In this episode of Plugged In With Jed Dorsheimer, Jed and Brad Viator, principal of energy advisory B Strategic, spend time discussing the significance of the PJM power auction, the role of renewables and their impact on the grid, the problem-solving potential of energy storage, and what a grid of the future may look like.
Podcast Transcript
00:05
Jed
Welcome. I'm Jed Dorsheimer and I'll be your host of the Plugged In podcast, brought to you by William Blair. It's back-to-school season, so there's a lot of energy in the air, certainly in our household. So, what better time to talk about energy systems? In fact, we just published some white papers on the topic. Please contact your William Blair sales rep to get ahold of them.
Today, I'm joined by Brad Viator, who leads B Strategic’s Advisory Services, focusing on guiding clients through complex legislative, regulatory, and media challenges. Brad is basically an energy policy expert and works with some of the world's leading power companies. His bonafides include serving as Vice President of external affairs at the Edison Electric Institute, where he represented some of America's largest investor-owned electric utilities, leading both state and federal engagements and labor relations.
So, this guy understands the complex policy network. As you'll hear during our discussion, he's a native of Texas but resides just outside D.C. in Virginia. And on the weekends, you can probably find him not talking about energy systems but coaching youth sports like many of us. During the podcast we will discuss the U.S. electricity market. We'll discuss deregulation in the 80’s and the differences between competitive wholesale markets and regulated markets.
We spend some time on the PGM power auction and why this is so important, the role of renewables and how these are actually affecting the grid, and whether we think the PJM is an anomaly or the start of a bigger trend. We'll talk about energy storage and its role on trying to fix some of the problems that we're seeing. We'll also offer some suggestions on what a grid of the future may look like, and how does this transition take place?
So, I hope you enjoy and as always, we welcome any feedback. Please reach out to me directly. And, with that, I'll turn it to Brad.
All right, Brad, welcome to the Plugged In podcast. I really appreciate you being here. I know I gave a little talk earlier today that you were part of. And I think most importantly, we put out a bunch of, published a bunch of reports which is why I'm so glad to have somebody that has a level of expertise in terms of the complexity of our electric grid and energy markets. And so thank you so much for being with me today.
2:41
Brad
Absolutely, Jed. Thanks for having me. I enjoyed reading your reports and tuning into your Q&A today. So, looking forward to this as well.
2:49
Jed
Cool. Maybe just, you know, a brief background of sort of how we got here. So if we think about the electricity grid in the US, we're broken up into seven different ISOs. So independent operators, and then we have, you know, regional transmission operators and, and then there's different energy sources as they kind of supply into that.
What we think of or what most people don't realize is the magic of turning on a light switch. There's this whole operating system behind that that is relatively complex. And that's gone through a bunch of different changes from the early days of, you know, Nikola Tesla and Edison. So, let's not necessarily go back that far, but maybe just over the past 40 or 50 years, like, what are the major changes in your view of how this market has kind of evolved to what we have today?
3:55
Brad
Yep. All right. I'll try to use simple language. I'll try not to use acronyms. Please stop me if I start. But I think it at a high level, the electric system we have today is a little bit - not a little bit - it's a lot, a bit different from the one that was sort of originally conceived and designed.
But I'll start with the sort of three main parts of the electric system and how it works. And then talk about how it used to be run versus how it's run now. So the three main parts of the electric system are electric generation, high voltage electric transmission, and then the electric distribution system. And those three parts sort of come together to form what we know as the electric grid.
The electric grid in this country is something crazy, like 36,000 different electric grids that smash together across, what are called three, these three interconnects - the eastern interconnect, the western interconnect, and Texas. As a Texan, I believe that that makes so much sense. We're so much better than everybody else. We need our own electric grid.
So that's sort of how the electric system is designed. For the longest time, it was sort of designed and operated this way, owned by sort of big businesses that own generation, transmission, and distribution. And they were granted sort of monopoly status by the Federal Trade Commission, sort of thing. You know, granted, some of these authorities the Federal Power Act kind of granted some of these authorities.
And then locally, you have these franchise agreements and arrangements where, you know, local municipalities or states will essentially say, all right, I'm going to have an electric company that is going to provide service to me. It doesn't make a ton of sense to have a bunch of different electric providers, because then you'd have five wires running into your home.
And these systems are just simply so expensive that it doesn't make a ton of sense to sort of duplicate this system. So, we granted all of these electric companies, many of these electric companies rather, sort of monopoly status, and we'd allowed for them to, own and operate the system in exchange for them being granted monopoly status
So essentially what happened when this monopoly status was granted is that groups of regulators were sort of developed that would oversee this investment. So the way it works is a company decides, hey, I'm going to go out and look into the future, decide what population growth looks like, what, sort of business growth looks like. And I'm going to build a system to meet that peak demand. They would sort of litigate this thing through a semi-adjudicatory process with a bunch of different interveners.
They would say, hey, I need to spend $100 million on a system. The regulator would say, how about 80? This thing that you were recommending doesn't make a ton of sense to me. I want to I want to trim it back by $20 million. They reach a settlement. There's an agreement to go and invest. These companies get the opportunity to earn a bunch of money, to make these investments.
Their margins right now operate somewhere in the 9 to 12% range. That's usually how it kind of operates. So, they don't make a huge margin, but they are sort of granted authority by the government to go and spend money. So it ends up being a pretty good business for them, right? Like they can live with, ten, 12, 14% return because the government told them to go build it and then told them to recover the cost.
That is how the system was originally conceived and designed. Here in the US, all parts of the system were owned by, you know, by these regional companies that that sort of, operate the electric grid. So that was sort of the world we were in. And then you started to see really in the 70s and early 80s some changes in this whole concept.
And it was driven by the successful deregulation of other big monopolies. You know, you saw it in telecom, you saw it in airlines, right? There was a lot that was going on over deregulation in the airline system. And people started to think, all right, do I really need to give this one electric company all of my money? Can’t competition actually deliver a lower cost for customers? So they started to go out and apply this concept of deregulation. You know this is a really fun thing. If you want to dive into Rabbit Hole, this is the one to dive into. The big advocate for this concept was a little company out of Houston called Enron. So, if you remember the sort of scandal that was around there, this is what it was, this is what it was all about.
So the idea was, all right, we're going to go out, we're going to deregulate this electric system. Transmission and distribution, it doesn't make sense for multiple wires to come into a person's house. So, we'll continue to allow transmission and distribution to be regulated, sort of governed by those same regulators. But we think we can create a single clearing price wholesale market or a marginal cost market that will allow for the delivery of low-cost electricity through a market mechanism. So, we're going to go out and we're going to develop a system. What the Enron guys were saying is we're the big buyer. We are the, you know, we're the big player.
We're going to go out there and build a bunch of power plants. And as a result of us building a bunch of power plants, there will be more competition in the marketplace, and the price of electricity will decline because you'll have all these participants. And then as, as the price of electricity declines, it sort of becomes more cyclical. Then we'll choke out all the competition. Then the prices will rise. Those price signals will tell us it's time to build more generation. We'll go build more. And so you'll see a little bit of volatility. But as a practical matter, it's, you know, capitalism, man. Like we're just going to apply all these things here and everything's going to go great.
So a bunch of states made that move, like 13 states sort of initially in the late 90s kind of made this move. California went first, Texas went after it, New York, and most of New England kind of moved into that place. And, you know, everybody was like, all right, cool. This thing's going to be great. We're just going to develop this market.
California energy crisis happens. We discover that Enron is a fake company. The whole thing sort of blows up. And a lot of states that had started to go down the road to deregulate their electric system and electric supply decided that maybe this isn't such a good idea. I live in the DC area in Virginia, and Virginia had moved that way, and Maryland was like a year ahead of it.
So, Maryland went forward and proceeded with deregulation and the price of electricity went up 80% from the deregulated, you know, as soon as it implemented its system. So Virginia was like, oh my gosh, let's go back. Let's change the law. We don't want to do this. So that sort of led us to this world, really, that we've been in for the last 20 years where you have these deregulated electricity markets that have, sort of potential for volatility versus these traditionally regulated electricity markets that build a system using a cost-of-service model that essentially said, all right, how much service do I need? And divide those costs. Formulaic. So that is kind of the world that we live in and operate in now. And so for any of your listeners that have heard the term PJM or ISO New England or ERCOT or CAISO, if you're in those places that have those markets, you're more or less in a deregulated electricity market. If you're in the southeast, if you're in the bulk of the Midwest and the southwest, as well as, actually the Pacific Northwest, you're in a traditionally regulated market.
So those places traditionally regulated are not as exposed to price spikes, but have less competition. In the deregulated markets, there is theoretically potential for you to pay less when energy is plentiful. But you're also going to pay more when it's scarce. So that's kind of the system that we're in and a little bit of how we got there.
13:05
Jed
Perfect. And that's a perfect segue into maybe dive right into PJM. So PJM is the ISO for Pennsylvania, New Jersey and Maryland. So that would be the deregulated market for energy in those areas. And we just saw, they use a auction method, on a forward basis to determine the clearing price of energy. And we just had something that was, you know, a bit of a shock wave in the energy markets where the 2526 auction in July of this year for 133GW of electricity, I think I've got the numbers right, which was up 833%. So that's kind of the big shock to the to the energy markets. And so, Brad, what do you think? Like what's the read in that? The conversation I'm having is, is this the beginning of a trend? Is it an anomaly? Is it in the middle? You know, what are your thoughts on PJM? That seems to be the most relevant data point that we have right now.
14:25
Brad
Yep. So I’ll add a couple things to what you said and then get into the answer. So originally started as Pennsylvania, New Jersey and Maryland, 14 states are now a part of it. So think of the Mid-Atlantic like, you know, the Virginia is a part of it, but it's sort of weird how Virginia, as a part of it. So think of like the DC area up to Pennsylvania and then it goes west to Illinois.
So that's kind of the region that's covered there. It's the largest wholesale market in the world. There are a lot of people that live in this place. So more people are impacted by what happens in PJM, than anywhere else. So that's sort of what PJM is. Some interesting things happened, as you sort of talked about, they held a capacity auction. A capacity auction is held because sort of in the early days of these wholesale markets, people began to realize that you don't want to bankrupt every power plant that isn't used all the time because as a practical matter, we have hot days and cold days, and for electricity when it's hot, you use more electricity. When it's cold, you don't. You want to have extra power available that you can call upon in a moment of need. And so they created this mechanism called a capacity auction, which is essentially an additional payment you're going to give to a power plant for it to be available. Think of it like a reserve, some electricity that we can call upon when we really need it.
We're keeping it open in case we do. So, you know, the prices in these capacity markets were pretty stable for a long time. And the capacity auction for the immediate year prior. So the capacity auction that was held in June of, sorry, July of 2023 had the price, something like $28.92 for capacity. They had another capacity auction, that was held the summer, in July. And we got the results of that auction on July 30th. And that new price for capacity is like $269.81. So, like, as you said, an 833% increase in the price capacity. So that's one item. Also, the amount of capacity that showed up was substantially less. Right? Which makes sense if you understand how our market works.
That makes a ton of sense, right? Like the price got that high because we were just searching for capacity. But as a practical matter, 12,000 fewer megawatts showed up in the PJM capacity auction than showed up in the year prior. And this is, in my view, not an outlier. This is a trend. I think it will become a trend.
I think we will see some results in other markets that have capacity like the New York ISO. And then also the ISO up in New England. I think we'll start to see some similar things express themselves over in those places because I think it's for a bunch of different reasons. But if we're talking about PJM, the big issue is you've got a big line of power plants that are waiting to connect, and they're pretty much all renewable.
And the problem is renewable energy does not deliver the same capacity that dispatchable energy does. And that is because you can call a dispatchable resource. You can tell a natural gas plant to turn on, a coal plant, a nuclear plant, a hydro facility. You can tell them to turn on. You can't tell the sun to shine and you can't tell the wind to blow.
And so what's happened is a lot of those thermal resources, those dispatchable resources have disappeared in PJM, and they've been replaced with these renewable resources that you just have to take whenever they show up. And so PJM has got a real problem. They're going to have to think about how are they going to encourage dispatchable generation to show up.
And even if they get that done, how do they get those resources to jump from the back of the line to the front of the line where they need it?
18:51
Jed
So PJM has a problem, but won't the other deregulated markets also have a problem? Because we've seen similar type dynamics. So, you know, the New England ISO is what I'm a part of with Eversource. And, you know, we're not in a particularly great area of the world in terms of, you know, insulation and radiation levels compared to sunny Arizona. But yet we've deployed, from a policy perspective, a ton of solar. And I think there's also an important point here, which is what you and I are talking about is not a function of, you know, I think often this gets highly politicized of you're either anti, you know, solar and wind or pro-solar and wind.
And this is no fault of the technology. The technology is actually superior in the sense of efficiency, which is why the marginal cost of solar is cheaper than the other technologies. From a generation in terms of going directly for conversion of photon to electron. So the exergy that is associated, the usable part of that electricity, that conversion process bypasses a lot of the waste heat.
So it's actually more efficient. But the problem is, is you mentioned the lack of, our inability to effectively store electrons starts to show its rear, its ugly head here. And that creates a challenge not of necessarily the technology, but how we're deploying that technology within an existing system.
20:41
Brad
I'm not an electrical engineer, so I definitely couldn't have said it better than you. I could not have expressed that point really any better. I think the opportunity that exists and where we should be focusing more attention on policy is figuring out how to really increase the efficacy of energy storage. Because people have talked about this for a long time, but it's the missing link that sort of makes all that stuff deployable. And that's where attention and focus needs to be on figuring out how we can drive down the costs and increase the efficiency of those energy storage systems so we can operate more than four-hour energy storage systems, and look at things like 8 or 10 hours or deploy or even more smaller two hour systems. I think that's the sort of frontier that's right in front of us.
21:42
Jed
So do you think that a market-based dynamic in a deregulated environment benefits this or a regulated utility? If I'm a regulated utility, I'm going to be able to deploy my capital and understand with certain limitations around policy in terms of how I do this. So in the competitive markets, because the levelized cost of electricity is so low for renewables, I compare it to, you know, a power stall in an airplane where the angle of attack is so steep that now the economic lift has stalled out. Where I would actually see in a regulated market that utility has more control over its portfolio.
And so how do you think about – please pick a way of where you think I'm wrong or if you agree? I don't know if you agree or disagree, but what are your thoughts on that? Because it seems like the system is what needs to be changed versus the technology. And we're spending all of our effort on trying to make the technologies cheaper going into a system that's kind of rejecting the, you know, the medicine, rejecting the door.
23:09
Brad
Yeah. You're absolutely right. In a regulated marketplace, somebody has a view of the entire system, and they think about how you make an investment or how you make an improvement to a part of the system, and how that investment or improvement impacts the rest of the system. That is how the regulated system works. They go through this process called an integrated resource plan, and they talk about all the changes that they're going to make across the system, how they affect one another, and they deploy the capital and the technology to where it needs to be deployed to lead to a system outcome. The sort of metric that I play with here, as I think about this challenge, is the system cost of energy. It's not the level of cost of energy, it's the system cost of energy. And when a particular participant makes a big investment that benefits them but has a system impact on everybody else and leads to an additional cost, I think that's a system negative. And that is sort of how this thing expresses itself in these deregulated electricity markets.
You'll have, you know, in PJM, for example, you'll have someone that will go in and build a bigger solar system than they need behind the meter, and that's great for them. That sort of allows for them to defray their costs. Right? But as a practical matter, if it's not paired with energy storage, what will end up happening is clouds will slide through, that system won't produce adequate energy to supply that resource, and it'll have to pull on the electric grid.
So the electric grid has to build what we call in front of the meter. They have to build matching electric power to match that behind the meter electric power. So you end up in a world where you've double built a system. And that means higher costs, right? If you take a sort of system approach to this, if you sort of look out at everywhere and where your demand is, you can say, all right, what I've got unbelievable sun here.
I can install a really big solar facility right here, and I can install it close to some demand. And that will mean I don't have to spend extra money on transmission, so I can deliver that power pretty cheaply to where it needs to be. Right? That's in my view, the way to design the system is to look at it holistically and to start to decide, how can I make incremental investments around the system to improve the circumstance on the ground, as opposed to making investments that impact me?
But I have no view of the rest of the system, and I don't really understand the sort of cost impacts that my investment and my corner of the universe is going to have on everybody else.
26:05
Jed
So do you think that integrated regulatory plans from the regulated utilities are a leading indicator of the deregulated markets in terms of generation?
26:22
Brad
I think that integrated resource plans in regulated systems allow for people to understand comprehensive system impact. I do not think there is the same amount of planning and consideration given in the wholesale markets, and I think we're seeing that express itself in higher prices in wholesale markets right now.
26:54
Jed
Okay, I ask that question because we've gone through the IRPs, what we've seen change is those IRPs are moving away from solar and wind and towards natural gas and then battery storage, and there's some nuclear and hydro in, you know, if we look at the IRP in the northwest, you know, it's going to be heavy in hydro. But there has been a shift over the past two years where there's been this overall mandate from this carbon orthodoxy of like, hey, anything that that has any carbon attached to it is bad.
And what we're seeing in the data is not necessarily aligned with what we've seen a couple of years ago. So, that's why I was asking that. What are your thoughts on that?
27:48
Brad
Yeah. I gave a talk to a group of, co-ops in Arizona a couple of months ago, and I talked about this. I talked about this challenge.
I own an EV. We've seen a bunch of companies make moves recently that indicate that maybe they're not as committed to EVs as they were because they're you know, hard to sell and they're not growing at the pace that they anticipated. I think a similar thing is going on in electricity investment, and I don't think it's directionally - I don't think it means that directionally we're abandoning the clean energy future. I think it's a mean regression. I think what we're seeing is simply just a small market correction. We were like, okay, we're kind of all in on this, on EVs. And then demand didn't show up exactly that way.
While that demand sort of, you know, sort of catches up, I think we've got a similar thing that's going on in investment in these broader electric systems. I think we have increased demand. And so people are like, all right, how do I fill a demand gap and how do I fill a demand gap with dispatchable generation?
I build natural gas. And so I think they're still thinking that, you know, when we designed those plans, that was based upon flat electricity demand. ChatGPT came on the stage and all of a sudden, we've got 5 or 7% growth. And I think we're like, okay, I actually need something that can flex to meet that increased demand.
I'm still going to make a bunch of investments in renewable energy. I don't really see that demand going away for solar. What we're dealing with is growth in overall and the size of the demand pie and the flex resource is the natural gas resource. And so I think we're going to see that over the next five, six, seven, ten years. And then, we will start to see that energy storage technology be able to fill that gap.
29:48
Jed
So let's talk energy storage a little bit. We all know about the duck curve. And for those listening like, you know, it's time of day, you're going to get most of the sunlight during the day, but you don't need it that much then. So if you can have four hour storage, it increases your capacity factor. It makes the electrons that you're generating more valuable. Help us out in terms of understanding the difference between when, you know, in ERCOT, they're using a megapack for because they've got a lot of peakers for grid stability versus improving the capacity factor for renewables.
30:28
Brad
Yeah. So energy storage is a super interesting tool. And I got most involved with this actually thinking about policy and school busses from like seven, eight, ten years ago. And so I'll use the school bus example to sort of tell the story. So the idea is you're going to go out, you're going to convert a fleet of busses from natural gas or diesel to electric.
And that's a super cool electric tool because it's on wheels. It is mobile. And the use of school busses is also really short term. So the school busses might run 2 or 3 hours in the morning, 2 or 3 hours in the afternoon, but you've got this monster battery that is on wheels that you can literally bring anywhere to help your system sort of navigate a challenge, right?
One of the challenges that we're seeing right now, in electric systems, as is the electric grid, is we've got to upgrade them are, a lack of, transformers or even a lack of substations. Well, what if you could just bring in some temporary electric supply to exactly where it is constrained? And that is the concept that we were working under with school busses.
I will just while I'm waiting for supply chains to sort of solve the problem of either transformer or substation, obviously they're different, but like those are two things that have been pretty constrained. What if I could just bolt on an energy storage system right then and right there to sort of meet the supply demands that exist? Texas is in probably the most precarious position of any energy grid in this country because it doesn't have that whole capacity market mechanism.
It's got a bunch of population growth and not a whole heck of a lot of excess energy supply. So what they decided to do in Texas, they decided that they were just going to throw these battery storage systems all over the place that could be fueled up by either natural gas peakers or it could be pure fueled up by solar systems and deployed when they're needed.
That's the sort of concept in the simplest form. And I think the reason that you're seeing them fueled more by peakers than maybe fueled by energy storage is because the energy storage might not be where the demand is. That's kind of the function of it. Right? Like you need a big swath of land to go out and build, you know, 50 megawatt or 100 megawatt solar system.
Right? If you're going to see, that that's not really where you're going to have your problem. Your problem is going to be in Dallas or in Houston. And, you know, that might be 50 miles away from these larger solar installations. So you’ll bolt those things on the grid, right where the problem is, and it'll be fueled by whatever power comes online and then dispensed to meet demand.
33:38
Jed
Well, this is a really interesting point because then the market size and the opportunity might have more to do with decommissioning thermal coal generation, as you then think about how you replace that thermal with, say, a 430 megawatt, eight series, you know, combined cycle gas turbine and as you think about changing the grid, we're actually going to need a lot more batteries to actually keep that stabilization.
So that so that we don't have, brownouts, right? I mean, that's kind of my read on that. What are your what are your thoughts?
34:26
Brad
Ancillary services. That's the sort of thing that we think about. And so if you want to do a deep dive into, you know, how does the clean energy transition work? There's this whole category of ancillary services that we haven't totally figured out in an all-renewable grid. And the ancillary services are largely things like spending reserves. So where does that stuff come from? Where does the extra energy sit? What is the sort of mechanism that delivers ancillary services in a full renewable grid? And sort of batteries can be a reserve. Think of it like, you know, think of it like gas storage or something like that, like it can sort of operate that way, but it's not a real super powered spending reserve.
And so how do we how do we solve that? That's a problem that a lot of the research groups are thinking about. The Electric Power Research Institute has done a little bit of digging into sort of how we how we supply this ancillary service gap that sort of keeps the grid operating. And that's something I'm paying some attention to and just thinking about, like how we're going to get there. But I think your overall point is an unbelievable one, which is even as we see more natural gas build, you will see energy storage be attached to that type of stuff because there's some broad recognition I think that that is, a big key to like unlocking the future here.
36:09
Jed
With thermal generation, you have this inertia associated with the base load and things that are spinning, that flywheel approach as we move to more renewable or a grid that can spin up and spin down quicker. There's certain benefits to that. But there's also certain drawbacks, like what we saw, in ERCOT with respect to the wind in the ice storms.
And, you can have a very negative event. They can flip around. So we basically created a system that had a natural level of resiliency. Unfortunately, that resiliency came with negative externalities that we ignored for a long time. And now we're paying attention and trying to change those. So as we change those, we're going to have to pave for a way so that we don't crash the system as we're converting it. Right. Is that a fair assessment?
37:09
Brad
I think that's I think that's very I think that's very well said. Like we need to think about we need to think about redundancy as we're moving forward. And we need to think about black swans and the worst possible events and design a system that is able to either respond after outages more quickly, which is, resilience, or just kind of prevent outages altogether. And I think that's where, a lot of industry focus is right now.
37:45
Jed
So if I think about what you and I have just discussed and you explaining to me what's going on, to me the one the natural conclusion that seems to be a given is prices are going higher. I don't see a scenario where prices end up coming down at least in the near to medium and maybe even long term, you know, because we're going to have to be building resiliency. We're going to have to build these systems. And we have this complexity. Help me out on - where am I wrong on that, assumption? Where, where could we see the relief? Or do you think we go through a period of five, ten years that you see events like the PJM that become more of a commonplace, and those are not black swan events?
38:42
Brad
Yeah. I think we're in an investment phase in the electric sector. And I think we're investing to build a new system. And so I think as a result of making investments into building a new system, costs are going to increase, right? Like we are out there, sort of modernizing this energy grid by investing in things like energy storage, investing in solar, investing in new natural gas.
And I think that's going to express itself in higher bills. I think the big question is going to be, how is that different from other sectors of the economy and sort of what's happening in the inflationary sort of environment and world. Right? Like the price of everything is going up. The price of electricity has gone up. The price of electricity is going up because we're making a ton of investments in the electric system to become the thing that powers the rest of our lives.
Right. Like we talked about EVs a minute ago. You know, I used to pay 50 bucks every time I would pump up my car. You know, at the gas station. Now I pay 20 bucks to charge my car on electricity. Right? So that saved me on net, $30 but my electric bill went up 20 bucks. And so I think what we're going to see is some shifting from other stuff to electricity, which means electricity will carry a larger load of our costs, but our electricity costs on the net may not increase.
The other question that I think we have to we have to factor in is that, what else is happening in an inflationary environment? Is electricity going to grow to be a bigger share of overall individual homeowners budgets? Probably. But is it going to offset another costs so that on net it doesn't lead to a real impact?
I think that's the kind of leveling off we can see in the sort of ten-year time horizon. Right. Like there's a lot of cities are pushing for conversion from natural gas to electricity. I think that trend is going to continue. And I think the question that people need to ask themselves is like, okay, it's cool that you made me do all this stuff.
Does that cost me less money on net? And I think that in the 5 to 10 year range is the thing that, you know, we're going to need to pay more attention to.
41:14
Jed
Utilities must be asking the same question in terms of because they're given a cost of a return on their cost of capital. And so if the investment profiles are getting worse from a return, it's going to incentivize or disincentivize where they're actually going to be investing, right? I mean, if you're if you have a 12% IRR that's guaranteed in exchange for that, monopoly situation, and you need to be at a 15 or an 18% IRR, that's going to change how you think about certain investments, no?
41:59
Brad
Totally will. I also think it'll lead to more consolidation talk once the interest rate environment comes down. Right? Because that 12% IRR on you know, 30 billion looks a lot different than a 12% IRR on 60. And so I think that's another thing that I anticipate, some discussion to heat up around once the interest rate environment is such that those types of deals can happen.
42:30
Jed
Well, Brad, thanks for coming on. There's a lot have you back to chat about. So let's have you back at some point soon so we can break into the return on invested capital discussion and maybe talk some nuclear on the next one. Thanks so much for being on this Plugged In.
42:40
Brad
Absolutely. Thanks so much for having me. Looking forward to the next one.