2026 trends: Gas turbines, Texas’ load queue and China electrifies

Latitude Media covering the new. The energy transition. I'm Sheo Khan, and this is Catalyst. So for all the talk that we have, at least in the in looking ahead the next couple of years at like spiking prices for electricity and things like that, uh and the share of GDP that might come from electricity expenditures. It's really fascinating how range bound it is. We basically spend between three and four percent of GDP on electricity, and that is that essentially.

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All right, we're back. Longtime listeners will be familiar with my favorite time of the year at the beginning of the year when my friend Nat Bullard, who is a longtime analyst and researcher in the energy and climate space, but also now the co-founder of Halcyon. puts together his annual opus of hundreds of slides on the state of energy and decarbonization. It's chock full of fun data that you don't get to see elsewhere. As always, I picked my favorite.

And Nat and I talked through them. It's all sorts of interesting stuff. We talked data centers, obviously, but not just data centers, oil markets. Solar, batteries, all sorts of things. Uh as usual, this was too long a conversation to fit into one podcast. So this is part one. We're gonna cover a whole bunch of interesting things now, and then come back next week when we will cover part two. With no further ado, here's Nat. Nat, welcome back.

Shale, great to be back as always. Happy twenty twenty six. Four that we've been doing this? Something like that. It is indeed year four. I uh we've we've been doing this recording as long as I've been doing a big presentation. So yeah, fourth year it is. I do love a big deck. 200 slides this year. 200 slides exactly. So wait, I have an important question for you. There's no way it just happened to be 200 slides. You had you you made it an even number. What was the one that got cut out?

Oh, the one that got cut out is nothing I can tell you. I had about three hundred and sixty-five slides as of the start of November. So uh the better way of thinking about it is that I essentially cut one slide for every slide that's in there. And in fact, I usually cut more than that. So I start off with like 300 plus and cut it down to about 150 or 160 and then build back up.

So it's first an exercise in addition, then it's an exercise in subtraction to get to uh the kind of the magic number. As you remember, way back when I had 141, which is like a sort of arbitrary prime number count or maybe it's not even a prime number of of slides. And then uh I I always felt like there was stuff that I had left.

So I made it bigger and then kept it there. I think it's quite possible that if you do more than that, you're you're going to lose the edit capability that gives it some of the strength over the course of twelve months. Yeah, I know I think you need to start making the number like a meaning some kind of a meaningful number. Our our mutual friend, Andrew Bebe, I always appreciated at his for Obvious Ventures their first couple of funds.

The fund sizes were always very fun. The first one was$123,456,789. And then I think the second one was like, 313, 131,313 or something like that. It was palindromic. Anyway, uh you gotta come up with something better than two hundred. I I was thinking about that natural log pie. It's a rich tapestry of options of numbers.

uh mul multiplied by something that I should that I should be able to get in there. But, you know, I do like two hundred for the for now. It it's it's it's easy it's easier for people to wrap their heads around uh and to benchmark a little bit when they're paging through it too.

All right. Enough navel gazing about numbers of slides. Let's get into some slides. Okay. As usual, I've picked a subset of my favorite slides that I found interesting and we're just gonna run through'em. So we're gonna start on slide fifteen.

Which is something that given that this trend has been ongoing for quite some time and in fact the lines crossed like a decade ago, I'm surprised I didn't already know. Which is that China is significantly more electrified, at least as measured by the share of Final energy that comes from electricity than the United States, like substantially more so. And I I had somehow missed that trend.

This is a really this is a great one. It's some work from Ember that it's been now doing for quite some time. And what it tracks is, as you say, the the share of final energy that comes from electricity. But another way to think about it is like how electrified is an economy? And there are there are lots of different ways that you can get to a high number, right? One of them would be that you have very little primary industry.

Um another would be that you have plenty of plant primary industry, but you apply a great deal of electrification to processes that otherwise would be driven with some kind of thermal input. You have like a a tiny bit of primary industry and it's all aluminum smelting or something.

Ex exactly. Like an example of a country like that for instance would be Norway. Right. Right. Uh w which is both an advanced economy, has some industry, is highly primary energy from or v highly electricity rather than primary energy.

Uh but China China is none of those things. It's a huge industrial economy. It's a huge user of primary energy, but it's also a consistent user of electricity for its final for its final uh energy source. And It's also moving at a much more rapid pace than either North America or Europe, which has sort of slowly ticked up over the course of five decades from ten percent. To a little bit north of 20%. China, meanwhile, has gone since 1970 from like 3% to 30%.

Well, I want to benchmark to nineteen ninety actually because that's where I find the chart start looks looks really interesting. In nineteen ninety. North America's already at like roughly 20% electricity, which is by the way, it's still the truth. It's true today, 22, 23%. And that's the number that I always use. Like I knew that number. I always tell people if they over-index on like electricity or over act either like solar is gonna be the whatever, you know.

It's worth remembering in the US that electricity is twenty percent of final energy consumption, or I guess it's actually twenty-two, but that's been true since nineteen ninety. Whereas China in nineteen ninety is down at what, seven percent? electricity and then jump to 30% today. So like the it's a very different trajectory.

It's a totally dri different trajectory at a totally different scale too. You know, everything in China is bigger when it comes to energy and in particular when it comes to the sort of primary inputs. So I just think it's a really it's a really important measure as you talk about you know, in the f uh a electrified future or electro tech or the electric tech stack or whatever it might be, that China is just is is sort of grasping this as

Opportunity that's also being done at scale. Like it's one thing to say Norway can do this. It's another thing to say that China's doing this. Not that you necessarily can speak for the Chinese central government, but you're certainly closer to it than I am. I've heard that one of the reasons, one of the rationales of China Focusing so much on electrification is that they wish to control their own destiny. They don't have massive domestic reserves of hydrocarbons.

Um, but they can produce their own electricity. That is why they're investing in solar and the battery supply chain and blah, blah, blah, and nuclear for that matter. So do you think that that explains this? Like China is just saying we we can't rely on imp um energy imports long term, so we're gonna electrify. So there's well there's a bit of a nuance to that, which is that the primary imports that you'd have of primary energy in China are going to be

oil what for which is still a major importer and natural gas for which it's still a major importer. It does import coal for kind of energy balance reasons, but it has an absolutely enormous indigenous coal supply that will last for centuries. Right. So one thing to remember about this primary energy from electricity is that that doesn't mean that it's entirely coming from, say, hydropower or solar or wind. Right. It can be coming from thermally generated uh the thermally generated sources.

But it's it is definitely within the realm of one's own destiny, right? Um, wherein the electricity is generated within boundaries, right? You know, within a nation state. uh it is effectively sovereign, right? And so in that sense, yes, it does provide a lot more control over destiny, uh less exposure to Market forces to geopolitics to everything else if you're firmly in control of that element of energy. And it wherein electricity is.

almost entirely within the national purview, then you would want to spend more and more energy, so to speak, getting that electricity share of of energy up as high as you can.

Okay, so let's move on to slide seventeen, which I think is an interesting coda to slide 15. Slide 15 is about how electrified an economy is. Like 17 is I super interesting and I had never seen this data put together. It's about what share of GDP is spent on electricity versus spent on oil.

specifically. And the shapes of those two curves are very different from each other in a way that I guess if you had asked me, I might have predicted, but is stark when you look at it. So describe the difference between the two. Abs absolutely. So we're like five and a half decades into an era of thinking about energy shocks. And when we talk about those,

We make it seem sort of system wide, but it's really about a shock in liquid hydrocarbon prices, you know, and specifically oil. And if you look back at the data, you can see just how indexed the global economy was to oil. uh in terms of, you know, how many units it took of oil input to get a unit of GDP, uh, and then the spend uh within different economies on not just energy written large, but oil specifically. In nineteen eighty.

So the year after the second oil shock uh coming from the Iranian revolution. Just under nine percent of per capita GDP expenditures globally were going to oil. Like that's pretty amazing. Imagine one dollar out of every eleven being spent on oil uh of per capita GDP expenditure. That's pretty extraordinary. At the same time, the share for electricity was a little over three percent.

And if you carry this trend across the entirety of the last uh forty five years, what you see is that the oil share A goes down significantly. By uh the late nineteen nineties, it's less than five percent. But it also bounces around quite a bit. So uh right now the share is, you know, in the range of still about five percent, but it's been as high as six and a half or seven and in twenty twenty it was below four percent.

Electricity, meanwhile, is essentially completely range bound. The highest it's ever gotten is like close to four percent, and the lowest it's ever gotten is three percent. So for all the talk that we have, at least in the in looking ahead the next couple of years at like spiking prices for electricity and things like that and and the share of GDP that might come from electricity expenditures.

It's really fascinating how range-bound it is. We basically spend between three and four percent of GDP on electricity, and that is that essentially. Yeah, that's the question, right? The the the reason this is interesting is because of the future, not necessarily because of the past. So just to reiterate the past. Uh, electricity looks like a flat line for 50 years. Basically, rising prices of electricity or at least rising spend on electricity overall, let's say, uh

matches GDP growth essentially. It has to because it's a it's a flat line. Whereas oil is super spiky. It's gone down since the eighties, sure, the early eighties, but you know, it it it moves around a lot because oil prices move around a lot. Okay, so that's how it's gone historically.

What happens now is a super interesting question, right? Because we're in this moment where like oil prices are pretty low. Uh, President Trump is trying to do everything he can do to get oil prices even lower. He's got this stated goal of fifty dollars a barrel if we start.

exporting a ton of Venezuelan oil, et cetera, et cetera. So he's trying to get oil prices low. Meanwhile, electricity prices are under upward pressure. I don't think anybody would debate that. Um and so do we see electricity escape its collar? And spike, could we see the lines cross, which by the way, Tier, in this in this chart, they never have. We've never spent more of GDP on electricity than oil historically.

It it's just interesting to see whether this like dynamic of like one super volatile thing, which is oil, and one super stable thing, which is electricity, whether that's gonna hold. So let's let's do this as a thought experiment to s what would it take to make those lines cross? First of all, it would take much lower cost for oil, much lower oil price for one. Two, a much lower sp reliance upon oil as an input to GDP or as an input to economic growth.

Uh we already get more units of we get more units of economic activity out of ev out of a barrel of oil effectively every year. But you'd need to r rapidly increase or enhance that. Secondly, you'd need to both spend a lot more on electricity and get less from it. You would need to have it be less of a contribution to GDP growth.

So like if you if you had both of those things happen, you'd be spending a lot more. Uh, you'd be spending a lot more, but you'd be getting less GDP out of it. And therefore GDP's not going up as much, the expenditure is going up. That's how you would do it. So you'd have to have like ten dollar barrel and people using three times as much electricity or something roughly like that.

Well, this is what's gonna be interesting, right? So let's just take electricity on its own. Forget the comparison for a second. I think most people would bet that we're gonna spend more on electricity overall over the next

few years, five years, ten years, whatever it is. The question is will GDP keep up? And they're tied to each other because, you know, the the primary reason we're gonna spend so much more on electricity is AI. And there's a bunch of people betting AI is gonna help GDP go to the moon, other people saying it's gonna hurt GDP like it's you know, that question sort of underlies whether whether we break this 50 year trend of basically spending the same portion of our GDP on electricity.

Right. And and and remember that it is it is also global. So there are there are global, not just US, not just you know, Western European questions within there. Um what happens when places that have a limited but non zero reliance on oil rapidly electrify and electricity bec electricity becomes more of GDP.

Um, but you're in turn electrifying more of everything and more more people have access to electricity. You know, we we've somewhat plateaued on global access to uh electricity. There's there's like a million different ways that we can think about cutting this up. to make it look possible. But it's the right the right kind of question to ask without a clear answer. Let's put it that way. My not very satisfying response. Okay, good. Not a clear answer, so let's move on. Slide twenty eight.

I want to talk about gas turbines. This one, you know, we've we've talked about this a bunch on the spot, and many of our listeners are gonna be well familiar with this. I hadn't actually seen the data. laid out though. So I think it's interesting measuring the order book for gas turbines that we have already seen relative to current production capacity. So basically how undersupplied are we on gas turbines? So what do you see there?

So I think it's actually important to start this at the front of the series, which is 2001. There were more than 80, in fact, closer to 90 gigawatts of gas plant orders in 2001, uh, which is an awful lot. if you think about it. I mean we we have to remember that the dash for gas that we you and I started hearing about from industry veterans when we began is now quite some time ago, like two and a half decades ago.

But there was a time when y the world was ordering quite a lot of gas turbines, and manufacturing obviously was of the mood to meet that demand with new supply, only to find order books that collapsed. from 80 something to well under 40 the next year. And then staying steadily below production capability for pretty much the entire time, with the exception of a few years.

all the way up until right now. The current production limit, and as you know, there's not that many companies that make gas turbines, is somewhere in the range of about sixty gigawatts a year. And we're likely last year to be past that by about twenty gigawatts and to be past that by about thirty gigawatts this year. And who knows, based on current orders.

you know, forty gigawatts above a sixty gigawatt uh production limit. And there's a lot of reasons for this. But the first and foremost is if you are in the process in the the

process and have the priority to manufacture gas turbines. What you really don't want to do is be oversupplied. It's not really a great a great tenable market position. And being undersupplied has, at least in the first instance, probably a net positive on your ability to book contracts and to uh to secure durable orders from customers you want and it has pricing benefits.

people are gonna howl at you to do as many as you can, build as much as you can, but if you're in charge of of building S turbines now, you probably have the institutional memory of the early two thousands. Yeah, and we've talked about this before with regard to like tr electric transformers. Also, it's a similar situation where like folks who've been in the industry a long time do remember.

a historic period wherein there was this huge order book boom and then the market fell out from under them and they ended up oversupplied. And so there's been reticence to expand capacity too much for that reason. They are expanding capacity, but maybe not fast enough. Anyway, what's interesting about it is that, but also

You know, even with that history, we are the most undersupplied we have ever been, or at least in since the data starts at the beginning of the century. Um where right now, even today for 2028, the order book for 2028 today. is over a hundred gigawatts relative to about sixty gigawatts of production capacity, which helps to explain why my new you know the expression everything is computer. Um, I I like everything is turbine.

Because now we're seeing, right? Like if you're a jet engine company, you are pivoting to provide turbines for the grid, right? This boom supersonic and all the aero derivatives and like everybody who's got a turban. It's trying to turn it into a AI data center power supply. And not just that, those companies are turning are turning things that are um a usable if

Frankly, somewhat imperfect solution for large scale always on grid connected power into power, right? Error derivatives are t are traditionally used for very specific applications. And they're not being used necessarily to power things all the time, constantly for a decade straight. They can, but that's just not typically within the design spec. The design spec would be for.

combined cycle turbines that are grid integrated and that are part of a big liquid well supplied power market in which they play the h role that they've historically played. Yeah. So it's interesting times for all of these things, right? In terms of what what this shortage for now what this order book mismatch brings to the market, who it brings to the market.

uh the kind of approaches that people then take in terms of how they buy and sell power and everything. Yeah, it's uh it's different times. It's nothing like we've it's nothing like we've experienced in our career. But for those who've got a little bit more tenure than us, it is achingly familiar. Are you tired of overpaying for big name PR firms but not really knowing what they're delivering? Is your comms team wasting time reviewing lengthy messaging briefs and decks?

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Okay, so relatedly then, of course, we are undersupplied. So what do you expect? Prices are gonna go up. So you've got some good data on that from from you folks at Halcyon, um, which you and I actually talked about the last time you were on the pod. a little bit, but I wanna I'm gonna run through it again because it is interesting. You've got good data on the average uh capital cost of various types of natural gas turbine power plants.

as as they are planned. I'd say these are ones that are not operating yet, but the expected capital cost um and how that has how that trends into the future, which I find interesting. So kind of walk me through that and particularly the breakdown of the different types.

One of the exercises that we do that manifests itself as a as a as a data series that people can buy from us in a subscription is Just going through the regulatory corpora in the US and pulling all of the data from the CPC and the certificate of public convenience and necessity or an equivalent.

That is basically the utility going to the state and saying, we need to build this X. And in this case, we're looking at gas plants. And all of the data that gives you an idea of what these things are supposed to cost is within there. It's not broken out in a neat and tidy fashion where there's this like, here's this tabular spreadsheet with all the numbers in it. It tends to be hidden away in proceedings and responses and rebuttals and everything else.

But the upshot of this is that we can map out, you know, uh, on the order of like more than 160 active plants, like uh close to about eighty gigawatts worth of actual capacity. in which the cost of a combined cycle has doubled. Like twenty twenty six deliveries, things that are gonna come online this year, are in the range of, you know, let's say twelve hundred dollars per kilowatt. Uh the projects that are looking to come online in twenty thirty, twenty thirty one,

are a little bit shy of twenty five hundred. So like close to doubling in that time period. And the reason I find this data useful is this isn't based on the announced capital cost for right now. It's based on the price as it moves into the future.

So it's a it's an updated live number that reflects the actual market conditions underneath these things once they've been announced. Not just whatever deposit you put down with your turbine supplier, but the actual ongoing cost to make this thing into a real asset. By the way, I also wonder, I I don't know, you could probably tell me'cause you've looked at this data, but um Does this include like EPC cost, for example?

Yeah, this is the whole this is the delivered the delivered cost, something like the um allowance for uh, you know, work during construction, uh all kind all the all the sorts of things that flow into it, minus the things that we know are are discrete and separate. Like if you needed to build eighty miles of feeder for it, we'd strip that out because that's not like part of the actual stuff, the kit.

So we should come back and look at this data set again in like 2030. Cause I do wonder whether they're actually underestimating the total costs. Right. These are because because EPC and stuff like that in particular, that's also super inflationary. And it's like really hard to find EPCs right now because they're all booked out and So I wonder actually whether it's gonna end up being even more expensive than they think it is.

Well, that's why we're that's why we'd revisit this every month because it moves. Like it's interesting to add new assets. It's almost Maybe even more interesting to watch movement within existing assets based exactly on that. Right. Like the EPC target went up because it did, right? Like any number of reasons. Tariffs, cost of labor, right? Well it's the same any number of reasons, but part of it is the same reason why gas turbines themselves are it's like an undersupply part.

problem. Exactly. So so like you can you can see that coming through. And continuing to go. And yes, we should be revisiting this essentially constantly. And we're already see we see people getting like verbal quotes that are higher. I've had actual developers come up and we'd say, like, your numbers are low. And I was like, well.

Show me yours and I'll show you mine. And then they don't. So uh we don't we haven't actually gotten anything more concrete than this, but this is what's written. This is what is essentially disclosed by law, and it's a pretty fertile ground to get an idea. Briefly on the other types of turbines. So simple cycle, not quite up so much.

But up by about fifty percent from like a thousand to about fifteen hundred dollars a kilowatt. Uh, and then we start to see reciprocating internal combustion engines as well or rice turbines. And those are really expensive. Those are like twenty five hundred To$3,000 a kilowatt already. But interestingly, we don't see a long delivery pipeline for those.

The delivery pipeline for this only runs out a couple of years. Like we don't see anybody planning rice turbines or rice installations in the 2030s yet. It's because I think they're mostly used for either bridge power or or backup, right? Replacement for the diesel shens. In theory. In theory. Uh, but they're increasingly being deployed uh at a scale that suggests that they're being used for something closer to bulk power. Right. Yeah, maybe that is um b like I said, everything is turban.

Everything is turban.

Okay. Well, let's stay on the theme of like all this power build out stuff. Um, I really like this next one. Sled thirty two. So, so much capex. That's my version of the t slide title. Um, you're comparing the the total amount of capex spending on this is gonna be predominantly data center. So it just says tech capex. In 2025, to other historic booms in Capex spending in the economy, which is a good way to compare. Yep. What do you find?

So I'm gonna give credit first of all to Michael Sembelest and his teammate uh Chief Morgan Asset and Wealth Management. They built this slide first, not me. I did in the past, I'd done some examples of Interstate Highway and Broadband CapEx. As a comp, but I'd not done this full suite that they've got here, which goes from all the public works in the 1930s, like the Hoover Dam through the Manhattan Project.

Electric we could call our wave of electrification in the US in the late 40s, Apollo Project, the highways, broadband build out, and then the tech capex. And you know, things like the Manhattan Project, electricity, the Apollo Project, these are like less than or barely above one half a percent of US GDP at their peak. Even the Apollo project, even the Interstate Highway project is like six tenths of a percent. Building out broadband CapEx in the year 2000 at its peak was like 1.2% of US GDP.

And tech capex right now is just under two percent. So basically higher than anything else. And and to your point, this is the capital expenditure to build compute, essentially. This is CapEx for building just the actual computational. Elements as well as the buildings that contain them and the power set that's within the fence of the company's capital uh expenditures. It is not.

power and transmission and water capex to go with it. So it's a pretty fast it's a pretty fascinatingly big number relative to everything else. And I will add all these other data points, as you've said, where you can go into history and you can figure out what year was the peak. Right. And so the peak of broadband capex was the year 2000 when it was just over 1% of GDP. That's comparison against 2025 actual capex of of tech, which may or may not probably isn't the peak.

Right. And in fact, the the two thousand example for broadband is instructive because the NASDAQ bubble burst in March of 2000 and CapEx kept going. So th this is this is uh not a new observation. Uh Michael Burry made this observation recently on Michael Lewis's podcast that the the capital expenditure actually lags what might be happening in the purely financial market.

So yeah, like this could keep going for a while. The cat the CapEx is committed. Uh sometimes it's already underway. And a lot of it a lot of it will keep going. This is probably not the peak. Like most of the estimates. based on what companies themselves are saying for their estimated capex have a higher number for next year. Right? Uh and then again, you you you you attach the The uh relevant

quantum of investment in the electricity sector to it and it's a lot more money too. I mean that's the other thing like it's it's hard to say in many cases specifically is this new CapEx specific for energizing this data center. But certainly the prime mover of demand growth and of building new infrastructure in the US is for energizing data centers. And so, you know, the utility capex that goes with this is also, you know, in the tens, if not hundreds of billions of dollars.

Okay, good segue. Let's let's let's get back into energy then, the energy results of this, right? So let's let's go to Texas. We're going to Urkot. Slide ninety one is on the queue, the Texas interconnection queue. This is the large load interconnection queue, not the generation cube, although the generation queue looks, I think, kind of similar, to be honest. Um

Yeah, everybody knows this, right? Like Texas, lots of people are trying to build data centers in Texas, no big surprise there. The queue has gone up a lot, no big surprise there. It is pretty astounding how quickly it has gone up. how recently. So the the data suggest that the pipeline of large load interconnection requests in ERCOT in Texas was what forty forty ish, forty two gigawatts as of January of twenty twenty four. So two years ago.

It went from forty ish forty two gigawatts to two hundred twenty six gigawatts as of November of twenty five. So I presume now is even a little bit higher. Um, those are stupid high numbers. Just as a reminder, I I just want to like frame this up a little bit. Um, as of what, uh maybe two years ago, there were about 30 gigawatts of data centers in the U US in total.

Um, so this is going from forty one to two hundred twenty-six in Texas alone in two years. Yeah. In the queue. Now that's not all gonna happen, obviously, but nonetheless. Yeah, so this is a great one. Ur Urcott uh kindly publishes this every month in a somewhat unstructured format, but high enough frequency that it's worth like extracting and putting into this this fashion that I got here.

This is an awful lot, right? So two hundred and twenty six gigawatts. This current state peak load is in the range of about eighty five gigawatts. So That's like two and a half Xing the existing state peak load, if all of this were to happen at once. Um, it's gone, as you say, really, really rapidly. It's increasingly co-located. Like a couple of tens of gigawatts of that are actually co-located in large interconnection mode, which is interesting. Uh, and that keeps ticking up. But

Uh, you know, sort of sounding like financial disclosures here, not all of these assets will eventuate. Like I don't think that Texas is actually going to be building two hundred and twenty-six gigawatts of just large load. in the coming, let's say, seven to eight years.

It's it's the nature of interconnection cues, you know. A lot of it is speculative and it's especially the nature of like bubbly interconnection cues. Like clearly most of this won't get built out. I think it is indicative though of One thing that is definitely happening, which is just like People have the perception, Texas, you can build stuff. Um, especially big stuff. A lot of data centers want to be big. And so there is a mad rush of developers, hyperscalers, reach,

Rick Perry, basically everybody, try to lock up sites in Texas where they think they can go interconnect gigawatts. And that adds up to hundreds of gigawatts in total. So there's something else here that I think you and I and many of your listeners will be very familiar with, which is a highly speculative supply side queue. We're very comfortable with the fact that of course wind and solar developers

plan for, you know, plan for ten and they're gonna build two, right? Or that ratio might even be too high. You've got ten assets that you're planning and you're gonna build one of them. That you're highly speculative in terms of where you're going to go, what you're planning to do. The size of any asset itself is also fairly prospective. And but it depends on what you're gonna be able to get, right? And you'd be silly not to max out

the the possible interconnect on the site. And you'd be silly to not try to do as much as you can for optionality's sake. What I think we're not used to is a demand side interconnection queue that has some of those same speculative elements. Like back in the day, if you're building a hospital. in suburban Atlanta. You're not going out and picking seven or ten possible sites for that hospital.

And you're definitely not picking seven to ten sites scattered across four or five different states. Like if you are building a hospital, it's because you have a human need for medical services in a particular place. You're not viewing it as Completely fungible between maybe we'll go to Tennessee and build this same hospital, or maybe we'll go to Texas, or maybe we'll go stay in Georgia.

I think it's a different thing though, actually. Like I don't think what's happening is that developers are saying, I need a data center and I'm gonna pick seven to ten sites in whichever one wins, wins and I'll build it. It's actually I think what's happening um that a lot of

developers, speculators, et cetera, are saying, if I can develop this site, I can monetize it. I could sell this thing. Or maybe I can lease it if I'm a colo. So yeah, and I'll do as many of those as I can do that I think are are good because right now there's a A really valuable market on the other side. Um and so everybody's doing that in Texas.

You're right. My one other wrinkle being that like you're if you're the pure if you're the pure speculative element of this, and let's say this in the good way, right? You're you're the You're you're in the land business side of this, right? You're in the site control s part of this business. That's true. If you if you are then building the data center on one of those sites, though, if you're building the compute,

you're f you could be more fungible between that, between where you're exactly you're gonna go, depending on other factors. To some extent, to some extent there's there's There's more like spread across different places based on what you're planning to do. I need to build this compute and I've got the in this period of time and I'll talk to whoever has sight control that will help me do that.

All right. So then the direct result of this is the next slide, slide ninety two, which is the no one knows anything slide. So this we're staying in Texas. We just talked about this crazy big load interconnection Q. So of course the question is then how much new electricity demand is there going to be in Texas as a result of that? That is the operative question, whether you are a grid operator or the market itself or or whatever. And you have these great contrasting

data sets of the load forecast from two uh parties who you would think would be pretty aligned because they're both trying to answer exactly the same question and they work, you know, hand in glove with each other. And yes. So w walk me through this data. Sure. So this is the this is one of the no one knows anything slides. I've got a couple. You know, my my perennial favorite before this was Markets Respond to Incentives. This is the new one for our current age is no one knows anything.

So yes, the transmission service providers who are responsible for building the grid and integrating the energy uh required to energize uh and electrify what hap what happens in Texas. uh are fundamentally serving the same market that Urcot, the grid operator, is operating. However, Urcot says, you know what, we could go from like a little under five hundred

terawatt hours in 2024 to like a thousand by twenty thirty. Right. So let's call it, you know, up a hundred and ten percent in that time period. The transmission service providers on the other hand are like Sorry. Uh we expect to go all the way up to about sixteen hundred terawatt hours. We're gonna go two hundred and forty percent up from where electricity demand was in the state in twenty twenty four.

And part of the reason is that they're looking at different information. The TSPs are looking at everything that people are asking them to build and ERCOT is looking at everything that it thinks can get that it thinks will actually happen. But also the incentives are there. ERCOT's incentive is to keep things operational as high to the highest degree possible and at the lowest cost distributed across all of the people who receive service in Texas.

The transmission service providers are paid for building assets and will happily, if possible, build whatever asset base they're being asked to build. So the the the true number is. Either somewhere in between or much closer to Urcott's figure. I mean Urca Urcott has the the reason for demand that supply balancing and upkeep and everything else to get it really, really accurate in energy terms.

But the transmission service providers have every incentive to go as big as possible because that's how they get paid. They get paid to build assets. So your view here is that it's less like a They just have different views of the future and their views vary so substantially from each other. And more just like the transmission service providers have an incentive to maximize the number and it's not a real forecast.

Well it's no but it's tr it is driven. It is a forecast. It's driven by what people are asking them to do. The question is how much discounting are they doing? And and and that I think is where there's a significant difference between ERCOT and and the TSP. This is uh the forecast out to 2030. four years away. It's not far. In the in electricity supply terms, it's like the blink of an eye. It's like no time at all. And there's a difference between these two forecasts of about 500 terawatt hours.

Contextually, the US total electricity demand is in the range of four thousand terawatt hours annually. Coming up like forty closer to forty five hundred, but but forty five years. Yeah. So call that more than ten percent of all US electricity demand as just the delta between these two forecasts in Texas alone. Yeah. Yeah. We're put it th or put it this way. Do we think that in twenty thirty Texas is going to h consume as much electricity A third of the United States consumes right now.

Like it's a potentially. As compared to uh roughly ten percent or like eleven or twelve percent last year. That's right. So like like it's you know, like it it sometimes these things are more helpful when we ask them in this fashion, in this comparative fashion, what would need to be true for all of that to happen?

Right. Uh and you know, it it's it's a huge number, but again, it doesn't exist in a vacuum. And this is back to my sort of earlier point about um how developers work is There are other grids that are similarly aggressive in their expectation of what demand might look like based on requests that they're getting, without any ability to kind of zero that out against

w similar or identical potential demand that might be built somewhere else and not happen in wherever it is. So if you're at, you know, like like there's just there's kind of no way to cross-reference all of this stuff yet. um because of the n of the nature of the way they're regulated state by state.

Okay, so the next one I want to jump back actually to slide thirty five because Cause this one, I think it's a reflection of like. I I guess it's a reflection of a a US centric mindset that I have that I'm very surprised by this. That or I don't believe this data. But the data is from the IEA and it's a projection of how much of the uh electricity demand growth.

through 2030 is going to come from various different sectors. And we we just talked about in the case of Texas, but it's also true the case of the US, like this like insane boom in electricity demand coming from data centers. So what's surprising about this other data set is that data centers are Ranked fit. Yeah. In terms of the source of new electricity demand. Um I presume that's because we're li this is a global perspective, not a US perspective.

Right. That's right. So this is a global perspective. Globally. Electrification of industry is gonna be like thirty percent of the demand growth for electricity between twenty twenty four and twenty thirty. Uh elect even electrified transport, which we in the US are are sort of being um being trained away from thinking about as a big driver of demand is a bigger driver of demand around the world uh than than data centers is or would be.

But even like like even appliances, there's a lot of the world that needs to add, you know, its first dishwasher, right? Even its first refrigeration. Space cooling, so just air con and buildings. uh is gonna be like ten percent of the total growth. And data centers are right around eight percent. What I would say is

Consider this very much a moving target. Like I will be very interested to see what this print looks like a year from now, two years from now, three years from now. Right. Um and uh the other thing will be to be considered is Is there a trade off in if there's a sort of finite quantum of new electrons that are going to be consumed between now and twenty thirty?

Is it gonna come to the point where, well, yeah, more of it went mo more is being consumed by data centers and less in absolute terms by space cooling? That would be complex. Like that would that would be something for the rest of the world that would be akin to a trade off that we really haven't had to do in the in the US in in quite some time, at least not at a national level.

I I yeah, it's a moving target. Data centers are gonna I mean, even even on a global basis, I think they're gonna move up this this ranking before. too long. I would I would agree with that, certainly. They're going to move up, but where they land is a really big question and how they interact with the rest of these different places that electricity will be consumed is going to be really interesting to watch.

Yeah, and and the fact that in some markets it's to some extent like it's a near zero sum game in the sense that there's like only so much supply. And we're we're building out as much supply as we possibly can. So like every new data center is a new electrified industry facility that isn't gonna happen, probably. Nat Bullard is a longtime climatech analyst and writer. He's a co founder of Halcyon, which is an AI assisted research and information platform.

This show is a production of Latitude Media. You can head over to latitudemedia.com for links to today's topics. Latitude is supported by Prelude Ventures. This episode was produced by Max Savage Levinson, mixing and theme song by Sean Marquand. Stephen Lacey is our executive editor. I'm Shao Kahn, and this is Catalyst.