Bloomberg Audio Studios, podcasts, radio news, Joe.
The Buzzword today, recession, slow and growth, other issues. Are you noticing any of that A constellation?
No, not yet, certainly not in powered demand.
So what kind of power demand are you seeing? There's been a lot of change in terms of deep seek. There's been questions about how long the CAPEX cycle can last for hyperscalers.
What are you seeing?
We don't see an end in sight right now. We're starting to see it get rationalized. And by that I mean we're not seeing the same request for data centers popping up in five or six utilities. So I think the hyperscalers are beginning to figure out where they want to go. And it's not the frenzy of activity, but in terms of the deal pace, it continues the same way we saw it last year.
And how are the deals like? How is it to get them done?
Is it hard? Is it coming up with a structure the money? Like? What is it?
It's not hard, but they're complicated because they're multi billion dollar deals, right, So we're talking about twenty year deals for power that sometimes could cost five or ten billion dollars. So like any commercial deal of that scale, it's going to take a long time to negotiate, and each time you need to do that with a new party you have to go through all the terms and conditions again. But I think we're going to get some some deals done this year.
Can you give me some hints, like in maybe areas, what kind of deals, like what kind of power?
Well, I think nuclear continues to be very attractive for the hyperscalers because it operates twenty four to seven, it's cleaned, so it meets their environmental goals, and it matches up really well from a reliability standpoint.
So let's go to the money then for a second.
So coming up with the deals is very interesting, particularly the one you do with Microsoft to restart three Mile Island.
Are your costs going up right now?
A little bit? But it's really labor inflation that we mostly see. Now. Remember we have existing nuclear plants that are already built, so a lot of the cost of the raw materials that you're saying, you know, potentially impacted by arafs in the long run, but an escalation through inflation. We're not seeing much of that tiny bid on uranium pricing. But most of what we're seeing is labor contracting, So are.
You planning for a tariff increase that we should be seeing on steel and aluminum on Wednesday?
Right? You would have no, that would have limited impact.
How do you see that pretty limited impact on us? It would impact replacement parts and that sort of thing, But it's going to be a deminimous impact on our budget.
And if you wind up seeing an increase, right even in labor does how does that change in your contracts? Like you've already said it, you have to go back to them and say, hey, listen, we got to renegotiate my costs are going on.
No, there's no reopeners up or down for those sorts of inflation.
So you're really taking on that risk.
Sure, yeah, yeah, we're taking it on for over twenty year period. And that's the importance of being able to do this with nuclear, Right, we know exactly what our cost structure is going to be within a range for ten and twenty years. Harder to do with our natural gas assets, where we don't know what the price of now gas is going to be ten years out, or whether we're going to have a carbon tax, or what the changes in environmental regulations are.
Going to be So how do you manage that risk?
Well, I think what's really difficult to do that. In the case of natural gas, I think there what you're doing is something that looks more like an index product that is indexed either inflation or natural gas prices.
When you talk about the different parts of your business, how much of the capex that you're spending is going to new stuff, beefing up old stuff, or just replacing and making sure everything stays on track.
Yeah, So for us alex we face a critical decision as to whether to relicnse the nuclear plants for another twenty years, and we're facing that across the fleet. So when you say new, if we don't do this, it's going to be retired, very much like Three Mile Island was retired. So the distinction between keeping existing open and something that's truly new is immaterial. Right. If it's gone, it's gone. It's the same as if it were never built.
So we are investing all of our moneies to secure that fleet for the future, and we're also doing uprates and restarts and other things like that. In terms of a percentage to your question, I would say ninety percent of our spend is in the existing assets and getting them ready to run for decades to come.
So when we talk about power demand booming and increasing by multiple digits, right, I mean ten percent would be huge. How do you play that? Like, if it's not new, is it just expanding?
While it is expanding, a lot of our clients are interesting interested in operating that's increasing the output of existing nuclear plants, and we're doing that in a number of different regions. Obviously, the restart is more limited. You had one plant there that you could turn on, and I think there might be another in the nation. And then the rest of that is going to be probably spent on renewables, storage and natural gas for the time being, and then the fullness of.
Time new nuclear em and a for that I know Calpine, So that really beefs up your natural gas. Nuclear is now fifty percent of your portfolio versus say seventy.
That was a big shift. What else is in your pipeline for.
That, Well, we've got a lot on our plate. We've got a lot of food d Yeah, and so this year we're going to spend making sure that we're ready to integrate Calpine and prepared for regulatory approvals at the back end of the year. But as you said, it's a big deal. And I think what we've indicated as a company is M and A is a big part of our strategy.
Yes, m and A in beefing up nuclear, natural gas, or you want to diversity, all of the.
Above, all of the above. I think storage is going to increasingly be a part of the story, so we'll look at those opportunities as well.
Everyone now wants to get into power. It is the coolest thing right now in the market. Whether you're looking integrated utilities, regulated utilities, even energy companies.
Are you seeing more competition.
I think there's a lot of interest from all kinds of places. There's a lot of foreign interest in investing in the US. I think what people are trying to figure out is whether they too can secure longer term contracts. I don't see people building spec power plants hoping, you know, the demand will come. So I think there's going to be a lot of interest there, but it's largely going to be fossil. It'll continue to be renewables, but it always has been renewables. And then we'll see whether they
could get deals done. You know, the hyperscaler is going to have to make some tough decisions between their own climate goals on the one hand, and their growth needs. We think there are other opportunities to introduce that demand without necessarily building more emitting generation. And we think a big part of the story is curtailment demand what we
call demand response in the business. There's a new study out of Duke that's been making the rounds over the last couple two three weeks that indicates we could build seventy one gigawatts of data centers in the US by just getting curtailment of about zero point two five of one percent. So it's it's really a peaky system where we have problems during certain hours, but overwhelmingly I'll give you a statistic, eighty percent of the time we use less than two thirds of the power in the country.
Wow. Okay, So efficiency it is key. We started with macro, so I want to end with macro as well.
If we wind up getting inflation, if stagflation becomes an issue, if rates stay higher for longer, right, if renewables get more in the chopping block because returns are dented because of those higher rates, how does that impact how do you think about your business?
Well?
I think there's a lot of push pull in all of that. What I think will be most meaningfully impacted is new generation that would otherwise come online. So I talked a moment ago about the need for long term contract and to support the new gen that people are talking about. Everybody. There's a frenzy of activity, as you indicated, around that, but that only happens if we have growth, So that's the first thing to fall off.