season. Love from the whole Volts family.
I took this at a park near my house the other day. Seems promising.
PS. We’ll kick off the new year with a new pod on Jan. 1. It’s on thermal energy networks. An absolute banger.
PPS. I sent my annual fundraiser last month, so I won’t hit you up again, or remind you that paid subscribers are my sole source of income, so forth and etc.
In this episode, I speak with Ben Brown, CEO of Renew Home, about the company's groundbreaking 1-gigawatt virtual power plant deal with NRG Energy in Texas. It will be the nation’s largest VPP, leveraging existing smart thermostats to control millions of residential HVAC systems. We discuss customer experience, data privacy, and the ability of VPPs to rapidly scale to meet rising electricity demand.
Hello everyone, this is Volts for December 20th, 2024, "The promise of residential VPPs." I'm your host, David Roberts. These days everyone is talking about virtual power plants, the somewhat regrettable name for a new class of entity starting to pop up on power grids. A VPP is composed of multiple distributed energy resources (DERs) — think rooftop solar panels, home batteries, EV chargers, and smart appliances — scattered across hundreds or thousands of households, coordinated through networking and software.
By acting in concert, these resources create a kind of super power plant, one that can generate, store, or shift power, precisely and in real time. No other power plant can do all that.
VPPs can help grids avoid expensive peaks (and thus avoid building new gas peaker plants), but that's just the beginning. As Distributed Energy Resources grow in number and variety, the value and capacities of VPPs will increase, as described in the Department of Energy's recent Pathways to Commercial Liftoff report.
Ben Brown
A company called Renew Home just made a big splash in this nascent market, announcing a deal with utility NRG Energy to develop a 1-gigawatt VPP in Texas, initially based on smart thermostats. The company grew out of Nest Renew, a Google company coordinating Nest thermostats, and OhmConnect, a VPP startup.
Ben Brown, the CEO of Renew Home, has been in the home energy management space his entire career, including 10 years at Google leading efforts like Google Home. I thought he'd be a great person to ask a bunch of questions I have about this space, which is exploding lately. We're going to talk about the customer experience, the security of customer data, other devices that might be networked in the future, and the upper limits of VPPs.
With no further ado, Ben Brown, welcome to Volts. Thank you so much for coming.
Ben Brown
Thank you so much, David, for having me.
David Roberts
Tons of questions about this. VPPs are the hot thing right now, everybody's talking about them, and they're starting to move from kind of stars in people's eyes to real things on the grid now. So, we're getting to where we can answer some questions. But let's just start with a bare description of what you're doing here in Texas. What exactly is this deal? Why is NRG involved? What are you aggregating? Just so to me, describe what's going on here.
Ben Brown
The biggest thing is, we look at Texas, we look at the opportunity to work with hundreds of thousands of households across the state to help them shift energy usage into times where the grid is less stressed. We deal with a lot of these peak issues for tens or hundreds of hours during the year. With NRG, we worked with them to say, "Hey," they were thinking about investments in new capacity resources to deal with the growing demand that they're seeing from a lot of different vectors, and we worked with them to say, "Hey, we can build a VPP at a tenth of the cost that it would build to a natural gas power plant." And so we do that working with the target is over six hundred thousand homes across the state with predominantly smart thermostats, the Nest learning thermostat, Vivint thermostat to start, but we'll bring in EV chargers, battery storage as well over time.
David Roberts
So is the right way to think about this, NRG is the utility and you are a genco and they're signing a PPA with you? Is it more or less just like any other deal between a utility and a power provider?
Ben Brown
Yeah, I think it's a little more involved. I think it's a good way to think about it for maybe the value that we're putting together. But when we think about VPPs, it's really important to focus in on what the end customer experience is for being able to provide this type of service in the home. So, you're trying to empower customers to be able to save money on their energy bills. So, being able to have a really great end-to-end experience that is integrated between the Nest experience and the NRG experience and or the Vivint experience is really critical in this. So, it's not just purely, "Hey, you know, there's a gigawatt of capacity we're building," and then we're just going forward and talking about a fifteen-year PPA or something like that.
David Roberts
Right, well, that's your face to the utility, and then you have a different face to the customer.
Ben Brown
No, that's a good way of talking about that. Yeah.
David Roberts
You're starting with thermostats. There's a fine line, if there's any line — maybe you can tell us if you think there's a line — between what is now currently called demand response and virtual power plants. Now, in my mind, the distinction is demand response is just you can move usage, power consumption from one time to another, which is very useful. But when I think of a virtual power plant, I think of something that can do that and then also store energy and then also generate energy at times of need. And it looks like to me where you're starting with thermostats is just demand response, isn't it? How is this not just demand response? Or do you think there's a meaningful distinction?
Ben Brown
I think there's definitely a distinction. Right, so I would say when we look at the history of being able to engage residential customers in being able to shift their energy usage to support the grid over the last thirty years, that really has been around using the home's thermal properties around how you cool or heat it to be able to shift when you do that. Essentially, the home is a large thermal battery, so it's really no different than an electric battery, a chemistry battery that can discharge.
David Roberts
Same with water heaters, water heaters are always touted for this.
Ben Brown
Exactly right. So, when I think about what thermostats or HVAC systems have been doing over the last ten years, and if I back up for a second, we, as Renew Home, working with the Nest Rush Hour Rewards of running that program as the Nest Energy team for the last decade, as well as what we've done with OhmConnect in markets, we've been able to both showcase the value of demand response at scale but also being able to, when we launch Nest Renew, show that we can do billions of energy shifts a year across five plus million customers across the United States. That does represent a really resilient, dispatchable, reliable VPP nationally, but also in highly targeted ways. So honestly, I think that it's really important we think about VPPs. The only way we're going to get to our goal of trying to have 160 gigawatts from VPPs across the country over the next five to ten years is really by employing the biggest latent resource out there first, which is the 70 gigawatts of potential that exists across all the heating and cooling systems in the country across those eighty million homes.
David Roberts
I mean, I guess that's my question. It's like, as long as that's what you're doing, moving heating and cooling around in time, it just looks to me like very sophisticated, very scaled-up demand response.
Ben Brown
I do think that because of what you can do with load shaping, you can make it look very similar to what — because we also manage a diversity of assets, not just smart thermostats but batteries as well. And when we look at what we're able and capable to do over an hour, three-hour, five-hour periods on the population basis, because we're talking about massive scale here. The best benefit we have going for ourselves is that when we're engaging in Texas, we're talking about doing it across hundreds of thousands of homes. What we're doing in California is across hundreds of thousands of homes. And so when you look at that in aggregate, it actually creates the same type of load shapes as you would with any other generation asset or kind of a physical storage assets.
David Roberts
Yeah, well, when you throw batteries in there, then you can start discharging energy right when you need some, and then you can start storing it. I think it's when you throw batteries in that you get something that looks, I guess, a little bit more like a VPP to me, although I guess these definitions are fuzzy.
Ben Brown
I think it's important on this one because most batteries aren't giving, you know, they're not discharging back to the grid, right? Most batteries are about the behind-the-meter, giving back to the home and shifting, right? You know, mostly it's usually solar or taking grid energy and then discharging it at different times, same thing from an EV charger. So when we really think about this and we're talking about the scale we're getting at, I think it's very important not to overlook that we've already showcased that thermostats are the backbone.
Smart thermostats and HVAC systems are going to be the backbone of the scale of VPPs moving forward and absolutely there's a diversity of assets that should go into that, that we support. But I would really advocate that we believe that actually building the largest residential VPP in the country, which Renew Home has done, we believe that a lot of that's going to have to come from smart thermostats and HVAC systems in addition to, as the adoption curve ramps up, with EVs and behind-the-meter storage that will be a key component of as well.
David Roberts
HVAC is where the energy is, right? I mean, it's like, "You go where the money is" — I forget what the old cliché is — but that's where most of the residential energy is. It's a sensible place to start.
Ben Brown
50% of energy usage in the home is related to HVAC, and there's going to be an adoption curve for sure around broader home electrification, which we're super excited about. And I think that smart thermostat users like Nest users historically have been five times more likely to be adopting other home electrification devices.
David Roberts
Yeah, that makes sense.
Ben Brown
You know, it kind of makes sense. It's usually the first device that people adopt.
David Roberts
This does seem, I mean, I'm getting a little ahead of myself here, but this does seem like a smart way to address the big problem around VPPs now, which is that so much of it is theoretical. So much of it is, we're on the verge of a ton of stuff, but like, what's the foothold? What's the first step, you know, like how do you get established? And these thermostats, these smart thermostats, are already there. I mean, they're already installed.
Ben Brown
You know, I think if you look at why we created Renew Home to begin with, it was that we already have five million households across the country that represent over three gigawatts of VPP capacity, flexible capacity, that we work with over one hundred plus utility programs across the country.
David Roberts
With Nest?
Ben Brown
Yeah, with Nest plus other devices as well, it's not just Nest.
David Roberts
This is a side question, but is all that just the market, like is all that just Nest selling as a private product for people's private usage, like is that the result of some previous utility program or is that just a bunch of people have bought these things?
Ben Brown
I mean, it's the best part about a little bit of everything. Which is obviously, the Nest thermostat was, I believe — obviously worked on a lot of these products for a long time, I come from a consumer product background as you mentioned — I think it was one of the kind of those magical devices that was very desirable so you had so many people that would just buy it because it helped them save money.
Being able to have a device that can help you automatically save energy and use energy more thoughtfully is something that just people went out and bought on their own. But also, yes, we worked really tirelessly over the last decade to work on state and utility-based rebate programs for both energy efficiency with Energy Star as well as with demand response pre-enrolled type programs wherein there were really good subsidies given by utilities to be able to help get thermostats into homes as well.
David Roberts
Yeah, but just to sort of emphasize the point here, that the kind of advantage you guys are working with is that you do not have to persuade customers to install anything or to buy anything. The products you're working with are already in homes, at least to begin with.
Ben Brown
Yeah, right, we get to take advantage of there's a very large existing population of Nest, Honeywell, Ecobee, and Residio thermostat owners across the country, but there's also millions of new households that buy them each year. And we have a great experience that we built so that when you're setting up the device, we make it really simple to empower you to connect that to a program so that you can enhance your energy savings when you do so.
David Roberts
Okay, so let's talk about the consumer experience then, because I kind of wanted to start there. I mean, from what I totally get, and I think most listeners of Volts will get, the appeal to a utility of having a gigawatt of movable, shiftable, controllable demand like that's an obvious asset in balancing your grid, especially in Texas where you've got, you know, very well understood problems at this point with the grid.
But the consumer; so I'm a consumer, a couple of years ago I bought a Nest thermostat, it's now controlling my whatever my HVAC. You come knock on my door, what is the customer acquisition process? Because that's the pain point I hear from everybody in this space, right, is customer acquisition is the difficult bit. So what's the process?
Ben Brown
So, just to speak a little bit about the background, my background, and then some of where a lot of us have come from building great consumer products. I think you do try to figure out the best, most frictionless way to be able to, when a household is going through setting up something like a smart speaker or a camera or a smart thermostat, you really create a very seamless experience in that process wherein you are enabling them to do all the things that give that device its superpower. And so when we think about like the job or the superpower that a smart thermostat really was intended to do from the early days, there was a lot around you know, "Just make sure it's not heating and cooling my house when I'm not home."
So, there's a lot of really brilliant things around using, you know, IR sensors and new modern sensors to be able to better understand the patterns and rhythms of the home to just help me use less energy. Then, obviously, as the grid has gotten more complex and more constrained, especially in not just ten hours of the year but hundreds of hours of the year in which we're seeing real-time prices really spike and move around all the time, and that will only get kind of more exacerbated over the coming decade, we realize that the other big superpower of a smart thermostat, as an example, was its ability to be predictive about those elements and your patterns in the home so that it could use AI to really create a very smart schedule for when you're heating and cooling your house that minimizes your costs while also supporting the grid.
David Roberts
You mean predict elements like grid congestion and weather events, things like that?
Ben Brown
Exactly. Like, so you know what the weather is going to look like for the remainder of the day when you're most likely to be coming home? How do real-time prices on the grid look? Where are there going to be issues on the grid? So, being able to do all those things is really impossible for a consumer to be able to do themselves, right? Like, that's a lot of the power of AI. It would be like, "Help me do things that represent my preferences but things that I can't sit with, like an energy clock every single day, and then try to optimize and predict when I should be cooling my house for ten minutes to get it to seventy degrees."
David Roberts
Well, I feel like one thing that everyone in your space learns quickly is just how little consumers will do, just how little you can expect them to do. I find that no matter how low your expectation is, you end up having to kind of lower it. So, you really do have to make these things almost entirely weightless, you know, almost entirely automatic.
Ben Brown
As you mentioned, I think the best products you ever build and the simplest experiences you ever build mean that you've spent millions of hours trying to rough out all the rough edges and smooth them out because you got to make it super accessible and do something that, again, someone couldn't do themselves. I think that's where a lot of the value you're creating for them comes from.
David Roberts
Okay, but you're describing the process of setting up your new Nest, and I see how, like if you buy a Nest, that's an easy customer get because it's just one more thing they have to click when they're setting it up. They say, "Yes, I'll participate in this program." But you're starting with a bunch of existing Nest customers, are you not? Is the utility helping you reach those people? Did you spam email them? How do you contact all these people?
Ben Brown
Well, the benefit is we've been doing this for the last ten years. Like, Rush Hour Rewards is a program that started with three utilities and has now ramped up to over one hundred plus across the country. And then also, we launched Nest Renew five years ago and what Nest Renew was doing was working with you to help you shift your energy usage on a daily basis to help minimize cost and to be able to shift to when the grid mix is cleaner. So, doing those things and having that already built in means that we've really built up a very large user base that is already enrolled in programs.
But, we also have a really good ongoing experience with customers around how to engage them with enhanced energy savings. And so, that's something that we've also built out those experiences really well through the Google Home and Nest apps over the years. And now, we're bringing that philosophy and those learnings around because I think people have talked about this in the industry around smart thermostats specifically, but even other types of devices that people bring in which is really low enrollment or adoption rates.
I think that utilities will communicate, "Oh, we've been able to get three percent or five percent of people enrolled." When we have seen this historically, we've hit numbers where we've been able to get seventy or eighty percent of households engaged in energy shifting. And then we've been able to get orders of magnitude larger than the three percent or five percent people are talking about in terms of being able to get people enrolled into VPP or a utility.
David Roberts
Is that a communication strategy? Like, what's the secret? How are you getting these people to do something when other people haven't been able to?
Ben Brown
I think the best proxy for it is, you know, I think we learned a lot from coming from being the company that was working on a bunch of these other devices as well. Which is, when you were setting up your smart speaker as an example, you know, we made it really simple and natural for you to be like, "Hey, yeah, if this smart speaker is going to be a great product for me, I need to be able to link it to my Spotify account or my Apple Music account or my YouTube Music account."
And so, we made it a really good default part of the experience where you really kind of like, we did a lot of learning from that. And then I think it's the same thing here which is, "Hey, if you really bought this smart thermostat to help you manage your energy cost, that's why a lot of people are buying these devices, being more thoughtful, more control over comfort." So of course, it makes sense when you set this up to link your utility account. Like, how would we know how to kind of shift your usage and minimize your costs if we don't know your time-of-use tariff?
And so, I think that type of kind of more of a normative approach to helping people do the thing that makes the device able to do its job more effectively is really, I think, an approach that has helped us really change the game in terms of enrollment numbers.
David Roberts
So, from the customer's point of view, they're setting up their smart thermostat, they click "yes" to this one question that comes up like, "Would you like to have us help you save more money?" And then, from the consumer point of view, that's it, right? Like, they click that button, things happen behind the scenes, they save a little money. Like, does the specific savings from participation in the VPP show up in some separate ways such that it's sort of flagged for users?
Ben Brown
Yeah, so we were talking about the consumer experience, and how do we kind of simplify that as much as possible? And so in the background, part of what we'll do is we're also saying, "Oh, you know, that next step after you click 'yes, I want to be able to opt into energy optimizations for minimizing costs and maximizing cleanliness of the energy mix I use,' the next step is really like, 'Oh, we've also seen that you're, you know, there's a program available for you in your local Duke utility or your local PG&E program.'" And so, you know, then we're able to do that and in doing so, users will get an additional benefit that comes not just from reducing usage but also a benefit that's coming through and a rebate that comes back through their bill.
David Roberts
And it will say, "This is what you get for participating in this program"? I'm just wondering how invisible is this? I sort of go back and forth. I mean, part of me thinks that like there's no real reason that customers even need to know much about this is happening at all. Just like, "Check the box and don't worry about it."
Ben Brown
I think it's about how proactive we are in terms of really spamming them with a ton of information versus being available when you are interested in jumping in. So, this idea of when there's a moment in time — we call it this line of visibility — so when there's a moment in time to communicate to you about some benefit that you've just accrued. So, you've come to the end of a summer program, we've been able to save you $50, we'll communicate that to you.
And also, you always have the ability to jump in and be like, "Oh, I want to see what happened here," and then being able to look at it there. Because there's such a diversity of ways these programs are being scaled nationally, there are a couple of different models that we have to manage behind the scenes. But we want to try to make that as simple, abstracted, and engaging to customers as possible.
David Roberts
Let's talk then about data. I just recorded a pod with Cory Doctorow just a couple of days ago, who you may know as a tech guy, tech writer, coined the term "enshittification", specifically about platforms. And you know, the idea is like you get users on your platform by offering them all sorts of goodies, a really great deal, and then you get them on your platform and then they get locked into your platform.
And once they're locked in and it's hard to leave, then you start exploiting them and selling their data, etcetera, etcetera. And I'm sure if you've read any Cory, you know the process. Obviously, as he and I discussed, that's one thing when you're talking about your smartphone or whatever, but it's a whole different thing when you start talking about your house, right?
When you start talking about how you're going to find out you don't actually have control of your own house, and I've been thinking about this sort of platform enshittification, the danger here. There's also such an information asymmetry between you and the customer in this situation. They don't know anything about what the grid's doing, they barely know what their own appliances are doing. So, it just seems like a situation that is ripe for exploitation and I'm just wondering how much is that on your mind and what kind of things are you, do you want to put in place to avoid that.
Ben Brown
Yeah, I mean, it is definitely something. It's obviously coming from a place like Google, which is very, very conscious around, you know, data access for customers, being really transparent about how data is being used and really being strong around opt-ins and how data is exchanged. I really believe strongly in that kind of transparency while also being able to enable customers to sign on to be able to do things on their behalf based on their preferences that really help them achieve their goals.
And so, I definitely think the data component of this is important, but also, in order to help them achieve their goals, we have to make sure that they can see everything and see what's going on. And to your point in the last question, being able to double-click into stuff to understand how things are working and what happened in the last energy shift. But being able to also make sure that customers are always in control of all of these components.
They're always in control of what data is being shared. They're always in control of being able to maintain comfort in the home. It can control the thermostat in any way possible. And so, I think that part to me is super important around customer empowerment end to end, and I think that's a very strong thing to mention here.
David Roberts
Yeah, you know, we say people opt into these things and agree to these things, but you know, everybody's familiar with the last screen of the setup which is a big wall of text, "Here's our terms and conditions, scroll to the bottom and click yes." We all know that no one reads those things. So, I don't know that — I don't know that having the customer opt-in is all that much protection. I mean, you're going to have a lot of data here, you're going to have a lot of very intimate data about people and how they behave. Do you not think that there's going to be a temptation to misuse that data or sell that data? It seems the temptation lurks here.
Ben Brown
Yeah, I mean, I think that's why we take ourselves, you know, as serious stewards of information, which is, you know, we're definitely working with companies like Google and others that also take that really seriously and really care about customer empowerment with that data and being able to also make sure that folks are able to opt-in or out at any time to your point.
But, I think that in this world of trying to empower devices and households that own and control these things to be able to take part and save money in these aggregated ways, it's really important that we're able to find solutions for that. And I think that's why we were really strong around supporting and developing the Matter protocol, which was a really good unifying way of making it straightforward for smart home devices to connect to any platform so there was less of this kind of "lock-in" mentality. I think that's a good example of that.
David Roberts
Let's talk about that for a second because the other big — Cory's other big thing he gets into a lot is just lock-in. So one of the things that I would be, as a newly sort of Cory-pilled, this is just all on my mind now, but like if I'm signing up for a platform now, one of the things I want to know is, "Am I going to be able to leave this platform and move to a different platform and take all my data with me at any time?" Do you know what I mean? Like, is it going to be easy to get out of this if I want to opt into some different VPP?
Ben Brown
Yeah, so I mean, I definitely think with Matter being an example of places where Nest smart thermostat owners can work with different smart home platforms, that is definitely a way to do so. So, it makes it more fluid. And then, I think, you know, one of the things that is important to balance because I think you mentioned it before and it was a good example, you know, when you're talking about batteries, batteries are a great example, heat pumps are another good example.
When you talk about these really big, significant investments and places where, you know, someone is going to subsidize potentially to be able to enroll a battery in a VPP for ten or fifteen years, there are some benefits around the ability to have some vertical relationships. Otherwise, it's very hard for a company like ours or a company like Sunrun or others to be able to fully subsidize, or a utility to subsidize, these upfront if there's not some ability to say, "Hey, we have a way in which to kind of help ensure that folks are able to participate in the program over time."
David Roberts
Yeah, speaking of being able to get in and out and interoperability, one of the things that I've been worried about with the home electrification space just seems like a very typical tech case in that it's like a new market, people are herding in before we've done the work of establishing interoperable standards here. So, like the danger seems to me, you're going to get a bunch of different appliances that are geared to different communication protocols and different VPPs won't be able to talk to each other. Consumers are going to end up confused, like they're going to have their EV in one VPP and their heat pump in another, etc. So, what's your take on the state of the industry in terms of planning for these things all to work with one another?
Ben Brown
Having worked on supporting the Matter protocol buildup for a while, in terms of it coming together, I would say one of the things we're still at the beginning of is actually hitting scale. There are such different ways in which programs, even the ways we think about VPPs being supported on the state or the regional level, are so diverse and different. Being able to even have a set way of how people believe that if they are supporting households in terms of investing in home electrification and enrolling these devices into VPPs, there's some kind of clear way that households are going to get compensated for that.
I think that's a really important thing here too because, as we are scaling up, it's important to have ways in which we standardize communication. There's a lot of standardizations for IP communication and underlying device communication, and I think a lot of those actually are taken advantage of with things like Matter. I think when it comes to the grid level, I still am concerned that there's for sure not nearly enough being done on the state and regional level from a policy and regulator perspective to really help make sure that VPPs are, you know, there's a clear path for households to be compensated for their ability to participate in these programs.
David Roberts
Right, are there currently any rules about, you know, like I don't know, minimum compensation or transparency? Like, is anybody regulating this stuff yet?
Ben Brown
Definitely, on the state level, where in which there's open markets. I think that you know, obviously, we participated directly in building VPPs in the California market. OhmConnect has, over the last ten years, and we've been kind of ramping that up pretty significantly. Obviously, in Texas, where in which we've just talked about the energy partnership, and then in New York. And then there are more of these, I think, on the state level VPP bills being passed in Maryland and Colorado that really help from the state level encourage utilities to really value and encourage the kind of the ramp and adoption of VPPs on the residential level. And there are pushes in other states like Virginia, Illinois, and Michigan.
David Roberts
Are they sort of aligned? Like, you know, are these bills kind of learning from one another and do they have similar content? Or, you could also see the regulatory environment becoming very fragmented and difficult to navigate.
Ben Brown
You know, back to the thing you were talking about from the beginning. We are definitely in a crisis when it comes to both trying to decarbonize our grid and trying to deal with the hundreds of gigawatts of peak capacity that needs to be added over the next ten years. Actually, a lot of that needs to be added more quickly if we really want to support a lot of the generative AI and data center growth and a bunch of the other pieces that are really kind of flexing over the next three to five years.
And so, when you think about that, I think there's a lot of interest both from our energy partners on the utility level as well as on the regulator level around how to learn from each other and push some of these things forward because I do think there's a lot of commonalities. I do think there's a lot of leaders in the space, both from the regulatory side but also from the utility side, that really are trying to push some of this stuff forward.
And the main reason being that it's different from the past is that we're not in a phase now where it's about kind of switching from different resources to others. We're actually in a phase now where almost unanimously across the country, everyone is trying to figure out how to get access to more capacity.
David Roberts
Yeah, I feel like people talk around this a little bit, but the real truth of it is the quantity of power that these people need and the timescale upon which they need it rules out everything except VPPs. There's no kind of power plant that you can build fast enough to satisfy the kind of demand people are talking about on the scale and speed they're talking about. Only, you've got to somehow find a way to exploit existing resources. You just don't have time to build new resources.
Ben Brown
I absolutely couldn't agree more, and it's definitely the thing that we have been trying to kind of yell from the mountaintops over the last year and a half, two years specifically.
David Roberts
I think people are getting that. I mean, I think the DOE report kind of prompted that, and it's just like a bunch of entities with giant sacks of money wandering around being like, "Can you give me power? Can you give me power?" That will definitely spur a lot of thinking.
Ben Brown
I mean, I was just at a conference earlier this week where we were talking about data center growth, and I worked really closely with the data center team at Google, coordinated with a lot of the early teams on PPAs for renewable energy and a lot of the 24/7 goals that folks like Google have. And I would say, I'm actually, the amount of growth that they're trying to go after, and I, coming from a consumer product background, really believe in these use cases.
I do believe — we talk about the electrification of everything. Generative AI is like the electrification of creativity, the electrification of productivity. It is a real, real thing, and I think that the consumer benefits of it, the user benefits of it, and the workflow benefits of it are going to be so massive that it is going to be this next big jump in the computing epoch, like the smartphone revolution, like the internet revolution.
Really, I do believe it's going to be significant, which is also why I even think the estimates we think are happening and the desire for folks to build new data centers to support some of these new use cases, that's going to be even bigger than I think we can even imagine.
David Roberts
Well, even if it's bigger than projections, if you look out into the mid and long term, that's still going to be dwarfed by the electrification of transport, the electrification of industry, and the electrification of materials. And you know, who else knows what we're going to electrify, but we're electrifying the entire economy. So, like, there is no such thing as enough power, I think, for our, you know—
Ben Brown
Couldn't agree more.
David Roberts
for a while. So, if you have resources that are underutilized, wherever they are, you got to start finding them and utilizing them. That's to me what VPPs are.
Ben Brown
Think about the environment that, you know, we have spent the last 20 years, for me, and you know, I know for a lot of people much longer, trying to operate in, which is working with energy partners, utilities, and regulators in a world where, honestly, demand has been mostly flat.
David Roberts
Yeah, which means you put anything on, you take something else off, right? Whole different kind of calculation.
Ben Brown
100%, that's a totally different conversation. And I think in this environment, I will say, we're seeing so much collaboration because we all see the problem.
David Roberts
Everybody's desperate.
Ben Brown
Totally. And I think that, I mean, but I think in moments of the impending crisis, I think that's where in which you're seeing a ton of activity. And obviously, we all believe that climate change is the crisis that should have been pushing us even faster earlier, but this one actually now is both the combination of that and actually real, massive growth —
David Roberts
And the giant sacks of money. That helps move things along. One final thing on the interoperability bit, which is just right now, you're starting with mostly thermometers, mostly Nest thermometers, and then this other brand of thermometers, Vivint. What, practically speaking, is involved in adding other appliances or whatever?
Like, if I'm in a home, you're controlling or partially controlling my Nest thermostat, and I have, I don't know, a water heater. Like, do you need me to put something on my water heater? How is it that your system is going to start talking to my water heater? How does that work?
Ben Brown
First off, for smart thermostats, yes, obviously the history that we have with Nest. We work really closely with Nest thermostats, but we also work with Honeywell and Ecobee. Then for the Texas relationship, we've talked about our investment with Vivint thermostats as well. But what I would also call out is that the benefit of a smart thermostat, you know, the keyword being "smart" there, is that in and of itself, that is the internet connectivity.
David Roberts
Yeah, it's already hooked up to the internet, it's already smart. My water heater is dumb and not talking to the internet. So, how do you overcome that?
Ben Brown
So, as an example, we partnered with Rheem to also be able to think about the future of hot water heater electrification or hot water electrification and ensuring that we can partner to incentivize and ensure that most of those electricity electrified hot water heaters that are going to homes will include a comms module. I think that's going to be a really important thing going forward when we think about the opportunities in front of us and, you know, we're still in the early days of that.
David Roberts
That's going to be all appliances eventually, right? Don't you think eventually, like being smart and connected to the internet is going to be sort of a default thing for appliances?
Ben Brown
I think so, to a degree, but obviously, we care really deeply about the ones that are using the most energy because those are the most meaningful to households for financial savings and then the grid for reliability. So, you know, definitely when it comes to the majors like heating and cooling for HVAC systems, smart thermostats or direct comms on the heat pump, hot water heating, EV charging, and batteries clearly are going to be really significant. And then of course, smart appliances like refrigerators and washing machines and things like that probably also come along.
David Roberts
But if my water heater, my existing water heater, is dumb, do you just write it off or is there some way you can bring that into your VPP?
Ben Brown
So, I think that there are definitely different opportunities with retrofit modules and things that can come along. That's not yet a focus of ours.
David Roberts
Right, I'm just talking about the future when you start thinking about adding other devices. I'm just curious about the sort of mechanics of it. How do you bring those in? Because the Nest, as you say, the smart thermostats are kind of a gimme because they're already smart, they're already online. But once you start going to other devices, it seems like a little bit more of a challenge.
Ben Brown
For hot water heating, I mean a huge part of it is going to be that most of the fleet will be shifting over the next five to ten years, both because of regulation but also because of financials, to going from gas-based or oil-based to electric-based. And so, I think in that changeover curve, you really care about ensuring that, to your point, those devices are connected. I think that's a really important one and that's obviously a big part of what we've been talking with partners like Rheem about, and that they are pushing themselves really and advocating for.
And then, obviously, for other device types like storage and EV charging, more and more and more, they're clearly an incentive for those things to be connected and built default that way. But there are challenges with that because I will call out that most of those devices exist in places that actually don't get great Wi-Fi connectivity. So, there are other things that we focus on there too.
David Roberts
You mean like literally in the home, like the basement of the home? You mean like literally like Wi-Fi doesn't reach down to your basement?
Ben Brown
Yeah, so I think that's why things like the Matter protocol and other things are helpful to make sure that there's different comms components of how to maximize connectivity to some of those devices. But I think that it is very important that default-wise, going forward, that you know, Wi-Fi at a basic level, if not other communication standards, really helps solve that problem.
David Roberts
Well, when I think about the big energy users, as you say, in your documentation, HVAC is the big one. So right, if you're going to go after the big one, and it is helpfully smartened and connected to the internet in many hundreds of thousands of households, so this is a helpful place to start. But what's next after HVAC?
I just think intuitively, it seems like the next biggest prize is the EV, the next biggest consumer. Is that right, or would that be the next on your stack to go after?
Ben Brown
Yeah, so I think you can look at it in a couple of different ways, right? So one is what we talked about before which is what are in people's homes today, you know, that hits massive scale. And that is definitely the heating and cooling of air and the heating of water. And so you know, you have eighty plus million homes with HVAC systems. And so I think that's why it's such a great focus on the electrification of heating, cooling, and the ability for that to be enrolled in grid flexibility programs and VPPs. And then the hot water for sure, also again an existing thing that has — it's not an additional ask of a household to put in a new expense.
To your question around EVs: I do believe that EVs clearly are going to provide a massive benefit to customers from an energy savings perspective overall and really making sure that charging and managed charging is done well in a way that doesn't challenge the grid as it really scales up, especially on a localized level. But it's an interesting thing to think through around the shiftability and how EVs are enrolled in VPPs. I think we see a lot of excitement around that and we are excited about that, both because there's going to be an accelerated adoption curve for that over the next decade but also around really looking at specifically for programs when people are charging and how shiftable is some of that charging.
David Roberts
I've been wondering if it makes sense to fold EVs into a larger VPP that includes all these other appliances, or whether they are kind of their own beast and you kind of need a separate — just because they, relative to other household appliances, are very unique. They leave the house frequently. So, I've been wondering if you just need kind of a separate, vehicle-to-grid is going to be kind of a separate thing from residential VPPs.
Ben Brown
Yeah, I mean, I think that if I look at the different time horizons, right, and we talked about it a little bit in a position paper we put out a couple of months ago. When you look at over the next five years to hit meaningful scale for VPPs, a lot of that has got to be coming from HVAC and hot water. Just to be super clear, like there's just that we're not growing fast enough on EVs and storage and the cost benefits of storage.
It's just going to be hard to kind of move that as quickly as you need it to be to hit the scale that we're talking about to get to one hundred gigawatts of scale, as an example. But of course, as we think about how to support customers when they're adopting EVs or how to support customers when they're investing in solar and storage, and making sure that those assets are participating and supporting VPPs in aggregate.
Because to your question before, imagine like a perfect — the best part of a population in five years could be that you have 90% of your households that are heating and cooling and hot water heating shifting or just heating and cooling, and then five percent or ten percent are both EVs and storage. And then actually, they can complement each other super well and at scale that hits what you want to from a gigawatt perspective. But they all have inherent benefits in terms of the types of shiftability they provide and so I think they all matter a ton.
They all have different scale in different time horizons, and that's why we're excited about partnering with folks across the industry. So, it's why we care about working with battery folks. It's why we're definitely working on the EV charging side as well. But it's one of those things that we really, from an urgency perspective, want to make sure that we're not just talking about smart thermostats. But for the next couple of years, I want to make sure that it's really clear to the industry that to light up these VPPs at scale — we have three gigawatts of capacity ready to enroll in programs across the country.
David Roberts
You mean three gigawatts of installed thermostats?
Ben Brown
No, we have three gigawatts of ready-enrolled VPP flexible thermostat —
David Roberts
Enrolled in your VPP, you have three gigs?
Ben Brown
And not all of those are enrolled directly into programs wherein they can provide the resources that the grid needs. And so, they're ready to go. They've already enrolled in terms of energy shiftability, but we haven't been able to bring them fully into the program where the grid and utilities in the local markets can value them completely.
David Roberts
And that's three gigs in Texas or is that everywhere?
Ben Brown
It's national.
David Roberts
And you're targeting some ludicrous amount, what, 30?
Ben Brown
Yeah, so we're actually targeting, I mean, again, by 2023 we're targeting 50. And again, I think that we all have to be setting aspirational goals here because —
David Roberts
And no one knows. I mean, no one knows. This is such a fog of war here.
Ben Brown
Yeah. But I think it's important because the scale and the kind of challenges in front of us are so massive. And what I mentioned before too, the smart thermostat is one hundred percent like the first device that most people adopt along their home electrification journey. So our ability to take, you know, let's call it, you know, the five million plus households we work with. They, we know that as an example, Nest thermostat owners are three times plus more likely to be people that are adopting EVs, to be people that are thinking about solar and storage, to be thinking about heat pumps. So we really believe that we can help support accelerating that adoption curve even more so.
Going from building trust over the experience and seeing the value in enrolling a smart thermostat in a VPP and then being able to kind of grow a deeper relationship with a household so that they can do more is.
David Roberts
It fair to say that the value of a VPP scales linearly with its size? Like this thing just gets more and more powerful the more and more people you have enrolled and the more and more different kind of devices you have enrolled, right? I mean that's like to me the logic of VPPs is the ultimate end is like a Skynet style super intelligent central coordinator of all the devices in the country or whatever. Like if you, if you want ultimate efficiency, you want a super smart Skynet controlling all the devices.
Obviously, you know, I've got Cory in my head worrying me about monopoly power, monopolies, and lock-ins which militates the other way, right? Like you want competition. So what do you, how does that — I mean this is all obviously down the road — but how do you think about the logic of size and scale versus competition?
Ben Brown
I think that the whole benefit of VPPs — and getting back to the thing you were talking about around the scale of value or how does value scale — is that it's a decentralized, aggregated, consumer-driven resource. And so, when you have five hundred thousand households in a state equally distributed throughout all the different parts of the grid that need that resource on a localized level, it is a far more valuable resource, I believe, than a single centralized big power plant owned by a single company. And so, I think that being able to have those resources distributed both because they can provide more localized grid value but also because they provide a massive amount of redundancy.
We talked before about the big difference between the type of smart thermostat programs we've run over the last decade. The fundamental part of it is that users always have control. If we're adjusting the thermostat by a degree, they can always change it. They have complete control all the time. But the benefit you have when you have one hundred thousand of those users is, you can, you know, balance each other. And you know, not only are we very smart about anticipating needs so we actually have very low kind of opt-outs and kind of in events and things like that, but you also are able to do that across the benefits of, you know, laws of large numbers, right?
David Roberts
Exactly. If you have fifty participants, you have to juice all their thermostats by five degrees. If you have five million, you can juice all their thermostats by 0.1 degrees and get the same effect, and they won't notice. Which gets back to my logic, why not just aggregate everything into one giant VPP? What is the limiting logic, I guess?
Ben Brown
At the end of the day, there's always great competition in building this out. We have a lot of partners that we work with. There's a lot of other folks that are innovating in this space. We're not the only ones. Right now, we're still at the phase where we have to prove scale. I think that's why we've been so public about our numbers and so public about talking about "No, like, this isn't a new thing."
That's kind of why, even when you were asking questions earlier on about VPPs and DR, I'm like, "No, we've done this for ten years. We have millions of households enrolled and it's here. It's ready to be enrolled and it's highly personalized." So, to your point as well, it's like there are some households where a shift of 0.3 degrees is what's meaningful now and another household actually where they care about maxing out savings, so two degrees makes sense.
Or another household, no one's home and so I think that all those things really are this amazing benefit again of like distributed — you know, you talked about VPPs and obviously, I think a lot of us like to think about it as a distributed power plant, but that's the whole benefit of that. Batteries can also represent a key component of it, but it's so helpful when you have that plus a million thermostats right because you're able to do all these much more interesting things and the scale is meaningful at the utility level.
David Roberts
Yeah, and anybody who's studied or even read about computer science, or like I used to be in philosophy programs and read a lot about cognitive science, knows the merits of distribution are highly theorized. There are millions of books about it and they're very deep. You know, but just intuitively, I think people can get that they degrade gracefully.
Like you could lose, you know, if you have five million households enrolled and like one hundred thousand households go offline all of a sudden, it's pretty seamless, right? Like, it adapts seamlessly, it degrades gracefully. There's all sorts of merits to doing things in a distributed way that reduces the risks you have when it's all centralized in one place. It was a long obsession of mine in grad school, thinking about how the brain works in a distributed way but anyway, that's all off topic.
One thing I wanted to ask is, you are operating in Texas, which is very market-ish relative to other electricity markets, and they have retail competition in Texas. So, Texas is kind of like the petri dish for a lot of different people I talked to on this pod, trying out their new thing because it's kind of a wild west. What regulatory environment do you require to set up a VPP? Could you do it in the Southeast where they have the vertically integrated monopolies? Can you do it in any wholesale power market? Where could this work outside of Texas?
Ben Brown
To your question before, I mean, we're already doing it in many markets across the country.
David Roberts
Texas and California.
Ben Brown
Yeah, so to define it, we have more of a direct market enrolled VPP where we're working directly into wholesale energy markets, and so that is in California and that's in Texas where we are also partnered. Either we are running our own REP, which we have our own REP with OhmConnect Energy, and then a —
David Roberts
Retail Energy Provider.
Ben Brown
Exactly. Sorry for the shorthand. And then also, now we partnered massively with NRG and then we also operate in wholesale markets in New York as well. Then, in addition to that, to your question around the Southeast, that's where the one hundred plus utility programs that we built over the last decade come into play. Most of those programs and most of those utilities that we're partnered with, they're all really interested and excited about being able to expand and invest in building large scale residential VPPs. And so, in those markets where the regulatory structure is different, that's where we have kind of more of a direct engagement with those utilities to build out that resource.
David Roberts
Do the utilities, I mean in those markets, in those areas of the country, the non-restructured, pre-structured markets, the utility owns power plants. So, do they own the VPP in that case? Are you some sort of contractor that helps them create it? Like, who owns the VPP in a southeastern context?
Ben Brown
Because these are DIY and were brought to us by customers bringing them along, customers own it, right. It's a distributed customer VPP. And so, when we think about how and some of the regulatory support that we've been working with utilities on, it is giving them a way to be able to make it easier to actually procure capacity with us, with customers. And so, that kind of looks more like a true power plant in those markets where they'd be buying it similar to an independent power producer from another entity, and we, on their behalf, would be buying it from customers.
David Roberts
But this can be done anywhere in the US?
Ben Brown
It's not — as we mentioned before, it is not, especially with FERC 2222, it has not been completely set up and supported across all the different ISOs and RTOs. It's adopted differently and then definitely within the state level and regulatory environment for utilities. We keep on working with them to find creative ways to expand on this. But there could be even better support, absolutely, from regulators around making it easy for a utility to say, "This residential VPP of five hundred megawatts, we can say this is accredited capacity and you, utility, can use this as part of your resource planning." And so, I think that's an important thing that we're starting to see and we're all talking about.
David Roberts
When you think about what politicians could do to help structure and rationalize and grow this market, is there a big federal lever to pull or is this mostly a state thing? Is it mostly a utility thing? Is it utility regulatory commissions, FERC, who can help here by doing what?
Ben Brown
So, it's all the above, and I think we're definitely planning for the environment over the next few years to really be focused on the state level and definitely continue to work with utilities. I think, you know, from our experience over the last fifteen years, a lot of amazing work has been done on the state level. I think that's where we've seen a lot of these kinds of programs come to life and grow.
And I think, on the state and the utility level, I think we're, as we mentioned before, we are all good friends in trying to solve the massive supply challenge we have in front of us. And so, I think everyone is the best of friends in trying to figure this out right now and I think that's a very, I'm really optimistic because of that.
David Roberts
Yeah, I think that's such an important point to emphasize. It's such a change and it's happened so quickly, I'm not sure people have caught up with it. But like, you're not fighting these partisan battles as much anymore. It's not a zero-sum game anymore. Everybody wants whatever is available, whenever and wherever it is available. Like everybody, everybody's oriented in the same direction for once, which is a really fundamentally new situation in our world.
Ben Brown
Absolutely.
David Roberts
Do distribution — conceptually, this all makes total sense. VPP, all makes total sense, but it sort of assumes seamless power flow among all your connected houses — do the limitations of distribution grids and distribution networks impose any meaningful restraints on you or hurt you, or is that an impediment to you?
Ben Brown
No, I mean, I think the more and more that those are actually incorporated into the way in which the resource can be valued, the better. Because of the fact that we're distributed, it actually makes it so that we can be really thoughtful around targeting, you know, specific nodes or —
David Roberts
Yeah, geographical targeting, another thing a normal power plant can't do.
Ben Brown
Yeah, and I think that's actually one of the things we're most excited about. A lot of the stuff that we've been talking about with our utility partners and showcasing in our platform behind the scenes is all these amazing things that we can do with our customers to be able to kind of help provide more targeted benefits to the grid, especially as the distribution grids are going to be going through more challenges with deeper EV adoption, more electric. You know, obviously, load growing on more parts of the grid with home electrification.
And so, I think the ability to actually be really targeted about that and help kind of defer or avoid a bunch of crazily costly distribution grid upgrades. I think that, you know, we all are exhausted with rising energy costs, whether that's because of system upgrades or because of new power plants that need to be built. And I think that's why VPP is being by far the cheapest resource, both from a capacity side but also from an ability to be thoughtful about distribution upgrades that need to be made. I just think end to end, it's such a powerful resource. It's not just that it's the only one. I think it also provides so many of these ancillary benefits that we're really excited about.
David Roberts
Yeah, even if you throw in some grid upgrade costs, it's still cheaper, I think, than building power plants. Well, as a final question, and this is sort of one of the geekier aspects of this which I really am taken with: People who are familiar with conventional traditional demand response programs, you know, a lot of those were manual, I guess analog, I guess you'd say. You know, a lot of them traditionally involved, you know, like customers getting emails saying, "Hey, could you turn your AC down on Wednesday?"
Things like that. So, but all those were geared around, I think, designed around big, chunky responses to big, chunky events. So, like, you got a big storm or something, you need a sudden, big surge of power away from here into there, and that's what demand response is for. I think that's the mental model people have of demand response, insofar as they're aware of it at all.
These are small groups of people we're talking about, but that's how people think about demand response. And what you're doing here, what the internet connection and the automaticity of this and the AI of all this does, is allow you to be making sort of micro tweaks constantly.
So instead of big chunky responses, you're constantly fiddling and balancing. So the way I think you capture this in one of your position papers is, you said you can't just shift a demand curve, which is like moving it from one place to another, you can shape it. So talk a little bit about what that means and what the implications are for the grid.
Ben Brown
First, as you mentioned, traditional demand response programs, which have provided a really important resource for critical events over the past twenty years, all the way going back to HVAC switch programs, which no one loves, all the way to smart thermostat programs, and a lot of innovations —
David Roberts
I don't think anybody wants to get an email asking them to turn off their stuff, even if they can make money.
Ben Brown
Yeah, 100%, totally. And so, the ability to have smart thermostats support those kind of ten critical events more automatically, more thoughtfully, more personalized to users, that still will matter, and those things are important. But one of the stats that we mentioned a little earlier that I think is so exciting is that last year our platform did three billion energy shifts, three billion. And that is because that's across a large base of users on a more continuous basis. That might be fifteen minutes, it might be thirty minutes to shift out of a kind of dirtier grid mix or time on the grid when energy prices are more expensive because of the time-of-use rate or the real-time rate.
David Roberts
So you could tweak an individual house's consumption two or three times a day, like multiple times a day, in just little increments?
Ben Brown
To your point, too, in the smallest of ways, right? So, by 0.5 degrees in a way that is absolutely not noticeable but helps a customer save money or helps them maximize their —
David Roberts
Do you guarantee people when they sign up that they won't notice comfort wise, like is that some sort of guarantee like "We promise you won't know this is happening"?
Ben Brown
I think it's even more interesting than that, which is what we do. We obviously deploy a lot of artificial intelligence and ML to be able to optimize our algorithms. And what we do is we're very cognizant of what the prevailing rate of changes would be on a thermostat manually.
So, if you're adjusting your thermostat manually or through the smartphone app, we know what that number is. And so, we actually think about optimizing the shiftability component here by ensuring that the prevailing rate doesn't actually change. So, kind of in an almost RCT style way, we really are trying to optimize for the fact that it's unnoticeable to customers.
And so, you're doing things in very, very small ways that provide them value, the grid value, but you're not actually changing, to your point, anything around comfort, which would be perceived through them changing the thermostat.
David Roberts
Right, right. So then you're doing these tweaks all day long, which means you cannot just herd into peak times and reduce peaks, you can sort of flatten the demand curve throughout the day, right? The ideal, like in our perfect future, the demand curve is just flat, right? And it's very predictable, everybody knows exactly how to meet it, there's no spikes or anything. We could get there, right?
Ben Brown
Actually, I think it even needs to be better than that, which is in the new world we're moving into where supply is variable and demand is the thing that you don't want it to be flat. You actually probably want it to be much more responsive to the real-time needs of the grid and the anticipated needs of the grid. And you have to think about something like a smart thermostat or charging, you also have to be anticipating how to optimize that against when people are in their rhythms and when people are moving in and out of the home and what they need.
And so, there's a lot of complexity that goes into that so that you can maximize the value to the grid, minimize cost to customers, while actually all maintaining an elevated level of experience in the home, whether that's comfort, whether that's time to charge, all these other dynamics.
And that's what's exciting about doing that at a scaled level is that you can really do these things in highly personalized ways that actually elevate customer experience because one, they're achieving the same kind of control over comfort, but they're actually doing it at significantly less cost and they're supporting decarbonizing the grid at the same time.
David Roberts
When we say customers save money, I forgot to ask this earlier, but I might as well ask you now, what does that mean? Is that like a couple bucks a month, ten bucks a month, like what do we, what's the range? How meaningful is it? I mean, given that all they have to do is check a box and then they're done, I guess anything is gravy, but like how, what kind of numbers are we talking about?
Ben Brown
Yeah, so when we think about customer savings, there is both from the efficiency side — so when you adopt a smart thermostat, we've done a lot of research on this. You're likely to save ten to fifteen percent on heating and cooling in your home versus not having it, just because it's smarter about not heating and cooling your home when you're not home compared to a prevailing programmable thermostat or a non-smart thermostat or essentially an old standard, not smart thermostat. There's that.
I think in the future we're moving into, and what we've seen over time with optimization against what has become more prevailing, which are time of use rates, there's even more significant savings that can be had there. Because if your peak period is from four to nine PM, really anticipating the fact that you could pre-cool your house.
David Roberts
Yeah, pre-cool. You could preheat, you could preheat your water, you can pre-do a lot of stuff. 100%, I really appreciate that.
Ben Brown
That adds up, and we're talking about a meaningful amount of money each year. I mean, it varies by climate, region, and state and stuff like that, so it's hard to go through an average number, but we're talking about something that people will feel, and they see when they interact with our product.
David Roberts
And finally, I asked this of the Base Power guys too. You're probably familiar with Base Power. They're another retail provider down in Texas doing something not totally dissimilar, but they're basically installing batteries on customer property. They use them for energy arbitrage, sell energy when it's expensive, store it when it's cheap, and share some of the profits with the homeowners where they have installed the batteries. And what I asked them is, "If once you get enough controllable load, isn't the opportunity for arbitrage going to eventually go away?"
Like, do you know what I mean? Like, aren't we eventually, once we have your fifty gigs of controllable load or whatever, beyond however far we go, isn't arbitrage, aren't you going to eat your own lunch eventually? Eventually, there's going to be nothing left to arbitrage. Does that make sense?
Ben Brown
Yeah, I think it's kind of a good first-order principles way of thinking about it, and I think that what's happening in the background at the same time, though, is that more of the supply resource that's coming onto the grid is variable.
David Roberts
Yes, you're chasing a receding target, I guess.
Ben Brown
Yeah, so to your point, there's definitely a point in time where optimizations only go so far. But when the baseline is going from 20% of your mix is variable to 50% or hopefully 70%, then you're in a world where you're really trying to balance that. And even if you're — especially in that world where there's maybe a couple of really critical moments a few times a year when the grid is tremendously under stress, then I think you're seeing a ton of value from these things for a long time. I think that we're talking about, I think we're fifteen years of really trying to grow this resource where we have hundreds of gigawatts of flexible resource across the grid that will help support decarbonize more variable supply resources coming on.
David Roberts
And you think we'll get to a place where buildings are connected to the internet and their load is somewhat controlled as a kind of matter of fact, as a default, as a universal, like all buildings eventually or something close to all buildings, you think that's where we're headed?
Ben Brown
I think that the ability for customers to save a lot of money by being able to manage their costs more effectively is such a big driver of this. It's not — this is kind of what you were asking before around standards and regulation. There's a ton that we need to be doing on the standardization and regulation around ensuring that customers can receive the benefits they're generating for the grid by doing these things. But I think the value will be so massive to a customer versus them not doing that, that I think it becomes more of just like, "Yeah, I'm worried about my rising energy costs, I want to be thoughtful about this, I want to be responsible."
David Roberts
Right, awesome. Well, this is such interesting stuff, such an incredibly fluid, promising, and interesting industry to be in. So, thanks for coming on and talking us through.
Ben Brown
Well, thank you so much.
David Roberts
Check back in a year or two and see. I mean, who knows what things will look like.
Ben Brown
Oh, absolutely. Well, thank you so much for having me, and yeah, we'll have a lot coming, so I'm sure we'll probably want to talk more before that.
David Roberts
Thank you for listening to Volts. It takes a village to make this podcast work. Shout out, especially, to my super producer, Kyle McDonald, who makes me and my guests sound smart every week. And it is all supported entirely by listeners like you. So, if you value conversations like this, please consider joining our community of paid subscribers at volts.wtf. Or, leaving a nice review, or telling a friend about Volts. Or all three. Thanks so much, and I'll see you next time.
In this episode, I speak with Pier LaFarge, CEO of Sparkfund, who challenges the traditional antagonism between utilities and distributed energy advocates. While investor-owned utilities have long been seen as obstacles to clean energy adoption, LaFarge argues that they're actually essential to scaling DERs in an era of explosive electricity demand.
Greetings. This is Volts for December 18, 2024, "Should we put utilities in charge of distributed energy?" I'm your host, David Roberts. When people involved with distributed energy resources, or DERs, talk about utilities, it is usually with considerable frustration. As I have ranted on Volts many times, the regulatory structure under which investor-owned utilities operate biases them toward big spending on big projects and away from energy efficiency and DERs, both of which reduce the need for utility spending and thus reduce utility profits.
Clean energy advocates often wish utilities would just get out of the way. Pier LaFarge, the CEO and founder of a company called Sparkfund, wants to put them in the driver's seat.
Pier LaFarge
Electricity demand is set to skyrocket, requiring up to a doubling of today's grid capacity, even as fossil fuel power plants are being phased out. Utilities are, LaFarge argues, the only institutions capable of accomplishing change of that scale in the time available.
The key is just to let them procure DERs like they procure any other energy resource. This deceptively simple-sounding argument runs somewhat counter to the energy world zeitgeist, but it has drawn the attention of lots of smart people. And the more I've thought about it, the more intrigued I am and the more questions I have.
So, I am excited to talk with him about it today. With no further ado, Pier LaFarge, welcome to Volts. Thank you so much for coming.
Pier LaFarge
David Roberts. It's great to be here.
David Roberts
You know the meme where the guy's mind is successively further blown? Let's start all the way at the galaxy brain level and work backwards from there. You've said before that, big picture wise, you see our current moment as kind of the end of phase one or chapter one of the clean energy transition and glimmers of entering into phase two. Phase one being characterized sort of by consumer choice, by ESG, by carbon credits, by sort of companies going above and beyond thanks to the prodding of green consumers, let's say. The second phase, you say, is going to be more about an infrastructure mindset.
So, just to begin with and to frame things, spell that out a little bit, talk a little bit about what you mean by that, big picture-wise.
Pier LaFarge
First of all, I just want to say, you know, chapter one had a lot of value in it, right? I'm sitting here because I was a Power Shift kid in 2007, you know, reading you in Grist, you know, and I mean it. This is an honor to be here because, you know, you were one of the people who diverted my career into climate change, which is annoying.
David Roberts
So, yeah, sorry about that. That was back in the Waxman-Markey days, right?
Pier LaFarge
That's right. And I, my first internship was at One Sky, working in the trenches on Waxman-Markey and reading Grist and, you know, look, it's like whether it's a "Thank you" or not for showing me, showing me a wall to bang my head against for years.
David Roberts
Head, meet wall.
Pier LaFarge
Head, meet wall. Thanks, love, David Roberts.
David Roberts
You're welcome.
Pier LaFarge
But, I think that point though is really the chapter one. As a climate movement, as a renewable energy industry, we should be incredibly proud of the progress we've made. We've deployed an enormous amount of this stuff. We've dropped the cost curves, we've pushed the institutions and societal kind of compacts. Right. I see utilities really as just things we invented to go put energy infrastructure out there to start the party of electrification and industrial growth. And look, chapter one was all conducted in a world when the grid wasn't growing, when energy efficiency was doing its job, and when we were getting economic growth but without energy growth.
And that was core to the mission again in chapter one of climate progress. But that's changed. Chapter two really started when people realized the grid's going to double. And it's going to double for a whole new set of reasons. I always think back to the chapter one motivations as soft signal political economy trends, long-term trends around decarbonization, sustainability, consumer adoption, all of which were sort of dependent on interest rates and policy and politics and subsidy. What we've got now is a grid that's going to double because of hard signal political economy trends, manufacturing coming back to the United States, data centers spurring generative AI, which is about GDP growth. It's about long-term geopolitical competition.
It matters whether we put data centers in Ohio and Kansas versus Saudi Arabia. So now, in chapter two, the institution that our society built 100 plus years ago to power an electric economy is actually going to be good at deploying clean energy and DERs, whereas for the last 20 years, it really struggled to do that inside its compact.
David Roberts
This has come up on every one of my recent pods. And I, you know, I just think it's always worth emphasizing again that an age of flat electricity demand is just fundamentally different. It's just, you know, every bit you're pushing renewables on the grid, you have to take something else off. Every bit you add, you're subtracting something else. And as you say, these are for sort of soft, long-term motives that often are easy to bump back in the priority stack in the scrum of day-to-day politics. But now, whether you care about climate or not, big companies towing big sacks of money are showing up saying, "We need lots more power overnight."
So, everybody now is, whether they care about this or not, aligned in this direction, even if only for purely venal reasons.
Pier LaFarge
Right, you said it. And look, let me respond to that and then go back one point. Right now, when those companies show up, right, because we did our job in chapter one, David. Because we got the cost of renewables down, because DERs have value to the grid, because we've proven that through VPP pilots and programs, because we've actually done the work to deploy this stuff and build all the products and software around it that make it really valuable. Now, when those companies show up towing their bags of money and saying, "We will, for good reason, pay more for electrons than anyone in history because they're inputs into a fourth industrial revolution called AI."
And we're building AI refineries, not data centers. Right? And electrons and chips are what we need to scale what could be some of the most valuable buildings on the planet." If you run that math cold, right: climate, no climate, IRA, no IRA. If you run that math cold, to be formal about it, the techno-economics of that turns out, because we did our job, we're going to put a ton of renewables on the grid, we're going to put a ton of DERs out there because they're faster to build, they're cheaper, and they're better than upgrading distribution systems, for example.
David Roberts
And you think that's true regardless of any subsidy, regardless of any climate motivation?
Pier LaFarge
I do.
David Roberts
Do you think just on a pure physical economic basis?
Pier LaFarge
I do. I mean, the only thing that makes solar batteries and gensets look dead stupid cheap is comparing them to upgrading a substation or fixing transformer overload or building a new transmission line into a major US city. It does not matter whether you have a tax credit. If you're talking about, you know, for every $10 billion of smart grid you don't need to build, you build a smart sponge out of two or three billion dollars of batteries.
David Roberts
So, let's talk about what you're proposing. The basic idea is that right now, DERs are operating basically on a kind of a private, almost like a black market. They're just sort of outside the rest of the electricity system, just going on their own logic. And so, utilities, who are supposed to manage electricity, basically just encounter them sporadically, more or less randomly, and then have to react and often don't even see them, aren't notified when they're installed. And so, utilities are intuiting their existence via effects on the demand curve, basically. So, this just doesn't seem like an ideal situation, especially since we're on the front end of what I think everybody agrees is going to be a much larger flood of DERs.
So, your basic proposal here is that the utility needs X amount of capacity. It should be able to go procure that capacity the same way it would from a big power plant, from a DER aggregation, basically, that utilities are going to procure DERs. The acronym, everybody's got to have an acronym, the acronym is DCP (Distributed Capacity Procurement).
Pier LaFarge
David, I would have wasted my time at Power Shift in 2007 if I didn't go on to contribute to the number of acronyms in the climate space.
David Roberts
You're nobody without an acronym or two of your own.
Pier LaFarge
So, what we really do here is create new climate-related acronyms.
David Roberts
Talk about how that would work. Just talk about that model and why it's attractive.
Pier LaFarge
Yeah, look, the Distributed Capacity Procurement idea is really simple. A utility is chartered to provide lowest cost, most reliable energy to support economic growth and prosperity of the state. And that charter has been around for a long time. When the grid wasn't growing, it actually turned out that, you know, a lot of the times renewables were part of that charter. Right. Utilities have procured tens of gigawatts of renewables all over the country. Right. Wind, solar, but at utility scale. DERs were rarely a good fit when the grid wasn't growing. But now that the grid needs to grow and DERs have come down in price —
so, solar, batteries, gensets, controls, connected assets, demand response, a whole range of distributed capacity, eventually vehicles participating — now that those things are in fact low enough cost and reliable enough, and the grid needs to double, simply put, it now fits the charter. And utilities can incorporate distributed energy resources into their core planning. They can tell us where the assets need to go, how many they need, and they can plan that in a way that really directly impacts and offsets the money they would otherwise spend on upgrading the distribution network.
David Roberts
Let's back up a little bit. Just say one or two more sentences about why demand growing makes DERs more amenable to the charter.
Pier LaFarge
A couple of reasons. The goal, as I see it, for chapter two, for the next 20 or 30 years of the energy transition, is to double the capacity of the grid in a way that lets us sell three to four times the number of electrons to folks like manufacturing data centers, electric car drivers, home heat pump owners, all that stuff. So, if we double the capacity of the grid to move and distribute electrons and sell three to four times the electrons over that doubled grid, electricity is going to get cheaper and more reliable if we do it the right way. So, that's good news.
That's the goal. Utilities exist to plan and capitalize on those moments of needed growth to support economic development and stuff we want, broadly speaking. And so, DERs in particular are important for two basic reasons. One, you can build lots of small things faster than you can build a few very big things. That's particularly true because of permitting, NIMBYism, and political constraints. You've covered this enormously well on this podcast, and it's all over this space in the sense of how hard it is to build big things fast. So, you can build lots of small things more quickly.
And if you're using central planning, if you're using the utility to determine how many they need and bringing that into the core of planning and where they need them, you also get this really interesting effect where you don't have to have this be something that's happening to utilities that they can't see coming. That is difficult from a system standpoint. Because look, you can say that utilities are just being grumpy and don't like DERs, but like, they're central planners, they're managing a landscape scale machine. And it is actually hard when things pop on and off and send electrons backwards.
It's not like a metaphor. It's not like they're not just being grumpy for no reason. It is actually hard to do that. Could utilities get better at it? Could they buy more products, services, software, and companies to help them get better at it? Yes, I think they could. And I also think in this moment in economic history, they're going to. And I think that what we're describing with the Distributed Capacity Procurement is frankly how that happens. It's how you bring Distributed Energy Resources into the proactive core of utility planning and finally take them to multi-gigawatt procurements that actually get out into the ecosystem and get done right.
David Roberts
You know, I think listeners will be familiar with the sort of long-running debates about the value of distributed energy, the value of rooftop solar. Right. This big fight. It's a big fight. Everywhere there's rooftop solar. You know, California has just been through a big fight about it. And I think one of the things that's come out of that debate is that there is the value of DERs. There's not a set answer to that question. It depends on where they are and when they run. Right. Like geography and time matter on the grid. So you can't just say rooftop solar has x value.
It depends on where you put it. So, the first obvious thing to recommend this model is that, by your logic, utilities know where DERs are most valuable, where they are most needed, and can direct, if they use this model, can procure them where they're needed, rather than just having them pop up randomly in time and space.
Pier LaFarge
With a few years of work, I mean, it's true that utilities are not suited to do feeder up planning universally. Right. There is work to be done. They need to buy new software tools. We can definitely come back to that. So, it's not an off-the-truck solution. But I would say the reason that this Distributed Capacity Procurement idea has gained so much traction so quickly, David, is that the moment of economic history we're in is faster moving than people could have possibly imagined. We saw EVs coming. It used to be just 18 months ago that electric vehicles were the biggest source of load growth.
And then, maybe it was home heat pumps. And now, EVs are like a distant super third on the list. Manufacturing is number two, which in and of itself would be the biggest news in electrification in 20 or 30 years. Except, it's dwarfed by data centers and generative AI.
David Roberts
Yeah, this is what I keep trying to tell people. It's like, yes, the data centers are coming. Yes, more demand is coming, but that is just the front edge of a much, much bigger wedge of electrification coming along. All of transportation, all of the industry, basically, like the whole economy. So, like, data centers look big from our current vantage point, but in the final analysis here, the whole economy is. That's what we've been saying. You know what I mean? Like, it's just sinking in now.
Pier LaFarge
That's what we've been advocating for a decade. Also, data centers, people always do this funny thing where they're like, "Oh, the grid's going to double, but not if the data centers don't show up." It's like, no, if the data centers get like 80% more efficient, then the grid will only double because of all those other things. And the data centers, if the data centers just all showed up on their current queues, the grid would 5x or 10x. And by the way, that wouldn't even happen because we couldn't possibly build it fast enough.
So, like, you just end up in this conversation where, baseline, our job is to double the US electric grid in terms of capacity to move and distribute electrons and do that safely, reliably, and in a way that actually doesn't create fires or other issues. And then also to sell a huge amount more electrons that are intermittent, that are clean, that are, you know, every possible source of electrons. And by doing that, again, said this before, the math in the grid is really simple. It's the cost of the infrastructure divided by how many electrons you sell equals the cost of electrons.
And if we do this right, electrons will get cheaper. And if part of doing that cheaply means doubling the grid by putting batteries and generators and solar all over the grid, on every feeder that needs it, on every transformer that would otherwise overload, on every substation that would otherwise need to be upgraded, not only will we save money now, we're also going to make the grid fractally reliable and enormously more resilient to the very real — I think of climate change as a dragon sitting on our society with teeth, claws, and a tail. It's not a game.
And real people with real lives are vulnerable to it. And so, the way we grow our grid is always, and has always been, about shared prosperity, economic development, and fundamentally keeping people safe downstream of that electric power.
David Roberts
And I think it's worth emphasizing too, maybe I'm overdoing this point, but I do think it's important that even if you're one of these, like, "big is beautiful" people, even if ultimately you think that, like, utility-scale stuff is cheaper and better and is the ultimate answer, it is still simply the case that there is nothing big — and I'm not just talking about a nuclear plant, I'm talking about a transmission line, any kind of power plant — there's nothing big we know how to build as fast as we're looking at these electricity demand numbers go up. Like, even if we agree that big stuff is the key, it's just the case that we cannot build big stuff fast enough on the timeline that we're looking at in front of us.
Only small distributed stuff scales fast enough. There's just no way around that. I've never heard a counter to that.
Pier LaFarge
Amen. And it's fundamentally true. The historic role that DERs are going to play in the energy transition in this coming decade really comes down to not only that you can build it faster, right? It's a critical one to five-year solution. It's also that you can put it exactly where the grid needs it to avoid exactly the type of expenditures that drive rates up, which is distribution upgrades. Right. If renewables were the only thing that we needed, you could buy 1.7 cents wind in North Dakota and move it and the price of power would go down.
But guess what? 1.7 cent wind, 2 cent solar is not making the grid cheaper, it makes it more expensive because you have to upgrade feeders and substations to handle the intermittency to move that very cheap, very reliable, very clean power. And people unironically experience bill increases because you've had to upgrade the distribution network to handle both the growth in power and the intermittency.
David Roberts
Maybe people already know this, but this is also worth putting a pin in. It's just that the rise in electricity costs, which is happening everywhere now, is almost entirely transmission and distribution.
Pier LaFarge
That's right.
David Roberts
It is moving the power around. So, insofar as you can deploy DERs and prevent yourself from having to do some of that T&D upgrade, you also make the growth of the big stuff faster. Like anything you can do to reduce T&D costs is the lord's work. So, let's get into the details a little bit. So, what does it look like? I'm a utility, I go, say there's a node on my grid that is congested or whatever. And I feel like, you know what would help me? There is a bunch of solar and storage.
And so I, the utility, say I want whatever 50 megawatts of capacity in this defined geographic region. And then what? They just put out an RFP and they say, "Come to us with your DERs." And so private companies then say, "We can do that. We can pull together 50 megawatts of capacity in this area," and they bid. Is that the process?
Pier LaFarge
Yeah, pretty close. And look, I think this will look different in every state. So, you know, Sparkfund is sort of one model of it, isn't the only way this is going to go down, I don't think. But utilities are good at planning and capitalizing infrastructure, and they're not very good at building lots of small projects. So, I see in all cases this Distributed Capacity Procurement concept being delivered by a local competitive ecosystem of DER companies and vendors. Right? So, folks who go out and bid on it and say, "We can do a good job in your area and can comply with utility requirements of safety and all that stuff," but ultimately these are small local companies who are going to grow really quickly.
And by the way, David, it addresses one of the biggest barriers that our industry, my industry, right — I am, you know, this is what Sparkfund is, is building these things. Fundamentally, the biggest issue we've had for decades is it's hard to sell this stuff to people. The sales cycles are long, the conversion rates are long, the marketing is expensive. You end up with saturation in different territories. And so, it's hard to build a business around such unpredictable demand. And what this represents, what a Distributed Capacity Procurement represents to the DER industry, is turning utilities into the largest wholesale customer this industry has ever seen by a factor of 10 or 100 in most states.
David Roberts
Yeah, so you get big chunks, big buyers. But I'm still a little confused. So, like, if I'm a household in that area, who is coming to pitch me and what are they pitching me on? And when the solar panel shows up on my roof and the battery shows up in my backyard, who owns them?
Pier LaFarge
Yeah, great question. So again, this is just one way this could happen. This is our Distributed Capacity Procurement model. But a DCP has three basic parts. The utility plans and capitalizes. It says, "Here's where we need it, here's how many and of what type," and then on the other side — so that's layer one, right. On the other side, you've got the local competitive ecosystem of vendors who are bidding into tranches of needed construction.
David Roberts
These are rooftop solar installers?
Pier LaFarge
Yeah.
David Roberts
Also aggregators?
Pier LaFarge
Yeah, solar installers, battery companies, genset companies, demanders. Anyone who believes they can fit into these tranches and provide the capacity needed. But that middle layer, right, which I think has really been the thing that's missing, is what we call deployment services. Right. And Sparkfund's business is to be that middle layer. We want to be the thing that helps utilities interface well with their customers. So, we do customer engagement. We go out and knock on the door, and instead of trying to sell them a battery or a solar panel, we ask a customer to host a utility asset.
Something that makes their building more reliable, their neighbors more reliable. We give them a hosting payment to take the asset, so they get an ongoing annuity from the utility to host it. And then we do what we call value chain management. Right. So, go out and build that local competitive ecosystem. We form like a light general contracting layer to coordinate all the contract and dispatch of those vendors. Because one thing that would take utilities way too long to do is sign master service agreements and service agreements with 100 local small companies. So, we become like the shock absorber between the utility, the customer, and the DER.
David Roberts
So, they put out an RFP, they say, "We want 50 megawatts of firm capacity here in this neighborhood." You take that, go find the customers, sign the customers up. Find the vendors, sign them up, oversee the work so that this is installed and operating well.
Pier LaFarge
That's right.
David Roberts
You're all that stuff in the middle. So, again, who owns the battery? Who owns the DERs at the end of this? Like, it only makes sense for the utility to procure these DERs in a particular area if the utility then can subsequently have some control over it. Right? Because it only helps the utility if the utility controls it.
So, it's not just that the utility needs to have solar panels and batteries installed. It also needs some kind of control software to which it has access. So, again, I'm sort of like getting confused, like, where the ownership lines and the operating lines are drawn here. So, if I'm a homeowner, who owns my solar panels and batteries?
Pier LaFarge
Yeah, so the operating piece is the most important from the grid value. So, what the utility really needs fundamentally to make this model work is the ability to control contractually, right, control and dispatch these pieces of equipment in a way that benefits the grid and meets their grid's needs.
David Roberts
Right. Making them dispatchable is the whole point here.
Pier LaFarge
So, that has to be true. You can give the customer some, maybe like a residual charge for resilience, but frankly, if you're supersaturating a feeder, if you have a feeder with 900 buildings on it and 500 of them have batteries and solar, that feeder is going to become, like, super reliable. Right. That's what I call fractal reliability. But setting that aside for a second, ownership is a legal question. But what is critical is that the utility recognizes the value of DERs to the grid and capitalizes them in a way that they can earn on and recover inside their regulatory model, which aligns their incentive and also is directly comparable to the capital they would otherwise be deploying on feeder upgrades or substations.
And ultimately, it's that capitalization and planning and dispatch ability that anchors this model. Legally, the customer could own it. You could have the homeowner have title to it. I think in residential, a lot of times, utilities will be hesitant to own batteries or other things, particularly solar panels on a customer's roof in a residential context. I think in commercial, industrial, and municipal utilities will be much more comfortable owning and operating assets, and that has to do with different contracts and safety and indemnification issues. So, ownership, who legally has title to the asset, is actually pretty flexible in this model.
But the utility has to capitalize it, recover, and earn on that capital, be able to plan where and what type, and then dispatch and control the asset to maximize grid value.
David Roberts
In many ways, this is not novel at all. This is just exactly what utilities do.
Pier LaFarge
I say that, David, I say that in every conversation. All I've just explained is that utilities should be utilities. And now that we need to double the grid, that will and should include DERs and a bunch of renewables. That's it.
David Roberts
Right. So, they go, they procure, they operate, they get a set rate of return on their investment. All of that is very familiar from the large-scale stuff. So, my question here is, if they need to control it, what are the VPPs doing? Like, if I go to one of these areas and sign up 50 households into a VPP and then I'm running the VPP, I'm controlling those devices, how then does the utility also control those devices? Is the utility then contracting with me?
Pier LaFarge
So, this is where we get a little bit into two things. One, the sort of nesting doll of acronyms and then also like, look, the answer is it could be different in a bunch of different utilities. That's what's cool about our energy system, is that it could be different 50 different ways. But our view is that the Distributed Capacity Procurement is a type of VPP. We think this is part of the VPP sort of moment and that this is just a utility-led, utility-planned, utility-capitalized, and dispatched VPP that's then built out of an infrastructure value chain of a bunch of local vendors and suppliers and then we become the deployment middle ground, or someone like Sparkfund becomes the deployment services middle layer.
David Roberts
So, wait, let me just make sure I understand that. So, the utility then is basically controlling the VPP, is the operator of the VPP. So, what happens if I go to an area and there are already a bunch of households signed up with some other VPP?
Pier LaFarge
Yeah, pretty much every utility that we've talked to who is seriously engaged with a DERMS process (Distributed Energy Resource Management Systems), really think of their DERMS, the utility DERMS, as an aggregator of aggregators or pulling up existing interoperable systems. So, I think there's a lot of space for those existing ones. But I also think that the reality is utilities' experience with aggregator-led VPPs and regulators' experience with aggregator-led VPPs has been pretty bad, and for a couple of reasons. One, having a customer in the neighborhood get pitched by two or three different companies to sign up for a program is annoying.
David Roberts
I've been wondering about this. I mean, this is like, I'm sorry to interrupt your thing here, but before I forget this, we forgot to sort of finish our first point, which is chapter two being about infrastructure. And so, the thrust of that, the thrust of clean energy becoming infrastructure in chapter two, is that it becomes like the rest of our infrastructure. That is, you as an individual consumer don't have to worry about it. It's just there, working in the background. And if we want to make energy like infrastructure, part of what that implies is it's just there in the background, working.
Just like your electricity is in the background working and you're not futzing and fiddling with individual, you know, different vendors for different rooms of your house or whatever. Like, it's just there, it works. So, if you're talking about making DERs into infrastructure, basically, which is what this is, that sort of implies that you're getting rid of the model where individual consumers go shop around for different VPP vendors. You know, are like, "You can control my water heater, you can control my EV," you know, maybe even sign up to two different VPPs. Like, I've been wondering how this market's going to shake out and it seems like it could very easily get a) overwhelming for the consumer and b) just ripe for a lot of scams because these VPP vendors are going to have a massive information asymmetry.
They're going to know what's going on, they're going to know what's going on on the grid. Consumers don't know anything. So, if you're going to put utilities in this position, it seems like that is de facto going to get rid of the private Wild West VPP market.
Pier LaFarge
No, I agree. I call it the wild dogs problem. You've got five companies out there that are hiring folks, often on week-to-week quotas. Eventually, you're going to end up with high-pressure sales tactics. You're going to end up with misinformation issues.
David Roberts
Happening in rooftop solar, right now, we should say, is a huge problem.
Pier LaFarge
Yeah, not like this is a hypothetical and it's true in VPPs. And by the way, David, look, one of the other problems from an energy, equity, and justice standpoint is the people who are most capable and interested from a time and attention standpoint in having that conversation are not always the right people from a vulnerability standpoint. Right. I think that one of the problems with the current VPP model is that it's going and engaging a subset of highly motivated, engaged, you know, customers. And it's actually taking grid value and putting it in the places that the grid needs it least.
We should build models that can engage vulnerable communities while giving them the dignity of just being people, right? Of going about their days, about going to restaurants and being in the community and going —
David Roberts
The other thing about infrastructure is it's universal.
Pier LaFarge
It lets people be people. My favorite thing about the US electric grid is that when I go into a restaurant to buy a sandwich, I don't need to worry whether or not the lights are on, whether the oven is working, or whether my sandwich will be twice as expensive because I walked into a restaurant with the wrong cost of energy. Infrastructure means it's in the background, and the entire economy is downstream of our infrastructure outcomes, just like roads. And I think that's what makes it a natural monopoly. It's what makes it a great candidate for a regulated monopoly.
And it means that providing electric power, right, for however many cents on the dollar our economy spends on electric power, maybe 3 or 4 cents, the other 97 cents on the economy happen because of that electric power. And we often forget in this industry to really tell ourselves the story of what energy is for. You know, it is about sandwiches. This is Amory's—
David Roberts
Cold beer, hot showers.
Pier LaFarge
Cold beer, hot showers. Exactly. You got it, right? I probably learned that from you in an article in like 2008, as I think about it now, but reminding ourselves what the energy economy is even for and why we invented it the way we did to fuel post-war industrialization and before that, rural electrification.
I mean, this was built as a societal scale franchise to be a foundation of shared prosperity so that people could not have to think about it and focus on being people. Picking their kids up from school, teaching students, taking care of patients, building a business. That's what the energy economy is for.
David Roberts
And so, part of it becoming infrastructure means basically that every building, as a matter of course, is going to have some devices in it that are networked and connected to the grid as a matter of course, not as some sort of elective consumer choice. It's just something that buildings do. But I want to be clear here. So, this model leaves a private DER industry, right? You still have people selling the solar panels and the devices and maybe home management, but in terms of aggregation, the utilities are going to do that. The utilities are going to be the aggregators, which will leave no room for private aggregators.
I just want to make sure I fully understand that.
Pier LaFarge
That's right. But what it leaves a lot of room for are the companies that know how to engineer, design, develop, build, and maintain distributed energy resources. It leaves a lot of room, in fact, it creates new room for those companies because it creates a wholesale buyer at gigawatt scale, which doesn't exist today. And it also creates a huge need on the part of utilities and that whole value chain for the software and services that make a distributed energy resource value chain efficient and scalable.
David Roberts
Right. Well, here's where I think the market people ride in, hear their galloping feet approaching —
Pier LaFarge
The Hayekian hooves.
David Roberts
Yes, the Hayekian brigade approaches and saying, "If you want to manage — right, VPPs are kind of a new thing. This whole area is kind of new. And if you have a new uncertain technology, this is where markets excel. You need market competition, which will find the best way to manage VPP, the best, the right way to aggregate, the right way to find consumers, et cetera, et cetera. If you give it to a utility, you remove market competition. And thus, they're just going to buy some suboptimal software and run the VPP suboptimally. And the only force pushing against that will not be market competition, it will be their regulators". We return to the problem of regulators having an information asymmetry and being captured and not being great at their jobs. Among other things, this model seems to assume staffing and competence both in utilities and in PUCs.
Pier LaFarge
Well, the way I think those concerns can be addressed, because they're real concerns, are: 1) much of the value of competition, in my view in the DER market, and I know this because my own businesses participate in it in this way, comes down to bidding the best design system with new components, good engineering, and making bets that you can deliver with a fair margin and lowering costs. A system that will provide value that it says it does over its lifetime and then go maintain it. That type of competition in terms of DER design, in terms of new uptake technology, that part of the competition is left entirely to the competitive ecosystem of DER suppliers.
That a utility is just simply receiving bids on a price per megawatt basis.
David Roberts
Well, in a sense, the utility is almost structuring the market.
Pier LaFarge
That's right.
David Roberts
The utility is almost kind of creating a little mini-market for DERs.
Pier LaFarge
And that works very well when they go out and bid for wind, solar, and power plants, gas plants, and transmission lines. That's exactly how the energy economy really works in a lot of places. And I am not proposing that utilities build in-house engineering, design, development. I'm not proposing a Ma Bell kind of dystopian scenario where they tell you which type of telephone you get this decade. The hardware outcomes are where that Hayekian fervor was born. And the hardware outcomes, the engineering innovation, the system markets like new companies coming on and selling innovative products into a thousand or 10,000 or 100,000 decision makers that bring them into the world and make them part of the infrastructure outcomes that people then benefit from or not.
That is intact here because there are hundreds of thousands of DER suppliers who will be making those choices. And if they can bid in at the lowest price to utility distributed capacity procurement, that's why it's a procurement. The utility is buying DERs on a needed megawatt basis in the places the grid needs it most. But that competition is alive and well in terms of how those DERs are built, performed, and connected.
David Roberts
Got it. And so, like, there's still customer choice here. Like, customers are still kind of in the driver's seat. They don't get any devices they don't want. They don't hook up to any VPP if they don't want to. So, what happens if I'm a utility, I use an RFP for 50 megawatts of whatever capacity. You win the auction, you win the RFP, and then you go out and customer acquisition proves difficult. Customers prove to not be swayed by your pitch, even though, you know, it's worth noting that this is somewhat of a better pitch.
Rather than, "Hey, would you like to become, in addition to a normal homeowner, an energy contractor dealing with your home's infrastructure? You know, would you like to set aside several hours a week to manage this shit?" This is just, "Can we come in and put some stuff in your home that you will not have to mess with or otherwise deal with?" It is a better pitch, but we don't, I don't think, know for certain that customers are going to take it up. What if, like, I win the RFP and I go out and I just can't rustle up the customers?
Like, what if customers in the end, like, are the turd in the punch bowl here?
Pier LaFarge
Well said. And let's unpack that a little bit. That's actually why I think you're blending the aggregator frame and the DCP frame a little bit. In a Distributed Capacity Procurement, the utility would plan how many they need in terms of megawatts of what type and where. And then a deployment services company like Sparkfund, but there are others, will go and talk to customers and sign them up to host the assets. And then once that customer has agreed to host the asset, then it's bid out as a tranche, and the supplier gets a list of places to go build DERs of a certain type, and then a whole set of compliance and safety requirements to make sure that's done right, that the asset is connected correctly, maintained correctly, and commissioned correctly.
So, the deployment services layer happens before the bid, which means that DER companies get the thing they most want, which is to build hundreds of megawatts of equipment at a predictable margin with predictable offtake timing so they can plan labor. They can be more efficient in warehousing, procurement, and supply in software. This goes back one point a little bit, but there are two different types of efficiencies. Where I really think that the market folks get it a little bit wrong is there's a type of efficiency the market delivers in competition and choice. Again, I believe we're preserving most of that value inside this competitive value chain that's locally built.
But also, you have a huge inefficiency when you have small, subscale companies with a warehouse with 1 1/2 FTE and no systems, and when you're buying not at bulk, but changing orders month to month and your distributor is adding cost because of how unpredictable your offtake is. And you have no working capital and you have no internal software and ERP systems that can track margin against actual deployment. Right. There are real inefficiencies that live in the distributed value chain today. And I say that as a DER CEO who has those inefficiencies. So, I'm talking about myself.
Right. It's not like some distant, "Oh, they're inefficient." Right. I'm inefficient because I don't have procurement off-takes that are predictable, scaled, and reliable. Right. So, I'm trying to build this market as much for my own business as for the market itself.
David Roberts
And so, if this model were implemented and given some time to run, you think that we would see consolidation and scaling in the DER industry, like the emergence of probably — rather than what we have today, which is like thousands of barely evolved mammals scurrying around on the floor of the forest — we're going to get some sort of big, probably a handful of big companies. Like, do you think that's an inevitable sort of outcome here?
Pier LaFarge
So, I don't actually. Although, I think this is actually a really fun moment where utilities can add sustained societal value using their franchise. Utilities are also politically sensitive and I think can build and should build value chains that remain competitive and diversified. So, they should actually have requirements mandated by their regulators to the maximum percentage of a given procurement that can be won by a single —
David Roberts
A little anti-monopoly built in.
Pier LaFarge
There is an antitrust function. And by the way, many utility commissioners, if you talk to them, see competitive value chains as part of their regulatory mandate.
David Roberts
Oh, interesting.
Pier LaFarge
And so, do I think there will be consolidation, scaling, and efficiencies inside the value chain of distributed energy resources? Absolutely. Will companies that cannot come up that efficiency curve go away or be bought? Definitely. That is the good news of bringing distributed energy resources to all of a sudden hundreds of gigawatts and hundreds and hundreds of billions of dollars of scale in these United States. Yes, for sure. But I don't believe that will result in some oligopolistic, you know, subsidiary sort of issue where you have anti-competitive behaviors precisely because this is a value chain of a regulated social purpose monopoly.
David Roberts
That's interesting. Right now, I feel like in this space, what we have is kind of an unholy hybrid which is not working particularly well for anyone. One way to go is just, in a sense, back to the future, I guess backward. I don't say that in a derogatory way, but back to sort of the model of utilities, like back to utilities being utilities, which is what you're talking about. The other way I think to go is people talk about a pricing system basically where prices become extremely geographically and temporally fine-grained. Right. And so then serve the function of directing investment where it's most needed on the grid.
This is the other. You know, I have a lot of people in my inbox who are big fans of this sort of, you know, second-by-second pricing model which will send all of the same planning signals. You don't go for that, buy that. Why not?
Pier LaFarge
Well, it's not that I don't go for it. I mean, look, in the debate of energy history, one of the great moments was in the early 90s, like when we really began that process of deregulation or semi-deregulation. And you see it alive and well in the UK, for example, in Europe. I think that it's a viable model. It works in ERCOT, it works in many parts of the country. And I think markets provide some efficiencies and also some inefficiencies of price stability and predictable capital. And how much capital has to get paid to participate in building infrastructure?
David Roberts
Well, infrastructure legendarily does not perform well just in open markets. Right? I mean, infrastructure capital is kind of different than market capital in a lot of ways.
Pier LaFarge
You know, honestly, to me, that debate has fought itself to a historical standstill, David, where the inefficiencies of a higher IRR from private equity participants in a more uncertain, more price offtake oriented market has added cost. And at the same time, market efficiencies and competition have taken costs out. And if we were sitting here and ERCOT had like power that cost 2 cents a kilowatt hour, I would say, do not listen to me, do not do distributed capacity procurements, make everything an unregulated market. But we don't. We have a market where for whatever reason, the price of power is actually pretty similar.
And there are big market efficiencies in ERCOT and some really amazing superpowers in terms of resource adequacy and demand response. Like, there are some really amazing pieces that that tribe has invented and then there are some really big problems, and I think they actually cancel each other out. And if you zoom out to the UK for a second, the big difference between the United States and Europe is that in Europe, people pay an amount of money for power that is relevant to their consumer consciousness. It can be a big chunk of their mortgage. And if you were to ask me, "Would you like to take 30% of the cost of your mortgage and get it back so you can buy more stuff and you just do this one simple thing?" I would listen to you.
But in the United States, we have, by and large, succeeded in an infrastructure compact that not only is invisible, like it's out of sight, out of mind, it's so successful, you can stop thinking about it, you can take it for granted. We have an energy economy that's actually, for most people, relatively cheap and at an economy level, very, very cheap. And there are real issues with energy poverty in parts of the country. There are real people who suffer from paying too much in the United States, and that's a real serious problem to fix. But compared to Europe, we pay way less for power.
And building an efficient market is really conditioned — the preconditional question of "Is that efficient market going to work?" is, can you get people to pay any attention to it? So, price signals are not great when people don't want to and don't have to pay attention. And then, you actually get an even worse condition where if it's only the people who are truly enthusiastic that can participate, you end up with a lot of the value of a competitive market being taken by the richest, most educated, most engaged consumers.
David Roberts
Well, I mean, part of that vision would be that the devices are smart and automatically respond to the price signals. Right. I mean, part of the vision of ubiquitous price signals is that they're taken off the plate of the — then you get, I mean, you know, I just talked with Cory Doctor the other day. Then you have a whole new set of worries about lock-in to platforms and platform enshittification.
Pier LaFarge
Absolutely. Imagining a perfect, software-driven, interoperable, competitive, and unregulated market that also happens to work well for consumers and the climate, and doesn't have any sort of issues of high-pressure sales, fraud, or regressive aspects. You can imagine that. But the reality is, climate change is here now. The dragon is sitting on the continent, scraping and clawing and hurting people. And we have an infrastructure compact that actually works, that delivered the first 120 years of the electric utility model, and it has risen to the moment when we needed electricity in the first place, rural electrification, post-war industrial boom, air conditioning.
Now is the next time. This is the moment. 2024 is the next big chapter in US energy history because of manufacturing, because of data centers, generative AI, political competition with China. Getting this right is not just about optimizing some beautiful energy system so that energy nerds can be excited about acronyms. It is about providing support for the US economy. It is about growth, it is about geopolitical security. Putting data centers in Ohio and Kansas, not in Saudi Arabia, matters because they're going to train the drone swarms of the 2040s. This is not just about the price of energy or how efficiently competition delivers lower cost.
David Roberts
Yeah, yeah, yeah.
Pier LaFarge
Energy is for something.
David Roberts
One of the things you're talking about here, which is somewhat out of fashion, is kind of the merits of central planning. The idea here is the utility has, as you say, this sort of landscape-level machine. It has the view of the entire machine. It knows where it needs things. But it seems like when you describe that, what comes to mind for me is an old-fashioned vertically integrated utility like you get in the Southeast, like Southern Company or something like that. They are procuring, they're buying, they're owning, they're running, they are truly running the whole thing.
I have a little bit less clear of a vision of how this works in restructured markets. The utility that's going to procure DERs, you're talking about distribution utilities then in wholesale market areas, which seems like a bigger change for them than this would be for like a Southern, a vertically integrated — like Southern Company. I think my guess is you pitch them this model, they're like, "Yeah, that model makes total sense to us. That is literally how we do things." But pitching it to a distribution company in a deregulated market is a little bit of a bigger thing.
And I don't totally understand how it works in that market. So, say a little bit about that.
Pier LaFarge
Yeah, let me give you three hot takes in escalating order of interest.
David Roberts
Hotter and hotter. Whatever that pod is with the hot sauces.
Pier LaFarge
Yeah, I wish. I would like to do that someday. Hot take number one: a restructured market and a T&D utility. Most of the value of distributed energy resources we're talking about for the grid are batteries. And so, a distribution utility can absolutely procure batteries if they are primarily distribution resources. And it can include that into its distribution capital planning for resource adequacy and grid functioning.
David Roberts
Right. That would just be like the distribution utility viewing batteries as a piece of distribution infrastructure, which they are.
Pier LaFarge
And it's a one-for-one, right? I mean, you either — to do a distribution utility's job, if the planners inside the full, you know, the market, right, whether it's an RTO or a co-op or whatever it is, they say, "Look, we need to double the amount of electrons that go over this network." And they say, "Okay, I need to make this substation not melt. With money and copper. And these transformers are the ones at risk." Okay. Or, so if that's $5 billion, well, I could put a billion dollars of batteries in exactly these places and avoid that $5 billion upgrade.
So, like, that is the job of a distribution utility. So, I think that much of the value of a Distributed Capacity Procurement is contained and totally accessible inside distribution utilities. And by the way, about half of the utilities we're actively engaged with promoting this model and bringing it into their institutional work are distribution utilities.
David Roberts
In wholesale markets.
Pier LaFarge
In wholesale markets, yes. In restructured markets.
David Roberts
This is a slight side thing, but I just... I'm curious about this. Like, just between us, the value of distributed energy, most of that is batteries, right? I feel like rooftop solar used to be sort of like what we put on the tin, you know, sort of like the advertising, the big thing we use as a symbol.
Pier LaFarge
It's like the Wheaties commercial. Just rooftop solar is the Wheaties commercial of DERs. Batteries are like the spinach and broccoli.
David Roberts
In terms of what we want distributed energy to do to help the grid, most of that is what batteries do, right? So, if I'm a utility, and this, to me, is just about deploying distributed energy in such a way as to make the grid operate better, I'm just deploying batteries. Like, why am I messing with rooftop solar at all?
Pier LaFarge
Yeah, there. So, this is a side thing, and then I'll get back to my other two hot takes. But it's a really important point. Most of the value to the grid of distributed energy resources in the task of doubling the grid comes in the form of batteries or stored dispatchable electrons, which can include natural gas and diesel. Less from a climate perspective, but that's just, you know, technically that's the case.
David Roberts
Or hydrogen. Don't forget hydrogen.
Pier LaFarge
Or hydrogen. Right. Any stored value of electrons. And so, batteries are the lion's share of the grid value of DERs. However, rooftop solar and ground mount solar, and the bigger the better, particularly if you can get it over 500kW nameplate and even better over a megawatt from a cost per watt basis. But let's say you have a megawatt of rooftop solar and then 5 megawatts of batteries in trailers in an industrial yard. What that solar does is optimize the state of charge of the batteries, and it adds energy value to the capacity value of the batteries.
The batteries are doing most of the work to make sure that no transformer overloads, the substation doesn't need to be upsized, and the distribution system isn't melting. So, the batteries are really doing the lift. But when you run the numbers, it, in many cases, not in all cases, makes sense to put solar on and around batteries to actually make the batteries better from a total grid efficacy standpoint.
David Roberts
Oh, funny. So, you're just boosting the value of the batteries. They're like battery enhancements.
Pier LaFarge
Yeah. So, it's actually the thing you said first. It's just that solar can make batteries even more valuable and, in some cases, at a rate that allows you to spend money on the solar. But that really does depend, and the math doesn't pencil very well unless you're putting a bunch of solar around a bunch of batteries. So, I don't think that applies to residential.
David Roberts
Not to get stuck on this, but it seems to me like if you are doing a wholesale shift from a DER market driven by consumer preference, a DER market driven by consumer preference, I think is going to include a lot of rooftop solar because customers like the idea of it. Right? They like it. It's got good vibes.
Pier LaFarge
The vibes are good.
David Roberts
And that's what you need also for personal resilience and backup. But a utility-led DER market, it seems to me, is going to involve a lot less rooftop solar and a lot more batteries. Is that fair?
Pier LaFarge
It is. And again, going back to your opening premise, which I really like and I think actually reflects my views on this, is, you know, chapter one was about consumer-driven adoption of renewable energy and we got the cost down, we proved it could work, we built an industry around it and we should be damn proud. Chapter two is about thinking from an infrastructure-first mindset about utility-led deployment in the way that adds the most value to the grid and deploys distributed energy resources at deca gigawatt scale all over the United States to fundamentally support a faster, cheaper build out of the US electric grid downstream of manufacturing, data centers, geopolitical competition, and generative AI.
David Roberts
You might have heard the podcast I did with Lorenzo Kristov, who's very big on distributed energy. This is a point that he made to me. He makes it all the time, which really flipped my lid. Now, I make it all the time and pretend it's my own. It's just that from a societal perspective, from a grid perspective, it makes no sense to size a solar and battery system on a rooftop to the energy consumption of the building. That makes sense from the building owner's point of view, but from a societal point of view, from a grid point of view, we just want to maximize how much the building can hold.
Right. Like, we want to maximize the amount of distributed energy possible for that building, regardless of the building's individual consumption.
Pier LaFarge
And David, people who are open to that point, it really starts to create a kind of division or disconnect inside this movement. More and more, the way I hear aspects of, particularly the residential solar industry, advocating for its product is a narrow defense of a business model they've gotten used to and a consumer relationship and marketing competitive advantage that they believe helps their particular P&Ls, not open, honest arguments about what is the best solution for the climate, the grid, or society.
David Roberts
Yeah, and maybe they know on some level that a utility-led DER push would be mostly batteries. I mean, maybe that's hovering in the background here. I mean, maybe it is the case that we're deploying more rooftop solar than is rational on a kind of globally assessed level. I know people hate hearing that and I'm going to get a lot of angry emails for even saying it, but —
Pier LaFarge
I don't think it's the batteries. I think that a lot of solar companies are really well-suited from a human capital and resource systems and engineering and like business processes, infrastructure procurement, they're really well-suited to deploy a ton of batteries. Right. And you know, look at Sunrun. They're making a ton of progress. They're closer and closer to becoming and talking about themselves as a battery-led grid services company.
David Roberts
No, that's Mary Powell, the CEO said that to me flat out "We are a battery-led company."
Pier LaFarge
Now, big shout out to Mary Powell and a bunch of other folks there, Chris Roucher. Right. Who are really driving that shift and I think they're right. I don't think that the aversion is about batteries versus solar. I think that actually the more complex sticking point as you think about the difference between an industrial incentive versus a climate incentive or imperative is actually about consumer financing. What rooftop solar has made billions in is long-dated high IRR —
David Roberts
Yeah.
Pier LaFarge
financialized contracts with escalators. And the industry that really spends the money on advocacy in the policy space in solar, I think, is primarily backed by the financing piece of that industry. It is not the people who build solar, who design it, engineer it, who put it in a warehouse and go out and actually build it. The companies who know how to do that and make money doing it are not only going to be fine, they're going to be much, much bigger companies with more wealth created and a huge solution contribution to the climate problem and to the US grid and to prosperity, economic development, etc.
David Roberts
But to touch on the financing, this would be from the consumer's point of view. If the utility comes to me and does all this for me, part of the advantage for me as a consumer is that I'm not signing or even particularly thinking about some novel new financing something. This is just going to show up on my bill, right? It's just going to be integrated into my electric bill in such a way that I don't have to think about it?
Pier LaFarge
Yes, that's right, and as a credit. I mean, what I love about this idea is, instead of taking debt to get energy ownership, what you get is a 20-year risk-free annuity paid by the utility because you're participating in the grid. Right. By the way, Sparkfund's corporate mission is to make buildings a valuable extension of the US electric grid. That is actually our formal mission. And fundamentally, the reason we believe that's a good idea is because it actually lets building owners participate in the flow of value of being a valuable extension of the grid.
David Roberts
Yes, and this is like, "Can we put a device on your building that will basically sit there and print money for you?" You don't have to maintain it, you don't have to operate it, you don't have to finance it, it's just going to sit there and make money for you.
Pier LaFarge
You don't need a 700 FICO score. There's no green lining, there's no first cost issue, there's no down payment issue. And by the way, when one person, particularly an economically vulnerable person, takes out debt and owns a system for 20 years, that's just one system. If that thing breaks or has out-of-warranty issues or the companies go bankrupt that sold it to them, that person can lose a lot of money. So, infrastructure models that own hundreds of thousands or millions of systems provide value on average, but they can share that value with no risk to the consumers who just want to pick their kids up from school and do whatever it is that they do for a living.
That's the difference between infrastructure thinking and consumer adoption thinking that relies on credit-based, financialized models.
David Roberts
So, I interrupted your hot takes. So, I have, as I told you, a kajillion questions and they just keep popping up. So, the first hot take is distribution companies, distribution utilities in wholesale market areas are going to be willing to deploy a lot of batteries purely for the health of their distribution networks.
Pier LaFarge
Yes, and can incorporate that normally inside distribution capital planning processes, inside their existing regulatory authority. In some restructured markets, there's more question and political heat around "Are batteries distribution assets?" In some markets, that's easier; in some, it's a little harder. I believe in most cases it's plausible. Second hot take: By 2050, every power market in the United States will be an IOU again.
David Roberts
Really?
Pier LaFarge
Because — now, I want a caveat. I don't.
David Roberts
So, you — hang on. So, that means no more munis, no more publicly owned utilities, no more. What are you saying?
Pier LaFarge
I'll clarify my hot take. And that was my spiciest one. I jumped right to the end. If by 2050 every power market in the United States is an IOU, what I mean by that is no municipals and co-ops can exist in their really, really valuable local context. Right. Having citizens be part of a power system, having members be part of a cooperative economic model, I think, is really good economic code that does and has existed where the grid either gets thinner in rural areas or very, very community-specific in municipalities. So, I think that's good code.
It's been part of this energy system since the beginning and I think that's actually a separate part of the energy analysis. What I'm talking about are markets that were run as IOUs and then were restructured starting in the 90s to break apart transmission, distribution and generation.
David Roberts
Oh, you think we're going to go back?
Pier LaFarge
I think we're going to go back.
David Roberts
We're going to re-restructure?
Pier LaFarge
I think we're going to re-restructure.
David Roberts
Interesting. That has not happened anywhere yet though, right? We have not seen that yet a single time.
Pier LaFarge
No, it hasn't. Which is why it's my spiciest take.
David Roberts
But we also haven't seen a single new move to a wholesale market in a while either. We're sort of frozen right now.
Pier LaFarge
Right. And look, going back to your point about Southern Company, any IOU that remembers what a utility is for, which is providing the lowest cost, most reliable, safe power to provide economic development and shared prosperity, that is a foundational infrastructure model. That is a regulated monopoly franchise that uses Wall Street's money for like 3.5% or 4% dividends to build a landscape-scale machine that helps the whole economy exist. And that model, that regulatory compact, is regulated for social purpose and can price the full marginal value. This is the key point. An IOU can price the full marginal value and marginal cost of transmission, distribution, and generation as if it was one system.
And you know what? When the grid isn't growing and you want to optimize it and convince it to uptake new technology, breaking those apart creates more space for optimization. But when you need to double the grid for critical infrastructure development upstream of economic development, geopolitical competition, when it's time to build manufacturing facilities and data centers and compete geopolitically, all of a sudden you want that infrastructure scheme to have transmission, distribution, and generation as part of its same planning system.
David Roberts
Interesting. This is almost spicier than your central take care. I mean, or maybe they're connected. You know, maybe these two takes go together. Like if you're right that a utility-led DER model is the way to go because of utilities' advantages in central planning and financing, the logic of that suggests de-restructuring, right? The logic of that suggests going back to vertical —
Pier LaFarge
There you go, you got it. I think de-restructuring is definitely the worst way to say that. And that's what I'm going to say for the rest of — I'm going to credit you.
David Roberts
Hang on, I'll come up with an acronym for de-restructuring. That's what we do.
Pier LaFarge
De-restructuring, I would like to formally submit my vote for that.
David Roberts
So, going back to Southern Companies everywhere, this is of course Southern Companies are thought of as kind of the bête noires of clean energy right now, currently. So, one of the frequent themes here on Volts is the regulatory structure under which these utilities operate. They get a guaranteed rate of return on their spending. What you're suggesting is just fold DERs into that on that same model. But one of the critiques of that model is that it incentivizes utilities to overspend, basically to not seek the lowest cost, but in fact to seek the maximum amount of money they can get past their regulators.
Why wouldn't that same dynamic apply here?
Pier LaFarge
Well, when you look at the map of IOUs versus restructured states, you don't see a map that makes the IOUs look like they have more expensive power. And I would say you see the opposite map, which is that by having the ability to plan and price transmission, distribution, generation, and have regulators that know what a utility is for, which is making power cheaper, reliable, and safe so that you can have an economy. The last 20 years of running that experiment, comparing IOUs to restructured markets, shows quite the opposite effect, which is that IOUs on average have cheaper power and more industrial growth and more economic growth in their states, and restructured states have higher cost power and less economic growth on average. I'm pretty sure that's true.
It would be good for someone in your many, many bright people listening to fact-check me on that.
David Roberts
But it's not so much structured versus restructured, it's the ownership model. Like, if the point of the utility is to make profit for investors and the way it makes profit is by spending money, it will want to spend as much money as possible, even if it's in an old-fashioned monopoly market.
Pier LaFarge
Yeah. Something that's always confused me about this debate, David, is that it's not like in a restructured market where you have private equity-backed IPPs (Independent Power Producers), who are building power plants. Like, they don't want to spend more money and make more money, and their cost of capital is way higher than the utilities because it's not guaranteed. And they take all sorts of contractual risks that mean they have to charge much higher IRRs that start at 9% and end in the high teens to the return of the investor. And the utility takes hundreds of billions of dollars of Wall Street's money and offers a 3 to 4% dividend.
That's the net money that it costs to build the grid. A 9% regulated return or a 10% or 12% regulated return is what you bake into rates to recover the cost of an electron. And then you take all the operating costs of the utility out and that's the profit that goes to shareholders; it's the net amount. So, people often talk about the gross regulated return as if that's the like there was a guy who wrote an article recently, they called it a "gluttonous return." Right? A 9% gluttonous return. Well, that's a 9% gross return that is then tariffed by all the operating costs of running a landscape-scale grid that's regulated.
And then its investors, the people who actually keep the profit in that utility's case, get like a 3.2% dividend.
David Roberts
But then, you also have an incentive to minimize operational costs. Right. Which is another critique of utilities is that they don't do the upkeep, they don't trim the trees, they are incentivized to minimize spending on which they don't get that return. That's part of the critique.
Pier LaFarge
Right. I mean, again, another confusion. Would a private system be incentivized to maximize its OpEx that comes out of the same gross margin? So, what if the gross margin is 18%, coming down to a net acceptable return of 9 or 12? Everyone optimizes operating costs. Everyone. I mean, I think we've forgotten what we're talking about. Like, we framed utilities as if they're these big evil private corporations and private equity-backed for-profit solar companies, DERs, VPP aggregators, and IPPs are like some noble climate purpose group of knights that are, you know, the Hayekian hooves galloping towards the beautiful future.
I mean, give me a break, right? You know, regulated public purpose monopolies who are chartered in the public benefit is the most successful balance of private capital and public purpose in history. It's the only operating example of socialized infrastructure in the heart of the largest economy in the world. And we've used that model again and again at critical junctures in energy and economic history, which are often the same thing, to animate that growth. Right. And to animate prosperity.
David Roberts
This is so funny because I know, I mean, I know from having listened to some of your talks and stuff now that you personally are a big markets guy, love markets, probably in the Hayekian brigades yourself, but it's kind of funny, electricity makes socialists out of all of us.
Pier LaFarge
It does. And the political coincidence. I am, broadly speaking, a grumpy conservative, not socially, but economically conservative, who grew up partly in Appalachia, partly in the South. I don't have an intuitive connection to the concepts of central planning or, you know, institutional economics. Those were dirty words for me too, right? I too then went off and became a coastal elite educated — I'm a Middlebury graduate, for God's sake. I was at PowerShift. I told you that, right? No one at Power Shift in 2007 was like cheering central planning. And the reality is that although this was not in any way my intuitive bias, I just think I had the luck of starting this company way too young.
I started this company at 24, and I didn't know anything about this system. So, I could just ask sort of some first principles, ignorant questions about it, and not get too wrapped up in the energy markets and kind of technocratic piece of this. And I was just asking these primarily from a climate perspective because I really genuinely give a shit that we maintain a stable climate that gives us the ability to have an economy that keeps people healthy, rich, and safe. Like, that's the point of climate change to me is to, like, have a stable environment, to run an economy to keep people healthy, rich, and safe.
"And that's why I'm in this movement, that's why I'm sitting here. But at the same time, I asked myself, 'Well, utilities have been keeping the lights on just about 100% of the time for like 3% of the economy's money. And we get the whole rest of the economy downstream with that power.'"
David Roberts
What a payback, right? What a payback for that investment.
Pier LaFarge
And then someone says, "Well, we should spend all this time building acronyms and policy innovation and tweaking this and tweaking that. It's going to do two things. It's going to make the energy economy in your state much more efficient because of markets. Oh, also it's going to make the power twice as expensive and all the industrial jobs leave, but whatever. And it'll make it cleaner." And look, I care about the cleaner, but I just think that the thing we forgot was that utilities are surprisingly good at their job. And in fact, they're so good at their job that we've taken it as a precondition.
We've taken it for granted. And we're at a moment in US history, I think, in a lot of ways, where we've really got to check some of our underlying assumptions about this stuff and dig deep into what it's going to take to build an economy that actually works for people and creates value and sustains it in the United States.
David Roberts
Yeah, it's funny, we are sort of like, with all the acronyms and the market tweaks and everything, kind of attempting to create a system that mimics what a smart central planner would do, because we've given up on our smart central planners, basically. Right. Like a lot of this is just like utilities have been in a hostile relationship with our movement for so long that we've, I think, a lot of us have just sort of given up on the idea that they could do their jobs. And this is, as you say, their jobs.
Pier LaFarge
The historic antagonism between the solar industry and utilities is about habit and forgetting. And it is now time for curiosity, for empathy, and for remembering what these systems are for and how they create value.
David Roberts
On that note, one of my big questions here is, would PUCs, like, say, a utility got religion on this, bought it, wanted to go do it? Does it need special permission from its PUCs? In other words, is this a change in operation that requires some regulatory change, or is this something that, in your view, a utility could just go do?
Pier LaFarge
It's a very good question. And I think it's something they can put into their normal infrastructure planning process, but that then requires review and approval by a commission for confirming that it is in fact in the public interest, lowest cost, most reliable. So, I think that you can drop a Distributed Capacity Procurement right into an IRP or a distribution capital plant. You could pick up this tool tomorrow or whenever your next IRP cycle is and go to your regulator and say, "We are a utility based on the demands of society and needed load growth to support our charter in this state.
We are going to add, you know, hundreds of megawatts of batteries, distributed solar gensets, etc., microgrids into that plan. And we are going to submit it to the regulator and ask them to approve us talking to our customers about hosting utility-owned, utility-dispatched assets for the benefit of growing the grid faster, cheaper, and more reliably."
David Roberts
And then, PUCs could just look at that and say, "Okay." You don't need enabling legislation or anything like that?
Pier LaFarge
You do not. The best thing about this idea is that it's not innovative at all. You called it out, clearly. And I say that in every, I mean every, time I'm in a room with regulators.
David Roberts
I mean, you're talking about unwinding a lot of what we've called innovation in this space for several decades.
Pier LaFarge
And I don't think much of it has worked. I mean, that's the sad reality. I don't think much of it's worked. I think the track record is bad. And we've created new ideas, we brought on some new technologies, we've created fragile room for innovation. And don't get me wrong, you know, in chapter one, I am proud, I've just said this at the beginning and I'll say it again. I am proud of the work that our industry has done on behalf of the climate, on behalf of clean energy innovation, from VPPs to the technology of distributed resources themselves.
We proved its value. We put it out there, we built businesses, and we brought the cost down. And now history is here, industrial history is back. We are going to double the grid and we should use the same institutions. We should see this as a graduation, not a fight. Right? We have proven that this stuff has value at grid scale. Every VPP conference, every conference you go to says, "Well, DERs have all this incredible value to the grid." Good. Put it into the planning and make it part of the grid.
David Roberts
Right? Well, when I think about interacting with regulators, I mean, from a certain perspective, you could say one of the benefits of this market being extra outside utilities, being just privately run, is that you could do a lot of stuff that, at least in the early days, was not particularly economic, that you wouldn't spend public money on. Right. Like there's a lot of private decisions that were not strictly rational, especially from a sort of grid level point of view. So, if then you're going to do this via utilities, then you're putting a different lens on.
Then, you are spending ratepayer money and you are obligated to do it in a way that is least cost. You are obligated not to make decisions that are frivolous or aesthetic, et cetera, et cetera. Which I'm winding my way around to a point here, which is if I'm going to a regulator and I'm going to install DERs, it seems to me like the lowest cost DER to get the benefits of DERs is a big battery sitting next to your substation, right on your distribution network like that. If you have a big battery sitting next to your substation, you are getting almost all the benefits that you get from distributed energy.
You get the transmission, you get the avoided transmission, distribution, et cetera, et cetera. Whereas, breaking that battery up into a bunch of small batteries in buildings... Or, you could install a 50-megawatt solar field next to your big battery next to your substation, you know, on the distribution side — so it'd still be distributed, but chunky, big distributed — that seems to me the lowest cost. Whereas, breaking those up and putting them and spreading them out over a thousand different buildings seems to be introducing a bunch of extra cost for no extra benefit to the grid. So, if I'm a utility and I have to convince a regulator that I'm doing the lowest cost work, it still doesn't seem like that rooftop solar panels and building-scale batteries are the lowest cost way to do DERs.
Does that make sense?
Pier LaFarge
It does. Although, I think there are a couple of extra steps that actually push the outcome back towards building scale. And those are particularly in vertically integrated — I'll tie in a couple of our previous discussions. If you are fully integrated, vertically integrated, and chartered in your regulatory process to think about transmission, distribution, and generation, you end up with what I would call more like "highest value, most reliable," not just lowest cost. And that means you can see more of the picture. For example, if you have the ability to build solar and batteries and start that by offsetting a CT, a peaker plant, that's one piece of the value.
Next, there's congestion on the grid, which means you can move electrons more efficiently and get them to the right places at the right times. And then there's the avoided distribution cost, and then there's the avoided transmission impact, say, building new lines into a city.
David Roberts
But don't you get all that with a solar field and a big battery next to a substation? You get all that?
Pier LaFarge
No, I'll come back to that. So, I think that you get a lot of it. But there are a couple of really important constraints and considerations. One, many substations just don't have the space to put that many batteries, let alone the solar field.
David Roberts
So, it is land, it's available land. I mean, that's one thing, right?
Pier LaFarge
When you run the math of that solution, don't get me wrong, I think utilities can and will do a lot of what I call medium-format distributed.
David Roberts
Yeah, nobody's got a great term for that middle tier of DERs.
Pier LaFarge
I'm an old photography nerd, so I just call it medium format. Medium format DERs. And so, fundamentally, I think that utilities will do a bunch of that. But when you actually look at the maps of their substations and where the constraints are the highest, they often tend to be in the highest density, most space-constrained areas. And there are companies, by the way, you know, like NineDot Energy in New York, that are doing exactly this with highly congested substations. And their biggest focus is on buying land in the right places in New York City.
But it's a whole company's worth of innovation to find that space.
David Roberts
Right, right, right. This is another point that Lorenzo makes a lot, which is just that buildings are the available land.
Pier LaFarge
Buildings are the land.
David Roberts
It's helpful to look at them as available land and available grid connections. Right. Which is another precious, scarce resource.
Pier LaFarge
Particularly, without having to modify the connections. And what's funny is that this is — so there are two more points I think will really drive this home. One, when you put 50 megawatts of solar and batteries right at a substation, you get some of the value, which is the smart sponge value of being able to absorb intermittency. But when you want to inject it back, it's too much energy in one place and you have to upgrade the substation just to make it go the other way.
David Roberts
Oh, interesting.
Pier LaFarge
So, you end up with the same problem just later, like an hour later or in the morning. And so too much concentration of any one point source injection of electrons into that system has basically — not exactly, and this is like, you know, caveat, there are probably a bunch of really smart power quality and power engineers and system engineers here being like, "This guy has no idea what he's talking about." I would just like to caveat: I don't know what I'm talking about, but I've talked to a bunch of you. So, this is downstream of that.
But, fundamentally, that solution does add value, but it also creates problems past a certain point. So one, you don't have the space. Two, round trip efficiencies and backfilling, like injecting power back into the grid, start to chip away and actually add infrastructure upgrade back in. Third, and this is maybe the most important, a really big part of the dollar spend that's coming on upgrading the distribution center system — yeah, substations are the big flashy spend for sure. But you know what else is everywhere? It's transformers.
David Roberts
Right. And they're notoriously supply chain effed.
Pier LaFarge
They're so supply chain constrained, they are so expensive. And if we double the grid, the number of utilities at once, that would have to replace and upgrade. Just huge, thousands and thousands. And then the dispatch and the trucks and the permitting, and that's turning traffic off a street. I mean, you're just talking about billions of dollars and huge amounts of time and permitting, you know, and then we haven't even talked about, then there's feeders and then, you know, there's so many other pieces of the grid. Right. But my point is not that putting batteries in buildings is like the move compared to putting them somewhere else.
When I say, "Make buildings part of the US electric grid," I'm saying, "Put batteries absolutely freaking everywhere, up and down the chain to whatever extent there is available space." And when you run out of land and utility and utilities, scale right away as you knock on doors and ask people, "Hello, ma'am, today is a Tuesday. Would you agree to host a battery?"
David Roberts
Yeah, so just to return briefly to the customer experience, you knock on my door. Your pitch is, "We want to install X, Y, and Z. The sum total of your interaction with X, Y, and Z is going to be that you're going to save a little money." That's literally like, "We'll come in, take a couple of days, install it, get out, and then your life will go on otherwise unmolested."
Pier LaFarge
That's right. You won't even save money. We'll just pay you. Like, you show up and you pull on people's, I think, really core instincts. You say two things. One, "By being part of the solution, we're inviting you to do something that's good for you and your family, good for your neighbors, good for your community, good for the grid. So, do great things together. Be part of the solution."
David Roberts
Yeah.
Pier LaFarge
And mostly, I think when you give people that opportunity, they like it. And two, "Hey, for that value that you, of your own free will, are creating for yourself, your community, and the grid will pay you for it."
David Roberts
But in most cases, that payment will show up as a reduction of my electricity bill.
Pier LaFarge
Oh sure.
David Roberts
I mean, it'll be on the bill in most cases.
Pier LaFarge
On bill, yes. I mean, I just think of it as like, if you pay 100 bucks a month for energy, you're still going to pay 100 bucks for energy, but we might pay you 30, 40, or 50 bucks to have a thing in your house.
David Roberts
Right.
Pier LaFarge
And also, by the way, you said this earlier, you know, it makes no sense to size batteries to the needs of the house unless you're selling it to someone. And if you make a really big battery in like — so let's say a small business that's got a big cement yard and a pretty good power hookup that's not being used because it used to be a bigger store or a more industrial area. Think of how many places in the United States that exists. Yeah, go drag a megawatt battery and you can give that small business owner enough money to buy their building from their landowner in 10 years.
Right. We're talking about participating in the wealth of the energy transition in a way that has nothing to do with credit, nothing to do with maintenance, nothing to do with understanding or how much time you have to sign up for something. This is exactly the way that gas companies built wealth and power by putting gas wells in farmers' land. It's the same way that the clean energy industry has built wealth and power all over the United States by putting solar panels and wind turbines in fields. This is bringing that model of space leasing for needed energy equipment as part of the energy transition into the city and into towns.
David Roberts
Investor-owned utilities are going to want to get a healthy rate of return. Is there not some question about whether these things are profitable enough to generate that rate of return for them? In other words, are utilities going to want to do this? Is the rate of return that they'll be able to get on this stuff enough to pull them in?
Pier LaFarge
They don't think like that. Right? Because it's a guaranteed, it's a regulated rate of return. So, they could like rate base a potato and earn 9% on it as long as their regulator deems that said potato is fully in public purpose and is the lowest cost, most reliable for shared prosperity. You've got yourself an earning.
Well, let's talk about planning, because we were going to get back to planning. So, if I'm a utility with a multi-state territory, right now I'm planning and I'm planning, I'm doing my IRP, I'm planning how to meet demand, basically. My planning involves comparatively big chunks, big chunks, a big transmission line, a big power plant, a computationally manageable number of entities that I'm trying to make work together. We're talking now about going from dozens of big chunks to thousands, hundreds of thousands, millions of highly distributed devices all operating in concert. That just seems to me in terms of planning, combinatorially unworkable.
David Roberts
It seems like, and this is where Lorenzo's logic goes, it seems like what you'd want if you were going to do this model is a local utility, a DSO, what people call a DSO (Distribution System Operator) that then manages all this complexity at the distribution level and then just sort of presents to the transmission level as a single entity, basically as like a giant VPP I guess you'd call it, or whatever. A) Do you think it's possible now for today's utilities to do planning involving this level of complexity? In other words, are they ready to plan for all this stuff?
And do you have any thoughts about DSOs, about reforms trying to move control, utility control, closer to the local level?
Pier LaFarge
I do. I'll say a couple of things just as context. One, I constitutionally and politically believe that in many cases, moving control down to local levels is a critical piece of the next 50 years of American life. Right? Like that's in general something that I'm really passionate about and I think is important. The complexity in this case, though, is that central planning works best at system scale, not fragmented scale. And I actually don't think that planning for this many devices is that hard. Utilities need to know which feeders have stress and congestion. They need to know how much they're planning to upgrade substations and when.
They need to know which transformers are at risk of overload. But they actually mostly know those things. And then you need to spend a couple million dollars on software and services to help with companies that come in and do distribution system impact modeling. And there's software, right, that just can give you a bunch of these answers. Companies like Kevala, Recurve, ThinkLabs AI, and a bunch of other emerging ones — Innowatts. And so you can do the planning, you can do the modeling, and you can estimate the impact of DERs, just like you can a power plant.
You just say, "Hey, if you had 800 megawatts on your system here, here, and here. Here's how that would change your capital planning and your upgrade timing, and which feeders would no longer need to overload or be at risk of overload." So, planning, I think, is pretty straightforward. Operating and dispatching — the hardest part of what I'm proposing is actually the fact that the DERs go both directions. Right. They can both absorb power and inject power.
David Roberts
Yes, much more complex.
Pier LaFarge
Yeah, bidirectionality is the sort of scaling factor complexity that you're describing in the operations and dispatch and coordination side. But I don't think it is on the planning side. So, I agree with your point, but not where it sort of hits. Right, the planning is doable and the decision making on deployment is doable. And it also, at scale, has a pretty good, you know, again the regulatory compact says do this also because remember it's lowest cost, most reliable. So, also by putting batteries on buildings, you're making the grid more reliable and that's actually part of the charter and that doesn't need to be cheaper.
Like, regulators are allowed to say, "Spend more money to keep more people safe, happy, and prosperous because it's a society, right. It's the economy, stupid." So, that reliability term is actually something that people undervalue. And again, this is going back a couple of points too, but that's where I think the market people miss out on why central planning and infrastructure thinking matters. Because regulators care about the emergent value of keeping people healthy, safe, and prosperous.
David Roberts
Which does not appear in markets. Basically, it's not a signal in markets.
Pier LaFarge
No. And so, asking to create real-time, minute-to-minute, feeder by feeder pricing that everyone could participate in. In a private equity-fueled, Wall Street-traded cacophony of software, sending AI signals to trade energy would externalize the crackers out of human flourishing and reliability and safety. So, I've never understood why people are so stoked and so many climate-oriented people who I also understand are broadly interested in human flourishing, which is why they should be in my view in the climate movement. It's like, you know, why that has never tracked is like putting a Wall Street trading desk inside the real-time decisions around how the energy system —
David Roberts
Yeah, and the thing is, there's no one who's willing to follow that market logic all the way. Right? Like even in a super market-y system like Texas. Right? The theory of the market is that when power becomes scarce, prices rise and sometimes, per force, the logic of that is that sometimes they're going to rise super, super high. And like, consumers are going to friggin' hate that. But that's how it's supposed to work. But no one will actually let that process play out. But in practice, everybody comes in with extra market mechanisms when reliability or price looks to be under threat.
So, like everybody, in their heart of hearts, wants some central planning here.
Pier LaFarge
Yeah, because energy is for people, energy is for society. That's what we're doing here, right? It is not an optimization desk exercise. It is a really, unironically, critical task to keep the lights on and keep power flowing. And by the way, many of the people, including me, who are debating this and have the opportunity to engage in these systems are not that vulnerable to these outcomes. And I've got backup power and if my power went off, I'd be fine. And if my power cost went up, I'd be fine. But there are people in the society who really, really, really, really, really care whether or not power goes off and their oxygen machine stops working or they have to, you know, find a new way to get to a place they need to go to work.
Right. There are real consequences for real people.
David Roberts
It's a little bit like the health care argument, right? Like, the market logic in health care is people who can't pay die. And it's the same thing. Like, we say we want markets in health care, but we're not willing to let that happen. So, we end up with these unholy hybrid systems. Right, the worst of both worlds. And it's kind of what we have in electricity is like the worst of both worlds right now. So, there's no grid logic for there being multiple VPPs in a single distribution area. Like, the logic of aggregation is such that it just makes sense for everything in a distribution area to be a single entity, right?
To act as a single VPP. So, this vision would be utilities basically operating their territories as single, giant VPPs.
Pier LaFarge
Utilities should just be utilities, and utilities operate power plants all the time. It is not easy. Even though the math is a little more fragmented, they use sophisticated software, economic models, and market interactions like submarkets and bidding conditions. If you go to a trading desk, both in an unregulated market or even in an IOU, you are seeing really sophisticated, really robust, technologically driven, and economically anchored management of a system either for private profit or for public purpose. I believe that an IOU or a distribution utility who deploys hundreds of megawatts or gigawatts of DERs can and will connect them to a DERMS and manage them.
And look, maybe there'll be sub-DERMS, there could be local aggregators. I have no problem if the DSO exists or if they, you know, smaller VPP aggregator bids capacity and I think there's a really great role for that on some of these kind of, you know, some of the DERs that sit at the edge of grid value and private value. Right, there's some, you know, connected assets, thermostats. So companies like Renew Home, you know, advocates like Clean Energy Works like they're all these folks doing great work — Uplight — like great work on how do you connect assets.
We've got another great company in V2G. Right. How do you find assets that people want? Thermostats, cars. Right. And how do you create energy efficiency savings value to the consumer and then have that person get part of the value from participating in the grid? That just means that you can bid a bunch of water heaters or thermostats or cars part of their time. You can bid them in as a really cheap dollar per megawatt-hour supply contract. I think that's the future of that category. And by the way, I think that fits elegantly under the umbrella term of the distributed capacity procurement.
And you know, fundamentally, distributed capacity is buying the things the grid needs where it needs them most to be safe and durable. Right. No overloads, no risk of melting, like putting the batteries everywhere they're needed. Great. That gives you the confidence that your system is safe. And then after that, the role of distributed capacity is just the cheapest megawatt hour supply you can possibly buy, even if it's probabilistically accredited.
David Roberts
And the logic here, like if we're serious that this is so much cheaper than building utility-scale power plants because of T&D costs, right — so you have to add the T&D cost to the central power plants and if you add those two together they're going to be more expensive than this — it sort of makes sense that this is going to be insofar as VPPs are competing in kind of wholesale, they're going to be the first dispatched I guess is what I'm trying to get around to. The logic of this is this is always going to be on the top of the dispatch order, is it not?
It's almost always going to be the cheapest thing to do first.
Pier LaFarge
I think that's right. And by the way, a lot of IOUs, including Southern Company, have come out with public, regulatorily anchored graphs that say that the spear tip of their future grid is dispatchable DERs.
David Roberts
Interesting.
Pier LaFarge
So, a lot of IOUs actually have been saying this for a while.
David Roberts
Southern?
Pier LaFarge
Absolutely. Southern Company absolutely looks at their grid as starting with those least-cost dispatchable assets.
David Roberts
You know, when I threw this out on Bluesky, a lot of people were just like, "No utility is going to want to mess with this. Why would they want to do this?" So, what are some examples? Like, this is mostly in the future, but some have dipped their toes in. So, talk a little bit about utilities that are starting to actually do something like this.
Pier LaFarge
David, my challenge to energy Twitter or whatever the Bluesky thing is now, you've been ignoring IOUs for way too long. And that's a mix of habit and forgetting. It's an antagonism that we've just got to take a breath and approach with more curiosity because we're in the same fight. And utilities are the societal institution we've invented to deliver most of the electrons in society 100% of the time.
David Roberts
Yeah, and it's kind of funny that we're ready to abandon them, even though in every state we literally have PUCs whose job it is to tell them what to do. Like, we could not have a more direct mechanism of control over these things. And yet, we're sort of throwing our hands up and like, "Oh, they're useless." So, it's a little crazy.
Pier LaFarge
We're on Twitter, yelling at them rather than in regulatory commission hearings and bringing resources and staff. If you're an energy advocate and a climate advocate out there, go work for a PUC, go be a staff member. Go do public service. Go do the math. Go show up and listen to people from community justice organizations that represent workers and communities who talk about how the grid matters to them in the real world. Go do that work. Be part of how our society does this work day in, day out. It is tireless, it is detailed, it is thankless.
And there is a sweetness inside the American utility industry that most people do not expect. I mean it.
David Roberts
I've never heard them described as sweet before. That's a new one.
Pier LaFarge
But they are chartered. I mean, just to talk about this directly, when you give a monopoly, a charter in society, right? And the utility charter is lowest cost, most reliable to support economic development in a territory safely. That's it. And if you give that monopoly normative power to change its charter, you have created a very dangerous thing indeed. You will get Eastern Europe block countries, you will get Venezuela. Right. Monopolies that can renovate their own charters become violent. The US electric utility has never been able, in most states, and least of all in states that still have poorer economies, a bigger percentage of their economy is industrial or manufacturing.
Right? So, the Southeast, the Midwest, the Mountain West, those economies did not feel that they had the money to spend or the room to spare in their growth journeys to mess with that charter. Our richest states, California, New York, Massachusetts, Connecticut, did feel that they had excess money so that they could add climate change and clean energy into that charter. And in a lot of ways, I'm glad they did because they brought the cost down. That was a big part of the success of chapter one. They made a market in a grid that wasn't growing. But it cost people money, it shifted costs, and it made some people more vulnerable to energy poverty, but it also helped us in the fight against climate change.
So, history is long, it's complicated, and there are trade-offs. So, I think that we'll look back at that history in terms of climate change very positively. But, I think what will surprise a lot of your listeners is that for the next 20 years, it's going to be IOUs in red states that drive clean energy and DERs to grid scale.
David Roberts
It would just be hilarious for my career if, like Southern Company, emerged as the hero. As the hero after all this.
Pier LaFarge
I would bet on Xcel, Southern, and Duke as three of the ones that will surprise you. And Southern Company, in its last IRP, filed and received permission for a 250-megawatt DER program.
David Roberts
Interesting.
Pier LaFarge
They have largely this logic of avoiding peaker plants and providing grid capacity. They have been publicly ordered by their commission to bring a solar and storage program forward in this next. Finally, Xcel Minnesota on August 9th filed a distributed capacity procurement comment talking about 400 megawatts to 1,000 megawatts of battery and solar in Minnesota, exactly for this purpose. You can go look at the filing, it's on the Minnesota PUC docket. That distributed capacity procurement concept was included in a draft settlement submitted to that PUC on October 3rd with a tariff filing due in October of 2025.
So, you know, Jigar Shah, Ryan Long, the president of Minnesota Xcel, and I did a panel at RE+ on that. Look at what folks like Lon Huber are doing in Duke territory in terms of new tariffs that can provide clean energy offtake to hyperscalers to support data center growth, their paired power program, their time to save. There are tariffs and regulatory innovations inside the heart of traditional, charter-constrained, public purpose monopoly utilities that I think are starting a drumbeat that is going to define the next 50 years, or at least the next 20 or 30, because things change pretty darn fast of how we meet this moment of manufacturing growth and data centers.
David Roberts
Let's give a little shout out to Green Mountain, too. I feel like they were early.
Pier LaFarge
Yeah, I mean, absolutely, I should have mentioned them.
David Roberts
Green Mountain is in Vermont, and they're putting batteries in homes and then managing those batteries. They're doing basically what you're talking about, right?
Pier LaFarge
Absolutely. And Green Mountain Power is often one of my examples. By the way, they had a "bring your own device" program that had been running for years and was small and slow to deploy, but still there. They took the cap off their utility-owned, "Hey, would you host this?" program, and in like a year, it's now 10 times the size of the other program.
David Roberts
And that's purely behavioral? That's just purely like —
Pier LaFarge
Yeah, same program. They are just knocking on the same door saying, "Do you want to host an asset? Well, here it is." And by the way, the way they paid for that was by taking billions of transmission out of their plan, not having to build transmission over mountains and forests because it's hard and expensive. And you want to go talk to the Green Mountain State Forest about permitting transmission? Like, you know, see you in the 2050s.
David Roberts
But the reason these traditionally maligned utilities like Duke and Southern Company are going to do this, just to sum this up, is not that climate activists finally got to them. It is simply that a bunch of data centers want to site in their territory. They just don't have enough power to power the data centers. And the fastest way to get more power is to draw on DERs. Is that fair?
Pier LaFarge
It is fair. And I would add manufacturing. All sorts of advanced manufacturing from chips and battery manufacturers and automakers. You know, CHIPS Act, IRA, IRJA, and then just general onshore —
David Roberts
Much more to come, too.
Pier LaFarge
Much more to come. Trade wars, tariffs. Right. I mean, this is about manufacturing, data centers to a lesser extent, EVs, but it is also about geopolitical competition, national security. Again, I've said this a couple of times, but where those data centers are matters enormously to how we will fight wars in the 2040s and 2050s.
David Roberts
Yes, so it's just worth emphasizing here, if you took pollution and climate change considerations out entirely, almost all this logic would still operate 100%, it would still be basically the same situation. You would still need lots of DERs quickly.
Pier LaFarge
That's right. Climate change nor its relevant subsidies fundamentally alter this calculus. Now, cheaper is cheaper. A subsidy is a subsidy. So it would happen to some degree more. Everyone's going to do different math on their substations. And by the way, something we haven't even talked about is you can take a distributed capacity procurement and you can sell it to a hyperscaler as an offtake agreement. I mean, Constellation Energy just sold Three Mile Island's ghost to Microsoft.
David Roberts
I get a real kick out of that. I don't know why this is so redolent with symbolism.
Pier LaFarge
Spooky, scary. And that deal — so that's historic, right? I think that's historically interesting.
David Roberts
So, what then? The utility rounds up a DCP and basically sells it to a power customer.
Pier LaFarge
Three Mile Island is 800 megawatts of nameplate, right? And nuclear has a very high accreditation factor. So, let's just call it, for argument's sake, 800 megawatts. What's the biggest problem with the innovation that selling Three Mile Island's ghost to Microsoft represents? It's that there are very few additional Three Mile Islands, right? Maybe Palisade. So, like, it's a pretty short list.
David Roberts
And Amazon's like, "Oh, we'll just build some nuclear plants." And the rest of the energy world's like, "Okay, you get back in touch in like 10 years."
Pier LaFarge
Yeah, and we'll see if that works, right? In some ways, I hope it does. But right now, if you ask yourself, where could you find 800 megawatts to sell forward to a hyperscaler?
David Roberts
Yeah.
Pier LaFarge
The answer is like 800 buildings. So, if all you needed to do to create another Three Mile Island is build accredited capacity of 1 megawatt in 800 buildings. And yes, I'm aware that that means building 1.6 or 1.78, you know, pick your rating. You know, I get that. It's not just a one for one. DERs aren't clean energy baseload. We're going to need a lot of clean baseload energy and dirty baseload energy to solve this problem for our nation, right? It's going to be truly the all-and-above.
David Roberts
Well, that's what I mean. It's part of what all the batteries are about, right? Batteries effectively make everything on the grid dispatchable. That's the whole magic.
Pier LaFarge
Easier, safer, and on time when you need it. You can handle issues before it overloads. You can dispatch it if it's windy overnight and the power hits Denver. You know, instead of building a smart grid, you build a smart sponge.
David Roberts
But what about, I guess I want to, I want to try to give listeners some sense of the scale available here. You know what I mean? Like, I'm thinking about Southern Company. I'm thinking about, like, Atlanta, you know, put solar and storage on, I don't know, half of the buildings in Atlanta. That's a lot of power at that point. Like, you're talking about multiple big power plants worth of power. Like how, what? Like, do we have any sense of the upper end of the scale available if we really did max out DERs everywhere we could?
Pier LaFarge
Yeah, well, you can do that thought experiment a couple of ways, and I think we can come back to Atlanta, too, because I think that Atlanta, Denver, Minneapolis, St. Paul are some of the most interesting places to think about this idea. But let's just talk about the kind of scale. You know, you can look at irradiance maps, you can look at hosting capacity maps, right. But I do the thought experiment a little differently. Think about it. I'll try to keep these numbers right. 50 utilities that each deploy 500 megawatts a year of DCP. If you did that for 10 years, you would end up with 250 gigawatts of power, which is 20% of the US electric grid.
David Roberts
Yeah. Pretty soon, you're talking about real, real money.
Pier LaFarge
In 10 years. And so, that's just. And by the way, that's just 50 utilities now, that's not a very high scale. So maybe it's 100, 200 a year. You know, I don't know. You can slide those maths. But fundamentally, I think there's a pretty real pathway for this Distributed Capacity Procurement idea to end up representing 10, 15, 20% of even a grid that's double.
David Roberts
Interesting.
Pier LaFarge
In a relevant timescale, over the very same decade in which many of the solutions of centralized power transmission and distribution investments that we have, don't even start kicking in until year 5, 7, and 10.
So, we should be starting now, getting the utility regulatory compact engaged to approve distributed capacity procurements, put them in plan, and start deployment periods so that we can measure DER history not in pilot success or how many pilots are being created, but in how many gigawatts of annual deployment capacity a region has. And we can measure the cost per watt going down from scaled procurement and industrial efficiency. We can measure customer value going up.
David Roberts
Will the cost of capital decline, as this stuff proves out? Or is it just the case that utilities just get cheap capital because of who they are?
Pier LaFarge
Utilities get cheap capital because of who they are. Wall Street gives American electric utilities capital at 3.5%, and they get some appreciation in the shares. But fundamentally, if you asked a private equity investor for $100 billion to go build a landscape-scale machine for a 3.5% return, the answer would be, "Who let this person in the building?" It would be like, "Call security." And what the US electric monopoly utility did right, again, regulated monopoly, was it created the most successful balance of private capital and public purpose in history to fuel American industrial growth.
David Roberts
Yeah, I think about all the conversations I've had that end up in the place where we're going. You know, what we need is like funding entities that are larger and more reliable and have more patient capital and can stay and will guarantee, be in the game for multiple decades. And you know, like we have those in some sense.
Pier LaFarge
A lot of systems, a lot of systems of innovation, end up reassembling current conditions. And in some moments, that's a tragedy. And in some moments, it's really hopeful because it means you have the tools in current form to fight this fight to keep Americans safe, healthy, and prosperous, to drive economic growth, to bring jobs, to keep the lights on, and to fight climate change all at the same time. No new regulation, no new laws, nothing. Like this is, this is how utilities were built. They were built to meet these moments of energy and economic history coming together. And it's what it's been doing for 100 years and it's what it's going to do in this moment.
David Roberts
Well, I guess we'll leave it there. This might be the longest episode of Volts in history, but in some sense, I think the reason this is catching on so much is that it's got a little bit of a "smack your head" about it, a little bit of obviousness, like "why didn't we think of this before?" But like, we have the utilities, we have the regulatory mechanisms to force them to do whatever we want. We have the experience in procurement, we have the cheap DER technology, we have at least the germs of DER supply chains in a lot of these places.
And really, they just need to start doing it. It's a very tangible, near-term, happy story, which we don't get a lot of these days.
Pier LaFarge
Well said.
David Roberts
Well, thank you, Pier, so much. And I can't wait to talk again in a few years and see, you know, what happened.
Pier LaFarge
Yeah, well, David Roberts, thank you for the decades of service and leadership that you provided. Thank you for teaching me a lot of things and for bringing me into this wonderful climate movement and showing me a wall to bang my head against for 15 years.
David Roberts
Thank you for listening to Volts. It takes a village to make this podcast work. Shout out, especially, to my super producer, Kyle McDonald, who makes me and my guests sound smart every week. And it is all supported entirely by listeners like you. So, if you value conversations like this, please consider joining our community of paid subscribers at volts.wtf. Or, leaving a nice review, or telling a friend about Volts. Or all three. Thanks so much, and I'll see you next time.
1. 🎉 Hey look, it’s the one year anniversary of Volts doing monthly threads and mailbag episodes. A year ago we set a regular time for community members to interact, ask questions and share work. We’ve had about 1,000 comments since, and 10 or so mailbags. The system isn’t perfect — the Substack comments section leaves a lot to be desired — but I think it’s been working pretty well. What do you think? Are these things worth continuing?
If you think so, leave mailbag questions in the comments!
2. 🤬 Speaking of manners, the enshittification episode was one of my favorites this year, but it raised a bit of a dilemma for us. We’ve been bleeping curse words, to avoid Apple labeling us “explicit.” But we couldn’t very well bleep the central concept of the episode. Several listeners were annoyed at the inconsistency or annoyed by the bleeps in general.
So, should we just embrace being explicit and give up the bleeps?
3. Speaking of enshittification, I’m leaning into Bluesky now that Twitter/X is reaching the end stages of that disease. It’s all bad vibes. I’ll keep my account there open — it does have over 200K followers — but for now you can find my daily blather here:
4. 🎁 Delinquent in your duties to buy a loved one a gift? Might I suggest a Volts subscription? We’ve got new goodies in the works for 2025 beyond the mailbags & ticket giveaways that paid subs receive for their kind donations.
There is a huge problem with insurer capacity. The capacity problem does not go away even if insurance rates could internalize every possible externality and there are no stranded assets or dysfunctional subsidies. The capacity problem is that massive events (hurricanes, earthquakes, wars) are lumpy, insurance contracts written annually, and capital markets are finite. As a result, insurers cannot write as much insurance as is demanded, even if the policies are perfectly priced. Think of taking a bet in which you put down $1, with a 50:50 outcome of either $3 or losing your dollar. Nice bet, no? Now think of putting down a million dollars, with the outcome either three million or losing your pension, house, and car. Not such a nice bet. This is the catastrophe risk problem.
The three usual answers to this problem are reinsurance--which smoothes the lumps among many insurers--catastrophe bonds (a kind of clunky reinsurance in capital markets drag) and exclusions, such as war risk. Exclusions protect the insurer, but have nothing else going for them. Reinsurance capacity is quite finite, and cat bonds are pretty inefficient, and perhaps also finite.
There is no good solution to this problem in the policy space, although I think that government insurance participations might help. Participations are not subsidies, since the government would simply add capacity, piggybacking on the insurers' (or reinsurers') risk assessments and rate and payout structures.
Abner would have you believe he’s a handsome boy.
Monthly Thread — How It Works
This is your monthly opportunity to share! Use the comments section in this community thread to:
CLIMATE JOBS & OPPORTUNITIES: Share climate jobs/opportunities
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EVERYTHING ELSE: Discuss David’s Notes or anything else climate-related
MAILBAG QUESTIONS: Ask a question for this month’s mailbag episode (anyone can ask a question but mailbags are a paid-sub-only perk). Volts has a form for those who are shy, but David prioritizes questions posted in this thread.
🚨 To keep organized, please only “REPLY” directly under one of Sam’s headline comments. Anything inappropriate, spammy, etc may be deleted. Be nice! Check out our Community Guidelines.
His true nature.
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In this episode, I speak with Malcolm Woolf and Connor Nelson about hydropower's underappreciated role in America's clean energy landscape. While providing most of our energy storage and thus supporting solar and wind deployments, hydropower faces significant challenges, with a decade-long relicensing processes and inadequate market compensation. We discuss why preserving and expanding this reliable, clean firm energy source is crucial as we transition to renewables.
Greetings, everyone. This is Volts for December 13, 2024, "Time to stop taking hydropower for granted?" I'm your host, David Roberts. Hydropower is a strange beast in America's clean energy menagerie. It's the oldest form of renewable energy and until fairly recently, the most abundant. But it doesn't get much attention in energy discourse or policy. It is generally taken for granted.
In a recent paper, the industry's trade group has issued a wake-up call, arguing that hydropower is at risk and needs attention. Its unique attributes are extremely valuable in a grid heavy with variable renewable energy — it was "clean firm" before clean firm was cool — but, the paper argues, it is not being fairly compensated for the value of the grid services it provides.
Malcolm Woolf and Connor Nelson
As a result, a rising number of hydropower owners are thinking twice about going through the onerous and up-to-a-decade-long relicensing process. And because there is a large wave of such relicensing decisions coming up, the situation is urgent. To discuss all this today, I'm chatting with Malcolm Woolf, the CEO of the National Hydropower Association, and Connor Nelson, the author of the paper in question. We're going to get into the rising value of hydropower on a clean grid, the licensing challenges facing many generators, and the potential for new generation capacity from existing dams.
All right, then. Okay. So, with no further ado, Malcolm Woolf and Connor Nelson, welcome to Volts. Thank you so much for coming.
Connor Nelson
Thanks for having us.
Malcolm Woolf
Happy to be here.
David Roberts
I wanted to do a pod on hydro forever. My attitude towards hydro, I think, is very reflective of people in the clean energy community generally, which is just, I just don't think about it a ton. It's kind of, I just take it for granted, I guess, assume it's always there, it's sort of puttering along at its level, reliably producing. I don't expect tons more of it, I don't expect tons less of it. I just kind of have factored it in as part of the background. But of course, that's never true of anything and there are things happening.
So, I want to just use this episode to just talk about the state of hydro, its challenges, and its potential. So, Malcolm, let's start with you. What is the scale of hydro in the US right now? So, what part does it currently play in our energy mix?
Malcolm Woolf
For starters, I think your perspective is exactly similar to so many in the clean energy space. They don't think about hydro. It's kind of out of sight, out of mind. And I think that's part of the problem. I sometimes think of us as the Rodney Dangerfield of the renewable energy space — for those of you who remember the old comic — you know, we don't get the respect we deserve. We're actually 80 gigawatts of existing emission-free generation on traditional hydropower. There's another 22 gigawatts of pump storage which provides long-duration energy storage. So, I think we're 96% of the nation's energy storage today.
Batteries get all the attention. I love them. I'm an EV enthusiast. However, for long-duration energy storage, most of it in this country is pump storage. So, together between the 80 gigawatts of traditional generation and the 22 gigawatts of pump storage, we're over 100 gigawatts of largely dispatchable, emission-free energy on the grid today.
David Roberts
And that is for the nerds among us, 6.2% of total US electricity generation, which is about, I guess, a third of nuclear and just a little bit behind wind, just a little bit behind solar. It's 29% of renewables.
Malcolm Woolf
So, we're not the largest energy source. We don't have any aspirations of being the largest energy source. But if that 6.2% went away, suddenly we've got an unreliable grid, and people can't stream Netflix and charge their iPhones. So, while it's small, you need it for reliability, which is the basis of the report.
David Roberts
I want to get to the report and Connor here because what's funny to me is the kind of the, one of the big things going on in the larger energy world right now is sort of the increasing prominence or prevalence of discussions about what's called clean firm generation, which is just — renewables, wind and sun are variable, they come and go with the weather. And so right now on the grid, mostly what's being used to balance out renewables is natural gas, which you can turn on whenever you want and run as long as you want i.e., it's firm, but it's not clean.
So, what we need is clean sources of energy, emissions-free sources of energy that we can turn on whenever we want and run as long as we want. And so, there's all this discussion of nuclear playing that role, there's all this discussion of geothermal coming on strong and playing that role. But hydro is that already. It's a little weird that we talk so much about clean firm and talk so little about the giant bucket of clean firm we've already got. So, all of which is preface to come to you, Connor. So, the first half of the paper, more than half actually, is kind of a brief on the merits of hydro, specifically for a clean energy grid, the role it can play in a clean energy grid.
So, Connor, maybe just tell us, just quickly go over what is advantageous about hydro in the context of a clean energy grid.
Connor Nelson
I think it's really the uniqueness of the technology and being able to straddle both this position as a baseload resource and this position as a dispatchable, flexible resource. Right. So, hydropower is obviously a large source of operating reserves. You're able to quickly ramp power up and down following load, as the needs of the grid require. But at the same time, you're able to be a source of firm baseload power. So long as the water is flowing, you can generate power to help support a 24/7 reliable grid. So, it's really that duality of the resource, something that really no other renewable resource can do, and sort of occupy both of those spaces simultaneously.
David Roberts
You know, I think that aspect is fairly well understood. You can run it as baseload, you can just run it flat out continuously, or you can just increase or decrease the amount you're running through your turbines to ramp up and down, to follow load. Talk a little bit though about grid services, what are called ancillary services. Hydro has some features in that space too.
Connor Nelson
Yeah, absolutely. So, it's one of the maybe less obvious values of hydropower that really is the crux of why it's so important here to grid reliability. So, very similar to fossil fuel plants. But again, renewable hydro really has this spinning mass generation. So, there are these large turbines being pushed by water and that creates an inertia because you're actually moving a generator. And that inertia really helps with sort of keeping the grid at a healthy frequency. It helps with voltage control and all these other important ancillary services that keep the grid stable and keep the grid functioning through both sort of mundane everyday challenges to reliability — that you never really see because the grid operators handle that —
and also, more dramatic swings in, maybe say, extreme weather due to climate change or other scenarios can create really dire situations. Maybe a generation goes out, maybe transmission is damaged, and then hydropower can then provide sort of that resilience, getting the grid back up to speed rapidly.
David Roberts
Yeah, talk about black start. I don't know that non-energy nerds are conversant with that, mostly because it doesn't happen very often. But talk about hydro in that capacity.
Connor Nelson
Yeah, black start is really unique. It's a really interesting component of hydropower. So, although hydro is only 6.2% of US electricity, as you pointed out, it's 40% of our nation's black start resources, and the rest of it is pretty much just fossil fuels and natural gas. Basically, what black start is, is it's just the ability to generate power without any sort of auxiliary support from the grid.
David Roberts
Right. Power without power. How do you get your power going without some power to get it going? Right, that's the dilemma when the power goes out.
Connor Nelson
Exactly. Yeah, it's counterintuitive, power without power. But most resources require something from the grid to get going. But again, because of the large portion of operating reserves, water as a source of fuel is incredible. It doesn't require any preparation, like oil. It's very easy to access, so you can just open those gates and have yourself booted back up pretty quickly, and it creates basically this island of energy that then you can distribute back through the transmission system to boot up other resources that need auxiliary power.
Malcolm Woolf
Right.
David Roberts
That gives you the power to start the other power.
Connor Nelson
Exactly.
Malcolm Woolf
That's exactly what happened. For those of you old enough to remember the huge East Coast blackout, I think it was 20 years ago at this point, it was hydropower that restarted the grid because it has that black start capability. So, I actually prefer the name "essential grid services" rather than "ancillary services".
David Roberts
Yeah, ancillary does kind of make them sound like extras. You really do need them.
Malcolm Woolf
And right now, we've got a lot of those ancillary services, a lot of inertia on the grid, which is wonderful, which is why we don't really value it or pay for it. But as we know, coal plants are retiring, as nuclear plants age and retire, we're going to have less spinning stuff. Particularly with the exciting penetration of wind and solar and offshore wind, we're going to have more and more variable load and less and less baseload, which is why it's critically important to preserve and enhance the nation's hydropower resources.
David Roberts
Right. So, its role right now in these ancillary services, or essential services, if you will, is not marginal, but it's not the majority. But that's mainly because most of those services are done by fossil fuels. So, as fossil fuels drop out of the grid, these services that hydro can provide are going to be more and more important. And it is worth saying, because I know right now there are some energy nerds out there gritting their teeth, it is worth saying that there's a lot of work being done basically simulating those services or trying to accomplish those same services with inverter-based resources, basically sort of simulating spinning reserve and that kind of thing.
But you know, that kind of stuff is somewhat cutting edge now, and it's not totally clear how far it'll go. And it certainly is not going to hurt to have a third of your clean energy capable of that stuff.
Malcolm Woolf
Yeah, and there was an interesting study done by, I believe, it was NREL a few years ago where they found that dispatchable hydropower can support, I think, it was 144 gigawatts of variable renewables. So, the existing dispatchable hydropower fleet. Now, 144 gigawatts is a huge amount but it's not enough to supply all of the US energy needs. So, we're going to need those other forms of clean firm, other forms of essential reliability services. But hydropower already exists, it already provides a huge resource for that and we need to value it and make sure it's around because in just a few years we're really going to need it.
David Roberts
Just to emphasize the point you're making, a little bit of stuff that can do this can enable a lot of variable energy. So, like, you know, any small increment more of hydro unlocks large increments of variable energy on the grid.
Malcolm Woolf
Exactly.
David Roberts
So, it's playing these crucial services, it's baseload, it's dispatchable, load following, it's doing all these grid services, stabilizing the grid voltage, etc. It's got black start capabilities. So, it's a key player on the team, let's just say. But Connor, the title and the sort of premise of the paper is that hydro is in trouble, that there are problems basically about licensing and relicensing. So, I was a little confused about this because in the paper you say there's a bunch of... We're sort of approaching a wave of hydropower dams reaching kind of the end of their natural life, their initial, you know, licensing period.
So, they're going to have to be relicensed, and this is a problem. But when I looked at the state of the hydro report that you sent the DOE, sort of state of hydro, it said that of all the dams coming up for relicensing, almost all of them are applying for relicensing. So, I'm trying to fit those two together in my head. Like, are we in danger of losing any substantial chunk of our existing hydro fleet? What is the problem exactly, the crisis?
Malcolm Woolf
Let me jump in on that one. Both things are right. Most hydropower facilities are starting the licensing process, yet we're still at risk of losing those very same facilities. The reason is that these facilities are not primarily energy facilities; they're really water infrastructure.
David Roberts
Right.
Malcolm Woolf
There are 90,000 dams in this country. There are 2,500 hydropower facilities. So, 3% of the nation's dams are hydropower. So, just to restate that, 97% of the nation's dams are not used for power generation. So, they're used for water storage, for flood control, for irrigation.
David Roberts
Do they have to be relicensed periodically? Just a dam being a dam.
Malcolm Woolf
They don't get relicensed. A dam is just a dam and it sits there. Now, if you add a hydropower facility to it, you generate emission-free resources and you get an income stream that can do the O&M. So, they give these facilities 50-year licenses. But unlike other facilities, that's not the useful life of the technology. There's actually a facility in Kansas that just celebrated its 150th anniversary. It's been producing power for that community for 150 years.
David Roberts
With the same turbine or do they switch out turbines?
Malcolm Woolf
They'll switch out turbines, but they switch them out like every few generations.
David Roberts
Right, right, right, right.
Malcolm Woolf
It is the first facility I saw. They actually had three turbines and they were doing a replacement and one was, they brought it up and I'm looking at this shiny new turbine that they're putting in and they said, "No, Malcolm, that's the 100-year-old one that Thomas Edison was here when we installed. The new one hasn't been delivered yet." So these are forever assets. If you maintain them, they can work forever. So from a regulatory perspective, a 50-year license is a reasonable time to reevaluate it. But that's not really the life of the unit.
David Roberts
Right.
Malcolm Woolf
So that's what the facilities are going through. They're starting the relicensing process. It typically takes about eight years, but in many cases, it can take a decade or longer. And when they start the process, they have no idea how long it's going to take, how much it's going to cost, or at the end of it, whether they're going to be required to spend hundreds of millions of dollars to do big upgrades. So just because you start the process doesn't mean that at the end of it you say, "You know what, it's not worth it, I'm just going to shut it down."
And of course, when you shut it down, it doesn't mean you remove the dam because you still need the dam for water storage, flood control, irrigation. You just turn off the powerhouse.
David Roberts
You just stop running the turbine?
Malcolm Woolf
You just stop running the turbine. Then, someone else has to pay for all the costs of maintaining a safe dam for water storage, for example. So, the farmers have to pay more, or the community has to float bonds in order to maintain the facility. That's the disconnect everyone assumes, I think, as you do, that hydropower is not going to go away, but it's also not going to grow. And I think both assumptions are wrong. Hydropower hasn't gone away in the last 50 years, but now we've got this wave of relicensing and now we've got wonderfully cost-competitive wind and solar.
And it's not at all clear that the facilities are going to be willing to make the investments needed, given our current structure, to maintain that existing fleet.
David Roberts
So, it's not the case that we've got a wave of hydro dams not relicensing, it's just that we're worried that there's a wave coming and we're worried about the result of that.
Malcolm Woolf
I think that's right. We've got a trickle already. I think we've seen about 65 facilities have chosen to voluntarily surrender their license in the last dozen years. In the last couple of years, it's gone up; there's another several dozen. So, we've got an increasing trend of voluntary license surrenders. These are largely the smaller facilities. What I'm worried about are the much larger facilities. Just between now and 2035, I think it's 16 or 17 gigawatts of facilities over 450 projects. So, it's that we've got a trickle, it's increasing, it's growing, and we're trying to get ahead of this problem because we saw what happened in the nuclear space where it took a few large facilities —
David Roberts
Yeah. Now, we're scrambling to restart them, which.
Malcolm Woolf
Now, we're looking at Three Mile Island again. We're trying to avoid that problem.
David Roberts
I think it's just fair to say, as an almost categorical matter, that in today's environment, needing the clean energy we need, it's just crazy to turn off any clean, dispatchable resource of any kind. It's just crazy to do that. But it seems like the big ones, the big dams, are also going to be more likely to have the wherewithal to fight their way through the relicensing process, though, don't you think that's true?
Malcolm Woolf
I don't make any assumptions. I think the big dams may have more resources because they're generating more power. They've got more of a cash flow coming in, but they're also a bigger target. They're a bigger resource out there. One of the phenomena we've experienced is that because these facilities are only licensed once every 50 years, when they go through the licensing, the states and localities often use it as an opportunity to achieve all sorts of other valuable public policy means that have nothing to do with the facility. So, these facilities, unlike nuclear, get one license from the Nuclear Regulatory Commission.
Hydropower facilities get licenses from dozens of entities. The Federal Energy Regulatory Commission at the federal level, but then also a bunch of other federal entities, Fish and Wildlife Service, Marine Mammal. Then you've got the state entities, then you've got the local entities, and facilities have been ordered to build Boy Scout amphitheaters or take care of Forest Service land that has nothing to do with the facility and are dozens of miles away. It becomes a blank check for other public policy means.
An "everything bagel" is, I believe, the term of art we use for these days.
Exactly. And frankly, the hydropower industry, as part of being good citizens, would say, "Okay, if that's the price of doing business, okay." We can't afford to do that now. The energy industry is too competitive. You've got wonderfully competitive wind and solar. The economics just don't support that any longer. And so that's what may be driving these facilities to surrender. They can't keep paying for costs that are unrelated to their business and try to provide affordable 24/7 reliable power.
David Roberts
Yeah. So, struggling kind of in the same way and for the same reasons, nuclear is struggling, plays a very similar role on the grid and similarly struggles in the wholesale market for the same reason I think nuclear is. And now, here we are frantically looking for extra market ways of preserving it, just like we are with nuclear.
Malcolm Woolf
I think that's exactly right, that it's very similar to the risk that we've faced with nuclear in losing gigawatts of carbon-free nuclear generation. I will note though, that nuclear can't complement wind and solar in the way of making them clean firm the way that hydropower can. So, hydropower is really good for the energy transition.
David Roberts
Well, the nuclear people will tell you that they can ramp, even though in practice, you don't see it very often.
Malcolm Woolf
All right, well, we'll leave that for a different podcast. What I will highlight though, is that in the Inflation Reduction Act, I think there was $30 billion set aside for preserving existing carbon-free nuclear, and yet preserving existing carbon-free hydropower did not get any money.
David Roberts
Interesting.
Malcolm Woolf
Again, we're kind of out of sight, out of mind in the policy conversations.
David Roberts
Well, before we move on from this licensing thing, I mean, this really fits well into a recurrent theme these days in clean energy, which is our bureaucracy and our regulations and our desire to make everything into an everything bagel is impeding the rapid spread of clean energy. So, what do we do about this licensing? I mean, in some sense, because these things are so big and because they are far more than power generation, right? They do affect the biology of rivers. They literally affect the landscape. I mean, they affect recreational opportunities. I mean, it's not mysterious why their licensing is a little bit more complicated since they are doing a lot more things.
But what are some practical ways that this licensing and relicensing issue could be solved? And are there vehicles to do so at the federal level these days?
Malcolm Woolf
The good news here is that a lot of people have given this a lot of thought, and I'm proud to have worked through Stanford University, created a process called the Uncommon Dialogue, where they brought the hydropower industry together with some leading environmental groups, American Rivers and Union of Concerned Scientists and others, along with tribal groups and dam safety groups. And we actually developed a joint hydropower reform licensing process.
David Roberts
Oh, interesting.
Malcolm Woolf
A bill that was introduced on a bipartisan basis in Congress. It did not move, but it's still out there. And —
David Roberts
Lame duck?
Malcolm Woolf
Lame duck. We're having conversations. Essentially, it was a compromise effort. There's something for everyone in the bill to hate because it doesn't give industry nearly as much streamlining as we wanted, but it's better than the existing process. And I think the other parties would say the same. But what it boiled down to is good government, from my perspective. What we really need is process discipline. You've got water as a shared resource. It flows through our facilities downstream to be used by others.
So, it makes sense that there's a lot of entities involved in licensing. What doesn't make sense is that if one state doesn't issue the water permit, a facility could be held up in getting its license for a decade. There's no capacity for any of the other entities to resolve disputes.
David Roberts
Sounds like transmission.
Malcolm Woolf
It sure does.
David Roberts
Lots of veto points.
Malcolm Woolf
Right. So it's the same, you know, we've got to "Build, baby, build." We've got to free ourselves up. And in most cases in the hydropower space, certainly for the 100 gigawatts, we're talking about existing facilities. So we're not talking about greenfield. We're not talking about building large dams in the lower 48. We're talking about preserving the existing infrastructure. There's also the opportunity for new. But the new stuff is in two categories. Either adding generation to existing dams that are already serving another purpose, so adding generation to non-power dams, or adding what's largely closed-loop pump storage.
David Roberts
I want to get back to the new stuff in a minute. I have lots of questions about the new stuff, but while we're still talking about the old stuff, there are several recommendations in the paper about how to help hydro. One is reforming this licensing relicensing process. And I was going to say — like just as a last word on that — it does seem like, I mean, licensing a new dam, I can see all the complications make sense to me. But like if a facility has been sitting there safely producing power for 50 years, it does kind of seem like the presumption should be on its side.
It doesn't seem like it should have to start from the ground up, justifying its existence all over again.
Malcolm Woolf
And it takes longer to relicense an existing hydropower facility than to relicense a nuclear plant.
David Roberts
Oh, that's crazy. Like eight years. Like, what do you, what do you...?
Malcolm Woolf
It's not even close.
David Roberts
You know, we hear these numbers and our eyes just glaze over. But like, literally, what could you do for eight years? I don't even understand. I feel like I could do it. If you gave me eight years, I could relicense the dam. How much work could there possibly be?
Malcolm Woolf
I mean, you want to do it right. You want to have reasoned decision making. So, to spend a couple seasons looking at fish breeding populations and its potential effect makes perfect sense. But what the agencies do is they do it in series. One agency does its study, its NEPA analysis of one species, and the other agency won't begin until that one's done.
David Roberts
That sounds like interconnection queues.
Malcolm Woolf
Get together at the beginning, figure out what you want to study, come together with an organized plan that's binding on all the different levels of government so that you don't have the delays.
David Roberts
Right, right. But moving on from licensing. So, one of the other critiques in the paper is that RTOs and ISOs, the administrators of regional wholesale energy markets, that basically, hydro is not compensated in those markets in a way that reflects its full value. What is the critique there?
Connor Nelson
The biggest concern is that a lot of the ancillary services that we discussed earlier, which are really vital to grid reliability and stability, are often compensated in what's called uplift payments, which are out-of-market payments. So, they get processed and compensated outside of the traditional competitive market structure, which allows for supply and demand to incentivize the entrance of new generations. So, a lot of what makes hydropower unique is not necessarily reflected in market compensation structures, which then means that there's a vacuum for incentivizing this kind of generation to continue. Essentially, the market signals are not being sent.
I mean, I think in ISO New England, for instance, almost 50% of their ancillary service compensation is uplift for hydropower. So, it's pretty pervasive.
David Roberts
Explain why it's a problem. Like, it's money for them, why is it?
Connor Nelson
Yeah, I think it's just that the value of those services is not reflected in the market. So, if you need more voltage control in a region, for instance, like the Western Interconnect, where there's really, really long transmission lines and you need appropriate amounts of reactive power to send energy across those transmission lines, that reactive power compensation is either not compensated at all or in some markets, it's compensated through uplift. And so, in moments where it's really necessary in either day ahead or on day of spot markets, that price, it's not reflected in the price.
David Roberts
I see. So, the value of the services changes depending on circumstances, but the payment doesn't.
Connor Nelson
Correct.
David Roberts
The payment doesn't reflect the value.
Malcolm Woolf
Just to share another example of that, I was touring one member's hydropower facility and I saw their black start operation and I asked them about it. They were doing one of their quarterly tests to show that it worked. They said that the quarterly tests cost them even more than they get from PJM for providing the service. So, they're providing the service because they know the grid needs it, but they're actually losing money by doing it.
David Roberts
Charity, basically.
Connor Nelson
And one more thing, I'll add that a lot of these services actually put wear and tear on hydropower facilities and equipment. The fast ramping, in particular, being able to ramp up your generation in as little as 10 minutes, does come at a cost. There's opportunity costs associated with it and there's also long-term wear and tear on the system. And those costs are not reflected in the market mechanisms either, in most RTOs and ISOs.
David Roberts
You know, anything having to do with RTO/ISO procedures is a rabbit hole. It's a pod of its own. But at a high level, how big of a deal would it be for RTOs to integrate these services into markets, to make them market reflective, to make them reflective of market circumstances? Like presumably some — it sounds like some RTOs do it, so it sounds like it's doable. How big of a reform is that?
Connor Nelson
In the sense that what the value would be, I mean, it's a huge deal, right? I mean, as we have variable renewables more and more coming online, these ancillary services are sort of the important piece of the puzzle now. Right. And so, we need to change our compensation structures to now reflect the changing grid and the increasing value of these ancillary services. You see that happening with ELCC (Effective Load Carrying Capability) in capacity markets and trying to measure whether or not a resource is actually going to perform when it says it's going to and how that affects the cost.
But, we just don't see that happening as rapidly as it should be, given the rapid changes to the grid and the increase in load, frankly, that we're seeing with data centers. It's becoming more and more important to compensate these reliability structures.
David Roberts
So, all these services are becoming more and more physically important to the operation of the grid as variable renewables come online, but they're not being compensated more and more to reflect that, I think is the basic critique here. The other critique in the paper has to do with compensation for hydro in the big bills Democrats passed in this past session, mainly IRA. But I remember reading, and I know that IRA did have billions and billions of dollars for hydro and it actually made hydro, it put hydro in a category with the other renewables and made it eligible for those same tax credits. So my impression was that that was, all things being equal, good for hydro.
But, the critique here is that the tax credits are not fairly compensating hydro. So, what's the critique there?
Malcolm Woolf
I think a lot of the senators and congressmen had the same misunderstanding that you had. It's wonderful that the Inflation Reduction Act now has an incentive for all forms of carbon-free generation. And hydropower is finally treated equally with wind and solar as a carbon-free source of generation. If you are building new hydropower, all of those incentives are only for new generation. And that's the distinction. There are new hydropower facilities being added to existing dams. There are a number of pump storage facilities being built. But the bulk of the fleet is the existing fleet.
David Roberts
Right. Does a new turbine added to an existing hydropower facility count as new or not?
Malcolm Woolf
Yeah, if you were to increase the capacity from 100 megawatts to 150, 50 megawatts would be new.
David Roberts
Got it.
Malcolm Woolf
But if you were to take out a 100-year-old turbine and put in a new turbine at the same capacity, there'd be no net increase and you wouldn't get any incentive.
David Roberts
Got it. So all the IRA incentives are for new hydro, but new hydro is a relatively small sliver. So, what's the idea here? Make incentives, tax incentives available for upgrades, operational upgrades in existing facilities?
Malcolm Woolf
Yes, there are kind of three components. One, there should be some incentive if you take an existing facility and you upgrade it. If you repower it. There are similar incentives for repowering wind or solar. You should be allowed to repower an existing hydropower facility.
David Roberts
What does that mean, repower an existing facility?
Malcolm Woolf
Take that 50-year-old turbine and replace it with a modern turbine, but with the same capacity, overall capacity. So, you're not increasing generation from the unit, but now you've got a more modern turbine in there. Some turbines are helpful in addressing some environmental pollution and other things. So, it creates an incentive to preserve the existing fleet by investing in the powerhouse. The other two areas where there's big infrastructure investments needed are either in dam safety or in environmental improvement. And it doesn't increase electricity generation, but those are huge expenses that could drive a facility to voluntarily surrender their license.
So, there is a bipartisan bill pending in Congress with 13 senators on board, including six Republicans, that would create an incentive for existing facilities who invest either in dam safety or environmental improvements. They could get a tax credit for those investments. That would go a long way to changing the economics and viability of these facilities for generations to come.
David Roberts
Yeah, it's kind of tricky because it's like, then you've got electricity — what is purportedly electricity policy — paying for basically non-electricity stuff. But it is, you know, two steps removed from electricity. It is closely related to electricity. I can see why that's vexing.
Malcolm Woolf
Welcome to my world. This wasn't done in the IRA because they said, "It's not energy, it doesn't increase megawatts." But now, they're not as interested in doing it because it deals with energy and we already did that a few years ago. So, we're neither fish nor fowl.
David Roberts
That's hilarious. But there is a bill. Lame duck. So, we want basically more tax credit compensation for upgrading existing facilities, even if you don't change the output. And you want more tax credits for the non-energy parts of dam maintenance and renewal, basically is the idea.
Malcolm Woolf
Yeah, and let me put this in a slightly larger context. We know that climate change is water change. So, particularly out west, we've got more rain in the fall, less snowmelt, and less snow in the winter, which is creating more floods in the spring and then summer droughts. So, how we adapt to climate is a lot of water management. And one way to pay for all of that water management, maybe it's flood control, maybe it's water storage, is using hydropower as a resource. You know, we've got all of the existing infrastructure which has not been addressed in the last four years, despite lots of efforts in lots of different areas of infrastructure.
The dam infrastructure was largely overlooked. So, we need to invest in that, and we need to deal with the realities of climate adaptation. What does that mean and how do we pay for it?
David Roberts
You know, one of the things you're seeing these days with extreme weather that comes from climate change, you frequently get these big droughts which then subsequently have a huge effect on hydro output. Like China, it had a big spike in emissions and in coal use in the past couple of years, mainly because of the big drought, which took out a bunch of its hydro. Can you make generalizations about sort of overall what climate change is going to do to hydro output? Or is it just all regionally sensitive, like, are we going to get on net less hydropower in the future or is it just going to be more in this season and less in this season? Or like, how do we. What's the right way to think about the effect of climate on hydro output?
Malcolm Woolf
A couple of thoughts on this one. First, I think we've all seen pictures of the Colorado River and it's tragic. I mean, it's horrible. But we live in a large country and a drought in one area is not a drought in another. And isolated examples are just that, they're isolated. The DOE National Lab, I think it was PNNL, did a study a few years ago of hydropower in the west during the mega-drought. And they found that even during the mega-drought, the region's hydropower sustained 80% of its average generating capacity. Yeah, the Colorado River is tragic, but the rivers will be low in California one year and then the next year there's atmospheric rivers and they restock or you import more electricity from the hydropower being produced in the Pacific Northwest.
There was a study recently done by the National Labs that tried to address the question you just asked: Given climate change, will there be more hydropower or less? And they found that in the next 50 years, you should expect more. In the United States, globally it may be a very different question. But more rain, more water, it's not in the Colorado, but it's in most of the rest of the country. And so, hydropower production would go up.
David Roberts
Is there such a thing as a particular hydro facility getting too much rain? Like more rain than it can handle, more rain than it can make power out of?
Malcolm Woolf
Yeah, no, that happens all the time, actually. They often release water from the hydropower facility to maintain the dam, to maintain the reservoir, not to have the water level get up to people's homes. Our guys always talk about it as we're just spilling fuel, we're wasting water that we'd otherwise use.
David Roberts
It's like curtailing solar, basically.
Malcolm Woolf
That's right. And when we talk about pump storage, we can get into that dynamic a little bit.
David Roberts
We've been mostly talking about the existing hydro installation, how to maintain it, how to make relicensing it easier, how to, you know, because it is struggling in wholesale markets and not necessarily being compensated for its full value, how to compensate it more for the values and services it provides. But if I have one, sort of like unexamined presumption about hydro in the US, is that we've probably tapped out most of it and there's not a ton left to do. But when I look into it, that's not necessarily true. So let's address two separate questions. One is, how many new dams are there to be built?
It seems low, but I guess if you get into smaller, you know, what they call run-of-river hydro, stuff like that, I guess there's more opportunities. But just, I'd like a global sense or an overall sense in the US of like just how much untapped hydro there is? And then the second question is, how much more could we get out of existing hydro facilities? Those are two separate questions. Let's do the first one first. Like, are there lots of undammed rivers around?
Malcolm Woolf
Yeah, the era of building dams in the US, particularly the lower 48, ended in the 50s and 60s. We haven't been doing that for 50 years.
David Roberts
Didn't find any more big rivers since then.
Malcolm Woolf
And it's also the, you know, the environmental ethos has changed, so we're not building new dams. What there is, is huge potential with the 97% of existing dams that don't have power generation. We've got lots of dams in this country. We can just add power to those existing facilities. And that's a win-win. The Department of Energy did do a study a few years ago and it found that using existing infrastructure, you could add about 13 gigawatts of generation.
David Roberts
Which, it's not a ton in the grand scheme of things.
Malcolm Woolf
That's right.
David Roberts
But every one of those gigawatts, just to recall an earlier part of our conversation, unlocks many more gigawatts of variable renewables. So, these are particularly valuable gigawatts.
Malcolm Woolf
Right. And it also creates an income stream to actually maintain those facilities, which we need for climate adaptation, all that water storage and flood control, et cetera.
David Roberts
So, I'm picturing 90,000 dams, 3% of them are generating electricity. One obvious question is just like, why so few already? Clearly, these opportunities are not particularly economic under current circumstances.
Malcolm Woolf
That would be a logical conclusion, and I think you'd be wrong. Oh, I think again, there's been a lot of study of these issues and the federal government released a report a dozen years ago identifying the top 100 facilities that existing dams that could be powered. And I think 88 of them were owned by the Corps of Engineers. So, it's not a question necessarily of the economics, because my members would love to develop and add generation to those non-power dams. The Corps of Engineers has a lot of missions. They've got a lot of things on their plate. They are the largest renewable generator in the nation, but they don't even realize it given all of the hydropower that they operate.
They are the largest single source of renewable generation, but it's like a tertiary responsibility for them. And they just haven't moved to develop their own resources, nor have they let the private industry come in and pay for the development of those resources.
David Roberts
Why not? Is that just a culture thing or environmental thing?
Malcolm Woolf
They are just pulled in so many different directions that this has just not been a priority. And I used to joke that in the all-of-the-government climate approach that President Biden imposed, that memo never got to the Corps of Engineers.
Connor Nelson
Yeah, and I'll add that the Corps of Engineers has an obligation to balance all of the various roles that those dams play as it relates to water supply, recreation, and other things. So again, the sort of multipurpose nature of hydropower can sometimes be difficult to navigate. But on the economics of non-powered dam development, I'll also point again back to the licensing. The uncertainty around the licensing process is a real wet blanket on private investment. NREL did research a couple of years ago, maybe actually this year, on the private investment landscape and when they spoke to venture capitalists, private equity investment banks, folks that are going to be bankrolling, that are bankrolling a lot of these renewable projects, they found that 91% of them were uninterested in early-stage investments in projects, mostly due to the uncertainty associated with licensing.
So, getting private money in the licensing process is a real obstacle to that.
David Roberts
Interesting. Speaking of the multifunction aspect of dams, does adding power to an existing dam substantially affect the ecology around the carrying capacity? All the other features of dams? Is adding power substantially messing with those other features or changing those other features? Or is it pretty much surgical? I have no sense of the physical job here.
Malcolm Woolf
"Surgical" is a great word for it. I'm thinking of one of the more recent non-powered dams that were built, and they simply diverted water just above the dam, ran it through a turbine, and then reintroduced that same water back to the river a few blocks below the dam. So, it didn't have any significant environmental impact, but it still took a decade to license.
David Roberts
A decade? Again, I just can't...
Malcolm Woolf
A dam that already existed.
David Roberts
Geez, like the solar people complain.
Malcolm Woolf
Yeah, and that's the dynamic we're facing. It's a lot easier to build wind and solar now, and you could get them licensed in a year or two and built in a year or two, and you're done. The problem is that facility may need to be decommissioned in 10 years or 15 years. And the hydropower facility, once it's built, can last 100 years. It's a forever asset once you've got it going. But heck, we may still be waiting for a permit by the time they're decommissioning that wind turbine.
David Roberts
I mean, this sounds complicated because there are all these different functions. So, there are lots of different stakeholders involved and interested in these things. Are there simple reforms that could make it easier, that would facilitate more redevelopment of existing dams, more additions?
Malcolm Woolf
There needs to be a streamlined process with much more certainty as to the timing. And I think if we focus the industry on the facilities which do not have a big environmental footprint, either adding generation to a non-powered dam or, as I mentioned earlier, closed-loop off-river pump storage, those are relatively non-controversial permitting processes. This is why in that bipartisan license reform bill that a number of environmental groups were comfortable with, it included a two or three-year licensing process for these kinds of new generation because they do have little or no environmental impact. So, you don't need to spend years doing those kinds of studies.
If it's not on a river, for example.
David Roberts
And who's in charge of the Army Corps of Engineers? Who would be the person to come in and redirect some of their attention in this way? I mean, it seems like Biden's whole-of-government thing would have been the thing to do that, but apparently, it didn't.
Malcolm Woolf
Yeah, I'm hoping that with the administration change, President Trump has been talking about energy dominance, and I think this is a great opportunity for them to have the federal government lead by example and elevate the importance of power generation as part of our own fleet.
David Roberts
It does seem to fit right into the permitting reform discussion that's going on right now. It's odd in some sense that this didn't make it into that permitting bill, the Manchin-Barrasso permitting bill.
Malcolm Woolf
I would agree. And we're talking to them as part of the lame duck, trying to see what we can get added and if not, we'll be back next Congress.
Connor Nelson
I'll add that there are provisions in the Water Resources Development Act of 2024 that try to streamline some of these processes within the Corps of Engineers' own structure. And there is language in there to hopefully improve that, including things like the establishment of a single office and an outreach coordinator specifically for projects that are trying to develop on Corps property.
Malcolm Woolf
And Dave, let me just highlight the area where there is a lot of market activity going on, which is in the pump storage.
David Roberts
Yeah, I was going to ask about that next. So, there's the question of getting more power generation capacity out of existing dams, and it sounds like there's quite a bit of potential there. But then, of course, there's the big looming need for power storage, which I think Volts' listeners are very familiar with. And I think they're mostly familiar with the fact that 96% of our existing energy storage is in pumped hydro. All other forms are playing catch up from a very distant second place. Tell me the capacity, like where could we build? What do we need to build new pumped hydro?
Because, of course, like the big ding on pumped hydro, the big criticism is just that it's very geography specific. You need a big hill basically and a bunch of water to make it work. So, how much capacity for new pumped hydro is there? Who's exploiting it and what's kind of standing in the way?
Malcolm Woolf
I think that's the area where there's a lot of exciting developments. In that Department of Energy study, they found there was the potential for another 36 gigawatts of new pump storage.
David Roberts
Relative to, what's the base now?
Malcolm Woolf
Base now is 22 gigawatts.
David Roberts
More than exists?
Malcolm Woolf
That's right. You could increase it by, what is that? 150%. But we're finding the market has found even more opportunities. So with the growth of variable load, I think increasingly folks are recognizing, "Hey, we need clean and firm." And so there are over 90 projects proposed at the FERC queue for new pump storage projects. Over 50 gigawatts in the queue.
David Roberts
Oh, wow.
Malcolm Woolf
I don't expect most of those to get built. Some of them may be in places where they shouldn't be built, but there's huge potential for, you know, eight-hour plus duration energy storage. And the one increasing innovation is that it doesn't have to be on a river. Folks have realized, you know what, once we fill the pump storage facility the first time, we're really just moving the water from either one reservoir to another or one tank to another. And then when there's excess solar, we can pump it back up and release it at the next sunset when the solar cycles off and we need the generation.
David Roberts
So this is what closed loop means, basically using a finite amount of water over and over again?
Malcolm Woolf
So, that really expands the opportunity.
David Roberts
Because then you just need a hill.
Malcolm Woolf
Exactly.
David Roberts
You can bring your own water.
Malcolm Woolf
Right.
Connor Nelson
I would also add that in addition to the closed-loop pump storage, in some cases, you don't even need a hill. There's a lot of work being done right now in developing pump storage in current and former mine lands. So, former coal mines underground, which totally changes the dynamic of the kind of land you can develop.
David Roberts
Pumping it up and down a mineshaft, basically.
Connor Nelson
Exactly.
Malcolm Woolf
There's an interesting project, actually, that the Department of Energy has helped fund some of the initial studies. I think it's Lewis Ridge in Kentucky where they're trying to do just that, use a former coal mine and convert it into a pump storage facility. Typically, you have transmission resources, and you've got the other infrastructure there. So, it really makes a nice resource.
David Roberts
Yeah, that's a good thing about all these abandoned mines and abandoned power plants too. In some sense, they have all that infrastructure laying around. Is there an extant pumped hydro facility that's using an old mine, or is all that sort of in the works?
Malcolm Woolf
I think Lewis Ridge is probably the furthest along. That's the Kentucky facility. The Department of Energy, as part of the Bipartisan Infrastructure Law, did give them, I think, over $100 million to start moving on that. So, things are moving. But these are billion-dollar facilities again. They last for a century or more.
David Roberts
So, all of them are big. There's not such a thing as like small distributed pumped hydro. Is this essentially a big thing?
Malcolm Woolf
Folks are looking at distributed pump storage. Folks are even doing it without water. Kind of take apartment buildings and just use weights and move things. There's something to be said for economies of scale, particularly once you add the transmission and the other costs involved. So, folks are actively looking at much smaller scale pump storage. In fact, the former Prime Minister of Australia, Malcolm Turnbull, is a big proponent of distributed pump storage. But the economics haven't yet penciled out.
Connor Nelson
The size and the scale really do matter for pump storage. When you get up to something like a 1000 megawatt pump storage plant, the actual cost in terms of dollars per kilowatt hours really is outperforming most chemical battery storage. But you need that scale to make it pencil out in most cases. And obviously, it's a long lead time investment.
David Roberts
Yeah. So, there's a lot of pumped hydro proposals out there. You say 90. When was the last time one actually got built and opened? Is there a long gap between the last new one and this new wave?
Malcolm Woolf
There is, indeed. The last one that opened in the United States was 20 years ago.
David Roberts
Oh my goodness.
Malcolm Woolf
So, we haven't built a new one in 20 years and the market's been pretty quiet. But in the last, I would say, 18 months, two years, suddenly folks are seeing the need for clean and firm and how do you provide data centers and everyone else with the 24/7 reliability they need? So, all of these proposals are coming up, but again, with a 10-year licensing process, we're not going to be able to achieve our goal.
David Roberts
So, all 90 of these pumped hydro storages are facing up to 10 years of licensing. That can't be allowed to happen, it can't be right.
Malcolm Woolf
100%. To be clear, three of the facilities have actually completed the licensing process. So, they're fully licensed. They still need to get through financing and interconnection and offtake agreements, and construction has not started.
David Roberts
Good grief.
Malcolm Woolf
So, it's a crazy process.
David Roberts
Yeah. So, none of these, I mean, practically speaking, none of these are going to be ready in time to meet the short-term boom in data center capacity. I mean, is that fair to say? There's not —
Malcolm Woolf
I think that is fair to say, but I think that's also true of the slate of new nuclear.
David Roberts
Yeah, it's true of almost everything people are talking about. The timescales are completely — We don't, because we're not capable of doing anything quickly. That's kind of what we're discovering.
Malcolm Woolf
And that is something that this kind of new administration has talked about.
David Roberts
Yeah, well, they talk about a lot of things.
Malcolm Woolf
That is true, but we'll see whether this is one of the areas they actually want to move on.
David Roberts
So are there licensing issues unique to pumped hydro storage that don't face just normal hydro, or is it mainly like the same stakeholders, the same long process, et cetera? Are there particular reforms for that process?
Malcolm Woolf
The problem is, it's treated just like facilities that are on a river, when actually it's a whole lot easier when you're just moving the water between two existing spots. So, that's why our proposal is, "Let's craft a different process. Let's not treat it like everything else."
David Roberts
Right. It does seem like when you're messing with a river, you're messing all of a sudden with ecosystems and biology and hydrology and everything else. But if you just find a hill and you bring your own water to pump up and down, up and down, it's just intuitively much less involved, much less interconnected with everything else.
Malcolm Woolf
Exactly. And the amount of water is substantial. So, how do you get that first fill? There are issues to be talked about, but we're hoping for a two or three-year process as opposed to what we've got now.
David Roberts
And so, if we could just kind of summarize where we've been, tell me if this is fair. So, hydro has been pumping along for 50 plus years, 100 years now, in some cases more or less at the same level for the last several decades. But two things are happening: one, it's becoming more valuable because of the characteristics of the clean energy grid. It's clean, firm, it's baseload, it's dispatchable, it can do storage. It really is a bit of a Swiss army knife for the clean energy grid. But the amount it's being compensated is not reflecting that increasing value.
And in fact, the opposite is happening. What's happening is a bunch of them are coming up for renewal, relicensing, and are facing this onerous 8 to 12-year process which some of them will decide not to go through at all. So, we're actually facing what could be a decline in hydro capacity at the very time we need, at the very least, to preserve what exists and to make more. Is that fair?
Malcolm Woolf
I think so.
Connor Nelson
Sounds like it.
David Roberts
And just to finish here with the politics, you sort of, Malcolm, kind of alluded to this a couple of times. But my sense, it's a little bit like when I talk to the geothermal people, they're like, "Our problem is not that we have enemies, it's just that we don't have enough sort of vigorous friends." And I get a little bit of the same vibe from hydro. It doesn't seem like — I know there are complaints about hydro's ecological impacts and methane emissions and stuff like that, but by and large, hydro just seems like it's taken for granted by everybody.
Everybody seems fine with it, nobody seems that excited about it. And basically, what it needs is more vigorous friends. It's got sort of bipartisan support, but not the intensity it needs. Do you see that changing at all in this new regime? I mean, I guess the positive story you could tell about this new political regime is that there'll still be a lot of momentum towards doing energy stuff. They're not going to want to do the same energy stuff as the dirty Democrats, which is mostly coded wind and solar. So, it does seem like that energy, plus the need to find new outlets for it, might be promising for hydro.
Am I straining the bounds of reality here, or do you see some glimmers of hope?
Malcolm Woolf
I think that's right. I think, by and large, historically, Democrats have liked hydropower. Because we're emission-free, we're dispatchable, so we could kind of firm up the variable wind and solar. Republicans have traditionally liked us because we're domestic, baseload, secure. We're hoping to translate some of that broad support into folks who will actually champion the resource. And we've been the middle stepchild or whatever the analogy you want to use. We've been overlooked or taken for granted for a very long time. And now, because of that time clock with the licenses, we're actually at risk of having gigawatt-scale retirements, which would really just set back not only our climate efforts but grid reliability.
David Roberts
Yeah, and you've got these existing bills floating about that do a lot of the things you want. I guess the hope here is just that maybe there's another kind of energy omnibus kind of thing and those just get tossed in. I mean, is that kind of the route we can anticipate?
Malcolm Woolf
The pathway at this point is really unclear to me. But I think maybe to pick up your earlier theme, we did not get a lot of attention over the last several years, and maybe that could be our saving grace going forward because we were not included, or at least the existing fleet was not included in the IRA. Hopefully, the Trump administration will not overlook us.
David Roberts
Yeah, you haven't been partisan coded yet. You're one of like a tiny handful of institutions remaining in the US that's escaped that. All right, guys. Well, this has been super, super fascinating. This is exactly what I've been wanting to do for ages. Just sort of check in with hydro, see where it is. Because it's like, it's this incredible resource. And I do feel like because it's just been there doing its thing for so long, we don't pay enough attention to how cool it is and how helpful it is specifically in what we're trying to do in clean energy.
So, thank you for coming on and walking us through all this.
Connor Nelson
Thanks, David.
Malcolm Woolf
Well, David, I've been a longtime fan of the Volts, so this has been real fun for me.
David Roberts
Thank you for listening to Volts. It takes a village to make this podcast work. Shout out, especially, to my super producer, Kyle McDonald, who makes me and my guests sound smart every week. And it is all supported entirely by listeners like you. So, if you value conversations like this, please consider joining our community of paid subscribers at volts.wtf. Or, leaving a nice review, or telling a friend about Volts. Or all three. Thanks so much, and I'll see you next time.
In this episode, I chat with author Cory Doctorow about "enshittification," his viral term for how digital platforms and smart technologies inevitably get worse over time. We explore how monopoly power, aggressive IP protections, and lax privacy law enable companies to capture and exploit users — and what that might mean for the clean energy transition as our homes and vehicles become increasingly software-dependent.
Hello everyone, this is Volts for December 11, 2024, "Can we avoid the enshittification of clean-energy tech?" I'm your host, David Roberts. One thing that sets the current energy transition apart from previous transitions is that it is heavily digitized. Part of the promise of modern clean energy technologies is that they will be smart, i.e., infused with computing power and networked, i.e., connected to the Internet and one another. That will allow us to coordinate their operation, optimizing them to efficiently store and shift power to help balance the grid.
I am quite bullish on this vision, but lately, something has been nagging at me. In this glorious distributed clean energy future, most of the big items in a consumer's life — their EVs, EV chargers, solar panels, home batteries, appliances, their whole homes — will be controlled by software. And the thing is... have you met software lately?
Cory Doctorow
Today's software often exploits corporate-friendly IP protections to lure customers in, lock up their data to raise the cost of switching, extract value from them while degrading their experience, deny them the ability to modify or repair their own products, and, in the end, remotely brick the products if consumers violate terms by, say, using the wrong brand of ink cartridges.
This is the process that author and thinker Cory Doctorow has termed enshittification. And, as he has recently warned, it's one thing when it affects your social media platform or your phone, another thing entirely when it's your vehicle or your home. So, I'm excited to talk to him today about what enshittification looks like in the clean energy sector and, above all, how it can be avoided.
With no further ado, Cory Doctorow. Welcome to Volts. Thank you so much for coming.
Cory Doctorow
Thanks for having me on. I love talking about enshittification.
David Roberts
I know you've caused a bit of a cultural phenomenon with this term. I just saw that it is the Macquarie Dictionary's Word of the Year, that Australian —
Cory Doctorow
Yeah, the Australians know shit when they see it.
David Roberts
Yeah, they're familiar. And it's funny, you know, my wife is a normie, by which I just mean not Internet-poisoned like us. I told her I was talking to you. She had no idea who you were. I told her I was talking about enshittification. And it's funny, her eyes lit up and she's like, "Yes!" Like knowing, literally knowing nothing about it, literally having never heard the term before, she immediately grokked its significance in the modern world just by hearing the word. So, the first thing I wanted to ask you is, you know, this sort of term is catching on, this notion is catching on and I think it's in danger of becoming sort of like a general term for the zeitgeist, you know what I mean?
Just like, sort of — it seems like everything's kind of getting grubbier and worse. So, I wonder if you have, you know, like, what's the extension of the term in your mind? I know you have something more specific than just sort of like the general worseness of everything, right? There's a specific kind of extension of the term. So, maybe just talk about sort of like what are the class of things that are subject to enshittification.
Cory Doctorow
Let me start with a disclaimer here, because I am an English speaker, which means that I speak a mongrel language where a word's meaning arises out of usage and not because we have a committee that writes our dictionary and tells us what words we can use. And as someone who's spent the last 25 some years working with nonprofits like the Electronic Frontier Foundation trying to get people to care about digital human rights and has coined all kinds of words to get normies, as you say, to care about it, I am totally fine with people using this word in a colloquial way. I am convinced that the only way to preserve the precise technical meaning of words is to confine the usage of those words to irrelevant groups of insiders. And so by all means, let 10 million normies use the word loosely and let 1 million of them look up my article in which I explain it, and those 1 million people are a million more people than I would have reached otherwise.
So, you know, go nuts. You know, all of you who are native English speakers like me, revel in the glory of speaking a language where usage determines meaning and not the other way around. It's fine.
David Roberts
Yeah, yeah. So, what sort of things do you have in mind?
Cory Doctorow
Yeah, so enshittification. It's a term I came up with to describe what you might more politely call platform decay. And you know, from the outside, we've all seen it. You have a platform that is quite good to its end users, and then it starts to turn the screws on the end users once it has them locked in, takes away some of the value that those end users have been enjoying, and allocates it instead to a set of business customers. And then that's where a lot of people's analysis stops. Right. You may have heard people say, "Oh, if you're not paying for the product, you're the product."
But you know, products you pay for get rampantly enshittified — like, you know, John Deere tractors and iPhones and EVs, these are not free. And paying for the product does not make you not the product. Right? It's, you know, payment is not like a consumer loyalty program where if you pay, suddenly the venal, callow tech-boss suddenly thinks you're worthy of dignity and respect and stops screwing you. Tech bosses screw you if they can. And right now, we are at a point where they can. So, in this second phase, things are made worse for these platform's business customers as well.
So, you know, like advertising-supported websites suck for end users because of all the ads that bombard you. But the advertisers are paying higher rates with lower fidelity and more ad fraud than they ever have too, right? Everybody is getting screwed on both ends of this package. And then the final stage of enshittification is the platform sort of scrapes up all the value that had previously been enjoyed by business customers and end users, leaves behind a kind of homeopathic residue that is sufficient to keep everyone locked in and then just turns into a giant pile of shit. And when that happens, you know, sometimes people do start to bolt for the exits because this is a very brittle equilibrium, right?
Like the difference between "I hate this and I can't seem to let go of it" and "I hate this and I'm never coming back." It's just that, you know, one livestream mass shooting, one whistleblower, one Cambridge Analytica style privacy breach and people go. And when that happens, tech bosses, they panic. Tech has its own euphemism for panic; they call it pivoting. And you get these things like, Mark Zuckerberg wakes up one day and he says, "Look, I know for the last decade I've been promising you that the future lay in arguing with your racist uncle using the primitive text interface that I developed in my Harvard dorm room so that me and my creepy friends could non-consensually rate the fuckability of our fellow Harvard undergraduates.
However, I've had a revelation and the future is going to be that I'm going to turn you and everyone you love into a legless, sexless, low-polygon, heavily surveilled cartoon character in a dystopian virtual world that I stole from a 25-year-old cyberpunk novel that I call the Metaverse." And you know, that is the point at which everything gets kind of silly and gross and they insist that we call it X. And you know, Mercedes wants you to pay for your accelerator pedal and just like, all of it is just terrible. And so that's the, like, the outer pattern, right?
If you were a medical professional, you know, you call this the natural history, right? It's the observed symptoms.
David Roberts
So first, you start with a product. You call this the difference between selling a product and extracting rent, which I think is a great distinction for all this. You start with sort of offering people a product. Like, "Come use this. It's fun, it's good." You're all about the user, you're all about the customer. But then, you lock the customer in somehow, and I want to talk a little bit about the mechanisms for that. Then you've got customers locked in, and then you're like, "Well, let me start extracting value from the customers to give it to business customers."
So, like, the people say, like, you start with Twitter, it's fun, people are catching up with one another. Then you bring businesses in, sell the users to the businesses as advertisers, you know, exploit the users in favor of the businesses. And then once the businesses are locked in, you exploit the users and the businesses for your own shareholder benefit, basically. And how long that last stage can go on depends on the strength of how much you've locked people in. Right. Like, how easy is it to let go? And it's funny, I think a lot of people are living through this now.
Like, we're walking through a real-world example of this, watching what's happening to Twitter, right?
Cory Doctorow
Or speedrunning it, more to the point.
David Roberts
Speedrunning it. Right. It was very fun at first. Then it got a little sort of grim; the advertisers came in. And now it's kind of grim for everybody. And you're starting to see the limits of the lock-in there. And I will say, like, the lock-in there lasted a lot longer, was a lot stronger, I think, than a lot of people thought it was going to be. It persisted a lot longer, but it seems like it's cracking now, which is why I think Twitter's about to do some pivoting.
Cory Doctorow
I'm sure there are many pivots in its future. Look, I think you latched onto something really important in your introduction, which is that smart objects. When we say something is smart — or digitized or digitalized, there's lots of different words for it — what we mean is that its performance or its characteristics can be changed, often remotely and very quickly. I don't know if you've ever seen, there's a famous video of Penn and Teller doing the cup and balls trick. And they do it really slowly with transparent cups. And you can see exactly how it's done. And you realize that this is not a complicated trick.
What makes it impressive is that it's done very quickly and smoothly. And when you can change prices, payouts, search ranking, when you can change contracting terms, when every time someone visits the platform, all the rules that they relied on have suddenly changed in response to either observed characteristics of that user or surveillance data about that user, then what you have is a shell game that's being played at machine speeds. Right? The quickness of the hand deceives the eye.
David Roberts
You call that fiddling.
Cory Doctorow
Twiddling.
David Roberts
Twiddling, yeah. Sorry, twiddling is your technical term.
Cory Doctorow
Twiddling, that's right. They're reaching in and turning the knobs. But this raises an important question, because it's not like these companies were charities and it's not like they weren't digital all along. So, why did they used to be good and why are they all bad? To understand that, I think you have to understand that companies under what we might call normal or historic circumstances faced a form of discipline. They were punished when they did bad things. The sources of that discipline have been eroded steadily over the last 20 years, and there's been a very sharp erosion in the last few years.
David Roberts
This is key. I want to emphasize this. It's not like — you are not saying that business executives have suddenly become shitty and greedy. They've always been shitty and greedy. They've just been historically restrained by some forces, some conventions, which have been eroding lately. So these enshittificatory instincts have always been there, they're just coming into full flower now because the forces that restrained them have eroded. So maybe let's talk briefly about what those forces are.
Cory Doctorow
So, this is an important point because a lot of people, the same kind of, or maybe the inverse of "If you're not paying for the product, you're the product" — which is kind of a hymn to capitalism and says, "You know, once we put markets in, everything gets better" — is the "Well, this is just capitalism. And capitalism always does this."
David Roberts
Yes, that is a question I had. Like, to what extent is this just capitalism you're describing?
Cory Doctorow
Well, look, it's a kind of capitalism, although, as you alluded to, it involves a lot of rent-seeking, which we can get into. It's a kind of technical economic term. But like, rents are, broadly speaking, what feudal landlords get and profits are what capitalists get. And capitalists and rentiers are kind of enemies because the capitalist wants to get the cheapest possible rent for their coffee shop and for their capital and for their, you know, all the things that are inputs to their product. Whereas the rentier, who owns the coffee shop premises and holds the note on the loan, it's not really any skin off their nose, right?
If the coffee shop goes under because a really good coffee shop opens next door, you know, the capitalist is exposed to the risk of competition. Here, then, you know, the rentier comes out ahead because now they've got an empty storefront in a neighborhood with a really hot coffee shop. Right? And that's worth more.
David Roberts
Yes, and the key thing about rent is you don't have to be particularly clever or innovative. You just have to own the thing. You just have to be sitting, sitting on something that someone else wants. Like say, for instance, oil in the Middle East.
Cory Doctorow
Or a patent on a key solar technology. Either way, the difference between a rent and a profit to get into a little — I try to keep the econo jargon to a minimum — but rents are income that you receive from owning what economists call a "factor of production," something that has to go into making something. Profits are what you get from production, making something. And you know, businesses, they often make rents and profits. You know, Apple owns the App Store. They take 30 cents out of every dollar that anyone spends in an app. But they also, you know, make phones, right?
And the money they get from the phones, those are profits. And the money they get from charging rent on the app store is rent, right? You know, the workers in both cases aren't necessarily getting a good deal, but to the extent that those workers are also consumers — and I always am at great pains to say, please don't consider yourself primarily to be a consumer. Like, what could be more pathetic than being a wallet with legs, right? Who only gets to express your opinions by choosing what you buy. So, you know, voting with your wallet is like, it's the most rigged election, right?
People with fatter wallets get more votes. Statistically, you do not have the fattest wallet. You always lose the vote with your wallet election, you know, like, it's just such a loser way to think of yourself. But if you're a consumer as well as a worker, which we all are, right? We buy things as well as making things or doing things that are productive, then living in a world with fewer rents and more profits is, broadly speaking, better for you. And in its purest form, feudalism has no what's called free labor. Under the feudal system, peasants were bound to the land; you couldn't move.
You had to grow up on the estate of your lord and stay there unless they gave you permission to leave, and you owed them rent every year. Capitalists wanted free labor. They wanted to turn the peasants off the land because they wanted them to come work in factories. And of course, capitalists, they all want to be feudalists because, like today, we have this —
David Roberts
Well, rent's a lot easier. I mean, you know.
Cory Doctorow
Yeah, but not just rent, but binding your workforce to you. So, look at the rise and rise of non-competes in this country. Now, they're illegal in California, but about 1 in 18 American workers is bound by an enforceable non-compete. The Biden administration's Federal Trade Commission tried to strike them down. They got hung up with right-wing judges appointed by Trump. And it's unlikely that this is going to go on appeal in the next administration. But most of the workers bound by a non-compete work in fast food restaurants or as pet groomers. And so, this is about stopping you from earning an extra quarter an hour by moving from the cash register at Wendy's to the grill at McDonald's.
Right? These are workers who cannot leave. Like, if all of the employers that you are qualified to work at in your suburb are fast food restaurants or gas stations or whatever, and you're under a non-compete. Like, say you work at a gas station for a year, then you quit, then you go work at a Wendy's for a year. Well, that's it, right? If you quit the Wendy's, none of the gas stations can hire you and none of the other fast food places can hire you. So, you are a kind of modern peasant bound to the land.
So, capitalists want rent. They also don't like free labor to the extent that they have workers who are locked to their fields. They don't like it when workers are locked to some other boss's field. They'd like to tempt them away, but once they've got them, they want to keep them.
David Roberts
And so, a platform like Twitter, the resource that they're sitting on to which they are charging people access, is the user base, right? I mean, that's the equivalent of the oil here. You've got a locked-in user base that you're charging rent for access to, basically. That's how it works in the case of platforms.
Cory Doctorow
Yeah, that's right. And you know, the users, it'd be nice if they could all just leave, but they're locked in. And the way that they're locked in is by something — again with the econo jargon — the collective action problem.
David Roberts
Yeah, yeah, again, something everyone's becoming very familiar with through Twitter these days.
Cory Doctorow
Look, you live the collective action problem every day of your life because you know you love your friends, but they're a giant pain in the ass. And there's like only six of you in your group chat. But can you agree on which board game you're going to play this Friday or where you're going for dinner? Now multiply that. So take Twitter or Facebook. It's the place where all of the people who have the same rare disease as you are hanging out in a support group. It's where you keep in touch with the people in the country that you moved away from.
It's where you organize the carpool for your kid's Little League game. It's where your customers are. And so, it's not just a matter of you and the 150 friends who matter to you on Facebook or Twitter organizing a day to leave and a place to go and a way to get reestablished when you arrive. It's that they have to all convince all those other people to go too. And so, you get these problems that just kind of snowball in complexity. And so, that creates one more economics term here, a switching cost. Thankfully, this is a very self-explanatory one.
David Roberts
Yes. And this is crucial to this whole discussion and it's how difficult is it to leave the platform?
Cory Doctorow
Yeah, or more to the point, in the case of a switching cost, what do you lose when you give up the platform? What is the cost of switching? So, you've bought an EV and it's a Tesla because you were dumb and you've put in a Level 2 charger and it's got the custom Tesla tip. And hypothetically, we're all going to be able to use that custom Tesla tip at some point. But for now, if you get rid of your Tesla and get another car, you're going to have to get a new Level 2 charger stuck in your house.
That's a switching cost, right? It's like whatever you're going to lose on selling the Tesla used and buying a new EV, add another $600 plus $1,800 bucks for the electrician and that's the switching cost. And on social media, it's all the people who matter to you and the company that they constitute for you that you lose if you switch and they don't.
David Roberts
Yeah, it's less financial than social, but it's powerful though. I mean, then you end up with a phenomenon like Twitter these days where it's just like, how bad Twitter sucks is the main topic of discussion on Twitter, and yet people are hanging out on Twitter to discuss how much Twitter sucks.
Cory Doctorow
Yeah, and in some cases, it is a financial cost, right? It's yes, you lose your friends, but also if you lose contact with your family back home, that is a tragedy in and of itself. And then on top of that, you have things like, hey, suddenly you're short on rent. And normally, your family would bail you out, but they can't, and so now you've been evicted. Or, you know, you're a creative worker of some kind, and this is the main way of reaching your audience. And you've got, you know, hypothetically speaking here, a new book coming out on February 15th called Picks and Shovels from the Good People at Macmillan.
And you're hoping to sell that book to some people, and you're going out on a book tour, and you're hoping that people show up. And again, hypothetically, you have 500,000 people who follow you on Twitter, right? That's a big cost to surrender. And it's not just the emotional cost. It's like, can I afford, or hypothetically, could someone afford to send their daughter to college next year?
David Roberts
Yeah. So, part of the thesis here is that there were these forces that restrained the impulses toward enshittification. We briefly touched on one or two, but let's just go through them as a list real quick. So, the first you said was competition. You know, if you made your thing shittier, someone would come along and make a less shitty thing and someone would switch. And competition has been reduced in a number of ways. Just briefly sort of touch on what's happening.
Cory Doctorow
So, yeah, we can think of competition as being disciplined by the market.
David Roberts
Right.
Cory Doctorow
And so, for markets to work, they need to be free, which is to say, they need to be contestable. Right? You need to be able to enter the market and do stuff and compete with people. They also need to be free from rents. Adam Smith, when he coined the term "free markets," he didn't mean free from regulation, he meant free from rents. You know, the more rents there are in a market, the less free it is. And, you know, about 40 years ago, a group of then-fringe economists came to prominence. These were called the Chicago School.
You sometimes hear them called the neoliberal economists. They were kind of Reagan's court sorcerers. And before the rise of Chicago school economics, there was this presumption both in law and in theory, that monopolies were just bad. Even if a monopoly could do something well, it would fail badly. That by preventing the entry of new competitors, by consolidating power, they were able to become structurally important. Today we'd say they were too big to fail. They also might become too big to jail.
David Roberts
Yeah, this was hard-won knowledge too.
Cory Doctorow
Over Rockefeller, over the oil barons. Yeah, I mean, this was a big deal. Now it's a thing that we keep discovering because if you remember, there was a thing called the Boston Tea Party about tea monopolies. Right. Like Ben Franklin tried to put a thing in the Constitution about monopolies being bad and was shouted down by a bunch of rich guys who we now lovingly call the Founding Fathers. And you know, monopolies were considered bad. You know John Sherman, who wrote the Sherman Act, the first anti-monopoly law in 1890, Tecumseh Sherman's brother. So you can imagine he was quite a bolshy guy.
He stood up on the floor of the Senate and he said, "If we would not allow a king to rule us, we should not allow an autocrat of trade to rule us." Right.
David Roberts
Love it.
Cory Doctorow
And so, this was the widespread understanding of monopoly law. Just don't let monopolies form because once they do, they're too big to fail, they're too big to jail, and then ultimately whatever benefits you're getting out of them are going to go away because they'll be too big to care. Right? Remember, Lily Tomlin used to do those ads for the phone company on Saturday Night Live, and they would always end with her turning to the camera and saying, "We don't care. We don't have to. We're the phone company." Right? So, too big to care, too big to fail, too big to jail.
That's the thing we were trying to avoid. And then the 1970s arrived and these Chicago guys, led by a guy called Robert Bork.
David Roberts
The famed Robert Bork.
Cory Doctorow
Yeah, virulent racist. He was Nixon's most infamous henchman. You know, he's the Solicitor General who, during the Night of the Long Knives, fired all the people who were trying to bring Nixon to justice.
David Roberts
Rejected by the Senate for the Supreme Court, which conservatives whine about to this day.
Cory Doctorow
Yeah, the term "borked," right, if you've ever heard something screwed up being called "borked," it comes from Robert Bork. So, Robert Bork leads this charge of heterodox — at the time — economists who say actually monopolies are like super efficient. And what you see when you see a monopoly is a success story, right? So in modern terms, if all of us are searching Google, it's because Google is the best. And if they've got a 90% market share, it's because they're absolutely, historically, unprecedentedly the best. And how perverse would it be to take public money and punish the company that we all love for being better than everyone else?
We should just let monopolies be. If monopolies are bad, people will switch to another market entrant that will be able to enter because the monopolist won't be able to stop them if they're bad. And this has been an absolute fucking catastrophe. So, 40 years of antitrust neglect has given us cartels and monopolies in every single sector. Eyeglasses, glass bottles, vitamin C, cheerleading, professional wrestling. Like, you remember, there used to be, like, 30 professional wrestling leagues.
David Roberts
I think people have not fully taken this on board because there's still somewhat of an illusion, like, there's a lot of, like, company names that float around.
Cory Doctorow
Duff Beer.
David Roberts
You just poke into it a little bit and you find out they're all owned by the same three beer companies.
Cory Doctorow
You go on the Duff Beer boat ride with Lisa Simpson, and you see, you know, Duff Framboise, Duff Lite, Duff Classic, and Duff Bach. And it's all coming out of the same tube, right? And you know every brand of eyeglasses you've ever heard of, Dolce and Gabbana, Bausch + Lomb, Coach, Oakley, they're all made by one company. Every place you've ever bought eyeglasses, LensCrafter, Sunglass Hut, is owned by the same company. Also, all of the eye insurance policies you ever held are also underwritten by the same insurance company, which is owned by the same company.
And more than half of the lenses in the world are made by the same company. All one company. It's a French-Italian company.
David Roberts
There's a news story — just, I feel like, a couple of months ago — where people discovered that, like, this was when West Virginia flooded and everybody discovered that something like, whatever, 98% of some little...
Cory Doctorow
Oh, saline bags, saline bags, are made in two places, Puerto Rico and West Virginia, both of which have experienced catastrophic weather damage. Yeah, we can't make bags of salt water anymore.
David Roberts
All these little choke points that you don't even really know exist. We sort of have the illusion of diversity still. But like, and, you know, people know, Ticketmaster people are familiar with the dynamic of what happens when one company, you know, takes over everything.
Cory Doctorow
And the hilarious thing is that the economists who are responsible for this, right, they're still kicking. And a bunch of them are like, you know, their intellectual progeny and in some cases, their actual fail sons are still involved in the competition bar. Or their academics or their think tanks. And they continue to insist that all the problems we're having with monopolies are unrelated to their policy of tolerating and encouraging monopolies.
David Roberts
Well, certainly, the conservatives on the Supreme Court today —
Cory Doctorow
Oh yeah.
David Roberts
are still very Borkian.
Cory Doctorow
Very Borky. And it's like, you know, we used to put down rat poison and we didn't have any rats. Then these guys said, like, "How do you know rats are bad? Stop putting down rat poison." And now rats are just eating our faces. And they're like, "Who's to say whether our pro-rat, anti-rat-poison policy resulted in all these rats? Are you sure that it's not just the time of the rat? Maybe sun flares are causing rats to, you know, expand in population beyond all measures of fecundity. Why are you blaming me for this?" It's a really remarkable moment.
David Roberts
Although, it does seem like — and I hesitate to cite anything that sounds like good news in this current circumstance — but it does seem like intellectual opinion is trending away from that. It seems like there is a bit of a revolution underway. I don't know how well that'll survive.
Cory Doctorow
I absolutely agree with you. And the Trump administration's kind of all over the map on this, as you might expect. Right. And frankly, as the Biden administration was. So remember, you know, political parties are coalitions and they have their own way of doling out power to their coalition members. And in Biden's case, it was that he got these administrative enforcement agency heads, like the head of the FTC, Lina Khan, and the top DOJ antitrust enforcer, Jonathan Kanter, and Rohit Chopra at the CFPB who went off and just like kicked eleven kinds of ass. But he also appointed all these super corporate judges who just knocked back all the cases that were brought in front of them by these enforcement heads.
And it was like the corporate wing of the party that wanted these pro-corporate judges. And it was the Bernie and Liz Warren wing that got these enforcers. And the judges have lifetime appointments and these enforcers are probably going to be out on their—
David Roberts
Lina Khan is, good God, surrounded by piranhas.
Cory Doctorow
So, Matt Gaetz is a creepy sex offender, but he also is very pro-Lina Khan. JD Vance calls Lina Khan the only Biden official that he likes. They've tapped someone for Health and Human Services who's proposing to do more on a specific choke point in medical procurement where there are these intermediates. They act like pharmacy benefit managers who are these obscure guys who are in charge of making drugs incredibly expensive, except they do it for everything else. They do it for hospital beds, bedpans, and bags of saline, all that other stuff. And this guy who's going to run Health and Human Services, if, you know, if Trump doesn't change his mind, is an MD who hates these things and has promised to get rid of them.
So, you know, we don't know what the Trump admin is going to do. But the other thing that's going to happen is that other countries all around the world are all over this. Canada, you know, my native country, I'm a Canadian; we're like serial killers, we're everywhere and we look just like everyone else. Canada had this huge round of changes to its antitrust law this year, and its antitrust law has sucked. The Canadian Competition Bureau has challenged three mergers in its history since the mid-19th century and has succeeded in blocking zero. Right. So, Canada is incredibly concentrated.
We make Americans look like amateurs, proportionally speaking, when it comes to monopoly. But now, we've got this really muscular antitrust enforcement, and they've just announced a lawsuit against Google. One of the cool, interesting things about fighting multinational monopolies is that whatever crimes they're committing in one country are basically identical to the crimes they commit everywhere else. So, the UK has this agency, the Digital Markets Unit, which is part of their Competition and Markets Authority, that researched how Apple rips people off with apps. And because the British Parliament has been a mess since Brexit, this agency was created, but it wasn't given enforcement powers until this year.
So, they had 70 full-time engineers writing reports, but not able to act on them. And so, the report was picked up by the European Commission, which used it to bring a successful multibillion Euro prosecution against Apple. And then, the Japanese and South Korean antitrust enforcers translated the case and brought it successfully in both territories. Right. And the case that Canada has brought against Google is nearly identical to a case that the DOJ has just finished arguing here in the United States. So, you're going to see this kind of territorial, kind of copy-pasting of these cases.
And what I really hope is that the Global South starts to do this because, like countries in Asia, Africa, the subcontinent, they should be just tearing the shit out of these American tech giants and taking back the billions that were looted from their economy by them. And they can just copy and paste the cases that are developed in countries that have much more resources to do it.
David Roberts
So, this is competition. This is the reduction in competition, which was a restraining factor. And there were two others?
Cory Doctorow
Three more. Three more. So the next one is regulation. So, competition is getting punished by the market, and regulation is getting punished by the government. Regulation is something that you can think of as like a game where the government is the referee. And we all know that for the referee to call a fair game, they have to be more powerful than the players, right? If the players can tell the referee to get bent, then the referee can't call a fair game. And one of the things that we got when we saw this market concentration is the players became more powerful than the refs.
And not just individually, but collectively. So, when you have like 100 companies in a sector, like think of the web industry circa like 2002, right? When you've got 100 companies in a sector, they can't agree on anything. They have the same collective action problem you and your friends have when it's time to leave Facebook, right? Not only can they not agree on what they're going to tell a regulator, they can't agree on how to cater the meeting where they would discuss it. And so, they don't sing with one voice. Moreover, because they're competing with each other, they have lower rates of profit on average.
This is why monopolists like monopolies, right? You stop competing, you divide up your territory like the Pope dividing up the new world. And you know, you don't have to worry about wasteful competition. So, once you get market concentration, once there's like five firms in a company, once they have these like incestuous orgies of consolidation that give them all these corporate Habsburg jaws, they are able to not only agree on what they're going to tell the regulator, but they have so much money left over from screwing all of us, because they don't compete, that they can make it stick.
And what's worse, when a sector is really concentrated, when there's like four or five companies in the sector, to a first approximation, everyone who understands how that sector works, works in the sector. They're an executive there. And so that's why you see people rotating out of the cable industry to run the FCC. It's not just corruption, it's that these are purpose-built machines and they're all one of a kind and no one understands how they work except for the people who made them. And so you end up with what we broadly call regulatory capture. And in the case of the tech sector, that's, you know, the tech companies saying, "We haven't really violated your labor, consumer, and privacy rights. We did it with an app, so it's okay."
And you know, regulators saying, "Oh, that sounds good to me." And so, they are able to abuse us in lots of ways. They don't face penalty. So, you get a company like Google that first of all only had one good idea in its history. 25 years ago, they made a really good search engine. Every internal product launched since, almost without exception, was a fail.
David Roberts
What about Reader?
Cory Doctorow
Yeah, Google Reader.
David Roberts
Let's pour one out for Reader.
Cory Doctorow
What about G+? Or who can forget Orkut? And also the Wi-Fi balloons. And yeah, so they've had one success in-house. Everything else they've done that's successful, they bought from someone. Their networking stuff, their data centers, their document sharing, obviously, Android, YouTube — remember Google had a thing called Google Video that sucked and failed to get a successful video service, they had to buy a successful one from someone else. The whole ad tech stack. Google wouldn't have ads if they hadn't been allowed to buy other people's successful ad companies. One of the things that's happened as a result of the DOJ winning case against Google is they might have to sell off the ads, right? They might have to sell off.
David Roberts
I thought they were going to spin off Chrome. I heard they might have —
Cory Doctorow
Well, there are two cases. There's a Chrome case. And Chrome, remember, is some abandoned Safari code that they operationalized. But yeah, there's Chrome, Android, maybe, and then there's the adtech stack. And to give you a sense of like how bipartisan this stuff is. So, Google's ad tech stack is super corrupt. They have a platform that serves sellers, right? Publishers. They have a platform that serves buyers, advertisers. They have the platform where these two meet and then they compete, right? They also are an advertiser and also a place where advertising appears and they run the whole stack, right?
And they take 51 cents out of every advertising dollar.
David Roberts
That's wild.
Cory Doctorow
For comparison, you know, in the days of like print, radio, and TV ads, the take for the Intermedia was more like 15%. You know, this is like, you go to get a divorce and you and your partner get to the court and you find out that you've both got the same lawyer who is also the judge and is also trying to match with both of you on Tinder. And then the judge gavels down and says, "Right, I figured out who gets the house, it's me."
This is such a nakedly corrupt arrangement. So, last year, there was a bill introduced in the Senate, the AMERICA Act, to force a breakup of these adtech stacks. And its two main co-sponsors were, on the one hand, predictably enough, Elizabeth Warren, but on the other hand, Ted Cruz. Right. There's not a lot that they both agree on.
David Roberts
Yeah, there's some weird marriages in this, around all of this stuff. Some weird cross-partisan fringes.
Cory Doctorow
Yeah, it's not horseshoe theory. It's that these guys want the same thing for very different reasons. Right. You know, in the same way that there are people who are committed anti-war activists who want America to pull out of Ukraine, and there are people who are Russian partisans who want America to pull out of Ukraine. Those two groups of people don't agree on anything morally. But their very different moral postures sometimes produce an identical prescription.
David Roberts
Okay, so less competition because of less regulation, diminution of monopoly law, less regulation because of regulatory capture.
Cory Doctorow
And just to put a button on this regulation question: So, Google not only has bought its way to glory using mergers that would have been illegal before the Reagan era, but also it's only because there's no privacy law that they're allowed to do what they do. So, the last time America updated its privacy law was in 1988. It was after Judge Bork went in front of the Senate to be confirmed. And to embarrass him, his video store leaked his video rental history. And Congress passed the Video Privacy Protection Act that bans video store clerks from telling anyone which VHS cassettes you take home.
That's the last time we got a federal consumer privacy law.
David Roberts
Was Bork's rental record...?
Cory Doctorow
His rental history was the least embarrassing thing about him. The guy actually has legitimately good taste in movies. I think they were all like, "Oh wait, I've been buying a lot of very eye-watering porn from video stores in the beltway. I don't want that to happen to me."
David Roberts
Exactly.
Cory Doctorow
You know, that's what caused it. But like, surely video store clerks talking about your VHS habits is not the last time the American public has encountered a privacy risk since 1988.
David Roberts
All of the Internet, basically like all of the Internet: phones, digital everything, satellites, like every privacy-invading technology that exists.
Cory Doctorow
Congress suffers from privacy problems. Right. You could target ads to graduates in political science and law from Big Ten and Ivies within one mile of the Capitol building. And you get every congressional staffer and those ads could carry, like, malicious payloads. Right. This is a problem for Congress and Congress can't do anything about it.
David Roberts
Right. So, the lack of privacy protections is the third.
Cory Doctorow
And regulation more broadly. You know, Uber steals its workers' wages and you get ripped off every time you shop on Amazon. On Amazon, the first box in a search result page on average is 29% more expensive than the best match for your search because Amazon sells the search placement. They make $38 billion a year off it. That top row is 25% more expensive than the best deal on Amazon. And the best deal on average is at least 17 places down on the results page. So, if you went into the store and said, "Sell me your cheapest Duracells," and they sold you an own brand that cost twice as much, that would be fraud.
But you do it on Amazon, they're like, "No, we did it with an app. It's not fraud." So the third one is — so both of those are like, not tech-specific. Every kind of company can be subject to both competitive and regulatory discipline, markets and governments. But tech has got this very specific form of discipline, which is called interoperability.
David Roberts
Yes.
Cory Doctorow
So, I've given you some econ jargon, now here's some computer science jargon. We only know how to make one kind of computer. It's called the Turing Complete Universal von Neumann machine. And what that means is that every computer can run every valid program, like the computer in your car and the computer in your smart speaker and the computer in a singing greeting card and the computer in your phone can all run the same programs, albeit, like, some of them will run them very slowly and some of them will run them so slowly that, like, you have to wait till the end of the universe for the program to run.
But, like, they can all execute the same instructions. What that means —
David Roberts
It's all zeros and ones, right?
Cory Doctorow
It's not just zeros and ones. That's the binary part. It's all universal logic. Right? Like, we don't know how to make a printer that won't run malicious software. Like, this is kind of hard, right? Like, this is a hard truth for computer science. The fact that we only know how to make computers that can run all the programs means that not only can we not make computers that can't run programs the manufacturer doesn't like, but we also can't make computers that won't run programs that you don't like, like viruses. The computers can just run all the programs.
That's just like baked in. It's the only computer we know how to make. And so, what that means is that if someone enshittifies a product that you rely on, someone else can des-enshittify it. Right? Like, the program that checks your printer ink to make sure you're using original HP ink can be overridden by another program you could install in your printer that turns that off. Right? So, that has been a major check against the excesses of tech firms. Because once someone discovers third-party ink, they never go back to buying HP ink. Once someone installs an ad blocker, they never uninstall the ad blocker.
And so, there's always been this risk, but with the expansion of IP law, which is really just another form of regulatory capture, right? Like, regulatory capture isn't just ignoring the law, it's also like getting laws passed that you can use against your enemies, right? And with the expansion of IP law, we've gotten a thing that Jay Freeman calls "felony contempt of business model." Where like, reverse engineering things, scraping things, giving people another alternative client so they can access things, all of that stuff becomes a copyright violation or a trademark or a patent or these exotic forms of IP law like tortious interference under contract or non-compete or non-disclosure or anti-circumvention, you know. So, in 1998, Bill Clinton signed this law, the Digital Millennium Copyright Act, and section 1201 felonizes creating a circumvention device, something to defeat a lock and a device.
So, if you have to defeat a lock to reprogram your printer, it's illegal. And it's not just a little illegal. Violating the DMCA carries a five-year prison sentence and a $500,000 fine for a first offense.
David Roberts
So, if I hacked my printer in a way that caused it to accept third-party inks, I could go to jail for five years.
Cory Doctorow
Yeah, bypassing the lock is illegal. Using third-party ink isn't, but bypassing the lock is. So, if you just design a product so that using it in a way that the manufacturer doesn't like requires you to first unlock something because unlocking is illegal, then everything else becomes illegal too. And so, no one's ever installed an ad blocker for an app because you have to reverse engineer the app first. Browsers are open, so you can just install a plugin that blocks ads, but you can't just install a plugin that blocks ads on apps because you would have to reverse engineer the app first.
And so, apps are just this kind of locus of enshittification.
David Roberts
And this is why everybody wants you to download their fucking app. This is why everybody has their own app. Because they can't cheat you the way they want to cheat you on a browser. Because it's illegal.
Cory Doctorow
Yeah, an app is just a website wrapped in enough IP that it's a felony to modify it so that it works for you and not the manufacturer. And often, that's literally true. It's just a bunch of HTML and JavaScript, plus a digital lock that is illegal to unlock. And so, you know, you see how when this discipline collapses, firms are free to do terrible things. So, like HP, it's just like monotonically raised the price of ink year on year. Now, ink is the most expensive fluid you can buy. It's $10,000 a gallon. That's not just more than like vintage Veuve Clicquot.
It's on par with buying the semen of a Kentucky Derby winner. Right. And this is what you're using to print your shopping list and boarding cards.
David Roberts
Oh, I just have to insert here. I recently, last year, got a Brother black and white laser —
Cory Doctorow
That's where it's at.
David Roberts
printer. My God, my printing life has been transformed. It just works. It doesn't bug me. It doesn't cost me $500 for ink every year. Just throwing in a free endorsement there.
Cory Doctorow
Yeah, sure, I got a Brother too. It's humming away just a few inches from me here. But the thing is that, you know, this interop can be thought of as like counter twiddling. So they can change the rules and you can change them back.
David Roberts
Right.
Cory Doctorow
And when you take away counter twiddling, you just got twiddling. Right. You just got like, I call it the Darth Vader MBA. You know, "I am altering the arrangement. Pray I don't alter it further." You know, where, one day your car works in a certain way and the next day it gets an over-the-air update and all of a sudden you need to pay to rent your steering wheel heater.
David Roberts
You think you own it, but you don't really. You're just renting a bundle of services that they can change on you more or less without notice.
Cory Doctorow
Yeah, so again, this isn't about not paying for the product or paying for the product. This is about whether or not firms face consequences for screwing you. And when we allow IP to stop you from defending yourself, and when we take away regulation so governments can't defend you. And when we take away competition so competitors can't swoop in to offer you a better deal, well, then you have the collapse of nearly all the discipline. But there's one more source of discipline specific to the tech sector, and that's its workforce. So although tech has one of the lowest rates of union density of any sector, what it did have historically was a lot of scarcity.
And labor scarcity is its own source of labor power. When you can get another job by walking across the street, as we saw during the pandemic, when there's high demand for labor, people can bargain for better terms. And the problem with scarcity is that it's brittle. Once scarcity is met, once people flood in to fill the gap, then your bargaining power goes away. So for many years, when bosses said to tech workers, "Hey, I require you to enshittify that product," the tech workers who, like, missed their mother's funeral and slept under their desk to deliver that product on time because they were told they were part of a great holy mission to bring forth the future —
David Roberts
Yeah, pretty idealistic. Pretty idealistic set of people originally, still.
Cory Doctorow
I think often, not universally, but often. And because they had power — I mean, I don't even know if the idealism is any higher than it is in any other sector. The difference is it's idealism plus power which creates norms. Right. So if the norm is that when the boss says, "Enshittify this," you say "No, and you can't make me, and the guy across the street will give me a better job if I quit today. And you will never find someone who can do my job if I quit." Then everyone else around that worker who might be someone who's a little bullshier than their colleagues, they start to feel it too. It becomes a kind of workplace norm. But, you know, in 2023, the US tech sector fired 260,000 tech workers. And in the first six months of this year, another 100,000 were shown the door. And so these guys are not telling their bosses to go fuck themselves. They're saying, "Yes, sir. How high?"
David Roberts
Yes, and many are now just stuck, tortured in businesses whose executives they hate and are ruining America. And they're, you know, there's not much they could do about it.
Cory Doctorow
Yeah. So, this is the collapse of all the discipline.
David Roberts
Right. And so, enshittification is basically unrestrained at this point. Well, I want to, now that we've sort of established enshittification, the dynamics driving it, the lack of brakes on it, the loss of restraint on it. I want to talk about energy technology, which was what I wanted to get to in the first place. Because everything you've been saying all this time, I just keep thinking over and over again about the fact that we are rapidly entering an era when Internet-connected software is not just going to be controlling our phones and our TVs, but it's going to be our dishwashers, our appliances.
Cory Doctorow
Yeah, your house is a computer. You put your body inside.
David Roberts
Yes, our houses, our vehicles, hearth and home are all going to be software controlled. That's happening quickly and it's happening at a time when enshittification is rampant and almost unrestrained. And that just, to me, augurs trouble, big trouble. I thought the example of Fisker that you used in your piece was quite apropos here, maybe just mention.
Cory Doctorow
Yeah, Fisker, they called their car, I think they called it a cell phone on wheels or something. It was a smart car. It was a software-based car, they said. And so, when Fisker shut down, they went bankrupt. They were badly managed, whatever. That's a thing that happens. Then, all of the cars that hadn't been sold were bricked and all the cars that are on the road can't be serviced.
David Roberts
Yeah, which is wild. Like, you would think Fisker, facing bankruptcy, would sort of just out of the goodness of his heart, unlock that software and make it interoperable. Make it so that other people can program it or that they would be required by law to do so.
Cory Doctorow
Sure. Well, Fisker seems to have had a very chaotic wind down. Their landlord went in and their place looked like a tornado had hit it. So maybe they weren't thinking about that. But it's not necessarily a matter of unlocking it. It's a matter of maintaining and keeping up the server infrastructure. Because these things are designed so that when the server goes away, they stop working. And this is an intrinsically brittle design. And you're right, you would hope that regulators would step in. I mean, look, I have a solar and battery backup and in order to coordinate with the grid for management and two-way energy coordination, it requires an Internet connection.
And when the Internet connection goes down for any length of time, it all stops working. So, the thing that's supposed to keep my house going when there's a power outage stops working if the Internet isn't available. And, like the last time I checked, the Internet needs power.
David Roberts
You know, as I think about it, it's just wild to me that we're now entering a period where you can be sold a car that can be rendered inoperable if the company goes out of business. And that's not popularly understood. It's not discussed. There's no changes in law or regulation like that. Just seems like a fundamentally different thing than buying a dumb machine that you then own and can do whatever you want.
Cory Doctorow
At the risk of demoralizing you: it's substantially worse than that because not only can your car be rendered inoperable by the sudden bankruptcy of the manufacturer, the manufacturer often can reach into the car and kill switch it. There are immobilizers built in for multiple parties to access, so leasing companies and so on. And I have a theory I call the shitty technology adoption curve. So if you've got something terrible you want to do to people with technology, you can't do it to like middle class, mouthy white guys like me. At least not at first, because I'll complain.
David Roberts
We all have pods.
Cory Doctorow
Yeah, people listen to me at least sometimes, right? So, what you got to do is you got to find someone no one's going to listen to. Someone with no social power and you've got to inflict it on them and you got to sand down all the rough corners and edges on their bodies. So, you start with terrible technology with like refugees, prisoners, blue-collar workers, then white-collar workers, maybe mental patients in there somewhere, school kids, then university kids. So, you're working your way up the privilege gradient. And you know, so 20 years ago, if you're eating dinner and there's a camera watching you, it's because you're in a supermax.
And now it's because you were foolish enough to buy a camera system from like Google or Apple or, you know, God help us all, Facebook. And that's the shitty tech adoption curve. And with cars, it starts with subprime auto lending. And subprime auto lending is this real bottom-of-the-barrel industry where it looks a lot like subprime house lending, where you have loan origination and then those loans are then packaged up into bonds and sold out on Wall Street. And one of the ways that you make the bond valuable is by assuring the market that the car can be readily repossessed.
And so, to do that, you put remote kill switches in them, and you also put in programmatic kill switches. So, you might put in the terms of the lease, "You can't cross the county line," and if you cross the county line, your ignition won't start again. So, you have cases where people don't realize they cross the county line, they take the kids to the woods for a walk and then the car won't start and they're in the woods and their cell phone doesn't work. Right. And there are maybe wolves, you know, so these are like the foreseeable outcomes.
But also, no language on earth contains the phrase, "As secure as the IT at a used car lot." And so, repeatedly, people have seized control of used car lot systems and then immobilized every car they've ever sold. Right.
David Roberts
Yeah. This seems extremely hackable.
Cory Doctorow
It's like there are attacks in information security where it turns out there's a thing that you can do that invokes an unanticipated mode that causes a thing to stop working. But then there are the manufacturers who say, "No, I'm actually going to put the self-destruct button."
David Roberts
Yeah.
Cory Doctorow
You know, like, I'm a science fiction writer. That's my other life. And I go to science fiction movies to get angry because they get paid so much more than I do and their movies are so stupid. And every now and again, you go see a movie and like, they're on a spaceship and, like, someone trips and they hit the self-destruct button and this like, plummy English voice says, you know, "Self-destruct sequence initiated. Self-destruction in 10, 9, 8..." And I think, you know, like, look, I'm no aerospace engineer, but I think that would be a better spaceship if it wasn't designed to periodically explode.
Right. And like, I am not an automotive engineer, but I think your car would be better if it wasn't designed to allow third parties to immobilize it.
David Roberts
There's no customer justification for that. There's no justification for that that has to do with the customer's experience of it, right?
Cory Doctorow
Well, I can tell you what a Chicago economist would tell you. He would say that the advent of this kind of knee-breaker debt collector technology opens up a market for debt that would otherwise be foreclosed upon. And that the poor immigrant worker, hoping to get to three house cleaning jobs a day instead of two and work her way up the economic ladder and pay for her kids to go on the school ski trip this year, they're able to get a car where before they would have to take the bus only because a lender feels so confident that they can repo that car if they have to. This is the argument for usury.
It is always the argument for usury.
David Roberts
Yeah, you briefly alluded to this, but the more I think about it, the more sort of freaked out I get about it. But like we're just at the front edge of a market for virtual power plants, right? So, your appliances, your EV, your whatever are talking to the Internet and there's some third party that has signed you up for this that is using your energy along with everybody else's energy in a coordinated way to act like a power plant and do arbitrary arbitrage and make money. Then they share some of that money with you in exchange for you allowing them to do this.
A bunch of things about this: One, most companies in this space are startups who won't survive, right? That's kind of the nature of startups. So, like, you don't have a guarantee that if there's bespoke software that it's going to survive. And if it's your home, you know what I mean? Like, it's even one thing if it's your car, but it's your home or, you know, like a lot of these companies that are involved in this, I talk with a lot of them, I have them on the pod, you know, I know these people, they're all right now we're at a stage of the market where they're all good people, basically.
You know what I mean? They're like good, public-minded people who are trying to do something good for the grid and for climate. But like you say, there's no guarantee that a given company that is the third-party administrator of the VPP I'm involved in is going to stay good or might not be bought by someone less good. And then, if I have no protections, if I have no regulatory right to control this system that's running my home, they can start putting ads, you know what I mean? Like, God knows what they could start doing.
Cory Doctorow
Oh sure, I mean, Chamberlain garage door openers, right? They disabled integration with HomeKit so that you have to use their custom app, and then their custom app is full of ads, so you have to throw away all your HomeKit stuff. Also, you have to see ads every time you open your garage door.
David Roberts
I know, and maybe they won't do it now, maybe these companies won't do it, but once you're signed up, it's just wild to me that we're entering this new world so little protected by law and regulation.
Cory Doctorow
You're bringing us back to econ here, and specifically behavioral economics. In behavioral economics, there is a recognition that all of us are prone to rationalization, and that is a significant danger that we all face. We might rationalize our way into doing something that, in retrospect, we'll regret. But in the moment, it seems like the right thing. So, you know, you're a super moral person. You've started a clean tech company. You have convinced 150 people to leave secure jobs and come work for you on this. These are people who really care about the planet and really care about you and really believe in you, and you believe in them. You owe everything to them, and they have kids and families that depend on them.
And then one day, your venture capitalist comes to you and says, "If you don't make some compromise, I'll shut your business down. You're going to have to fire all those people." And you tell yourself, "I'm being the good guy here, in fact, I'm being the excellent guy here. Because not only am I saving these 150 people's jobs, but everyone's going to hate me for it, and I'm going to take the hit to do the right thing."
David Roberts
"Because if my company goes out of business, then I won't be able to save the world at all."
Cory Doctorow
You live to fight another day.
David Roberts
You live to fight another day.
Cory Doctorow
If you think that you will never rationalize your way into doing something wrong, you are a mark. Right. This is like the person who thinks they can't be conned. The person who thinks they can't be conned is a mark.
David Roberts
Yes.
Cory Doctorow
The person who thinks that they won't rationalize their way into doing something bad is a mark. And so, in behavioral economics, there's an idea called the Ulysses pact. So, if you know Ulysses from your Homer, he was a hacker, and so he didn't do things the way normies did. And when they went through the sea of the sirens, you know, the protocol was you fill your ears with wax because if you heard the siren song, it's so beautiful that you jump into the sea. And he's like, "Screw that. I want to hear the song. It's very beautiful."
So, he ties himself to the mast and he says to his sailors, "Whatever I say or do, don't untie me." So, it's not that he's not strong. He is strong. He's strong enough to know that he's going to be weak. And so, he takes a measure off the table. You know, if you're smart and you go on a diet, you throw away all the Oreos.
David Roberts
Yeah. Constrain yourself in advance. Constrain your future self.
Cory Doctorow
Yeah, the union negotiator says, "I'm never gonna bargain away your pension and I am not empowered to do so." And when the boss says, "It's the pensions or nothing," the union negotiator can say, "I believe you. I am not empowered to do that. So, I have to go resign. And they'll have to elect another negotiator. Sorry." Right. That's a Ulysses pact right there. Or, you know, you leave your credit cards at home and you only take 50 bucks with you to the fair, and you can't possibly spend more than $50 while you're there. Right. That's a Ulysses pact.
So, you can do things like say, "I'm going to design a device that the user can always override. I'm going to design a device that has an open bootloader so third parties can make firmware for it. I'm going to design a device that has a mode where you can always roll back an update."
David Roberts
Or where the API is open and accessible. Right?
Cory Doctorow
Where the API is resident on the device and not at the cloud level, so that even if I change the cloud, the device can work with another cloud. Right. You can do that. And if you do that and your boss shows up and says, "Either you wring extra money from your users by doing this terrible thing, or I'm going to pull the plug," you can say, "Look boss, it's your money, you get to pull the plug. That's the way business works. But I literally am physically incapable of taking this step." And the corollary of this is if you design it so that you can take that step, you should anticipate that your boss is going to show up and make you do it.
Right? This is Anton Chekhov's law, right? If you put a phaser on the bridge in Act 1, someone is going to shoot it by Act 3.
David Roberts
And also, it takes a lot of foresight and willpower to put those checks in place in advance, the restraints in advance. And then also, you're presumably in a market competing with other companies that may or may not do the same. So, like, if they can get an advantage by enshittifying a little bit, they will. So again, you're kind of back to the collective action problem. It's not even enough if one company sort of restrains itself.
Cory Doctorow
This is how it all rolls together. Because if, for example, we didn't have anti-circumvention law, right, that bans people from jailbreaking or reverse engineering this stuff, then no one would spend all the money engineering this stuff, because what a lot of extra work that is and what a lot of extra failure modes you introduce. And then all that happens is someone comes along and just hacks it, right? Like Apple spent all this money engineering iMessage so that you'd only have a green bubble if you were using an iPhone. And then like last year, a 16-year-old defeated it.
You know, what a lot of time and energy you put into making this thing. And now you gotta fight guerrilla warfare with 16-year-olds, you know, like what a pain in the ass. And you know, there is this idea in security called the attacker's advantage, which is that if you have a situation where you have an attacker and a defender, you know, they call them the red team and the blue team, the attacker always has an advantage because the attacker has to find just one mistake the defender made and exploit it. But the defender has to never make a mistake.
And so long as it's not illegal, so long as it's not a felony to jailbreak stuff, they're going to figure out how to jailbreak it. And in that case, why bother even making it? So that you need to jailbreak it in order to go after it. And so, this regulatory environment that we're in, it's a moral hazard. This is a temptation to the market to do the wrong thing.
David Roberts
Yeah, it's a competitive disadvantage to do the right thing in the current environment. So, by way of sort of rounding third here and headed for home, I have two wrap-up questions, both of which are kind of substantial. But one is just sort of like on a legal regulatory basis. When we're thinking specifically about interconnected clean energy technologies, are there particular regulatory or legal reforms that we should be pushing for, or is this just a subset of everything else? And this is just about better monopoly law, less regulatory capture, more interoperability? Are there specific things in the energy space that you think people should be advocating for so broadly?
Cory Doctorow
All of those things on an all-of-the-above approach and a real one, not the bullshit one where we say, "We're going to do all of the above, we'll do trains and cars," and then we design our cities so that they only can accept cars and then we don't get trains. An actual all of the above approach where we're working on reforming the various kinds of IP law we have, we're working on making regulation better and ending regulatory capture, we're working on demonopolizing different sectors and so on. All of those things are important, but there are like specific prescriptions that we can imagine that would work here. So one of the things that we learned over the last four years when the Biden administration's antitrust enforcers actually went back and read their enabling legislation and figured out what they had the power to do, was that the law broadly bans what is called unfair and deceptive methods of competition or unfair and deceptive conduct.
And that's a very broad catch-all that can be widely exploited. So, Lina Khan at the Federal Trade Commission used unfair and deceptive, that standard in Section 5 of the Federal Trade Commission Act, to go after things as diverse as non-compete agreements. Right. That is an unfair and deceptive way of doing labor relations. But also to go after pharmacy benefit managers and also to go after AI training and scraping. Like, I think the argument about AI scraping is weird and that the people who think that copyright is going to fix their problem are just super wrong.
I am a creative worker, and I believe in rights for creative workers. But, my publisher is going to just make me sign away any rights to control AI training that Congress gives me. There's only five major publishers; they're all going to put it in their contract, and then they'll just train models using my work and fire me. And the worst part is, the model can't actually do the job because AI companies are much better at convincing your boss that they have a chatbot that can do your job than they are at making a chatbot that can actually do your job.
David Roberts
It is the AI industry's one really transcendent, amazing, and admirable success.
Cory Doctorow
Oh, they're pushing on an open door.
David Roberts
They have bamboozled the entire executive class.
Cory Doctorow
But they're pushing on an open door. Bosses are insatiably horny for firing you and replacing you with a robot. And they will — literally, Elon Musk does demos of robots that can work in factories that are literally a guy in a robot suit. And bosses all over the world get, like, horrible priapism and have to go to the emergency room. Right? Like, this is — there is nothing easier than selling a boss on automation to fire workers. So unfair and deceptive is this very broad standard. And unfair and deceptive appears in other agencies' enabling legislation. So like the DOT, the Department of Transportation, has a transposition of the same language from the Federal Trade Commission Act in its own enabling legislation.
And so, after Lina Khan's head of staff went to help Pete Buttigieg actually run that agency, well, they went after the airlines. So, you remember Southwest had an outage where a million flyers were stranded over Christmas?
David Roberts
Vaguely.
Cory Doctorow
It was because they bought a whole bunch of other airlines and then had never upgraded the IT and then had started to do really funky things with the IT, where what they would do is sell tickets for like 110% of their capacity and then cancel the 10% of flights that had the fewest tickets sold on the day and then fly crews around to fly the flights that they were going to fly. And this was just so technically complicated for their creaking, you know, bailing wire and spit IT infrastructure that the whole goddamn thing fell over. And once Lina Khan's chief of staff arrived at the DOT to run things for Pete Buttigieg, she said, "Look, selling tickets on an airplane that doesn't exist is an unfair and deceptive method of competition. It's canonically unfair and deceptive."
Selling a car that you can't fix is unfair and deceptive. That an independent mechanic can't fix is unfair and deceptive. Gimmicking a part for a car, or anything else, so that it has a little encryption handshake to make sure that it's an actual OEM part and not a part from a third party that makes generic replacements, is unfair and deceptive.
David Roberts
Seems to leave an enormous amount of discretion in the hands of judges, though, right? I mean, that's the kind of thing where it's going to depend a lot on who hears it.
Cory Doctorow
Yeah, sure. But, you know, the way that you build up a jurisprudence about what is and isn't unfair and deceptive is by taking a lot of cases to court and trying it again and trying it in different circuits and trying it with different fact patterns. You know, like the number of times FDR had to bring the New Deal in front of the Supreme Court before the Supreme Court figured out that he was serious about firing them and packing the court and suddenly changed their minds. Right. Like they overturned themselves. Right. There were like 10 judgments from the Supreme Court in a row saying the New Deal was unconstitutional, and then an 11th one going, "Actually, no, it's fine."
And so, obviously, that's unlikely to happen under the Trump administration, but it is the kind of thing state legislators can do. And remember, you know, AG, Attorney General, also stands for aspiring governor. And AGs, like, they like doing this shit. And moreover, when they do it against big tech companies, they get millions and millions of dollars that go straight into the state coffers. You know, one of the reasons that Ken Paxton, the lavishly corrupt Attorney General of Texas, has been so ardent about suing Google is that, you know, the way you get reelected in Texas is by not levying any taxes.
But then, you can't pave your roads, and people don't like it when the main highway turns into a gravel road. So, you need to get the money from somewhere else. So, you sue "woke multinationals" from big blue cities and take them for hundreds of millions of dollars. And you know what? If they're cheating, go ahead, take them for hundreds of millions of dollars. That's great. You know how they can insulate themselves from that liability? Stop fucking cheating.
David Roberts
Also, on the privacy thing, like, this is another thing where the kind of data that these companies are going to have, again, it's just like a whole new level of intimacy, you know what I mean? Your home and hearth, like literally when you are taking showers. And again, it's like a little insane to me that we're just sort of launching into this VPP thing with no new privacy laws or regulations, and barely even a discussion of privacy, even though this is like the most privacy-threatening thing I can imagine.
Cory Doctorow
Well, I mean, the good news is that privacy is starting to change. The privacy debate is starting to change. At EFF, we talk about this thing called privacy first. So, there are a lot of problems that people have that have some nexus with the void in American privacy law. So, like, you know, if you think that Insta made your teenager anorexic, or if you think that Facebook made your grampy a QAnon, or if you're worried that the January 6th protesters or rioters were all rounded up because Google had their location and answered a reverse warrant from the DOJ, or if you're worried that that happens to people at Black Lives Matter demonstrations.
Or, if you're worried that, like, there's teenagers being followed around by red state attorneys general when they cross state lines to get an abortion using automated location tracking.
David Roberts
Or asking them to drop their pants in the bathroom to confirm their genders.
Cory Doctorow
Yeah, exactly. Or, I just spoke at a hearing the CFPB put on about privacy and data brokers, and the speaker before me works for the DOD. She was talking about how American military personnel with gambling problems are being targeted for in-app gambling and this is a huge problem in the American military. Or, you know, if you're worried that, like, someone's making deep fake porn of you, like, all of these things are different things. Some of these things I don't actually think are real or a problem, and some of them I'm deeply worried about, but they could all be substantially improved if we just had a federal privacy law with a private right of action.
And we've gotten closer in the last couple of Congresses. The last Congress, the only reason it died is the surveillance industry swooped in at the last minute and said they wanted what's called federal preemption, which means that all the state privacy laws — there's like, a pretty good biometric law in Illinois, there's a pretty good consumer law in California — that they would all be overridden, and so the federal law would become the ceiling and not the floor.
David Roberts
What happened to local control? I bet you get asked this a lot, but is there no market correction here? Like, is there not a market? Do you think an EV maker could get by saying, "Hey, here's a car that's just yours. It just belongs to you. We won't fuck with it," et cetera. Like, privacy focused.
Cory Doctorow
You're thinking the wrong way about this. This is not about a manufacturer. This is about a complementary manufacturer, an inter-operator. So, more than half of all Internet users have installed an ad blocker, which is also a privacy blocker. That's the largest consumer boycott in human history. If your independent mechanic, when you brought your car in, said, "By the way, this car is spying on you in every conceivable way." And if you look up Mozilla's privacy report on the automotive industry and data brokerages from last year, where they looked at just what the manufacturer said they had for sale for data brokers, like, "Hey, we're Nissan, we have data. You can buy it. Here's our rate card."
The data they were offering to sell was about their drivers' sex lives and the smells in the car. Right? Which you have to assume is just bullshit, right?
David Roberts
Like the level of flatulence for particular drivers, or...?
Cory Doctorow
You know, like, did you unwrap a burrito in there or something? There are old McDonald's wrappers in the back. But you know, like, the industry is really sleazy and it's full of people who are ripping each other off. They're not just ripping us off, right? But if you go to the mechanic and they're like, "Oh, you're driving a Nissan. Do you want to see what Nissan says they can sell about you? Tell you what, 50 bucks, I turn it all off." Everyone would turn it off. Yeah, right. And you can make a lot of 50 bucks doing that.
And you know, in Massachusetts, the Massachusetts Right to Repair bill passed by ballot initiative in 2020 for automotive with 76% of the vote, but it's been tied up in court ever since. What we've seen in Oregon, there was —
David Roberts
Something in Washington, too.
Cory Doctorow
Washington State. Yeah, Oregon, Washington State and Colorado, we've seen these good domain-specific right to repair bills. So, like Colorado's got a wheelchair one and there's an electronics one in Washington State and Oregon.
David Roberts
So, right to repair is about you not being allowed to require that only your parts work in your device, basically? Like, you're not allowed to do these little electronic connections.
Cory Doctorow
It's not just parts, it's also diagnostic codes. So, all of these things. Remember, we were talking about digital locks before? All these things have locks on them. And while it's not against the law to find out what's wrong with your car, it's against the law to remove the lock that you have to remove to read out the diagnostic information.
David Roberts
So, right to repair just makes the lock illegal.
Cory Doctorow
Yeah, so that's what they've done. The law that makes removing the lock is federal — Digital Millennium Copyright Act — and states can't repeal federal laws. So what they said instead is, "Here in Oregon, if you want to sell an electronic, it cannot have a digital lock on its parts. It's just not fit for consumption in the state of Oregon." And so manufacturers, well, they could try and do split manufacturing runs. And we've seen some of this. Like, Apple has been ordered to open up its app store in the European Union. And what they've said is that they're going to, like, have a version of their firmware that lets you install third-party app stores.
But if the phone detects that you're out of the EU for 20 days, it's going to delete all the apps and revert you to the regular app store. Right. Which is like, just clearly they're just like, fucking around here. That's just malicious compliance, but building, you know, split manufacturing runs is really hard to do. It's logistically —
David Roberts
But that's like most products these days, isn't it? I mean, that's not insubstantial.
Cory Doctorow
No, no, no. It would be like, one of the reasons that the right to repair has been so hard to pass is because the coalition against the right to repair is so large, because it includes, like, tractor makers. And, you know, one of the leading companies against the right to repair is Wahl, who make all the clippers. You remember, during the lockdown, we were all cutting our own hair. We all bought Wahl clippers. So, Wahl has started to put spring loads inside their shaver heads. And if you open it up to sharpen the blade, it springs apart and you can't put it together again without a special machine.
And they want you to mail the head to them, along with 15 bucks, to get your shaver sharpened.
David Roberts
Hilarious.
Cory Doctorow
So, you have Wahl, Apple, John Deere, GM, Tesla, and Google all showing up to fight against the right to repair. And so, you know, we saw it knocked back in like 18 legislatures in one year. I think it was 2018. And so, the repair coalition split it off and they're like, "All right, we're just going to do wheelchairs in Colorado. We're just going to do electronics here." And so, they're breaking apart the coalition. And then, you know, the idea is to then create a patchwork of state laws that's so hard to comply with that the manufacturers are just like, "Forget it. We're just going to not screw around with repair anymore."
David Roberts
Will they just forget it? Like, how attached are they? Like, how much of their profits are tied to this now?
Cory Doctorow
They're not irrationally attached to it. They are rationally attached to it. If it costs them more to comply with the patchwork of national rules, logistics lawsuits, and liability than it does to just do the right thing, they'll do the right thing. They're doing the wrong thing because they make money that way. It's not sadism, right? It's just dead-eyed cost-benefit stuff. And you know, they are projecting very large revenues into the future. And this anti-circumvention stuff, these digital locks, it makes them a lot of money, right? Like so, John Deere. If you've got a John Deere tractor, it's like a $600,000 investment.
You can't fix it yourself if you're a farmer; you actually do the repair yourself. You're expected to. You get the part, you put it in, but it doesn't start working until a technician charges you $200 to come to the farm, look at it, and type an unlock code into your keyboard.
David Roberts
God, that's irritating as shit.
Cory Doctorow
Oh, irritating. If there's a storm coming, you have to get the crop in. It's a lot more than irritating. But it's not just that because when you're tilling with your John Deere tractor, it has torque sensors and humidity sensors and it does centimeter-accurate grid surveys of the soil conditions on your farm. And Deere aggregates all of this information and sells it into the futures market to predict crop yields. And they're like thinking, "Oh, this is like a 10-digit bet, right? This is a $10 billion a year business that we can open up if we can do this."
But if you can modify your own tractor, then you just turn that off. You want to know about your soil telemetry, but why do you want John Deere to know about it? And so, that's the stuff that they're looking for. It's this kind of multilateral bet. During the first Trump administration, I went to D.C. and there are these kind of center-right think tanks that are kind of right on tech some of the time. And we agree with each other some of the time. They're like, "Let's have a meeting with industry reps and people who are likely to go into regulation and with some think tank people, and you can talk about this anti-circumvention stuff."
So, I'm sitting around a table and it's Chatham House Rules, so I can't tell you exactly who was there, but I can tell you roughly what they said. So, there are all these different industry reps from automotive, agriculture and so on and so on. And we're all talking about this stuff, entertainment, music, books, movies. We're talking about anti-circumvention. And the car person, the automotive person, keeps saying, like, "Well, but we have to be able to stop people from fixing their own cars, and we have to be able to stop people from modifying their cars." And everyone else around the table is just increasingly like, "You can't tell Americans they're not allowed to fix their cars. Like, this is. This is America."
David Roberts
Why, though? What's their purported reason?
Cory Doctorow
Because it would make the law unpopular. So they're like, "If this goes to court or if this ends up in front of Congress, there might be political will sufficient to actually strike down this law that we all are planning to extract billions in rent with. So we can't let you screw it up for the rest of us by making it look bad. You're going to bring our hustle into disrepute." It's like, you know, you got all the drug dealers and there's the one guy who wants to sell the crack in front of the kindergarten classroom, right?
And they're like, "You can't sell the crack at the kindergarten classroom. Sell it anywhere else, but not in front of the kindergarten classroom." This guy's like, "But I have to. That's where I sell my drugs." And they're like, "All right, fine, we're going to shoot you in the head." So what these guys said was, "Maybe we could just get the DOT to ban the use of digital locks in cars," right? They literally threw this guy under the bus because they were like, "We just don't want it used in a way that threatens our hustle." And so, finding these niches and then using them as a leverage point, sticking your lever in, and then wiggling it around, cracking it open, widening the crack.
I know it sucks, it's incrementalism, but it's a way to kind of build some momentum. And the same as with privacy, there are so many people who suffer as a result of this anti-circumvention felony, contempt of business model stuff, right? Like, you know, you think you got it bad in clean tech. Think about people who rely on medical implants. Like we've seen in the last year, firms that have bricked exoskeletons that paralyzed people depend on, bionic eyes that are wired into people's optic nerves, implanted insulin pumps and continuous glucose monitors — like this keeps happening. Neural implants that do deep brain stimulation for Parkinson's.
We've seen companies refuse to fix supply chain attacks on implanted defibrillators. This is like a car battery hooked up to your heart, and it's got a wireless interface, and it's insecure. Right. And like Medtronic, right, so this is a monopoly story too. Medtronic bought everyone who makes these implants. These are all Medtronic devices. All of them. With a couple of exceptions, everything I just mentioned is a Medtronic device. Medtronic bought everyone who makes med tech devices. They also make all the ventilators in the world. And you can't fix a ventilator yourself. If you're a hospital med tech, you've got to wait for Medtronic's tech to come out and type an unlock code, which they couldn't do during lockdown.
So, all the ventilators broke during lockdown. They're also a tax cheat. They did the largest tax inversion in world history. They pretend they're Irish. None of their money is taxed. And so, you know, if you're Medtronic, you rely on this anti-circumvention stuff to really make a bundle. And there are a lot of people who hate Medtronic and who hate anti-circumvention, though they don't know it. They just know that they're angry about their insulin pump.
David Roberts
It's wild how much the consumer's position and power in capitalism has changed due to all this stuff. And I just don't think people know. I just don't think people get it. I just don't think people have any idea how fundamentally different the relationship is now between customers and businesses.
Cory Doctorow
But look, before the term ecology came into popularity in the 1970s — this is a point my friend James Boyle makes — before ecology came along, you had people who cared about owls and you had people who cared about the ozone layer. And they didn't know they cared about the same thing. Because, like, facially, the destiny of charismatic nocturnal avians is not obviously related to the gaseous composition of the upper atmosphere. But the term ecology turns a thousand issues into a movement. And the fight against excessive corporate power and its corrupting influence is something that touches all of us.
And some of us think that we're worried about clean tech. And some of us are patients' rights advocates, and some of us are disability rights advocates. And some of us are worried about national resiliency, and some of us are worried about armed service personnel being targeted for predatory gambling apps. But we're all fighting this one fight. We are a very big coalition. And it includes people who you may not agree with about anything else, but you agree with on this. And that's a very powerful coalition.
David Roberts
It is a bit of a populist moment. I mean, who knows? We've seen populist moments blow away like smoke in America before.
Cory Doctorow
Stein's law says anything that can't go on forever eventually stops.
David Roberts
Well, what about, you know, when I put it out on Bluesky that I was doing this? You know, I got a bunch of questions, and one of the frequent questions is, you know, if you're just — because a lot of the people listening to this pod are the very people who are going to be involved in designing, implementing, selling these technologies that are tying all these clean energy devices together on the Internet and thus opening them to all these problems. How much discretion, like, is there? If you're just a worker in one of these places, how much discretion do you have?
Are there principles? Are there things you can do?
Cory Doctorow
Join a union. Join a union. That's how you get your boss to listen to you. Join a union. It used to be you got your boss to listen to you because he was afraid you'd quit. Join a union. And you should join a union anyways. Because we all know how tech bosses treat workers they're not afraid of. Right, Jeff? Jeff Bezos does not allow his tech workers to show up with pink mohawks, facial piercings, and black T-shirts that say things he doesn't like or to work at home anymore. Because he's sentimental about them. Right? He's afraid of them. We know what he does to the workers he's not afraid of. Amazon warehouse workers are injured at 1.5 to 3 times the rate of other workers. They have to piss in bottles. Amazon drivers also piss in bottles, and they're watched by AI cameras that penalize them if they open their mouth too much because they're not allowed to sing along to the radio.
David Roberts
What?
Cory Doctorow
Right. Tim Cook became the CEO of Apple over all the other executives who might have succeeded Steve Jobs because he figured out how to successfully manufacture iPhones in China. And the way that he did it was by imposing terms on Foxconn that were so onerous, they had to install suicide nets around the factories. That is what Tim Cook does to workers that he's not afraid of. So, you need a tech union because your boss will treat you like those workers if they can. And your power from scarcity gets less powerful every day.
David Roberts
Yeah, and I just want to stress. I mean, you said this a number of times now, but I just want to stress again that, like, if you're in this business today, your boss is probably a nice person who cares about climate change and says all the right things and has all the right principles. But there's just no — relying on the goodwill of a boss is not a long-term plan.
Cory Doctorow
Your boss is going to save your job by taking capital from a company with a name like Blockchain Capital. And it will be run by the kind of people who think Blockchain Capital sounds cool. And then, in two years, they're going to own your ass.
David Roberts
Yeah, the hedge funds are going to own us all eventually. Well, okay, final question. Just because I'm curious and I know a bunch of other people are, you recently wrote that you're not coming to Bluesky.
Cory Doctorow
Yeah.
David Roberts
Despite Bluesky's purported openness, do you want to just explain that?
Cory Doctorow
Yeah. Look, I have figured out what happens when you join a platform that's really fun, run by people that you like and trust, but that you can't leave if they have a change of heart. Right. That's what happened to me on Twitter. I knew the people who started Twitter. I've had a Twitter account since it was delivered by SMS. They were nice people. And this is true of many other platforms that I use and don't like, but can't afford to leave and can't escape. So, Bluesky has said that they are going to be federated and that you'll be able to leave Bluesky without leaving the communities that you're part of on Bluesky.
David Roberts
Right. And the idea here is, you know, if there's a third party that designs a better interface or whatever, you should be able to interact with your same followers and the same people you're following —
Cory Doctorow
On another server run by someone else, like email, right? You can quit Gmail but continue to exchange messages with people from Outlook, and you can even do forwarding from Gmail. You can leave behind a little forwarding.
David Roberts
Right. Or you can export your contacts.
Cory Doctorow
Yeah, all of that stuff. And a bunch of that stuff has been built, but not the part where you can go somewhere else. And they say it has been, but whenever you try to pin them down on it, they're like, "Well, it doesn't, you know, that little one part of it maybe not." Right. Or you know, "we're working on it" or "it's coming soon," and that's great. I don't think they're delaying it because they're sneaky. Like, I think they're fine.
David Roberts
Well, they're kind of underwater right now.
Cory Doctorow
I mean, yeah, sure, I think they're great people. Remember when I said the way that you end up with an enshittified service is by doing the right thing? Right, by like saving your workers, protecting your users, whatever, but at the expense of teeing up bad things that can happen in the future.
David Roberts
So, if they unambiguously created that functionality and announced it and said, "Leave if you want, when you want," you would be okay.
Cory Doctorow
Yeah, no, I'd be there in a second. My Ulysses pact is I only will join new services if they're federated.
David Roberts
This is probably more than I need to share with my audience, but I'm on Substack and I can export my subscribers. But now, they've got this network started, Substack notes, which to me just looks like a really obvious attempt to get these dynamics started, these lock-in dynamics.
Cory Doctorow
Yeah, I think that's right. Firms are very attuned to lock-in. And even when they develop it accidentally, once it arrives, it becomes again a moral hazard.
David Roberts
And I'm already like, I'm already kind of so stuck that it would be a huge pain in the ass to get out of it and would probably lose me a bunch of subscribers. Like, I'm already kind of a little bit locked in.
Cory Doctorow
Well, and you know, for the record, Molly White, who's, you know, "Web3 is Going Just Great," really great tech critic and Wikipedian, she did a migration from Substack to Ghost and not just Ghost, but self-hosted Ghost and it went really well and she documented it in eye-watering detail. And so if you ever feel like doing that, people have written some guides and like that part's fine. Right? I'm actually cool with "Oh, it's a little esoteric. You might have to pay someone or monkey around or you know, read a guide" or something, like that's fine.
So, I'm not even calling for these companies to make it easy. I'm calling for them to make it not a crime. Because if it's not a crime, then if they start to suck, people will just figure out how to unlock their shit because they'll have an audience of people who will pay to get unlocked.
David Roberts
Yeah, you know, I remember you talking about this recalls me back to the early days of the Internet. You know, I'm old too. I remember the early days of just Windows. They were just little third-party programs that could do anything, like unlock anything. Do the music better than Microsoft's music program. You know what I mean? Do email better. Like any little esoteric thing you wanted. Somebody out there had hacked together a way to do it. And that whole vibe, that whole sort of culture just really dried up right in front of me, you know what I mean?
And now, here I am on Apple, like everybody else, in a pristine, sterile environment. Stuck with their products.
Cory Doctorow
So, let me make a pitch for you to come to Jesus here.
David Roberts
Jesus meaning Linux?
Cory Doctorow
Ubuntu Linux installs on any hardware, including your Mac. It has all the built-in apps that do all the things your Mac does. It reads and writes all the files almost without exception. It has all of those weird little fun utilities that you might want to use. The GUI is just like the GUI in your Mac. You know, it's like, it's different in the sense that like if you remodeled your kitchen, you'd forget where your cutlery was for two weeks and then you'd forget where the cutlery used to be, which is, you know, my experience. I used to administer Macintoshes.
I used to write POs for like a million dollars' worth of Apple equipment a year. I have a sad Mac tattoo on my right bicep from a particularly horrendous data recovery incident when I was a teenager. And so, you know, like I get it, but I sit down on a Mac now, I just can't remember how to use it anymore because I use Linux. But here's the cool thing: is the hardware on the Linux side, you have so much more choice and some of it's really cool. So, I have a laptop called a Framework laptop.
It costs less than a MacBook, weighs about the same, has about the same dimensions, but you can open it up with a screwdriver that it comes with and every part inside of it has a QR code that takes you to a video showing you how to replace it and a link to buy a replacement part. And it's designed to be maintained and upgraded. So, I'm on my, I think it's the fourth logic board now. So, they just, every year there's a faster processor and I whack a new processor in it. I broke the screen while I was on tour.
I got out of a cab in Edinburgh, a black cab, and dropped it from like six feet and it broke. And I only had like one third of the screen that was usable. And of course, this being Linux, there's like a way to just say, "Okay, just use this one third of the screen." But I was going back to London the next night and so I called the manufacturer and they're, they're good eggs. And I begged them and I said, "Please FedEx me a new screen to my hotel in London." So I get off the train at Kings Cross.
I go down to Clark and, well, where I'm staying. I get to my hotel desk and they're like, "Here's your screen." It's midnight. I go upstairs. I'm so tired. It took me 15 minutes to change the screen. I'd never done it.
David Roberts
No shit?
Cory Doctorow
And the next day, I did two remote conference presentations and wrote a column — like zero downtime. This is the first laptop I've owned long enough that the stickers have worn off and I've had to do new coats of stickers, right? Like, I used to buy a laptop every year. Like, talk about a climate disaster.
David Roberts
Yeah, no kidding, right?
Cory Doctorow
They just upgraded the battery. And so, the old battery, I still have the old battery. The new one's 20% more capacious. But the old battery, they've got a 3D printed printable case that turns it into a power bank for your laptop. There's also 3D printable cases for the old motherboard so you can turn them into bookshelf PCs.
David Roberts
Oh, hilarious. Do you have a 3D printer?
Cory Doctorow
I don't, but you can order them as readymades or get them from service bureaus. So, like, it's great. It's called a Framework. It's the best laptop I've ever owned. You should, like, switch to Linux and use a Framework and you'll love it. It'll take you three weeks to figure out where you're at and then it'll be fine.
David Roberts
All right, we'll leave it there then, and we'll leave it maybe with — if you're, you know, if you're out there listening and you're involved in the development of these kinds of programs, these kinds of VPP programs, these home energy management programs, maybe take that same, you know, come to Jesus sentiment to heart, let's make it all Linux based, or I guess whatever the whole home equivalent of that is.
Cory Doctorow
I mean, it's HomeKit and free open source firmware on stuff.
David Roberts
I mean, this is one of the things that your original article got me thinking about. Like, can you imagine? I was thinking about this sort of open season hacker kind of anybody can do anything vibe of the early Internet and early computers. I just think about, like, what people would — people are so clever, you know — what people would do with their homes and their appliances and their cars if they could hack them. Think of all the things people would do.
Cory Doctorow
More importantly, what would people do with those things after a protracted power outage, or a flood, or during a wildfire?
David Roberts
Yeah.
Cory Doctorow
When the assumptions that we make about infrastructure are no longer operational, and where it's a matter of life and death, right? This is how you build for resiliency. You build things that fail gracefully, not just things that work well.
David Roberts
Right. Perfect. Okay. Well, Cory, thank you so much. This has been super fascinating, and I hope you're right that this populist moment rises to, you know, accomplishes some things before we all are locked into some sort of obsolete home software and lamenting.
Cory Doctorow
Yeah, me too.
David Roberts
Thank you for listening to Volts. It takes a village to make this podcast work. Shout out, especially, to my super producer, Kyle McDonald, who makes me and my guests sound smart every week. And it is all supported entirely by listeners like you. So, if you value conversations like this, please consider joining our community of paid subscribers at volts.wtf. Or, leaving a nice review, or telling a friend about Volts. Or all three. Thanks so much, and I'll see you next time.
Volts launched on December 7, 2020, a month after Joe Biden's narrow presidential victory and a month before Trump’s attempted coup. I was already 15 years into a career researching and writing about clean energy at that point, but it was the first time since 2008 when it felt like something significant might actually happen.
And it has. The federal government has been doing stuff — all kinds of stuff most voters never hear about, but we discuss frequently here at Volts. The Inflation Reduction Act alone was dozens of programs, dozens of different mechanisms and timelines, challenges and opportunities.
Volts is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.
It was a hopeful and exciting time to launch and it’s been super fun covering the Democrats’ whole-of-government approach to the clean energy transition — a buffet of wonkery for a show like mine. And the vision has only just begun to unfold; most of the effects are yet to be felt. Had that vision been shepherded by people of good will over the next four years, I think we would have seen wonders.
Hey girl.
Now, as Volts enters its fifth year, it's not clear what we'll see, at least at the federal level, or how much fun I’m going to have covering it. There will be no talk of restraining or inconveniencing the fossil fuel industry. There will be no talk of environmental justice. As for the tax credits and grant programs in IRA, it will be every industry for itself. (That’s what House Speaker Mike Johnson means when he says Republicans will go after IRA with a “scalpel not a sledgehammer” — friends get subsidies, enemies get bupkis.)
I don't want to ignore the degradation that is going to be wrought at the federal level, but I also don’t want to give the bastards what they most covet, which is my constant, helpless, distressed attention. I don’t want Volts to become a chronicle of the dissolution of the administrative state.
Once I shake off this election funk — I’ve given myself until the end of the year — I’m going to go back to doing what I’ve tried to do from the beginning: find cool people who are doing cool things and talk to them about it.
No matter what happens, there will be cool people doing cool things. The clean energy transition will continue. I take some solace in the fact that my two foremost current obsessions, building out the grid and building more housing, largely play out at the state and local level and are as often intra-coalitional fights as they are partisan.
There's plenty to keep me busy and I hope you will find Volts more valuable than ever in the days ahead. In general, with billionaire-owned media already bending the knee to the incoming regime, all independent media seems more important than ever.
Hey boy.
The only thing that enables me to keep doing what I’m doing is the support of paid subscribers. I take no ads, have no sponsors, and answer to no institutions. I am not owned by any hedge fund or billionaire and do not serve at the pleasure of any interest or faction.
There’s only me and you. I try to make something useful; those of you who find it useful chip in to help me keep going. Nothing feels quite safe these days, but that, the simplicity and directness of my connection to you, feels solid, at least. Tangible.
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I vowed when Volts was founded that I would only do one fundraiser a year, and this is it. This is my yearly plea. If you would like to help me keep doing this work, you can contribute in any of the following ways:
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I’m sorry this year’s birthday/fundraiser note isn’t as chipper as last year’s. I’m not good at faking that stuff. But the work feels more necessary than ever, so as always, to those of you helping to support it, thank you.
In this episode, I talk with Kate Gordon, CEO of California Forward, about how climate change is breaking the insurance industry. We discuss why insurers are fleeing high-risk states, the limitations of government backstops, and the looming political and financial crisis as communities face hard choices about where people can safely live.
Okay, all right. Hello everyone. This is Volts for December 4, 2024, "Climate change and insurance: a growing fustercluck." I'm your host, David Roberts. For years, climate types have been saying that the insurance industry is going to be a leading indicator. Unlike many other industries and institutions, the insurance industry cannot simply pretend that climate change doesn't exist. Its entire business model is to price risk. If it gets risk wrong, it loses money.
And now, as predicted, the industry is sending up warning flares one after another. In climate-stressed states like Florida, Texas, and California, home insurance rates are skyrocketing. In some cases, insurance companies are pulling out of whole states entirely. More and more of the burden of insuring homeowners at risk — an unwieldy mix of low-income communities and wealthy suburbanites — is falling on state budgets.
Kate Gordon
Most discussion around this issue has focused on how to solve the immediate problem, i.e., getting insurance for at-risk homeowners. But beyond that looms the larger question of whether people should be living in these areas at all, and if not, who's going to tell them, and who's going to help them move?
This is all grist for a dozen podcasts, but to get started, I am talking with the great Kate Gordon, a 20-year veteran of the clean energy fight and something of a Zelig within it. She has worked at the Apollo Alliance and the Center for American Progress. She has worked in the administrations of California Governor Gavin Newsom and President Joe Biden. She founded the Risky Business Project, which helps quantify and publicize the financial risks of climate change. She's an advisor, board member, or visiting scholar for too many organizations to list.
And finally, these days, she is the CEO of the progressive nonprofit California Forward. We are going to discuss the drivers of the insurance crisis, who is affected, the policy responses to date, the vexing social problems that are being put off, and what a rational response might look like.
With no further ado, Kate Gordon, welcome to Volts. Thank you so much for coming.
Kate Gordon
Thanks. I like Zelig. I've been called Forrest Gump of climate before, but never Zelig, which I prefer actually.
David Roberts
Zelig is like a high-toned Forrest Gump, you know, more literary. Kate, I feel like we move in the same circles, we live in the same worlds and have for years and years now. But I can't remember the last time we talked. I think it might have been like Waxman-Markey era.
Kate Gordon
I think it was Risky Business, actually, last time I talked to you.
David Roberts
It's all a blur. But anyway, it's so great to catch up. And what a cheery topic for us to reunite on.
Kate Gordon
Yes.
David Roberts
All right, I want to start here with this report that came out recently from this organization, First Street, which is this sort of collection of data people and nerds who are working to sort of quantify these risks. They did a report on insurance. The kind of thrust of the report, if I could sum it up, is yes, premiums are rising, rates are rising, but neither of them are really rising enough. They are not accurately reflecting the spread of climate risk. This is what the First Street report finds: "The unrealized climate corrected valuation gap" — i.e., the amount of risk a lot of homes are under versus their sort of, on paper risk — "represents a growing climate bubble which is just starting to be recognized and quantified." So, you know, a lot of people, I think, look at this problem, they're like, "The problem is that insurance rates are going up," but if you look at it from the other end, in fact, risk is going up much faster than rates. And so this is, you know, as First Street says, creating a bubble. Part of the consequences are that people in these areas are starting to either voluntarily just not have insurance or go bankrupt or go delinquent on their mortgages.
So, maybe let's just start here. Sort of like, what is the fear here? What is the bad story of what could happen?
Kate Gordon
I think it's a great question. And First Street uses a lot of the same underlying climate data that we used at Risky Business, or actually created there. But a lot of people use the same data. It's essentially the same data the IPCC uses. So, it's pretty credible. And what they're seeing is this kind of fundamental issue, which is that the insurance sector, which is really important, it underlies investment in and development of most things in the built environment. It was created for a stable climate. The entire insurance industry was designed for a stable climate with like occasional blips from things that you then insure against.
And of course, what's actually happening now, as we know from the data, is that there is a progressive increase in risk. Because every day you and I are sitting here, we are emitting carbon and that carbon is going into the atmosphere and adding to the concentration and that is changing the ultimate risk of impacts on the system. And so, yeah.
David Roberts
I think I read at some point, and I don't know how widespread this is, but that basically, the models that insurance companies are using to determine risk only look backward, only look at history, which seems crazy.
Kate Gordon
Yes, that was true for a really long time. We saw insurance companies would say, "Oh, this is a hundred-year floodplain" based on backcasting. That's how they would model. That is changing in the last few years. I think there's been a real revolution in insurance modeling. I will say California, where I live, actually doesn't or didn't for a long time allow insurance companies to forward cast accurately.
David Roberts
No kidding.
Kate Gordon
Because there was a proposition that was passed, I can't even remember when.
David Roberts
Oh, yes, Proposition 3. I think I read about —
Kate Gordon
103. Yes, Proposition 103, which said that actually, insurance companies could not use catastrophic risk modeling. So, forward cast modeling in order to set rates.
David Roberts
What, why?
Kate Gordon
I know, I know.
David Roberts
What is, what was the stated rationale for that?
Kate Gordon
Honestly, it was kind of part of what you were just talking about, which is there's been decade after decade of people trying to keep costs down.
David Roberts
Right.
Kate Gordon
Because insurance is a really big cost for people. It's also like the precursor to being able to buy a house in a lot of cases, or to build infrastructure, or to do the thing. And so, there was a really strong feeling that these companies were essentially throwing at all these possible scenarios and raising rates beyond what people could —
David Roberts
Oh, like the companies were doing shenanigans just so they could raise rates?
Kate Gordon
Exactly. That was the concern of the consumer groups. And so, you know, this is California. There's a statewide ballot initiative passed by the people saying, "You can't do that anymore." It's now becoming increasingly obvious for the insurers. The insurers have turned around and said to California, "If we can't price according to actual risk, risk that we now know much better because we're all doing this better modeling, we're just leaving. We're leaving."
David Roberts
I tell you, California voters sure know how to screw yourselves with a proposition.
Kate Gordon
Well, we did just pass a climate resilience bond. So, on the other side of this issue, we are doing some good things. But yeah, I mean, I think it's a good example though of the same thing I just said, which is that everyone has been treating this system as if we have stability in the climate and there's just occasional, you know, storms or events. And the reality is that they are more frequent and severe, and everyone knows that, including the insurance companies. They basically have turned around and said, "Look, we are risk-based people. We need to be able to accurately model the risk." And if the risk is too high, it doesn't make any financial sense for them to be in a market. So now, the big crisis everyone is having is, how do we keep things insured? As you said in your opener, there's a whole bunch of conversation about how to keep things insured and insurance prices affordable. There is still not enough of a conversation about how to lower the risk itself.
David Roberts
What's the kind of like doom scenario here if this just continues playing out and everybody continues being as daffy and ignorant about it as they have been?
Kate Gordon
I mean, the doom scenario is actually sort of a doom scenario in general of incorporating climate risk into everything, which is that you stop investing in things that are high risk and or only very wealthy people can get those things or get insured on those things, or they just don't care because they lose a house and then they have another house. So, the doom scenario is essentially like redlining on steroids through insurance and pulling out of areas or just raising rates so much and, or, and I should say, because this is really important, the other doom scenario is the public sector comes in and tries to backstop this whole thing to the extent where everybody goes bankrupt, like all the cities go bankrupt, which is not actually crazy that that might happen.
David Roberts
This valuation gap, you know, that sort of First Street identifies, is it big enough such that if you corrected it all at once, enough people would default on their mortgages to create like a, like a macroeconomic crisis? Like, are there enough households involved here that you could be looking at kind of another mortgage-based crisis?
Kate Gordon
Great question. Possibly. I mean, I think there's several layers of things, right? Like first, people might not be able to get mortgages in the first place because it would depend on having insurance. So there's that. Second, once you have a mortgage and then you lose insurance, I don't know, that means you automatically default. I think what it just does is put people, David, in a situation which is a particularly bad situation in America where we don't have a huge safety net. Most Americans who are lucky enough to own a home, that is their only asset of real value.
So, I think what it does is put everyone in this incredibly precarious situation where the one asset you have is at risk of destruction, and then you have nothing to use to move somewhere else or to move to higher ground or whatever.
David Roberts
If you lose insurance, you don't immediately default on your mortgage. But if you lose insurance and then something happens, then you're screwed.
Kate Gordon
Exactly. And again, unless the government comes in and kind of papers over that. But that's increasingly not doable because of just finances.
David Roberts
So, some states, I think California and Texas, have these what are called "insurer of last resort" programs, which, from what I can tell, are basically state-funded insurers who will step in and insure the people that private insurance won't insure. And, you know, as you'd expect, more and more people are flooding into those programs — that can't go on. Right. Like, that can't be the final solution to this problem; it is just the states picking up the bill.
Kate Gordon
Yeah, you know, the one everybody knows I think really well is the Federal Flood Insurance Program. That's sort of the oldest, most famous one, which of course is funded by the government, which means taxpayers. So, it's not like there's a —
David Roberts
That's federal, right?
Kate Gordon
Yeah, that's federal. There's not like a magic tree of money that funds these things. It's always falling on people. But yeah, the state one in California, the FAIR Plan, is our insurer of last resort. You saw it come into a lot of use because of wildfire risk and a lot of insurers moving out of wildfire-prone areas. It is funded actually by insurance companies. So those companies that do business in the state fund the FAIR Plan, which of course means policyholders fund the FAIR Plan.
David Roberts
Right.
Kate Gordon
But the state administers it. But that doesn't mean that the state isn't on the hook. I mean, if you think about the impact of these disasters. Right. So you have Paradise, California, a very famous fire disaster. It's not just the state. Well, the county initially usually comes in and has to do the immediate cleanup and then has to be reimbursed for those costs, which can take years from the state or federal government. But then you have the state coming in with unemployment insurance. Right. With relocation support. You have a huge increase in safety net programs when that happens.
David Roberts
Right, right. It's not just the houses and the mortgages.
Kate Gordon
It's not just the individual or the houses and the mortgages. It really, you really do have this massive system of public money that essentially backs up everything we're talking about. And it's the state or the government in general is holding the bag on this entire conversation. Whether it's through creating systems of last resort and trying to increase those, whether it's through, you know, disaster response and recovery, whether it's through all the safety net stuff, it is ultimately just a huge amount of government money going to this system.
David Roberts
Yeah, and I'm wondering if those state insurer of last resort programs, like the insurance companies who are paying into those, presumably at some point are going to just decide it's a bad deal and pull out of those states. I mean, what happens if the insurance companies leave those states? What happens to the insurer of last resort?
Kate Gordon
That is a great question. I mean, I think politically, what happens is that everybody forces some kind of a public funding situation.
David Roberts
Yeah.
Kate Gordon
Which then again means that you're taking money out of other critical programs. You're actually starting to see this with these county governments. Municipal and county governments are the sort of first line on this stuff. And county governments are the first people who have to go in and do disaster response. So that's just an example. And so they have a couple of years of delays of reimbursement. Even if they get reimbursed by FEMA, which is less true than it used to be because FEMA has so many disasters now that they're paying out less. But even if they get reimbursed, it takes years.
And in that period of years where they're waiting for reimbursement, they are 100% dipping into their other discretionary funds.
David Roberts
Right.
Kate Gordon
In California, what we saw with the fires when I was in state government in 2019 is that we, I think, tripled the cost of wildfire fighting between 2015 and 2020. And we took that out of climate programs.
David Roberts
Yeah.
Kate Gordon
Like, we took that out of climate mitigation. So, these things have a serious impact.
David Roberts
Yeah, I mean, this has always been the worry about climate change proceeding, right? Basically, adaptation is going to eat more and more of the money, and you're going to have less and less for mitigation.
Kate Gordon
Well, and the challenge, David, is that political will goes totally against doing the rational thing in this situation. Because if I'm a mayor or the governor, my whole focus is going to be on keeping costs low.
David Roberts
Right.
Kate Gordon
That's everybody's stress point all the time. It's not going to be on like 10- to 20-year resilience frameworks that bring down the overall risk and fundamentally, ultimately move the risk, you know, towards something manageable. It's just like that doesn't happen in my tenure and I can't get political will behind it. So, I do think there's some, you know, there are some things that can be done here a little bit, but it's just fundamentally, I think we have to rethink the system toward one where we need to actually try to be focusing on climate stability, otherwise all these systems are going to break, basically.
David Roberts
At the root of it, climate change itself is creating negative value. And that negative value just exists. You can chop it up different ways, apportion it to different people, send it to different levels of government, but it exists. Somebody's got to pay it.
Kate Gordon
Exactly. And I think what we're seeing, at least in California, and you actually see this in Florida to an extent too, and other states. We are not the only states with this problem. I mean, hail insurance has become a huge issue in the Midwest.
David Roberts
What really?
Kate Gordon
Which is also climate-driven. So, you have Midwest insurance companies that are actually paying out these hail claims. They're starting to suffer, they're laying people off, they're having financial crises because they're paying out on these hail claims that are exponentially more than they used to.
David Roberts
Yeah, I was actually going to ask one of the questions. I threw this out on Bluesky, which I've now mostly —
Kate Gordon
I am there too, not as active as I should be, but I moved over a couple of years ago and I'm very happy that people are starting to see the light.
David Roberts
I threw it out here, and one of the questions was, "Is this going to affect people" — like, you know, people think of this as like a Texas, Florida, California problem. Like, "Is this going to affect people in other states?"
Kate Gordon
100%.
David Roberts
Is it just going to affect people in like sort of climate-battered states or is there some sense in which there are going to be national effects?
Kate Gordon
Oh, I think it's going to be everywhere. I mean, the thing about climate impacts is that there is no place that's safe. When we did the Risky Business Project in 2014, we actually thought at that time there were some places that were lower risk.
David Roberts
Climate havens. What happened to those?
Kate Gordon
In the Pacific Northwest, right? And then all the fires happened and then extreme heat. I'm from the Midwest originally, and I can just tell you that inland flooding and hail are massive there. You know, we talk a lot about fire because fire is in California, it's the big thing. But water is by far the big issue for insurers across the board. And hail is obviously like, it's a roof — roofs are very expensive to replace.
David Roberts
The upper Midwest was the climate haven, wasn't it? Like, that was the blue part on all those maps where you'd see all the other red.
Kate Gordon
It's true, it is true that things like hail, you can harden against them more rationally. So, it's a slightly different type of problem, but it's still, you know, these things are happening across the board. Insurance companies are having a very bad few years because of these increased claims plus inflation on repayment. It's been very, very bad.
David Roberts
Let's talk about floods then. So why, I mean, maybe you just answered the question, but why is it that floods uniquely have a federal insurance program as opposed to, you know, fire, hail, whatever, all the other dangers? Is that just a quirk of history? Is there some reason for that?
Kate Gordon
I actually do not know the answer to this question. I think, you know, we've had flood maps for longer than other programs. I know when I was in the federal government doing implementation of the infrastructure bill, we had to include flood resilience language in the implementation of those programs, which wasn't true for any other type of risk. So, there must be some long-standing historic reason.
David Roberts
Interesting. Yeah. So, the National Flood Insurance Program, that's 97% of national flood insurance. And there's this sort of critique, I'm sure you've run into it, that the NFIP, the National Flood Insurance Program, is in some sense subsidizing climate risk by charging sort of low rates, you know, sort of by insuring, doing flood insurance kind of slightly on the cheap is in a sense subsidizing people to move into these areas. But then of course, this gets to something I sort of alluded to in my intro, which is it's true, I think that it's in some sense subsidizing some wealthy homeowners to be able to build in floodplains where they probably shouldn't, but it's also going to some low-income communities where if you upped the rates, you would kind of screw low-income homeowners.
So like, how do you, how do you walk that line? You know, do you think it's an accurate critique that it's that the rates are too low and it's subsidizing risk in some sense?
Kate Gordon
I think we're subsidizing risk all over the place. And yes, I think it's an accurate critique. I mean, I think there are sort of three different things going on here. And just to totally oversimplify, one of them is what do we do with existing people who are in homes that have been built in places that either when they were built, we didn't realize how risky they were, or they weren't as risky because climate change is constantly progressive, as I said.
David Roberts
Right.
Kate Gordon
Or, we just kept building them, which is a big California issue. We have 11 million people in our wildland urban interface in California. That is a lot of people. A lot of those homes were built after a lot of this modeling was on the street.
David Roberts
Well, don't talk in the past tense, Kate.
Kate Gordon
We're still doing it. We're still building it.
David Roberts
One of the insane features of this discussion is that some of the most sensitive areas, the reddest areas on those maps, are some of the hottest real estate markets in the country. We are currently —
Kate Gordon
We are. You're right. We're currently —
David Roberts
shoveling people into those areas.
Kate Gordon
We're currently increasing the risk. But, like, there is a set of people who are already in place.
David Roberts
Yeah.
Kate Gordon
And I think we do have to figure out a set of policies for those people because again, most of them, put the small number of very wealthy people to the side, most of them can't afford to lose a home or move easily or whatever. So, we have to figure out solutions for them. And I think there are some interesting, innovative things going on around that. But the second thing is, we have to start having a serious conversation about not increasing the risk by building more things in these places. And that's not just risk to the homeowner.
That is, we talked about this before, that's a massive amount of financial risk to the public sector, which affects everybody. Right. We're increasing the risk to America and to individual cities by continuing to build into these places. And the third thing is, and it's the hardest thing to talk about if you're in politics, is we have to deal with the tail of the people who are in places that are just not, at this point, places that investment should or can happen and are going to have to actually move. So it's the managed retreat piece of the conversation, which is that long tail that's getting longer.
David Roberts
It's getting longer all the time. One of the things that comes up, and maybe this is a little bit of a technical thing, but one of the things that comes up is that programs like the National Flood Insurance Program or insurance generally should be aware of, cognizant of, kind of property level resilience stuff. So, like, if I as a property owner, you know, clear a certain amount of brush around my house or put in some sort of — I don't even know what all the resilience measures would be. But like, as far as I can tell, it's very difficult to get a lower insurance rate based on what you've done. Is that a big issue?
Kate Gordon
Yeah. In general, we've seen these insurers take a fairly blunt tool to the question about whether somebody should or shouldn't be insured. You hear stories all the time about people whose insurance company says, "We're gonna stop. We're not re-upping your policy because you've got a pile of brush in the backyard or whatever." They'll do drone passovers or not even that. They'll just look at a neighborhood and say sort of like, "One instrument, this is risky." So, I think there is absolutely a need for a finer kind of approach to individual property. But I'd also say — you know, and that helps more in some places than others.
Like, let me just say about individual property, if I'm in the Midwest and I have a roof that's made of roof material that's less sensitive to hail, it absolutely makes a difference to the insurer. That's a property-level thing. If I'm in an extreme heat area — which isn't actually, this is a health insurance issue, but, you know, there are property-level things you can do. With flood and fire, it's much harder to do property-level things. These are sort of community-scale issues. And you saw that with Paradise. You saw it with Santa Rosa out here, you saw it with the Maui Wildfire.
Part of what's happening with climate change is that not only do we have increased sort of dry spells that dry out the brush, and then we have these intermittent wet spells that, like, there's a ton of brush and then it dries out. So, it's very high risk. But we also have high winds as part of climate events. And so what you get is these, like, embers blowing around.
David Roberts
Yeah.
Kate Gordon
That is hitting every house. So, I can have the best house. I can have, like, totally defensible space and the best thing ever at my property. And my next-door neighbor doesn't, and I'm, you know, like, the fire hits me. So, I think what's happening increasingly that's very interesting is this question of could the insurance regulators — it is a regulated industry — could they start asking insurers to take into account community scale resilience, not just individual scale resilience. And that could make a really big difference, actually. I think it's really important.
David Roberts
I mean, it could be a big incentive, right? I mean, the community could get lower insurance rates if it does XYZ.
Kate Gordon
If it does XYZ , I mean, in California with the fires, some of that might literally be islanding off the grid. So, if you're building, if you're in a community that's super high risk because of the potential for wind blowing down power lines, which is a big part of the risk here, get on a microgrid, like, get off of the grid and don't have that risk anymore. And then you get insured or, you know, require new build to be sensitive to these things. We aren't doing this at the moment, but it's definitely a conversation that I think we should be having.
David Roberts
It's a little crazy that we're not doing it.
Kate Gordon
Well, you know, we have a — you know this well because you've talked about it a lot — very strong local control over land use culture.
David Roberts
Yes.
Kate Gordon
A set of laws in this country. That means that, you know, if I'm a city in California, my immediate interest is getting more property taxes. Right. Like, my immediate interest is avoiding people yelling at me about not having enough housing and getting more property taxes. So, I'm going to do what I can to build stuff.
David Roberts
And if it comes out, if it's revealed that the climate risk in my community is much higher than had previously been understood, and insurance rates go up, property values go down, and property taxes go down.
Kate Gordon
Exactly.
David Roberts
So, in some sense, like all the government entities that are dependent on property taxes, kind of don't want this news getting out. Right?
Kate Gordon
100% and your bond rating probably goes down too. So, there's all kinds of implications from a bond public finance perspective. But I'll tell you, David, I mean, again, this is like the fundamental challenge of climate change, which is the timescale challenge.
David Roberts
Yeah.
Kate Gordon
What I'm seeing in modeling is that there's someone at the Fed who's done some super interesting modeling around, "What are the outcomes of us just continuing on a policy to keep insurance rates low and not doing resilience?" What you actually see is a rash of municipal bankruptcies because, fundamentally, that's who's holding the bag on this stuff.
David Roberts
Yeah. Like I said, like, somebody's going to get stuck with the —
Kate Gordon
Exactly.
David Roberts
Like the negative value exists.
Kate Gordon
Right. Municipal bankruptcy is a worse outcome. It's worse than a kind of initial downscaling of property values and like a recalibration, it's worse. So, I think that's where we have to be thinking is that that is the outcome if we don't start being proactive about this.
David Roberts
Right. Well, I want to talk about what being proactive would mean. But first, one more kind of a sad topic, a sad question.
Kate Gordon
Because everything else has been so happy.
David Roberts
We're just getting sadder. The Biden administration put out an executive order on this stuff that I thought was pretty extraordinary. I mean, it basically amounted to a whole-of-government initiative to take more cognizance of climate risk, you know, in insurance and everything across the board and treasury everywhere. You know, I'd love to talk about how exciting that is and all the things that will come out of it, but maybe it's just going to go out the window. Do you — I mean, I'm sure you don't have any crystal ball that no one else has either — but like, do you have any sense of kind of how partisan coded this stuff is?
Like, is that the kind of thing that they're gonna kill the second they get in the door? Or is there some sense reason would suggest that this should be bipartisan? But what, you know, who cares what reason says these days? What's your sense?
Kate Gordon
Yeah, I love that executive order. I had played a very tiny part in it, but I love it. And this is work, as you know, that I've been sort of obsessed with since the Risky Business Project, which literally was a project to bring together former treasury secretaries and bipartisan CEOs to say, "Climate change is a serious issue for the financial grownups table." It's not just an issue for a bunch of enviros, right? Like, this is something we need to be thinking about.
David Roberts
Get the money people to pay attention.
Kate Gordon
Get the money people to pay attention. And I think, you know, there was a lot about that that was successful sort of at the individual company level. What we didn't get at Risky Business, and I spent a lot of time working on after that — including a big report that I worked on on climate risk to the state of California that does exist, that we did with Stanford — was this question of like, "What about the public side?" Because actually, the public side is at greater risk in a lot of ways. The public stuff can't be moved easily.
Like, it's very place-based. The infrastructure, cities themselves, government functions are very place-based. And also, government, as we said, is fundamentally responsible for all of the "externalities." Like, everything that falls through the cracks of this system, government has to pick up the pieces. So, I thought it was great that this happened, that it was finally this acknowledgment that like, "Yes, this is sort of a fundamental threat to our economy and we're going to try to change the systems to start to address it." And there was some super — I mean, you think this is wonky —
there was some really wonky work that the Council of Economic Advisors did on changing macroeconomic modeling policies in the federal government.
David Roberts
I was vaguely aware of that. And the Treasury Department put out, like, a really extraordinary response. Like, you know, this Executive Order asked them to look into it, and then they went and looked into it and, like, issued an incredible report on the financial risk of those impacts.
Kate Gordon
Yeah, I mean, so I think, I mean, I'll answer your question in a rational way, but with the caveat that, as you said, we, I have no idea. When we did Risky Business, we did it in a bipartisan way. And what we found in like a million conversations across the country with all kinds of people from all kinds of places and industries was that actually this is a fairly nonpartisan way into the climate conversation. People are quite aware that there are increasing impacts, that they are affecting them personally, that they are losing money because of them, that they are, like, disrupting their economies.
People, get this. It's a pretty well-understood phenomenon. And so, you would think that of all the things on the table on climate, this would be something — you know, and famously, Trump, of course, evaluated the risk of his Scotland golf course from sea level rise. Theoretically, you'd think this would be a thing that people would think about. I think, especially because the government owns and operates a lot of this infrastructure itself.
David Roberts
Yeah.
Kate Gordon
And is having to pay for it. Pensions are dramatically invested in these things. You'd think they'd care. So, I would love to say this is a bipartisan issue and it will continue. There will continue to be rational thought on it. I just don't know.
David Roberts
Yeah, I mean, we've seen, you know, we've seen the Trump response to disasters, which is basically his response to everything. His response to literally every policy area, which is, "I help my friends and screw my enemies." So, you know, I kind of wonder if that's not going to be kind of the —
Kate Gordon
I mean, I agree with you. I do think one of the things the Executive Order does that I think needs to be unwound a little. Like, there is a difference between physical risk and what people call transition risk, which is like, there's a set of things that are risky in the economy because we are trying to transition to a net-zero economy.
David Roberts
Right.
Kate Gordon
And that's like, "Should you invest tomorrow in a coal plant? Probably not." Right. Although with AI and new energy demand, I don't know. But let's just say probably not. "Should you sink a whole bunch of money into some fixed asset that probably won't be valuable in five years?" That's transition risk. Right. "What's the risk of me investing today in something that the economy's changing to net zero?"
David Roberts
Right, which you could theoretically reduce or eliminate by just stopping the transition, right?
Kate Gordon
Yeah, theoretically. But the other side of it, to me, is just clearer in a way — because that's very political, what I just said. Like, that all depends on you believing climate change is real, which I think most people do, but it also requires you believing we should have a transition, which is complicated. The other side, though, this physical risk question is really different. It's like, "What are the actual impacts from things we emitted from 100 to 50 years ago?"
David Roberts
Right.
Kate Gordon
"How are they affecting us today? What is the cost of that to my business, to my community?" That should be a lot cleaner, actually. And my experience working with companies is that it's much easier for them. They're like, "Okay, I can look at my supply chain, I can see what the risks are. I can look at this modeling from First Street and others. I can evaluate this and I can make decisions that are sort of rational decisions about what risk level I'm willing to take because I'm used to doing that."
David Roberts
Yeah, and these costs, they exist whether you believe in them or not. Like, somebody pays these costs, you know what I mean? They are not dependent on people's belief systems.
Kate Gordon
Exactly. So, I think you can't conflate those two things. I think we tend to, because we're like, "We're all climate people, we're going to conflate everything." And there's a piece of the executive order that says, I think, that it will require major suppliers in procurement to disclose greenhouse gas emissions and climate-related financial risk and set science-based targets. Those are three totally different things that have very different levels of political risk and adoptability. So, I think we just need to untangle a little bit.
David Roberts
So, let's talk a little bit about solutions or at least ameliorations of this. One of my first questions is, like, the insurance companies, it seems like they would want these areas to reduce their physical risk. Like, it seems like it would be helpful to the insurance companies if these areas did things that materially reduced their physical risks. Do insurance companies ever come out and lobby or advocate for good policy?
Kate Gordon
Yes, they've certainly advocated for catastrophic modeling in California. So, they've advocated for the ability to do forward casting modeling. They've advocated for more consistent data on the risks. So, I think they've gone on that and they've certainly advocated for insurance companies to actually spend money on things like research on more resilient roofs and more fire-resistant activities. There's a whole bunch of insurance companies that have a whole coalition around fire risk reduction. So, they do work on it, really, again, as we talked about earlier, at the property level.
David Roberts
Right.
Kate Gordon
They haven't, that I've seen, advocated for being able to take community scale resilience into account. I think they should advocate for that. They have kind of a power position right now because they have this ultimate ability to walk away, which is pretty powerful.
David Roberts
Yeah. Exit.
Kate Gordon
And yes, that means they have less business, but I mean, they are actively looking into other types of business. It's pretty interesting. Someone just told me that like renters insurance has gone way up because a bunch of insurers are switching into that. And pet insurance is a huge growth market. Right. So, like that's interesting. One thing that I've always been sort of amazed by, and I'm told by people who understand insurance companies, that like this will never happen. But I'll just say it, insurance companies are investors too. I mean, what do you think happens to all that money you pay them when there's no disaster happening?
It is being invested. So, why are they not investing in lowering their risk?
David Roberts
And they're invested in fossil fuels!
Kate Gordon
I mean, it's not even that. I mean, they're just not investing in any of this stuff. Like, they're not investing in projects that you would think would lower risk. So that's odd to me. And I think it's the classic issue that they have to get a certain return. And the investment side is totally separate from the insurance side. But that seems like surely we could figure something out where there's some impact investment fund on the investor side of these insurance companies that's actually helping with this problem.
David Roberts
Yeah, well, here's maybe this naive question, but there are supposed to be these things called markets which send price signals to which consumers respond rationally. So, insurance in these stressed areas is going up and up. And yet, like I said earlier, these are some of the hottest real estate markets in the country. What is going wrong here? What's the disconnect? Why isn't the market itself discouraging people from coming to these places?
Kate Gordon
I mean, some of it is probably psychology. People have a very hard time making decisions about potential future loss. And there's a whole academic study of this, so we know this. Some of it, I think, is what we talked about earlier, which is that some of the risk is literally being subsidized. There's not true cost accounting. So, yeah, even though maybe the insurance amount is going up, we're still, for instance, building, you know, we're requiring the utilities to serve these areas. We're building roads to these areas, we're doing water supply to these areas. Like we're doing all the infrastructure to allow for the thing to be built in the first place, which is essentially subsidizing risk.
David Roberts
And subsidizing what we basically know are going to be stranded assets within probably our lifetime, like billions of dollars that we know are going to get stranded.
Kate Gordon
Yeah, and I think that's a big part of the problem. Like, I think about this a lot, obviously in the California context, but it applies in other places where a lot of the new housing development is happening in these greenfield areas, which are theoretically more affordable because, you know, it's expensive to build on existing infrastructure. You have to do more work to do that. It's expensive. You know, infill is, as we know, notoriously hard for a bunch of reasons. And so we end up in this, like, artificial world where it's theoretically cheaper to build out in these areas.
Many of which are high risk. And I mean, we actually just had a big summit in Sacramento where we had a panel that we literally called, "Is housing affordable if it's not insurable?" I think we just have to call the question. It's not actually equitable. It's not an equitable affordable housing solution or fair housing solution to be building things that are fundamentally at this level of risk. And that's what we continue to do.
David Roberts
Well, I want to talk about land use in just a minute, but let's just start in a more sort of prosaic place, which is just the state insurance regulators. These are regulated entities. So presumably, there are things state regulators could do. Like, what is the solution set here? What kinds of things would we like to see state regulators do?
Kate Gordon
Commissioner Lara in California just did a big insurance reform very recently, which you probably saw. One thing that he is recommending, for instance, is allowing catastrophic modeling, which I think there's some amount of that you can allow even under Prop 103. But I'm no expert. He's saying you can do catastrophic modeling to show the actual risk of stuff. But in exchange for us letting you do that, we're going to make you increase your policy offerings in some underserved communities where you've just blanket rejected everybody without looking at individual home hardening or community hardening.
So, it's basically saying, "Look, do the work to expand coverage where it actually makes sense and you actually do the work to see if the hardening is happening or if this place is more resilient and in exchange, we'll let you model," which is sort of interesting, super wonky, but sort of interesting. So, he's trying to say, kind of play this game of pushing them to be a little less blunt instrument about the way that they're considering policies.
David Roberts
But, I mean, if you take this First Street report seriously, the areas that are under risked are a lot more than areas where they sort of accidentally over risked. Do you know what I mean? So, like if they really did catastrophic modeling and really did accurate modeling, it seems like net-net rates would just go up.
Kate Gordon
I mean, I would love to see insurance commissioners say, "Look, we recognize that building in existing," — I mean this is of course a pro infill argument, but building in areas that have existing infrastructure, that have a clear means of egress through a road system where you have pretty close access to fire stations at a pretty close distance. That doesn't mean big city, it can mean town, it can mean anything. But it's just a little bit more developed. I would like to see some kind of approach where we say "Look, this is lower risk. We know this from this many years of data."
We also know that infill development allows for some level of urban growth boundary which is very important to keep things like fire and flood from taking over communities because you, you need wetlands for flood mitigation, you need buffer areas for fire. So really, I mean, I know you said we talk land use later, but I think land use is part of the insurance commissioner question because we should be.
David Roberts
It's kind of all bound up.
Kate Gordon
The state does land use. It's all wound up. The state does land use and the state does insurance regulation. So let's talk about it as a whole of government solution at the state level and say —
David Roberts
Yes, that would be coherent. Well, let's talk about land use. Is there anything sort of non-obvious to say? I mean, what you want to do is encourage infill and discourage people from sprawling out to where there's fires or sprawling out to the coasts where there's erosion. But how do you take that sort of obvious insight and translate it into policy? So, what sorts of things?
Kate Gordon
It's obvious. But, I also think people aren't always thinking about all the reasons that's true. It's true because fewer places burn down or flood. But, it's also true because you need that land not to be developed because it helps mitigate.
David Roberts
Right. I do think that is an underappreciated point.
Kate Gordon
It is. Also, I think people don't appreciate why the risks are as high as they are. I mean, if I build into a greenfield community, I said this earlier, but if I build into a high-risk area, I'm a local government and decide to do like a giant housing development in a high-risk area. We have people proposing this right now. State law requires utilities to serve that. Like, they can't not serve it. And then we hold them strictly liable for serving it, which means they're incentivized to then spend an enormous amount of money to bring their risk as low as they can.
You see this right now with the PG&E $7 billion rate case to underground lines in the Sierras. That's because they have to serve housing there. And who pays that? Ratepayers. So it's not just insurance rates, it's your electricity rates are going up because of these decisions. So, I think that's all underappreciated. There's a bunch of reasons why we should not be doing this the way we're doing it. In terms of solutions, David, I mean, it's not popular and, you know, I can only say this because I'm no longer in state government, but we actually do need to start taking a regional, a more regional approach to land use.
David Roberts
As opposed to local, you mean?
Kate Gordon
As opposed to local, we cannot continue to say local governments make all the decisions and the state government is going to pick up all of the costs for those decisions.
David Roberts
Yeah, and it's even the case, I mean, some papers came out last year that the housing scarcity in these blue areas is having macroeconomic effects. So, it's not even that everybody in the state is affected. It's really national. Like, there are national effects. These are not local issues. They ultimately redound to national macroeconomic effects.
Kate Gordon
I think that's right. So, yeah, I think I would say this is a hard conversation, but one of the things I've thought a lot about in climate policy in general is just, can we start thinking about a stronger approach to regional governance? Because a lot of these impacts are regional. Statewide in a place like California, Texas, or Florida is very big. It's like, it's too much of a blunt instrument. I think we need to be thinking regionally underneath that. Like, the fire area of the Sierras is a very different kind of risk than the fire area of LA because of the type of vegetation and the type of climate impact.
So, let's just talk about this stuff regionally, but have an actual ability to then make land use decisions regionally. That would be incredibly helpful for this conversation.
David Roberts
Well, since we got here, I have political questions, political anxieties. So, a lot of the people we're talking about are Democratic voters, some of the upscale ones, especially who, you know, can afford to go out into these pristine places, suburbanites, sort of classically, like all of US politics is a fight over who gets the suburbanites. And a lot, it seems to me, of what's going to happen with climate change is that the deal we offered our suburbanites, which is you can have your big house out in the middle of nowhere, we're going to make it easy to drive everywhere.
And even though every place is going to look the same and it's going to be slightly soulless, everything's going to be very cheap. That's kind of the sprawl bargain. And I think from these people's perspective, from the perspective of a wealthy suburban homeowner who built their house out in the middle of some pristine floodplain, that's kind of what they're owed, do you know what I mean? And all of a sudden, climate change is going to come along and the people that they often vote for, or who we would like them to vote for, are going to come along and tell them, "Sorry, the deal has changed. Actually, you have to either pay much more, get much less, or move." It could be a political disaster. I mean, this is like Dems vs. NIMBYs, you know. Yeah, I don't even know what I'm asking you. What happens then, Kate?
Kate Gordon
What about that?
David Roberts
How do you deal with this worry?
Kate Gordon
I mean, I think one thing I'd say is that it's not entirely sort of wealthy suburbanites. We actually, at least out here in the west, we see a lot of people moving into unincorporated areas who just can't afford to live in more urban areas. And so, like Paradise, it was full of fixed-income people. I mean, it was not a high-income place at all. So, I think it's a little complex because of just housing dynamics that are true on the West, but I think becoming true all over the place.
David Roberts
Right.
Kate Gordon
And so, in some ways, that's even worse. Right? Because we promised affordability and now we're not, we're taking everything away.
David Roberts
This is what's maddening: the Republican Party can just pretend it's not happening, pretend it doesn't exist, pretend these people can have everything they want, and then Dems try to be responsible and come along and tell them, "Actually, no, there's this risk, blah, blah, blah," and then Dems get punished for it. How do we, you know what I mean? How do we avoid that dynamic?
Kate Gordon
This is like an existential question here.
David Roberts
No, this is not something I expect you to solve on the fly.
Kate Gordon
I mean, I guess to be — whatever, my whole career is like unusual allies and trying to figure out solutions to these very difficult problems. And the one thing I'll say is, you know, there are still a bunch of conservationist Republicans out there and I think that there's some alliance to be made. I mean, you look at like Oregon and how it got to state-level land use policy as a thing. The way it did, right, was it was an alliance between sort of smart growth people, ranchers, and farmers. Like, there's a way to think about conservation agriculture.
You know, I think carbon removal or carbon sink. There's a set of people that I think you could start to organize around, sort of a different way of doing this that is smarter going forward. It doesn't solve your problem that you just raised of like what we already did, which was a lot. But it does start to get to, could we not continue to make this a higher risk situation than it already is? I think there's some interesting things to be done there. We're starting to see people have those conversations in various states. And I think it did not feel politically possible to do that five years ago.
And now, it feels like because of the insurance crisis, it's pushing people to have that conversation.
David Roberts
It's like physical risk here. There's financial risk, but there's also just so much political risk.
Kate Gordon
You're absolutely right. And I think everyone's worried about this redlining issue. Right? Like, does this end up? And you worry about this also on the investor side, thinking about disclosure, thinking about that executive order. If we incorporate financial risk into all decisions, you know, what happens to India, a place that is a source of a massive amount of investment into physical systems that are place-based, that are multi-decadal, where probably investment should not be happening in that way because of very high risk. But the answer to that can't be disinvest in all of India.
We have to come up with some situation where we're like, "Let's also make it — " I mean, this is the biggest sticking point for everything about resilience and adaptation. Nobody pays for it right now. There's no market for it at all.
David Roberts
Yeah.
Kate Gordon
So, we have to somehow get to a place where it's valuable to invest in resilience, where people in Brazil, in the Amazon, actually get paid to not do stuff instead of getting paid to tear stuff down, where people get paid to do urban growth boundaries. I mean, there just has to be a better answer. Because right now, the market works the way it does. And if I've got a fallowed field that's suffering from drought in California and I need to sell it to someone, I'm going to sell it to a developer.
David Roberts
Yes, we somehow have to get the financial value of resilience worked into markets, reflected in markets.
Kate Gordon
Well, that's a whole other podcast, David.
David Roberts
Truly. Well, since you touched on it, let's bring up the big, kind of the elephant in the room, as it were. You know, you could say there are large swaths of India where we have good reason to believe that in 30 to 50 years they'll be uninhabitable. And that's a disturbingly large amount of India that qualifies for that assessment. So, what do you do with that? Or just to bring it home here to the US to make it slightly more tractable, although only slightly. Like, in the end, there are places and they are growing.
It's a growing amount of land area where there just shouldn't be people. There just shouldn't be houses. Right? There shouldn't be human developments. It doesn't make any sense. There's more risk. You know what I mean? Like, if you made the cost of the risk a transparent part of the market, no one would ever build there. But there are people there, lots of people there, more every day. So whatever we do to stem the flow of new people to those areas, there are a bunch of people in those areas already. And I think one thing we've seen, you see this in people's reactions when a hurricane is coming.
People will do pretty crazy, irrational things to stay in their homes. It's more than just financial value, right? It's home. So, what on earth do you do with people who could not afford to live where they live if they had to pay the full freight? But if you make them pay the full freight, you're just going to bankrupt them and force them to move. What do you do? You know, like, this gets to the managed retreat question. Like, who does this? Who tells them that? What level of government authority using what enforcement mechanisms?
Like, you know, again, I don't know why I'm asking you to solve this cosmic problem, but, like, how do you think about that? Because that's, I think, coming on us faster than we think it is.
Kate Gordon
It is a really, really hard problem. And it's not like we're not already seeing this in some places. So, it's not an esoteric question. It's a real question. You know, a couple of things. First, I feel like I just have to say, because we've been so focused on the resilience question, one thing I know that gives me hope in general, even in hard political times, is we can bend the curve on extreme heat. Like, there are ways to actually start doing things differently in the economy that actually put fewer emissions into the atmosphere and remove carbon from the atmosphere, that actually does start to bend the curve.
Like, we do have the ability to make these terrible scenarios 30 years from now look better. And it requires a bunch of things.
David Roberts
I've kind of been taking that for granted. But, thank you for calling it out. Like, obviously, we should be mitigating.
Kate Gordon
Yeah. But it's less true for some risks than others. Like, it's very hard. It's not that easy to — I can't, you know, reverse ocean acidification very easily, but we can reverse the extreme heat. So, these things are worth remembering because it still matters that we do that part.
David Roberts
Yes.
Kate Gordon
And do it more than we're doing it. On the other side, though, you know, I think about this a lot, David, because I think it actually intersects with a bunch of kind of economic policy that people have been thinking about for a long time, which is, like, there's just a lack of economic mobility in general in the US, and there's a bunch of kind of ideas around increased mobility that we probably need to start talking about in this context. So, what about universal basic assets or universal basic income? What about, like, the fact that everybody's livelihood is so tied to place right now?
It's tied to their home, it's tied to their employer, it's tied to their —
David Roberts
Most people's wealth is substantially their home. And that's exactly where you don't want to be in a situation where you need increased mobility.
Kate Gordon
Exactly. And it's tied to your point, like, people stay where they are partly because of this. I mean, it's... I see this a lot in the work that I've done on, like, coal communities. People want to stay even though the value of their house went through the floor, even though there's no jobs because they can't afford child care. And right now their mom, who lives next door, does child care. Right. Like, it really makes a difference that we have no safety net because it means nobody can move. So, I think there's a set of things around this that are like, we just have to be paying attention to economic mobility generally.
And that's — I know that's hard, but it's super important anyway. And it's probably even more important with everybody having to now have all this. Everyone having all this insecurity on where they live. And then you get into the managed retreat question, and you've already started to see a little of this. I think there's, like, a Native American village that was moved.
David Roberts
Oh, up in Alaska?
Kate Gordon
There's a little bit of it happening.
David Roberts
Yes, there were, like, 12 homes or whatever.
Kate Gordon
And there's some, you know, there are some international examples and it. And it's interesting because it brings in all of these, especially internationally, all of these, like, migration and citizenship issues. But we probably need to start having a serious conversation. It reminds me a little, David, of, like, 10 years ago. We could have been doing a podcast on geoengineering. I'm sure you did. And like everyone was like, "Oh, that's crazy. That's like no one's thinking about that. That's, like, we're not there." And now today everybody is actually talking about it. There's like governance systems being set up.
People are having conversations about it. I think we need to get there on this question of migration because that's where we are headed and we need to start talking about what the systems look like to do this in a rational way. Because you're right, it's coming and it's now like we've hit the various tipping points. It's definitely going to happen in some places.
David Roberts
I got to tell you, I'm trying to imagine a system that moves people out of their homes due to climate risk. Those people are happy or satisfied with it.
Kate Gordon
I mean, I don't think it's that — I think it's very unlikely that it's proactive. It's very hard to imagine. I think it's probably disaster-driven.
David Roberts
Right?
Kate Gordon
But that still means you have to be ready for it.
David Roberts
Yeah, you have to be ready for it. But, like, people are going to fight it.
Kate Gordon
People are going to fight all the elements of what we're talking about. The increased prices, the — I mean, all of it. Climate is a fundamental disruptor of every single thing about our existing system.
David Roberts
Yeah, and like one way of thinking about it, and I think this conversation really kind of brings this into sharp relief, is that climate change has already been creating a lot of negative value, a lot of costs, and thus far we've mostly been kind of shuffling them around and hiding them and squirreling them away where they don't look like climate costs. So, a lot of people in the American public, I feel like, are going to have to be brought from like 0 to 60 on this really quicker than people typically are comfortable with. Like people —
Kate Gordon
I think you're right. I mean, I think we, in some ways, you know, these shocks are really clarifying. You know, I've said many times, and I'll say again, I don't think that the Biden Built Back Better agenda, the kind of all the bills that we talk about all the time, I don't know that they would have passed if it hadn't been for COVID. Right. We've gotten used to a system where the economy was about supply chains and things being offshored and everything being as cheap as possible.
David Roberts
Yeah.
Kate Gordon
That all breaks down, and all of a sudden, everyone wakes up to a reality that many people have been talking about forever, which is, "We're too dependent on China, we don't have any of our own manufacturing. Like, this is a problem. We are not resilient." And then we realized we weren't resilient if we did something about it. So, I don't know. I think shocks are clarifying, but I also think they're incredibly painful. And again, with COVID, who bore the brunt of that? A lot of people who were already low income.
David Roberts
I mean, we should say that shock-led public policy is not ideal. It's really not what you'd want if you were sketching out a plan.
Kate Gordon
I mean, when we do big picture plans that are about multiple sectors of the economy, it usually is because of war or some other fundamental shock. So, it's what we tend to do. I think it's human nature to some extent, but I would love to get ahead of it.
David Roberts
And the other thing I would just say about that, if we want people to interpret climate shocks as climate shocks, like they don't advertise themselves that way, you know what I mean? They don't tell their own story. So, we have to start telling people when these little things happen here and there, you know, like to Florida, to Texas, you know, the freeze, the hail here, we have to start telling people like, "This is climate risk, this is what it looks like." And I don't know that we're really doing that very well.
Kate Gordon
Well, it's your job, David.
David Roberts
I'm trying, I'm trying. Okay, final question. You know, one thing that just looms over all this, I feel like, is the question of trust. On the one hand, disasters, chaos, and suffering tend, all things being equal, to reduce trust. People pull up their walls, they kind of bunker, they get a bunker mentality. But to do something like deliberately moving whole communities from one place to another just requires an extraordinary amount of social trust. At a time when we are so low on it, that just worries me. But I'm not going to ask that super vague question, I keep asking you to solve cosmic problems. To be slightly more granular about it, the question is, who does this modeling?
Who says, "What is the level of climate risk? Who is in charge?" Because ultimately, these models of risk are going to filter down and have enormous economic effects more and more. Who owns them, who runs them? Can we see them? Are they publicly available? What's the deal with the transparency issue on these models?
Kate Gordon
It's a really good question. Most of them, and this is my understanding from like five years ago. So, one of your listeners can say, "No, that's no longer true." But most of them start with the fundamentals of the 28 or whatever climate models that go into the IPCC reports. There's a set of climate models, they're peer-reviewed, they're science-driven, people use them. A lot of people use them for a lot of things. So, I think those are pretty known and good. It's the question of then how do you take those data and then get to the kind of granular scale that you need to be at to be able to say anything rational about maybe not property level, but at least like, you know, block level or community level.
And it's that kind of downscaling that you end up with organizations kind of taking the modeling and then playing around with it in a variety of ways. I will say, and I'm very proud of this, that when we did Risky Business where we created the Rhodium Group, we worked with them, they created what is now the basis of the Climate Impact Lab modeling. A lot of people use it, we made it open source on purpose because we felt really strongly that this was constantly changing and it couldn't be something that was, you know, hoarded.
David Roberts
Yeah, the last thing you want is for the insurance company to be sort of doing some sort of witchcraft behind the scenes, and then just pop out with a number. That's not going to fly well.
Kate Gordon
And I think that's good. Just to answer your question about what the regulators can do, I think that transparency modeling is actually really important and the public sector should use — everybody should be using fairly similar models so that there's consistency. But yeah, you're quite right. I mean, there has become a, as you know, I'm sure, a whole market, a competitive market for models and there are people who, you know, like to say that they can do everything through AI and drones. And there are people, there are just all these people out there. The thing that the models still miss to a great extent, and we already talked about it, but I'll say it again, because it's very relevant to insurance, is they miss adaptation.
Most of the models say, somewhere in the asterisk, small print, "absent adaptation." This is all the stuff that's happening and adaptation is actually happening all over the place. People, humans, are super, super adaptive because we're fundamentally about our own survival. So, I think you do need to think about adaptation and start modeling adaptation and start rewarding adaptation. And right now, it's missing from most of the models.
David Roberts
Kate, this has been fascinating, as you say. We could probably do 10 more pods on any one element of this, but I feel like is a good overview. And this is really, you know, this is like climate people have been saying for years and years and years, like, "Climate's going to come to your kitchen table eventually." And it seems like this really is where it's happening. It's unfortunate that it's going to be via disasters and then tendentious fights about who gets what money after disasters, but, like, it's coming and it's coming in a way that nobody's going to be able to avoid. I feel like, as you say, it's at least going to drive these discussions.
Kate Gordon
I think that's very true, and I'm always happy to come back and have 10 more conversations with you, David. I always love talking to you.
David Roberts
Thank you for listening to Volts. It takes a village to make this podcast work. Shout out, especially, to my super producer, Kyle McDonald, who makes me and my guests sound smart every week. And it is all supported entirely by listeners like you. So, if you value conversations like this, please consider joining our community of paid subscribers at volts.wtf. Or, leaving a nice review, or telling a friend about Volts. Or all three. Thanks so much, and I'll see you next time.
In this mailbag episode, I address election-related questions and I’m not going to lie, it’s a little gloomy. I also touch on the future of the Inflation Reduction Act and answer subscriber questions on topics like offshore wind, ranked-choice voting, and local strategies for decarbonization amidst federal chaos.
In this episode, I talk with Caroline Spears of Climate Cabinet about the results of the state and local climate races her organization tracked in 2024. We discuss the importance of these often-overlooked state and local races for climate progress, the challenges of the current political information environment, and Climate Cabinet's strategy for building power at the state level through 2030 and beyond.
Greetings, everyone. This is Volts for November 27, 2024, "Checking in on local and state climate races," I'm your host, David Roberts. Back in May, I had Caroline Spears of Climate Cabinet on the pod to discuss her group's moneyball approach to local and state races with climate implications. Climate Cabinet was tracking and supporting candidates in over 100 elections across the country.
Last week, at a Canary Media-sponsored event in Berkeley, I had a chance to check in with Spears about how things went — how all those local and state races turned out. As it happens, the news isn't all bad.
Caroline Spears
A lot bad! But not all bad. Spears and I discussed a few state-level bright spots and shared a bit of gallows humor. I hope you will find it somewhat cathartic.
By the way, I just want to say: I got to meet and chat with lots of Volts listeners at the Berkeley event and so many people said so many nice things. It was good for my heart, which very much needed it. Not for the first time, I feel overwhelmed with gratitude (and no small amount of befuddlement) that I'm in a place where my work reaches people, means something to them, and makes some small change in the world. I never forget that it is a privilege.
Caroline Spears
Hey, y'all.
David Roberts
We heard her describing someone who couldn't help but be optimistic. Both of us looked at each other, it's like, "That's not... that's not supposed to be me, is it?" We can help it. I don't know if you guys heard, but there was an election last week and we are here to discuss the results.
Caroline Spears
The bar is still open, if folks are...
David Roberts
Yeah, can you please tip your bartender? Yeah. So, the federal level was not great, not optimal, not maybe what we would have hoped. But of course, the whole thesis of Climate Cabinet is that these subnational races matter and shape policy for the future and shape our future leaders, shape the future bench, etc. So, we're here to talk about those races, not about a pedophile being put in charge of law enforcement or a Russian spy being put in charge of intelligence or a Fox News host being put in charge of the Department of Defense.
So, let's... I'm sorry, it's on my mind. So, Caroline, let's talk about — I was going to say the good news. Let's talk about where there are glimmers of sunshine at the local level. So, you guys had this — you might want to explain sort of to everybody, kind of — you have this set of races you're watching and fighting for, and you have, I think, certain projections and expectations beforehand. And so, I would like to start with just sort of like a big picture of the races you're tracking: How close was the outcome to what you projected and expected?
And then, you know, from there, let's talk about some of the wins.
Caroline Spears
Really excited to do that. All right. There was an election last Tuesday and many of you followed the federal results. At Climate Cabinet, we are Moneyball for climate politics. So we did not do any federal races because our job is low cost, high impact. That's the space that we have in the ecosystem. And every year we go into the year and it's a portfolio approach. So on Tuesday, we had 172 climate champions up for election. And those were — yeah, so many — fantastic, running in tough races across the country that have really high climate impact for every single race.
David Roberts
You select by climate impact, right? Like, that's sort of your criteria for choosing races where someone can not just where it's winnable, but where someone can make a big difference.
Caroline Spears
Exactly. So, that would be the difference between doing like, you know, you could invest in someone running for the New Hampshire State Legislature. But there are 400 people in the New Hampshire State Legislature, which is like, I'm sorry, if y'all are from New Hampshire, that's too many. It's just too many people.
David Roberts
That's like the population of New Hampshire.
Caroline Spears
Yeah, it's like every fifth person gets to be in the state legislature. What are we doing here? It's wild. And New Hampshire again has something close to 1% of the emissions of Texas. So, the climate impact isn't fabulous. You take something like Pennsylvania, which, if Pennsylvania were its own country, it would be the 40th largest emitter in the world. Much more impactful. So, we look at the difference between those and that's really what guides our investment thesis every year. It's like, I love all of our candidates every year because we're never, like, we don't support anyone you see on CNN.
Like, you're never going to turn on CNN and be like, "Wow, that person who's running for Pennsylvania House District 142." That's the stuff that gets us really excited. So, we had 172 candidates up on Tuesday. Every year, it's this portfolio approach. Right. You go for a 50% win rate every single year. On last Tuesday, we won 52% of our races. We did pretty well. Yeah. Which is fantastic. We defended seats. We flipped seats. And like this last week has been strange because emotionally —
David Roberts
Oh, has it?
Caroline Spears
it's been a roller coaster. But professionally, we elected a lot of great people to office who are great on climate, and I'm really excited about what they'll do next year.
David Roberts
So, let's talk about a couple of those examples. There's North Carolina. It's odd to talk about happy North Carolina results, but tell us what happened there.
Caroline Spears
I am happy about North Carolina. We elected Josh Stein to the governor's race. Yeah. Really exciting. You know, a couple of years ago, I'd have been like, "Of course he would have won. Look at the person he was running against, Mark Robinson." I don't know if y'all were tracking that race. Is it appropriate to say Mark Robinson...? We're at this point in politics where I'm like, "Is this a family-friendly audience? Can I say what Mark Robinson did?"
David Roberts
Hard to even describe him in a way that's family-friendly.
Caroline Spears
But I'm not taking anything for granted. It is really exciting that Josh Stein won that governor's race. The important thing we had to do is not just have him win that race, we need to give him a veto pen that works. Because what happened under Cooper is that we had a Democratic governor and we had this GOP supermajority that was crazy on climate and would override his veto. So they passed this bill to strip energy efficiency and building codes that would have made houses like EV ready and solar ready, and they overrode his veto on that. So it's really important that we break that supermajority and give incoming Governor Josh Stein a working veto pen.
And we did that. We broke the supermajority. So, it's so exciting on climate.
David Roberts
By how many, what's our margin there?
Caroline Spears
We have a one-seat margin. Woo. Really exciting. But some of those candidates, I mean, we had a candidate flip an R+4 district. Like some of these candidates ran uphill races. Yeah. And she did it after Hurricane Helene. So this is Lindsey Prather running on the western side of the state. Hurricane Helene hit. We saw that there was polling that showed an increased interest in climate after a giant hurricane devastated western North Carolina. Again, we are taking nothing for granted this year. Polling showed that voters cared about that and Lindsay actually saw that on the doors. So they completely changed their campaign.
They went from kind of a standard campaign to, "Hey, here's how we can help rebuild." And they talked about climate, they talked about clean energy, and they won again. She flipped an R+4 district through a fabulous strategy. So, I'm really excited about that.
David Roberts
All right, and what about the future of North Carolina? Do you mean, is like having a veto over the crazy legislature the best we can hope for in North Carolina?
Caroline Spears
So, there's a short-term win and there's a longer-term win in North Carolina. The short-term win in North Carolina is that we have a working veto pen. The long term is that we have a path towards changing power in North Carolina. Right now, it's a very gerrymandered state. So, we're not only thinking about our 2024 races right now. 2030 is the big year when the state — whoever controls state legislatures in all of these states will actually redraw their own district boundaries and the district boundaries for Congress. So, I think about every win that we had this year, and I am thinking about the wins that we'll get in the 2025 legislative cycle.
We've just brought on a fabulous senior policy director to kind of run a multi-state lobbying operation to get clean energy progress at the states, which we'll need. I knew we'd need it, but now we need it more than ever after last Tuesday. So, we're really thinking about 2024, but also how are we notching wins every single year to make — and we have a map redrawing year, basically 2030. How we do in state legislative races in 2030 will determine our climate progress through 2040. We can't have another 2010-2020 year, which was like a lost decade on climate.
And that's our opportunity window.
David Roberts
People might remember 2010 when the Tea Party ran roughshod over Congress and then was responsible for gerrymandering and screwed Democrats for a decade with that. So, it would not be good if that happened again. Several states had ballot initiatives about gerrymandering, you know, with saying, like, "Let's do a nonpartisan, you know, sort of like objective panel put in charge of redistricting rather than, rather than Congress," and all three of those lost. Was one of those in North Carolina or am I...?
Caroline Spears
There was one in Ohio.
David Roberts
That's a heartbreaker.
Caroline Spears
I know.
David Roberts
Why? Why? Why Ohio?
Caroline Spears
Are you asking for there to be, like, a logical reason about how people vote every year? Because I don't know if I can give that to you.
David Roberts
This is what I can't do, and that's why I'm tortured. All right?
Caroline Spears
But this is why — can I just do a pivot into the information ecosystem? This is why having a good information ecosystem — shout out to Canary Media — is important. Yeah, but seriously, because, so I spent all of last month in Pennsylvania knocking on doors. And this happens to me every time I knock doors, which is we focus so much on first mile media, which is what the candidate says. And we're very obsessed, like, "Oh, they kind of said the wrong thing in this particular interview, w hat this means for the results of the campaign." And we don't think as much about last mile media, which is what voters hear, what they process, and what they say back to you.
Every single time I knock doors, what voters tell me that candidates are about is wildly different from what the candidates are saying themselves. And so, fixing that last mile media is, I think, our job and our goal for the next couple years.
David Roberts
You're trying to trigger me. I'm not going to let us get onto that, or I'll never shut up.
Caroline Spears
What was the tweet that made you most angry today? We can really go down in this direction.
David Roberts
I know. I will just say that so many of the postmortems are, "Democrats did this and the voters reacted this way. Why would they react this way to this?" And I keep saying, like, in between this and them is a big information ecosystem that is absolutely polluting everything. So, they just don't know. They literally don't know what they're doing. And if you eliminate that from your analysis, you're going to be like, "Well, I guess they hate it when we create a great economy and we're not going to do that again." All right, anyway, let's talk about Wisconsin.
Wisconsin is, I guess, what passes for a bright spot.
Caroline Spears
Hey, it's an actual bright spot.
David Roberts
An actual bright spot.
Caroline Spears
I stand on that. There is a bright spot in Wisconsin last Tuesday. That's absolutely true.
David Roberts
I mean, hopefully, Ben Wikler is going to be the next DNC chair. So, tell us what happened in Wisconsin. Similar to the North Carolina results in some way.
Caroline Spears
Yeah. Also broke the supermajority in Wisconsin. It's also very exciting. We did that because we got new maps. So Ben Wikler and the Wisconsin Dems ran a like 10-year strategy which was like: First, you gotta get the governorship, then you have to flip multiple state supreme court seats and then you can file a lawsuit that will make it to the state supreme court that will redraw the maps and that are basically fair now. And they're basically fair maps that they don't really prioritize one party or the other. And then we have a shot. And they executed every single piece of it.
David Roberts
They actually did it.
Caroline Spears
So, watch this space in 2026, we made some great gains. And basically, once you get incumbency in one of these seats, it becomes so much easier to re-win election. So, this is an uphill climb this year in the Wisconsin state legislature. But in 2026, 2028, our job just got a whole lot easier. And what's literally on the table, we have 100% clean energy on the table. We have clean cars on the table in Wisconsin, if we can flip just a few seats.
David Roberts
What are the margins in the House and Senate there? They're both Republicans still, right?
Caroline Spears
They're both Republicans still. But basically, the maps are drawn favorably. And in a year where Trump isn't at the top of the ticket, people feel much more confident and — just to like, I know it doesn't feel, listen, I know it doesn't feel exciting to be like, "We have new maps in Wisconsin," but Wisconsin has more emissions than the entire state of Norway by like 2x. So these are, I think these states are important on an international scale and the things we do at these states matter. And there's some folks here who I used to work with at Cypress Creek.
And one of the best things I talk about is when we were at Cypress, we built over 60 projects in the state of Massachusetts and none in the state of Arizona. That's all state policy. So these states really matter for our ability to get things done. And it doesn't emotionally, like, this is one of those weird weeks where I don't emotionally, I'm like, not super happy about last Tuesday's results, but intellectually I'm like, "Well, we can still get some stuff done. That's great." And it is great, actually. And we'll just let that sink in and keep working at this level.
David Roberts
Yeah, the only other happy spot was New Mexico. Tell us. Yes, tell us about New Mexico.
Caroline Spears
New Mexico, Dem trifecta. But this is a great case. Sometimes when you talk, "Oh, Republicans, Democrats, Republicans, Democrats." A classic case of "this stuff can be very nonpartisan" because in New Mexico we had Democrats who were voting against things like a community solar bill, which is like, come on, like community solar bill, there should be a non-starter. We've gotten that through bipartisan majorities before. I mean, you can't get it through a Dem trifecta, what's going on? So it's just clear that there's a lot of partisanship baked into how people view climate. But it's not always partisanship.
In New Mexico, we got involved in the primaries earlier this year. We had nine seats. We had an open seat, four defense, and four offense where we had, again, folks voting against really obvious climate stuff. And we knocked all four anti-climate people out of office earlier this year in New Mexico. Yeah, it was awesome. Yeah. Expanded climate window of opportunity in the New Mexico state legislature. We have a lobbyist there. We're ready to go.
David Roberts
So, you anticipate good things coming out of New Mexico in this coming —
Caroline Spears
I anticipate it with work, with lobbying, you gotta show up in the Capitol and you have to say, "This is what I want you to pass, this is how to get it done." But we are in a much stronger position than we were six months ago.
David Roberts
Okay, well, that concludes our good news for the event. Let's talk about some bad news. In the bad news column, which I would say I sort of expected, were pretty bad results in these PUC elections. So, some states, I think like five, have elected public utility commissions, the regulatory body that oversees the state's power utilities.
Caroline Spears
Obviously, something we should totally elect and that the voters —
David Roberts
Something that voters are so educated on.
Caroline Spears
I feel that way when I'm looking through the ballot measures. I'm like, "Do you need this? Should I be voting on this?"
David Roberts
America has too many elected positions. That's a real problem. But in Arizona and Montana, bizarrely, they're elected. And so, Montana had, I think, a 5-0 anti-climate PUC and now still does.
Caroline Spears
Yep. No change.
David Roberts
Yes, and Arizona had a 4 to 1 anti-climate majority and now has a 5-0 climate majority. So basically, no climate champions won in those races. Is that just because, I mean, are those all just drafting on bigger votes? Like, is anyone, is any voter voting for a particular PUC commissioner, or is this just like reflects partisanship?
Caroline Spears
So, in Montana, a state that Trump won by, I think, we're at 15 or 20 points. When it's that level of margin, it's partisanship. Arizona, where the margins are a lot closer, is a place where we can make a lot of changes. So, the way I would think about — there's two things to think about for the Arizona Corporation Commission. The first is that running a statewide race in Arizona during a presidential and Senate year is expensive, and we have to put the money in like "this is worth it." And it is worth it.
David Roberts
Oh, you mean just like trying to get your ads out in the midst of all the other ads?
Caroline Spears
Yeah, these are expensive races and we need to be spending like they are. And we underspent by about 66% this year. Yeah. Our budget should have been 3x what it was. And we all , this was a known known going in. And it's just a flag for us going forward. What we also need to do is be running people for these races that have held elected office before. And so there's a recruitment piece to that too that we can solve next time.
David Roberts
Who underspent? You mean Climate Cabinet underspent on it?
Caroline Spears
The whole field.
David Roberts
The whole field.
Caroline Spears
We tried raising for it. It was really hard. Yeah, we have the budget in mind. But you can go to people and say, "Hey, this is how much it's going to cost." And they either say yes or they say no.
David Roberts
I know. And trying to convince people that PUCs are important is wonky. Yeah. Hopefully, if you are Volts listeners, which you should be, you will know that there's an organization now called Power Alliance that's out there very much trying to sort of... Thank you. Trying to — I mean, I don't know why I'm saying thank you. It's not my organization, but I'm a big fan — a big proponent that's trying to sort of raise the profile of PUCs, generally trying to draw attention to the races where there are elected PUCs, trying to get people with money to pay attention to those things.
So, hopefully, that will get easier.
Caroline Spears
And that's a big problem in these PUC elections. We basically see from 2 to 6% down ballot drop off, where people are voting for the top of the ticket. They're voting sometimes for their congress member. They're just leaving this whole section of the ballot blank because everybody is like, "What is the Arizona Corporation Commission?" It doesn't, the title doesn't say what it actually does. Like everything about it. And so you actually have really bad down ballot drop off in the bluest cities in Arizona. It's 2%. In kind of the suburbs, it's 6% down ballot drop off in the cities.
So, that's what I'm saying. In Arizona, there's a clear path forward. We have to treat these races like they matter. And the other reason these races are so expensive, in addition to having to get your name ID up, is that it's very competitive. Can you imagine trying to find an ad vendor in 2024 if you're a political campaign? I mean, it's wild. We have to be funding these races early. We have to give them the money they need. And the other piece of this is, it's like, well, who's funding the opposition? The fun thing about these public service commissions is they regulate utilities.
Utilities can go to all of their customers, collect rates from them every month, and then use those rates to fund the elections for the public service commissioners that will give them the best deal. It's wild.
David Roberts
Yeah. Guess who is paying attention to PUC races?
Caroline Spears
And so, there's actually state legislation that Climate Cabinet's looking at introducing, running, and building votes for over the next couple of years that says you can't use utility rates for political contributions.
David Roberts
Has passed in a couple of states.
Caroline Spears
Has passed in a few states.
David Roberts
Yeah, two or three states have passed that. And that's one of the things that, somewhat surprisingly to me, like the pod I did on that with Dave Pomerantz about those laws, was bizarrely popular. I think that does actually resonate with the public a little bit. Like, why wouldn't it? They're taking your rate money to lobby against your interests. It's pretty outrageous. Insurance is an interesting topic these days, particularly interesting in a couple of key states like North Carolina, where all of a sudden whether your home is safe looks a lot different now than it did a couple of years ago.
So, you might think it would be good to elect an insurance commissioner who was aware of the problem, but that didn't happen. What happened there?
Caroline Spears
Thanks for that lead-in. Okay. And the thing I'll say about all of these, we talk about these offices like they're set in stone. We talk about the insurance commissioner like they are the only one who can regulate insurance or public service. They're the only one. But what we see in all of these races and when it comes to the governor, the executive agencies, the state legislatures, the cities, the counties, is there's actually a constant power grab going on between all of those levels of government. It's not a layer cake, it's a marble cake. And it's a marble cake with intention.
Like when Dallas tried to move to electric leaf blowers, the Texas state legislature was like, "No, no, no." And they tried to pass a bill — it was called the Death Star Bill. You can look it up. Very dramatic.
David Roberts
They called it the Death Star Bill?
Caroline Spears
I think it got named that by the press to strip away cities' ability to do things on a lot of issues, but also on climate. And so, there's this constant power struggle. So, we will see a lot of insurance legislation come up at the state legislatures in North Carolina, because while we're electing obscure regulators for the electricity grid, why not also elect obscure regulators to do insurance? There's a lot of states that elect their insurance commissioner as well. North Carolina is one of them. We supported Natasha Marcus who's running and unfortunately, you know, we won the governor's seat there.
We won the Attorney General, we won a bunch of state statewide, and she lost the Insurance Commission race to a guy who doesn't believe in climate change, who will be setting the insurance rates for North Carolina.
David Roberts
I don't know why I'm laughing. Well, enough about that. What about Michigan? Michigan seems particularly sad to me since we had a majority there and they were quite good on — they got a one-seat majority and instantly passed a 100% clean energy bill. That's gone now. Tell us how you think about Michigan. Not just what happened, but like going forward.
Caroline Spears
So, we still have 100% clean in Michigan, still there, still on the books. It's not going away because we still have it. The Senate wasn't up this year, which helped us. Nice. And we have the governor as well. We lost the House.
David Roberts
By one seat... two?
Caroline Spears
A handful of seats gone in the House. There's a hundred seats though. So, we'll come back in 2026, y'all. Midterms tend to be — like historically have been bad years for the incumbent president's party. And I don't know, maybe this new round of cabinet picks by Trump will engender the love and appreciation of the American people. But I think in 2026 we might have a good, a good map for us at this point.
David Roberts
The people have been waiting for Tulsi Gabbard.
Caroline Spears
They have been waiting for Vivek Ramaswamy. Yes, specifically.
David Roberts
But Grand Rapids.
Caroline Spears
Yeah, we have a good story in Grand Rapids. We elected climate champion David LaGrand to Grand Rapids. Like, we elect people who are important in their own right. That's very important to us. They have to be pushing for — he wants to make Grand Rapids a 100% clean electricity city, for example. That's really exciting to us. But also, some of these candidates, David LaGrand's campaign knocked on 65,000 doors in the state of Michigan in battleground counties. That ends up running up the margins for Slotkin, who won that race in the Senate. The Michigan 3rd District and other competitive districts ran up the numbers there.
Really impressive story, and I'm excited for Grand Rapids to keep pushing forward on 100% clean.
David Roberts
Let's talk about Pennsylvania. So, everybody, Pennsylvania, sort of funny... like the entire country, the entire world was focused on Pennsylvania.
Caroline Spears
Yes.
David Roberts
You know, I did a pod with a House rep there who was going through all the races in history, and it is like, on the razor's edge. Not just statewide, but almost every race. Like every single special election they've had, both houses of Congress, everything is like, exactly. I mean, very tense. Just talking to her. And so all this attention, all this money, including a big push from you guys, and to a first approximation, the result was nothing, no change. Everything in Pennsylvania remains exactly as knife-edge as it was before the election. What the hell?
I don't know what there is to say about that, but —
Caroline Spears
But like, going into Tuesday, you know, Tuesday, I think the initial narrative, because the narrative of losing the presidency to a guy with 34 felony counts is bad. But what we saw in a lot of our races is no change. Slightly better. We lost a chamber in Michigan. We're now tied in the Minnesota House instead of the majority. And Pennsylvania is one of those stories. Like, if you guys had told me the presidential result and the Senate result in Pennsylvania, you would not have also told me, "Oh, before going into the election, Dems had a 102, 101 majority in the House.
And after the election, they have a 102, 101 majority in the House." They also picked up a seat in a flip district in the Senate — Dems flipped a seat in the Senate in Pennsylvania this year. They lost a seat that should have been safe for Dems, but it is a prime pickup for the next cycle. But, yeah, no change in Pennsylvania. Wild.
David Roberts
Do you think it's just like, everybody just canceled each other out? Like, there was so much effort, it literally was like, mathematically identical and canceled itself out.
Caroline Spears
You know, this is like one of those —
David Roberts
Or does nothing matter? Which is my alternate theory.
Caroline Spears
Answering the first comment, not the second comment. The unsatisfying political answer to, like, every result from Tuesday, is that exit polls are all garbage and we all have to wait, like, five months to actually figure out what happened.
David Roberts
We don't have to wait. Nobody's waiting. But we should wait. Let's just say —
Caroline Spears
There's just a lot of takes out there. And what we're going to do is we're going to go through the voter file of the people who actually voted. There's like a whole statistically proper way to go about this, where you contact them, you figure out how they voted, you track that with their precinct results. You kind of — the math needs to math. And then you're like, "All right, this group of people voted like this, and these people shifted this way." But a lot of the takes right now are pretty unsubstantiated when it comes to, like, how groups of voters voted. What we do know at this point is that we had candidates outrun the top of the ticket.
A lot of times, I talk to folks, they're like, "Oh, well, you know, all those state legislature races are just coattails of the national, and all you have to do is fund the national." That is not true. It's never been true. In 2020, we had ticket splitting at the state legislature level in Pennsylvania by 15 points in all of the battleground counties. That's someone who literally, those counties, split their ticket by 15 points, voting for either Biden and the Republican state lawmaker or Trump and the Democratic state lawmaker. 15 points of difference. That makes majorities.
That's some of what we saw on Tuesday in Pennsylvania. And it just follows the pattern of what we've seen in Pennsylvania 2020 as well, which is, instead of coattails, it was like every candidate had to run their own race. They had to stand up on their own two feet. They had to get their name ID out in their community. Patty Kim, who won that Senate seat in Harrisburg, was a local TV anchor. You run candidates who are strong, who have great name ID, good candidate recruitment, and that's what a great campaign looks like. And that's what we saw in Pennsylvania.
So that's how we got there.
David Roberts
Well, one thing I just want to emphasize that Caroline said, just in case everybody isn't aware, I assume this is sort of like a politically aware crowd, more than most. But just like all the takes you're seeing are based on exit polls about this demographic swinging towards Trump and this demographic swinging away. They're all based on exit polls, which are notoriously wrong. So this happens every election. Like, you get a bunch of takes that harden into conventional wisdom, and then the actual data comes out, contradicts all of it, and it doesn't matter. Conventional wisdom never dies. Narratives never die in the media.
Caroline Spears
Is this upsetting to you?
David Roberts
No, I feel great about it. Yeah. So, everybody just needs to, like, suspend judgment for a little while about, you know, like, the Latino shift to Trump. People are drawing cosmic freaking conclusions from that, and we don't even know if it's real yet or how real it is or whether it's big or small. Like, we don't really know anything about that. So, it's hard. Everybody. There's such an appetite for takes right now. Like, somebody's going to satisfy the appetite, but, like, almost everything is BS at this stage. Minnesota seems a little sad to me, too.
They had a — I mean, God bless Tim Walz — like they had a razor-thin majority in 2022 and they just went for it. Absolutely went nuts. Like, passed all kinds of great stuff. Absolutely should have been a model for Democrats everywhere across the country and now can no longer do that. What happened there?
Caroline Spears
So, we still have the Senate, we still have the governor, we are tied in the House, and we have a really strong leader in the speaker of the House there. So, we're in like it's very rare for so many state-led candidates to run out of the top of the ticket. It's building off of some of the stuff that we saw in 2022. But in Minnesota, they had an experience 10 years ago where they won a trifecta. They said, "It's really important to us that we're like cautious. No one wants to... So we don't seem like we're overreaching.
They lost that trifecta the next two years. It didn't work. And so this time, they went in with a strong plan. They said, "We're going to deliver for people," and I think you're seeing a better result than the previous one. And they're in a stronger spot. All of the House all up in '26. So we'll see everyone back in 2026. Don't you love the timestamp on these? Just like it's constant. I've had Virginia candidates running in 2025 reaching out to us all year. So it's just, it's constant. But this is like the engine, this is the political engine.
And like, we just need this constant attention on all these levers of power because if we take our eye off the ball for a cycle, it's really hard to come back because of that incumbency advantage.
David Roberts
So any other local results, any other results you want to highlight or call out? Anything else?
Caroline Spears
Yeah, we have a good, we got a pro-climate majority in Lancaster County, Nebraska. It's very exciting.
David Roberts
Nebraska.
Caroline Spears
Got a county important for siting.
David Roberts
Right.
Caroline Spears
So that's good. And they control one of the largest coal power plants in the country.
David Roberts
What about looking forward? I guess it's like when most people think of that, they think of the next presidential race. But obviously, like you guys, we are on races next year and then 2026 as you say, never stops. What are the local races or state races of particular significance that you're watching for 2026 and do you already have your eyes on — how far ahead do you get? Or is it just frantically racing to keep up?
Caroline Spears
Yeah, can you filibuster for 45 seconds while I get over this?
David Roberts
Like, sure, sure. Just say the words 'information environment' again and I'll be unable to help myself. I'll just throw one factoid out there while Caroline's voice recovers, and I'd love to hear your thoughts on this too. So, one of the interesting results from Tuesday was there was a shift toward Trump in every state, everywhere, among every demographic except for women over 65. Oddly, of course, this is like again, again, this is exit poll stuff. So, all of this is all sort of approximations. But I mean, the nationwide shift toward Trump was notable and I think is going to hold up.
The shift toward Trump nationwide was, like, whatever, like five points, five to seven points. And in the battleground states where Kamala campaigned, it was three to five points, basically. So, I would just ask you, like, what force applies to the entire country and every demographic? It's not some clever political strategy. It's the information environment that is the water in which we are all swimming. And another thing that was notable, a weirdly high number of voters this year voted for Trump and then just didn't fill out the rest of the ballot at all. Which explains some of the diversion of these local races from national results.
So, there's clearly something specific about Trump, not the Republican Party. Do you know what I mean? Like, not specifically about Trump. And I don't know what that alchemy is, but obviously a huge part of it is the information environment. And we all need to think about how that happened and why.
Caroline Spears
One story about that from Pennsylvania, when I was on the doors talking to, it's like you do a packet, it's 50 doors. I talked to about 10 people a packet. You do five people who were like, "Yeah, we're totally on your side and we absolutely have a plan to vote. See you." And we just kind of do finger guns at each other and walk to the next house. Then there'd be three people who were like, "Oh, yeah, there's an election. What's my polling place?" And you kind of do plan to vote, right? And then two people, every packet, who were like, "I don't know who I'm going to vote for."
And one thing about the, when I say, like, the doors are what makes me really believe that this information environment place is something we all have to focus on, is I remembered I talked to one of those folks who like, "What's an issue that's on your mind?" "It's like, I'm just worried that they're teaching all this stuff in the schools and like, my kids are going to like, be trans." And I was like —
David Roberts
Come home a different gender. You like, you turn your back and all of a sudden my boy's a girl.
Caroline Spears
It's just like this fear-based stuff. Andy Beshear has a great statement how he actually supported gay kids and still won governor of Kentucky. So that's it. That was a good point.
David Roberts
Yeah, it's worth reading that statement from Beshear. It's very striking. Very strikingly different from —
Caroline Spears
Yeah, and I talked to him about hearing aids. I was like, "Cool, well, you know, one of the reasons that I'm on the doors here is that I care a lot that hearing aids are cheaper." My grandmother needs hearing aids. She lost them mowing the lawn and she didn't buy another pair because they're $5,000. And so when Joe Biden lowered the cost of hearing aids, I texted them and I didn't tell them that it was Joe Biden because my primary goal was getting her hearing aids. And my whole family's kind of right-wing. Like, extremely right-wing.
Like a "signed photo of Rush Limbaugh in the living room" level. Yeah. Extremely fun. So, I was like, just for some crazy reason, you can go to Walmart and buy hearing aids now. They're like a couple hundred dollars. And it's exciting now because now she has hearing aids. And I talked to this guy, and he was like, "Oh, two people in my family are hard of hearing, and that's an issue that really matters to me." And I was like, "Yeah, all right, well, then do we have your vote in the election?"
David Roberts
Do I have a story for you!
Caroline Spears
Yeah, I mean, we walked through it, but it's just like, we can do real things to improve people's lives, and that's still important. It needs to be a centerpiece of our strategy, and people need to hear about it. So, how are we going to fix that piece of it? What were we going to talk about before we got here, though? We were somewhere else.
David Roberts
Well, I was going to ask you what you're focusing on for the next round. If there are particular states or races or —
Caroline Spears
So, I love the podcast you did with Leanne Krueger because she talked about this. 102, 101 majority in the Pennsylvania House — it's like a knife's edge every single time. We are building, at Climate Cabinet, a special election defense fund because the tough things about these special elections just happen super fast. You basically need pooled capital ready to just deploy every single time in the —
David Roberts
What is up with special elections? Why are there so many in Pennsylvania? What prompts them? Like, is it just when someone in the Congress or state house retires?
Caroline Spears
Retires, they get pulled in. Like Trump right now is pulling people out of Congress into whatever. And so all this stuff happens. Someone decides to run for mayor, like. We almost imperiled the Michigan House majority when two people left to go run for mayor. Crazy. And so they'll call a special. And in states, these can range from "Surprise, there's a special election that's happening in four and a half weeks," to something a bit longer. And so that's something we're doing to make sure that, you know, we talked about how the North Carolina supermajority is one seat.
Pennsylvania 102, 101. If a Pennsylvania state Senate seat opens, I'm very interested in that. We got three more seats to flip, let's go. So, that's something that we're building at Climate Cabinet. So, even in the interim of the next two years, we'll have opportunities to make plans. Then, it's building, in 2025, we are building a — I mentioned this lobby network. We got to fight back against Trump. We're doing it at the states. So, we're continuing to push climate progress at a state level. Being in the Capitol, in the building, making sure that we turn. The 80 people who did win the election on Tuesday are now climate champions.
Let's get them a plan. Let's go.
David Roberts
So, you're pushing legislation. You're lobbying for legislation now?
Caroline Spears
Yeah.
David Roberts
Is that a new thing for you?
Caroline Spears
We've been doing it for 18 months. We've kind of kept it on the — You know, everyone's been a little focused on the 2024 election, so we wanted to keep our focus. But now, with bringing Dave Weiskopf on board, who's from NextGen Climate.
David Roberts
Yeah, Dave.
Caroline Spears
Yes, we have a Dave fan in the house. He's great. He was a climate policy advisor to Tom Steyer. He's worked with state legislatures and governors across the country. So, he's going to lead this program for us. I'm really excited about it, but, yeah, making progress in the meantime. And then, yeah, our data science team's really good.
It doesn't take us that long to figure out where we should target next. So for this year, we had our targets 18 months ago. We're like, all right, now we just gotta raise the funds, deploy the funds. Let's go. Let's hit it. Our data science team basically can tell you which elections are going to be contested 18 months before the election happens. And so we're able to kind of precision target districts across the country. And we'll do that again for '26.
David Roberts
Let me ask you a somewhat charged question. You guys are very data-focused, very strategic, very surgical. What do you make of the larger Democratic Party's election apparatus? You know, everybody's a critic. Everybody's got their thing that Dems did wrong. You know, many of which are contradictory. You know, like, they can't have done both things wrong. You know, Kamala was both too centrist, clinging to Liz Cheney, and also too woke because she didn't disavow, you know, trans whatever. Like, so everybody seems to be drawing the conclusion that they were right all along about everything they had said before the election, which does not bespeak, let's say, a data-focused approach.
So what do you make of the larger Democratic Party right now?
Caroline Spears
Well, I think a lot of those takes rest on the information issue that we talked about before. It's like, "Kamala said this instead of this," or "This candidate said this instead of this." But if you go talk to voters, especially undecided voters, what they tell you they hear is so different from what the candidates are saying, both in substance and in volume. So, if Kamala spends 95 minutes talking about the economy, but you know the one clip goes viral on TikTok, that's the conversation you have at the door. You have the conversation about the one clip that went viral on TikTok and you can sit there and say that's not fair.
But "That's not fair" doesn't get you results. So, this is something that I'm thinking about a lot in bringing together folks in my network who really study the information economy. And I'm looking forward with our team to actually stress testing that. Actually being on the doors, talking to voters to say, "How much of our candidate's message is showing up on the doors?" I think it's really interesting. And then, in the vein of everybody's take about the election, was seeing the thing that I care about was the right thing all along. It is important that we take state legislatures seriously. In 2020, which is the last redistricting year, again, a year in which these state legislators get to draw their own districts, they choose their voters and then they get to redraw the districts of all the members of Congress.
Total gerrymandering. 2020 was the year to do state legislatures. And this is actually what really inspired us to start a PAC and to start working on this. The RLCC, which is a Republican arm that does state legislatures, entered the year with five times the cash on hand of the DLCC. Yep. And that was the year like 2022 was also great, important. 2018 was also important. There's only one year in which they redraw the maps and that happens every decade. So one thing I'm obsessed with right now is thinking about 2030, looking at all of our top emitting states on climate in 2030.
How do we have a pathway to 2030 and beyond? And by the way, I know we've done a lot of "Republican, Democrat, Republican, Democrat." It is just demonstrably true that Democrats are way better on our issue. If you're looking at value above replacement, if those are kind of your two options, you're picking like it's important that we actually look at someone's voting record. But that's just generally kind of a truism at the moment. But it's important that we have tools at our disposal. At Climate Cabinet, we use a lot of data science to constantly be looking for.
Are there Republicans out there who were taking tough votes who are good on our issue or again, value above replacement, like better than the alternative? And we funded those folks like that this year and we're keeping kind of — we're basically always having our sensing network out there and we always have to keep the door open for Republicans who want to be good on this issue too.
David Roberts
Would you or would you or have you officially supported state level Republican?
Caroline Spears
Yeah, this year there was an Arizona primary where we funded a Republican who was running against a woman who calls herself "Trump in heels." Yeah, that was fun.
David Roberts
What a terrible mental image.
Caroline Spears
I know. If you have a ChatGPT subscription, you can just throw that one in there, see what it gives you. Not our greatest vote on climate, like a 30% climate score, it's zero to 100. 30%. Dems are 80 and above. Republicans are usually 20 and below. So, if you're above 20 and a Republican, we're like, "Oh, what's going on with them? Do we need to talk to them?" So, when he tried to primary her this year, unsuccessful, but only unsuccessful by a few points, and that's something I want to keep looking at. And he took some tough votes.
Again, it's like votes, not vibes. I don't care what someone puts on Twitter. How did you actually vote? What's your voting record? We're scoring it on our scale. One of the leverage points we really have in this next year, this is optimism, is we have governors who are proud of climate who can use the power of the budget negotiation process to get good things done on climate, which is really exciting. One of the examples of this is that in Arizona, the Republicans held the budget negotiation. They were going to refund the entire Department of Transportation.
The Republicans in the Arizona state legislature held that negotiation hostage because they were going to count greenhouse gas emissions at all. Like, they were just going to count them. And they were like, "Inconceivable. We couldn't possibly fund a Department of Transportation." This Republican crossed party lines and was like, "Yeah, you should just fund the Department of Transportation. This is ridiculous. Do the greenhouse gas accounting exercise. It's fine." So when he did a primary, we supported him. And we're always kind of looking for folks like that. But I don't want to, like, be dogmatic. We have to be based on the data and I don't —
Our goal is to solve for climate change. That's what we're doing. We're solving for climate, we're solving for the clean energy economy. And that's what we're always doing at every one of these calculations. So, I think sometimes we get a lot of questions like, "Can you support more Republicans?" And I'm like, "Yes, give me more who have demonstrably voted to solve climate change and I will be happy to support them." They're kind of few and far between, but they do exist.
David Roberts
Let me ask you, there's a sense, I feel like, among people following the national race or sort of among national Dems. They don't say this a lot in public, but there's this sense of sort of futility, like everything has become so nationalized. I mean, this gets back to the information environment that everything has become so nationalized. Everybody's sort of swimming in the same stew of stuff that may or may not even be relevant to them. You know, it used to be sort of conventional wisdom, almost dogma, that sort of like local issues trump these national issues, the people's material interests in some sense are primary. But you know, Dems, I think Biden's whole theory of the case, Dems' whole theory of the case these past four years, deliverism, as it's called, is, you know, maybe we've lost control of the information environment, but if we deliver concrete benefits to people that will cut through, that will in a sense occlude the rest of the noise.
And so, Biden sparked a manufacturing renaissance in hollowed-out parts of the country. There are factories being built all over the place, there are jobs popping up, there are whole economies and towns being revived. There's the hearing aid stuff. There's, you know, like, go down the line, there's all sorts of, like, middle and lower-level stuff that people never even took note of. But it seems like to the extent they could, Democrats delivered to the extent they had power and it did not seem to matter at all. It did not seem to like specifically unions, like he voted, you know, like went, marched on, crossed union lines, supported unions, protected their pensions, etcetera, etcetera.
And they went, they shifted toward Trump this year. So, as someone who's in local elections on the ground at states, who's playing in this field, like, is that your sense that the grain of local differences matters less and less? That in a sense, local issues matter less and less? Or do you think that's overblown?
Caroline Spears
It is true that when you have a candidate who runs a really good local campaign, they overperform, but they don't overperform the fundamentals of their district. You know, you'd want to say, "Oh, we delivered all these things in Ohio, now we're going to magically win Ohio." But we lost Ohio by like 10 points last time. You don't overperform significantly from the fundamentals of your district, but you can overperform somewhat. And we saw that with Lindsey Prather in North Carolina. We saw that with races across the country. What I will say is, "Yes, it is true that the economic gains of the Biden administration were not realized by the majority of people who showed up on Tuesday."
And there's a world in which we kind of sit in that and are like, "Wow, we did all these things and it didn't, it didn't matter." But kind of our job, like everyone here, works on climate change. Like, our job is to kind of look at what is an impossible task and be like, "Okay, this is huge. It seems enormous. It doesn't seem like I have agency, I'm going to find a pathway through." And like, that's what brings people into climate, I think. And like, that same approach is what we need to bring into politics as well.
And like, I'm not disagreeing with you that this wasn't a good election. But like, as we've talked, I'm —
David Roberts
Pretty sure I have the better of that argument.
Caroline Spears
Yeah, but like we've talked about, "Okay, if true, what do we do based on that?" And how much kind of excavation do we need to do on that "if true" statement? And then, how much do we need to build on the gaps in that statement, whether it's information, economy, or above? And like, that is literally our job is to take what seems like a really big task that involves not every single one of us in this room, but like millions of people across the country and to actually make it happen. And we have strategies for that and we have proof points of that.
And if we don't have strategies, we can do hypothesis testing and we can test the strategies over time. And like, we have to, like, there's no, like, we have to solve, we have to work on climate change, we have to make our democracy work and we will find a pathway through. And like, that's what we gotta do. That's what we're all here for. I'm not trying to be Pollyanna about it. Like, we all know, like, no one had a really fun last seven days who was like, hoping that Harris would win, but we did have real people who won on Tuesday and they show us the future.
And I don't know, none of us started in climate because we're like, "This will be easy and I'll retire and it'll be great." Yeah, we could have all worked at Snapchat with our lives, and we didn't. We're here and like, this is kind of the road we picked. And I'm happy to be here. It feels like a good thing to do with my life.
David Roberts
All right, well, we'll wrap it up there. Thanks, everyone. Thank you for listening to Volts. It takes a village to make this podcast work. Shout out, especially, to my super producer, Kyle McDonald, who makes me and my guests sound smart every week. And it is all supported entirely by listeners like you. So, if you value conversations like this, please consider joining our community of paid subscribers at volts.wtf. Or, leaving a nice review, or telling a friend about Volts. Or all three. Thanks so much, and I'll see you next time.
In this episode, I talk with Ray Minjares of ICCT and Jacqueline Torres of Forum Mobility about the electrification of heavy trucks, from drayage at ports to long-haul big rigs. We dig into charging challenges, innovative financing models, and the massive pollution cuts possible by transitioning fleets. Electric trucks are here — but they need the right policies and partnerships to scale.
All right, everyone. Hello, this is Volts for November 22, 2024, "Electrifying big trucks." I'm your host, David Roberts. Transportation is the highest emitting sector of the US economy with 28% of total greenhouse gas emissions and 23% of that — between 6 and 7% of total emissions — traces to heavy commercial trucks. Heavy trucking is not the sexiest topic in decarbonization, but it is critical, and it is the focus of a frenzy of recent action from private companies, partnerships, and agencies within the Biden administration (RIP).
Big electric trucks are being manufactured, charging stations are being built, and financing puzzles are being solved. To discuss this and other progress in the sector, I've got two guests with me today.
Ray Minjares and Jacqueline Torres
For an overview, I'm talking with Ray Minjares, who runs the heavy-duty vehicles program at The International Council on Clean Transportation, where he's been since 2007. And for a closer look at a big financing-related deal that was announced this month, I've got Jacqueline Torres of Forum Mobility, a company that offers "trucking as a service."
With no further ado, Ray and Jacqueline, thank you for coming to Volts. Welcome.
Ray Minjares
Hi, nice to be here.
David Roberts
There's a lot to get into here. But Ray, I want to start with you with just a little background. So, for those in the audience and me who are not super familiar with commercial trucking, let's just set the stage a little bit. What kind of trucks are we talking about here? When I talk about heavy commercial vehicles, what should spring to mind? What are these trucks and what are they used for?
Ray Minjares
Well, David, I love starting from the simplest of questions. So let's start with, what is a truck?
David Roberts
What is a truck, Ray?
Ray Minjares
What is a truck? And look, if you were to go ask experts at US EPA, they would give you a list of more than 100 different types of trucks that they've identified — which are subject to their regulations. So, if I were to put it very simply here, I would start with: A truck is a moving vehicle that is road-worthy, or let's say, can be legally driven on U.S. highways and carries a specific amount of weight. So, when we think about trucks, we're starting with exactly how heavy they are. And we can use the broadest definition of more than 8,500 pounds or greater.
We have trucks that can be up to 40 tons or more on US roads. And then finally, a truck is a vehicle that has a specific job to do. So just to give you a couple of examples, I think everybody's familiar with a big rig, right? When we think about trucks, we think about 18-wheelers. And they're very visible on our US highways, but so are delivery trucks. If you're moving apartments and you call up what looks like a big box on a truck, literally, they're called box trucks. But we can also include a whole range of other types of vehicles, including refuse trucks, for example, cement trucks, dump trucks, utility trucks.
David Roberts
These are all officially heavy-duty trucks.
Ray Minjares
Officially, they are heavy. They fall into the category of heavy-duty. Now, what we're not talking about, that still classifies as heavy-duty, are buses. So, I assume we're leaving buses out of the conversation here, where there's a lot of electrification happening, but for now, we're just talking about trucks. We're leaving the buses out.
David Roberts
Yeah, yeah, there's a lot going on in buses, and we can separate that. So, do you have any sense, I mean, just sort of like globally, of the proportions of these things? Like, intuitively, I want to think that when we're talking about electrifying heavy trucks, we're mostly talking about those big rigs, but I don't have any reason that I think that other than my gut.
Ray Minjares
You would think that those would be the ones electrifying the fastest, but they're not. The vehicles that are electrifying the fastest today are the smaller vehicles, the delivery vans, vehicles like the E-Transit, for example, or the Rivian here in the United States. But in general, we're talking about vehicles that are traveling a fairly short distance, let's say 150 miles per day, that have a place where they can reliably park and charge so that they're getting that full overnight top-up before they start the shift the next day. The transition is a transition that's going to take a couple of years as the total cost of ownership comes down for every one of these different categories of vehicles.
So, as time passes, we will see bigger, larger trucks, trucks that are traveling longer distances, trucks that are even traveling into more rural areas of the country, get electrified.
David Roberts
So, it sounds then like in some ways, the big rigs, which are what people envision when they think heavy truck, are slightly the exception in the category then, in that they are traveling further distances and are somewhat heavier than the rest of the class.
Ray Minjares
That's right.
David Roberts
Are they the hardest, I mean, are they the most difficult piece of this puzzle?
Ray Minjares
I would argue that we already have the commercially available technology to electrify that narrow category of trucks, and we're also seeing the infrastructure being deployed actively, including by groups that provide charging as a service. So, from an economics perspective, I would answer the question a little bit differently from the research that the ICCT has been doing. We expect that total cost of ownership parity to arrive for that specific category of trucks by the end of this decade. It means that fleets that are more progressive, that are willing to take that risk early, might be paying a little bit more than they otherwise would. But, I do expect that we're going to see an inflection point by the end of this decade with a massive, let's say, profit-driven and investment-driven transition to electrify that specific subsector.
But I wouldn't necessarily get too hung up around that specific sector when there's so much other electrification that's already happening.
David Roberts
And just before I forget this: When the EPA refers to Class 8 trucks, is that different than the broad category of heavy that we're discussing? Is that more specific? Do we need to understand these EPA classes or is there a simple way of explaining them?
Ray Minjares
So, when we're talking about Class 8, that is included in the larger umbrella that EPA and other regulators use to describe heavy-duty vehicles. And it's also worth knowing that within the Class 8 category, we can have those big rigs, those tractor trucks, but we can also have buses and we can also have dump trucks and other very heavy vehicles that all fit within the Class 8 space. Each will have their unique business or operational use case that can give it a particular advantage or disadvantage in the current economic environment. So, some will be able to electrify faster, like arguably the long-haul tractors because they're consuming so much fuel and that savings you get from going electric will be realized much faster. That would be different from, let's say, a dump truck that you're only using seasonally that's operating in more rural areas and just doesn't have that level of utilization to justify that return on investment.
David Roberts
So when you talk about total cost of ownership coming into parity, that's mostly through fuel savings. And so, the fuel savings are bigger for the more fuel-intensive trucks.
Ray Minjares
Exactly. There's a pretty clear relationship here between that fuel savings and the time to transition, because effectively we're talking about vehicles that on average are going to be more expensive because you're paying for that battery. But because these same vehicles are so much more energy efficient, that over the long term will make it a cheaper vehicle to own and operate for any fleet.
David Roberts
So then, this may be a difficult question to answer since, as you say, this is a somewhat heterogeneous class — you know, there's a lot of different things going on in this class — but what can we say about who owns these trucks and operates them? Are there generalizations?
Ray Minjares
Yeah, I think we can create a couple of different convenient buckets for the different ownership types here. Like I started with, this is a very diverse sector given all the different ways in which trucks are built and used. But I think it's fair to say that on one hand, we have large corporate owner-operators of fleets, companies like JB Hunt or Walmart, companies that are buying hundreds if not thousands of vehicles a year and incorporating those vehicles into their entire transportation logistics network.
David Roberts
And that'll be like the tractor trailers, the delivery trucks?
Ray Minjares
Exactly.
David Roberts
But not like a trash truck, you're not going to buy a whole fleet of garbage trucks?
Ray Minjares
Typically, not for those large corporate companies, although we do have certain corporate companies that do provide refuse-only fleet services. So that does exist. But generally speaking, when we think about garbage trucks, we're probably talking about a smallish municipal fleet and their couple of dozen vehicles that they're operating. But then if we switch to another kind of business model, there are fleets that are very small. So I'm thinking now about single owner-operators. So these might be literally a single person who's incorporated him or herself to be able to buy a truck, maybe get a loan on that truck and drive it, and that is their entire livelihood.
So, you can have these two very opposite types of ownership models. And I would say there's even a third one just to like throw in the middle here, which is companies that buy large volumes of vehicles and lease them out so they, they don't operate them, they're just vehicle providers. Right. And Penske might be a good example of a company that's buying literally thousands of these a year. A person can walk up, you know, or go online and rent a truck for a day, a week, a month, or even a year. So, we get a whole set of types of ownership models there.
Jacqueline Torres
Is there a specific ownership model that is most common on the long haul side?
Ray Minjares
I have heard, and I can't prove this because I haven't done the research myself, but I have heard that on the long haul side, something like 80% of the vehicles are owned by small owner-operators. So, if we've got 3 million on US roads today, 80% is multiple, maybe north of 2 million there. And that means that their business model and their approach to operating trucks has an outsized influence over who's going electric and at what pace.
David Roberts
Am I right in guessing that when it comes to decarbonization, these smaller owner-operators are more difficult, just more difficult to reach? Because if you're a big corporate fleet, you can to some extent look years ahead for your returns. You can do some long-term planning, you can do some bulk buying, things like that. I'm guessing if you're just a dude who owns a truck or two, the price differential for an electric truck is going to be a much bigger deal for you. Is that right?
Ray Minjares
Yes. So, let me give you a concrete example of this. We've worked with a group called the African Chamber of Commerce, which is representing truck drivers who primarily are immigrants from African countries, like Kenya, South Africa, etc. What they do is, they come to this specific organization in Seattle who helps them set up their trucking business. And what I've learned is, these people are coming sometimes with absolutely nothing. Right. But this is the land of opportunity. And so, you have these African immigrants who might go up to Alaska for a season, make enough money to come back down and actually have enough to put down on a truck.
But what kind of truck are they buying? If it's just them, what they're probably going to buy is the oldest, dirtiest truck they can get their hands on because it's the cheapest one. So we're talking maybe, you know, if these trucks new go for maybe $190,000, they might get a used one for $50,000 or less. And then on top of that, let's say they've bought this used truck which already might have 20 years of life on it. Right. We actually found one truck serving the Port of Seattle that was still running and it was built in 1990.
Right. So, these same drivers are running a business on the tightest of margins. Being a truck driver is a very difficult livelihood. And it's not just because you're going wherever the load is taking you. It could be out to Utah one day and who knows where you're going the next day. But also, the amount of money you're making driving that truck just might not be enough to do the proper maintenance on it. And so, that's where these drivers can also really struggle. And they may not have parking that they can rely on. Right. So, maybe they're just parking on the street.
So, all this to say that this is a particular population of truck drivers. They're not the only population of truck drivers, but they're a particular population of truck drivers who, given the business model that exists for them and that is available to them in the trucking space, it's going to take that many more resources to help them electrify.
David Roberts
Yeah, this is a very, very familiar structure here: A new cleaner technology costs more upfront, you save over a long period of time. But the people who are making the buying decisions are money-stressed, can't necessarily plan over five to ten-year horizons, don't have the extra capital. So, just a very, very, very familiar thing, which is why financing is such a big piece of it.
Jacqueline Torres
And not only from a cash perspective, but also from a knowledge and general sophistication perspective. Right. We went from, you know, they know how to operate their business on a mile per gallon.
David Roberts
Right.
Jacqueline Torres
Really tight margins. Now they have to learn what kilowatt hours per mile are. That's a really big shift. I think there's a lot of anxiety from those smaller customers as far as, is this technology here to stay? Do I have to transfer over my business to a new technology and then 10 years later do that again? So, I think it's an existential question for many of those small businesses.
Ray Minjares
It is a really important question for them, but it's also so important that they get a solution because these same drivers may themselves be living near that port, which itself is a diesel hotspot. So, just to give you one statistic, again, pulling from the Seattle example, we found that people who live in the neighborhoods of Georgetown and South Park, just feet really from the port, have a life expectancy that's 13 years less —
David Roberts
Good Lord.
Ray Minjares
than people living in North Seattle. Right. So, there's a dramatic, real-world impact here for that specific community of seeing the deployment of zero-emission trucks.
David Roberts
Yes, but who's going to monetize the value of all that saved health and put it where it's visible in the truck price? Again, a very familiar problem. Before we get to some of the logistical and financing challenges, which are many, I just want to talk about the trucks themselves and just to sort of ask, you know, when you Google "decarbonizing heavy trucks," it's easy to find reports and researchers who will say, "You're not going to be able to electrify all this. You're going to need hydrogen or some such alternative liquid fuel."
You know, a similar argument is being made about planes right now. So Ray, are there viable electric versions of all existing heavy trucks? Technologically, where are we on this? Do they exist and it's all about getting the price point down now, or are there still actual technological challenges to overcome?
Ray Minjares
So, the products exist; they're commercially available in the market. There's a group called CALSTART who's counting all of the models; we're in the hundreds of electric truck models across the entire spectrum that I started to describe at the beginning of this podcast. But in addition to that, David, the fact is that any manufacturer of trucks in the United States is effectively required to sell an electric truck by virtue of being in the California market. And the reason for that is because California has adopted a rule called the Advanced Clean Trucks Rule, which states that if you want to be in the California market, you must sell a non-zero amount of electric vehicles.
And so, if you care about that market, and it is about 15% of the national truck market, you need to be in California and you need to have an electric truck product. Now, whether or not manufacturers are pricing those vehicles to sell is a different question. And I know for each one, it depends on what your managing board is telling you to do. It depends on what your customers are demanding from you. It depends on what the policies are shaping your investments towards. But the fact is that all of the major truck manufacturers in California, in the United States, and effectively in the world, have products that are ready to deploy and they're doubling down on those investments.
For example, there is a joint venture between Daimler, Paccar, and Cummins, three of the largest truck manufacturers and engine manufacturers in the world, who are building a 21 GWh battery production facility in Marshall County, Mississippi.
David Roberts
Just to throw it out for the battery geeks in the audience: Building LFP batteries.
Ray Minjares
That's right.
David Roberts
For trucks, which are interesting, slightly lower energy density, but somewhat more durable, somewhat cheaper, less prone to fire, et cetera, et cetera.
Ray Minjares
Exactly. And so they're doubling down on the investment. They're building out charging infrastructure as well. And all of that is a signal to the rest of the truck consumer universe that these products are coming. We're past the point of asking, "Is the technology feasible?" I think the answer is yes, the technology works. We're now at the point in this transition of trying to figure out how do we make it as cost-effective or as cheap as what people are used to paying.
David Roberts
Do you believe, and do you think it's consensus in the industry, that heavy trucking is going to go fully electric? You think that sort of horse is out of the barn. There's no longer, I mean, are there like hydrogen fuel cell holdouts? Are there, you know, there? I mean, I know they're still making natural gas trucks. There are alternatives out there.
Ray Minjares
Yes. So, when you work in this industry long enough, you realize there are little pockets that have their little fan bases of fuels. Right. So, we're talking about, you know, because it used to be the question of "Is it natural gas?" Right. I think we're past the natural gas question and that led us to "Is it hydrogen?" And I think there's still a pretty strong fan base for hydrogen, despite our own research that shows we're never getting to TCO (Total Cost of Ownership) parity, let alone upfront cost parity by 2040. So, battery-powered trucks, from our perspective, are the most cost-effective, most technologically feasible solution that will get us that TCO parity the soonest with diesel.
But I'll just add one little piece on the hydrogen story, which is I think that there are still pockets of the industry that would like to see a hydrogen internal combustion engine, despite what is really bad economics.
David Roberts
And the evidence of the last 20 to 30 years, all of which points in one direction, on hydrogen vehicles.
Ray Minjares
That's right.
David Roberts
Well, you know, we're institutionally committed to electrification here at Volts. So, I'm going to go ahead and just believe that this horse is out of the barn and we're heading in this direction. One quick question before we leave the trucks themselves. I know a particular concern among this class of trucks are what are called drayage trucks, which are working, as I understand it, at ports, basically carrying heavy things around in ports. So, this is very big, very heavy, very polluting. And not just polluting in the sense that it's a big diesel engine, but polluting in the sense that it's starting and stopping and starting and stopping, which with diesel engines is horrendously polluting.
And thus, we get these huge pollution problems around ports that are very well understood. It's a big subject of focus now. But on the other hand, these big trucks are going short distances. So, as you say, those are the trickiest ones to make the financing work. So, is there a particular focus policy tool around drayage trucks that stand out?
Ray Minjares
Well, from a policy tool perspective, I think the most effective policy that I've seen come forward is a component of California's Advanced Clean Fleets rule, which requires that 100% of new drayage trucks be zero emission. And in fact, it's backdated. So at this point, it was supposed to start on January 1st of this year.
David Roberts
A little behind that, I'm guessing.
Ray Minjares
Well, if it were up to the state and specifically the California Air Resources Board, it would already be in force, except for the fact that that policy has now been challenged in court by the California Trucking Association, and then it's being joined by other trucking associations. So, there is a contingent of these associations representing trucking fleets who are not ready to go along with that policy.
David Roberts
And I'm guessing their objection is just, "We can't afford these things yet."
Ray Minjares
I think they're making a number of arguments. I can't predict which ones will actually work for them, but I can tell you that they are very motivated to delay the electric transition for some period of time. At the same time, they publicly support the transition to zero emissions. But the devil is in the details, and we just don't know based on their public position, exactly when is the right time for them to arrive.
David Roberts
Later, Ray. It's always the right time, just when I'm out of the office or when I retire, just after that. Jacqueline, let's turn to you here. So, as discussed, we've got now the trucks. The trucks exist, electric trucks exist. They are currently two things: one, much more expensive up front. And then as you sort of briefly alluded to before, if I'm the driver of a big truck, especially a long-haul truck, I need to know that there's infrastructure to support me, that there's charging, charging where and when I need it, charging that's affordable, charging that I can wrap my head around economically and plan for, et cetera.
And so, like I said, this is a very familiar problem in the clean energy space. How do you overcome these upfront costs? So, with all that context in mind, tell us about this deal with Climate United and what your part in it is and what it's supposed to accomplish.
Jacqueline Torres
Yeah, I'd love to start by talking about Forum Mobility, if I can, for just a few minutes.
David Roberts
Sure.
Jacqueline Torres
And Ray, I think you saw my notes before we started because you were saying a lot of the things that I like to point back to, and one of them that actually surprised me was that 80% of operators doing long haul are smaller operators. Well, that kind of leads me to Forum Mobility. So, Forum Mobility is focused on drayage. So, drayage being that movement of goods between ports and warehouses, trucks going in and out of ports. We are building charging infrastructure custom-built for drayage operators. And 80% of drayage operators are those smaller fleets.
David Roberts
These drayage trucks are typically confined to a single port or do they drive between ports? In other words, are these all short distances, stop and start stuff?
Jacqueline Torres
Mostly short distances. Mostly, they have routes of about 200 miles a day or less. You get some outliers there, but they're going from the port to the warehouse and then from that warehouse, they're going, that container is going on rail through the rest of the country or on a different truck that's going long haul across the country. And so, within Forum Mobility's business model, we're building the charging infrastructure for those drayage fleets and talking a bit about who our customer is: It's those, you know, 80% of our market is made up of those smaller fleets. They have a number of challenges for transitioning and one of them is figuring out the charging infrastructure.
Right. So, it's hard to go a conversation talking about transitioning to zero-emission trucking without talking about the chicken and the egg, that you can't have the truck without the charging, the charging without the truck.
David Roberts
And that charging would be by necessity at the port. Right. It would be a piece of port infrastructure, presumably.
Jacqueline Torres
Yeah, that's a great question. That's just kind of what I wanted to talk about, which is really what led to Forum Mobility's business model evolving the way it has evolved. So, if the customer had it their own way, the best thing for the customer would be to have that charging infrastructure behind their fence, so to speak, at their warehouse, at their yard. But there are a lot of challenges with that. Number one, come to find out, a lot of these customers don't have power at the yard that their warehouse is at. You know, you get into a conversation with a utility and it's going to take several years to bring the amount of power to that.
David Roberts
Yeah, because these are large amounts of power. I mean, these are not like your sort of neighborhood EV charger. Right. I mean, these are large amounts of power.
Jacqueline Torres
Right. So, like an F150, is a 100 kilowatt-hour battery, whereas these trucks are over 500 kilowatt-hour batteries.
David Roberts
Good grief.
Jacqueline Torres
So, they're massive. And that's one of the community's biggest concerns. The two that they talk about are the cost of the truck and then the lack of charging infrastructure. And then the other issue with being able to install infrastructure on your own yard is that these customers, these 80% of operators, well, they don't own their land where their warehouse is. Maybe they have a two or three or five-year lease with their landlord. So now you have to bring the landlord involved in order to make improvements to the land or install infrastructure. And suddenly we're snowballing into a really challenging transition to put some chargers on your site.
And so, that's where Forum Mobility really identified that this was going to be a good place for, you know, early electrification and a good place for this model of consolidated charging infrastructure.
David Roberts
It just makes sense that you would want to have all these various trucks with all these various owners sharing charging. Right? I mean, just common sense wise.
Jacqueline Torres
At the end of the day, it is about bringing them together and having a company like Forum Mobility finance that and own and operate the facility and have customers pay for that over time. You don't have to put in the upfront investment, Forum Mobility is going to do that. And our team is made up of power infrastructure professionals that have lifetimes in solar and wind and battery technology such that we really know how to build power infrastructure and we have a lot of real estate expertise. So, as we've been in this space for a long time, we've really figured out where should we be locating these facilities for our drayage operators.
And one thing you mentioned, you know, is the best place for them in the port. Well, for some of them, the best place is directly in the port. And actually, Forum Mobility in about 15 days is opening up our first large-scale charging facility in the Port of Long Beach. So it's actually located within the confines of the Port of Long Beach. The Port of Long Beach is the largest port in the United States. Port of LA and Long Beach, a single port complex. 35% of all goods come into the nation through that port. And to Ray's point about air quality, it's no different in Long Beach.
Long Beach last year had the worst air quality in the nation. And so, to wrap up on this facility, it's nine megawatts of power, which is a lot of power to have at a facility.
David Roberts
I mean, you, I'm guessing that a big part of looking around for sites for this, like, do all ports have, you know, nine-megawatt power connections, interconnections to spare? Where do you even find, you know, this is a problem for every clean electricity technology. Where do you find a place to hook up on the grid?
Jacqueline Torres
No, they do not. And that's part of Forum Mobility's superpower, I would call it, is finding where, you know, a good site, a good piece of real estate that would be a convenient location for our customers, lines up with feeder capacity on the grid. And so, you can imagine we are extremely tight with Southern California Edison and PG&E and getting up there with all three of the utilities in the Seattle Tacoma region.
David Roberts
Are you exclusively scouring the grid for places where places like this already exist? Have you abandoned the idea of upgrading the grid in specific places? I mean, I know it takes a long time, but like, have you just written that out of your business model or is anyone actually working on trying to create these places?
Jacqueline Torres
It's the idea of the low-hanging fruit and being able to get those sites that do have power today under land control because, well, if you want to start upgrading a site with SCE, you have to have land control. Now, land control in these industrial areas around ports is really expensive and to be holding on to land control for five years until the utility can upgrade the power to that site is a big investment.
David Roberts
I want to come back later to what the role of utilities is in all this, but I'm guessing. So, you're just — I mean, this is maybe too obvious even to point out — but sort of the business model is you make the upfront investment, build the charging facility, and you charge these trucks the cost of the power plus a little extra to pay back the upfront investment. That's the basic model?
Jacqueline Torres
Yeah, that's right. And actually, ours is, we call it a subscription-based model. You sign a multi-year agreement where you pay a fixed fee and then we actually pass through the electricity. So, you subscribe to the network and then you pay for your electricity usage.
David Roberts
I see, so your model is not directly involved with the trucks themselves. You're not —
Jacqueline Torres
So, yeah. So, thanks for bringing us back to the topic here. So, Forum Mobility does provide trucks today.
David Roberts
Because I saw trucking, you know, when you go to your website, it says "trucking as a service," which presumably includes the truck.
Jacqueline Torres
That's right, we provide truck and charging today. And Forum Mobility's broader goal is to make this transition easy. So, we are providing it today because we realize it's difficult and we want to provide customers that full package. But what we have realized is that we have infrastructure capital backing us and that infrastructure capital is not all that efficient when it comes to providing financing for vehicles. That's a totally different asset class. And so, as we've evolved, we realized that, you know what, we are not moving as many trucks as we would like to. We're not providing an effective enough cost with the infrastructure dollars for the vehicle.
And so, that's really where this Climate United Partnership idea was born. It's still really challenging to effectively finance the vehicle. Just for a little bit of perspective on the cost of the vehicle, I'll give out some numbers here and I'll use that to transition into how this Climate United Partnership works. But, a Class 8 vehicle, once you tag on sales tax and federal excise tax, we're talking about a vehicle that is north of $500,000.
David Roberts
This is the electric variety.
Jacqueline Torres
That's the electric variety.
David Roberts
That's a lot.
Jacqueline Torres
And in comparison, the diesel Class 8 counterpart is around $150,000. Ray can fact-check me on that.
David Roberts
Oh geez. So this is like a 3x.
Jacqueline Torres
Well, I'll make it even worse. Our drayage operators, those 80% small businesses, I think Ray mentioned this too, they're buying the second and third life of that vehicle. And you can look online, those vehicles are going between $30,000 and $50,000 for a vehicle that has, you know, 500,000 plus miles on that vehicle.
David Roberts
And I'm guessing there aren't a lot of used electric drayage trucks out there on the market.
Jacqueline Torres
No, I swear, both of you are kind of giving me really nice setup for things I'm talking about. But that's exactly right. Which means that when you think about how the market, how financiers today price and finance an ICE vehicle, an internal combustion engine vehicle, if you're doing a five-year lease, they're going to assume a 40% residual value in that lease. So, you're only paying for 60% of that vehicle over the life of the lease.
David Roberts
Right. Because after the five years you own it, they are assuming they will be able to sell it for whatever 40% of the original price.
Jacqueline Torres
That's right. The financier would hold on to it and then assume that in the secondary lease they're going to be able to make up that value because there's tons of data points. Because financiers make those decisions, not because they're taking risk, but because they have thousands and thousands and thousands of data points to price it that way. But we just don't have that on the zero-emission side, on the Class 8 side. You know, we have not seen, we don't have data points on the secondary value. And that's, you know, when you talk to the financiers of these Class 8 vehicles, they will point to that, the lack of residual value data as one of the key financing challenges.
David Roberts
So in the absence of any data points, any used trucks that have been sold to give them data points, are they just assuming it's zero? I mean, does it just effectively become zero in their calculation?
Jacqueline Torres
That's right. Because they're not set up to take risk in that way.
David Roberts
Right.
Jacqueline Torres
And so, here enters Climate United, and I'll just take a second to say who Climate United is. Climate United is a nonprofit entity that was a recipient of a $7 billion grant from the EPA's National Clean Investment Fund. And with that $7 billion grant, Climate United is tasked with creating financing products that reduce greenhouse gas emissions.
David Roberts
Wait, is that $7 billion for heavy trucks or just for financing in general?
Jacqueline Torres
$7 billion in total. So, this National Clean Investment Fund awarded three different groups. Those three groups are supposed to become national green banks. The $7 billion will be spread over many things. Heavy-duty trucks is one of them. And so, within that, Climate United said, "We really like this opportunity to finance zero-emission trucks." They have committed to a partnership with Forum Mobility whereby Climate United will be financing 500 trucks over the next several years, a commitment of $250 million. And the partnership is that Climate United finances the vehicles for Forum Mobility's charging customers.
David Roberts
But wait a minute, finance: Does that mean they're buying the trucks?
Jacqueline Torres
Right. So, it is grant financing that Climate United received, but they have to make it a financing product because they want to make this $7 billion evergreen. And so, they will buy the vehicle and then lease it to our charging customer.
David Roberts
Got it. And they're buying 500 of these things, which is, I'm guessing, I mean, it sounds like a large number to me. There can't be that many of these things.
Jacqueline Torres
No, there's not. And there's, you know, in Long Beach there are 500 zero-emission trucks on the registry today. So that will double the number of trucks in Southern California, the number of zero-emission trucks in California.
Ray Minjares
If I could just jump in and add a little bit of international context for how large this purchase is. There's no single purchase of battery electric drayage trucks larger than what Climate United is about to pursue, at least outside of China, that I'm aware of. And I've checked with my colleagues in Europe. They're saying, "Wow, this seems like the biggest one in the world." And I'm telling them, "Probably there's something that big in China, I don't know yet. I'm sure I'll find out."
David Roberts
One just assumes that they've got some kajillion-dollar thing going on there.
Ray Minjares
Yes. But it is a massive investment. And just like, can I just say how beautiful this business model is? Because it works and I've seen it work in emerging markets. So the best example is in Santiago, Chile, which now this is on the buses side. But Santiago, Chile started their transition to bus electrification with utilities buying large volumes of these electric heavy-duty vehicles. We had ENGIE and we had Enel buying each about 100 battery electric buses. Of course, they provided power at the depot and they leased these buses to operators who themselves can't afford to buy an electric bus.
Now, Chile is buying thousands of electric buses at a time and they've electrified one third of their fleet. They're on track to electrify 6,000 by 2025 without subsidies.
David Roberts
Right. So, I'm guessing this sort of ladders itself up, right? Like, the purchase makes the trucks cheaper. The leasing, like you get, the more infrastructure, more infrastructure makes it easier to buy the next round of trucks, et cetera, et cetera. Like, in some sense, this is a flywheel that you just got to start turning.
Ray Minjares
Absolutely, a flywheel. And the key in my mind is the separation of the asset, which is the vehicles and the infrastructure, from the operation. So, you can be an independent owner-operator who doesn't have a reliable parking space, who can barely afford to buy a truck, but who has a driver's license. Right? And who knows how to make money driving that vehicle. They don't have to go out, beg for a loan to get one. They don't have to do all the paperwork if they did to get all the incentive money. The point is, they can go to a company like Forum in partnership with Climate United, they get those keys to that vehicle, and they can run that like a business.
David Roberts
I mean, I guess from the consumer standpoint, they're effectively subscribing; it's like a monthly payment. You're like subscribing to the truck and the chargers. Is that right, Jacqueline? I mean, from the owner-operator's perspective, they're just paying a monthly fee.
Jacqueline Torres
That's right. It's a long-term commitment. So, around four to five years for both the charging and the trucking. So, you know, it's not like you can just cancel in your second month if you don't like it.
David Roberts
Right. But I just — Jacqueline, I mean, in some sense my brain is running up against this. If these trucks cost $500,000 and these owner-operators could afford maybe like a $50,000 truck, that's a lot of financing. That's a lot. That is a large delta. Like how —
Jacqueline Torres
That's right.
David Roberts
Is Climate United getting a deal on these trucks? Because they're buying in bulk.
Jacqueline Torres
Yeah. So, let me break down a little bit more how the partnership is going to work and how and why the financing is really transformational, down to some of the details. So, we are focusing on drayage trucks. One, because of the big climate impact that it has, reducing or transitioning to zero emission has, but also because there are a lot of incentives available for drayage trucks in particular in California, but other states are following suit. So, Washington is also setting up similar incentive programs mimicking California. So, our operators, you know, if that truck is around $500,000, you can get up to 90% of the cost before taxes covered by incentives.
So, that's like if you stack everything together and you qualify, you're a small business, you're going in and out of the port, you're in a disadvantaged community, you know, all these things together, you can get up to 90%.
David Roberts
This is like federal and state, both?
Jacqueline Torres
State only, state only.
David Roberts
So, these just. This is California, basically. Like, there's a lot of incentives in California.
Jacqueline Torres
Right. So, we are, in order to tackle this challenge, we are putting together all the mechanisms at once. So, the state level incentives that are bringing down the cost of the vehicle. Furthermore, the residual value support that Climate United is bringing. So, we're not disclosing exactly how much of residual value support that Climate United will be supporting, but I can tell you it's a significant amount.
David Roberts
I'm sorry, what does that mean, residual value support?
Jacqueline Torres
If we just say that the cost of the truck is $500,000 and we can get $250,000 of incentives based on the customer, maybe they go into the port. That means that we're left with a net CapEx amount of $250,000 that we have to pay to get that vehicle. Now, if you went to a traditional financier, they're going to finance that for you at $250,000. And they're going to say, "Over the course of a four-year lease, you need to pay us $250,000 plus interest." Now, Climate United is going to say we're going to take the risk that there's residual value left in that vehicle because of course there's residual value.
The thing that nobody can say is what that value will be. Nobody knows what that value will be because we don't have those data points. But they're going to assume some significant residual value.
David Roberts
I get it. So they're de-risking. This is a species of de-risking. Basically, for the financiers.
Jacqueline Torres
It's about putting the right risk capital to work. Whereas traditional financiers, vehicle lessors, are not set up. They don't have the credit committees that understand or can take risk on residual value writ. However, a new green bank that has been given a $7 billion grant can look at things differently. One of the major benefits they see in this program is creating data points. So they want to create data points for the market so that eventually the traditional financiers can come in and can say, "Okay, now after your four-year lease, Climate United, I see what this vehicle sold for, or I saw how you released that and now I can start to build those data points."
So, this is going to create at least 500 data points. We think it'll be much more than that, really. And then, Climate United is going to go do something else. They're going to use this 250 million plus dollars of capital into a new venture in a new market that needs transformation. And we're going to be, this market is going to be up and running and that's going to be wonderful.
David Roberts
Got it. So just to review here, Climate United is going to buy 500 trucks, they're going to stack up all these incentives, they're going to lease them to owner-operators at relatively low rates because they, Climate United, are assuming some of the risks, they're assuming some of this residual value. So they're securing low rates for the owner-operators. And the owner-operators, when they lease: Is it like a single rate, a single point of contact for the truck and the charging? Like, is that from their perspective, how it works?
Jacqueline Torres
That's right. So the point of contact is Forum Mobility. The wonderful thing about Climate United is that they just want to see the impact. They want to see the trucks on the road. Forum Mobility has the customer relationship. We've spent a lot of time, a lot of time since the beginning of our business, getting to know the customer and our customer really trusts us. So, we'll be that customer relationship. Whether the customer ever hears the name Climate United, or whether they see it in the fine print on the lease, doesn't really matter.
David Roberts
But the presumption here is that this is a kick-start kind of thing and once traditional financiers see it working, they will step in and then Climate United can go kick-start something else.
Jacqueline Torres
Yes, that's right.
David Roberts
Got it. There's a couple of other pieces I wanted to mention, just to get on the record here. Some action is happening in this space. So, you, Jacqueline, Forum Mobility, are building these really big chargers where there's space on the grid, but you're just using grid power for the most part. I thought, Ray, it was really interesting hearing about what WattEV is doing. I'm so curious how that's going to work out in the long run. But maybe you can just briefly say what their approach to the charging dilemma is.
Ray Minjares
Happy to do that. I mean, the first thing I'll say, David, is that from the infrastructure deployment perspective, understanding that there are constraints in the capacity of the grid, it's not necessary at this point in time to build everything everywhere all at once. It's okay to take a strategic step forward year by year in the right places.
David Roberts
I mean, maybe this is obvious too, but just to say it explicitly, drayage is fairly localized. Right. So, you can build a charger that handles the drayage for a particular port. It's not like long haul where you sort of have network effects, like you need to be everywhere on the network. These drayage, you can do in chunks.
Ray Minjares
Absolutely, absolutely. And there's this nice synergy between a use case like drayage, like, as you say, it's going to a very discreet location and it's not going very far from that location in its day-to-day operations. So, I like to think of ports as no regret zones and I also like to think about the industrial warehousing that typically is co-located near ports as a part of that no regret zone. And when you think about this from the economics perspective as well, that's where you're going to get the highest utilization earliest of those vehicles and of that infrastructure.
David Roberts
Guaranteed utilization. Basically, it's not like building a charging station for long-haul trucks out in the middle of the desert where it only is going to work if there's lots of long-haul trucks.
Ray Minjares
That's right, exactly. So, just going back to companies like WattEV, and there's also Terawatt Infrastructure and Green Lane, there are so many new companies that are emerging in this space. It's really exciting. But what they're doing is they are finding these no-regret zones, they're securing control over the property in those places where they know trucks are most likely to be driving by, and then they're doing whatever is necessary to get the power. And there are a couple of tactics that they have. I think WattEV is one example, but it's not the only example that everybody is following.
So, in the case of WattEV, the splashiest station they've opened up so far is this facility in Bakersfield, which is a more than 100-acre facility. It has megawatt charging already activated. So, one can go and charge up one of these long-haul tractors in under 30 minutes with that. But it also has on-site battery energy storage and it has on-site energy generation with solar. And the reason for that, I mean there are lots of reasons for it, but they couldn't get the full connection they needed from their utility, which in this case was PG&E.
So, you have these companies that are realizing, "We've got to be flexible, we've got to be innovative, but we can't be behind, we've got to be ahead." So, they're deploying a variety of these technologies.
David Roberts
Well, let me just touch on this before you go past it because I love this idea. I love the idea of sort of all the ideas where you're pairing renewable with the use of the renewables, thereby not needing a grid connection. So the idea is you build a bunch of solar, all the solar dumps into batteries, and then the batteries are fueling the chargers, which enables you to get much faster surges, much faster power out of the batteries than you can get out of the grid per se. Which means that you can charge these long-haul trucks with 300 miles worth of range in 30 minutes, which I think is very — like if people are familiar at all with batteries and charging, that's pretty mind-blowing.
That's a huge battery. You're charging very, very, very quickly. Like, that's a new thing in the world, I think, to be able to move that kind of power that fast. And it's batteries that are enabling that. Praise batteries.
Jacqueline Torres
"Is that available today? I wasn't aware of any trucks that could take megawatt charging today, but maybe I'm just not aware."
David Roberts
Oh, you need special trucks to deal with that amount of power?
Ray Minjares
You need an 800-volt battery. So, not all of the, in this case, tractors that are commercially available, have such a battery. So, I understand the Tesla semi does have an 800-volt battery. So yes, there is a limited number of commercially available products that can use that. But for those that are sort of road testing and have yet to go commercial, it is something that supports that. But the point is that they're trying to lead the market with megawatt charging for that first set of massive deployment of 800-volt trucks, enabled trucks. But I'll just speak to some limitations of this particular model for investment.
And that is, you need land.
David Roberts
Yeah.
Ray Minjares
You also need a lot of capital because we're talking about buying up all that land, also buying up all those batteries, and all of that solar.
David Roberts
Solar, storage, and chargers. I mean, that's the whole CapEx menu, right?
Ray Minjares
It's a big CapEx menu. So, I'm seeing other providers and for all I know, WATV may also be doing this. They know that whatever footprint their facility has, you know, maybe they're buying a parcel right next to it so that they can grow into it. But for that initial parcel, they're not asking for the full 10 or 20 megawatts on day one.
David Roberts
From the utility you mean?
Ray Minjares
Exactly. All they need is, let's say, 5 megawatts and maybe that utility can deliver that within — maybe they can deliver three megawatts on day one, maybe they can deliver another two plus in a year's time. So the point is that these infrastructure providers have learned, "We've got to be flexible with the utilities' processes. We just want to get ourselves control of that land. We want to get ourselves some active chargers deployed. We know we're not going to be at 100% utilization on day one."
David Roberts
This is just racing to get a foothold before other people do. Basically, that's the stage we're in.
Ray Minjares
Like returning to the 1800s, like railroads fighting for control over those rights of way. So, that's the way I see it.
David Roberts
Can I ask this? Why are utilities like — A) Utilities have to pay attention to this because a 5, 10, 20 megawatt node on their grid is no small thing. But also, this seems like a really golden opportunity for them to rate base some very high value CapEx. It seems like utilities would want to get in this business. Are they doing that anywhere?
Ray Minjares
Oh, it's such a golden opportunity, David. I think the utilities should be swallowing the oil industry right now. There's so much opportunity out there. But I've been trying to understand, not being a utility professional myself, the business model that shapes whether or not they're going after these opportunities. And look, it's a business model that we, the public, give them. These are, and here I'm talking about the investor-owned utilities. But look, if there's anybody at fault, it's the public for not giving them the proper incentives to go after this whole new tremendous market that's standing right in front of them.
So, if I'm a utility executive, I'm seeing all this coming. The ones that I've spoken to are a mixture of either indifferent or nervous about all of this electrification.
David Roberts
I just fundamentally don't get that. Like, "Hey, people responsible for product X, pretty soon we're going to need like 10 times the amount of product X." And they're like, "Ooh, I don't know." Who's nervous about surging demand for their own product?
Ray Minjares
Yeah. So, the stories that I've been told are that, number one, they're not convinced that their regulators, namely the whatever public utility commission or municipal governing board oversees them, are nervous about what their response will be because they're not sure that they are up to speed on what's happening. Second of all, they're nervous about consumer advocates pointing to proposals they're bringing and saying, "Told you they would come and ask for more money. Told you they're just trying to jack up our rates." There's an inherent, I think, gap of awareness and knowledge, particularly I think amongst these two groups, the public utility commissioners and the consumer advocates, to really understand how much this stuff costs, how fast it's coming, and how we're going to pay for it.
So, if we can do a better job lining up these actors in their understanding of all of these core elements of truck electrification, I think utilities would feel more confident that they wouldn't be wasting their time asking their regulators to approve an investment.
David Roberts
Jacqueline, how have you found interacting with utilities? Have you — it's just Southern California regulators so far, or are you beyond that?
Jacqueline Torres
A little bit beyond that, I think we're talking to utilities in a lot of different states. Definitely, Southern California Edison stands out as top in class in terms of preparedness and putting resources towards this. They have rebates already for infrastructure and for trucks. They have special programs. They have specific rates for zero-emission vehicle charging. So, they've really built out the in-house capabilities to be able to handle what they know is coming. And that makes sense for the utility that has the largest port in the nation in its backyard. Other utilities, I think, are learning from Southern California Edison and trying to do their playbook as well.
They're certainly further behind, but it's been a good relationship with a lot of them, I would say, that want to speak to the groups like Forum Mobility that are going to be installing infrastructure, speaking to us early. So, I'd say we have had good experiences with utilities. We'd like them to be building out more in advance and be doing things faster. They've been very collaborative.
David Roberts
Everybody wants utilities to move faster. Final question then for you, Ray, and Jacqueline, feel free to jump in if you have things to say. How much of this, this is a question that is suddenly relevant, became relevant between the time we scheduled this and the time we're doing it. To what extent is progress in this sector being driven by Biden administration programs and how do we feel about the future of those programs? I mean, if all those programs should be crushed by a hostile administration, how badly would that set back the sector? How tied is this sector to a friendly federal administration?
Ray Minjares
Great question. And very timely, David.
David Roberts
So, so timely.
Ray Minjares
So timely. Yes. Well, I think the first way I can answer this question is first by focusing on the fundamental physics that drive this transition. Electric motors are fundamentally more energy efficient than any internal combustion engine can ever be. And I think just to give a little bit of cred to Elon Musk here, I think he's realized how to combine that understanding of physics with a lot of capital. When you combine these two things, you can make tremendous technological progress. So what happens if we lose out on not only incentives from the Inflation Reduction Act, but also the Bipartisan Infrastructure Law?
We also have state-level policies that are at stake. We've got the Advanced Clean Trucks rule, which now California plus 11 other states have adopted.
David Roberts
Right. They're going to, they're going to try to take California's waiver, so that could nuke that whole thing.
Ray Minjares
Yes, that would be a very big blow to our progress because it's these policies that are fundamentally changing the incentive strategy infrastructure of our industry here. And if we have manufacturers that have not yet found profitability in selling zero-emission trucks and these policies are taken away, then we revert back to what we had before. Now, one can argue, and I even saw this written up in The Economist just now, that Tesla might stand to benefit from the withdrawal of these incentives because they've already found profitability in selling electric vehicles. Now, that might be eaten away by lower volumes of sales.
David Roberts
Is that true in the truck space though?
Ray Minjares
In the truck space, Tesla is telling — I mean, I think this was announced on their Q3 financials that they're ready to fire up their 50,000 volume truck manufacturing facility by Q1 of 2026. Have they found profitability with that? It took them a while to get there with Tesla with the Model 3.
David Roberts
And they benefited heavily from the very subsidies that Musk is now going to have a hand in yanking back up, yanking the ladder up, as they say.
Ray Minjares
And one other big way that Tesla has benefited is from the credits that they earn from other manufacturers who aren't able to comply with sales requirements in California and for other states that are following California. So, you know, I don't think there's a way to sugarcoat this. I think that there are real risks both to federal policy in terms of the Greenhouse Gas Standard for Phase 3, which itself provides incentives for manufacturers to electrify. To be clear, it doesn't require them to electrify. They could hybridize if they want. They can do more efficient ICE vehicles.
But it does ratchet down the stringency of CO2 emissions levels, such that manufacturers may find it cheaper to electrify than to keep making the incremental investments in ICE efficiency. But on the state level, I think the leadership on electrification is clearly coming from California, which has been reinforced by these other states, about a dozen other states, which as a group constitute about 25% of the national markets.
David Roberts
So, California losing its waiver would be the biggest threat here, the biggest blow to this specifically, I think.
Ray Minjares
And there are multiple waivers, to be clear, that are at risk here. There's the waiver on the Advanced Clean Trucks rule, which the Biden administration has already granted. So, California is enforcing that. Now, that one I mentioned, well, I guess all the lawsuits on that one have been settled at this point. So, that one's in the clear unless Trump changes that waiver. And then there's the Advanced Clean Fleets rule, which is the rule that would require 100% drayage truck registrations that are new to the state, would require them to be zero emission. And that's what would really drive a lot more of the demand for the products that Forum Mobility and Climate United are offering.
David Roberts
And the standards the EPA just came out with, or is about to come out with, it's like happening now-ish with medium and heavy-duty truck efficiency standards. Are those, do those have real teeth? Like, are they going to help? Because it would take a while, even if EPA wants to kill those, they have to do another rulemaking. That's going to take a while.
Ray Minjares
That's right. There's a process. So, that was a standard that was finalized. I believe it was in March of this year. It wouldn't take effect until model year 2027. And it would set new limits on CO2 in that model year and then again in 2032. And it would clearly set a pathway for manufacturers to compare with electric vehicles. But again, it wouldn't require that. The best guess is that there would be — you could get as much as a 42% share of electric truck sales by 2032. Today, we're at less than 1%. So, that's a meaningful change.
And for us to just be aligned with our domestic and international climate goals, we need about a million electric trucks on U.S. roads by 2030, which amounts to about a 40 to 45% of sales share. So, it actually sort of like is only marginally meeting that goal because I mentioned 42% in 2032. But if that rule goes away, then I think something else has to equally drive electrification. And I can't tell you what that would be under a Trump administration.
David Roberts
Grim.
Jacqueline Torres
I have a few ideas.
David Roberts
Are there federal? I mean how dependent is your whole business model on federal programs?
Jacqueline Torres
So, Advanced Clean Fleets is a big one. And that's a California program. However, as Ray pointed out, we are waiting on that waiver. So, that program was supposed to be or mandate was supposed to be in effect January 1st of this year. And I guess what I would point out is that Forum Mobility is signing up customers. Forum Mobility is currently signing up customers to charge at our facilities. And that's before this mandate is in place. And so, customers are seeing that there is an opportunity to transition and they're doing it. And so, while Advanced Clean Fleets not taking effect would be detrimental to the industry for sure, it doesn't mean that it goes away.
It means that we are relying more on TCO. We need to ensure that these customers are being offered a transition that is economically viable in comparison to diesel. And I would say that that makes our Climate United partnership even more essential is that our customers get access to vehicles at affordable rates. And I also put it onto corporates. Corporations need to demand zero-emission goods transportation, and we are starting to see some corporations do that. Corporations need to reduce their Scope 3 emissions and they can do that without the federal government telling them to do so.
And we need stronger alliances between those corporations asking for that so that we can send the right demand-side signals to our customers.
David Roberts
Right. A little torturous because it does sound like a big shift that's just like we're just on the front end of it, and it would be a real shame if a bunch of the struts holding it up got yanked out at this particular juncture. This is one where, like, we're just so close to getting things going, so I guess we'll all keep our fingers crossed. Thanks so much to you two for coming on and walking us through all this.
Ray Minjares
My pleasure.
Jacqueline Torres
Absolutely. Thanks.
David Roberts
Thank you for listening to Volts. It takes a village to make this podcast work. Shout out, especially, to my super producer, Kyle McDonald, who makes me and my guests sound smart every week. And it is all supported entirely by listeners like you. So, if you value conversations like this, please consider joining our community of paid subscribers at volts.wtf. Or, leaving a nice review, or telling a friend about Volts. Or all three. Thanks so much, and I'll see you next time.
In this episode, I talk with activist, sex advice columnist, and progressive journalist Dan Savage about the legacy of “The Urban Archipelago,” a groundbreaking piece he commissioned and edited two decades ago in the wake of GW Bush’s reelection, urging Democrats to embrace cities as their political base and future. We explore how NIMBY-captured Democratic city leadership has stifled urban potential — and why improving and growing cities isn’t just policy; it’s party building.
Greetings and hello, everyone. This is Volts for November 20, 2024, "Dan Savage on Blue America in the Age of Trump." I'm your host, David Roberts. Dan Savage is best known as the author of "Savage Love" a longtime sex advice column/podcast. Or perhaps as the man who forever associated the name "Santorum" with sexual effluvia. Or perhaps as the guy who started the "It Gets Better" movement for his fellow queers.
But Savage is also a fiercely engaged progressive journalist. He used to shape news and political coverage in Seattle as the editorial director of The Stranger, Seattle's stalwart, award-winning weekly newspaper (one of the few such weeklies still standing).
Dan Savage
It was in this capacity that he commissioned and edited, in the wake of George W. Bush's 2004 reelection, a piece called "The Urban Archipelago," which at the time hit me like a ton of bricks. Part of it was the narrative, which crystallized a bunch of disparate things I'd been thinking about, part of it was the unapologetic tone, and part of it was the timing. It made me shout in recognition at a time when I, and others like me, felt extremely isolated and out of step with the national mood.
I scheduled this conversation with Savage to discuss the 20th anniversary of the piece before I knew the outcome of the presidential election, but in light of those results, the piece and its legacy are, tragically, more relevant than ever. I can't wait to talk to him about how he thinks about the piece now, what's changed since 2004, and what hasn't, and what it would mean concretely for Democrats to accept their status as the urban party. With no further ado, Dan Savage, welcome to the pod. It's a real honor.
Dan Savage
Thank you so much. It's great to be here.
David Roberts
I'm pretty sure that most of the people listening to this podcast will know what an archipelago is, but just in case, let's start with what that is and then, beyond that, walk through the thesis of The Urban Archipelago piece.
Dan Savage
Well, an archipelago is a chain of islands. Indonesia is an archipelago nation. Archipelago is also one of those words that you read and rarely have a chance to say out loud or a reason to say out loud. So, you're never sure if it's (pronounced) archipelajo.
David Roberts
I looked it up before this pod, believe me.
Dan Savage
Is it a hard G, a soft G? And I've always felt — I'm an urban kid. I grew up in the city of Chicago, lived in a couple of other big cities before I accidentally wound up in Seattle — and I always felt at home in cities and afraid for my life in rural areas and suburbs. And when I was, you know, began to write and — I was always sort of politically obsessed. I was a politics junkie when I was a teenager. I cast my first vote for Mondale in 1984. So, not the first time I voted for the losing candidate in a national election.
And I always, you know, when the blue state, red state map thing took root after Gore's loss in the electoral college to George W. Bush, it didn't seem right to me to talk about blue states.
David Roberts
Right.
Dan Savage
Because when you looked at the electoral maps broken down by precinct, most by geography, states that were blue were red, almost entirely red. It's just that some reddish or red states had big enough blue cities in them to flip the state into the blue column. You look at a map of Illinois after the election and Chicago and the suburbs are deep, dark blue, but the rest of the state, most of the state geographically, is red.
David Roberts
This is very famously true in Oregon, where Portland is extremely blue and the entire rest of the state is extremely deep red and hates Portland so much.
Dan Savage
All along the ocean in California, San Francisco, Los Angeles, San Diego, even San Diego, blue, but inland, the Inland Empire, the rest of the state, red. And so when people would talk about red states, blue states, I just thought, "No, no, no, no, what you mean is blue cities." That cities, which are the economic engines of the country where most Americans live, where real America is, cities are the Democratic base. And I just thought that there was this kind of category error in the Democratic Party, especially after watching Kerry lose to Bush, when you would have someone like Kerry who's a blue-blooded patrician, as was George W.
Bush, but he did a better job faking working-class horseshit. You know, sending Kerry out in a hunting jacket to shoot at a duck. And Kerry having to pronounce awkwardly, "Who amongst us does not love NASCAR?" And the reality is, most people in urban areas do not love NASCAR, don't know what the fuck NASCAR is, or what the point is. And there's always been this pandering from Dems to the right when it came to small towns and this. I don't want to say they endorse the "real America is rural America" lie. But they didn't fight it, and they didn't fight for their base, which is, I think, real America, which are the cities.
David Roberts
And this is, just to make the obvious point obvious, this is the archipelago in question, this chain, this island chain of cities across the nation. Basically, that's blue, that's blue America.
Dan Savage
Yeah, and most of us, even though, you know, people who are well-traveled, will hop from island to island, will not spend a lot of time in small town or rural America. You know, if you're going to go on vacation and you live in Chicago, you go to Las Vegas, which is a blue island in Nevada. And if you live in Los Angeles, which is a big blue island in California, and you want to spend a week on the east coast, you go to New York or Boston or Philly or Pittsburgh. And we live most of our lives, us citizens of The Urban Archipelago, we live most of our lives on these islands. And what we wanted to do with The Urban Archipelago was to cheer everybody up because everybody was really devastated.
David Roberts
Yeah, maybe. I mean, maybe people listening even I forget how old we are, maybe people listening don't even have this context, but it was very much like George W. Bush screwed everything up, screwed up 9/11, screwed up the Iraq war, screwed up everything. And then it was very much like this past week's election, which was America saw the guy, saw him up close for four years and then chose more of him, which was at the time just incredibly disheartening.
Dan Savage
And the parallels are shockingly painful. Yes, George W. Bush lost the popular vote to Al Gore in 2000, but by about 500,000 votes. Al Gore won the popular vote. If it weren't for the existence of the Electoral College, which wouldn't exist if it weren't for slavery, Al Gore would have been president in 2000, president on 9/11.
David Roberts
The first win was a fluke.
Dan Savage
Right, right. And you could say, you know, I'm with most of us. Most of us voted against this motherfucker.
David Roberts
Right.
Dan Savage
And then George W. Bush, really on the backs of an important constituency in urban America, gay people, because he ran 11 anti-gay marriage referenda in 11 states that drove out, you know, brought out a lot of right-wing evangelical voters who might have sat out that election in embarrassment over who George Bush had been in office and not a great president. And that swung some states, including a couple of swing states.
David Roberts
Yes, remarkably, remarkably parallel to —
Dan Savage
Right. And so now, and you know, in the morning after the election in 2004, you couldn't say, "Well, you know, it was a fluke that he was president and he didn't represent a majority of Americans." You know, he won the Electoral College, lost the popular vote. That was a comfort that we clung to after George W. Bush stole — look up the Brooks Brothers riot. You know, if you're younger than me and Dave and you don't know what we're talking about here, google Brooks Brothers Riot — stole the election and got away with it. And we had the sort of same security blanket after Trump won the White House, but lost the popular vote, this time by 3.5 million to Hillary Clinton.
And you could say, after Trump became president, "This is not who we are." And now we can't say that anymore and we should retire that Obamaism forever. This is who we are. Everyone knows exactly who Trump is, what he's about, what he plans to do, and can look at what he did when he was in office. All he's promised to do is make everything he did then much, much worse. And people voted for him.
David Roberts
He didn't lie. He didn't, you know, there was no hiding the ball.
Dan Savage
I was just going to say there was no hiding the ball. And now he won the — it looks like he's going to win the Electoral College, and although vote counting continues in very populous states, he is on track to win the popular vote as well. Which is such an indictment — not of our system, like, we could point at 2016 and say, "Well, it's an indictment of our system" — it's an indictment of us.
David Roberts
Yeah, although I'm going to go ahead and condemn our system, too.
Dan Savage
Well, I'm not saying we shouldn't be indicted. I'm not saying our system is innocent, isn't guilty. But you could blame the system and not the majority of Americans. And now you have to look and go, "Well, this is not something being done to us. This is what we're doing to ourselves. This is who we are."
David Roberts
I think it's probably always been true, even before there was an America, that people with generally more cosmopolitan values. I think this urban-rural tension has existed as long as there's been agriculture or whatever. But I don't feel like, in terms of the American political parties sort of cleanly dividing along these geographic density lines, I don't think that people in 2004, I don't think that was popularly understood. Today, I think it's almost like a truism. Anybody who follows politics at this point knows about The Urban Archipelago, has seen the map, but back then it was conceptually, it was very powerful.
I feel like it sort of unlocked a lot of things for a lot of people. So, of course, the piece didn't just point this out, that the blue base, the Democratic base, lived in cities. It very much encouraged Democrats to stop being embarrassed about that, stop apologizing for it, and to embrace it.
Dan Savage
And for people who live in cities to embrace being an urbanist or an urban person as a political identity, as a unifying political identity. Because when you think of why Republicans were campaigning against, attacking, and vilifying cities for decades and decades and decades, well, that's where most of the people of color are. That's where most of the poor are, and that's where most of the queers are. And people who aren't poor or queer or black or Hispanic and live in cities tend to be the kinds of white people who are cool with racial diversity and religious diversity and diverse sexual orientations and gender expression, and were kind of suspect by association or by their, you know, being fine with this kind of diversity.
And there was just this sense that there was this identity that transcended so much that we were told, you know, siloed us. If we could just name it, recognize that it was staring us in the face, embrace it, and then demand the Democratic Party recognize who and what and where its base was located, and stopped failing to defend cities and urbanism in national contests with people who would condemn "San Francisco values" before they got out of bed in the morning. And then play to the cities in the same way that Republicans play to and serve and deliver for rural America. Although you could argue that you look at red states where the Republicans control the trifecta and the legislature, and those places tend to be where the dying towns, the dying counties are and a lot of misery is.
And handing Republicans control of all of Mississippi and Alabama hasn't reversed any of that. They're the ones sort of strip-mining rural areas and setting up exploitative systems and then campaigning, running, and winning on "Well, you're this miserable, even though we run this state because of them — "
David Roberts
The immigrants.
Dan Savage
"San Francisco." Yeah, immigrants and San Francisco.
David Roberts
Which you probably haven't laid eyes on once in your —
Dan Savage
Right. Or those suckers in Chicago. It's their fault, right?
David Roberts
Yeah.
Dan Savage
And they've been able to do that successfully. And I was a kid listening to this 50 years ago, listening to Nixon say this. My parents argued about it at the kitchen table, condemning cities and condemning the people who live in cities when we're responsible for 70, 80% of the economic productivity and innovation. And it's where people want to live, choose to live, would live more of them if they could, if we would build some fucking housing.
David Roberts
Well, we'll get to that in a minute. This is also what I appreciated about the piece, and I don't even know that I had — I mean, at that point, I was still pretty new to kind of paying attention and engaging seriously in politics. But I had never, you know, I sort of knew all that vaguely, but I had never seen anyone take pride in it. You know, it's like the cities are where culture happens. You know, it's where, like, new things are born. It's where new mixes of culture are born and new things happen. It's where GDP is born.
It's where innovation happens and new businesses. And like, urbanity is the engine that produces all the things that sustain this country. The rural areas are largely consumers of all that stuff.
Dan Savage
And are subsidized.
David Roberts
And are subsidized by it. Like, you know, the cities produce the GDP that makes rural living possible at all in this country. But we're just always supposed to be kind of, like, embarrassed about it because there's always this idea that if you're proud of urbanity, then you're sort of automatically disdaining the good people of the heartland.
Dan Savage
And that's what we risked doing in The Urban Archipelago. In our anger, we heaped disdain. You did.
David Roberts
Well, that's another thing I appreciate about it. You're like, "Fuck it, let's disdain them."
Dan Savage
Almost as a thought experiment. Like, we're gonna talk about you right now —
David Roberts
Deliberately provocative.
Dan Savage
— the way you talk about us all the time, which is just with this kind of, not only don't we care about you, but you are the problem.
David Roberts
Yeah. Total contempt.
Dan Savage
And that was one of the, you know, — I reread The Urban Archipelago because we were gonna talk about it — and, you know, one of the things that gets liberals in trouble again and again and again is we care too much, and then we get slimed by the right for bothering to care. And, you know, there's a few things in there that I'm a little uncomfortable reading now because I kind of — I'm a liberal. I'm a bleeding heart liberal. I do care about getting gun locks onto guns and safe gun storage.
David Roberts
Yeah.
Dan Savage
And yet, every time I pick up a story, read a story in the paper about some kid blowing his head off, it's not some kid on the Upper West Side of Manhattan who blew his head off. It's not one of my people. It's some kid in a rural area with rube fucking parents with tons of guns laying around. Occasionally, it's a kid in an inner city where there are guns laying around, but almost invariably, it's an exurban or rural problem. And I was like, "We're losing votes because we are fighting so hard to get gun locks under the guns of these idiots in Iowa." Fuck them. If they don't want their own kids to survive being toddlers, why are we expending so much political capital and losing votes in these areas for being perceived to be anti-gun to save their own kids from themselves and from their parents?
David Roberts
Well, to once again draw a parallel, like Biden's whole administration was devoted to policy meant to revive precisely those red areas of the country that have been hollowed out by globalization, et cetera, et cetera, minimum wage stuff and care stuff. Like Biden fought for those people and in response, they hated him. You know, like the working class in those areas, the white working class in those rural and exurban areas hated him like Satan. Even though on any sort of like tangible policy level, it was the most sort of like, you know, most working-class-friendly Democratic administration in years.
Dan Savage
And imagine, imagine if the same sort of investment and prioritization had been targeted at cities, not just during the Biden administration, but the Clinton administration, the Obama administration. There's this constant sense that, well, these people out there in rural areas will come around if we just shoot enough ducks and pour enough money into their communities, and we can take for granted — one of the lessons, I think, from this, what we're looking at from 2024 is that it was a mistake to take for granted the urban vote, which is also a way of taking for granted the votes of black and Hispanic people, queer people. Although LGBT people were one of the few sort of bright spots in this election where the Trump vote among LGBT fell from 2020, where it was an appalling, I think, 27% to just 12% in this election.
So, good on my fellow queers for recognizing the threat. But imagine if we had had the same campaign, not just of funding for the cities, building the cities, building public transportation in the cities that can alleviate people not of the freedom to own a car, but the burden of having to own a car, which is a form of anti-freedom, and building housing and poured money into the cities and encouraged in cities an identity among voters of "This is what Democrats do." Democrats build big things and cities are big things that Democrats have built and are going to continue to build. And we haven't done that.
David Roberts
So, here's my question. The conventional wisdom now, which still very much holds on kind of the center-left amidst the Democratic Party and the punditry, is that turning and explicitly embracing cities, explicitly embracing urbanity, branding as an urban party would be disastrous. Because if you clump all your voters into these cities, right, the US system of government rewards geography, you know, gives votes to geography. So if your rural people are spread out and covering more land and all your voters are urban people who are clustered into cities, they're going to win more seats in state houses, they're going to win more seats in Congress, and then they're going to screw you.
So, in other words, you can't get by with just cities. And of course, like, the big factor that I think the one thing you really did — sort of like were slippery on — in that piece is going back and forth between rural and non-urban, which are very different, of course, because non-urban also includes the suburbs. And it's the suburbs that didn't play a very, very big role in the piece. But it seems to me like suburbs that are at the absolute center of US politics because it's, you know, the rural people can't win alone, the urban people can't win alone.
Everything is sort of a battle over the suburbs. And depending on how you measure things, there are more people in the US in suburbs than either in rural or strictly urban areas. So, how do you, you know, it's clear enough if you set it up as being cities against rural areas and all the, you know, that division. But how do you think about suburbs conceptually fitting into this piece and this way of seeing things?
Dan Savage
One of the things we said in the piece was, "It's not just enough to serve the cities and identify with and campaign on the cities that already exist, but we need to grow the cities." And where do cities grow? They grow out into the suburbs. And to foster that sense of identification, not just with the nearest urban area, but as an urban area, as a city, which we've seen, you and I, we live in Seattle. We've seen Bellevue go from basically a red suburb to a blue city in the last 20 years since this piece was written.
And there's a new island coming up in Hawaii right now. There's a volcano under the Pacific Ocean that is going to eventually keep spitting out enough lava that it breaches, and there's going to be a new Hawaiian island. That's what we talked about when we discussed growing the Urban Archipelago. We also talked not just about, like, let's evacuate everybody from Iowa to Seattle. Although, if I grew up in Iowa, I would have been one of those kids who couldn't have waited to get the fuck out, at least to Chicago or Minneapolis.
David Roberts
I grew up in Tennessee and was one of those kids.
Dan Savage
Right. But when you look at that Urban Archipelago map, one of the things that the blue islands are, are college towns. In Iowa, Des Moines is a blue island. So when you talk about building up the cities and investing in the cities and identifying with the cities, not just talking about identifying with the coasts and Chicago, which is kind of a coast, it's sort of, I think — I think Chicago is basically an East Coast city having grown up there — you're talking about identifying and serving and campaigning on and for and with the cities. The blue cities that already exist in red states, they're not just big enough or blue enough yet to flip that state, but that is the only way Dems take a state from red to blue is if the city grows and the city grows and the city grows.
And the more you invest in that city and the more you as a politician speak to the people in that city and help them forge that identity as residents of the Urban Archipelago, you're gonna get more people voting, you're gonna get more people registered, you're gonna get more people to identify with the Democratic Party and grow those blue islands. So it's not just about everybody clumping up in these already existing big blue cities. It's about those of us like you and me who couldn't wait to get — or I grew up in Chicago, so I was already there, but I only ever wanted to get to another one or a bigger one — but those of us who wanted to self-sort to those big cities could. And people who wanted to stay, I think of people I know in Iowa who are queer who stayed and they're not in the small town of 500 people and falling that they grew up in.
David Roberts
They're in the college town.
Dan Savage
They're in college towns and they're in Des Moines or the Quad Cities, which could be bigger, could be bluer, could be denser, could have better transit, could have high-speed rail connecting them to Chicago. If you had high-speed rail that connected the Quad Cities, which are in Iowa and Illinois and are beautiful and have a really interesting old housing circuit. If you had a high-speed rail that connected that place to Chicago, it would be a suburb of Chicago practically.
David Roberts
I don't think people get how much it is true now and even more, I think even substantially more true today than in 2004, that density is almost mathematically one to one correlated with blue voting. Like you can see it at the level that you're talking about sort of in states, you know, like the cities or the dense parts, that's where the blue is. But even it's fractal, even if you focus in on cities, the more dense neighborhoods are bluer and like the little part of the college town that's dense which can sometimes be just like, you know, a few square blocks, like that's blue. It's really a correlation that holds almost eerily across the country and to me, like —
Dan Savage
So create more of those conditions.
David Roberts
That's to me the obvious conclusion for Dems is like densification is —
Dan Savage
Party building.
David Roberts
Party building. Right. It's the exact same thing. Densification is creating more blue voters. They are one in the same. Doing it to suburbs, doing it anywhere to any — doing it anywhere is the same as building up the Democratic party.
Dan Savage
And there's two reasons why I think that is. You know, you live in a very dense place and you get an immediate and very real sense of how interconnected we all are and reliant on each other we all are. You know, the rugged individualists out there LARPing in rural areas: Who built the road? You know, that's this idea that, you know, "I'm just, I'm self-sufficient, I take care of myself, I don't need the government" and yeah.
David Roberts
Well, they're living in McMansions. They're driving giant trucks to Walmart. You know, like how many of them even —
Dan Savage
That's why we call them LARPing. Live action, role play, rugged individualism. When you live in a city, you can't maintain that pretense. You are dependent and reliant on each other's and cities are a collective project. And that sense of — I don't use collectivism because it's a commie tainted word, you get attacked for it — but there is a collective sense of "We're all in this together and how do we make this work?" And we have problems in cities because Dems have been captured by a kind of urban elite.
David Roberts
Oh, we're going there next.
Dan Savage
Who wants to McMansion the city.
David Roberts
Yeah. Just to top off this line of thought, I had some people on the pod who had moved from I think Vancouver to Delft, the Netherlands and they spent a lot of time in Amsterdam, wrote a bunch of books about biking, biking advocates. But their point was just: When you're navigating a city and everyone's walking or on bikes, there aren't and can't be enough signage to sort of determine exactly where you go. Everyone is constantly negotiating with everyone else in very small, very sort of like, you know, like fraction of a second eye contact sort of ways.
But you're constantly navigating through other human beings and negotiating with human beings about public space. It's not even something you necessarily notice consciously. But you are of these people, right? You're among these people. You are part of a unit, part of the same thing as these people around you.
Dan Savage
And what makes the news, and one of the ways cities are stigmatized or demonized by right-wingers, is what makes the news is the person who commits a crime on the subway. What doesn't make the news are that probably in a single day in New York, the hundreds of thousands or millions of small, momentary passing interactions that involved some sort of kindness, compassion, grace, tolerance, eye contact in cities. You can't navigate a city without making eye contact with a million people. Now, there are some people outside the Broadway QFC that I avoid making eye contact with, but for the most part, I make eye contact with everybody.
And there's this sense in the city where you're seen, right? And that what your friends talked about there, I think, is really important. I'm just, like, riffing on it. Like, I think that is really important. And who are you seeing? You're not just seeing people who look like you, act like you, dress like you, love like you.
David Roberts
Or your same age. Right. Or same professional class. They're not all Amazon workers, to pick an example.
Dan Savage
I mean, you look at the vote totals in Manhattan and, you know, the Upper West and Upper East sides, and there are very wealthy people living at the tops of those buildings who navigate, who leave every day and get on the subway and share and navigate the city, share the city with and navigate through the city, interacting with people of different classes. Then, it's harder to demagogue about class.
David Roberts
Yeah, and it's harder, I think, to blow, like, I don't know, trans people up in your head as some sort of, like, Gorgon, some sort of, you know, terrible beast that lurks around the next stall in the bathroom when you just, like, see them out on the street every other day. And you're like, "Oh, those are just goofy..."
Dan Savage
Those are the trans people that you recognize as trans. Like, beware, trans confirmation bias. I know a lot of trans people who pass.
David Roberts
But they're all just people. That's what — like, when you're walking around them, you're just like, "Oh, those are just like, people." People are people. Everybody's just trying to get on the damn subway.
Dan Savage
You see this, I think, you know, I hate to keep citing queer people, but almost all gay people are refugees. Even if the town of 500 you grew up in, in Iowa, happened to be, by some fluke, the most gay-tolerant, welcoming place in the world. If you want to have some choice about who you date, you can't stay there. You're going to have to migrate to the big city because we're such a tiny percentage of the population. And if you want a viable dating scene and a few options besides the Catholic priest at the truck stop, you've got to get to Chicago, you've got to get to Seattle.
David Roberts
And it's true of any niche. Like, it's true of that sexuality, but it's also true of, like, art. Like, if you're into a very specific kind of art, the likelihood of one of those 500 people in your town also being into that art is pretty small. You know, it's like evolution. You know, like, when evolution happens on islands, it happens faster than it happens on the mainland, you know, because of, like, if you want these little islands of subculture, the only place to find them is in cities. Cities are the only place where there's enough people.
Dan Savage
What I wanted to say about that kid, the kid coming to Seattle from a small town in rural Washington, like my husband did, is that he arrives at 18, 19, 20, with the assumptions, prejudices, politics that he was raised with, steeped in that he didn't question. And then he arrives in the city, in a dense neighborhood where he has a studio apartment, and immediately begins to interact with people who are Muslim, with people who are of different races, with people of different ages, with people of different backgrounds, people with different political assumptions. And what begins to happen is the questioning. And it doesn't mean that everybody's instantly turned into a lefty when they arrive in a city, but everyone has to question their priors in a way they don't have to if they stay in that small town.
David Roberts
It's the opposite of how conservatives characterize it. They characterize it as indoctrination, right? You leave your small town and you go hang out with the professors and the queers, and you get indoctrinated. It's really the opposite of that. It's showing people there's not just one way to live, there's a bunch of ways to live. That is the opposite direction of indoctrination.
Dan Savage
Right. But if you're the gay kid, some of it's by insemination, too. You end up having, you know, that's actually, there's a really terrific book, "Secret City: The Hidden History of Gay Washington" by James Kirchick. And one of the things the federal government identified during the Lavender Scare, when they were purging gays and lesbians from federal government and federal agencies as a threat, was the fact that gay people, because of desire in our small numbers, intermingled across class and racial barriers that people who are straight didn't mingle across. There's a great scene in a gay bar that he describes where there are black guys who are porters, who are in the porter's union, hanging out, drinking with, hooking up with aristocrats from Europe who were visiting the city and forming these connections.
And that's what gay people often do in a way that straight people don't do, can do, but don't do, aren't forced to do the way gay people are forced to because our numbers are so small. And that's, you know, not indoctrination, not insemination — sorry for the dirty joke, probably not what people come to your podcast for — but just these interactions that people have. And it doesn't make, you know, I know gay Republicans, not anymore.
David Roberts
And there are antisocial assholes in cities. Let's not make any bones . There are plenty of people who are not made more humane by that exposure to other people.
Dan Savage
Some people would say I'm one of those people because I'm such an introvert, even though I live in the city.
David Roberts
Well, we're burning time, and I gotta get to my big question, which is probably the central question of this whole thing, which requires a little bit of wind up. So, the piece encourages Democrats to get serious about cities and to pursue growth policies that will cause urban growth and champion urban values. And this is a quote, this is from the piece where you're sort of like touting the merits of urban values: "Transit, like the monorail, in turn promotes density in outlying areas like Ballard in West Seattle, which leads to the creation of housing that's affordable to everyone, not just the proverbial penthouse-dwelling downtown urban elite."
So, this quote twists a knife in my heart.
Dan Savage
Mine too.
David Roberts
Because A) it's absolutely correct. Transit brings density, brings more housing, brings down housing prices. That dynamic is for sure. But as you and I know, the monorail, which Seattleites voted for a half dozen times, got nixed when we finally got light rail. It didn't go to Ballard or West Seattle. And the fight to get it to Ballard and West Seattle is taking literally decades. And then where we did put light rail stops in the city, we didn't put any density next to them. They're next to a bunch of parking lots and golf courses.
And consequently, housing is as expensive as ever. So, like, all of that, everything in that quote, Seattle just turned around and crapped on, which, by which I'm trying to get to a bigger point, which is: Half of this is like, "What's so great about rural areas? Screw those guys. Let's value our cities that we love." But the other half is cities have kind of blown it. Like blue governance in cities in the past 20 years since the piece came out have blown it. They haven't built much transit. They really haven't built much housing. They are choking.
These growth policies that you envisioned are getting choked by bureaucracy, red tape, historical memorial societies or whatever, NIMBY groups, interest groups, and even environmentalists. Everybody can slow everything down. So, blue city governance is a tangled failure, it looks like right now. And how do you think about this notion of urban pride and embracing urbanity when the examples we have before us are not super inspiring, at least in the U.S.?
Dan Savage
The problem, you know, in addition to Greg Nickels rat-fucking the monorail at the last possible minute, we would be riding —
David Roberts
That was the mayor of Seattle back then, everyone.
Dan Savage
elevated transit.
David Roberts
We were going to have a monorail all over Seattle. It was going to be the coolest, most futuristic thing. And by now, if they had just built the fucking thing...
Dan Savage
And we had the prototype, the fastest way to get from Westlake in Seattle to Seattle Center is the goddamn monorail. And we had the prototype you could go to. We wrote a lot about this in The Stranger, a lot. When I was the editor and the monorail campaigns were ongoing, I wrote a lot about the monorail. In Chicago, you have an example of elevated transit and that it works. And these arguments in Seattle that, "Oh, it's a blight that'll destroy neighborhoods. No one wanted to live near it." And then you can go to Chicago and you can see that everybody wants to live as close as possible to elevated transit to the L in Chicago, which was built 150 years ago and is noisy and loud and the monorail — anyway.
David Roberts
Seattle didn't want to build anything, though. They don't want to build a monorail, they don't want to build houses, they don't want to build bridges, they don't want to build anything.
Dan Savage
Oh, we didn't want to build a baseball stadium, but somehow that got built.
David Roberts
Funny.
Dan Savage
The problem in cities is these twin pinchers between which our political "leaders" have been captured, which are these NIMBYs who tend to be white, tend to be wealthier homeowners who don't want anything to change, who want to pull up the ladder behind them, who want to benefit from living in the city but never pay the price of living in a city, which is living with a certain amount of change and ferment and dynamism. Sorry, it's so early where I am right now. But also the left, which misidentified development as the driver of gentrification and displacement, when it's actually scarcity that is the driver of gentrification and displacement, that you can have density and development without gentrification and displacement if you don't have scarcity. We have scarcity because that's what the NIMBYs want, because it drives up their property values and it locks their neighborhoods in as these unchanging, frozen in amber Mayberry blocks like we have in Seattle, like the one I live on.
David Roberts
Like 80, there's something like 80% of Seattle still to this day.
Dan Savage
And I live on one of those blocks.
David Roberts
Same here.
Dan Savage
And I would, in a heartbeat, tear my house down and build a 4-flat —
David Roberts
Same here.
Dan Savage
— if I could, but I can't. If I could hand my house to a developer and say, "In exchange for a little less off the price of this land, which is served by four different bus lines and is a half a block from Volunteer Park and a walking distance from light rail, in exchange for a break, I get one of the apartments."
David Roberts
Yes, I get the upper floor. There's a name for that in Germany or something. That's some long German word, but that's actually a familiar enough arrangement that there's a name for it in other countries.
Dan Savage
So, I'm surrounded by wealthy white NIMBY homeowners because that's my block in Seattle, and they're my neighbors, and I love them, and I argue with them about this and other things.
David Roberts
They would not want you to put that 4-story —
Dan Savage
But the other thing that really galls me is the left in Seattle that continues for 30 years to campaign against gentrification, even as there's no stopping it. These are tectonic forces. People want to live in cities again. And rather than when we got the sense that people wanted to live in cities again, allowing the city to build again, we thought, "Oh, we can keep these people out of here if we just don't build." And that's not how anything works. And I would get in trouble when I wrote this at The Stranger, even with some of my colleagues. My perspective as a city kid, like, I grew up in Chicago in the 60s and 70s.
I remember, as a very small child, white flight. I remember my relatives moving to the suburbs. My dad couldn't because he was a cop. And you had to live in the city to be a cop. And God bless my dad that he didn't move us to the south side. He moved us to Rogers Park on the north side. Right. We didn't wind up living in Mayor Daly's neighborhood. We wound up living in a lovely neighborhood full of urban people with single-family homes in the middle of blocks and giant apartment buildings at the end of blocks as anchors. So everybody could live on this block.
David Roberts
And it worked just fine.
Dan Savage
It did. I remember white flight, though. Everybody was out and white people were fucked, we said, because they left because they didn't want to live in diverse places. They didn't want to live. Mickey D's, the Irish grocery store, became a Mexican grocery store and people were like, "We're out." And like, wow, you're a racist fuck. And then I lived long enough to see white people move back to the city and then we said, "Oh, you're a racist asshole for coming back." And I said, to the left: "One or the other." What drove the emptying out of the cities was white racism and the automobile, which we hate both those things, right?
And we should be trying to undo both those things. Here, the white people are coming back. People want to live in the city again. People want diversity. It's actually what they want. What you're doing is looking at them and saying, "Fuck you. Fuck you for going, fuck you for coming back." Sometimes it was the exact same person, who is as old as I was, who said "Fuck you" for going during white flight and then stood there during the "gentrification displacement crisis," saying "Fuck you" for coming back. You can't have it both ways. White people are terrible because they left or they're terrible because they came back, but not both.
David Roberts
But doesn't this put a dent in your thesis though, if even the urban people aren't urban in the way you describe urban values?
Dan Savage
I'm talking about lefty activists and I'm talking about white single-family homeowners. Those are the twin pinchers. And I don't think urban lefty progressive activists represent the majority opinion in the city as we saw in our city attorney's race just a few years ago in Seattle.
David Roberts
Right. Well, there's also the drugs and the crime angle because now we're seeing this sort of wave of like, kind of reactionary sentiment across even quite blue cities about petty crime and shoplifting.
Dan Savage
Made real gains in cities between —
David Roberts
Yeah, like what do you, what do you — I mean, that's, that goes directly contrary to our archipelago. Like what are we, what are we to make of that? What are we to make of the fact that blue cities can't seem to run themselves well enough to grow and attract people like you want? And their governance, their self-governance, is so bad that even now people within them seem to be turning in the other direction.
Dan Savage
Yes. Look at what's going on in California where Scott Wiener, State Senator, and Newsom are having to shove down the throat of San Francisco — which Scott Wiener represents and Newsom used to be the mayor of — shove down San Francisco's throat new housing and allowing the construction of new housing, allowing for the city to continue to build the city inside the city limits. And that's what we're going to come to. You can't win city elections in a place like Seattle if you run against single-family housing. I was really excited maybe Harris would get elected. And Harris and Obama both made a lot of YIMBY statements during the campaign and there was going to have to be a federal cram down.
We've got to like. It's going to have to be a situation where the people who run the city can turn to the single-family homeowners and say, "Our hands are tied. We can't prevent this." And it just fucking happens. But when you think about it, it is distressing. The fact that The Urban Archipelago vote, there was a big swing toward Trump. We're still talking about supermajorities in cities voting for Harris, but there was more movement in the cities toward Trump than anywhere else. And that's distressing. And I have a few theories about that, one of which is already getting me into a lot of trouble.
David Roberts
Oh, please, just share, because I'm wrestling with it.
Dan Savage
Everyone's acknowledged that Trump picked up a lot of Black, Hispanic, and Latino support. Where are those communities based? Where do they live? Cities. So, if he's going to pick up a lot of Black, Hispanic, and Latino support and voters and create more of a working-class coalition on the Republican side, you're going to see a movement in the cities. When people talk about Trump doing really well in the cities, there's not a city in The Urban Archipelago from 2024 that we identified where he won anywhere near a majority.
David Roberts
No, no, he didn't.
Dan Savage
Cities are still our stronghold. We need to shore those strongholds up. That's the lesson of 2024. I think, culturally, in the cities, you know, this is when I'm gonna get in trouble. Because I am a part — this is not me criticizing the left. I am of the left. And I am part of, I think, at times, the insufferable left as well. But cities are the places where people had the most interactions with the insufferable left, with the scolds, with the people who are policing language, with the people who are elevating.
David Roberts
Yeah, because one of the things you say in The Urban Archipelago is that one of the urban values is we like argument and speech and everybody getting their say and the bustle. And then, you know, we have not really behaved that way since then. Now there's this whole sort of, like, trope now of precisely those people in the cities, precisely those kind of educated, affluent people being the most naggy and censorious.
Dan Savage
Right. And that's the insufferable left. And somebody who lives in rural Iowa has had no interaction with, and therefore no reason to cast a protest vote against, the insufferable left. But someone who's lived in Seattle, who is a Democrat, a liberal, a progressive, may have cast a vote against the insufferable left after watching what went down over the last, I don't want to say four years. I don't want to tie it to the protests of 2020 and George Floyd. I think the last decade of this, I think it's a truism, I've heard other people use this, I don't know who to credit it to, but I think it's absolutely true that: The right seeks converts and the left hunts heretics.
David Roberts
Yeah, that's old. Old. That goes way back.
Dan Savage
You can agree with me about 98% of everything. But it's my mission to find that 2% or that 5% where we disagree and then drive you out, cast you out. You are impure. And that's not how you win elections, and that is how you lose votes in a place like Seattle or a place like Chicago, where Trump increased his vote share, or New York City. And when you look at where Trump's vote share increased in New York City, where the swing was in New York City, it's the Bronx, it's not the Upper West Side, it's not the whitey-whitey parts.
So, a lot of it is like, where are the voters who are black and Hispanic and Latino? And everybody acknowledged that he picked those voters up. So we shouldn't be shocked that he did better in cities this time than last time. But when I think of some of the people that I know who cast protest votes by not voting or by voting for a third-party candidate who is not Jill Stein, it's almost like we used to talk 20 years ago, 30 years ago. People talked about edgelords and shitposting. There are some people out there who edgelord shitposted a vote for Trump in Seattle, not because they necessarily wanted him to be president, but because they wanted to flip off the people who yelled at them for getting a pronoun wrong.
David Roberts
Yeah. So, there's a lot of self-criticism to be had here then on the left, among urbanites, that they have not passed the urban policies that would have made this vision real. And they haven't behaved—
Dan Savage
And those urban policies are the engine that creates Democrats. Right. We have gummed up the works that take people from small towns and rural areas and turn them into reliable blue Democratic voters by bringing them into the city, by helping them create a home, a life, and a family in the city. But cities have become these places that talk about tolerance, talk about inclusivity and diversity, and exist to force you out, to drive you out because of the cost of living, because of the cost of housing, which is impoverishing people.
David Roberts
It's terrible. It's become a macroeconomic problem now. But what do you —
Dan Savage
So, these Democrats and liberal politicians who run the cities have misidentified what it is about cities that they, as Democrats and liberals, should be running them to do, which is, you know, to create better places to live and work and innovate and GDP, but also great places for Democrats to farm new Democrats. And we have stopped that up, we have dammed that up in the cities because some people like you and me, we're like white guys in our 50s, right? Some people like you and me got houses and then immediately thought, "Well, the last thing I want is a condo next to my house or an apartment building next to my house. And I'm going to show up at some meeting at city hall and scream and yell and terrorize these politicians into backing the fuck off."
That we can't undo single-family zoning in Seattle is insane. Seattle, which prides itself on being anti-racist.
David Roberts
My favorite statistic, something like, I forget the exact number. I should look this up. Something like it's between, I think, 70 and 80% of Seattle by land area is less dense today than it was in like the 1970s when the population was like a third of what it is now. So, we've grown by almost three times while these vast swaths of single-family homes have been depopulated because the kids grow up and leave. Kids can't afford to come buy them. So, it's just a bunch of old people out in these single-family home neighborhoods and all the new population, all the new people are being shoved into these corridors along high throughput stroads. It's awful!
Dan Savage
Then, because the people in the single-family neighborhoods traverse those corridors to get from one part of the city to the other, they see that development shoved up along those stroads and think, "Oh, the city has changed. Look at all of this development." And it's really Potemkin development.
David Roberts
And they think this is what density looks like. It looks like a big, ugly apartment building alongside a five-lane road where you'd have to get in your car to do anything.
Dan Savage
Oh my God. And no, like 70% of Americans don't have passports. So, 70% of Americans haven't walked around Berlin, right, where there are seven-eight-story apartment buildings everywhere. And they form these lovely neighborhoods that create a lot of shade in which there are little parks, and it's lovely and possible, but we won't do it. I live right behind Volunteer Park on one of the 16, 17, 18, 19th streets there. And there's the number 10 bus, the number 12 bus, the 43. It's served by all of these buses that are empty. I am the only one on them because I do not know how to drive.
And so, it's a dense, transit-rich neighborhood full of old people with cars. The block I live on is really near St. Joe's, which is a great private grade school, and Stevens Elementary, which is a great public grade school. And everybody who's bought a house on our block in the last few years is a childless retired couple because those are the only people who can afford houses on our block anymore, or afford housing on our block anymore. But if we were building, even if we just rezone the city, so at the end of each block you could build an anchor apartment building where people whose kids are moving out of their houses or young families can afford a two-bedroom apartment to rent it or swing it and buy it.
It would transform the city and bring life to the city. And I wouldn't be the only motherfucker on the number 10 bus 90% of the time.
David Roberts
This was my impression when I was in Hamburg recently. When I wasn't laid up in the hospital, when I got out and was —
Dan Savage
Oh God, I read that thread. I'm so sorry. I'm glad you're all right.
David Roberts
When I was walking around Hamburg, though, it's just as you say, there's all these six-story apartment buildings and little cafes and little playgrounds and schools and all the things you need to live mixed together. And so you'd see walking around an incredible age diversity. It really made me cognizant: A, when you walk around Seattle, just how few people you see. Full stop. Like, there's, you can't find anywhere in Seattle that has the sort of bustling street life of any, you know, like any given block in Hamburg. And B, just a diversity of ages, like all these old couples and then there's like parents with kids, there's teenagers riding around together on bikes.
There's just this sense of the fabric of life, like all the different ages, different people involved in different things. You just feel like you're in a web, you know, this web of interdependence that you're talking about. You can really feel it in a place like that. You just can't feel it when you're driving around a stroad in Seattle.
Dan Savage
And this is where people will jump in and say, "Well, go to Hamburg, go live in Hamburg."
David Roberts
I wish I could.
Dan Savage
We don't want everywhere to be Hamburg. And we're not arguing for everywhere to be Hamburg. Not everywhere in Germany is Hamburg, right? Not everywhere within five miles of the part of Hamburg you're talking about is like that.
David Roberts
Right?
Dan Savage
But the problem in America is we can't have Hamburg anywhere. That everywhere has to be a suburb and that cities are deconstructing themselves. You have neighborhoods where there has been no change to the actual housing stock, where fewer and fewer people are living because people are taking brownstones that were cut into four apartments and making them single-family homes again, which has also happened in Seattle. It has happened in my neighborhood in Seattle where there were houses that have been cut into two apartments that are now one home with two retired people living in them with six bedrooms, which is insane.
And so, like, we're not talking about, you know, I love Berlin, but I've also been to the suburbs of Berlin and little towns outside of Berlin that are well served by transit, where it is single-family homes. And the problem in America is we don't have both options. No one's saying if we built a dense Hamburg-like neighborhood in downtown Seattle, a lot of them or all of downtown Seattle became that, that everyone is forced to live there. It's that those of us like you and me who would like to live there can't live there because people are so paranoid that they might be forced to live there. We're not allowed to build that where it might be wanted and welcomed.
David Roberts
And it should tell us something that every place in Seattle or any American city that even gets close to that is instantly unaffordable because there's so much demand for it. Like, clearly there is way, way, way more demand for that kind of place than there is supply. Where's capitalism when you need it?
Dan Savage
Right. That kind of capital — I wish Dems would be pro-business in, like, "Let's build." People will make a lot of money. And that's good because the end result of people making a lot of money building is people have a lot of places to live. You know, I wanted to jump back to something you said earlier about how you build transit and you allow construction by it. I'm in a little city in Europe right now. I'm not in the United States, which has been a really freaky experience going through what we've been through last week.
David Roberts
You should stay.
Dan Savage
I was at a dinner party yesterday, had to answer a lot of questions about "What the fuck?" They just extended the tram system in the city where I am out into a field. If you look it up on Google Maps, you can do the 360 thing and there's literally nothing there on Google Maps still. Now, because they put a tram stop there and built a new tram line out into the middle of nowhere, there's a giant cluster of apartment buildings, high-rise apartment buildings, low-rise apartment buildings, and repurposed — because it was an industrial wasteland — old industrial buildings that are now community centers and not factory floors. There's a lovely little park at the center of it. It is gorgeous. Thousands — I've been going to this neighborhood since the first cafe opened and the first tower that they built. Because I come to this place, I am in Europe right now a lot and I have watched the place fill up with people. It's because they built a transit stop and then they allowed for the construction of tons of new housing on it. It is a vibrant, interesting neighborhood where people have the option to live.
And not everybody wants to live there, but you know, not everybody has to live there. But the people who wanted to live in a neighborhood like that prior to its construction couldn't because it wasn't an option for them. And that's what we don't have in the States. We need 10, 12 Pearl Districts in Seattle.
David Roberts
Yeah.
Dan Savage
But bigger because it's hoarded. Like, you've been to the Pearl District. It's great. It's great. And especially if, you know, it was in the Pearl District in Portland, Oregon before the Pearl District was allowed to happen. Right. And that's the other thing I just want to think, I want to say about development is like, people are like, "Oh, Seattle needs to build." No, Seattle needs to get the fuck out of the way and let people build in Seattle. It's not the city's job to build housing. It's the city's job to stop preventing the construction of housing.
David Roberts
The really depressing thing is Seattle, which, you know, as you're saying this about transit, just like if anybody out there listening doesn't know, Seattle finally, after voting for it 58 times, finally voted through several billion dollars for light rail and then decided basically to run it alongside the interstate and make it a park and ride tool for commuting, which is like 5% of the value of transit. You know what I mean? Like, we spend billions and then nickel and dime these stops. So we're not getting any of that burst of development and growth that you're supposed to get from transit stops.
Instead, we just parked them right by the interstate. It's obscene.
Dan Savage
And we pay for our politicians to go on these junkets to places that have functioning transit systems where they see with their own fucking stupid eyes that transit in places like London, Berlin, Chicago, and New York runs through neighborhoods. It doesn't run along freeways and interstates. There are no trains in Berlin along the horrible ring road that goes around three quarters of Berlin. Because there's the ring road. The trains thread through neighborhoods. There are trains in Chicago, the Brown Line, that go past some single-family homes on the same block. That's where that was part of the genius of the monorail — if we had had the courage to build it when we had the opportunity to build it — it was traveling along existing rights of ways through existing neighborhoods and it would have knit them together and it wouldn't have destroyed them. It would have made them, ironically — you know, like one of the problems we have with scarcity is high property values — ironically, you know, in a place like Chicago, the closer you are to elevated transit to the L, the greater your property values are. It's almost like we, you know, we send these politicians on junkets and they learn the — they see how it's done and they come home and say, "Let's do the opposite." And it's so infuriating.
David Roberts
It's been infuriating this way in Seattle for decades. But what I was going to say is, one of the most depressing things about all this is, like relative to most US cities, Seattle is growing and building relatively quickly compared to other cities. Like, as grim as the sort of urban landscape is here relative to a Berlin or Hamburg or something like that.
Dan Savage
Which are having their own housing crises.
David Roberts
You know, it's better than a lot of mid-size and large cities that aren't building anything. You know, it's just such a low base.
Dan Savage
Can I blow your mind, though? Can I blow your mind? Yeah, we are growing, but the people who are coming here, we're torturing.
David Roberts
I know, right? We're putting them by the stroads.
Dan Savage
We're putting them by the stroads. They're having to move into apodments, which are tiny little dorm rooms, because it's all they can afford. This is where the money is. This is where the jobs are. This is where the opportunities are. It's not an opportunity to have a decent living space that you might want to grow old in or have a family in. It's an opportunity to come here and be tortured because of the scarcity. Right. And then be resentful. And I think one of the reasons, because of this lost opportunity, the last 20, 30 years to build in cities and cities at a time when there was such demand for the city.
David Roberts
Yes. And such low interest rates and such good conditions for building.
Dan Savage
And one of the consequences is what we just saw in this election. Some of this urban vote for Trump, which was a vote against cities, was anger and frustration at what it means to have arrived in the city in the last 10, 20, 30 years. You arrive in the city to work for and service the people who bought the single-family homes 30 years ago. And what you get is an apodment on a stroad with shitty transit.
David Roberts
And I saw in a Seattle planning document, maybe you've heard this, a Seattle planning document where those apartments alongside the stroads, between the stroads and the single-family neighborhoods, were referred to as buffers for the noise and air pollution of the cars. So, we literally take the poor people who are doing the service jobs in Seattle, shove them into these corridors so that they can breathe the pollution.
Dan Savage
We stack them and their lungs up.
David Roberts
Yes. So, we can protect the people in single-family homes from all that unsightly noise and pollution.
Dan Savage
Which invariably, the people in those single-family homes are contributing the majority of. Because it's people in single-family homes who get in the SUVs and tanks and drive up and down those stroads to get to work, to school, to the grocery store, and then back to their single-family home where they park their fucking SUV.
David Roberts
Is it fair to say that if you were commissioning a piece like this today — which, like I hope somebody is, it's appropriate all over again — what would be the big change? Like, would the big change be, like you said, "Democrats get serious about cities and pass pro-growth policies in cities"? They didn't. I guess you could just repeat that louder with more exclamation points. What would you emphasize differently or what would you do differently if you were putting this piece together today, given what's changed since then?
Dan Savage
I think when we wrote it, we thought Democrats who are actually running the cities would recognize their own self-interest in allowing the cities to build and building the cities. Now, I think we would try to pit national Democrats and Democrats at the state level against the kind of NIMBY-captured Democrats who are actually running the cities, who are a huge part of the problem.
David Roberts
Yeah, it's wild that we have to have state Democrats overruling our city Democrats now. The ones who should be the champions for cities.
Dan Savage
Right. Well, the NIMBY-captured Democrats who run the cities are often NIMBYs themselves. And my problem with Seattle, going back 30, 40 years to the monorail, to the commons, is there's just a sense of somebody's going to lose, right? There's going to be a commons or not be a commons, somebody's going to lose. There's going to be transit or not be transit, somebody's going to lose. And there's just this desire to — cliche about Seattle, like studying something is doing something about something. Process. And process is kicking the can down the road so that nobody ever has to lose.
So, you don't piss off the progressives who regard any construction as evidence of gentrification and displacement. You don't piss off the NIMBYs who regard any new construction as an existential threat to their precious way of single-family home life. And you just do nothing.
David Roberts
And if you piss off the poor people who are living on the stroades, who cares, right? Because they're just poor people living on stroades, right?
Dan Savage
And if we had Democrats at the national level and state level registering those poor people in the apodments to vote out the kind of NIMBY captured Democrats who are running the city and ruining the city by trying to freeze it in amber, maybe there would be progress. But there's a battle coming, or it's here in California. You see it between the state level Democratic elected officials and the city level Democratic elected officials. And I think that's what we would write about now. We would be less sanguine about, "Hey, like Democrats, if we point out this is like where your voters are," we're all going to get on board with creating more of those voters by allowing more people to move into the cities and inhabit them.
And that transformative process that we talked about, about people making eye contact and sharing spaces and meeting people who are different from them, allowing that to grow and grow and grow exponentially to create more democratic and liberal progressive voters. Like, we thought that if we identified that Democratic elected officials recognize their own self-interest in getting out of the way of the city being a bigger and bigger city, of growing these blue islands in The Urban Archipelago. And that just hasn't come to pass because of NIMBY capture. And that's what the back has to be broken of, NIMBY capture.
And there's got to be some cram downs of apartment buildings and not just rezoning a little bit here, a little bit there, and then the Seattle Planning Commission fucks it all up and we end up with development that indicts more development, self-incriminating development, but just like to get the fuck out of the way and allow people to build again. And I'm ranting. I'm ranting. You can tell that this is like, people think I just think about sex, and I write my crazy sex jokes in my column and I think about them, but I walk around the city that I write about sex in, obsessed about this.
David Roberts
Well, there's nothing worse than that first few weeks after you come home from a delightful European capital and drive around the stroads of Seattle for a while. That's a real, that's a real comedown period. I was just going to say, by way of wrapping all this up and, like, putting an exclamation point on all of it, is like: This seems like the fight of our times now. Like, the most important thing going on. Because the larger picture, the bigger picture is like modernity itself on trial. Do you know what I mean? Like, we're having a reactionary backlash that wants to take us back — to steal Kamala's doomed slogan — that wants to take us back, literally, to pre-Enlightenment times.
And it is in cities where those Enlightenment values find flower and play out and advertise themselves and propagate themselves. So, like, it's not just that, like, I want to live in a brownstone where I can walk to a market — although that is very, very true. It's not just a, it's not just a personal taste thing. This is, like, existential shit here. You know what I mean? This is like. This is like humanity here, fighting out what kind of species it wants to be, what kind of future it wants to have. Just to make the whole thing much more grandiose than it already was.
Dan Savage
Well, that's a good wrapping up, because I have nothing to say except I completely agree and I am distressed.
David Roberts
We'll end there, then. Thanks so much, Dan, for coming on. I wish it were under more pleasant circumstances.
Dan Savage
Thank you, Dave. I really enjoyed it.
David Roberts
Thank you for listening to Volts. It takes a village to make this podcast work. Shout out, especially, to my super producer, Kyle McDonald, who makes me and my guests sound smart every week. And it is all supported entirely by listeners like you. So, if you value conversations like this, please consider joining our community of paid subscribers at volts.wtf. Or, leaving a nice review, or telling a friend about Volts. Or all three. Thanks so much, and I'll see you next time.
1. Last week, my family said goodbye to Forest, our beloved canine companion of 13 years. We’ve had him for most of the kids’ lives and my memories of him are all tangled up with my memories of them, so it feels cruel but somehow appropriate that he is leaving us just as they are leaving the house to go live their own lives. I am not ready for that, or for any of this, but everything in life ends, whether you are ready or not.
Forest
2. Speaking of things that end before you are ready, the week before that my fellow Americans elected an aspiring fascist strongman who is likely to degrade or destroy, whether by malice, misrule, or some combination, many of the things I value about this country, including many of the laws, departments, and initiatives I’ve covered here on Volts. I suppose I should have something clever to say about the election — everyone else seems to have had their hot take ready — but my heart is clouded with too many kinds of grief to make any sense of anything. Maybe later.
3. In somewhat brighter news, New York City Governor Kathy Hochul has reversed herself on congestion pricing. (I covered her decision to suspend the program in June.) She now aims to implement the program, albeit at a rate reduced from $15 to $9, before Trump takes office. Hochul is awful — she has made this whole thing twice the political headache it needed to be — but this is about the best outcome possible at this point. Republicans are still ramping up their opposition.
4. It’s been fun going to events like DERVOS and running into subscribers like Anna who got tickets thanks to a Volts giveaway. Imagine getting to see my awkward selfie smile in person, for free! Just one of the many perks enjoyed by paid subscribers around here. Sign up today!
DERVOSing with Anna.
5. ✅ Community comment of the month: I made an offhand remark about meat during my pod with Rewiring America’s Ari Matusiak. MuricanIdle (and others) did not love it:
“People should stop eating meat” prompts you to say “Ugh, I guess?” I am actually heartened by the fact that the general public has made the connection in their minds between animal agriculture and climate change. I can’t fathom why you would be so dismissive of this. Animal agriculture is responsible for between 10 and 20 percent of global greenhouse gas emissions. For comparison, transportation accounts for almost 30% of greenhouse gas emissions. If you convinced all Americans to eat significantly less meat, that would have more of an impact on climate change than if you convinced all Americans to stop traveling by commercial airliner.
I agree! The “ugh” was less about the substance than the prospect of attempting to convince Americans to eat significantly less meat. It’s difficult to convince Americans of anything, even to upgrade their cars to better cars, much less this. We can’t even convince them not to elect fascists!
6. Don’t forget to leave questions for this month’s mailbag in the comments.
Monthly Thread
This is your monthly opportunity to share! Use the comments section in this community thread to:
CLIMATE JOBS & OPPORTUNITIES: Share climate jobs/opportunities
SHARE WORK, ASK FOR HELP, FIND COLLABORATORS: Share your climate-related work, ask for help, or find collaborators
CLIMATE EVENTS & MEETUPS: Share climate-related events and meetups
EVERYTHING ELSE: Discuss David’s Notes or anything else climate-related
MAILBAG QUESTIONS: Ask a question for this month’s mailbag episode (anyone can ask a question but mailbags are a paid-sub-only perk). Volts has a form for those who are shy, but David prioritizes questions posted in this thread.
🚨 To keep organized, please only “REPLY” directly under one of Sam’s headline comments. Anything inappropriate, spammy, etc may be deleted. Be nice! Check out our Community Guidelines.
Forest, on his way home, Sep. 2011.
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In this episode, I chat with Sunrun CEO Mary Powell about how residential solar is evolving into much more than just panels. We dive into Sunrun’s expansion as a “clean energy lifestyle” brand, Mary’s belief in a customer-led energy transition, and alternatives to the tech bros' virile obsession with nuclear power.
Hello everyone, this is Volts for November 13, 2024. "Residential solar is becoming residential solar + storage + VPP." I'm your host, David Roberts. Last month, I was in Brooklyn for the third annual DERvos conference celebrating distributed energy resources or DERs. It was truly a blast.
Most conference sessions are, if we are being honest, boring — someone droning on in front of a PowerPoint slide with too much text on it — but these were different: real, urgent discussions among people operating at the cutting edge of technology, business, and regulation. Not only was everyone on stage involved with fascinating work, everyone in the audience seemed to be.
Mary Powell
I don't think I've ever experienced a higher concentration of interesting people. If you can make it next year, it is highly recommended! (You can watch all the sessions at the DER Task Force website.) Anyway, at the event, I had the pleasure of interviewing Mary Powell, the CEO of Sunrun. Powell was on Volts last year.
This conversation was a chance to catch up with her about what has changed since then, which it turns out is a lot. It was cool to hear about this market shifting toward whole-home electrification and virtual power plants. I hope you enjoy the conversation as much as I did.
David Roberts
Hello, everyone.
Mary Powell
What a fun chair setup. Woo hoo, hi! Let's go.
David Roberts
I've been joking that this is the greatest concentration of Volts' guests ever assembled in one place. So, I've had many of you on my pod, and many of you will come on the pod in the future. So, welcome to everyone. I'm just going to jump right into it. So, Mary, two, three years ago, you could have described Sunrun pretty simply as a company that sells solar panels to people and puts them on roofs. I don't think that captures what Sunrun is anymore. So, what is Sunrun? What kind of business are you?
Mary Powell
Yeah, we have evolved a lot. So, first of all, it's just so nice to be with all of you here today and so awesome to be with you in person. And like, let's go Volts. Like, let's cheer. Come on. Woo. We need —
David Roberts
You can do the Elon thing.
Mary Powell
Exactly. That's awesome. We need you. We need you, we need your voice. We need everybody in the audience. You know, I've been doing this work of what I've called "accelerating a customer-led revolution to a better energy future for all of America" for a long time. And the work that you're doing every single day to amplify and get the word out there that we're not waiting for technology and innovation to happen, it's happened, it's here and we need to radically accelerate it. So it's just awesome to be here.
And I want the Sunrun team to stand up, Sunrun team, because I was actually telling them like — let's give them a round of applause — like let's go! Right there, those are our warriors that are helping to take us from, you know, as you said, a company that for a long time frankly sold solar panels and put them on people's roofs. And that was a good thing for a while. Right. But ultimately what we really need to be is a clean-energy lifestyle company. And what we really need to do to accelerate this dramatic consumer-led revolution is make it super easy for customers to adopt technologies that can not only improve and transform their own lives, but then through that magnificent team I just had stand up, that can be leveraged all those technologies to make the grid more affordable and resilient for all.
So yes, we made a hard pivot. I made a hard pivot when I came to Sunrun, from a company that sold solar and about 12% of the time sold you something else. So, about 12% of the time, a customer bought a battery, that was the primary thing. Occasionally, then we had them buy an EV charger, occasionally some other things. And we radically focused on how do we amp up, you know, particularly storage. Right. To really create that incredible distributed power plant that we now have. And I'm proud to say that now 56% of our installed customers have solar plus storage.
And not just that, like that. It's amazing. It's amazing. We've done that in a very short period of time.
David Roberts
You have some battery-only customers now? Is that, is that —
Mary Powell
We're heading that way. We are heading that way. I think, as I mentioned to you, I very much also want us to be innovating. We have that on our product roadmap to be providing storage as a storage-first solution for customers that may not have the right situation for solar or may just have a preference for storage plus other kinds of technologies like we're working with SPAN. So, it's ultimately about having our consumers become part of that revolution and then have us work with them to turn their home and their electric vehicle into s mart, controllable load for them and then using that same smart, controllable load to drive down the cost of the grid.
David Roberts
So, you say 56% of solar customers are getting batteries too. What about the EV chargers? Are they a meaningful percentage yet? Are they growing? How big of a piece of the puzzle?
Mary Powell
I would say it was really important to me that we start providing EV charging as a part of our offering. Because so many customers, as we all know, one of the cool things about solar and storage, but I would say maybe solar a little bit more, is it's really a gateway drug to additional electrification. So what we found, even when I was running a utility at Green Mountain, I always used to say, "Geez, these utilities are so shortsighted because really what happens is they go solar and then they want an EV and then they go to heat pumps."
So yes, we launched an EV charger, if nothing else, just to inspire that thinking and accelerate that thinking. And we now have a couple thousand customers with EV chargers. One of the really exciting things though was also our partnership on the Ford F-150 Lightning. So yeah, woo. Like it's really a big deal. This is what's fun about doing these events because you get amazing briefing documents from your team and you find out things that you had no idea. And I knew that we were doing a really cool partnership in Maryland using our F-150s to support the grid.
What I didn't realize is, like one of those customers, just like one customer with his Ford electric F-150 that is backing up the grid, he's chosen to do it so many times that he's gotten seventeen hundred dollars in credits. Think about how powerful that is in accelerating the consumer-led revolution, also to electric vehicles. When we can scale that kind of technological solution for the grid, that is also a strong value proposition for the customer.
David Roberts
Is it your, your vision that the electric vehicle charger becomes a standard part of the offering or was that just sort of like an experiment off thing? Like are you trying to push that into the standard customer package?
Mary Powell
I would say what I want to do is meet customers wherever they are on the clean energy lifestyle journey. So, our vision is to, we're launching an expanded solar offering as well, which I think will inspire more storage, will inspire more electrification in the home. And so, my desire frankly is just to meet customers wherever they are on the journey with solutions. So, I don't think it's so much as like pushing that everybody should have one as much as becoming that beloved trusted partner on their clean energy journey. And I feel like that's what I hear.
I spend a lot of time talking to customers. I call customers every week. I work in our Lowe's stores. I've knocked on doors with our folks that are out in the field. And you know, more and more, what I hear is customers want exactly what we're trying to do, which is to be that trusted partner to meet them where they are and provide solutions, and in some cases, that they didn't even realize they need. I was in Massachusetts last week, meeting with a bunch of potential customers, and, you know, it was just fascinating to walk them through the journey of why they were initially interested in solar.
And then by the end of the conversation, they're interested in storage, they're interested in EV charging, they're — because they're thinking of it from the perspective of "What are all the features and benefits I can have to make my life feel more stable, more secure, and cost-effective?"
David Roberts
One sort of negative question, we'll get it out of the way earlier: I just wanted to kind of ping you on what kind of damage did the NEM decision in California do? I know it hit your stock price. It hit the stock price of every solar company, I think. I know you've had to slash some of your teams. What's your take on that? Are you just writing California off and trying to go a different direction? Are you still fighting that battle? Like, what is — what's your take on California?
Mary Powell
So, my take on that, you know, it was just dumb. Like, my take was — it wasn't actually directionally, directionally, it wasn't dumb at all. Like, and I actually think some of the most exciting stuff I've seen around the country has actually been inspired by regulators. You know, I ran a utility for a long time. I'm glad that there's more and more, like, little signs of life going on. But, like, the reality is, like, regulators are actually what's inspiring a lot of good stuff that has happened around our country. And so to me, what was painful about it was that it directionally, it was good, right?
Like, directionally, the notion of getting more storage on the grid, "Hot damn, Hallelujah." I mean, I did that as, you know, as a utility way back in 2014, 2015. It's an amazing asset if we can have both solar and storage on the grid. The dumb part was, why do it in such an incredibly abrupt, abrasive way? Like that was. I mean, I remember talking to folks in California at the time in the "for what it's worth" category of just like, "Hey, like, directionally it seems good. This is not providing for a smooth transition." So, Sunrun, you know, I feel bad in some ways because I feel like we were disproportionately favored in that because we did have storage expertise and we really leveraged it to dramatically increase our storage expertise and to really pivot the company.
But as we also know, a lot of, you know, definitely the solar-only sales dealers, the smaller companies, the mom and pops, like, it was very, very devastating. And it also was at the same time as interest rates were going up, which also just compounded, making it a more challenging time to do such an abrupt transition. So it goes that old adage we all learned when we were kids, "It's not what you do, it's how you do it." How they did it was dumb.
David Roberts
When you say "directionally correct," do you mean that you agree that solar was being compensated at too high a level?
Mary Powell
No.
David Roberts
What do you mean by directionally correct?
Mary Powell
What I agree with is — no, and in fact, like, that was part of the, you know — separating the noise from the truth is always hard. That's why what you do is really important. So no, the reality is how people were getting compensated for solar had already shifted dramatically in California. The part that was directionally correct was the encouragement of storage. Like, that was the part that to me does make a world of sense. How do we inspire more customers and how do we make the math work for more customers to have storage? So, thank you for that clarification.
You know, again, having run a utility, we would never have been the first utility to — we actually asked regulators if we could pay customers to go solar. And then we were the first to create a virtual power plant in Vermont with Tesla with their Powerwalls. And you know, we wouldn't have been doing that if A) we knew it wasn't great for customers and B) if it wasn't a path to actually lower the cost of the grid for all. So the math that utilities do is still — that was my other frustration with the California transition is if you read anything about it, which I'm sure most of this audience did, it was all based on a look back study.
And I must have said to, I don't know, hundreds of people, "When can we start looking forward? When can we start looking forward?" So, it was dated information. So, we had so much noise that was inaccurate. Like, one of the most profound was the notion that it's like wealthy people and it's being subsidized. Like, "Well, clearly you haven't been out talking to customers lately because like 50% of the customers we're talking to today are low to moderate income customers." Long-winded answer.
David Roberts
Let's talk VPPs. Everybody loves VPPs these days.
Mary Powell
Yeah, let's go, VPPs.
David Roberts
Just to start with, how many, like, give us a sense of the scale, the percentage of what you've sold that you currently have enrolled in a VPP, is it still a pretty small percentage of the deployed systems?
Mary Powell
Well, again, I'm so glad I came here because I got to have lunch with my team and oh my gosh, like, the scaling that this team has done in the last year is just incredible. I mean, I'm an impatient person that wishes that the whole energy system was way further along than we are. That said, it's quite remarkable now to be like tens of thousands of customers are participating in programs. We had 16,000 in our California program. And we see a path to really ramp that up dramatically. So, you know, we're above 20,000 and we are seeing a path to many more than that.
And now that we're attaching at such a significant rate, you know, we're sitting on top of 7.6 gigawatts of solar and 1.8 gigawatt-hours of storage already.
David Roberts
This is what you've already sold and installed on houses?
Mary Powell
Yes, this is what we've already sold and installed on houses. So, when you think about that, like from a, you know, and again, I call them as, you know, I like to call them distributed power plants. Because there's nothing virtual about them. They're there, they're distributed power plants. And they again can offset peakers. And the grid, as you know, 10% of the plants on the grid are there for 1% of the time. So, having these incredible assets behind the meter in homes, helping those homes and also helping the grid, is powerful.
David Roberts
So, if I'm a homeowner and I have Sunrun panels and a battery that I bought a couple of years ago, but I'm not currently enrolled in a VPP, do you come to me and ask me to enroll? Like, are you going back to existing customers and saying, "Hey, it's us again. Do you want to do this extra thing?"
Mary Powell
"Yeah, they're all nodding yes. Yeah. But yeah, we've actually moved — one of the exciting things this year that happened is we did move more to like an auto-enrollment. So again, you know, in California, the program that actually, it so happens my house was in. Right. You basically got a notice saying, "You're going to be included in this program and you can opt out. If you stay in this program, you get $700." I think one customer that I still want to talk to because I want to be like, "What's your deal? Like, what's your deal? Why didn't you want 700 bucks?"
You know, because it also, like, we also say, like, it won't affect the performance of your storage for your home or for the reliability.
David Roberts
And you haven't run into any, like, privacy, "I don't want you messing with my stuff" type of —
Mary Powell
That's probably why that one — or it might have been five customers. I don't know. It was, it was less than a handful. But, yeah, I think there are always going to be those folks that say, "Yeah, leave me alone." But for the most part, yeah, it works very elegantly.
David Roberts
And so when you think in terms of a DPP, are there multiple discrete DPPs, or do you just imagine sort of like deploying your entire installed base as a single entity?
Mary Powell
Well, I mean, you know, the way America's energy system is set up, it's not really conducive to dispatching your entire fleet all across the nation in different parts of the country at the exact same time. Right? Because what we really have is a patchwork quilt of utilities, regional operators, etc. But yes, the vision is very much directionally that. Again, we're now at a 56% installed rate of solar plus storage. We're moving rapidly.
David Roberts
Do you have a target rate? Is your target rate 100%?
Mary Powell
I mean, I'm a very practical person, so I think at the end of the day, I'm not sure that 100% you'll ever get. Like, I mean, and again, I've sold enough customers myself to know that, like, you're always going to get that customer that says, "Mary, I live right across the street from that substation and I've never had an outage in 20 years." And it's like, "Okay, whatever." Like, what I do say to them, though, is another area why storage is so important — so I don't think we're going to get to 100, but I think we're going to get a lot — because the other thing it can do, as we all know here, is future proof you against regulators who love complexity and utilities that love complexity.
And consumers, in my experience, don't love complexity. Like, your average consumer does not want to go home and think about their energy. Like, I know maybe in this audience you guys do; you're freaking outliers.
David Roberts
Weirdos.
Mary Powell
You're not your average American that I talk to every day. Your average American has maybe two jobs. They have a lot going on in their life. They don't want to think about it. They just want a beloved, trusted partner that they know is optimizing their home to make it the most affordable it can be, which a utility is not set up to do.
So, another area where storage is so powerful is that as regulators and utilities complicate everything and definitely rates, it can also really help them because it can, you know, again, using California as an example, you can shift energy around and you can just, you have that customer's back through all of that complexity. So, it gives me more and more arguments with the person that lives across the street from the substation.
David Roberts
Well, that was sort of my next question. Like, if I'm a customer who doesn't experience outages or doesn't really view them as a problem, if that's not a motivator for me, are there other reasons for me to get a battery? Like, is the value that you can pull out of my battery for your VPP, sharing some of that value with me, is that enough to induce me to get a battery in and of itself?
Mary Powell
Not yet, but that is 100% coming, in my view. So again, as a utility operator, yes, I was serving a customer base that wanted clean energy. I wanted clean energy. That was a part of why I leaned in so hard to distributed energy resources. But I would say equally as important was the fact that the grid is so economically inefficient. Equally as important is the fact that the grid is not built at all for the kind of climatic events we're having now. So, yes, I think there are many reasons that within three to five years, and then you see, AI is creating a lot of capacity demands.
Electrification is creating a lot of capacity demands. Utilities have not really inched forward in how to deal with those demands in an economically efficient way. Right. So, the grid is as economically inefficient as ever. It's like 40% economically efficient, which means it's inefficient. It's getting worse. So, what you're going to see is utilities — you know, again, we've scaled it. Now we're at like, at least tens of thousands of customers in these programs. I have no doubt in my mind that regulators will likely be pushing utilities to leverage resources like we have in a very dramatic way in the next three to five years.
And then, that will open up the ability for us. Like right now, at the sale process, we don't have sophisticated data and stability of programs to be able to say, "Hey, why don't you go? And then you're going to likely also get X hundreds of dollars every summer." Right. But as we are able to do that, that will absolutely open up the aperture of customers that will want storage and will put it in their homes. So, it's a very virtuous cycle.
David Roberts
So, the supply crunch pushes utilities towards DPPs, raises the value of DPPs, which raises the value that a customer can get out of a battery and brings more customers, is the theory.
Mary Powell
Yep.
David Roberts
Well, this is a question I've had about these DPPs for a long time, and I don't even know if I can articulate it particularly well. But once for the consumer, the primary source of value shifts from resilience against blackouts, which is like, I've always thought is, like, important in some places and some concentrated places. But it's not really like a universal thing. Like, I wouldn't pay that much money because we rarely have blackouts where I live. But once the value is coming from the DPP.
Mary Powell
Where do you live?
David Roberts
Seattle, we have very good hydro. But, like, once the value for the customer is coming primarily from their participation in this DPP, what is the remaining rationale for sizing the solar and battery to serve that building's load, as opposed to just maxing out by putting as much solar as it'll hold, putting as big a battery as it will tolerate?
Mary Powell
Have you been, like, spying on our meetings? So, first of all, yes, that's actually very much the direction we're moving. Because one of the things we find — you know, I used to say when I was at Green Mountain, I remember hitting this point where I said to the team, "Oh, my gosh, like, one of the biggest challenges we have is that Americans are in kilowatt denial." Like, they really are. Like, they don't — I would say, you know, 80%, 90% maybe of the high bill complaints we would get were not high bill. I mean, they were like, "Yeah, it's a problem."
Like, you're using a lot of energy. I'll never forget this one guy I had to deal with. Oh, my gosh, it turned out he had put a tropical fish pond in his backyard in Vermont. Like, literally, we changed his meter. We had done all this stuff because he was convinced it was our fault. And there was a tropical fish pond in the backyard. So it's a real thing, and we experienced it. Even I could tell some really fun stories. It's wild. Anyway, kilowatt denial, I love it. So, yes, we experienced the same thing. A lot of customers, they go solar and then they immediately start using more energy because they're feeling better about their energy.
It's the same thing I found with efficient light bulbs. Honestly, I don't know if you guys know this data. Same thing. People who put in efficient light bulbs, their bill usually goes up for a cycle or two because they feel so good, they leave them on all the time. So, we are very much trying to move towards future-proofing, future-proofing the customer's experience, future-proofing for the grid, and really moving more towards sizing and scaling to where we know and where we have the data that customers are moving versus where they are today. So, we see that as incredibly important.
Back to your point, though, on the value proposition of storage, I mean, it is remarkable to think that for 90% of the customers we're selling to right now, solar plus storage, in many cases, they're able to do that in a way that actually still saves them a little money. And in many, like, the vast majority of the cases, the worst case is it's a bill swap. So, I would say, like, it still is a very compelling value proposition because it's not just about, are you preventing yourself from having outages? It is about future-proofing at an equivalent cost to what you're already paying your utility.
David Roberts
Typically is the standard, just one Tesla powerwall per customer? Is there a standard battery installation or does it completely depend?
Mary Powell
It depends.
David Roberts
And do you push? Like why not two, why not three? Are you pushing?
Mary Powell
Right. Well, I mean, we want to meet the customer where they are. So, I talk about customer obsession all the time. I think ultimately, that drives the best outcome for any organization. So, we do go through the process of meeting them where they are and trying to figure out what works best for them. More and more, you are seeing customers that want whole home backup. So again, you live in a stable area. Most of California, I mean, I literally couldn't believe when I started living in California, the lack of reliability and the cost. And the lack of reliability, particularly with safety shutoffs, is just really profound in a lot of parts of the state.
New England, you have a lot of weather issues. Look at Florida, look at Texas. So, you're seeing more and more of that instability for customers across the country and that desire. So, it really ranges. It ranges. But yeah, anywhere from one to three, I would say.
David Roberts
When you think about a DPP, is there some ideal mix of generation and storage? Some ideal mix of solar and batteries? Do you want more batteries? More solar? Couldn't you theoretically do it with just batteries? Like what's, how do you think of the ideal mix for one of these things?
Mary Powell
So again, just real time. So, if you're just looking at it from the lens of customer obsession and providing the best value proposition for a customer, I'm going to say solar plus storage is the best solution. And then, I'm also going to say it's the best solution from a grid perspective. Because again, I've lived through multi-day outages in California. And you know, I was a Sunrun customer before I was Sunrun CEO, right? And I had solar plus storage plus EV charging and I actually had a SPAN panel, right? So not only could I go for literally probably weeks, but I also had the ability — like this is always where I sound like I feel like running a commercial. But like I feel like Crazy Eddie from New York years ago. I don't know if anybody remembers Crazy Eddie, but it's like all for one easy monthly payment. Like I had all of that —
David Roberts
No money down.
Mary Powell
No money down. No, no, seriously, no money down. One easy monthly payment that was more than paid for by my savings from my utility bill. And I had the ability, like with solar plus storage, like I didn't have to have the worry of, well, SDG&E said it's gonna be — well, they originally said it was gonna be 24 hours, then it was 48, then it was 72. And I didn't have to worry if it turned into a week because I had the ability also to monitor it and then also make the decision, "Okay, I'm not going to charge the car, but I am going to run this pump."
Like, that's the kind of amazing technological innovation we can do that improves the lives of customers, but then also becomes a really valuable grid asset. So, I think solar plus storage is still the killer app. It's better as a grid resource too. I'd rather, if I had to choose, I'd rather have both. But again, I want to be able to meet customers wherever they are. So, if there's a customer that has a totally shaded roof and nothing fits for solar, I'd love as a clean energy lifestyle company someday to be able to offer an amazing solution for them too.
David Roberts
Also, in terms of VPPs, you're using the customer's rooftop solar and their home battery. But the big powerhouse for most customers is their vehicle, the EV. The EV batteries are bigger than home batteries. And so, it seems to me like if you're competing in the DPP space, whoever gets to the cars first wins.
Mary Powell
Yeah, we got to the cars first.
David Roberts
I know you; I know you've done this.
Mary Powell
We got to stay there, but we got there first.
David Roberts
You've done this thing with, you know, three customers and their Ford trucks, which is not nothing but like, are you, is that part of the business plan to go after, like to be the one who does the charger so you can deploy the car as part of your DPP?
Mary Powell
Yeah, I mean, yes, you're right. It's a, it was a proof of concept, what we're doing. But our partnership with Ford on their F-150 was ahead of the pack, right on the bidirectional charger. Ultimately, again, what I see is most important is to be the one that actually owns the space around controlling the electric load of the home. So, if you have electric vehicles then, that are a part of that overall infrastructure, and you have the ability to work with the customer to coordinate all of that load in a way that works best for you, with rate structures, best for you, for your life, and then dispatch that.
So, yes, we're working very much in that space of being in that more sophisticated place of being able to control whole home and transportation load.
David Roberts
So, when you say "whole home," I mean, is there a limit to the devices that you could control? Like, you could see yourself eventually coordinating not just solar and batteries, but the water heater, the stove, and the —
Mary Powell
Yeah.
David Roberts
And the heat pump and everything you're going to —
Mary Powell
Yeah, I mean, that's one of the reasons why I was really pleased to have us — again, we're learning as we go — but we were one of the first to deploy SPAN panels because, again, there's multiple solutions, but that's one powerful solution that's available now that gives a more sophisticated customer experience and also provides you with more sophisticated capabilities of control if you work in partnership with those customers.
David Roberts
So, you were selling SPAN panels with your —
Mary Powell
Yeah, we're actually doing very well with them in Texas right now.
David Roberts
Texas. Everybody. This room loves Texas. It's the weirdest —
Mary Powell
Go Texas. Texas likes to go big, so let's hope they go big with DERs.
David Roberts
Well, so there's no limit to the number and variety of appliances and devices you can control. Is there a limit to the appliances and devices that you plan to sell? Like, would you sell a heat pump alongside the rooftop solar and the battery at some point? Would you sell a heat pump hot water heater? Like, do you have any limit to sort of like the home electrification products?
Mary Powell
Like, you know, we started talking about ourselves as a clean energy lifestyle company for a reason. So it was so much about not being your mother's solar company, but really transitioning into a company that was about providing a suite of clean energy technology products to improve your life, take advantage of electrification, and then turn all of that into an asset that works for you and works for the grid. So, everything is open. We're having lots of conversations about what that means and what that could look like, whether it's as simple as just simple partnerships where you're a Sunrun customer.
We just actually deployed something on our app the other day that was such a cool, momentum-building thing for storage. Just on our app, we rolled out a "push this button if you're interested in doing a storage retrofit." Because the vast majority of our customers still are solar only because of our legacy. And we literally had like just hundreds and hundreds of pings, right out of the gate. So as we think about our app experience and our future, and we think about providing more opportunities for engagement for customers, it could be something as simple as a partnership where you get a discount if you want to go with XYZ, and then it creates opportunity for us.
But it's, you know, our core right now is looking at how do we set up the generation capacity for the home and the transportation, and how do we set up the storage capacity for the home and ultimately transportation.
David Roberts
I guess this is sort of a variation on that question, maybe take it a little bit more abstract and get a little speculative with it. But you know, I, especially over the last year or two, see people coming at this space from all different directions. Like some people are just selling batteries or just selling heat pumps, some people are coordinating this appliance or that appliance or just thinking about vehicle to grid with the vehicle. And then there's a whole host of companies that are purporting, trying to make it easy for the customer to do whole home electrification.
Like, there are lots of different sizes and angles on this same market. And it just seems to me like — I don't know anything about business — but it seems —
Mary Powell
Well, then keep going.
David Roberts
It seems to me like this is a market that is crying out for some level of vertical integration. There's going to be some sort of Google or Tesla that comes along and you get the little branded heat pump and the branded solar panels. So, it's seamless. You know, you're sort of like one-stop shopping. There's one company. What level of vertical integration do you think is going to end up happening here? And are you going to try to be that?
Mary Powell
So, we see the world similarly. I mean, we do like, and I actually think the fact that we are vertically integrated, you know, we own sales, we own the operations, we have the technology, we have the product relationships, we have the depth of experience, we have the financing arm, I think it puts us in an enviable position for sure. And you know, to your point, I mean, even the pilot I did way back when in Vermont that Bill McKibben wrote about in The New Yorker. Right. It was for the exact same reason that you highlight. Like I was, I was saying the fact that we're coming at consumers from so many directions is actually confusing them and slowing down the energy transition.
Because I found consumers, even in little old green Vermont, right, that were paralyzed because they're like, "Ah, should I invest in efficiency? Should I do the weatherization? Should I do this?" So, they kind of froze and —
David Roberts
I'm a homeowner frozen in that exact position.
Mary Powell
Let me help you. Right, exactly. So, it's almost like their desire to want to make that next step was slowing them down because they had — so that's like literally what we did at the Borkowski's house in Rutland, Vermont. Right. We did like the full suite for what we were trying to get to was actually then when I stumbled upon Sunrun, I was like, "Oh my gosh, it's so much easier to do it at Sunrun." First of all, because we were a utility and nobody really wants a utility ultimately to do that because we're monopolies. But it was a proof of concept, right?
To show that really, what we needed to do was give the Borkowski's a transformation and have it be one easy monthly payment. I mean, that's what moves consumers. So, this is your suite of options. This is how you could do it. You could walk out of Best Buy with $149 a month or like $699 a month. Right? It's like, how do we bring that to the clean energy experience?
David Roberts
There is an argument to be made, I wouldn't make it, but it's there to be made, that if consumers are confused and what you need is a single trusted point of contact through which to do all of this, you could make the argument that the utility is exactly that entity and that utilities are either going to be in the way of all this or you put them in charge of it, let them rate base it, and then give them the incentive to do it. What's your take on that?
Mary Powell
Well, my take on that is, the first thing is like, they're not trusted. So, like, no, I mean, and honestly, like running a utility, the first thing I set about to do was to have us become trusted. Because we weren't. And we did go from like 50% customer satisfaction to 94% and 92% trust year over year over year. We were an outlier. Still an outlier. So, they're not. And then the other thing I would say is like, let's let the market work for customers. So, even with what we did, we were trying to do it in a way —
I think we were the first to create the BYOD, bring your own device, right? Because we were trying to do it in a way that encouraged innovation and new suppliers. So, the challenge was saying utilities should be in the position of providing new, cool suites, product suites of consumer technology. Like, first of all, it's going to take them through a three-year regulatory process and by the time they launch the product suite, two of the products are going to be outdated, I'll guarantee you. So, I feel like it's really built for the free market.
We want competition. I mean, I want competition at Sunrun. Like, we all up each other's game. That's the point of it, right? Is that everybody's trying to outdo each other in being that next better solution for customers. So, yeah, why would we not want that and want like a slow — like, utilities are built for slow and no. So it's like slow. No. By the time, even the Powerwall program that I originated in Vermont way back in what, 2016, I think they've just now scaled to maybe 4,000.
So, I think we need the ability for the market and innovators to work and for there to be a suite of consumer solutions.
David Roberts
Well, I can't argue with you because I agree with you. So, we're almost out of time. Final question. For my final question, I want to loop it all the way back to the first panel. So, there's all these data centers getting built. They need power. They say they need this very special kind of power that renewables can't provide. So, they need steady, reliable, dispatchable power. And so, they're building nuclear plants. What? Why? Why aren't they spending that money on DPPs? Why? Like, these are big distributed power plants that can provide always-on steady baseload power.
And, like everything else in the universe, they're cheaper than nuclear plants. So, what is the problem?
Mary Powell
Well, the other thing is, it's just like, oh, my word — like, I mean, I've built utility scale generation. It takes forever. Well, no, the thing is, it's also like, we'll all, like, the planet will be burned down by then. Like, I built Vermont's largest wind farm, which is not that large, by the way, because it is Vermont. And I had, like, massive support, massive community support. It still took like four years to build a tiny little wind farm. Okay, so, like, the thing that worries me is, like, even if I said, "Well, that is a good solution." Like, it's getting slower, not faster.
Like, we went from NIMBY to BANANA: Build Absolutely Nothing Anywhere Near Anyone. Like, that's, we don't —
David Roberts
I learned a new term at a conference last week. It was a conference full of, like, ski towns, western resort towns, NIMSBY: Not In My Second Backyard.
Mary Powell
Okay, there you go. That's why I think it's BANANA. I think it's BANANA. But back to your question. Like, we're under NDAs, so I can't talk about them specifically, but we are talking to data center players and there's a couple of different, really cool models that we're looking at. One is about leveraging existing communities where we already are, like, duh, like. Right. So, if you're going to put a center in the midst of where we already have amazing resources, and the other is a more bespoke model where we could actually work creatively with a utility which does like — you know, we need those regulators.
How many regulators are there here? Raise your hands. I love you. Go change the world. Like, please. We need you desperately. Like, the system is built because we need you to force them. Like, that's the system. So anyway, one that could be very, very powerful is more along the lines of what you're talking about, which is like, how do we go to consumers together and say, "Here, if we do this kind of distributed power plant, we can support this kind of economic development, we can have these data centers."
It's a just, radical collaboration that has incredible benefits for everyone.
David Roberts
And cheaper and faster —
Mary Powell
Yeah.
David Roberts
than restarting a giant nuclear plant. Do you, are the tech bros open to this? Because I feel like something, some of these guys, I feel like what they love about nuclear power is it feels virile.
Mary Powell
Yeah.
David Roberts
You know, whereas like virtual.
Mary Powell
Well, that's it. There you go with that virtual word. That's why I've never liked it.
David Roberts
Not quite manly. It doesn't have hair on its chest. Are you running into any — ?
Mary Powell
I got a lot of hair on my chest. I'm ready to take them on.
David Roberts
You would think, of anyone, you know, speaking of Camus Energy earlier, you would think if anyone would understand the cumulative power of distributed operations, it would be these tech companies that have built their fortunes on distributed computing. Right? So, how did the reception go?
Mary Powell
I think it's just the force of a hundred-plus-year-old way of thinking about things. That's why I always say, you know, I am a big fan of "culture eats strategy". Any company I've worked at or am leading, I focus a lot on the culture because that's how we ended up getting to the innovation at Green Mountain. It's because I started on the culture and, you know, we have a 100-plus-year-old culture and way of thinking about it. And so, as I like to say, it's not their fault, they just need to change.
Like, and that's why we need enlightened regulators, and that's why we need enlightened governmental leaders, and that's why we need enlightened folks to push against the force of a 100 plus year old way of thinking about things.
David Roberts
All right, well said. Thank you so much. Thank you, Mary.
Mary Powell
Right. Awesome.
David Roberts
Thank all of you.
Mary Powell
Thanks.
David Roberts
Thank you for listening to Volts. It takes a village to make this podcast work. Shout out, especially, to my super producer, Kyle McDonald, who makes me and my guests sound smart every week. And it is all supported entirely by listeners like you. So, if you value conversations like this, please consider joining our community of paid subscribers at volts.wtf. Or, leaving a nice review, or telling a friend about Volts. Or all three. Thanks so much, and I'll see you next time.
In this episode, I talk with Bill Moyer, founder of the Reconnect America campaign, about the huge, untapped potential of U.S. railroads to support the clean energy transition. Bill makes the case that our privately owned rail system, focused on short-term profits, is missing out on big public benefits—like shifting freight from roads to rails, reducing emissions, and even using rail corridors to carry high-voltage transmission lines for renewable energy.
Hello everyone, this is Volts for November 6, 2024, "How Railroads Could Boost the US Energy Transition." I'm your host, David Roberts. Just like it has a vast network of interstate highways, the US has a vast network of railroad lines. Unlike the highway system, however, the rail system is privately owned and operated for profit. That, according to today's guest, is what prevents the rail system's vast potential for public benefit from being realized.
Rail is far more efficient and environmentally friendly than moving freight on trucks, so we could move a substantial percentage of freight to rail. Electrified rail lines are common in most other countries with rail systems, so we could electrify the network with familiar infrastructure and technologies.
Bill Moyer from Solutionary Rail
And the system already claims right-of-ways through the heart of the country, exactly where we need more electricity to travel, so we could use those right-of-ways for long-distance high voltage transmission. Doing any of that, however, would require long-term planning, lots of patient capital, and supportive government policy, none of which are central concerns of firms devoted to maximizing quarterly profits.
He hasn't had much luck persuading the railroad companies, but he has pushed the issue onto the agenda of lawmakers and partners in the climate and environmental justice movements. He's just launched his own newsletter and a podcast, Reconnect America, so it seems like an opportune time to catch up with him about what America's railroads are and what they could be. With no further ado, Bill Moyer. Welcome to Volts. Thank you so much for coming.
Bill Moyer
Oh, thank you so much, David. It's such an honor to be here.
David Roberts
So much to get into here.
Bill Moyer
Right?
David Roberts
I say this at the beginning of every pod. I started researching this and discovered, "My God, I need 12 pods." What I think is the kind of the most important thing to understand, the thing that colors all the rest of this discussion, which is how the US rail system is owned and operated. This is strikingly different from how most other countries with rail systems own and operate their rail systems. So, just talk a little bit about how the US is different.
Bill Moyer
Yeah, we have this peculiar institution of private railroads. It's infrastructure that exists with the incentive, the fundamental incentive, and really the obligation to maximize profits for shareholders. This is particularly problematic for infrastructure that has, or ought to have, really other important purposes. And for 140 years, we regulated our railroad infrastructure to serve those purposes, I should say about 100 years of really strong regulations. I've been really interested lately in trying to understand why we got, how we got into this mess.
David Roberts
I mean, tell me if you think this is wrong, but to me, it seems absolutely just commensurate with the larger story of what I guess they call neoliberalism. Right. Just privatization of — I mean, it started about the same time and went along basically the same track as kind of what they call the "neoliberal revolution," I guess.
Bill Moyer
Well, I think that's absolutely true in regards to the explanation of deregulation. But what's intrigued me lately is, "Why on earth did we make the decision to not invest in this as a national project?" We did that in the 40s and 50s to build out the interstate highway system. Of course, post World War II and amidst a cold war. But I think that there are some really interesting threads that I really don't feel expert enough to delve into. But the genesis, the DNA of our railroad infrastructure is somewhat rooted in the same sort of resistance to national or centralized power that was key to prolonging the institution of slavery.
So, when I say peculiar, I'm actually kind of drawing around that same other peculiar institution of slavery. So, you know, it's a theme that I'd like to explore more as, you know, to understand why the postal roads didn't end up being a national project that translated into the railroads. But instead, there were state and private railroads and land grants for private corporations where the public was deeply involved, the military was involved, the corporations or the developers were given vast resources in order to build out, for instance, the transcontinental railroads.
David Roberts
So were the railroads privately owned from the beginning? Like this has been true in the US from the very beginning?
Bill Moyer
Yeah, that's right. Privately or state-owned. Yeah, it's a fascinating thing to know. Like, we don't have a national bank. Right. The post office was actually in the Constitution with the authority to build postal roads. There was such an emphasis in the expansion of this country on preserving slavery that I have a really hard time believing that there aren't direct links to the debates that must have happened in those times to build out this infrastructure in a way that was privately owned. It did not aid the sense of national or federal power.
David Roberts
The nervousness about federal power obviously plays a big role there. But one of the things I wanted to ask — we can't get too lost in the history, but — you know, sort of in the early 20th century, railroads were sort of legendarily corrupt. Like, it was a big deal. Like, one of the reasons, you know something, I'm much more familiar with the public utility system. The way we regulate public utilities is, in a sense, a response to the negative example of the railroads. I mean, we saw, like, you give a company a monopoly control over a railroad and then don't regulate it.
They're going to charge whatever they want, they're going to amass power, they're going to buy lawmakers. The whole thing is going to be a disaster. I mean, we had a whole public campaign in the early 20th century against monopolies. And yet, somehow through all that, they just kept right on owning the railroads. Like, it didn't result in any substantial reform of the railroad ownership. I don't totally get that.
Bill Moyer
Yeah, and I would actually reel it back a little bit earlier to the post-Civil War, the Granger movement, and the populist movement that was rebelling against the monopoly power of the railroads. I think that was very important at that time. The issue of the states created Granger laws to regulate railroads. But then that came into conflict with interstate commerce. And so that's why the very first agency was created, the Interstate Commerce Commission, in 1887. And with the Interstate Commerce Act, railroads became officially regulated very much like utilities. They were considered common carriers. With common carrier obligations, they were not allowed to curry favor and give politicians free rides and —
David Roberts
Right, let's just clarify here at the beginning because this is an important concept throughout. The common carrier obligation is just the obligation that you have to treat everyone who wants access to the resource fairly, basically.
Bill Moyer
That's right.
David Roberts
Same way, you know, the utility wires, the electricity system, like anybody who wants to generate and come online should be treated fairly. That used to be the case, but clearly, it is not what happened.
Bill Moyer
Yes, so non-discriminatory service, the business model of moving a lot of stuff a long distance being more profitable than moving a little bit of stuff a short distance, that didn't really change. The railroads always tended towards the former because there's maximum profit in that. And so, with the Interstate Commerce Commission, we created a transparent system of rates that were non-discriminatory. And that all sounds good. But then, as politicians will do, they start requiring service that is no longer profitable for this entity that has to make a profit. Sort of a kind of unfunded mandate, if you will, that then burdens the railroads to the place where it's harder and harder to make a profit.
And then you add on top of that the investment in public highways and publicly subsidized, paid-for freeways or the interstate system. And you have this increasing problem in the rise of the vehicles and the truck competition, right.
David Roberts
Publicly funded competition. Basically.
Bill Moyer
Basically, right. Because they're not paying for the infrastructure they're wearing and tearing. And this is what the railroads complain about. They complain about needing to level the playing field.
David Roberts
Right. So, it seems like we faced a decision point. There are two ways you could respond to that, which is we'll loosen regulation, we'll deregulate you, we'll allow you more freedom, or we'll just stop the pretense that infrastructure needs to make a profit. But we went in the former direction.
Bill Moyer
Right. And that's where your neoliberalism comes in, right?
David Roberts
Yeah.
Bill Moyer
And that's the direction we went when we could have taken the other path.
David Roberts
I was thinking about the model I think people have in their heads now, which I think is familiar at this point with like a publicly owned company which has the sort of statutory obligation to maximize quarterly profits, takes over something like, you know, Kmart. We've all seen this. They suck all the value out of Kmart. They don't do any of the big long-term investments that might help Kmart thrive in the long term. And so it's basically like a parasite that sucks all the blood out of Kmart until Kmart's dead. And then they go on and buy something else.
They've done it to Kodak. They did it — you know, like, you've seen this model happen over and over again in modern society. And what was sort of a light bulb moment for me reading about all this is like they're doing that same thing on a slightly slower motion way to the railroads. Now they've got the railroads, they've got to make quarterly profits. So, you don't make the long-term investments. Your capital is very impatient. You're just sucking existing value until it's a dead husk. And then you move on to something else. That is what is going on right now with U.S. railroads.
Bill Moyer
That's right, you named it. And our friend Maddock Thomas, who we feature in the first episode and other episodes, calls it "managed decline." Right.
David Roberts
Yeah.
Bill Moyer
Yeah, and another railroad analyst, Jim Blaze, an economist who's been working on a study through the University of Texas in Austin, referred to it as a very long-term going out of business sale. It's an extractive approach to infrastructure. Something that has been a public-private partnership from the very genesis. And so, they're able to mine resources out of it to get ridiculous profits. And as a deregulated industry, a deregulated infrastructure, the public is paying a very high price for that.
David Roberts
Yeah, this is sort of a unique situation. It's like they got a hold of Kmart, except instead of Kmart, it's a giant public infrastructure system. I don't think there's another case quite like this, and it's insane. And at no point did we make a collective decision to like, "Let's surrender this massive, already built infrastructure to the vulture capitalists and let them suck it dry." Like, I don't even think people know what's going on. I don't think people think about it or are really aware. Certainly never voted on it, you know, but, like, that's the background to this whole discussion.
Bill Moyer
Right, and then you have a railroad industry that would prefer that you not even pay attention to the fact that they actually even exist. Yeah, right. That's why we make that allusion to the Obi-Wan Kenobi quote, "These are not the droids you're looking for." Because I really think that every time I read a memo from the Association of American Railroads, especially like at the beginning of the Biden administration, it was very clearly like, "We got this. We know we're important for the climate. We got this. Whatever, hands off." You know, "Don't even think about touching us."
David Roberts
You know, don't worry your pretty little heads.
Bill Moyer
Right. "We got this." And it's kind of problematic because what is infrastructure for? And who is infrastructure actually supposed to serve if it's not the public? And so, to create this contradictory incentive that's in the very DNA of the system, with very few checks and balances at this point, is a recipe for disaster. Also, it's a huge lost opportunity.
David Roberts
Huge. And I bet if you asked the public, I bet if you took a poll, I bet 9 out of 10 people would tell you, "Oh, sure, we — like railroads are publicly owned." I bet people just assume that it's like the public highway system. Like, why would you do it this way?
Bill Moyer
Why would you?
David Roberts
It's not intuitive.
Bill Moyer
Right. Why would anybody do that? That doesn't make any sense whatsoever. And I think that that was a really important part for us when we were, you know, in our podcast, trying to describe this very interesting and very somewhat complicated system to just start with the basic fact that, "Hey, you know, you ride on a freeway, that is an open access system, it's owned by the public and maintained by the public because it serves important public purposes."
David Roberts
And, if I could just add one thing to that, every dollar that the public has invested in the interstate highway system has paid back in public benefits at a like two gazillion to one ratio. Like investments in long-term infrastructure, pay back richly, almost without exception.
Bill Moyer
Absolutely. And you know, I'm not sure when it is appropriate to bring this up, but I'll let you know that the external costs of relying on freeways for our freight transportation, in particular versus railroads, is immense.
David Roberts
Let's get into that now. So, there are three big buckets, three big things that you recommend we do with the rail system. I want to go through them one at a time. And the first one is, over time, freight movement has shifted en masse from rail to trucks on highways. And you do quite a bit of math on your site and in your book, showing that that is, from a public welfare standpoint, a disaster. There's much more pollution, much more costs. So, two questions: One is, why did that happen over time? Was it just that the interstates are publicly funded and so they just sort of like are cheaper to use?
Is that why it happened over time? And then two: Talk about some steps we could take if we wanted to start shifting freight back over to rail.
Bill Moyer
So, not a small assignment you just gave, just so you know.
David Roberts
I know this is like several chapters of your book. If you could just summarize them in 30 seconds.
Bill Moyer
And we've learned so much since the book and we're learning all the time. It's just one of these almost practically addictive subject matters. Yeah, ask my wife. So, first of all, of course, we were losing mode share to trucks because, yes, the roads were publicly maintained and paid for, et cetera. So the trucking industry could provide sort of the flexibility and didn't have the burden. And it could provide the responsiveness to shifting opportunities in ways that creating new infrastructure is hard to do. So there's certainly that. And then when we deregulated the railroads, we also allowed them to stop service to many places.
And the first thing we did is we forgave them of their common carrier obligation to move people. That was in 1970 and 1971. So, the creation of Amtrak was actually a bailout of the railroads, relieving them of an important common carrier obligation.
David Roberts
"Oh, we'll take over. The public will take over the passenger part and you can just keep the rest." Was that the deal?
Bill Moyer
That's right, because they were asking us to do that.
David Roberts
Is that because they were losing money on passengers? Like, is that because passengers are less profitable in some sense than freight? Like, why did they want that?
Bill Moyer
Yes, I assume that the passengers have higher demands than a lump of coal, you know. But yeah, I mean, we had two things going on at the same time of, you know, a renaissance in rail service in the 40s and 50s and simultaneously this, you know, crashing business model where the railroads were forced to continue to consolidate and go into these crazy business schemes that had nothing to do with railroads in order to cook the books. So they're consolidating, they're going bankrupt, et cetera. So then one of the fixes was to relieve them of this duty to provide passenger rail. And of course, as Meredith Richards, the president of the Rail Passenger Association says, "Get in your Chevrolet and see the USA" or whatever that marketing maxim was.
But so, there was this rise of the automobile — they created Amtrak, but they actually created Amtrak thinking it was designed to fail, that it was just like this, this last gasp.
David Roberts
Because the conventional wisdom was just that, like, people are going to want to move via cars and passenger rail is a thing of the past, basically.
Bill Moyer
I think so. I think so. You know, despite the fact that people went on their vacations, they went to all the national parks, had railroads that went, led to them. You know, people in rural places, people didn't just go from Chicago to Seattle or whatever. You know, they, they went from like Polson to Billings. Yeah, yeah.
David Roberts
This is another mind-blower, I think, for normal people who aren't familiar with the history there. We used to have rail lines not just to big cities, but to little towns all over the place. It was a very elaborate system.
Bill Moyer
Right. It's like, you know, you think some people, you know, you wonder, "Oh, you know, is rail somehow un-American?" Well, of course not. Rail actually made America. I mean, nothing could be more American than rail. And you talk to folks who go overseas and they almost always start with, "Wow, it was amazing to ride on trains. We love the trains."
David Roberts
All I do is sit around daydreaming about taking vacations on trains. Now, the idea that we're all going to move to cars just kills me.
Bill Moyer
Right. So there's that, and I just want to make sure I get back on, so to speak, tracks. So there's this decline of the market share and the mode share. But a key period of time is 1976 with the bankruptcy of Penn Central, the takeover of that freight railroad. And again, like Amtrak, it was given the mandate to turn a profit on something that wasn't actually turning a profit. So, like that was the killer for Amtrak as it was obliged then to cancel, maybe it's 3/4 of the trains in the US, so we lost all these different lines and all kinds of service with Amtrak.
David Roberts
Explicitly, they were canceled because they did not make a profit?
Bill Moyer
Yeah, because Amtrak was required to make a profit. And so, yeah, they were canceled for that purpose.
David Roberts
Exactly. And just put it out again. Why should public infrastructure make a profit? Why should this one kind of public infrastructure be asked to make a profit when roads aren't, et cetera, et cetera?
Bill Moyer
Right. And what's the cost to society when they are asked to make a profit or when we lose them? So then, with the deregulation of the Staggers Act, which — okay, so in 1976, railroads were relieved of the duty to move fruits and vegetables. And so that was because trucks were supposedly going to be able to do that better. So that's the first what we call an exemption or a commodity exemption where they didn't have to serve that commodity any longer. Well then, comes the Staggers Act and you go from a transparent rate system where the things are published and regulated to a contract rate system where things are oblique and privately negotiated and the railroads are no longer obliged to serve practically any commodity except for coal, crude oil, grains, and some hazardous chemicals.
David Roberts
So, everything else got exempted, basically like this common carrier obligation that is now almost entirely exemptions. Only four things are left unexempted.
Bill Moyer
Exactly. So, if you're a small town in Minnesota and you know your product is, let's say, cattle or fertilizer or something like that, they don't have to serve you anymore. And they not only don't have to serve you, they can set the terms of service for things and set the rates so that, you know, at one point you had to put 26 cars together. Well, that's pretty tough for a small industry. And then you have to put, oh, 52 cars in order to get the discounted rate. Oh, now it's 100 to 110 cars for that discounted rate.
So, the trains get longer and longer in order to get a kind of efficiency that works for Wall Street but doesn't necessarily work for Main Street.
David Roberts
So, basically, the railroads became, around that time, effectively a system for moving large commodities around and very little else.
Bill Moyer
Right.
David Roberts
And so, they remain, and coal remains a third of all freight.
Bill Moyer
Something like that. I think it was 30% or something. But it's — and it's in decline. And they were not only. They not only didn't have to provide service, they were allowed to spin off all of their less profitable branch lines. So people sometimes talk about short line railroads or Class II and Class III railroads, right? Well, we went from having 8,000 miles of Class II and III railroads or short lines in 1980 to having about 45,000 miles of short line railroads. And that happened because these less profitable branch lines, they didn't want to maintain them.
So, they spun them off to companies that didn't have to turn the same profit. Even those companies would embargo, meaning they wouldn't provide maintenance. So, you have all these trains traveling around at, you know, 10 miles an hour, because they're not maintained properly.
David Roberts
I was going to ask what happens to these lines that are sold to some little company that doesn't want to maintain them? Are they just sitting there rotting to this day? Like, are all these little lines still just there?
Bill Moyer
Well, a lot of them are. We also lost tens of thousands of track to actual abandonment, meaning they went through the process of getting the approval to abandon the lines completely. But the others, the ones that they spun off, those became the short line railroad system. But they're really — these monopolists are... God, I'm not sure what kind of language I can use on this show, but it's not very, I don't think very highly of them because even those spun-off branch lines, they are dependent upon the main line that connects them to the rest of the market or export, etc.
And as one person from a short line industry said to me once, maybe without thinking, "We know who brought us to the dance." Yeah, it sounds like I have a daughter. I don't think that's exactly the kind of ticket I want the relationship I want her to have with someone she's going to a dance with anyway. So they can't even stand up to them. If they argue that they need better service or better access, then those railroads can cut them off at the knees. Oh, and who picks up the bill for subsidizing the maintenance of those tracks?
Yeah, a lot of times it's the states. We do this — and I'm not saying we shouldn't, the state shouldn't own or maintain the short line system. I think we should actually, I think we should invest in it to be robust. But I think that the short line system should also have access to the main lines.
David Roberts
Right. Guaranteed access. State ownership doesn't get you much if you are, in the end, completely dependent on the whims of the companies that own the main lines.
Bill Moyer
Right.
David Roberts
It might as well be private anyway, so.
Bill Moyer
And we're subsidizing the profits of the branch lines of the Class I's. And you people will hear this word, the Class I. I think it's very important to tell people that that's just a designation in terms of revenue per year and that that designation has shifted over time and become more coarse. But we used to have hundreds of Class I railroads and we currently have six Class I railroads operating in the United States, four that are based in the United States. BNSF is the only one that is not publicly traded but is owned by Berkshire Hathaway, Union Pacific, Norfolk Southern, CSX, Canadian National and CPKC.
The Canadian Pacific Kansas City used to be the Kansas City Southern Route. So, those are the Class I railroads, and they're the ones that own the majority of the track, including the majority of the track that Amtrak travels on. It's only in the Northeast Corridor, where Amtrak owns its own track, that stretch from D.C. to Boston. Everywhere else in the country, or most everywhere else, it's operating on private host railroads.
David Roberts
Tell me a couple of practical things we could do to start moving freight back toward rail.
Well, we've got to incentivize mode shift and we've got to reduce the appetite of vulture capital for rail assets as an extractive resource. I was at the Surface Transportation Board hearing recently and testified at that, recommending that we revoke those exemptions that we gave the railroads in 1976 and 1980. We need to expand this idea of reciprocal switching, meaning that one rail operation can use another railroad's tracks if a customer is desiring service that is not being given to it. But that's the current rule, it only applies to non-exempted commodities. So that's the coal, the grain, and crude. So we really need to make it apply to all commodities.
Just bring back the common carrier obligation, bring it back for commodities generally.
Bill Moyer
Right. And then get as close as we can in the system that we have to an open access system by allowing the short line railroads to serve the customers and continue on to export if the Class I's refuse to do so. That, and honoring the preference that they are supposed to by statute give to passenger trains to guarantee at least an 88% on-time service. And us who live in the Pacific Northwest, the Amtrak Cascades is operating at about a 47 to 50% on-time service.
David Roberts
I'm painfully familiar.
Bill Moyer
Right. It doesn't really make you want to ride the train.
David Roberts
All right. And we'll get back to more, let's say, radical solutions later. But those seem like at least somewhat incremental, somewhat within reach. That would be legislative, that would be Congress?
Bill Moyer
That would be regulatory, I think. I mean, there might need to be some clarification or direction from Congress. There seems to be some doubts within the Surface Transportation Board of what it's exactly allowed to do, which is kind of strange.
David Roberts
Plus, the Supreme Court now won't allow agencies to do anything really. So, I'm guessing we probably would have to bring Congress in. So, let's move on to the second piece which I think will be of most interest here to Volts' readers, which is about electrifying rail. So, one of the key points you make, and this is a good segue from freight to electrification, which is if you're going to mode shift, you need to electrify for environmental justice reasons. So, just say briefly why that is the case.
Bill Moyer
Okay, well, there's approximately a trillion ton-miles of freight that's moving distances greater than 500 miles by truck. That's a large amount of impact. It's also very inefficient, energy-wise. And as we try to decarbonize the freight system, not just the trucks and the trains, but think of it as a freight system, the public has a large incentive to move that towards rail. Now, you can't double the impact of that if, in the communities that are already overburdened, there are cancer clusters.
David Roberts
By rail infrastructure.
Bill Moyer
Yeah, by rail infrastructure. Because one of the things we learned from our Moving Forward network partners, our environmental justice coalition we participate in, is about this idea of an indirect source. A factory is a source of pollution, but a rail yard or a warehouse or a port, it's a source of pollution because it attracts other sources of pollution, right? So it's concentrating that in communities and primarily communities of color and poor communities, and they actually have lower life expectancies, you know, by a couple of decades than other neighborhoods in the same locale.
So, places like San Bernardino, Kansas City, Chicago, those communities, those are environmental justice communities. There's no reason they should be taking on any more burden. And in fact, we should be relieving the burden that they're already experiencing. And that is the primary reason to electrify rail yards.
David Roberts
Right. So, if you're going to put a bunch more freight on the rail system, you have to at the same time reduce the sort of pollution involved in rail generally. That makes sense. So, I mean, one of the things I wanted to say by framing wise is, I think audiences today, if they hear "electrify rail," they think of it in the same way. They're thinking about electrifying cars and trucks, which is like some fancy new high-tech, futuristic thing. But electrified rail is not futuristic. No, it is something close to the default in other countries that have rail systems.
So, just talk a bit about the familiarity of electrified rail.
Bill Moyer
Yeah, electrified rail has been around since about as long as rail has been around. So, you know, in Washington state, we used to have, in 1928, we had like 750 miles or so of electrified rail in 1928.
David Roberts
And that was all catenary, that's all the wires above the rails that are attached to the trains?
Bill Moyer
Exactly. Because that's the most direct way to get electricity. The efficiency of a catenary line is far superior to a battery electric.
David Roberts
Well, I mean, I'm sure in 1920, whatever, batteries were even not even a viable option in 1928. But when we talk about electrifying today, obviously part of the background is that batteries have gotten much, much, much, much more powerful, much cheaper, much smaller. So, I think a lot of people think of, you're faced with a choice. Either you go catenary, which is building — people are familiar with these systems. A lot of trolleys and cities kind of run on these systems. They're just the wires that are overhead. And the vehicle's connected to the wire by a little stick, it looks like, and gets current from the wires.
The other way would be putting big batteries on trains or some sort of battery hybrid. Some sort of hybrid battery. But what you sort of recommend or talk about is what you call discontinuous electrification. So, explain how that works.
Bill Moyer
Yeah, and I think it's important to just say that the electricity that you get from a wire, you can get more faster. So, the energy intensity when you're climbing a hill or carrying a heavy load is really significant. And that would drain a battery quickly. Catenary is about 77% efficient over the whole, like the whole system. And battery electric, 64%. Hydrogen, which is being kind of sold to us as a, I think, a distraction, is at 25%.
David Roberts
Yeah, I mean, I guess we have to address this at some point, since a lot of people are thinking about and talking about it. But just like, much like in autos and trucks, hydrogen is just like the least efficient, most difficult to manage, most new infrastructure required, etcetera, etcetera, etcetera. This is just. This is a dumb way to use hydrogen. Let's just put that on the record and move on.
Bill Moyer
Yeah, I think it's obfuscation. I think it's a distraction. It's a way to avoid doing the inevitable, which is a combination of catenary and with battery electric backup. It's true that it gets expensive to put catenary line under underpasses and across bridges and through tunnels. So the exaggerated costs of electrification in the US have been based on lifting overpasses, crowning tunnels, and rebuilding bridges. So, yes, the per mile cost, it can be exaggerated and inflated for other reasons. But the rest of the world, even Belgium, which is, you know, a pretty cool country, they probably have decent working conditions anyway, they can do it for less than $2 million per track mile.
David Roberts
How much of that is just "Everything is more expensive to build in the U.S."?
Bill Moyer
Oh, dude. You know, I mean, that's a whole other podcast on the, you know, the consultant industrial complex. You know, I don't even want to pretend to know about that. But the diesel, you know, diesel is about 40%. And remember, these trains, they're already diesel-electric. Right. It's a diesel generator generating electricity to run traction. The trucks, the wheel systems on the trains themselves, are actually electric.
David Roberts
Oh, so the diesel is just producing electricity on board, basically.
Bill Moyer
That's right. That's right. And you know, the batteries. This is also why I'd like to think about this as a freight system because how many batteries is it going to take to electrify all of those trucks? And what are the pipes that you're going to have to put in for the charging stations? And that's going to, you know, what's the public cost of that going to be when it's actually, you know, takes four times more energy to move it on a road than on a steel wheel on a track.
David Roberts
So electrifying rail relative to electrifying truck freight: easier?
Bill Moyer
Easier, and just more efficient and faster. Quicker to be done. I mean, one rail car can hold 100 tons, a typical truck and God only knows when a truck also has a battery on it, that's more like 20 to 30 tons, I think. So, there's a lot of reasons for both the mode shift. But then the electrification. We can avoid the most expensive aspects of catenary electrification if there's a battery backup for those sections of track.
David Roberts
So, you just drop the catenary wire. Like, if you get to an overpass, the catenary wire ends, you shift to battery power through the overpass and then reconnect to the catenary line, thereby avoiding having to string the line through the overpass. Is that the idea?
Bill Moyer
Yes. And then you use braking. Having a battery on board, or having — you know, at least a battery on board, if not a battery and catenary — allows you to use regenerative braking. So currently, braking energy is converted to heat and dissipated off. Right. So, it was I think 1915 when GE built the first locomotive that did regenerative braking.
Right. This is not a Prius. Toyota did not come up with this idea. This is what's crazy about this stuff; it's tried and true. This is not an experimental technology, and it is the norm around the world. Yes, advances in batteries are making it easier, cheaper, faster to do.
The question comes up again and again, I guess is like if these are profit-making corporations running these things and they could save money by electrifying, why don't they do it? I mean, I'm guessing it's just a short term versus long term payoff kind of thing, isn't it?
That's right. I mean, to you or me, a 7%, 8% return on capital. You know, say you're building that mother-in-law apartment or for your whatever, you know, 7 or 8% is pretty good, like you're going to, you know, you're going to pay it off within a decade. Well, that's not good enough for publicly traded corporations that are trying to continually lower what they call their operating ratio, the ratio of revenue to expenses. I mean, and these folks, they're shooting for 40 cents on the dollar average. So if, you know, a trucking company might make 5% for an individual trucker, or maybe a big corporation might make $0.12 on the dollar operating ratio, it's still profitable, right?
But if it's 10% profit on the dollar for a railroad to move stuff, they'd prefer it go by truck because otherwise their shareholders are going to come after them and say, where's that 40%?
David Roberts
Such a familiar story in the energy world. Lots of big upfront investments that would create low, steady returns over long periods that just aren't high enough return for the publicly traded corporations. And there's all this work and people beating their heads against walls and white papers trying to figure out how can we raise profits to the level that private corporations will finally invest. And of course, the other way to go is just like removing the insane idea that we have to produce 13, 14% returns on infrastructure investments. That doesn't make any sense. No infrastructure investment is going to give you that.
Unless you're just running a fire sale, right? Unless you're running a closing sale, as you say. So, do we have any? I mean, right now, the way things are currently set up, it would have to be these private corporations that did this, right? That paid for the catenary lines and the batteries, and so on.
Bill Moyer
Well, I was just hanging out with some folks who did the University of Texas Austin study on measuring the benefits and the cost of electrification. And I asked the question, "Is it in the interest of the railroads to own this infrastructure?" A guy I respect a lot, Jim Blaze, said, "No, actually." If it just becomes — like for the railroads, infrastructure is kind of a liability rather than an asset. It might be better for the railroad companies to have a long-term lease and let someone else build and own the infrastructure. So, I think from what I've heard from listening to your podcast, that this might be a difference between the electrical utilities and the railroads.
And so, the situation may be that through making the railroads less attractive to vulture capital and creating the need for other income streams such as leasing to infrastructure for electrification. And the third thing, of course, that we would want to talk about here, which is such a subject for you and your listeners, is transmission. So, in a place like the Southern Transcon from LA Long Beach through Kansas City to Chicago, passing over the top of Texas, we have a corridor, the Southern Transcon, that actually could potentially be co-locating high voltage DC transmission and reconnecting or connecting the three grids.
David Roberts
Before we move on to that though, really quick, a final question about electrification: Do we have any sense, has anybody done the math to get the sort of macro numbers to know A) sort of how much electricity it would require to run the whole railroad system on it and then B) sort of like how much the kind of emissions savings you would get? Do we even know that?
Bill Moyer
Yeah, I think it is a math problem. And my background, I have to admit, is I'm a drummer who did study political science and philosophy. So, I'll tell you every time I get into — dude, it's like I have been forced to know how to use an Excel spreadsheet. I mean, I transferred to Evergreen so I wouldn't have to take science. Right, right. So anyway, that's an inside joke for us Northwesterners, I guess. But I don't know if anyone's done the math to say how much electricity it would take to run the rail system. I don't think anybody imagines this actually happening like a turn of a switch, right.
David Roberts
Sure. And it's worth saying that, like the electrified rails in some other countries, especially hilly countries, the energy you get back with regenerative braking is pretty substantial. It almost sort of evens out the amount of power you're using in some places. So, that has to be taken into consideration.
Bill Moyer
Yeah, you're going to bring up this little caveat that is the tangent of our work in Southeast Washington where we're looking for alternatives to barging on the lower Snake River and looking at a route that we would like to restart between Pasco and the Palouse grain growing region. Now, that's a situation where battery electric locomotives might be actually exactly the thing because you have empty trains climbing 1600ft of elevation and then returning full, going down and using regenerative braking to recharge the battery. So, you could have a very large amount of recapture if not net positive.
So yes, I think it's very difficult to figure out. And then, what was the number your guest from FERC mentioned? The 2.5 or 2.6 terawatts, is that the right number for the renewable energy projects that are in queue?
David Roberts
Oh yeah, something like that. Something like that. Although not all of those are real, but something in that neighborhood.
Bill Moyer
Right. So, there's a lot of renewable energy. And I would say Sandy McDonald or Alexander McDonald, who did the NOAA study in 2016, same time we were doing the book, estimated at that time that we could get to 80% renewables by 2030. But the key element was the HVDC transmission. I'm not telling you anything but this issue of finding existing right of way.
David Roberts
Yes, well, let's go to that then, because this is in some ways the most intriguing aspect of all of this. Which is, I think, one of the most striking maps you have on your website is this sort of side-by-side map of, on one hand, a map of the existing rail system in the US, and then next to it, the map of where we would need high voltage transmission lines to get to, you know, our climate goals and to get to a fully efficient electricity system. And they are strikingly similar.
Bill Moyer
I think so. I think it's mind-boggling that we haven't already done this.
David Roberts
Which means we have the right-of-ways we need, where we need them, already.
Bill Moyer
Yeah. And so, what is taking us so long for figuring that out? I don't even understand why Berkshire Hathaway, that owns BNSF and Berkshire Hathaway Energy, hasn't done it itself. So, you know, this is our, you know, we have been pleading with Warren Buffett to do something like that. But it drives home the point that the public shouldn't have to wait this long to do such a common sense, take such a common sense step for decarbonizing not just our freight transportation network, but also our energy system.
David Roberts
Let's flesh out this idea of rail corridors. So, what does that mean? Like, do you envision just — I mean, is the idea that the right of ways on which the rail sits is wide enough to fit transmission towers?
Bill Moyer
Yeah. My understanding is that the right of way varies. Right. It can be in the West, it can be 200ft. In other places, it's more narrow. I've been looking at pictures of trains in the 50s and they have transmission above them. You know, you need some aspect of transmission already to do this. The Soo Line project and the — there's a couple of other projects.
David Roberts
Oh, I wrote one of my long and one of my favorite posts ever on Vox about the Soo Line. It's just such a cool idea, which is doing what you're recommending and burying the lines. So, the Soo Line is just a proposed buried high voltage transmission line going from like Chicago, from the wind in the Midwest, basically.
Bill Moyer
You also reported in this podcast early on about the HVDC and buried HVDC becoming more affordable. And this is something that's on a lot of people's minds, a multi-terminal HVDC in order to preserve, you know, the integrity of the system or the, you know, without taking a lot of that overhead space of the easement, being able to, you know, transmit. Yeah, you're going to have some HVAC. But it seems like this multi-terminal HVDC could be feeding the electrification of the railroads. It could be balancing the variability of renewable energy. So because as you said, the wind is actually always blowing and I would say the sun is actually always shining, it doesn't turn its light out at night.
You know, it's really just a matter of transmission, in my opinion. But again, you know, I went to Evergreen, so, you know, there's some very smart scientific people who went to Evergreen, but I studied music. Anyway, I think these are very important questions and these are opportunities because you know, it's that contiguous right of way. So if the railroads do not have an incentive to build out the electrification and they need new income streams, say that they continue to own that infrastructure, then the public has a variety of incentives in both electrifying and using the rail corridors for transmission and I would say most definitely mode shift of freight off of trucks and onto trains.
David Roberts
Yeah, these things are all, to use a word I hate, they're all quite synergistic. They all make sense together and could be part of a single sort of grand project. What do you think about some of the other ideas I've heard about rail lines, like building PV along rail lines? I've heard those proposals and then I've also heard, I believe there's a company actually trying to do this. Instead of building a transmission line along its rail, it just carries giant batteries, charges them in one place, carries them, and discharges them somewhere else. So it's like using the rail itself as the transmission.
Do you have any thoughts on those?
Bill Moyer
Yeah, you know, it's kind of like a hydrogen thing. You know, what is it? May many flowers bloom or something like that. But I think we have to get real about this. We have to create, we want to have in general a very efficient system and we want to invest in things that are the most beneficial. There might be grid-stabilizing opportunities in emergencies to rail in giant batteries for places. Absolutely. You know, that's actually how I met Natalie Popovich and some folks at Lawrence Berkeley Lab. We don't have to do an experimental thing.
David Roberts
It seems like a way around our inability to build the transmission lines.
Bill Moyer
Right. So, why waste public energy doing that thing, trying to work around something? That's the common sense solution. You know, it's very convoluted. Maybe it might be somewhat American to pay more to get less. But that said, I would like to shift that. You know, part of the reason we're doing this and call this Reconnect America is because we want to literally and figuratively reconnect America. There's something about the public helping or owning the electrification infrastructure or something other than the railroad owning it. I, of course, think it should be publicly owned, but it doesn't necessarily equate to mode shift.
But if the public is controlling the power flow or owns the infrastructure, part of the deal could be that the greater the utilization of that track system is, the lower the price of that energy comes. So that's just a new idea I've been bouncing around, trying to understand: how do you connect electrification with mode shift? Because it's not a guarantee. And I think that there's a public rationale for this. Our mutual friend, Rob Harmon, his brilliant show with you where he talked about stop talking about energy efficiency and start talking about efficient energy. I think that there's a parallel concept potential with railroads because of all of the public benefits of shifting and utilizing that infrastructure more.
So, I think that all those things are connected, but we're not going to get there with the system that we have.
David Roberts
Most of your work is focused on the existing built rail system, which, as we said, is quite extensive and elaborate. Is there any thought, or do you think a lot about building new rail lines?
Bill Moyer
Well, if hidden in your question is a question of what do I think about things like the ultra high speed rail project?
David Roberts
That was my second question. So, you can combine them if you want.
Bill Moyer
Okay. So, yeah, well, I don't think we need to build more rail except for in places that we took it out or returning rail that's been rail banked to actual service. We should make state rail plans and industrial siting incentivized to be adjacent to rail and use rail rather than trucks. So, to the extent that it's building out those little spurs and sidings and such. Sure. A friend of mine, Tim Gould with Sierra Club, he's in Climate Rail Alliance, he talks about going as fast as necessary, not as fast as possible. It's not a climate solution to try to go 250 miles per hour in a train that doesn't stop in all the places in between.
I actually think it's a math problem for Americans who are thinking. They're hearing that trains are going 200 kilometers per hour and they're forgetting to do the conversion because 200 kilometers per hour is 125 miles per hour. And that's a speed that is allowed. That's the beginning of high-speed rail. And that speed is allowed on conventional track in the current configuration.
David Roberts
So you're skeptical of building new high speed rail lines? New lines for high speed rail?
Bill Moyer
Except for where there are very dense populations, they're getting from one place to another and that is not Seattle to Portland. You know, we actually had a 20-year agreement between BNSF and Washington State Department of Transportation to have as many or more than 14 trips a day between Seattle and Portland, two and a half hour trips instead of three plus hours and 110 miles per hour on dedicated tracks. All of this was all in writing and it was supposed to be done by 2018. But this agreement was allowed to expire by an Inslee administration DOT that was obsessed about this ultra high speed project and it wouldn't build out the conventional higher speed project.
That would have actually been the foundation for a future where you put in these other railroads.
David Roberts
Yeah, I think this is actually something close to conventional wisdom among urbanists too. Which is like, new subway lines sound sexy, but if you just want value for your dollar, you just want better, more frequent service on existing infrastructure. Basically, like that's where you generally start when you want to maximize your bang for buck. And it sounds like, do you think the same is true for the sort of rail system generally?
Bill Moyer
I think it's absolutely true. And it's also, you can do the math; it's out there. Basically, it's a $15 billion project to implement this in the Pacific Northwest versus $150 billion to do this undefined corridor. We're talking 99 miles of tunnel. You're talking about three decades instead of one decade.
David Roberts
Luckily, large construction projects in the US always come in under time and on budget.
Bill Moyer
All right, that's right, that's the norm. But we've already actually paid for the declogging of the BNSF system in the Pacific Northwest, which is all part of this master agreement. And it was to make room for a functional passenger rail system that we never got. But our politicians were attracted to the flashy object. They were manipulated by WSP, Parsons Brinckerhoff, and Microsoft. And that sucks, right? That just basically sucks.
David Roberts
So, I mean, this sounds like it's just a nest, a thicket. A thicket of difficulties here. Maybe say one or two incremental things that you think are actually realistic, that some identifiable body of people might be able to do to move us in this direction. And I know that some of those are relatively obscure regulatory stuff. And then give us a more satisfying answer, something big like what would you do if you were king for a day and you really wanted to actually solve the problem?
Bill Moyer
Well, okay, starting with the incremental, here's the good news: I think it's actually starting to happen. Like when we wrote the book and even started before that in 2013, getting ready to write the book. Nobody was really talking about this. And now the public is starting to pay attention and people are connecting the dots from a lot of perspectives, whether it's railroad work or environmental justice organizers or climate activists or rural communities. Freaking Kinder Morgan, for God's sakes, was complaining about the monopolistic behaviors of the railroad industry at a Surface Transportation Board hearing.
David Roberts
Well, I mean, I just have to say this again, like the idea that if you hand railroads over to a single company and they have monopolistic control over the railroad, they're going to do bad things with that. I feel like we learned that lesson already and we're just like, "Eh," we just went back to it.
Bill Moyer
Yeah, yeah. Okay. Let's try to stay on the positive side here.
David Roberts
Right. We're talking solutions.
Bill Moyer
People are getting sick and tired of it, and people actually do love trains. So, I think that there's an angle around passenger service. It really matters because, despite what everybody thinks they know to be true, that "Oh no, the passenger trains have to wait for the freight trains." It's actually the opposite; by statute, freight trains are supposed to yield to passenger trains. Sadly though, the only recourse is a complaint to the Surface Transportation Board. But that is being — there's a piece of legislation, national legislation, that's now trying to change that so that states and Amtrak can sue the railroads for keeping their trains from being on time.
So, that's a positive thing. I think enforcing preference is positive and I think there's a lot of momentum for that. I think the environmental justice communities and, you know, everything I listened to. I think every other episode is probably more often — it's like, and then there's California, you know. Right. Like California, California, you know, is a place of experimentation and they're trying to solve problems. And California's Air Resources Board created a new framework for electrifying railroads. Sadly, their framework has to be, cannot go into effect until the EPA gives them their waiver in order to enforce it.
David Roberts
Which may or may not definitely happen, depending on what happens in the coming weeks.
Bill Moyer
Right. And even if it does happen, it'll probably be fought in the Supreme Court. This is where, like this leveling the playing field idea that the railroads say, "Well, let's level the playing field. Let's just have the EPA do a rule or a framework for transitioning." Maybe the railroads would fight that less if there was a plan for public engagement on the electrification and transmission fronts. These things can be accomplished, like the return of service to rural places through revoking service and commodity exemptions at the Surface Transportation Board. Those are all things that can happen.
But okay, switching hats, like a king for a day thing.
David Roberts
Put your crown on.
Bill Moyer
"Oh yeah, seven and a quarter if anybody's making one for me. So, is vertical separation, at the very least, the cost of even just the mode shift element? We have the potential to save in external costs from long haul freight of $46 billion per year. And most of that, that's divided over multiple things that lots of people are interested in besides climate."
David Roberts
And the public should capture that value, right? Like, that value should go to the public, not to Berkshire Hathaway.
Bill Moyer
Right. It should go to the public. And it's costing us. We're underwriting the stock buybacks of these corporations with accidents, with wear and tear on the roads, with deaths, and the lack of electrification. All these different external costs are costs that the public's already paying.
David Roberts
Right.
Bill Moyer
So similarly, I would say, you know, with transmission, like, what's the cost of not having that?
David Roberts
Yeah.
Bill Moyer
Right, so anyway, I think we need to make those costs real and say, "Hey, you know, a vertical separation of wheels from steel," as some say.
David Roberts
So, steel being the rail lines, the idea is the public would own the lines and basically the wheels. The train companies would pay a fee to use them. That is the vertical separation.
Bill Moyer
That's vertical separation. That's the toll road for trains idea from Tom White. Now, there's also an idea that Matic Thomas in the Public Rail Now campaign, coming out of Railroad Workers United, thinks that the whole kit and caboodle should be publicly owned.
David Roberts
Steel and wheels?
Bill Moyer
Steel and wheels. But regardless, I think incentivizing the system for utilization is absolutely foundational to the public good.
David Roberts
To me, the idea that the public should own the rails themselves is so thuddingly obvious. It just is insane to me that that is not already the case. I can't believe that most people, if they hear that, are not going to feel the same way. Like, it's so obviously a national resource.
Bill Moyer
Yeah, it's our steel interstate. It's 140,000 miles. And that steel interstate could be the superhighway for electrons and it could be unlocking renewable energy assets in rural places. It could be required to serve small manufacturers and places that only can come up with one or two carloads a week or 10 carloads a week, etc. They don't have to build 52 car or 110 car unit trains.
David Roberts
Right.
Bill Moyer
And if it's an open access system like our freeways, then anybody who wants to compete for that business could be able to get on it and it should be electrified, and that should be a public endeavor as well.
David Roberts
But that would require an act of Congress.
Bill Moyer
Of course. Absolutely. Because we're not talking about a cheap deal. Right. But we don't even want to get into the weeds around the land grants and history of blah, blah, blah, all that. And they never really lived up to their obligation. But, some people think we shouldn't have to pay them anything. And others —
David Roberts
I know they've gotten so much, they've gotten so much publicly underwritten value out of it already. Like, I read some of the things that Warren Buffett said about owning a railroad and it sounds like a pain in the ass. It sounds like if you're a private company, this is not a particularly sexy or profitable business to be in. Like, I don't even, it's not super clear to me why they even want these things.
Bill Moyer
Yeah.
David Roberts
Other than just to squeeze the remaining value out of them, right? Other than to suck the husk dry.
Bill Moyer
Yeah, it's an extractive resource and it's only going to last for so long. And then what are they going to do with it? Well, we can't really afford for them to run it into the ground.
David Roberts
Because you know, the public's going to pick up the cost of cleaning it up after them and remediating, you know what I mean? Like, whatever mess they leave behind, if they go bankrupt at all. That'll be on the public too.
Bill Moyer
Oh, and then we'll say, "Oh, you know what we could really use is like a steel track-based transportation system." Oh, well, we might have to go build that maybe. Who can we pay?
David Roberts
It's kind of the same in urban, you know, again, the same in urbanism. "Like, you know what would be cool is like a series of trolleys or rails in the cities." I was like, "Oh, right, we had one of those and we pissed it away.
Bill Moyer
Yeah, it's nuts. So, yeah, the Warren Buffett piece is fascinating, and it is one of the places where I see some promise. Now, I don't know why he hasn't been on this already, but I'll tell you, his last letter to shareholders in 2024 that you're referring to, he seemed pretty down on depreciation and owning infrastructure. Then he changed the tone and said, "Oh, it's great that we own the BNSF." And then he went really down on owning transmission infrastructure. So why not relieve them? Why not create an exit, an off-ramp for these corporations?
David Roberts
We can help you with that, Warren.
Bill Moyer
Right, exactly. Let's help you with that. Because I bet when BNSF is running on track that they don't have to pay for the electrification, the fuel, or the maintenance of the track, Union Pacific is going to want a deal too. And CSX, they're all going to want to line up. But the Northern and Southern Transcons are the logical places to start because of their capacity for co-location electrification.
David Roberts
Rate for us the political plausibility of this grand stroke? Is there even a germ of the will anywhere? Is anyone in Congress thinking that big? Is that even on anyone's horizon?
Bill Moyer
You know, politicians, the last thing they want to do is be embarrassed. Right? And the part of the difficulty of rail is it's so complex that it's kind of — it can get intimidating.
David Roberts
I'm familiar from studying the electricity system, how that works.
Bill Moyer
Right. So then people just kind of shut up. But Tammy Baldwin is providing really good leadership in terms of the railroads from Wisconsin. And Senator Markey from Massachusetts is providing really important thinking and drafting, working on, you know, what would the policy look like, what would rail electrification look like? How could that happen? So, I think that those are two leaders who are doing really excellent work. I think others like Ro Khanna would jump into this. But again, this is where I feel like at this particular moment when the negative populism in this country and the sense of division is so toxic and so dangerous.
David Roberts
And the sense of rot and decline.
Bill Moyer
Yeah.
David Roberts
Which is exactly what's happening to the railroad system. I mean, people feel correctly about, in this case, what's happening.
Bill Moyer
Right. And people feel correctly that there is a legitimate grievance about being left behind.
David Roberts
Yeah.
Bill Moyer
And so, working-class people, rural people, were left behind by neoliberal policies.
David Roberts
Right. And if you want to revive small rural places, I mean, a branch of a passenger rail line coming to your small town, like, you know, that's economic development right there.
Bill Moyer
And that's what I love about the project of the Reconnect America podcast, because we're getting to talk to those people. So we're talking to Dave Strohmaier of Big Sky Passenger Rail Authority in Montana, and we're talking to Mike Beard, a former legislator who's helping return vitality to short lines in Minnesota because they actually have the numbers. Like he says, they've got it in black and white that when you return service carload service to local manufacturers and plants there, you actually stop the rural depopulation. You interrupt that cycle and you start to have those counties grow their population, grow their economies, grow their tax base.
And this is a kind of positive, making a material difference in people's lives program that I feel as a lifelong activist is really worth putting energy into. You know, hanging around and calling people racists and stuff is just really diminishing returns, man. I'm really not very interested in that.
David Roberts
I am Bill.
Bill Moyer
I'm so done. You know what I love about rail is that everybody has an interest in it, and it's not the same interest. They all have different interests, but everybody has an interest.
David Roberts
Yeah, this seems like a win, win, win, win, win, win, win. But, you know, like, part of the communication challenge here is convincing Americans, the disillusioned Americans you're referring to, that we can have nice things, that there are nice things available, that we can do things and make things better. Just that alone is a difficult challenge. So, final question. We're over time. The final question is just if you're an ordinary person, you've heard this pod, you're gripped by this idea that, like, we have this massive already built national infrastructure that we are grotesquely underutilizing and that could be so much more, that could be such a relief, emissions-wise, could help us get clean electricity, could help reconnect small towns and revitalize small towns, help rural manufacturing, et cetera, et cetera.
And they're gripped by this and they want to do something. What do ordinary people do?
Bill Moyer
Well, you know, I have to —
David Roberts
You're going to say, listen to your podcast.
Bill Moyer
Yeah, I feel a little embarrassed, but I'm like, that is kind of an obvious thing. Like, okay, listen to the Reconnect America podcast and share it with all your friends. Start talking about railroads and start talking to people about the stories they have and the memories of our elders for how the places they lived and grew up in were served, the trips that they took.
David Roberts
Yeah. Still living memory, but, you know, not for very long. A vital rail system. Yeah, barely, but.
Bill Moyer
Barely, but it exists. And honestly, you know, the poison of our current politics is that we can't talk to each other. So, try talking about something you can talk about. And talk about railroads.
David Roberts
Yeah, everybody loves railroads. It is really true. Everybody loves trains.
Bill Moyer
It's true. And if you can back that up with like, "Hey, they're actually super efficient." And I have this — maybe it's the optimist in me, but I think that people actually like connecting with other human beings. I know it's weird, but I actually think that they want to. And I think that people, they might very well be fatigued of the inability to do that. And so, I think with a little discipline, we can have conversations with each other without slipping into the rabbit holes of toxic politics. And I think that's good for us because when we start talking together and talking to each other, we start to imagine the future together and we start to actually have a vision that is shared.
David Roberts
A vision of a positive future. Good Lord, do we need one of those.
Bill Moyer
We so do. And the progressive activists who think that you can just say no to things. What I like to say is, "Our no is only as powerful as our yes is compelling." We need a really strong vision, and we're only going to get that if we really listen to people and let them help shape that vision. And rail is just — it's why it's so addictive to me, why I'm so obsessed. 10 years of this. I mean, I used to do like kayakivism and light projection and protest, blah, blah, blah. I'd so much rather go to D.C. to meet with the White House's climate office, or testify at the hearing, or meet with the Senate offices with my friends from EJ and Rural Places, and railroad workers, and workers who build locomotives, and go into a Senate and help influence the vision, then organize another protest, blockading I395 or something. You know what I mean? Believe me, man, I'm so done. I want us to do something beautiful.
David Roberts
All right, well, let's do something beautiful. That's a nice way to wrap up. Bill Moyer, thank you so much for coming on and talking through this. Thanks for keeping at it for 10 years. I do love this vision and I hope it gains momentum.
Bill Moyer
Thank you. Well, I think with your help and others, you know, I think we can do this together, but it's going to take us all. And I really appreciate you giving me this opportunity. I love your show and I've learned a lot through it, so it means a lot to me to be able to be on it.
David Roberts
Thank you for listening to Volts. It takes a village to make this podcast work. Shout out, especially, to my super producer, Kyle McDonald, who makes me and my guests sound smart every week. And it is all supported entirely by listeners like you. So, if you value conversations like this, please consider joining our community of paid subscribers at volts.wtf. Or, leaving a nice review, or telling a friend about Volts. Or all three. Thanks so much, and I'll see you next time.
In this episode, I chat with Ari Matusiak, co-founder and head of Rewiring America, which recently received a $2 billion grant from the feds to take home electrification mainstream. We dig into the practical challenges — getting local contractors on board, simplifying rebate access — and the enormous opportunities.
Greetings everyone, this is Volts for November 1, 2024, "How is electrification going?" I'm your host, David Roberts. Earlier this month, I attended the annual conference put on by Mountain Towns 2030, which brings together leaders from small western towns and ski hills to discuss how they can collaborate to advance their shared climate goals.
It was a blast! More so than most conferences, it was clear that everyone involved is driven by a deep and sincere love of place, of home. And with that love of place — along with all the limitations and restrictions that come with being a small place in a large landscape — comes a certain pragmatism and creativity that are, in our hyper-ideological times, incredibly refreshing.
Ari Matusiak
The culmination of the conference was a conversation between me and Ari Matusiak, the co-founder and head of Rewiring America. We discussed the progress of electrification so far, how IRA is working, and what his organization plans to do with the $2 billion — yes, billion with a B — grant it received from the feds.
We now have the keynote presentation, and I saw one of these speakers this morning and it blew me away. I told him it was like getting a fire hose of information directly to the face. And in a positive way. It turned out I liked it; it was nice. But you guys are about to experience the raddest talk, I'm going to say it, of the whole conference. I don't know, we'll see. Give it up big for David Roberts and Ari Matusiak.
David Roberts
I feel overhyped now. I feel like I need to do something to lower expectations. So, we're here to talk about home electrification and its various ramifications. And I was telling Ari earlier: So, I've been, I guess, a member of the Church of Electrification for several years now, evangelist to the point of annoying friends and family. So, I often assume that everybody surely gets it by now. But you know, I've been reliably informed that not everyone thinks about this stuff as much as I do. So, I thought a good place to start was kind of the origin story of Rewiring America.
So, you know, I guess this is how I'd frame it. For the first part of my career, for the first, I've been at this for 20 years, something for the first long part of my career, part of the problem with climate change was the solutions were big and far away. Big, far away, policy. Distant, about power plants, about the federal government. And then when individuals wanted to contribute, they heard, "Turn off your lights, buy a hemp tote bag," which everybody rightly recognized as absurd and futile in the face of, you know, which left, I think, individuals very frustrated. But I feel like a lot of what's happened since then, especially in the last 10 years, especially in the last five years, is that middle area has filled in.
So, there are ways now for individuals to tap into meaningful changes, for individuals to do something that is larger than tote bags. And so, this is all by way of framing sort of Saul Griffith, co-founder of Rewiring America — the smartest guy you've ever met, largest beard, probably you've ever seen — he had kind of this original insight that gave birth to Rewiring America about electrification and the demand side. So, maybe just start there. Like, why do we care about electrification?
Ari Matusiak
Yeah, well, it's wonderful being here with you and doing this together in our living room without anybody else here. So, when you take a poll in the United States of people who are concerned about climate, you typically get a number that looks like 60% to 70% of Americans are concerned about their climate future and where we're heading. If you then ask those people what they should do, the number one thing people say is not actually a hemp tote bag. The number one thing people say is that they should recycle.
David Roberts
Oh, God, worse.
Ari Matusiak
And the number two thing that people say is that they should stop eating meat.
David Roberts
Ugh, I guess.
Ari Matusiak
But here's the insight that Saul really unlocked. And it started with a grant that he received from the Department of Energy in 2016, where he took what is a Department of Energy diagram, called a Sankey diagram, that maps all of the sources of energy in the U.S. economy and ties it to their uses. The uses are things like transportation, industrial, commercial, residential. And instead, he said, "Well, we're going to map it down to 0.1% granularity." Because Saul has a very big —
David Roberts
Magnificent spaghetti. The spaghetti diagram should be framed.
Ari Matusiak
And he turned it into a shower curtain at one point and thought it was going to be a big seller. It wasn't. It wasn't. But in that mapping, what the core discovery was, was that 42% of energy-related emissions in the US are tied to about five kitchen table decisions that we all basically make. What kind of cars we drive, how we heat the air and water in our homes, how we cook our food, how we dry our clothes, and how we power those things. 42% of energy-related emissions in the US economy is quite a lot.
And it really redounds ultimately to a very small handful of decisions, which means that the number one through five things that you can do sum up to your share of 42% of energy-related emissions. That's a huge amount. And so the conversation historically in climate has oriented itself kind of in two ways. One way has been basically separating the individual from the solution, as you were saying. And so it becomes a story of, "Well, we're all going to have to adapt to our future," or someone is going to come along and invent a technology that's going to save us all from ourselves.
But you're kind of not in the story. And the other way that it sort of gets organized is that it's all about these big decisions on the supply side, basically.
David Roberts
Right, right.
Ari Matusiak
And what the key insight here was, that if you flip it around to the demand side and start talking about all of these machines, it ends up being a billion machines across 129 million households that need to be electrified over the next couple of decades, but they really only need to happen one decision at a time. And that's the core of the idea.
David Roberts
Yeah, so Saul's whole thing is we can hit our climate targets if every replacement of every one of those billion machines is an electric alternative from now on, which is rather ambitious. So, one of the sort of happy historical accidents in all this, I feel like, was, you know, Saul and you are developing this idea, talking it through just as Joe Biden wins, just as there's a special election in Georgia which gives Democrats a narrow majority. So then, Democrats start thinking, "What are we going to do on climate? We need to do something on climate."
And then, sort of, Saul and the whole electrification thing find their way into the halls of power somehow. I mean, the way Saul puts it is — the IRA, Inflation Reduction Act, it's a dumb name — the IRA is the first climate legislation he's aware of that was written by engineers rather than lawyers, is the way he puts it. So, talk about a little bit how the IRA was shaped by this insight and what is the result in the IRA?
Ari Matusiak
Well, the Inflation Reduction Act was shaped by lots of people, for honestly, decades in the sense of laying the groundwork to take advantage of that moment. And it really is this incredibly historic and sort of underappreciated, I think, even to this day, how big a deal that thing was. It also died several times in the process.
David Roberts
Yes, I remember quite well.
Ari Matusiak
Yes, I cried precisely three times during the process. Twice when it was dead, and once when it passed.
David Roberts
Yeah, I remember my wife saying like "The world is ending? I thought the world ended already." And I was like, "No, it ended again."
Ari Matusiak
Yeah, it ended again. Yeah, Merry Christmas. That was one of the times. So, I think the thing that I would just say about the Inflation Reduction Act is it has a lot of different levers and incentives that are designed to shift the market. But what's really going on in the end is that it's creating incentives for people to take action. And I kind of think about it as what the Inflation Reduction Act did in large measure was it created an electric bank account for every household in this country. Now, people need to know that they have it and they need to know how to access it.
And what's incredible about that piece of legislation is that it really is all oriented toward a set of opt-ins. So, when the Congressional Budget Office sort of priced the bill in terms of how much it would spend, it came in somewhere around $300 billion.
David Roberts
$369 billion.
Ari Matusiak
Yes, $369 billion. But the story about the $369 billion is that it was based on a set of projections about how many people would use the things. And so, later, Goldman Sachs came around and they said, "You know what, it's actually more like $1.1 trillion." And we looked at it and we said, "Actually, if you think about the replacement cycle of all of these machines and the incentives that are in the Inflation Reduction Act, there are $567 billion that could be spent over the decade to support households in those kitchen table decisions." That's an enormous amount of money to go directly to households and communities to help do that massive shift away from fossil fuels and reducing the emissions in the process.
David Roberts
For people who aren't familiar, just run through all the things that are incentivized.
Ari Matusiak
Yeah, well, we have a terrific calculator at rewiringamerica.org that you can go find to learn what you're eligible for. But effectively, it breaks down into a few parts. One, the Inflation Reduction Act does a magnificent job of using the tax code. And so, there are tax credits for things like rooftop solar and batteries, for heat pumps, for heat pump space heating and water heating, for geothermal systems, for electrical panels and wiring and insulation, for induction cooktops, and for EVs.
But not for electric bikes. Let me just put that up.
No, we actually —
David Roberts
Big disappointment.
Ari Matusiak
Yes, we actually fought for the electric bikes, so we didn't get them in. But there are tax credits that are available for all of those. And then there are also rebates that are put out through the states for people who are income-qualified to get an additional subsidy to help make the math work for them. The whole premise of the Inflation Reduction Act is basically to push down the upfront cost to unlock the savings on the other side for families. Because the story of the transition to electrification is that households become winners on multiple levels.
Yes, it's good for the climate, but in the end, most people don't make climate-based decisions when they're sitting around their kitchen table. They're trying to make their budgets balance every month. They're thinking about the comfort in their home, they're thinking about the health of their kids. And so, the whole premise of the Inflation Reduction Act is to push the upfront cost down so that what you access on the other side, you ultimately unlock the savings that come with that.
David Roberts
Yeah, it's a very familiar story across clean energy, which is those high upfront costs and then the greater savings over time. So you shave that high upfront cost, then you harvest the savings. I'm sort of curious, just as a kind of geek, about the IRA. If there are, other than electric bikes, are there big pieces that got stripped out or lost that still haunt you? Is there any? Or do you feel like it covered the household electrification waterfront?
Ari Matusiak
"Make me cry a fourth time? I think there were opportunities in the Inflation Reduction Act to do things around tax credits, in particular for heat pumps and heat pump water heaters, to make them sort of bigger and also, candidly, to make them more widely available."
David Roberts
They were originally direct pay, which just means you don't have to wait and do it on your tax form. You just get it at the point of sale.
Ari Matusiak
Right.
David Roberts
So, they all used to be like that.
Ari Matusiak
So, there were opportunities, I think, to enhance that and hopefully, we can keep working on that. And then, I think with the rebates, the rebate programs that are up and going out to the states, they're robust. They're about $9 billion worth of rebates that are flowing out to the states, but they're also going to get used very quickly. And I think there's an opportunity for us to come in behind and support those policies on an ongoing basis.
David Roberts
Yeah, so this thing, which is a pretty big grand experiment, was passed two years ago. Have we hit the two-year anniversary? This is about two years old. So, what's your grade on implementation? We've had two years to see. How is it working? Are people taking advantage of the rebates and credits? Are they going out? Do people get it? What are the friction points that you see so far in implementation?
Ari Matusiak
Well, one of the things that happened as a part of the Inflation Reduction Act is a commitment to reporting on progress. So, the IRS is printing the receipts of who's using the tax credits, and the 2023 report is basically out. And it's a stellar grade, a solid A of performance in terms of people actually accessing and using these credits. And you're starting to see it in the macro data, too. So, heat pumps are outselling fossil fuel furnaces now for the second year in a row. And there's a relationship to these incentives that are in the market.
The rebates are just starting to come online. So, sometimes people say, "Oh, that's been too slow to get out into the world." A handful of states have their programs online. Another handful will have them online before the end of the year.
David Roberts
So, the rebates, the money for rebates, goes to states and sort of states design their programs, like, historically programs like that. Sometimes you see red states sort of not moving with alacrity, you might say. Are we seeing that kind of thing or...?
Ari Matusiak
No, and, you know, I'll give you an example. Actually, the state of Florida had made a decision that they were not going to accept the rebate dollars. And then they decided that they were going to accept the rebate dollars. And it makes sense, right? Because why should Floridians pay for somebody else to get the benefit of the rebates when they should be coming to them? And actually, the red, blue, and purple states, all of them are working really hard with the Department of Energy to get their programs up and running. And the reason why I think this program is smart in a lot of ways is because it allows the states, the statute says, "This is the framework for the rebates and how they get applied to all these various technologies."
But the states get to focus on the things that are most important and are going to have the biggest benefit to the people that live there. And so, I actually think what's happening is it's creating capacity in states to think about how they can use these kinds of dollars to stand up programs that will hopefully be supported over the long run, but that are creating market momentum locally as well.
David Roberts
So, just from an individual perspective, walk us through. Like, I go buy a heat pump and then later when I'm filing my taxes, I just put it on there and then it's added to my rebate check? Or, like, how do you access these things?
Ari Matusiak
Yeah, so it depends on what we're talking about. The rebates for people who are eligible for them: they're point of sale. So it's sort of money off the top, right? The tax credits are filed. It depends on which tax credit we're talking about. If you're getting rooftop solar or battery storage or an EV, it's basically off the top. If you're getting something like a heat pump and you're using a tax credit, then you're going to file that and get the credit later. But the totality of this is that — and this is one of the reasons why we created the calculator, actually — is that it's very hard for someone to figure out what they are eligible for, for how they should access it.
And keep in mind that it's not just federal monies, although those are obviously quite significant. But states, localities, and utilities have programs, too. And so, I met this gentleman in Colorado a couple of months ago, and he — because we had, as part of what we're doing with this calculator, is we're bundling all of those incentives so that you can find out all the things that you're eligible for and make it easy. And this gentleman had a piece of paper because he wanted to electrify his house for his own benefit, but also to pass on to his kids.
And it was unbelievably complicated. And what he said was, he had taken two hours to figure out what he qualified for. So, this is the thing that we need to solve to make it easy for people to navigate.
David Roberts
In some sense, it's a good problem to have because, like, Colorado is heaping incentives upon incentives. Like, I don't know what the total EV is, like, I think if you buy an EV in Colorado, there's like $14,000 off or something like that, or something ridiculous. So, yeah, this brings me to my next question. An analogy you've made before and I've talked about before is, you know, when they passed Obamacare, there was money in there for what are called navigators, which are just people to go to communities and say, "Here's what the law did, here's what you can now access, here's how it works."
Just evangelists and explainers of what just happened. The IRA has none of that, which is, if there is one real critique I would personally offer of the IRA, it's just like, so much work and so much money and so little hype, so little, you know, so little telling of the story. So, you guys are trying to kind of play that role. So, talk a little bit about how you're doing that.
Ari Matusiak
Yeah. So, the way we think about this is that if it's a kitchen table solution, right — these five things that people make decisions about — we ultimately have to make it work for you at your kitchen table. And that means it has to be affordable, it has to be desirable, and it has to be better as an experience. And I have yet to meet, maybe you can break the pattern, but I've yet to meet anybody who has said, "I can't wait for the new model of the water heater to come out because I'm totally upgrading next year."
Like, that's not a thing that people do, I don't think. And so, this is not. These are not sort of choices that consumers know a ton about. They don't think a lot about them, and they don't feel empowered around them. And so, when the time comes because your furnace conked out or your shower is cold.
David Roberts
Yeah, do we know, like, percentage-wise, how many of these replacement decisions are made under duress because the machine broke?
Ari Matusiak
Yeah, it depends. But it's a significant percentage. It's easily sort of half or more. And that creates a dynamic where now, if you are a household and the goal from a climate perspective is to transition to this better electric future and you're running into a status quo that reproduces a fossil fuel outcome, it's very hard to break that cycle. And so, the way that we think about this is that we have to create sort of an alternative path for households. So, one step of that was to create incentives that push the cost down. And that's the Inflation Reduction Act and a bunch of work that we and other organizations do in states around the country.
But it is, in addition, sort of making the process sort of simple. So, we have invested quite a lot of resources into building an amazing team of software product engineers who are designing tools so that you can sort of know what is right for you. And that's important because if you are empowered to sort of understand what the right answer is for your home, what incentives you qualify for, and it can be connected to a contractor that can do that work, it takes a lot of the kind of uncertainty and the complication out of the process.
We are also, to the point of the navigators, we are standing up a program that is doing exactly that to be kind of like the right hand to someone and help them sort of navigate the process. And what's actually, like, pretty amazing about this is that it taps into a desire from so many people to participate in supporting the transition. So we started off with this electric coaches program. It's like nine hours of classes that I went through and I scratched my way — I barely passed. So it was important to go through it.
But we've had almost 1,000 people just raise their hands and say they want to be a part of it. And they want to be a part of it because they want to be helpful in their communities to help households to kind of figure out what the path is. A lot of these people are retirees or former engineers or they are people who just have a passion for this stuff and went through the process themselves. And so the goal is to effectively put the resources around the household so that they have a trusted pathway to go through that makes it easy for them.
David Roberts
So theoretically, anyone here could go take the course, become an expert in home electrification, and then spread the news in their communities. So, you're empowering peer-to-peer, basically. Peer-to-peer navigators. I wanted to ask about: there's been some backlash from some quarters about, you've probably heard it all about, contractors don't know what they're doing, aren't familiar with this stuff. So, even if you sort of do the calculator and you know what you want, you often end up arguing with your contractor. And most ordinary people don't want to argue with their contractor, you know, and contractors doing sort of shoddy installations because they're not familiar with it, and then the thing doesn't perform the way it was advertised and then you're risking backlash basically to the whole program if people find their expectations disappointed. Is that, I mean, there's going to be backlash and kvetching about literally anything that happens in the world.
But do you think that that's meaningful? Like, do you worry about backlash?
Ari Matusiak
Yeah, I guess the way that I think about it is, what I worry about is creating a great experience for households and you end up in kind of a chicken and egg dynamic. Because there are hundreds of thousands of contractors in the United States. The vast, vast majority of them, probably eight out of 10 of them, maybe nine out of 10 of them, do less than a million dollars a year in sales. They are small business owners. So if you say to a small business owner, "Hey, I have this great idea, this bill passed —"
David Roberts
They love to hear that, customers —
Ari Matusiak
"There's a bill passed, and there's money for heat pumps, and you should totally sell heat pumps." Now, they might logically ask, "How many jobs is that going to be?" And if you say, "Well, I don't know, but it's going to be great," they might not take you up on the trade, right? They might say, "Well, I don't know, that seems risky." And so, this is the status quo because you have contractors who are trained and accustomed to installing, servicing, selling, promoting a certain type of machine. And you're talking about something that is new and different. Now, one of the ways that you can overcome that is if you have a lot of people in a community raising their hand, saying they want that thing, because now you have created a signal for someone that there's meaningful business to do.
And that is a way to kind of invest basically in the opportunity. That, for me, is a really important North Star, is that the way that you kind of crack through this market dynamic is basically by aggregating demand. And if you aggregate demand in local places, and it's relevant to this conversation because there's no such thing as a national market for HVAC, it's happening within the drive time of a contractor in their van. And so, if you can solve for the number of people raising their hand saying, "I actually want to go in this direction," then you have created actually the beginnings of a virtuous cycle where contractors are going to service that opportunity where people are getting the better thing, they're talking to their friends and neighbors. And it becomes a bit of a story that catches.
David Roberts
Are you doing any similar sort of training program for contractors? Are you working directly with contractors to sort of train them up and familiarize them with this stuff?
Ari Matusiak
We are starting a — we call it Rewiring Communities. And we're starting with this sort of place-based approach. As a part of that, what we are doing is we're working with manufacturers and ultimately identifying contractors to be a part of that program.
David Roberts
I want to set some context for this because this is what I'm most excited to talk about. So, I just want everyone to know. I can't even talk about it without laughing. So, earlier this year, you might have followed that there were these Greenhouse Gas Reduction Fund, the big chunk of money in IRA for the Greenhouse Gas Reduction Fund, which basically would direct grants to organizations in states and localities who have ideas about how to reduce greenhouse gases. There's a long application process, a long assessment process. And Rewiring America received a $2 billion — with a B — grant from the Greenhouse Gas Reduction Fund.
Which means, like, we're no longer talking about, "Come to our website." You know, it's not just a website anymore. We're talking about big money. You still should go to the website. Big, big money, big plans, actual scale stuff. So that's the background for this sort of localized local focus programs. So just walk through, you know, you've picked a few communities to start with. Walk through the process of what are you doing with that community? Like, what are the steps?
Ari Matusiak
Yeah, so it starts again with figuring out what's going to work for the household. And the way that we are thinking about this is starting with a solution for, let's say, heat pumps so someone can get the benefit of this better electric machine that's a magical device that heats and cools your home all at once. But it's super complicated to figure out. There are these incentives that are already there through the Inflation Reduction Act. What we're doing is we're saying, "Okay, we're gonna offer a solution that is a standardized solution for this heat pump in your home."
And we have gone out as a part of this to manufacturers and have said, "We are going to do this in communities and we would love for you to participate in this solution."
David Roberts
We're going to buy in bulk.
Ari Matusiak
We're going to bundle them all up. So, in order for you to participate as a manufacturer, because we need a partner, but we're going to be delivering all of these jobs, the trade there is to give us a discounted sort of price.
David Roberts
Right.
Ari Matusiak
And what you start to realize is that in the story of aggregating demand, you're saying, "Okay, we're going to create a common heat pump solution pathway for our households. We're going to standardize the equipment package that is going into that home. We're going to leverage the Inflation Reduction Act rebates and incentives that are already available in the market. There is carbon in these homes that if we can bundle up that carbon and sell it to a corporation that is looking for offsets, that creates a further subsidy to the household." All of those things push down the price.
And what is left is an amount that the household can either pay directly, but it's a low price compared to the value and it unlocks the savings on the other side. Or they can finance that through us. And we use the money from the EPA through this greenhouse gas reduction fund to subsidize the cost of that so that it is a low interest rate. The whole premise of this is to bundle up as many households as we can in a place in order to create the market momentum. And that story is, we have to, you know, we're kind of going to crawl before we run here.
So, the goal next year is to do several hundred households, not, you know, several hundred thousand. But once we can solve pulling all those pieces together —
David Roberts
And the contractor piece, too. You're gonna find good contractors.
Ari Matusiak
And finding a good contractor and saying to the contractor, "Look, the opportunity here is to do lots of jobs," and delivering those, by the way, off-peak season. So there, when they're not busy and could use the work as opposed to when they are super busy and don't have time for it. This is all kind of part of the vision that we've had since the beginning with Rewiring, is that you need the policy signal and to shift the story about where we're going. But ultimately, the policy is not self-executing because households are making decisions every single day at their kitchen tables. And if we can make that decision easy to say yes to for that electric opportunity in the future and deliver the value on the other side, then you start to move communities and you start to move the market overall.
David Roberts
Right. So, just to review this because it's a little bit mind-blowing when I first heard about it. The idea is, you go to a community, you've bought heat pumps in bulk, you've taken the IRA incentives off, you've sold it as offsets. So, you've driven the cost of those heat pumps as low as, probably lower than any consumer can find on their own. You found contractors that do good work and are willing to do the work. And basically, all the consumer in the community has to do is say, "Yes, I would like this," and then you come install the machine. Voila. So, basically, you're taking all the burden off the household other than just saying "yes" to this offer.
Ari Matusiak
Yeah, just two things to kind of go into it in a bit more detail. We're not pre-buying all of the machines in bulk, but we will create a relationship and a partnership with manufacturers where they are able to participate in the sort of demand that we're generating. And we're going to work with local partners to fulfill this. So, you don't want me installing a heat pump in your house and I won't be, but local partners and local contractors will be doing that work. And again, the orientation here is there is a massive amount of value in the transition to an electric future.
And the value is hidden because it's super fragmented, because it's one decision at a time. And if we can break through that, when we break through that and show that it is right there and it is, is sort of organized in local communities and markets, not only is that a benefit to the household and to local contractors and to sort of other players in the community, it's valuable to the community itself and it unlocks, frankly, a lot more resources that can be reinvested in the community, that can support the resiliency of the community. And that's really what our goal is.
David Roberts
And so, like you said, you're going to walk before you run, you're going to test this out with communities, you're going to expand to other communities. But the vision, as I understand it, is in some, maybe not too distant future, that this will be effectively national and that any community will be able to take advantage of it. And is, I don't know how to wrap my head around $2 billion. Like, is $2 billion enough to take that national or is it like seed money?
Ari Matusiak
Oh, I'm so glad you said seed money. It is seed money. That's exactly how we think about it. And you know, the $2 billion was awarded to this terrific coalition that we're a part of with Habitat for Humanity, United Way, two organizations called Enterprise and Local Initiative Support Corporation, which are two of the largest multifamily, affordable housing development arms in the country. And the $2 billion is a really amazing investment and opportunity, and it is nowhere near enough for what we need. But what the important thing that it does do is that it allows us to start to arrange the players around the table who are going to be able to unlock that value.
And it allows us to invest in the infrastructure that we need to deliver this solution to households. And if you think about it, ultimately, and this was really the goal of the Greenhouse Gas Reduction Fund, was to mobilize capital in the private market to bring it to these solutions. And again, if you just think it through in a really plain way, if a household is investing in something that is saving them money on their monthly bills, increasing the comfort of their home, it's also increasing the asset value of their home. And they're getting it for a very good value.
They are a terrific credit to underwrite if you're a lender. They have more disposable income as a result, which is catalytic. And so, the amount of money that can start to come in behind and support what is ultimately sort of a lot of people raising their hands and participating is where the real transformative effect is. The last thing I'll say about that is it all comes back to it being a great value proposition for the household.
David Roberts
Well, also, like the manufacturers, it's good for the manufacturers, it's good for the contractors, it's good for the consumers. So, presumably, once it's up and running and that's demonstrated, money will come in.
Ari Matusiak
Exactly.
David Roberts
Money will come in and start to support. Also, the other part of the vision, which I also find insane, is you're going to go beyond heat pumps eventually. Like, eventually, people in these communities will be able to check the box saying, "I want a heat pump," or "I want the heat pump plus the induction stove package," or "I want the heat pump plus the induction stove plus the solar on the roof package." Or maybe they can just do one checkmark and say, "Electrify the crap out of everything. Like, go-for-it package."
Ari Matusiak
That's the name of this.
David Roberts
Yeah, which is the one I want. And all of which will be easy and running eventually on private capital. You're just sort of trying to catalyze this thing into existence. Just awesome. So, we got about 10 minutes left. I promised we'd have some Q&A. I could talk to Ari forever, but I'd love to. Where are those boxes?
Host
Oh yeah, we got the, we got the catch boxes. Who's got the green one?
Ari Matusiak
Oh my.
Audience Member 1
I don't even know if this is a question or a statement, but.
David Roberts
No, no, no, no, no, no. Only questions allowed. We do not want any statements.
Audience Member 1
Whenever I want, I am an elected official.
David Roberts
Is that how democracy works?
Audience Member 1
Yeah, pretty much. Welcome to America, bud. So, we've done a lot of this stuff in our county. P.T. Wood, Chaffee County, Colorado, best place in America. We've adopted an electric-preferred model where you have to wire for electricity even if you put in gas, all that stuff. But, we suffer extended outages consistently and that makes it hard to sell. Right? Half our county is in a co-op, the other half is in Xcel. And Xcel sucks.
David Roberts
True, true fact.
Audience Member 1
And I know my buddy from Xcel may very well be here, but I've already told her that Xcel sucks.
David Roberts
She's great.
Audience Member 1
She's great. I mean, electricity is super challenging. How do we bridge that gap?
David Roberts
This is the number one thing, by the way, I hear from people when I go out and evangelize about induction cooktops, which I do with annoying frequency, is, "I want to be able to cook when my power's out." Right. So, the more you electrify, the more dependent you are on the grid, basically. And the grid, depending on where you are, is not super dependable. So, how do you address that? I mean, maybe in some bright future, we'll all be in nested microgrids and we'll all be able to have local, you know, self-reliance. But today, how do you think about that?
Ari Matusiak
Yeah, I would just say that outages happen in the energy system, period. They happen on the grid, they happen with gas. This is not a — it's not one or the other. And the future state, as you said, like the shiny happy path. Like to your question about how you bridge the future, you know, the zoom forward view is when everything is electrified is actually that is the most resilient solution that we have because there are batteries in our cars that are backing up our homes that allow us to shave load when at peak times, which reduces like intensity on the grid.
David Roberts
Having like thousands of controllable home loads presumably will help prevent —
Ari Matusiak
Exactly. So, the way I kind of think about it is, we need to start thinking about the household as part of our distributed energy infrastructure, not separated from it. But the concern today about what do I do for my family is a real one, and we can't sort of like, jump past that. And so, the good news there is that the sort of trajectory in terms of where these machines are going is, you mentioned induction cooktops, the future there is going to be that there's a battery in the stove.
David Roberts
Yes, I was going to hype Impulse.
Ari Matusiak
Yes, we should hype Copper.
David Roberts
Copper and Impulse. There are two now competing companies who are making induction cooktop stoves with embedded lithium-ion batteries, which A, will allow you to cook when the power's out, but B, will also allow surges of power greater than anything you can get from either a wall outlet or from gas. This is going to enable all sorts of cooking stuff that you couldn't imagine before, a whole different pod, but, like, cool stuff.
Ari Matusiak
But I think, basically, the way I kind of think about this is every household is on their own path. And when you think about what you're doing as a local leader and elected official, this is where this idea of creating community, aggregating demand, and creating sort of community momentum becomes really important and unlocking because it allows you to start thinking about how the solutions can be bundled up in a way that provides the resilience and peace of mind to your constituents while also accelerating the transition. And that's kind of how I would think about that.
Audience Member 2
Hello there. So, my question is kind of about this awesome support that you guys are providing when a lot of us here are in those small communities that have those issues with contractors. A lot of fears come up when people talk about the transition to a new economy, to new equipment. And it was really cool to hear that there's this large-scale, on-the-ground support coming to towns across the country. I'm curious how you think decision-makers should consider that in implementing policy going forward. Because a lot of times we approach, they're like, "Oh, my gosh, this is scary. We don't have people that can install heat pumps." It's like, "Oh, in five years, maybe there's large programs that do that." How should we consider that going forward?
David Roberts
Yeah, and to add to that, is there a way communities can get in line for this or, like, sign up, say, "We want to be one of your test beds," or whatever?
Ari Matusiak
Yeah, we had, as part of the application to the EPA, 156 communities raise their hands. The goal is to have hundreds upon hundreds of communities raising their hands. And so we are. This is the future that we very much want to be building toward. Absolutely. If people want to be a part of what we're doing, we would love to figure out a way to partner with you.
David Roberts
Well, like a decision maker in a community, what is the practical, realistic timeline that they could expect support to show up?
Ari Matusiak
Yeah, I mean, our goal next year is to be in four places. And we are being real careful because it's important to — you're talking about something very intimate and precious, which is a family making a decision about what's right for them. And so we talk a lot at Rewiring America, about moving at the speed of trust. So that's a very important premise, and we have to be intentional and deliberate about that. That said, our view is that once we start to create the learnings and that and sort of figure out the model, it becomes repeatable much more quickly.
And so, we're really hoping within three years to be in dozens of communities around the country. And we're going to have to sort of live up to that and figure it out. But that's the exciting challenge that's in front of us. And when it comes to local decision-makers in terms of how to kind of lay the groundwork for this transition and all the rest, I mean, first of all, we would love to learn from you about ideas that you have and how we can think about them and collaborate with you. But I would say a couple of things.
I really do believe that this is ultimately a civic project. We are working with households and we are talking to them at their kitchen table, and it needs to work for them. But communities have such a powerful role to play. And I know we're running out of time, but I'll just share a quick story and try to tie it back to your question. The first page of our application to the EPA was about a community in South Georgia called De Soto. De Soto is not a mountain town, but it is a town of 116 households in the rural south.
And it is very far away from any sort of metro area. We went there and worked with the local elected official, the mayor, to have a town meeting and talk to the community about electrifying their homes. Ultimately, out of the 116 households, about 80 of them are going to electrify their homes through this effort. What's really incredible about that is that it started with a woman who didn't have hot water. Last Christmas Eve, she got a heat pump water heater, and people in that town didn't believe that anything was going to happen.
And then Ms. Carter got her heat pump, water heater, and people said, "Well, it works for Ms. Carter. I'm like, maybe I'm interested in that, too." The lesson that I pulled from that is that that was a community commitment and community momentum that built and it enabled households to have the trust to believe that they could participate and that it would work. And so when I think about local decision makers, I think you all have an opportunity in these mountain communities to basically come together and leverage your strength. And your strength is the connectivity that you all have as communities, because you all know one another.
You've been there for generations. There's a lot of change that you're also dealing with at the same time, but those are shared challenges and opportunities that you have. And that creates an opportunity to say, "You know what? We want to create a shared commitment to move our communities forward." And when you do that, you actually have power because you are combined. You are unlocking a value proposition for your individual constituents, neighbors, and friends. But what you're doing as a part of that is you're uniting around that shared value proposition that allows you to move forward faster.
That's what we're super excited about, working with communities like these all around the country. But I think it's also where the agency and empowerment is for the communities themselves.
David Roberts
Well, we are beyond out of time. Thanks so much, Ari. Thanks. I look forward to seeing you shovel those $2 billion out the door. Subscribe to Volts.
Host
Give it up one more time for Ari Matusiak and David Roberts.
David Roberts
Thank you for listening to Volts. It takes a village to make this podcast work. Shout out, especially, to my super producer, Kyle McDonald, who makes me and my guests sound smart every week. And it is all supported entirely by listeners like you. So, if you value conversations like this, please consider joining our community of paid subscribers at volts.wtf. Or, leaving a nice review, or telling a friend about Volts. Or all three. Thanks so much, and I'll see you next time.
In this mailbag episode, I talk about my recent health ordeal in Germany and my election anxieties, and answer listener questions on home electrification, the best ways to structure utilities, and how to transition away from the gas network in a fair and equitable manner.
In this episode, we’re diving into the wonky but vital topic of performance-based utility regulation (PBR) with Cara Goldenberg and Laura Gonzalez. We discuss how traditional utility regulation creates perverse incentives for utilities — and the tools PBR offers to better align incentives with modern priorities to like resilience, equity, and decarbonization. Dozens of states have adopted some form of PBR or other, and Virginia might be next.
Right then. Hello, everyone. This is Volts for October 23, 2024, "Tying utility profits to actually doing a good job." I am your host, David Roberts. As I have lamented here on Volts — and before that, at Vox, and before that, at Grist — the financial incentives of investor-owned power utilities are not well aligned with our aspirations for a climate-friendly electricity system. The regulatory structure that currently governs utilities was designed for growth and speed; utilities make more money by selling more power and making big new infrastructure investments upon which they receive a guaranteed rate of return.
Anything that reduces the amount of utility power needed — things like energy efficiency or distributed energy resources — translates into lower profits, which utilities generally don't like. Spending on anything other than new infrastructure — things like operational expenses, maintenance, compliance costs, customer service, equity and clean energy goals — is at best a secondary priority.
Cara Goldenberg & Laura Gonzalez
You can yell at utilities about this, and I have, but the only way to change it in the long term is to change the incentives. And the only way to do that is to change the regulatory structure.
Enter performance-based regulation (PBR). PBR can get complicated in practice, but the basic idea is simple: it just means that utilities should profit (or not) based on how well they perform … like every other business in a capitalist economy. There is a broad set of tools available to regulators, but in all cases the goal of PBR is to align utility incentives with modern needs like resilience, equity, customer satisfaction, or carbon intensity.
Several states have adopted some version of PBR and more states are considering it all the time, including, at this very moment, Virginia. To discuss all of this I’m thrilled to be joined by Cara Goldenberg of RMI and Laura Gonzalez of Clean Virginia. We’re going to get into why PBR is needed, what it looks like in practice, and where it might pop up next.
With no further ado, Cara Goldenberg and Laura Gonzalez, welcome to Volts. Thank you so much for coming.
Cara Goldenberg
Thank you so much for having us, David.
David Roberts
This gets real geeky, real quick.
Cara Goldenberg
It does.
David Roberts
So, I'm going to start with you, Cara. Maybe before we discuss this alternative form of regulation, this alternative regulatory structure, we should discuss what is the prevailing regulatory framework and what's wrong with it, why we feel like we need reform in the first place. So, the standard regulatory framework is called cost of service, or COS in the jargon. Maybe just start by explaining to us, what does that mean? What is cost of service regulation?
Cara Goldenberg
Yes. Okay, so, and I'll try to make this as less wonky as possible. So, a traditional cost of service regulatory model, this is where utility regulators, also known as public utility commissions, or PUCs, in a lot of states, they're responsible, right, for determining an investor-owned utility's revenue requirement. How much money are they going to be able to collect through customer rates so that the utility can recover its costs and earn a reasonable return for its shareholders? So, how this works in practice, right, is a utility files an application to raise rates.
David Roberts
This is called a rate case.
Cara Goldenberg
Exactly. The PUC opens that rate case. The PUC examines the costs the utility claims were necessary to provide safe, reliable service and excludes any costs that it deems unnecessary.
David Roberts
In the rare event that it actually does that.
Cara Goldenberg
Exactly. And so, then that is sort of how the PUC estimates the utility's cost of service, hence where the name comes from, and then sets the annual level of revenues that utilities are able to collect. And then, that is how rates are then set.
David Roberts
And it's important to point out that once that happens, the utility is just on its own. It gets that rate of return now, no matter whether it provides good service or not, or whether the customers are happy or not, or whether they're meeting state renewable energy goals or not. After that, there's basically no mechanism to regulate the utility after that. Once you've approved its costs, basically, that's it.
Cara Goldenberg
Right. You're approving what it's spending, not, you know, what outcomes actually result from that spending.
David Roberts
And that's why we call it cost of service, basically. Like, it's recovering whatever it costs them to provide the service.
Cara Goldenberg
Exactly. And as you said in the intro to this podcast, this worked quite well in the early 20th century when we were encouraging utilities to build infrastructure, expand their systems, right? Given the policy goals we have today, the technologies that are now available, there's a number of perverse incentives in this model that run counter to our priorities.
David Roberts
Also worth putting as a baseline here. Like, this was great for expanding service. It was designed for expanding service. But now, like to a few decimal points, everybody's got service, right? In the US, everybody has service. So, this incentive to grow, grow, grow and spend, spend, spend, you know, it's just sort of like a hangover.
Cara Goldenberg
And it's even more important today where we have all this load growth that's expected coming out of the system, right? We don't want to just keep on growing our system. We want to be able to efficiently grow our system to meet the new needs, right?
David Roberts
So talk a little bit about just in general, the perverse incentives that cost of service regulation creates why is this a problem now?
Cara Goldenberg
Right. So, there's a number of perverse incentives, but I'll highlight the three most prominent. Right. So, there are a couple of perverse incentives that are created by how that revenue requirement for the utility is established. And that's because, as you said, capital expenditures, also known as CapEx, and this is physical infrastructure, goes into what we call a rate base on which the utility earns a return for its investors. On the other hand, OpEx is just a pass-through to customers.
David Roberts
Operational expenditures.
Cara Goldenberg
Operational expenditures. Thank you. And so, there's no profit opportunity for OpEx. So, what do you think would happen? Right. Utilities have a bias towards those capital expenditures, and this leads to two perverse incentives called gold plating and CapEx bias. And I can get into both of those. But gold plating, it refers to when utilities are incented to deploy more CapEx than is necessary to generate more profits.
David Roberts
Well, I mean, if they literally mechanically make more money by spending more money, then in any given case of spending money, they're obviously going to want to spend as much money as possible. Like, they're obviously going to want to buy the nicest stuff possible, right?
Cara Goldenberg
Exactly. It's inherent in their business model. Right. And so, of course, they're going to propose perhaps pricier than necessary solutions, or they may not be leveraging the existing assets they have on the grid to avoid new infrastructure investments. And so, it can be really problematic, especially as we run into affordability challenges and cost increases all over the US.
David Roberts
Right. So that's gold plating. The other one, you said, is CapEx, the bias towards CapEx. And I think this is also straightforward. Like, imagine if you're a utility and you had the choice, you could either do some sort of operational maintenance things on your power line that would allow it to transmit more power, thus avoiding the need for a new power line for which you will get nothing. Right. That's all operational and maintenance costs. You don't get any profit on that. Or you can buy the new power line, which will get you your big rate of return.
Obviously, you're going to want the new power line.
Cara Goldenberg
Obviously, yeah. And so this is, you know, fundamentally baked into the regulatory construct that the utilities are operating within. Another perverse incentive we see is called the throughput incentive. And this is what encourages utilities to sell more energy instead of getting paid to deliver the right amount of energy. And so this is, as you said in the beginning, sort of the major reason why utilities might oppose energy efficiency or distributed generation, any other innovation that actually reduces energy sales.
David Roberts
Yeah, and this is something, if you've listened to Volts at all, you know I'm constantly ranting about exactly this. But, like, if you get paid more, the more energy people use, then right there, it's not complicated, right there, energy efficiency takes money out of your pocket very straightforwardly. Allowing your customers to use less energy very mechanically, takes money, profits, out of your pocket. There's no, this is not some complicated second derivative type of thing here. It's right there on the surface. Like, the more power you produce and the more people use, the more you get paid.
So, of course, you're not going to want them to use less.
Cara Goldenberg
Exactly. And I think, as you said, the objectives we have for the energy transition, the new technologies we have available to us, we can't afford sustaining this traditional model that is preventing us from really innovating in this space and taking advantage of the full solution set.
David Roberts
Yeah, and this is why, you know, as I said many times, like, every utility has energy efficiency programs, which people might think, "Well, if it's so against their interests, why do they have these programs?" Well, they have these programs because they're forced to by their PUCs. And so the PUC does, says, "Do x amount of energy efficiency," and the utility will sort of begrudgingly do x amount of energy efficiency, but it's not going to do x plus one. You know what I mean? It's not going to be thoughtful or innovative about how to go beyond and do even more efficiency because every bit of energy efficiency hurts its returns.
So, it's just like all these programs that we're forcing utilities to do, all the distributed energy programs and all these, like, sort of thoughtful, modern things are all things that utilities are going to do begrudgingly at best.
Cara Goldenberg
Exactly. I get that question a lot: "Why can't we just make utilities do these things? They are regulated by people in place to tell them what to do." But there's information asymmetry that really actually doesn't make that a possible solution. There's a huge gap in terms of what the utility knows about its system than what the regulator knows.
David Roberts
What you want, ideally, is for the utility to want energy efficiency. Right. So then, the utility is, like, looking around at its own system and thinking through how it could do energy efficiency. No outside regulatory body is going to be able to do that as thoroughly as the utility can do it.
Cara Goldenberg
Yes.
David Roberts
Okay, so this is the cost of service, the cost of service regulatory framework. And like, I have been beating this drum since, I don't know, it's more than ten years now. Just like, to me, this is the heart of our problem, the heart of our energy transition problem, because everything comes back to the grid. Everything's being electrified, everything depends on the grid rapidly evolving. And here, the entities who are most directly in charge of the grid are directly incentivized to fight all of that. It's just the most absurd situation. And most people don't even sort of know about it.
So, they're sort of like puzzled, "Why aren't utilities doing this? Why are utilities resisting this? Why are they so bad?" You know, they start thinking, "Oh, like utilities must be corrupt or evil." But no, they're just doing what they're incentivized to do. Sorry to rant, this is such a trigger thing for me.
Cara Goldenberg
Oh, I feel you. This is the focus of my work, because I agree, every issue, every challenge, you can draw it back to the utility business model.
David Roberts
Yeah, okay, so the cost of service regulatory framework is clearly not fit for purpose for modern grid needs. So then, that is what has raised the profile of performance-based regulation, which is supposed to be an alternative. So, this gets real complicated, but maybe just talk at a general level of like, what is the sort of conceptual shift here involved in PBR?
Cara Goldenberg
Yeah, so performance-based regulation is an approach that seeks to better align utility incentives with the interests of customers and society. It does this by actually compensating utilities based on their performance against targeted outcomes, rather than just basing their compensation on costs and attempts to actually remove those perverse incentives that the traditional regulatory model introduces. And it actually isn't a new approach. Performance-based regulation has been around since the early eighties, but it's been attracting more attention, as you said, due to that growing mismatch between the traditional way we've been regulating utilities and our modern policy goals.
But PBR, it's not just one thing, it's not just a single regulatory reform, but it's actually a range of regulatory tools. And so, because of this, different states and utilities can have very different PBR frameworks depending on the types of reforms that they adopt as well as the design of those reforms.
David Roberts
Right? And some, I think, are much more comprehensive than others. Some are much more stringent than others. There's a really huge range which we'll get into. So, it's a toolbox. I want to talk about some of the tools in the toolbox. I think the one that people most often think of and associate with performance-based regulation are what are called performance incentive mechanisms, or PIMs. We'll get to those in a minute. But those are sort of like the sexy top line of PBR. But there's other stuff that comes before those that I think we should talk through that are less, I think, less understood, less publicized as forms of PBR.
So, let's talk about some of those. I feel like, and correct me if I'm wrong about this, but I feel like if you're a PUC and you're contemplating this, the easiest first step is what's called decoupling. So, maybe tell us what decoupling refers to.
Cara Goldenberg
Yeah, so decoupling addresses that throughput incentive that I just explained, the utility's incentive to sell more energy to make more money. And so, revenue decoupling sort of attempts to delink sales from revenues. It does this by ensuring that the revenues utilities collect from customers are trued up to match what actually has been approved by regulators to cover their costs, no more or no less. And so, let's say the utility sells more energy one year than what was approved the next year. That would be trued up to sort of bring it back to what was authorized in the first place.
And so, the utility now knows, "I will always get that set level of allowed revenues. So, I might be less resistant to those programs like energy efficiency or DERs, any of those innovations."
David Roberts
Right. But this is an important note. Like, this removes the incentive to sell more, more, more. Right? Because you're going to get your set level of revenue. You're not going to get more if you sell more power.
Cara Goldenberg
So, your costs will be covered.
David Roberts
Right, right. Your costs will be covered. So, it removes the incentive to sell more. And maybe it reduces the resistance to these other reforms, but it does nothing to create a positive incentive to do the good things. It just removes the negative incentive, basically. You know what I mean? That's why I refer to it as kind of the lowest rung, I guess.
Cara Goldenberg
But super important, right? Yeah, sort of a no-brainer when it comes to these different tools. And even more important in the day of electrification where, yes, we do want utilities to be selling more electricity for certain use cases like electric vehicles, but we want them to do it efficiently.
David Roberts
Right. So, if they're not incentivized to sell more to make more, then they will have the same normal incentive that any business in a capitalist society has, which is to achieve its ends with the lowest possible investment. Right. Like, it's not sort of incentivized to overspend.
Cara Goldenberg
Yeah. And I think that is one of the most important objectives of PBR, is to actually incentivize cost efficiency, to make sure that utilities actually have skin in the game and can benefit from reducing their costs and delivering a more efficient system.
David Roberts
Right. So, to get there, you have to go beyond decoupling. Am I right in thinking that decoupling is the most common form of PBR that's actually, in effect?
Yeah, decoupling is quite common for both electric and gas utilities. And then I'd also say performance incentive mechanisms, specifically for energy efficiency and demand side management. So, as you said, decoupling takes away that perverse incentive. Performance incentive mechanisms then add a positive incentive for utilities to seek those savings.
We'll get to those in just one second. We've got some more boring tools to go through before we get to the exciting ones. So, the second sort of common and easiest thing is what's called multi-year rate cases. This is, I think, really interesting to describe what that means and why it's helpful.
Cara Goldenberg
Yeah, we call them usually multi-year rate plans, but yes.
David Roberts
MERPs
Cara Goldenberg
Yes, definitely the less sexy PBR tool, but honestly, in my view, the most important tool.
David Roberts
Interesting.
Cara Goldenberg
And that's because multi-year rate plans really can create strong incentives across utility spending decisions. So, how do they do this, right? Multi-year rate plans extend the time between rate cases.
David Roberts
Which are now typically yearly, I mean, is it sort of standard that they're yearly?
Cara Goldenberg
Yeah, about one to two years. Rate cases can be quite long as well. So, but yeah, they extend that time beyond two years, I'd say. And they also include a cap on how much revenues the utility can collect from customers. And that's really important because if the utility is able to find ways to reduce its costs, it can benefit financially from those savings.
David Roberts
So, if you think from the utilities' perspective here, instead of having to do this every year, every two years, say you have like a five-year time horizon, then you're not sort of saying to tweak things to meet yearly targets. You have a little bit more freedom to experiment with things that might reduce costs. You can come a little over in one year and a little under another year without freaking out about it. You just have a little bit more room to maneuver, I think, when you have more years to work with.
Cara Goldenberg
Exactly. And that's becoming quite important in terms of thinking about aligning our rate plans with our actual system plans and thinking about what the system looks like in the longer term, in five years out. Right. What are those strategic investments we need in terms of grid modernization?
David Roberts
Right. And there might be like grid modernization, things that utilities could do that might reduce their revenue in the first couple of years, but then once they get up and running, increase revenue. So again, if you have that longer window, you can sort of experiment, get a little bit more bold with those types of things.
Cara Goldenberg
Exactly. And there's a sense of predictability. The utilities understand what revenues they're going to be able to bring in three years, five years down the line. So, there's a level of certainty that the utilities can make these investment decisions under.
Laura Gonzalez
Yeah, I also like to think about multi-year rate plans as a budget, like putting the utility on a budget. And so, when you have a budget, you try to be as cost-effective as possible. So, you can create a difference between what's your budget and what are your costs.
David Roberts
Right.
Laura Gonzalez
And the interesting thing about multi-year rate plans is that it allows the utility to create that margin. And when you have other tools like savings sharing mechanisms, then the utility can share those savings between shareholders and customers. And at the end of the multi-year rate plan, if there are efficiencies that the utility has created, the regulator can decrease rates for customers. So, yeah, it's a very attractive tool, but it is also complicated to implement.
David Roberts
Yeah, that's important. There's a carrot here. Like, if you're put on a budget and you think and work efficiently and come in under your budget, you can keep some of that extra, that's extra profits. You mentioned earnings sharing. This is perhaps the most boring of these, but let's get it. So, say you come in under your budget, in your three-year or five-year rate plan, an earnings sharing system basically says you take that surplus and you split it, you give some of it back to customers and some of it to shareholders. Right? I mean, that's basically —
Cara Goldenberg
Yeah, they can be structured in different ways, but it basically is saying, you know, your return on equity, there's a return on equity that you're authorized in a rate case. And then if your actual return on equity is sort of far different than what's authorized, some of those earnings then can be shared with customers. And so there are earnings sharing mechanisms that share savings. If, you know, the return on equity goes beyond, far beyond what is authorized. And then there are some that actually act as more of a safeguard. So if the utility's return on equity drops far below what is authorized, there is this safeguard as well, which has become an important tool for those states that are looking at PBR in a very comprehensive way.
David Roberts
Right. So, that might be one area where the utility, if it falls short, actually has to cough up some money. So, there's a stick there too, right? Right. In addition to the carrot, I want to return to the issue of sticks versus carrots later. Okay, so those are all the boring forms of PBR.
Cara Goldenberg
The important ones.
David Roberts
Boring but important. Boring but extremely important versions of PBR were decoupling, multi-year rate plans, and earnings sharing. Those are all kind of just structural ways of changing. Oh, and the one other thing I wanted to say about multi-year rate plans, Cara, which we forgot to mention, is another advantage of them is savings on the regulatory side. Like it is, it's very costly in time and money and manpower to do a rate case. So just doing them less often saves a lot of time, money, and agita.
Cara Goldenberg
Right. For regulators, for utilities, also for other stakeholders in the process. But I want to note that it does take a lot of thought in creating well-designed multi-year rate plans.
David Roberts
It's more regulatory work upfront to get the savings over time.
Cara Goldenberg
It should be because, you know, they can be designed in very different ways. And we have seen some states not necessarily develop multi-year rate plans with customer benefits in mind. And so, it's extremely important that the regulatory process is structured in such a way that enables every, you know, different stakeholders that are interested to sort of have a say, have a seat at the table, and really understand what the utilities are putting down.
David Roberts
Well, maybe let's stay on this for one second and just talk about the possible downside here, because I know that one of the things people warn about sometimes with multi-year rate cases is you can end up with these just sort of being extra money for utilities and no one else really gets anything out of it. So, just say quickly, like, how can it go wrong?
Cara Goldenberg
Right. So, this budget that Laura brought up, setting that revenue cap, that is controversial in terms of what level of revenues is reasonable. So, sometimes those are, for example, based on cost forecasts, and those cost forecasts can be inflated. So, that's one risk that we see. Sometimes in states, there are a number of other mechanisms where utilities can recover costs outside of the multi-year rate plan, and thus they sort of layer on top of each other, and the utility is able to get cost recovery through a number of different venues, and thus, you know, those sort of pile up in terms of the ratepayer impact.
Laura Gonzalez
Yeah, and I understand that cost trackers are a very important issue to pay attention to because utilities and state regulatory models are moving towards allowing a lot of cost trackers, and in Virginia, they're called rate adjustment clauses and cost trackers are essentially the opposite of a budget. So with a cost tracker, the utilities can go to the regulator every year and say, "This is how much I spent. Can you please update the rates to recover this specific cost?" So there's not a budget concept there. It's just an update of expenditures every year.
David Roberts
Yeah, and, you know, like, I see why utilities would like that, would prefer that. I mean, it's just like, you just have to step back and be like, "What other business you just like, invest money and then you sit back and like, light your cigar and get your guaranteed returns?" All you have to do to get more money is go to the PUC and say, "What are you going to do? We had to spend more money, raise our rates." It's just like, so far from competitive. It's so far from what people think of as a market. I just have to marvel.
Okay, so we've been through the boring kinds of PBR, but important kinds of PBR. Let's talk about then, performance incentive mechanisms, PIMs, which are, I think, to the extent anyone outside our little circles knows what PBR is at all, this is, I think, what people sort of think of when they think of PBR. So, what is a performance incentive mechanism?
Cara Goldenberg
Yeah, so PIMs live in a broader family of PBR tools called performance mechanisms. And performance mechanisms, in general, are quite flexible and can really be targeted at a wide variety of regulatory objectives. So, these tools include metrics, which are actual specific, quantifiable measures used to assess a utility's performance in achieving a particular outcome. These metrics can be used to measure reliability, DER interconnection time, energy efficiency savings, right. This is how performance is actually measured.
David Roberts
Yeah. In some sense, those are kind of the easy ones, the ones where you have a number, right, that you can all sort of agree you're targeting.
Cara Goldenberg
Right. And then, scorecards are metrics paired with a target. So, these can help anchor that data, actually provide some context for that data, and can support with its interpretation. Metrics and scorecards on their own are performance mechanisms. Performance incentive mechanisms then combine the metric, target, and financial incentive.
David Roberts
Right. So, you get paid more, basically, if you do better on the metric.
Cara Goldenberg
Well, they can be structured in different ways. They can be rewards, they can actually be penalties, or they can be both: have an upside and a downside. And it really depends on the objective of the PIM. A penalty might be more appropriate if you're holding the utility accountable to a certain standard of service.
David Roberts
Right.
Cara Goldenberg
And then, you know, an upside incentive may be more effective if you're encouraging the utility to do something different or new where they don't currently have an inherent incentive.
Laura Gonzalez
I would like to highlight the importance of performance metrics and scorecards because, you know, we all are very excited about penalizing the utilities for doing something wrong or rewarding them if they're doing something nice.
David Roberts
Guilty as charged. I love penalizing utilities.
Laura Gonzalez
Yeah. But, going through the process, I appreciate the idea of just measuring things.
Cara Goldenberg
Yes.
Laura Gonzalez
That's something very, very simple that unfortunately is not done. So, for example, there are a lot of investments in grid modernization, but we don't measure how much improvement this specific investment is going to bring to the grid. We don't measure those things. We just invest and pay. But there is not an actual accountability of how those investments are working. And where did we start, where are we going, and where are we in that path? So, I think metrics and scorecards are important beyond the eagerness of penalizing and rewarding for performance.
David Roberts
It's good just to have that information out there, available. I mean, again, it's insane that like, what other business doesn't have any, like, doesn't have public results that it has to measure itself against? So just, yeah, so just measuring sort of like, let's have a metric for reliability that we all agree on, that we can all see. Even if you don't have a financial incentive around it, there's going to be some weight just to having that number public.
Cara Goldenberg
Yeah, we sometimes call it a reputation incentive. Right. And it really also helps with that information asymmetry issue that we talked about at the beginning, actually bringing to light how utilities are doing and providing quality service to customers.
David Roberts
We mentioned a few, but I want to try to give a sense of the range of metrics that you might target with one of these things. So, you said reliability, just like uptime. That's pretty straightforward, but there's a million different ones. So, what are some of the kind of metrics that states have chosen when they're doing these?
Cara Goldenberg
So, there's a range of regulatory outcomes that states can focus on that include more traditional utility responsibilities like customer service, right? But more emergent areas that we're seeing new metrics around are things like peak demand reduction, DER interconnection times, which is a big problem in a number of states, actually. How are utilities utilizing the DERs on their system, right? They also can track more policy goals. Like greenhouse gas emission reductions, beneficial electrification, objectives related to social equity, like energy burdens, disconnections. So, they can cover a sort of wide range of utility operations, services, and investments.
David Roberts
Yeah, and I think people can see, I think it's pretty intuitively clear that some of these newer ones are kind of at once the most exciting, sort of like the most intriguing, like DER connections, things like that, or equity, things that are relatively new. But also, those can be devilish to agree. Just what is that metric? Like, what are we measuring? The more you read about this stuff, it gets real complicated how to all come to an agreement on that.
Cara Goldenberg
Yes, these processes can be long. They can be complicated. It's once again really important how the regulatory process is structured. It's important that other stakeholders are able to propose ideas rather than just respond to utility proposals. But thinking about how to measure this data, what is available or what could be made available with particular investments, and what information and trends over time can be most important for understanding how utilities are actually making decisions. How are they actually performing and serving the public?
David Roberts
This has been going on in some form or another for several decades now, sort of ramping up recently. But I would hope, I would want to believe that with enough PUCs going through this process, that it's going to get easier over time, that there are like learnings that eventually, like, the next PUC that comes at it is going to have something like a blueprint available or something at least like a menu. Like, is it getting easier?
Cara Goldenberg
You know, every state has its own challenges and priorities, but we are starting to see a similar process be undertaken in different regulatory processes. So, Hawaii, for example, had a process where the goals, objectives, and desired regulatory outcomes of the PBR framework were established in the beginning with utilities, with other stakeholders, and those were then used as guideposts for the rest of the regulatory process. A regulatory sort of evaluation then took place to understand how the current regulatory framework was actually doing compared to those goals and priorities, and then determining, "Okay, where are the gaps? What mechanisms do we need to introduce?"
And so, we saw that process in Hawaii.
David Roberts
Hawaii is — sorry to interrupt, but — Hawaii is kind of the strongest, I guess you would say, like the most aggressive, the most thorough PBR reform of any state. Is that accurate?
Cara Goldenberg
In the US, yes, I would say that Hawaii has the most comprehensive PBR framework in terms of incentivizing cost efficiency, really addressing the incentives with CapEx and OpEx. Also, they have a portfolio of performance mechanisms.
Yes, and a lot of effort went into creating that dashboard. I recommend your audience to check it out.
David Roberts
So, I think I read somewhere that 30 states have some form of PBR or other. My guess is I can't claim comprehensive knowledge, but I'm going to guess that most of those states are doing relatively low-lift PBR stuff like decoupling. Is that accurate? How many of these 30 states are really getting into the PIMs, getting into the nuts and bolts of specific metrics and things like that? Give us a sense of really who's going for it.
Cara Goldenberg
Yes, you're right. Most of those 30 states likely have one or two of these PBR tools in place. But beyond Hawaii, Illinois now has a pretty robust PBR framework. New York does, Minnesota, states in the northeast, like Massachusetts, Rhode Island, Connecticut is, you know, undertaking a process right now.
David Roberts
Yes, we had Marissa Gillett, the head of the Connecticut PUC, on Volts last year to discuss this. The utilities are not going cooperatively into that good night, let's just say, in Connecticut. And this is another question I had, like in Connecticut, the utilities are just fighting this, fighting her, et cetera. I'm wondering, in the other states, does this tend to be contentious with utilities, or does it just vary state to state?
Cara Goldenberg
It definitely varies state by state. But, I mean, think about it, right? You have been working under a regulatory framework that has really served you well for a long time. So, there definitely is pushback. But, I do think there are actually a number of utilities right now who see the writing on the wall, who see, "Oh, yeah, DERs are going to likely play a big role in our energy transition. This actually makes sense for me for what I want to invest in. And actually, I could benefit from some of these reforms."
David Roberts
Right. Like, if you're going to have to make investments to deal with DERs, which I think all utilities are eventually going to have to because they're coming whether you want them or not. Why not figure out a system whereby you can get paid? Where you can make more money for doing that.
Cara Goldenberg
Exactly. There really could be situations where it's a win-win-win. Right? Where the utility is, you know, financially stable and able to provide reliable, affordable service. Customers are paying just what they need to, right? And are getting the programs that they need and are being supported.
David Roberts
And utilities might actually be paying attention to whether customers are satisfied and happy or not.
Cara Goldenberg
Exactly.
David Roberts
This is a novel new thing for utilities.
Cara Goldenberg
And then, also thinking about our policy objectives. Right. Actually aligning those incentives with some of the goals around greenhouse gas emission reductions, and equity and affordability. Really important.
David Roberts
So, Laura, we went through all this preamble, but let's talk a little bit about what's happening in Virginia. Who's proposing what and who's for it and who's against it?
Laura Gonzalez
Yes. So, I think everybody is for a system that is win-win-win. So that's the first thing. And then the second thing is that, as many states in the country, Virginia has experienced different forms of reforms that are similar to PBR tools. And most recently, last year, a group of stakeholders and bipartisan legislators were interested in initiating a study process. And so the goal of the study process is to explore all these tools we're talking about. And the study is supposed to start with an analysis of how does the system currently work and how these tools can improve those, evil or not evil, but those —?
David Roberts
Malign, let's say malign.
Laura Gonzalez
Yeah, those incentives that are not as conducive for the needs that we have been talking about.
David Roberts
These studies, like, you guys sent me one from Michigan. Michigan did a pretty comprehensive study like this. I can't help but think that, at a certain point, does every state have to replicate this extensive study? It seems like at some point you —
Cara Goldenberg
Got to bring people along, David.
David Roberts
Yeah, yeah, yeah.
Cara Goldenberg
And this is one step in the process, but Laura.
Laura Gonzalez
Yeah, exactly. And you know, we, in these studies, the objective is to analyze the particular situation of the state and bring along stakeholders that are, you know, local. So that's why these study processes are very important and it also is helpful to build internal expertise. So, internal expertise amongst stakeholders and internal expertise at the state corporation commission level. So, if you have a year-long study process, we all are going to learn together what are the right things we need to put in place to have an effective multi-year rate plan. How do we create a decoupling system that is beneficial for all stakeholders, etc.?
The importance of a study process.
David Roberts
Just a common vocabulary. Are utilities on board? Are they more or less on board with this process, or is there any pushback?
Laura Gonzalez
I would say they are more or less on board. Yes, they are interested in the idea and we are looking forward to starting the study process. It has not started yet, so I would say they are not opposing it.
David Roberts
Interesting. This brings me to a question I had, which I guess I would throw to both of you. Maybe, Cara, you can go first, which is a cynic might look at this and go, "It seems like most of what's happening in practice is bonuses for utilities that do a little extra, or like processes that allow utilities to make a little extra. Mostly carrots." Like, mostly what I see when I look out at the landscape of what is actually happening, I see a bunch of carrots, which is fine. Like, carrots are incentives. Like utilities will act to get their carrots, but where are the sticks?
Like, is anyone deploying real sticks? Like, is there any case where any utility has actually been denied some substantial chunk of their profits because they fell short on performance? Like, is there... How big a role are sticks playing here generally?
Cara Goldenberg
Yeah, I mean, in terms of performance incentive mechanisms and penalties that may be used, I'd say no, there hasn't been a state that's adopted a truly significant penalty that hurts utilities' profits. Right. I think the sticks, though, can come in different forms. Right. So when you think about, for example, that multi-year rate plan, where are you setting that budget? How is that budget changing year to year? It may not be a stick directly, but it's a limitation.
David Roberts
A constraint.
Cara Goldenberg
It's a constraint, thank you, exactly. You really need to think about the full picture of what the various incentives the utilities are facing. Where is that push and pull? Where do carrots make the most sense? And where do constraints and sticks also make sense?
David Roberts
So you couldn't think of an example of a utility that's been hit by a stick?
Cara Goldenberg
I mean, they definitely have been hit by sticks, right? Reliability is definitely the area where there are most penalties because that's quite important. And so, there have been penalties levied. I don't know if they are as big as perhaps you're envisioning they could be.
David Roberts
I'm envisioning big sticks, but no one else is.
Cara Goldenberg
They're not the trunk of the tree.
David Roberts
Yeah, yeah.
Laura Gonzalez
In general, yeah. This movement towards performance-based regulation is progressively implementing more sticks. You know, like in the North Carolina performance-based regulation docket, the regulator established some penalties around reliability. Hawaii also has some performance incentive mechanisms that are penalty-based for interruptions caused by generation problems. Illinois also has some performance incentive mechanisms that contemplate both penalties and rewards for the number of days it takes to interconnect distributed generation. So we are, you know, regulators are being more and more brave to contemplate specific sticks.
David Roberts
Yeah, well, I guess my other question is, because, you know, when I was thinking about the Connecticut example, so the PUC is proposing these performance-based regulations. The utilities are freaking out and what utilities are saying and what they're — there's this whole sort of class of "analysts," utility analysts, which as far as I can tell are just like lackeys of the utilities. But a lot of utility analysts are saying, "If you impose this on us, we will invest less in your state. Basically, we will cut back our investments and then you won't get any of the good things you want."
And so, you know, this is what they're sort of using to bully the PUC, just this threat, you know, because they are investor-owned utilities. They require, they rely on investor money, investor investment. And they're just saying, like, "If you put us in this regulatory structure, we'll just withdraw investment and invest elsewhere." And that will, of course, hurt all Connecticut ratepayers, will hurt the whole Connecticut electricity system. So this seems like, to me, infuriating, but also like it looks like utilities kind of have the last laugh here. Like they have the trump card because they're private entities, because they're investors they can just say, "If we don't like what you're doing, we'll invest less." How is the PUC supposed to respond to that? I don't know if I'm expecting you to solve this problem, Cara, but I'm curious about your thoughts.
Cara Goldenberg
Yeah, it's tough. It is a threat that has been used before, though, the fact that investors are going to seek to invest elsewhere. Right. I don't know how real of a threat it is. My team is trying to explore that question further and really understand if this is something that could happen. Right. But I do think that analysts look at the regulatory environment and make observations. And so, it is important for any regulator, when they're undertaking a process like this, to be clear that they want utilities to succeed in such a way that they want utilities to be able to provide reliable and affordable service.
Right. And reforms should not compromise that. But there is an opportunity to think about new models to really change the way utilities are doing business that doesn't affect their financial health, but also can bring a number of benefits to customers and to society at large.
David Roberts
Yeah, it's still irritating.
Cara Goldenberg
It is irritating. I'm not saying it's not irritating.
David Roberts
Well, it actually leads to my final question, actually, second to final question, which I wanted to get in before we get past this. Laura, maybe you can talk about this, but this is a pretty complicated and obscure, let's say, topic. It's a lot of acronyms involved, a lot of complicated processes. If activists want to get involved somehow and push this, because I do think that, like, beneath all the complication, this is one of the most important and efficacious things that can happen. Just getting utilities out of the way, just getting them to stop fighting all this stuff is one of the most important things you could do.
So if activists want to support these efforts, where do they go? Like, who do they lobby? Or how do they, how does an activist get involved if they want to?
Laura Gonzalez
Yeah, there are a couple of ways. So, the first mechanism will be to engage in these types of proceedings in front of the regulator.
David Roberts
In the PUC meetings.
Laura Gonzalez
Yeah, in the PUC meetings. Also, you know, there are other processes that happen outside of the regulatory body, like study processes. So, it is important for people to show up. It is important for people to learn what this is. And they could also submit comments in all of these proceedings. And it's also important to educate legislators and the people that represent people in the General Assembly about the core problem. Maybe it's not about being an expert on the specifics of PBR tools, but being able to articulate the general problem and the core problem is that those incentives that we've been talking about and how— you know, pressure decision makers about solving this critical issue that is holding everybody back.
David Roberts
I think that's such an excellent point. Like, you don't need to know the details of PBR mechanisms to be able to articulate why the current structure is all kinds of screwed up, why the current structure pressures utilities not to do the things we want them to do. And that's pretty simple. And I'm not sure that, like the general public, I'm not sure that politicians are really aware of that. So, just making more noise about the basic problem does seem like an excellent route. So, final question, which is speculative, so answer however you want, but I feel like I can imagine a person listening to all this and thinking, what's going on here?
Is a public body going through just contortions and building all these Rube Goldberg mechanisms, trying to beg and plead and incentivize and nudge these private entities into doing what's good for the public? It seems like it would be simpler if utilities were just owned by the public and we didn't have private utilities, and therefore, we didn't have to beg, borrow, and plead and rig elaborate mechanisms to induce these private actors to serve the public good. The public could just own the utilities, and then the utilities could just do what's in the public good, and we wouldn't have all of this bureaucratic sort of like frou frou for, you know, trying to work our way towards public goals. So, Cara, does working on this ever just make you think, like, "Why are we doing all this? Why don't we just make the utilities public entities?" You know, I mean, maybe that's not exactly on the table, but —
Cara Goldenberg
You know, PBR is one option, right?
David Roberts
Right.
Cara Goldenberg
As you say, the current model is problematic. I don't know if performance-based regulation is the right solution for every utility, investor-owned utility in every state. The reforms that are best fit for a particular jurisdiction can look very different. In one jurisdiction, that might be, you know, municipalizing, but that's also a very complicated process.
David Roberts
Yes. Just ask Boulder.
Cara Goldenberg
Just ask Boulder, exactly. And so, you know, what I try to articulate is PBR is right now a promising approach. It is a different way of working that deserves attention. It deserves exploration. But there are a lot of other regulatory reforms that are also needed to really comprehensively change how utilities make decisions. And that, I think, every state, it's going to look different. And it really does start with our articulating what is wrong in the current model. What do you want to achieve? And then exploring the different pathways to get there.
David Roberts
Yeah, I mean, just about anything is better than the dismal status quo, I think.
Laura Gonzalez
David, and I would say that to answer that question, your previous question is very important, right? Why do legislators not know about this huge problem that the system is currently creating, right? So, if legislators were more conscious about it, there would be a more clear message to the utilities. Right? Like, you have to do things right. Otherwise, you could be at peril.
David Roberts
Yeah, just making everyone more aware. You know, like you said, with the metrics and scorecards and all of this, all of this has just been buried out of public view for so long. I mean, I can imagine utilities are sort of like, from their perspective, they've spent, whatever, 100 years: You just throw money in and the money comes pouring back out and you just sit at your desk with your feet up. And then all of a sudden, I guess from their point of view, all of a sudden everybody's up in their business, wants to know how they're doing things, wants them to change things.
I can imagine it's a frenzy inside utility world. Well, this is super, super educational, you guys. I cannot thank you enough. I've been meaning to do a pod on PBR for ages, but it's kind of a thicket. But I think you were very helpful walking us through this. So, thank you to both for your time.
Laura Gonzalez
Thank you, David.
Cara Goldenberg
Thank you. It's been a pleasure to talk with you today.
David Roberts
Thank you for listening to Volts. It takes a village to make this podcast work. Shout out, especially, to my super producer, Kyle McDonald, who makes me and my guests sound smart every week. And it is all supported entirely by listeners like you. So, if you value conversations like this, please consider joining our community of paid subscribers at volts.wtf. Or, leaving a nice review, or telling a friend about Volts. Or all three. Thanks so much, and I'll see you next time.
1. I am, for the most part, recovered from a hellish September during which I left my appendix in Germany. I can’t tell you how much I appreciate all the well-wishes, by email and in the comments, and for your patience as I get back up to speed. In all the chaos, I skipped the September AMA, so I owe y’all one, which I’m recording on Monday. Leave your questions below!
2. No rest for the wicked! Earlier this week, I was in Jackson, Wyoming, for the Mountain Towns 2030 Summit (I had a great conversation with Ari Matusiak of Rewiring America, which I’ll release as a pod soon.) Next week, I’m off to Brooklyn for DERVOS 2024 (which has an absolutely incredible lineup). And finally, I’ll be in San Francisco on Nov. 13 for what is sure to be an awesome Canary Media event (you can buy tickets here). I was able to swing a few free tickets to each event for paid subscribers — if you were randomly selected, Sam has already sent you an email.
3. Donald Trump has promised to put Elon Musk (or some similar jerkwad) in charge of “cutting federal bureaucracy.” This NYT article offers a little glimpse of what that means in practice. None of these chodes has any idea at all what the federal bureaucracy does — the institutional memory it has accumulated or the way reduces risks. They are children with hammers.
4. A new study finds that green hydrogen is wildly expensive, and if it gets much cheaper… it will still be wildly expensive. This means we are not, contrary to the naive dreams of many policymakers, going to use it for bulk applications like home heating. It is going to be reserved for niche, high-value applications like ammonia production or airplane fuel. As Michael Liebreich has been saying …
5. ✅ Community comment of the month: I enjoyed nerding out with the DOE’s chief commercialization officer in Wednesday’s episode. Listener Jerry W. kindly summarized a few DOE-supported projects on his radar:
This is one of the very best Volts podcasts ever. I'm aware of 3 important commercial projects springing from this DOE mission. One is EOS Energy's aqueous zinc modular BESS for micro grids, now being produced at scale in Pittsburg PA. Another is Cyrq Energy, Eavor Energy & Chevron now under contract to develop 3 new Geothermal power production & storage projects for Sonoma Clean Power (SCP) within 3 years. A key roadblock was recently resolved when the CA legislature approved Sonoma County to administer the regulatory approvals for these projects. This new Geothermal power will eliminate all fossil gas power in the SCP portfolio. And finally, DOE is playing an essential role in developing massive California offshore wind resources.
Abner is a year old!
Monthly Thread
This is your monthly opportunity to share! Use the comments section in this community thread to:
CLIMATE JOBS & OPPORTUNITIES: Share climate jobs/opportunities
SHARE WORK, ASK FOR HELP, FIND COLLABORATORS: Share your climate-related work, ask for help, or find collaborators
CLIMATE EVENTS & MEETUPS: Share climate-related events and meetups
EVERYTHING ELSE: Discuss David’s Notes or anything else climate-related
MAILBAG QUESTIONS: Ask a question for this month’s mailbag episode (anyone can ask a question but mailbags are a paid-sub-only perk). Volts has a form for those who are shy, but David prioritizes questions posted in this thread.
🚨 To keep organized, please only “REPLY” directly under one of Sam’s headline comments. Anything inappropriate, spammy, etc may be deleted. Be nice! Check out our Community Guidelines.
Volts is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.
In this episode, I sit down with Dr. Vanessa Chan, DOE’s Chief Commercialization Officer, to discuss the challenges of commercializing new clean energy technologies. Her office has helped develop a common vocabulary among stakeholders (“adoption readiness levels”) and concentrated the attention of public and private capital on certain key technologies (“pathway to liftoff” reports). It’s wonky stuff, but it has transformed and turbocharged DOE’s commercialization efforts.
Hello, everyone. This is Volts for October 16, 2024. The Department of Energy has gotten serious about technology commercialization. I'm your host, David Roberts. As I discussed early last year with Brian Deese, outgoing director of the National Economic Council, the US has explicitly embraced industrial policy, taking a more active hand in the composition, character, and location of the nation's industrial activity. One of the key skills involved in industrial policy is commercialization, the ability to push promising new technologies from idea to prototype to startup to mass market.
And so, one of the priorities at Biden's Department of Energy has been to boost the pace of commercialization to ensure that DOE research money doesn't just disappear into its labs, but that technologies developed in those labs make it out across the so-called valley of death and into the hands of real-world consumers.
Dr. Vanessa Z. Chan
My guest today, Dr. Vanessa Chan, works at the heart of those efforts as DOE's Chief Commercialization Officer and the head of its Office of Technology Transitions (OTT). Her job, daunting as it sounds, is to drive private-sector uptake of new clean energy technologies by coordinating commercialization activities across the DOE's sprawling network of 21 national labs, sites, and plants.
The idea is to create a common language and a common set of analyses and recommendations that allow public and private actors to collaborate on commercialization across heterogeneous areas. The OTT is involved in a huge range of DOE initiatives, but there are a couple for which Chan is directly responsible, and that strike me as particularly meaningful in that I think they are going to permanently reshape the way DOE thinks about and approaches commercialization.
The first is "Adoption Readiness Levels", and the second is "Commercial Liftoff Reports." Yes, I realize these might not sound thrilling on the surface, but I hope I have earned your trust on these matters enough that you will have a listen — I think Dr. Chan and I can convince you that these seemingly arcane procedures are crucial to driving a faster clean energy transition. With no further ado, Dr. Vanessa Chan, welcome to Volts. Thank you so much for coming.
Dr. Vanessa Chan
I'm so excited to be here. Thanks for having me.
David Roberts
Before we get into the details, the specifics, let's back up a little bit and just talk. You have been in your career involved in consulting with clean energy startups at McKinsey. You've been involved in entrepreneurship in startups. You've been involved in academia as a professor at the Philadelphia School of — what is it, School of Engineering, and...
Dr. Vanessa Chan
Yes, University of Pennsylvania Engineering School.
David Roberts
Got it. So, you've been in academia; you've seen this area from all these different angles. So, I'm curious, who came to you to recruit you, and what did they say they wanted from you?
Dr. Vanessa Chan
Well, great question. And you've known me for half a second, but anyone who knows me knows that I'm someone who's pretty impatient, wants to get things done, and really looks to have an impact. So, working in federal government was never on my vision board. So when I was approached, I was like, "Really? Are you guys sure that I'm the person you want? Because I'm not sure this is what would make sense." But basically, what happened was I have spent my entire 20-something years commercializing technologies. And where this started from was I have a PhD from MIT, where I had what many consider a successful PhD, which is I had a first author paper in science, I had a patent and so forth.
But one thing that was really bugging me was, I spent five years getting this PhD, and I wasn't sure how it was actually going to change the world. I was not convinced that I was going to be able to have the right kind of impacts as a professor, but was being groomed to be a professor, and that was all I really knew. And so, what happened was, a friend of mine actually asked me to go with her to a McKinsey and Company presentation because she didn't want to go on her own. And I told her I wasn't interested, I was going to become a professor.
And she was like, "They have free cocktail shrimp." And I was like, "Oh, that's great." I'm making $18,000 a year. I can tell you where you can get a, you know, back then, a seven-dollar burrito where it's just big enough for lunch and dinner. So, cocktail shrimp was not on my menu. So, I went and actually found an incredibly intelligent, thoughtful group of people who convinced me to apply for a job. And so, fast forward, I got a job offer, and I was thinking, "Well, you know, it'd be great to understand how the real world actually uses technology."
So maybe when I become a research professor, I'll be able to do research which has more direct impact in the real world." And so I was like, "Let me do this for two years." So the problem was, my very first study was for a client who was trying to commercialize a gas sensor technology, and they weren't able to make money off of it. And I got deep into the issues with technology commercialization on my very first study. So when my thesis advisor came to me a year or so later, he said, "Hey, there's a couple of open faculty positions."
I was like, "Oh, I'm sorry, Ned. I think I'm staying here because I found my calling." Which is, how do I actually get technologies out of the research labs and into the market? And so, I did that for about 13 years. You know, when you are in... for such a long time, I feel like you're not really evolving and growing. I became a partner at McKinsey, called the "innovation practice," and was the first woman elected partner in the North American chemicals practice and was really kind of enjoying my job, but I wasn't really growing. And I think the next generation has to be very entrepreneurial.
And so, I decided to do my own startup. I had this idea where I am someone who's a maker. I make things, I knit, I do jewelry, I do pottery, and I have all these, like, little inventions I have around my house. And I had just watched the movie Joy, and I was like, "How about if I try to bring my product invention to QVC?" So, I left McKinsey, did a Kickstarter campaign, and basically wanted to learn how to innovate and teach my children how to be entrepreneurs. So, they were seven to nine at the time, and they joined my "board of directors" and got a firsthand look at how to do this.
And then fast forward 18 months later, I actually got a contract on QVC and sold my tangle free headphones on QVC and learned a lot about branding, social media, marketing. I mean, you and I are old enough that we never had social media or even computer emails, right, when we were growing up, so I wanted to learn that. And then at the time, I also, you know, decided to do some angel investing. And then Penn Engineering came calling and said, "Hey, you know, we are looking to really innovate. And we actually have a class which needs a third section, and it's engineering entrepreneurship.
You're a Penn alum. You led innovation for McKinsey. You're now an entrepreneur. Would you consider coming and teaching as a professor of practice?" And I was like, "You know what? It'd be kind of neat to go back to the next generation and really try to shape where they're going." And then I had a big light bulb moment, which was: we actually don't teach commercialization at all in academia. In fact, if anything, we're anti-commercialization, and let me tell you why: When I was getting my PhD, I was told, don't talk to anyone about your research, because the name of the game is to publish or perish.
And so, if you talk to people about your research, you might get scooped, and they're going to publish before you. Then, you end up joining a research group where everyone's working on the same technology. In my case, it was block copolymers. So, every single PhD coming out of Ned's group had a thesis on block copolymers. You're very much technology push, and then when you are getting your PhD, the very last thing you do is you defend your PhD. So, you're telling everyone why you're the smartest person in that room and why you need to defend what you've done.
So, translate that to entrepreneurs and people trying to commercialize, which is, don't talk to anyone about what you're doing when they ask you questions, defend what you're doing. And it's just the antithesis of commercialization. And when we're in academia, we teach people all the hard science, don't get me wrong, hard science, research and development, that is the first two stages of commercialization. But we don't teach them what the real-world issues are.
David Roberts
And the real world issues are all about collaboration and emotional intelligence, which is not necessarily what you get in MIT undergrads.
Dr. Vanessa Chan
Yeah, I mean, you know, when you're in engineering schools, right, you're doing a lot, you're working really hard, you're getting to tackle some extremely difficult scientific matters. And quite frankly, academia in general is a pretty lonely journey, right? Because it's all about getting a GPA, and you are responsible for that GPA, even when you're getting your SAT score. It's a lonely journey. It's not about teamwork and collaboration. And so I think the key for me was we can really do some transformations here. And so I scrolled my way to be the undergrad chair for the material science and engineering department.
The first time a non-tenured, non-research professor was made an undergrad chair. But what that allowed me to do was to reform the curriculum and start pulling a lot of those real-world skills into the senior design thesis for the Material Science Department, which was the second class that I was teaching. There, I taught the students to actually go and interview the real world, understand what the technology is actually going to do in terms of having an impact, taught them how to communicate, and so forth. And so what was interesting was, during that time, in about 2017, I think it was, I got a phone call from a former client who was like, "Look, the DOE is looking to create a foundation around commercialization.
So, this would be a 501(c)(3). And I told them that if you're going to talk to someone about commercialization, there's one person you have to talk to, and that's Vanessa." So, they asked if I would join a workshop, and my husband was commuting at the time to Walmart, so he was the head of energy in Walmart, so he was in Arkansas. So, I couldn't go for the full day. So, I went for part of the workshop and really spoke a lot about the challenges with commercialization, the things we have to change as a nation and so forth, and didn't think anything of it.
And then fast forward to 2020. Someone that was in that workshop was the person who threw my name in the hat to be the chief commercialization officer. So, the reason why I share that story is that sometimes opportunities are not convenient because it's easier to say no. Right, if you've got a lot of things that are in balance. But that one, yes, that I made to go to that one workshop is why I'm sitting here in the seat today.
David Roberts
Well, I mean, it kind of sounds like, in retrospect, your entire professional journey has been sort of, it seems very directional, like you've spent your entire life preparing for exactly what you're doing right now.
Dr. Vanessa Chan
It's exactly that. It's like, I wish I was a genius and said, "Hey, I knew exactly why I quit McKinsey on a great salary to do kickstarting." But for me, it's always been about learning and pushing and really thinking about what needs to be done differently. And so in many ways, I think you're right, because here at the DOE, as the Chief Commercialization Officer or coming from an academic background is very helpful because many of the folks in our research labs, which are incredible, are very steeped in research and development. And so understanding their mindset and thinking is really critical.
In order to commercialize anything, we need to be able to get the private sector to act. As a former McKinsey partner, I've been in boardrooms and have worked with the C-suite teams around how they actually deploy their capital and bring technologies to market. Then, as a startup founder, I understand how hard it is to actually bring something to market and all the challenges. So, like, I'm a kid in the candy store. I love my job, and it has been so much fun. I've been here since day one of the Biden-Harris administration, and honestly, it's been the best job I've ever had.
David Roberts
Let's get into some specifics then. I want to talk about these Adoption Readiness Levels, but I think to give people a little context. Let's back up and first talk about Technology Readiness Levels (TRLs). They have been around a long time, as I understand it, so just maybe talk about what are TRLs and how are they currently used? And then we can sort of set up, you know, why you felt the need to supplement them.
Dr. Vanessa Chan
Sure. So, Technology Readiness Levels were invented in the 1970s by NASA in order to launch rockets to the moon. They go from a scale of one to nine, where when you're at TRL nine, it means you have a product or a solution that actually works, that could actually launch a rocket to the moon. It was very important because when you're trying to build something that complicated, you have to make sure the technology is all working. It serves a very important purpose. However, when you're trying to commercialize something, getting to TRL nine is insufficient to actually get to wide-scale adoption in the marketplace.
David Roberts
As many a frustrated entrepreneur can tell you.
Dr. Vanessa Chan
Exactly. And so, what's happening is we're all anchored on, you know, "We're on TRL three. How do we get to TRL five?" But there are so many other things like unit cost economics, regulatory issues, all that matter. Because when you're building a rocket to the moon and you're NASA, you actually don't care about the cost of it.
David Roberts
Right.
Dr. Vanessa Chan
You actually don't need a permit to land on the moon.
David Roberts
You don't need customers.
Dr. Vanessa Chan
You don't need customers. You don't need to worry, "Do I actually have a supply chain that can mint these things out?" It doesn't matter. And so, that's why when I came into DOE and OTT — and by the way, there's so many acronyms out there, I just want people to remember that at OTT, we call ourselves the otters. OTT otters, because they're cute, friendly, they make tools to help the ecosystem. And so, this is our spirit animal. So, people are like, "Who is that crazy lady that was on your podcast? Where was she?" Just remember, "Oh, yeah, she's head of the otters that's been doing all these things."
David Roberts
Head OTTer.
Dr. Vanessa Chan
Head OTTer. Exactly. And so, when I first joined the Biden-Harris administration, the Department of Energy was very much an R&D organization with 17 amazing national labs doing great stuff. And the reason why it was really more of an R&D organization was that many of our equities and the dollars we were getting from Congress were focused on the early stages of research and development. When BIL and IRA passed, we ended up getting half a trillion dollars that were now going towards demonstration deployment.
David Roberts
Just in case anybody doesn't know, although I suspect surely everyone listening to Volts knows by now, but BIL is the Bipartisan Infrastructure Law and IRA is the Inflation Reduction Act, both of which dumped many, many billions of dollars on DOE and on research and commercialization.
Dr. Vanessa Chan
Yeah, and that's one of the important things, is to define commercialization, because the way we define it, and I think this is a widespread definition, that everyone really needs to take, is it's going from research to development to demonstration to deployment. Too often, I hear people say, "We do R&D and we commercialize." But if you do that, then you're decoupling the market from the early stages of commercialization, and it's really important to have that market input into R&D. So, with the passage of BIL and IRA, it led to demonstration deployment, the last two stages of commercialization being very important to the DOE because of the equities that we now had to get the dollars out the door.
And that is when I think the nature of being the Chief Commercialization Officer and the Head OTTer really changed, because now the question is, how do we connect research, development, demonstration deployment across DOE and across the nation? Because in the end, half a trillion is a lot of money, but it's nothing compared to the 23 trillion the private sector has. So what I was really thinking about was, how do we take the half a trillion to buy down the risk to the point where the private sector will activate their 23 trillion to actually bring these to market?
David Roberts
So, part of doing this is developing a coherent way. Technology readiness levels, as we said, will tell you basically whether the technology works, which is not nothing, but as you say, only a small part of the commercialization journey, spectrum, whatever, what have you. So, what you've developed is kind of a language for talking about adoption readiness levels, which means how ready is a technology to be adopted by the mass market, which involves all kinds of things outside of technology readiness. So, maybe just start by going through a few of those. What sorts of things go into adoption readiness levels that are not visible in technology readiness levels?
There are 17, so you don't have to go through all of them. But —
Dr. Vanessa Chan
No, no, I won't, I won't. And it makes it sound like, "Oh, my gosh, you know, here's an MIT PhD putting together 17 dimensions. Really complicated." It's actually pretty straightforward. And for those of you who are interested, you can actually go to OTT's website and find the Adoption Readiness Level framework.
David Roberts
You know, it's funny, when I first encountered this, I saw the 17 and I had that same reaction. I was like, "Oh geez, 17 new metrics." But then I started reading through them and I was like, "Yeah, yeah, you definitely need that one. Oh yeah, that's, you gotta have that one." You know, like it's —
Dr. Vanessa Chan
So, basically, there are kind of four buckets of the 17, right? The first is what we call value proposition. So, if you invent something new, the question that you always need to ask yourself is, are you inventing something that is providing superior value to what is currently on the market today? And not only that you can provide something of superior value, but is it at the right price point or cost where someone is actually willing to pay for it? And quite frankly, that is one of the biggest challenges that we find with commercializing new technologies, is oftentimes the cost is prohibitive for it to actually get to deployment.
The second group of risks that we think about is around resource maturity. What that means is, if you're going to be trying to commercialize something, you end up needing capital invested into the work. So, is there money that is willing to flow into the solution that you're working on? Do you have a workforce that actually is ready to go do this? Do you have any issues with the materials that you need going into it? Sometimes, there might be some challenges with availability, materials, and the next kind of category that we have is around license to operate.
So, it may be that you have something that people are really excited about. But, are there any challenges with regulatory or societal acceptance or non-economic risk?
David Roberts
This one's coming up so often these days: technologies that check almost all your other buckets, but get here and it's like permitting, environmental review, community pushback. All these kinds of things are where they're running aground then.
Dr. Vanessa Chan
Yep. And then the final one is market acceptance, which is, you know, you could have many things which are working. The value proposition is there, but if competitors and others are not willing to work with you, or you aren't able to get people to take demand off-take. So for example, in the case of electricity, you need some of the large players to actually buy the electricity. If they're not willing to do that, then you actually are not able to commercialize your technologies. And so these four categories are what embody the 17 dimensions. And the reason why this is so important is, as I mentioned earlier, we don't teach this in school. We don't teach these kinds of things that we have to worry about.
And so, what's been really interesting is we've been rolling this out, especially for founders who come from a technical and a PhD background. This almost becomes an interview guide of telling them what they don't know.
David Roberts
Yeah, I was going to say, like, students don't know this, but lots of entrepreneurs don't know this. Lots of literal business owners who are out there trying to sell things don't know about it. I mean, it is sort of like the first time I've seen all these kind of risk factors gathered in one place, you know, and it's like they all kind of seem obvious when you look at them. But it's a lot.
Dr. Vanessa Chan
No, and it's never been organized. I think that's why this has really taken off with, like, venture capital firms right now that are using this, and they're forcing all the people coming to get money to actually fill this out so they can assess where they are against ARLs. These are the kinds of things the private sector has to address. These risks have to be overcome to get to full-scale deployment. So, this really is the language that we've created here.
David Roberts
Yeah, well, I'm curious, is the idea here to sort of, like, add all this up and come up with, like, a single adoption readiness level number that you can sort of compare across technologies? Or is that too simple?
Dr. Vanessa Chan
Yeah, I think this is where, you know, I'm someone who truly believes in a growth mindset, and it's something where the journey is more important than the final number. And so in the end, what we did was we said, "Look, assess yourself in the 17 dimensions. And in fact, there may be some you're not sure because you didn't even know they were important. So figure that out by doing interviews." And then what you do is you count the number of dimensions which have either high or medium risk. And then we have a table that you look up to, then convert that into an ARL, an Adoption Readiness Level.
And the reason why we did it this way is when you go try to raise money, you can talk about two or three things that are kind of large risks, and investors will be able to wrap their head around a bit. Talking about, well, you know, "We have some issues with the cost. We have issues with permitting. We have issues where there's challenges with material supply. Oh, yeah, by the way, there's no workforce." The Adoption Readiness Level plummets pretty quickly. And so I think that's really the reason why is we are trying to get people on the same page of the things that have to be addressed.
And sometimes, oftentimes, it's not one single entity that can address this. They actually need to work together to tackle some of these risks. And so, that's why this is really more of a qualitative tool versus a quantitative tool.
David Roberts
Who does these assessments? I mean, can just anybody do them? I mean, are they sort of, like, loosey-goosey enough that I could just jump in and sort of, like, do it, or is there some official procedure?
Dr. Vanessa Chan
So, perfection is the enemy of progress. And so, we have this tool right now on the OTT website that you can download. We actually launched a new website today, which includes videos that you can watch to run you through some assessments. But if you're like a larger organization and you need, like, an incubator and accelerator and others who really want to train a lot of people through it, send an email to arl@hq.doe.gov, and my team will field it, and we'll literally do a 1-hour workshop with you. And after that 1-hour workshop, anyone who's listened to it will be able to use the tool on their own.
David Roberts
Oh, interesting. So, then you can do a 1-hour workshop where you basically teach someone, like an incubator, how to do this kind of assessment.
Dr. Vanessa Chan
Exactly. A workshop. And we've led workshops with a couple hundred people. It's pretty straightforward. And when we were designing this tool, it was really important to me that we kept it as simple as possible. Even though it's 17 dimensions, if you go there, a lot of it's common sense. And you're like, "Oh, okay, that makes sense. That makes sense." And so this is not meant to be rocket science, pun intended, it's the opposite of rocket science. And so it's actually complementary to TRLs. We're not saying get rid of TRLs. TRLs are absolutely critical, but you need to do an ARL assessment on top of your TRL assessments.
David Roberts
Yeah, it's like, none, no particular piece of it is complicated. Like, I read through the 17 risk factors, and all of them seem pretty simple. It's more just like a tool of, "What am I forgetting?" You know what I mean?
Dr. Vanessa Chan
Exactly. It's like a checklist.
David Roberts
When you're launching a technology and trying to bring it to market, there's just a lot to keep in mind. This is like a handy way of gathering all your risk considerations in one place.
Dr. Vanessa Chan
Completely, and you know, when I was an angel investor, when I was, like, supporting my clients, when I was at McKinsey, these were the kinds of conversations we were having around these risk dimensions. And so, really, what we're doing is linking all the stuff that matters in the ecosystem and making sure, as an ecosystem, we know how to tackle these.
David Roberts
So is the idea here not just for this to be a tool that DOE uses to assess technologies it's working on, but for this framework, this language, to sort of get out there so that DOE and incubators and entrepreneurs and investors are all in some sense speaking the same language?
Dr. Vanessa Chan
Yes, and private companies and others, because in the end, if you're going to commercialize hydrogen, you're going to commercialize long-duration energy storage. All these risks are important, and anyone in the ecosystem has to understand these risks. And what's been really exciting is when we developed this originally, there's a couple of parts of DOE's offices that started using this because it made sense to them. So the Office of Clean Energy Demonstration, which has billions of dollars going out the door, uses it to manage their entire portfolio, which is really helpful, because what you want to do is understand why your readiness levels are low and what actions have to be taken to increase the readiness levels.
And then, we started rolling it out to the national labs through Energy I-Corps, which is a program I run, training entrepreneurs how to actually bring their technologies to market. Now, we started doing pilots at national labs with Sandia National Labs and Pacific Northwest National Labs, all wanting to run their portfolios through it. And we're doing more of these across our 17 national labs. And what's interesting is this thing has taken a life of its own. So, the National Science Foundation heard about it with the new TIP directorate. So now, they're having their program managers use it in assessing technologies.
B Capital, which is a venture capital firm, found it, and now they're using it. Breakthrough Energy loves it and is using it for thinking about what the gaps are in commercialization and having a lot of their companies run through it.
David Roberts
It just seems like it's going to enable people to skip a lot of duplicative efforts. All these conversations that an entrepreneur is having with a possible investor, they're all reinventing the wheel over and over again, trying to talk about these things. So, I can imagine this will just be immensely helpful.
Dr. Vanessa Chan
Yeah, it'll be a shortcut. Right now, people say, "TRL five," you know what that means? I'm hoping when we get to the time not too far in the future, you say "ARL nine," they know what it means.
David Roberts
Are DOE agencies using this in deciding how to hand out grants and stuff like that? Like, has it made it that far up yet?
Dr. Vanessa Chan
Yeah. So OCET, as an example, absolutely is using it. A lot of our technologies, like the Hydrogen and Fuel Cell Technologies Office and our industrial offices that have money going out the door, are using it. And, you know, LPO and others also are using this. And the other thing we'll talk about, which is pathways to commercial liftoff, to guide how the dollars are going out the door. Because in the end, these are the things that we really have to understand when it comes to a risk standpoint. You know, the thing that's really interesting to me is there's even other industries looking at this.
So, the Geneva Association, which is the insurance industry's association, got a hold of this, and now they've created an entire insurance risk framework based on ARLs. So, when I'm telling you that this is going viral, it's pretty crazy. I think the most viral I've gotten is when I had a university professor from Simon Fraser reach out to me, and they actually wanted it to be part of a PhD thesis. And I was like, "Okay. Now I know this is really going viral if it's getting to a PhD thesis."
David Roberts
Well, also, yeah, it just gives you a tool to compare across very different technology buckets, right? It gives you a sort of common scale or metric.
Dr. Vanessa Chan
And by the way, this isn't just for energy technologies. You could use this for consumer products. You could use it for medical anything. I mean, this is a pretty universal framework because in my lifetime when I've done commercialization, I've done it across many, many things, not just energy. And in the end, it's all about the same stuff.
David Roberts
Yeah, well, one striking feature of this, you know, I was sort of looking at these, thinking about advanced geothermal, which is, you know, a favorite of mine, a beloved favorite of mine, you know, just thinking about, if I'm looking at this from the standpoint of an enhanced geothermal company, I'm like, "I can do that and I can do that and I can do that." But some of these are just outside of my power, right? I mean, some of these, like the policy environment, is like, I have limited control over the regulatory environment, permitting and siting. There's some things I could do.
But what you find out when you run through this is that for a lot of technologies, a big piece of commercialization is going to have to come from someone else. Someone else is going to have to help. The government is going to have to step in to do this thing. It not only tells entrepreneurs where they need to focus their efforts, it also seems to me to sort of flag where you need better public policy, better action from the government completely.
Dr. Vanessa Chan
And, you know, the thing I would say to folks who are doing this and saying, "Oh, I don't have control over that," well, you actually do, because what you can do is you band with other people that are in the same situation as you, and you guys go approach people and say, "We need to fix this because all of us are stuck right now because we can't get this to work." And so, one of the other things that we've done here at OTT is we've created some consortia that are being led by our national labs to tackle some of these challenges that are existing. So, we have one for hydrogen called CHyTAC, and we have another one for long duration energy storage, where through our pathways to commercial liftoff, which we'll talk about a little bit, a lot of the same thinking, or the same thinking, is in the pathways to commercial liftoff, where we identified the critical risk factors.
And then, now we actually have consortiums that are trying to figure out how to address the risk factors that are preventing all these technologies from reaching the marketplace.
David Roberts
Let's talk about these commercial Liftoff reports. I'm in this world and pay attention. So, I think it's probably no surprise that I've heard about these, but I have been really impressed with the reach of these things. In some sense, they've gone viral too, which says to me that there was a need here that was not being met. So, talk about just sort of like the origin and the inspiration for these commercial Liftoff reports.
Dr. Vanessa Chan
Yeah, and so when the BIL and IRA were passed, it was clear to me that the private sector really needs to play an outsized role in bringing technologies to market. And for this administration, the way we think about the energy transition is that it is private sector-led, but government-enabled. And how do we actually do that if we are all not coordinated? And there was twice that I've been really excited about what we've done as a nation to get us where we need to get to. One was when Gordon Moore created Moore's Law, where we need to double the number of transistors on a chip every two years.
We were able to do that because what SEMATECH did, which was a government-led consortium, was pull together SEMATECH's roadmap, which created a common language and pathway that everyone that was playing in the CMOS ecosystem, competitors, members of the value chain, all knew what they had to do walk step, to actually get to the point where we could fulfill Moore's law and that coordination we've done in the past. I was like, "We need something similar." The second time was with the Manhattan Project, when we did something like, you know, in a very fast amount of time that we didn't think we would be able to do by coordinating as a nation to get there. So my inspiration was, how do we take SEMATECH, add it to the Manhattan Project, and aim it at clean energy, was really the thinking.
And having spent a lot of time with the private sector, understanding capital deployment and the kinds of analysis that is done in the boardroom and others for decision making, I was like, "We need to infuse that private sector thinking into DOE." And now we have all this money through BIL and IRA that needs to be deployed in a way where we're buying down risk to the point where the private sector is willing to step in. So the challenge we have right now is many of these technologies actually work, for the most part, but they're too expensive or there's other risks around it. And so the question was, how do we take the money that we've gotten and aim it to a point where the private sector will also write checks alongside ours?
So, what I did with the rest of DOE was, we identified four areas where there was BIL and IRA money going out the door, including hydrogen, long duration energy storage, carbon management, and nuclear. We started work on these in September of 2022 and really brought a private sector thinking lens into this. We also interviewed thousands of the private sector folks to get their thoughts around what's it going to take for these to commercialize? And for each of the different liftoff technologies, we found, you know, four to five things that we had to tackle systematically where the risks were too high, and if we didn't tackle them, we would not be able to commercialize.
We then tied those things, the Liftoff reports, to the money going out the door. So, if you were applying for the hydrogen hub money, you needed to have read the Liftoff report to understand what we were trying to do. And I love that as an example, because OSAD had $8 billion that was going towards hydrogen hubs. And through the work we were doing, we saw that there was a big risk around market acceptance, which is one of the categories that we have within the ARLs, and in particular, demand offtake, which is one of the dimensions that in many cases, when you're trying to commercialize technology, no one wants to buy the technology until they're clear they have a stable supply chain.
The supply chain does not want to stand up until it knows that it has demand off. Exactly. Chicken egg, catch 22. So, we did something kind of novel, which is we reserved a billion dollars of the 8 billion that was given to actually help with the demand offtake. And so now we're taking a look to see, "Okay, can the government play a role on contract for differences and so forth?" Because the first hydrogen hubs are not yet at scale, meaning they're not yet at economies at scale. So, the hydrogen coming off is going to be more expensive than if we are in a steady state where we have the nth of a kind.
So, we need to figure out ways the government can help with the risk associated with first movers who are going to have more expensive hydrogen going out the door. So, that was very innovative, and that came directly from both ARLs and the pathways to commercial liftoff. And that's really how it's worked.
David Roberts
These Liftoff reports strike me as just a very sort of close and rigorous application of Adoption Readiness Levels. Just sort of like, take a technology and run through all these 17 and find out where the risks are for a particular technology.
Dr. Vanessa Chan
Yep. But we didn't want to bake ARLs into it formally because I don't want to confuse people. ARLs can be a bit overwhelming. So, there's been a little bit of a chicken and egg with this one, too. We launched the pathways commercial liftoff, and now we're introducing the back-end side of it. But I think the thing that I really do appreciate about this administration is we started this in September, and we had these live on a website called Liftoff.Energy.Gov by March of 2023. So, anyone who's read the Liftoff reports knows that they're pretty meaty pieces of ore.
And to get everyone aligned on what those things were saying, we had the White House and others approve it. To have a live website within start to finish in six months is pretty fast. So, there is a big culture change that we had to drive as we're doing this as well, because in the private sector, right, we do things by 80/20. You don't need real precision on things because directionally, things have to be correct. Whereas when you're coming from an R&D organization with engineers and PhDs, there's a lot of vetting of numbers to make sure that things are—
David Roberts
Perfect to the second and third decimal place type of things.
Dr. Vanessa Chan
Exactly. So, there was also a culture change that we had to do in the first wave of things to get people comfortable with bringing this kind of private sector thinking into the DOE, because it's a different way of thinking. But, I think all these things have gone viral, you know, in your words, because of the fact that now there's a joint roadmap that we, together with the private sector, know what we have to do to actually bring all these technologies to market.
David Roberts
Yeah, and it's funny, you know, I was thinking about this when I — this is sort of a slight tangent, but one of the best tips I ever got as a parent for parenting is like, you need to have a relatively small and memorable set of rules. But one of the most magical things you can do is to write the rules down and just put them up on the wall. And then all of a sudden, the rules are their own thing, separate from you. The rules take on their own sort of reality. And I was thinking a lot of this stuff about how to commercialize hydrogen is pretty obvious.
I mean, it's pretty intuitive. Just sort of anybody sort of taking a look at the state of things, but there's a weird, spooky power in just writing it down and just having it there in front of everyone. All of a sudden, everyone's like, "Ah, good, okay, let's do this." It's crazy, the sort of catalytic effect that just putting it on paper has.
Dr. Vanessa Chan
Yeah, and I think the other thing too is, we did some really rigorous analysis in order to vet what the cost curves need to look like and so forth. But then we wanted to make sure that it was simple, meaning "Just a handful of things that you guys have to tackle." The handful of things are pretty big, right? But you know, this is what we need to do. And then what happens is, when we all just, similar to your Manhattan Project and SEMATECH, when we all are collectively agreed, here's the problem we're trying to tackle.
We can then channel our different resources to tackle that problem. I think the challenge before pathways to commercial liftoff and ARL was people were just like, "Commercialization is hard, right? So, it takes a lot of money, we have to do this, and we align ourselves." Yeah, a fog. And so, what we're trying to do is like, get those little lights during the fog, which is like, "Go here, then go here." We're not quite sure how we get there, but we at least know the pathway we have to go, right?
David Roberts
There's a separate document on the DOE site related to this, called Societal Considerations and Impacts, which just has a lot about sort of urging developers to do engagement with communities, to figure out what communities want and need to figure out how to do this liftoff in a way that is commensurate with equity and community involvement. And you're probably aware, one of the big ongoing discussions in the clean energy world these days is this tension between speed and community involvement. There's this idea going around that sort of like NIMBYs are slowing everything down. There's too many places where communities can come in and slow things down.
And that there's sort of an intrinsic tension between community engagement and satisfying all the different constituencies and satisfying all the sort of equity considerations and speed. A) Do you think there is such a tension? And b), how do you think about navigating it?
Dr. Vanessa Chan
So, look, I think in the end, when you're trying to commercialize anything, especially the technologies we're talking about, which are pretty large in scale, you're doing it locally, right? Like, our energy runs off a local grid. The things we're doing are all impacting communities. And so, if we don't engage the communities, then we can't do this in a thoughtful way. The Biden-Harris administration was very clear around their EJ40 target, which is that 40% of the investments we make will be impacting those who have been negatively impacted in the past. And so, I do think this is critical.
I think in terms of slowing things down, I don't like people saying that because I feel like slowing things down is when you're not actually engaging in the right way. I actually think people are willing to move fast if you're willing to talk to each other and get to a kind of helpful dialogue. And I think there are some that do it well and others who don't frame things the right way. Just similar to the way we got our pathways commercial liftoff out in six months, people would have told me that's impossible to do. You know, it's bureaucratic.
But if you do things in the right way, it is possible. And one thing I want to share with you is that to date, 81% of the impact of the dollars going out the door from the DOE have gone to communities with below-average salaries.
David Roberts
Interesting.
Dr. Vanessa Chan
Which is amazing, right? So, we've actually doubled the impact in many ways of EJ40. And we've been moving really, really fast as an institution. You know, I've been meeting a lot of former DOE employees, and they're just shocked at the speed at which we're moving. And so, when I look at the impact we're having and the speed we're moving, I actually don't think things are slowing down.
David Roberts
It's early days, obviously, for all of this, but these initial Liftoff reports have been out for —
Dr. Vanessa Chan
A year and a half. They have until March of 2023.
David Roberts
So, I mean, it's unfair to ask this so early in the process, but is there like a success story? Is there like, have you seen something tangible come out of industries in response to these things?
Dr. Vanessa Chan
Absolutely. We have seen that for every dollar out the door going from DOE right now, we've seen six dollars of private investment coming to match it. This was true in the hydrogen hubs, where it's like $7 billion, $42 billion came out for hydrogen from the private sector. So, it's doing exactly what we wanted it to be doing. We also are seeing moves in the private sector of understanding the things that they need to do. And so, I think we're moving faster because we're more coordinated and because we wrote these jointly with the private sector, that's why they've gone viral. This is really organizing thoughts in a way that it's actually pretty straightforward.
Right? Like, it's not that hard. And so, we are seeing the impact, because I'm seeing the private sector move, which is really —
David Roberts
Yeah, this is like the opposite of a bureaucracy coming along and imposing sort of hassles on you. This is like bureaucracy coming along and organizing your efforts, which is what you'd like to see.
Dr. Vanessa Chan
Which is what SEMATECH and the Manhattan Project did, and that's what we're doing here at DOE. Unless we organize, all of us, we're never going to make it.
David Roberts
Right. So, you started with these four. I think there are eight out. Now there's eleven. Losing track. Cranking them out. So, a couple of questions. One is, have you noticed now that you've done eleven of these, that's like eleven real deep dives into specific technologies and their specific pathways to commercialization. Are you noticing sort of running themes or lessons that you feel like you can sort of extract and have broad application across everything? Like, what are the sort of takeaways so far?
Dr. Vanessa Chan
So, since you brought up parenting, I will say all eleven children are all very different. I love them all equally. People ask me, "Which one do you love the most?" I love them all equally. Although the secretary will say that she loves geothermal the most, she's been pretty public about that. I share her preference. I love them all equally because we need them all. Just like Pokemon, you have to collect them all. We need all of these to actually get us to the clean energy transition. And they all have, you know, a little bit of differences in terms of what their challenges are.
So, for example, for innovative grid, this is one that really, I scratched my head on, because the technology actually works. Like, there are no technology risks, there's deployable technology. And we have shown that if we do some things like reconductoring, dynamic line rating, we can actually increase the current capacity of the grid by up to 30%. But the ecosystem's not moving right versus something like long-duration energy storage, where the technology is not there yet, we have to move the technology along.
David Roberts
It almost seems like in that case, and maybe hydrogen's a little bit like this too, in that case, the market and the demand are almost out ahead of the technology, which is the reverse in the case of the grid.
Dr. Vanessa Chan
Yeah, but I will say that there is one common theme, and quite frankly, it is what is keeping me up at night. Because usually, I can look at things and be like, "Okay, here's how we're going to solve it, or how we get together to solve it." The one thing that's really keeping me up at night is the capital markets and capital deployment is not happening fast enough. And the theme that I have seen over the decades is that whenever you're trying to commercialize new technologies, there's like an S curve that you have to go through. And there's this thing, as you mentioned, called the valley of death, although I'd like to call it the valley of opportunity, it's just people are not walking across it.
So, the valley of opportunity. The challenge is that right now, what's happening is we have a way of assessing whether or not something is investable through NPVs, ROIs, WACCs, you know, all these different acronyms that some investment committee put together around what a hurdle rate is that you have to get over for you to invest in something. Now, the challenge is similar to GPAs, which were invented by a professor, as to what an A is. Investment committees make up hurdle rates of what is defined as a good investment. And with these new technologies, we're not yet at scale, so therefore we can't hit the hurdle rates.
And that's why we're stuck. And there's a bit like we're in the Squid Games right now, right, where we're like 8th and 9th, like everyone's, you know, first in line to be 8th and 9th. No one is first in line to be 1st, 2nd, or 3rd. Like, "You go", "No, you go." No one wants to go because they know the first ones are not going to make the money they want. And so we need to reframe how we look at risk and investments as an ecosystem. Because if we are able to catalyze and pull the risk together in the ecosystem, we can get down the learning curve faster, which is when the economics make sense.
And that's when you actually can make money in the private sector.
David Roberts
Well, it almost seems like you need a different kind of investor. You need investors that are more patient, that are willing to accept longer-term, lower rates of return. How much control do you at DOE have over that? The investor community needs to do that for itself, doesn't it?
Dr. Vanessa Chan
I had 20-something speaking engagements at New York Climate Week, pushing people on this one. And it's really resonated with people, which is the reason why we're not moving, is because investment committees have made these decisions on what is investable, and they're expecting new technologies to be able to hit these things. And so the issue is that that magical group of people who are patient, willing to take, they don't exist right now in the US. And if we don't move it, then we're going to get to the point we were with solar, right, where basically other governments are going to step in and say, "You know what?
We're willing to take the hit," and go after it. And so, I think we've done a really good job here in the federal government at DOE and across the Biden-Harris administration of taking the dollars that we have through BIL and IRA to catalyze the private sector. But the private sector also has to come now and think about how do we invest in the first ten of a kind together. So, we are all jointly taking the risk. How do we move beyond quarterly earnings? I think one of the challenges with private sector companies is the tenure of a CEO is usually three to five years, and they are being asked to make capital investment decisions that are going to benefit a CEO two or three down the line.
And humans don't work that way, right? And then they also have the quarterly pressures. And so, I think there's a need to look at how do we think differently about new technologies where we have to hit scale. Because the way in which we right now are grading them is unfair. It's almost like you have some third graders who are being told to do AP. They're not there yet. They're absolutely not there yet.
David Roberts
Shouldn't this be the role of something like Breakthrough, where it's basically like Bill Gates doesn't need quarterly returns on his Breakthrough investments? Couldn't they do this?
Dr. Vanessa Chan
But look at the scale of this. I mean, this is beyond Breakthrough. This is beyond the federal — I mean, this is the entire ecosystem. We're talking about a dozen different things that have to happen. And so, this is where I think we have to rethink some of this in order to really do it transformatively. And what I tell people is, if we can innovate here at the DOE, and we really have, I mean, getting this kind of stuff out the door as quick as we have, bringing private sector thinking in all this stuff, if we can innovate in the DOE, I know the private sector can innovate like I never thought we could innovate in federal agencies.
But I'm still here after three and a half years because we've been moving so fast and innovating so fast. And I know others can do it if they just have the risk appetite for it. That's where I get excited about folks like the Geneva Association, Breakthrough, and others, because they see the need for this. The question is, can other people stand up and do something similar? To give you an example, right now, the third thing that I'm really excited about is the Foundation for Energy Security Innovation (FESI) — have you heard about this? So, in the CHIPS and Science Act, it was put into law that we needed to create a 501(c)(3) foundation for the DOE.
So, this is a 13th federal foundation. For example, NIH has CDC, In-Q-Tel is CIA's foundation. And so, this foundation is there to support the mission of the DOE and in particular, commercialize technologies, which is why I was tasked to help stand up the DOE, the FESI, and stand up the board. So, we appointed the board in May of this year, and they are going to be able to do a lot of things that federal agencies can't do, including bringing philanthropic capital in and so forth. So, I'm pretty excited about this as being an additional tool in the toolkit to drive commercialization.
David Roberts
One other thing I wanted to return to before we move on from this, just because it's a hobby horse of mine, you mentioned the grid, the Advanced Grid Liftoff report, and how you're beating your head against the wall a little bit there. And part of it, what occurs to me, is anything that has to run through electric utilities does not seem commensurate with speed and scale to me. Is that a big worry? Like, are you running into that over and over again, or do you think that's just sort of confined to the grid space?
Dr. Vanessa Chan
I mean, I think human nature is one where we like to do what we're comfortable with. And I get it with, like, you know, utilities and oil and gas and others. Where they are quite risk-averse, because when there's failures, they can be pretty catastrophic. Right?
David Roberts
Yeah.
Dr. Vanessa Chan
So, I think that's a lot of what is driving that kind of culture. And so, I think the key thing around this is finding utilities that are a little bit more nimble, willing to take a little bit more risk, trying to pilot some things, and then showing when it doesn't break, that, you know, this is a good thing to do. Which is what the Innovative Grid Liftoff report was doing, was showing technologies that have been demonstrated already in existing utilities, in existing real world, and showing that there's a business case for it. Where right now, when you take a look at some of the technology we talk about there, it's 5% of the cost of what would take to actually build a new grid to get to this. So, the ROI is there, right?
David Roberts
Right.
Dr. Vanessa Chan
So, I think that's really the key. And then, trying to get people to move when we've shown that the risk is much lower, but it's hard.
David Roberts
What we need is a bunch of Vanessa Chans in utilities across the country. How do you choose what tech to do next? You've done eleven. Now, is there some process, or do you just have a list already that you're just working your way down?
Dr. Vanessa Chan
Well, the first ones we chose were because, as I mentioned, there's money going out the door. Also, because this was a new way of doing things. I was looking for leaders within DOE that would understand what we're trying to do and help us through this process. So, those four were pretty great ones to start with. Once those four went quite well, they became the change agents for the rest of DOE to say, "Hey, this is a good thing." Then we started looking at where the money was that was going out the door.
So, for example, the Grid Deployment Office had money going out the door for GRIP, which is one of their programs for many of these reconductoring and innovative technologies. So much of the work that we've done on Liftoff reports is actually tied to dollars going out the door. What's really important is if you want to get the DOE money, we're telling you, "Here are the things that you need to address." And by the way, we're addressing these things because if we address them, then the capital from the private sector will activate. So this becomes almost like a flywheel, where the stuff we're doing is then directly linked to what the private sector's thinking, which is where the money really is.
David Roberts
Yes, just getting those two in sync. Two final questions. One is, how do these Liftoff reports relate to the Earthshots? So, listeners might be familiar with. There was a solar shot, which is just the aspirational goal of reducing the cost of solar by some insane amount, which of course, this being solar, solar did. And then that, I think, inspired a bunch of other Earthshots. You know, are these and the Liftoff reports related, coordinated in any way, or are they just separate operations?
Dr. Vanessa Chan
They are coordinated in the sense that, in order to reach the Earthshots, you actually need to kind of follow these pathways to commercial liftoff. But many of the Earthshots were done because I think it's helpful for people to have a framing of what's the big thing we have to go hit. And so that was really the point of the Earthshots, was to give a metric and a target for where we need to get to. But in terms of how to get there, that was the tricky thing. And that's what the pathways to commercial liftoff are.
What was interesting is, as we're doing some of the work, we actually found that some of the Earthshot targets were even more aggressive than we needed them to be. So, for long duration energy storage, we actually are able to hit liftoff as we get the path towards the Earthshot. And so, they absolutely are linked.
David Roberts
Oh, so you think you can commercialize at some price lower or higher than the Earthshot?
Dr. Vanessa Chan
Yeah, for the case of long-duration energy stores, through some of the analysis that we have done. But I think it's really important to have big bold targets out there because I think when you have big bold targets, you can get to where you need to get to.
David Roberts
I mean, my intuition — and this is just, I have no way of proving this — is that if you get everybody on the same page, moving in the same direction in a coordinated way, you get the private and public sectors coordinating toward barriers and risks that they all agree on and can all see. Once that happens, I just think these things are going to go way faster than anybody thinks they're going to go. They're going to get cheaper than anybody thinks. I think we all are biased towards conservatism when we predict and propose these things. But if you can really get everybody firing in the same direction, I think we're going to hit targets that now seem crazy.
Dr. Vanessa Chan
That was the only way we were able to do SEMATECH and the Manhattan Project. And we're seeing — I mean, one of the things, when you read the nuclear report that's interesting, is we've actually had 50 first-of-a-kind because in the US, what we've done is we have had 50 different designs for nuclear reactors. Now we need to have the Ikea model, right. We do one and we do it well. But it wasn't until we did the analysis that we saw what was going on here is we're not going to scale fast enough because we can't anchor on one design.
So, I think there are things like that which I think are really important to showcase and to get the private sector aligned on, "How do we get there faster?" They're really requiring more coordination because, in the end, it's all about economics. I have yet to have anybody raise their hand when I'm giving a talk and I ask people, "How many people here want to pay more for something?" Nobody does. And so, we're not going to actually get to full-scale deployment until these technologies are cost-competitive. And that's what we've seen with solar, right? I mean, solar has been amazing in terms of its growth once it got cheap, and that's what we need to do with this stuff here.
David Roberts
Final question, this might seem a little random, but it is on everyone's mind these days. One of the big things happening in technology now that I don't think anybody really saw coming, at least not at the scale that it's hitting us, is this rapid rise in electricity demand, driven approximately by AI and data centers. But as all good Volts listeners know, coming in behind that, you have the electrification of vehicles, of the HVAC industry. You got a lot of electricity demand coming down the pipe. It's just hitting earlier, I think, and faster and bigger than anyone expected.
And it occurred to me, as I was reading through all this, that it seems like a big macro factor that is quite relevant to the commercialization pathways of several technologies. So, I wonder, has it occasioned you doing any sort of reassessment of technologies that you've already assessed in terms of ARLs? Is it changing ARLs in various places? Like, what is the kind of relationship between this striking demand growth and the work you're doing?
Dr. Vanessa Chan
Yeah, so great question. And in fact, that was something that was keeping me up at night at one point, which is why we had a team go together and actually put together a briefing on how these different pathways to commercial liftoff are actually going to meet the energy demand that is there. So, if you guys go to the Liftoff website, we actually put together an entire topic brief on it. And what we found, right, is that electricity growth demand is supposed to grow by about 15% to 20% the next decade and double by 2050 per what all the things that you were talking about in terms of what's driving it.
But what's really interesting is, in the near term, we actually can expand the existing supply if we were to scale what we have. So, for example, these innovative grid technologies, I think, are super critical. Virtual power plants is another one which we have a Liftoff report on, where, you know, for those who aren't familiar with it, the idea is you have bi-directional batteries which you can, you know, charge when demand is low on the grid, and then you can off-charge to the grid when demand is high. So that's where you get to a virtual power plant.
And there's all kinds of things like that that we can do in the near term, if we were able to really get our act together on technologies that have been proven, and then the idea is that buys us time for the other things like long-duration energy storage and nuclear to get their act together. So, it's a lot like, you know, driving a stick shift, which is if you pop the clutch too fast, then you're going to stall. So, if we can ease into some of the things that we know are working, it gives us time right now for the other stuff that isn't quite there to actually get there when it needs to get there. But, I think the key thing is we have to move and act now like there's no time to be waiting.
And that's the challenge.
David Roberts
It really raises the need for commercialization of a lot of these things.
Dr. Vanessa Chan
Completely.
David Roberts
Well, this has all been fascinating. You sound like you just have the funnest job.
Dr. Vanessa Chan
Oh, my gosh. I have the best job in the world. This has been amazing.
David Roberts
I mean, just to sort of coordinate all these exciting new technologies, kind of coordinating them as a kind of a herd thundering toward the market. It's just like, what a time to be alive, right?
Dr. Vanessa Chan
It's been amazing. BIL and IRA have just really transformed what the nation can do here. The DOE is an incredible community. Like, this is all a work of hundreds of people across the DOE. And we all are wanting to move fast and be bold. And it's just amazing to be under the leadership of Secretary Granholm who is very focused on "deploy, deploy, deploy." And having that mindset and mandate around it has been just spectacular. So, I think it's always fun when you can actually make a difference in the world and you can tell your kids you were there trying to do that.
David Roberts
Yeah, you found your spot. You've been looking for how to make an impact on the real world, and here it is. This is a story that the clean energy community is not sufficiently aware of. Just the sort of activity, the scale, and the speed of things that are going on inside the DOE now. So, thanks for giving us a glimpse.
Dr. Vanessa Chan
Well, thanks for having us, and I really appreciate being on a show that I listen to all the time. So, thank you. Thanks for having me.
David Roberts
Thank you for listening to Volts. It takes a village to make this podcast work. Shout out, especially, to my super producer, Kyle McDonald, who makes my guests and I sound smart every week. And it is all supported entirely by listeners like you. So, if you value conversations like this, please consider joining our community of paid subscribers at volts.wtf. Or, leaving a nice review, or telling a friend about Volts. Or all three. Thanks so much, and I'll see you next time.
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