¶ Why doesn't China win by default?
Today I'm interviewing Casey Hanmer. Casey has worked on a bunch of cool things. Um Caltech PhD on some gravitational wave black hole gimmick stuff. Then Hyperloop, then the Jet Propulsion Laboratory at NASA. and now he is founder and CEO of Terraform Industries. Casey, welcome.
Thank you. It's great to be here finally.
Big picture question I'm interested in, to the extent that AI just ends up being this big industrial race. Who can build the most solar panels, who can build the most batteries, who can build the most GPUs and um transmission lines and transformers and et cetera, et cetera. This is not what the US is known for, at least in recent decades. This is exactly what China is known for right where they have like
20x the amount of URL solar uh manufacturing that the US has. Obviously if you have XOR controls right now, but over time SMIC will catch up to TSMC's leading edge. So what is a story exactly of how the United States wins this? Like why does China just not win by default?
Do you think that China is better at capital allocation than the United States? Do you think the Chinese business environment is better for business than in the United States?
I I think it made these references to this argument about these other industries where they're killing it, but like it doesn't seem to have hampered BYD.
Look, they're so much better at building high speed trains than the United States. Right. Right. I would never like hold up a flag saying I'm really good at building high speed trains. Like that is just a sign that you're really bad at capital allocation. Like why would you devote in twenty twenty five So much industrial effort and money, right?
They're devoting a lot to solar over capacity, which in your opinion is the key to future industrial growth.
Correct.
Correct. They call the most important thing correct, right? Which account for something.
Well, they're in a similar situation to Europe, but unlike the United States. So the United States is the luckiest goddamn country on earth because it's surrounded on two sides by oceans and on the other two sides by like friendly allies, right? China's surrounded by fifteen countries who are mostly hostile to it, right? With no good like mountain ranges or rivers or anything to really separate them.
And then they get all the oil m almost all the oil from the Middle East, right? In countries that they don't control, don't have strong diplomatic relationships with on fleets of oil tankers that They can't defend because their navy doesn't have the ability to to operate effectively in the Indian Ocean.
But you're working on this, right? If if you get synthetic fuel that's working at Terraform.
Personally, yes.
Does doesn't that asymmetrically help China? Which might be fine.
It does. It absolutely asymmetrically helps China. We're not currently working with China. We don't plan to, but like the physics is very obvious, you know, and synthetic fuels have been around for a hundred years. Like there are projects in China right now working on synthetic fuels. It would not surprise me if they were. Thinking pretty seriously about this.
Just to spell out for the audience, if China has all this electricity production and the bottleneck is that only a third of final energy use in a modern economy comes from electricity. The rest you need gas and whatever to transport things.
They use a lot of coal in shape.
Right. And what K C is inventing is a technology to turn that electricity, which only can supply a third of end uses right now into synthetic fuels which can supply a hundred percent of the electricity your civilization needs. So then China's energy advantage then becomes overwhelming.
Is this technology levels the playing field? It levels the playing field a lot. Right. But at the end of the day, you know, China still contains the poorest Chinese people anywhere on earth.
Right.
But never never underestimate the capacity for an autocratic dictatorship to shoot itself in the foot.
I don't know. I I w whenever I I I agree that they've obviously m uh made bad decisions, but even if you have the poorest Chinese people anywhere in the world, they can still be quite rich. You know, if like Singapore's richer or whatever. Yeah. Um also
There's parts of China which actually contain quite rich Chinese people. Oh yeah. So you had to compare not all of China against the US, but Shanghai and Guangdong against the United States. So you can have a part of China that is as big as America and as wealthy as America and as in innovative as America.
The Indian middle class is larger than the US middle class.
But also it's not it's not nowhere near as wealthy. Whereas in there are parts of China which are humongous, which are actually as wealthy as the United States and in many cases as innovative, et cetera. Yeah.
No, I'm saying don't underestimate it, but at the same time, like, you know, uh we want to find the truth here. Right. And and the truth is like we should not count the United States out of the battle and just give up. We're very much still in the race now, provided we don't, you know, take extra effort to shoot ourselves in the foot.
So right now um we are export controlling chip For the purpose of we wanted to keep our AI lead or stay in the lead in AI, and we recognize this is a key input in our ability to compete in AI. So we are going to export control China's ability to have these ships. Um Energy is also a key input in this AI race. And if China wanted to do the converse of what we're doing to them with these cheap imports, what they would do to us is to export control solar and batteries. Um
It would hurt them worse than us.
It did a terrorist?
Yeah, well China obviously depends upon like the US export market for its economic dynamism. Right. Right. And and the United States It would it's gonna hurt both parties to like sever the link. But if you sever the link completely, China's ability to make d uh advanced chips right now is like basically not there, whereas the United States can make them and United States' ability to make solar rays is
embryonic, but it's you know it's actually not that far behind China's, right? It's maybe five years behind.
if we decided we want to produce a hundred gigawatts of solar capacity every single year.
We're already on track to do that. Okay.
Is it gonna be as cheap as it is to do in China?
Um my my views on this are somewhat different from the mainstream. Okay. Which is great'cause this is podcast. Um so the mainstream view would say, well, China has cheaper labor, which is no longer true, uh the because they compared to Mexico, and it's got lower environmental regulations, uh, which is true.
and that it is more business friendly, which is absolutely crazy. I've never heard like there's there's no way you could justify that like your company having to have a a like a an inspector from the C C P on its board who like harasses you by Xi Jinping every day, like helps you do your business.
Um and and also like the rule of law is not great. So like you're constantly having to pay bribes to people in order to stay in business. Right. The idea that the United States cannot compete against that with like mostly your fully automated solar panel manufacturing in the United States, which has
cheaper natural gas by far, abundant oil, abundant human resources, great financial capacity, you know, world leading automation, et cetera, et cetera, is crazy. Like we could literally copy paste sol solar manufacturing factories.
How much additional Solar power capacity do you think we could be putting on that's manufactured in the US by twenty twenty eight?
is a good question. When Russia invaded Ukraine? I thought, ah, finally, the Europeans will see sense. And they'll like pull the trigger on like we need to localize production of solar panels from dirt to the finished module, which is like a roughly a four-stage process.
Um, they didn't. Uh so they're still paying Russia like a billion dollars a day uh for the privilege of being invaded. But I at the time I thought they could probably do that in about two years. And I think the United States could probably do that in two years or less if you started today. Like
It's currently eleven o'clock. So like we're gonna start cutting checks by noon. Um and uh and yeah, I think you could you could ramp up pretty quickly. A lot of technology already exists here. It's not like it has to be reinvent invented from scratch. It's mostly a case of like putting in phone call to all the different manufacturers here in Germany and so on and saying, We need you to ten exercise your factory, starting today, blank check, go.
Right. I guess a lot of your predictions seem to be not predictions, but more like if we had World War Two levels of motivation, if we had Manhattan level project level intensity around doing a specific thing, how fast could we do it? Uh which is like an Elon like if Elon was running the government how fast could it happen versus
For a brief period of
Maybe maybe then we should put it like if Elon ran the government like he ran SpaceX, as opposed to the question of like, okay, what is actually practically likely to happen given that we are not treating it with World War II level intensity.
So if you look at X AI, which Elon is involved in, obviously, what are they actually focusing on right now? Right? They're focused on the chips, right? Because they understand like the key bottleneck is the chips, not the solar power. Right. Right. Because even if Trump puts in a two hundred percent tariff on Chinese solar, right? And we're not able to bypass it via like Vietnam or something.
It's still a bargain. It doesn't matter. Like if you if you need solar to run your data center, it's it doesn't hurt on to in terms of the overall cost picture. It doesn't matter at all. Right. What matters is having the chips at like competitive uh capabilities per chip and enough of them. You know, installed in your PCBs, in your data centers, hooked up to your liquid cooling, ready to go. Right. And that's actually something that that you know Elon and his companies are great at.
figuring out this mass production, semi automated mass production. They've got this um facility in Texas which is making the um Starlink receivers completely automated. But like at what point does like, oh, we don't have a solar panel factory become on the critical path, right? I very much doubt it's ever gonna be on the critical path. There's dozens and dozens of manufacturers of solar panels worldwide that are all competing against each other.
¶ Why hyperscalers choose natural gas over solar
So you're a big solar bull. Um right now the hyperscalers are making decisions about with the data centers that they're building that are gonna be one gigawatt, two gigawatts, or in meta's case, five gigawatts. how they're going to be actually powered. And the people with actual money on the line are choosing natural gas.
And it's not like they can't see the learning rate and the I mean, they they're building things which will be online in twenty eight or thirty or something. So why are they wrong and you're right.
I mean, it's their job. They probably know more about it than I do. But no, in in all seriousness, if you're like XAI right now trying to build Colossus One data center in in downtown Memphis, right, you want to get it done super fast. So you're like, what are all the different things we need? What are the factors of production to build this? We need a building. Well we don't have time to build a building. We'll buy a building. Okay, and we'll adapt it.
Uh we need power, we need thermal cooling. That stuff you can deliver on a truck, so that's what they did. You need access to gas, they had access to gas there, they could tap into a local gas line. And actually if you can tap into a gas line, generally speaking, you you can get enough power.
the the trans the energy transmission capacity of like your regular gas delivery pipelines is way, way higher than electricity overhead lines and it's easier to upgrade or or whatever. And so if you're in this situation uh you know right now you say, well, you know, are we constrained by our ability to go and rent a gas turbines? And no, they're not because there was enough available once, maybe twice, right? But at a certain point you realise, well,
as as you grow, you start to touch all these additional constraints. Um and some of those constraints include gas availability. So there's a lot of chat about doing this in Pennsylvania, for example, where there's quite a lot of stranded gas in parts of Texas. Um but at the same time The United States is gearing up in its ability to export natural gas overseas, so it you the price will not be infinitely low forever.
um you you start to run into constraints around turbine manufacturing rate, around uh transformer, you know, uh transformer production rate, around grid capacity, um and and also kind of running into problems where where the AIs and and the humans who depend on like kind of legacy electricity uh production and delivery utilities uh kind of competing with each other. We just saw this recent um forward auction in in PJM result in um
i in like kind of very high, like unsustainably high prices for for consumers who depend on cheap electricity to like, you know, heat and cool their houses and have general prosperity. So so if you kind of look far enough in the future you say, well
You know, you can just turn up the dial arbitrarily high. Like you can say, well, we're going to put in a gigawatt a year. Well, we can we can meet that constraint with gas turbines, right? We're not going to run out of natural gas at one gigawatt per year indefinitely. Okay, what if we're doing five gigawatts per year? What if we're doing fifty gigawatts per year?
What if we're doing a hundred gigawatts per year? Like uh you can you can just break the situation. Yeah. Does that make sense? Yeah. Um not to reach prematurely for analogies, but
But like Henry Kaiser set up the uh shipyard in in Richmond just down the road here, uh in San Francisco uh over New Berkeley. Um and uh initially making ships for the British and then by the end of the war, four separate shipyards operating in parallel to the point where like He was bottlenecked on his supply of steel, because steel was rare enough in the war'cause everyone was using it for different things, that Kaiser Industries went off and built not only a steel mill, but also a steel mine.
Right. They went and started digging rocks out of the ground to turn into ships. Yeah, yeah. Right. And that's the same sort of situation you have here where these these massive industrial verticals and here I'm quite bullish on X A in particular because the Elon cinematic universe has just done so much industrial stuff compared to, you know, the Googles or Metas of this world. reach all the way through down into primary material supply if they need to.
The reason that these current plans are being done based on natural gas is that this is a sort of like uh
Has all kinds of different sources of power, right? They have nuclear as well, they have gas, they have coal, all kinds of stuff. And and actually this this price here is is probably driven more by the delivery cost growth. than by the generation cost growth, if that makes sense. So when you pay your utility bill, the cost is sometimes broken down by like a delivery cost and a generation cost, uh sometimes importation costs and things.
And so the delivery cost is the cost of, you know, basically what it costs the utility to build and maintain all the power lines that connect
All the houses to all the power plants in some gigantic area divided by your marginal u usage with all kinds of other complicated rules designed to make it fairer. And the problem that we see and you know, the reason that PG and E here in California, for example, is perpetually on the brink of bankruptcy is that even though like the cost of an additional solar panel or additional wind turbine or additional gas turbine or whatever is relatively cheap.
Getting that power to your house is actually really expensive. Right. Why? Because you've got, you know, generally like unionized labor that has to build and maintain power lines in areas that already have built up infrastructure. So you have like multiple collisions, whether this is like a power pole on your own street or like building a new transmission line which requires you to like eminent domain land. So you're in court for like
Years and years and years spending public money litigating against other people who are also spending public money to litigate against you on behalf of other interest groups and so on and so forth. And then you've got wildfires and and it's just Um just like it's like the poster child for barmelcoses. So one of the reasons that like we're going to see large-scale pruning of these grids is that we just can't afford under our current regulatory regime to maintain.
Pruning are just like every everything will just go off grid.
Well, I mean, it's fairly clear to me that for really like large captive loads like AI data centers or or uh aluminum refineries or whatever. You're going to have to build your own power plant for them, which is how it used to work. Like if you if you had an aluminum plant back in the day, you would be building your own power plant for it.
Seems inefficient to have redundant power plants at every single industrial
Let me paint a grand vision for you. Um it would seem inefficient, but but actually like if you are sensitive to the cost of power expressed maybe in like supply elasticity or something like that, you just have to do it. There's no two ways about it. Um, is it inefficient for the XAA Colossus data center to have its own captive power plant, which it does, right, on the backs of a bunch of trucks in their parking lot? No, it's not inefficient.
Right.
It's the cheapest way of them for them to get power.
Okay, but uh big picture question, across different kinds of ISOs, like from Texas to Pennsylvania to whatever, um people are building data centers which will not be online for many years and they're choosing natural gas. What's going on?
Well, I think they the you know, we haven't completely exhausted the supply of uh turbines relative to GPUs.
And do do you have some estimate of when we'll run out of
Well I think ev everything before about twenty thirty is spoken for at this point. Yeah, you could make more turbines. Um The funny thing is like it's actually relatively expensive, I think, to like spool up additional production of of these turbines, for example. So so actually here's one here's one thing you have to grapple with sooner or later. Conventional power generation is a steam engine.
Right. So you you have um some kind of chemical that you find inside the earth that is out of chemical equilibrium with the atmosphere. And you burn it and it makes heat. It could be coal, could be gas, oil, whatever.
They're true birds and bees here.
But and it makes heat and you boil water and the water goes through some kind of mechanical contrivance. that creates motion and then at motion twists a magnet and generates an electrical field, which then pushes electrons down wires, which then push electrons through a series of gates that then approximate thinking. It's kind of kind of complicated. Um but but the key the key step
uh in this, which is converting heat into electricity. In the most efficient, most common this is the same for if it's a nuclear plant or a gas plant, combined cycle plant or or a coal plant or whatever, is what's called a Brighton cycle. um a jet engine on an aircraft is a Brayton cycle as well. And just any time you have a Brayton cycle with like a bunch of In Canel spinning at high speed, it's just gonna cost you like a bunch of money.
Sorry, because it's it's in inherently inefficient or what?
Just inherently expensive to build.
What is the cost of uh so um Like GE makes these hundred megawatt gas turbines, right?
I guess, yeah. I don't actually know what the retail price is. I would suspect that if their price is is um flexible it would have gone up a lot. But I if I recall correctly, it's like thirty five bucks a megawatt hour is just the flag four cost for
Thirty five bucks a megawatt hour. Just for just for the Brayton cycle. Right. So we're not talking about the fuel, we're not talking about the heat exchanges, we're not talking about, you know, the cooling ponds or you know the anything like that. Uh just just the amortized cost of the high speed High temperature spinning components is thirty five bucks a megawatt out.
Do you think the hyperscalers are being irrational or do they have some reason?
Or to be clear, they don't care about cost. On for cost of power. This is this seems extremely like this very counterintuitive. So for like grandma kettle in Pennsylvania, she's very sensitive to electricity cost and we don't really want her to like suffer in her retirement from unaffordable electricity costs and like having to sit there shivering. Like that's not the image that we want. At the same time, like
Wha what what is the what is the economic value to you of using, I don't know, Claude or Grok or whatever you use? Like on a monthly basis. But like it's obviously much more than the subscription. But like is it like ten times more than the subscription, maybe? Yeah. Okay. Let's say so let's say the subscription is on the order of ten bucks. The value is only over a hundred bucks. No, actually probably like a hundred and a thousand. How much does it cost? X AI or anthropic or whatever.
Yeah, they might be. Variable cost of like serving at your uh like in in electricity is like less than ten percent of the actual cost of uh
Well, their cost of serving it is is like maybe a buck per million tokens or something like that. And the cost of electricity is about ten percent of that. Yeah. So it's like ten cents of electricity is generating a thousand dollars worth of economic value. Right. Right.
So it's very obvious that Anthropic could be like, oh, our electricity cost basis has increased by a factor of a hundred. And now instead of paying ten cents on your hundred dollar bill for like for power, you're paying ten bucks. Right. Right. So we're putting your your your uh your subscription up to$110 for an electricity capacity charge. Right. And then they could go out and buy turbines for prices that would make your eyes water.
Okay, so um then why are we gonna get the solar future? Like in twenty thirty two, we're gonna have hundreds of gigawatts of extra demand for data centers and at that point most of it's coming from solar and why is that?
¶ Solar's astonishing learning rates
Well but you just there aren't enough turbines being being manufactured. Right.
But also i I think um in the early two thousands, if you j uh we can probably overlay the graph of like how many turbines are being manufactured. Like right now we're at a historical
They've ramped up basically to like the early two thousands rate again.
I don't know, you gotta make more solar panels as well, right? Like there will be uh supply elasticities for both solar and natural gas. So is there some reason to think that It's worse for the supply chain involved in having a natural gas powered data center than a
Yeah, I do. Um the learning rate for for natural gas is nowhere near as steep as solar, which just tells you that it's easy to make solar panels. Much easier to make solar panels. So there are actually very few manufactured products which are easier to make. Like the learning the learning the uh the right slow coefficient is forty three percent. So every time we double communal production, we get a forty three percent reduction in cost.
And what is the basis of um Like, why are we finding forty three percent worth of things that can be made cheaper or more efficient every single year?
Roughly speaking, there's like ten thousand manufacturing process engineers working on this full time.
Right.
True.
Um That's all I was saying.
Yeah. So in order to like sustain this over a long period of time, you obviously need to have like a demand elasticity that exceeds like your learning rate. Yeah. Right. So so otherwise you would after you know a couple of booms, you would you would s saturate your market at the current price and you'd have no additional growth.
But in this case like
you know, every uh roughly every two years we're doubling production, two or two to two and a half years doubling production. The price is coming down by a factor of forty forty oh percent. Uh so like roughly twenty percent, fifteen, twenty percent per year. And then just as a result of that price reduction,
demand skyrockets by like probably six times more than that additional marginal capacity, like production capacity increase. Right. And this is one point where I'll say actually the pros, so called pros are definitely wrong. Conventional wisdom is like, oh solar demand's going to saturate like this this week. It's going to it's going to saturate.
We've got a graph here somewhere that's like, This year is it. It's never gonna grow anymore and instead it's just like blasting out the top of the graph. And uh Uh this conventional wisdom is wrong. It is not only the case that solar adoption production price decreases are continuing, they're accelerating, and the rate that they're accelerating is still accelerating.
Right. Wait, sorry. The rate that it's accelerating is accelerating? Yes. As measured in the total fraction of energy that's coming from solar or
In the sense that its fitness for the markets that it is being produced for is increasing over time. So it is is still extremely early. Right? We're we're still at like the Apple II computer era.
Solar backing up of the story is that the reason solar is getting cheaper is because there's a lot of demand for um more solar and that demand can sustain economies of scale or whatever is going on.
Yes. I'm gonna go and limb here and like agree with Elon Musk on this.
then shouldn't that also be true of gas turbines and transformers and power stations and whatever else that's required for the um the non solar future. Cause like even there, we're expecting AI to drive up demand for power. Regardless of the source. So to the extent of story for solar becoming cheaper over time is just that, like, well, demand will go off and that will drive efficiencies. Why why isn't that true for
Let's say you're a bank and you're trying to decide whether to lend I don't know, like G, a bunch of money to like expand production of um of their gas turbines. Yeah. You can you can write them the check today and then they'll start scaling up their factories. And then they'll you know, they'll start to see the benefits out in three or four or five years. Right. Right. You don't know if the AI bubble will have burst by then.
You don't know if China will have invaded Taiwan by then. You don't know if Siemens or Phillips or someone will have out competed you. Right. You don't know if GE's like major looming structural problems will cause it to be unable to compete as it has in the past. You you also don't know, like in order to make that money back, you have to then operate that plant at that capacity for twenty years. Right. And if I was looking at the same chart.
as they're looking at right now, I'd say, what are the odds that in twenty five years time we can produce gas turbines at a price that is relevant in a world where solar is already at its current price and batteries at a price where they're already like you cannot win.
I feel like there was actually a similar discussion a couple years back or a year back uh when AI people were like, no, AI is real, this is gonna happen. And then SK High Next, Samsung, et cetera, were like, we're not ramping up HBM production because like, oh. HBM is used largely for AI workloads. And if this demand doesn't continue, then our manufacturing additional manufacturing capacity for HBM will not have been worth it. And then there was another bottleneck with co-op.
And what what happened after that? Did they end up indeed ramping up their production?
Yeah.
Well, so when someone says we can't do it, we won't do it, no way, no.
I mean not in the US.
They're saying is write me a check. Right. Right? And they did. And now Samsung's coming on board in the States to build T six with XAI, I think. So like they all got there in the end.
Maybe maybe it's worth going into the numbers, right? So right now forty three percent of US data center power consumption is from natural gas. And basically you think asymptotically that will be like hundred percent solar. If you go to like twenty forty.
Yeah. So I mean obviously like legacy production coal stuff's going to retire over time. Right. Right. Um and and if a gas plant is still making money, people will keep operating it. But but at a certain point, like it is the case right now that operating a coal plant costs more than building a new solar plant. So it's just cheaper to
Wanna I wanna know what the
And then obviously capacity is going to increase a lot, so that helps to dilute the existing production.
And and also the um the amount of use is like gonna increase a bunch, right? Like the the amount of like data center use of energy will just be exponentially higher. So The new stock matters a lot as compared to the existing stocks. Anyway, so I w I wanna know, twenty twenty seven, what fraction is natural gas? Twenty thirty, what fraction is uh natural gas versus solar?
For for new load or or for uh for Can you load?
Twenty thirty five, et cetera. Basically, like, okay, if if eventually you're right that we'll pave the earth and solar panels to sustain our quadrillions of AI souls, what what is that what is the pace of that?
Well, I think the question to ask is like what is the what is the major constraint on that ramp up? Right. Right. And then everything else sort of draft in behind. Um and I suspect that the hardest thing to make will always be the the silicon, like the um the GPUs. Right. So the question is really How how quickly does TSMC ramp up its production of GPUs? And that's a question for you, not for me.
Um I'll I'll y I'll just use some numbers that AI twenty twenty seven used for their compute forecast, which even if you don't buy their singularity thing, I think they did a reasonably good job with crunching the numbers on their compute forecast. And I think they said there's on the order of ten million H one hundred equivalents in the world today. And I think they said by twenty twenty eight there'd be a hundred million. Mm-hmm. So basically ten X more H one hundred equivalents in the world.
About a kilowatt each, something like that. Yeah. Yeah. Yeah. Okay. So it's like a hundred gigawatts.
Right.
Okay. And that's that's yeah. I mean that that sounds roughly right. Um, you're not the first person to give me a call and ask me about this. I'll put it that way. I'm not gonna name names, but like pretty much all the names you've heard of have given me a call and said like
We know that you're a minority voice on the paper that came out recently with uh scale microgrids talking about how you could do ninety percent solar, ten percent gas. And I said you can go all the way a hundred percent solar, I read a blog post about it. And so they always call me up and say, What about this? And they're all talking like five gigawatts in the next few years. So and that's just like
90 plus percent solar for just those. So I think within a few years we'll probably see that like the majority of new DCs that are going in will be mostly solar.
Within
How long? Let's say by let's see what's it twenty twenty twenty seven, majority of new TCs going in at that point would be mostly Uh as any groundbreaking at that point
But if you're groundbreaking in twenty seven, you're probably like planning it now, right?
Oh that that's why they're calling me.
Yeah.
My consulting fees are extremely affordable.
Um
But I g really I d I don't have deep visibility'cause I'm not in the same room with like with the meta people as to like when we're gonna hit the wall on Transformers and when we're gonna hit the wall on like just how much like municipal like peak peak load can we shave off. Um which is the latest thing it's been doing the rounds. Which it turns out like there's a handful of of places in the United States. And by handful I mean like
literally handful, um, where like there might have used to be an aluminum smelters, there's a bunch of like latent capacity in the grid. And there's also a bunch of generators on the grid that are notionally turned down and they're like operate at say forty, fifty percent capacity factor. But they max out at about eighty percent capacity factor, because you got to bring them down for maintenance pretty often, right? Especially if they're old. Um
And so they're saying, Well, you know, we could pay you just to like operate this old coal plant or something at higher capacity. It'll go down this power line to this place where the smelter used to be. We'll set up there and then we promise to like curtail when you need the power. Right.
Which basically means they just have life a a massive captive battery plant as well, which is fine. You just buy that and deli arrives on a truck. The major advantage to doing that over the pure solar play is that The power's already there, so there's no risk there. There's no and then you don't need a massive amount of land. Like the problem with the solar approach.
Is that there's no two ways about it. It it's just it's a farming operation. You need a huge amount of land. Right. The total amount of land that you're using, less than one percent is uh under batteries, under roads, under data center uh structures, et cetera, et cetera. It's mostly solar.
Right. Okay. So uh uh l let's get into what this um if you've got a five gigawatt plant you want to build.
¶ How to build 50,000 acre solar-powered data centers
Yes.
Break down the numbers for me in how much land in terms of solar you need to farm this out. And especially I was talking to somebody in this space and they said, look, the big problem is not obviously cost for the cost of energy for these data centers is a small fraction of the total cost. And most of the cost is going towards
chips. So then the issue is just can you can you make the energy available? And they were saying even those solar panels themselves you can acquire. The issue is getting that much contiguous land and getting the permitting to Interconnected or whatever the word is is like apparently a big hassle. Yep. Um
It's kind of a nightmare.
And so they're like, Well, at that point, is it actually easier than just getting on the grid or uh but yeah, what what's your like if you need tens of thousands of acres of solar, where can you do that without and get like
I mean uh like There's this very popular misconception that like there's not enough land to do solar. Right. Right. This is garbage. If you've ever flown in an aircraft in the United States and you've ever looked out the window, you'd be like, Oh wow, look, there's a lot of land you could put solar on, especially west of like 110. Yeah.
Yeah, right. Does it need to be flat or no?
Um like do trees grow on mountain slopes? So it doesn't matter. Right. Um and the total amount of land so just for reference, Nevada is something like eighty million acres or something like that. So just Nevada, which is like ninety percent federal land, is eighty million acres.
And uh I would I would never say that we should we should sacrifice Nevada to the AI and uh and pave the entirety of Nevada from one wall to the other. But I just saw a bunch of things in my feed the c last couple of days that like You know, Vegas is is falling apart and Really? Well like no one the boomers are retiring, no one goes there anymore. Um people would go to see like the hundred million acres of solar. Yeah, okay. So five gigawatt plant. So
We can do it anywhere. You can do it anywhere you can find the land. Right. People say, well, you can't do this in Europe because Europe doesn't have solar power. Europe has solar power. I've been to Europe in summer. It's like sunny for like twenty hours of the day. Right. It's a bit seasonal, right? But that's not a big deal.
But I mean it is if'cause you because energy is a small fraction of the cost, you care more about making sure the chips are running all the time, right?
Yeah. So in practice what happens is let's say Europe hypothetically like awakens from its slumber and decides it wants to participate in AI. Okay, I hope it does. Uh they say, well, we're gonna have to put, you know, a hundred gigawatts down of solar at some point to build these data centers. It'll most likely be in southern Europe. Spain is not
particularly heavily populated, that's a great place to start. So we put in a hundred gigawatts of solar, uh solar data center in Spain. Um and then in order to achieve, you know, basically if you're spending Like AI hyperscaling money on your GPUs, you want to have like four nines of uptime in order to maximize your like tokens per dollar spent. Yep. Okay. Uh tokens per dollar spent on the entire project, not just on that.
Uh this is a very subtle point. I can go into vast detail on it later on maybe. Um but let's just say you need four nines uptime. In order to achieve four nines optime in like the middle of winter.
You need to have a lot of solar overbuilt, right? Is solar built a bad thing? No. Is the fact that we produce forty percent more food than we need a bad thing? No. It's much better than producing forty percent less than we need. Okay. And it just means that Uh effectively you have a giant captive power plant attached to a data center that Ninety nine point nine percent of the time produces more power than it needs, and ninety nine percent of the time produces much more power than it needs.
and that can now actually be the source of power, that the local utility, instead of being like Naughty naughty data center, you must disconnect. Uh, when we tell you to, they say, Hey data center, I notice you've got like a bunch of power you're not using three hundred and sixty days of the year. Would you mind ever so much if we threw a power cable over the wall and we powered our entire town?
Off your spare power at like essentially zero marginal cost plus you know, whatever residential batteries that we need in addition to local power supply.
B Brian Potter had a good analogy in his blog post about this where he's like, I don't know, my MacBook has a terabyte of storage and I use like a hundred gigabytes. And I just got the terabyte version because it's cheap enough and I might need it at some point that it's worth it. And so you're saying solar gets gets so cheap that it's it's the way we'll treat hard drive space. Just like get a bunch of excess.
Yeah. But also like the the the market will be made at the the place like the the new the new marginal like consumption and production. Right. So like All the people who are working in the space right now are like Oh, I'm in I'm in the business of delivering power or storing power. I'm going to serve the AI market because that's where all the growth is occurring. Right, right. That's where all of US GDP growth is occurring right now.
So but i i i I guess you didn't answer the question of yes, theoretically we could do this, but ha is it gonna be possible to get the permitting to have uh tens of thousands of acres of contiguous
It doesn't need to be contiguous. Well, I mean it helps if it's contiguous, it but it doesn't need to convey. Um so this is you know, you can have a a bit over here and a bit over there and you can wire them together relatively easily. In fact, in the limit in the limit you have fields upon fields of solar rays with Fields for just just solar rays as far as the eye can see. Uh and then within the solar arrays, roughly in the middle of them, you have your your batteries and your
I played Factorio, I remember this.
Yeah.
I remember this optimal layout of like batteries and
Yeah, so you've got your batteries and you've got your data centers. So in terms of ground like floor area, you know, it's roughly let's say ten percent um racks, ten percent access to the racks, um, maybe like fifty percent batteries stacked up on top of each other and the rest is cooling. Something like that in terms of what what sits in the in the like the centralized node, right? And that could be a hundred megawatts or it could be ten gigawatts, depending on how you want to scale this.
But then all you need to connect that to the outside world is like an optical fiber. Right. An optical fiber cable, which you can string up on poles, you can run it underground. You could even use microwave links if you really wanted to. You could use Starlink if you really wanted to. I don't know what the uh Starlink would be fast enough. I'm not sure if it's like capacity is high enough. You could use laser links if you really needed to.
And that's that's it. It's like this completely self contained world of like
Because it's off grid.
Yeah, of computation that occurs off grid. Like on private land, somewhere in the backwoods of Texas, where like no one lives and no one will ever live. Because it's completely inhospitable to humans.
In terms of the ratios, it's a one trend that was impressed upon me is that the power density of racks was increasing a lot. Yes. As the flops per GPU are increasing. So we've
So like a megawatt per rack is what they're heading to now, which just seems bananas to me.
I think it was even More than that.
So let's let's get concrete here for a second. You got let's say you got one rack and it's one megawatt and I'll leave the cooling to like someone who specialises in air conditioners, but it's it's basically three air conditioners at the problem. And then you have batteries. So in order to get four nines of uptime on this, you need in in South Texas, you actually need less than this, but let's just say 24 hours worth of battery storage.
Right, because that means it'll get you through two of the two two bad nights in a row, basically. Um and uh and actually it turns out that you can significantly decrease power consumption with a very small reduction in overall compute. So if you if you've got like three really bad days in a row or something, you can actually just like
You can dial back your power usage quite a lot without compromising your inference or or um or training. Okay. So you've got say uh a Tesla power wall, something like four megawatt hours. So one one megawatt rack and then six Tesla megapacks, each of which is roughly one truckload worth of stuff. So like one truckload worth of rack and then like six truckloads worth of batteries.
Uh and then in order to operate this at an average power of of one megawatt, your solar arrays in Texas would be something like twenty-five percent utilization. So on average You know, if if the sun came up every day and the day was the same length all the time, you would need four megawatts of solar rays, which is about four acres of land. But in practice, because you're owing for four nines instead of like one nine, uh you need an overbuild of two and a half acres.
So you've got about ten acres of solar. Uh so ten acres of solar, uh six truckloads of batteries, one truckload of of um of data center and and some cooling stuff. And
For how for how big of a
One megawatt. That's just a one megawatt. So ten acres, one megawatt. Yeah. Uh kind of situation at at um at four nines. Yeah. So if you want five gigawatts and that's five thousand times.
Makers.
Times ten, so fifty thousand acres. And and actually at larger scale, you can get uh you can probably cut all those numbers down by ten, ten, twenty percent, but like on that order. And like fifty thousand acres sounds like a lot. The amount of land put aside for Oak Ridge was a hundred thousand acres. The amount of land put aside for Hanford was about a hundred thousand acres.
With Sanford.
Hanford was where they made the plutonium in the in the in the Manhattan project.
Uh huh. Yeah. I don't know how big that was.
Okay. Well I mean
Is it like, Oh, this is so small and then you're like, Oh but it's a hundred thousand acres or
Well so the reason they and it's still largely unpopulated now because it's a national laboratory. But the reason they did that was they thought, Oh, we're gonna need four piles to produce plutonium. These are not um
These are not nuclear reactors that produce excess thermal energy. So you can't actually make nuclear power with them, but you're making plutonium with them. Then in the end they only needed two, I think. And they wanted them spaced out'cause they thought like they might just like spontaneously like explode. Right. And a bunch of other facilities and plants and stuff as well.
Oh Austin Vernon had an interesting blog post where he said that if uh if you allow for if you have like diesel generators or something which can take over the generation for like ten percent of the generation during these you know, with the winter or something.
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Uh then you can have a sixty percent reduction in the amount of solar panels you need to install because you don't need to have you don't need to plan for that contingency.
Yeah, yeah. So I mean basically there's a balance here. This is not a very complicated optimization problem. Like for people who do optimization problems for fun, this is how you do it. You start off with a bunch of n like NREL data on like what your solar abundance is in this particular part of the world. Uh, and then you just start throwing solar panels and batteries at it.
over like the course of a one year simulation until you hit the number of nines you want. To an extent you can trade the amount of panels and the amount of batteries you've got back and forth and there's like a very, very broad optimum. Right. Right. Or you can throw in a third thing like a diesel back backup or a gas turbine or whatever.
The issue here is look, if these um if Meta or Microsoft or whoever just wants to get something off the off the ground, um this might be low opex to have this huge solar farm, but high capex. Um where you need to hire like thirty thousand people to go out in the middle of a desert and install fifty thousand acres worth of solar panels and they're like, why would I not just buy like fifty gas turbines?
Why don't it outbid like Microsoft or Meta outbids Google or something for the for the last gas turbine that's available that year? Yeah, I mean totally. The the thing that the thing that like I think Meta has realized is like It's like Zuck is running out of time to spend his money to win. The CapEx is not crazy high. Just to be clear, like the CapEx is still dominated by just the GPUs. Right. Right. So like how much does five gigawatts worth of GPUs cost?
I I m I don't know if my numbers will be wrong, but like uh two hundred and fifty billion or something?
Yeah, two hundred and fifty billion. Sounds about right. Yeah. Okay. So like is fifty thousand acres gonna cost two hundred and fifty billion dollars in Texas?
That's so much money. Wait, I I didn't re uh
We're talking about it. Maybe hundred million, hundreds of millions of dollars, something like that. So it's like literally point one percent of the cost is land. Right. How much does a megawatt of solar cost? Well, if you go and ask the usual suspects or two million dollars. But this is one of the things that that breaks my brain at Terraform, which is my day job, which is that the m the modules themselves
If you without tariffs would be like eight cents a watt. So that's like eighty thousand dollars.
But they're like a dollar a watt, including insulation and everything.
Including installation and everything. But like the panels are the magic part. They're the thing that turns sunlight into pure electrical energy at twenty five percent efficiency. Everything else should be like less than that. That's what we're if you wanna work on that project, come and work with us at Terraform because we're very cost sensitive.
We'll give you an opportunity to chill, don't worry. Uh
But uh no but in in all seriousness, like the the central takeaway is that is that the hyperscalers are not power cost. sensitive, they are power availability sensitive. Okay. And for all these things, you just run into this like supply elasticity wall at the sort of i rates of increase that we're talking about. And and solar is by far the best option for like fire hosing energy at a given problem. Right. Because it's just it rains down from the sky.
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¶ Environmental regulations blocking clean energy
Maybe solar prices will go down and the fact that demand is gonna go up. Do you think electricity prices are likely to rise?
But electricity prices at this point are a reflection of a regulatory irrationality, right? And it's the same situation in Europe, uh and Australia for that matter. Like Your prices will rise until you've had enough. And you say, No, we demand that you allow us to take advantage of
power technology that's been invented in the last fifty years. In terms of things that are causing us to lose to China, tariffs are neither here nor there because as we've discussed, we're not sensitive to cost on power. But the environmental regulations that are actively preventing us from deploying renewable energy In the United States.
Like this is the reason Texas is winning. Texas is out deploying California ten to one. The regulatory environment around solar is just insane. It's insane. The regulatory environment. Okay. So in the United States, part of the reason that solar has not been deployed at massive scale yet is that Uh a bunch of laws went into action in the early 1970s that were intended to protect our environment. And that makes a lot of sense. And our environment's a great thing, we should protect it.
How how how I mean I think people will be familiar with NEPA and whatever, but like how's it especially impacting solar?
Well, let's say you've got a bunch of private land out in the middle of n nowhere, right? And you want to build it.
Solar on it.
you'll probably end up triggering NEPA. Right. At which point you now have to do what is not in the law but considered necessary uh under current regulations, which is like your four year environmental impact review, which generates Like so much paper that just the environmental impact of producing the report, because you have to cut down trees to make paper.
is more than the environmental back of just deploying the solar. Mm-hmm. Like this is bonkers. It is crazy town, right? Uh the thing that drives me particularly crazy in Southern California is that just because solar's kind of new and off grid solar is very new,
y unless you're very, very careful, you end up getting regulated as though you're trying to build a chemical plant, even though it's a solar array. And the impact of solar array on desert is arguably positive because it shades the ground and improves m like soil moisture retention. Um
There like if you wanted to reverse the certification, you would basically just deploy solar panels on it. And that would pay for the process. Um but you you end up having to go through more stringent environmental review process than if you just wanted to like grade the whole thing and cover it in concrete. Or grade it and then park a bunch of like old rusting cars that are dropping oil into the aquifer. Right. Right. Which in many cases you don't need a permit for at all.
Right. But to build the solar it you have to go through this whole process. And and like if there's one thing that anyone listening to this can do, it would be like have a categorical exemption for solo deployment or or just like if I put money in escrow account that says like if
after twenty years we have to pull this out, like we'll pull all the solar out of the desert and it goes back to being desert, right? I will do that in a heartbeat. But like if I have to hire another biologist for ten thousand dollars to be like Well, on that forty acre plot we found a tuft of grass which we believe might be a uh a critical, you know, one of the twenty species that this particular species of bee uh sometimes eats
And this species of bee is not technically endangered, but it might be at some point in the future, uh, therefore you can't deploy there, even though it's like zoned, unrestricted industrial and it's sandwiched between a rocket test stand and like a chemical plant, for example. In an industrial part of the desert, I will like I'm gonna become the Joker. It is insane. It is like I just think we need to be a bit balanced about this. It's like
I don't want it to like drive species into extinction. But like the meta problem here is if we don't move our industrial stack off fossil fuels in ten or twenty years, first of all, we'll get poor the same way Uh UK did, right?'Cause they ran out of coal basically.
And the second thing is we'll get poor because we'll flutter coastal cities in Florida underneath climate change. Mm-hmm. Um we need we need solar synthetics for that part. We also need to do sulfur injection and a couple other things.
¶ Batteries replacing the grid
People will point out that transmission line growth has been stuck in a rut for decades and we have all these bottlenecks in stuff in s in s terms of substations and um transformers, et cetera, et cetera. Why will this not hamper this uh abundant solar future?
Um, that's a really great question. Um, so actually you and I had a conversation along these lines almost two years ago when we first met. And um And it it caused me to go and write a blog post. So um this is this is a good way of thinking about it.
I think there's another blockfast you wrote though, which was also our conversation we had, which is how to feed the AIs.
That's much more recent. Yeah. That was after dinner, I think. Yeah. Um And and to be fair, like I usually am fairly clear in my blog posts if I'm posting or if I'm serious. Um but uh but this one actually I'm dead serious on. It's actually the one where I'm um It's like the most out of the money bet as well. Like ev everyone else that I consider to be like a respectable forecaster in this area disagrees with me on it. So I'm that's one side. Um
Well so the grid we know where the grid is expensive. It's a lot of wires strung up in like hard to reach places that are hard to maintain, especially as you know, the workforce ages and and regulations and all the rest and eminent domain and so on and so forth. Okay. So the grid's not going to get cheaper anytime soon or easier to build.
And if you look at the projections of like how much grid, you know, uh DOE would have us needing to build in the next ten years versus how much actually being built, it's like it's not even in the same order of magnitude. So you say, well, are we totally screwed? The answer is no, we're not totally screwed because batteries actually do the same job that the grid does. But this is kind of weird to hear me out. The grid transports power from one place to another.
It transports almost instantaneously at the speed of light. So it's actually performing a spatial arbitrage. Right. Right. So the idea being that right outside the local nuclear power plant, power is really cheap because they make a lot of it. And in your house, power's really expensive because you don't have a power plant in your house. uh and you you pay the intermediator uh a small fee and they allow this this trade to take place. Um and that's basically how the grid works.
And until quite recently, the only way we had of meaningfully storing energy, like storing electricity on the grid was pumped hydro. And that only works in a handful of places and limited limited capacity. And it doesn't work all that well either. The efficiency is not great. Now we have batteries. Batteries store power at one time of day and they release it at another time of day. So batteries are performing a temporal arbitrage, an arbitrage over time.
But they can be local or they can be more remote. I think we'll end up seeing batteries next to the solar rays and batteries in the middle of the grid at substations and batteries on the sites of existing power plants that get turned off and batteries in your house and batteries everywhere in between. One way of thinking of this is what is your per capita allocation of batteries in kilograms per head? And like when you and I were much younger
uh the lithium ion battery was in a cell phone, say, so you got like, I don't know, ten grams per person or something. And nowadays half the people in this town drive Teslas. So your per capita allocation of of lithium ion battery is a hundred kilograms or something like that. So we're talking like four or five ooms of increase of total total battery per person, that trend is only going to continue.
And then you say, Well, okay, we've got batteries that are performing this temporal arbitrage and the sun comes up every day, right? So like the the the power swing from like midday you're otherwise curtailing the solar array to Dusk when everyone's watching TV and cooking dinner or running the air conditioners to cool off in the evening is very predictable, right? Whereas like, oh, we had like
really bad weather, so we had to use the power line that runs to the po extra power plants over by Hoover Dam or something. Doesn't get used nearly as much, or like its its peak utilization is happened almost never
Which means that the utilization of the batteries is on average like let's say three hundred days a year and the utilization of your most expensive grid most highest voltage grid assets is much, much lower. And that includes like the transf the substations and transformers and stuff that serve that. So it's a really bad position to be in if you're a good operator. right because you've got this this aging, existing thing
The batteries are cannibalizing. The batteries are being installed behind the meter. You don't have a say in whether they're being installed, how they're being used. All you know is that your that your utilization of your asset where you get to charge top dollar for it is just dropping year after year after year after year. As the same time as your operating costs are increasing year after year after year.
So it's just very clear that like the average distance the electron is going to travel between generation and consumption is going to decrease in the future pretty radically.
Yeah.
It's already decreasing. It's gonna continue to decrease.
The difference is that I mean it's especially helpful for solar, but like solar is the one that's most intermittent.
You can predict you can predict the amount of solar power you're gonna get in three days pretty accurately because of weather prediction.
You can't like buy more battery you can't like change the amount of batteries you have.
Well, actually in the limit you can because you can put them on trucks and drive them around. Right. So there could be a capacity market for batteries where you drive them around to people who need them in a pitch. In practice, it's gonna be cheaper just to double the size your battery.
Because batteries are going to continue to get cheaper and cheaper and cheaper and cheaper. Right. But what it does mean is you can say, Well, I know that I'm gonna have, you know, three low days. So I will start curtailing now by five percent. So I don't have to curtail by fifty percent in three days. And then overall for the whole year I'll only curtail, you know, five hours. So I'm still at four nines, um, instead of having to curtail twenty four hours'cause I can't predict the weather.
¶ GDP is broken, AGI's true value must be measured in total energy use
Okay, so uh let's assume you're right. And then I mean I think at some point you will be right. Like maybe we disagree about sorry, I I'm not qualified to disagree. Maybe you and some other person might uh disagree about what year it happens, but I think it's hard to deny that In the asymptote, oh yeah. W our civilization is headed towards lots of energy used for AI and a lot of that coming from solar. Um
In that asymptote, I've just like, I want to get like the crazy nerd sci-fi, like, what does our civilization look like? What is happening in this, you know?
Sardishev level one.
Yeah. L let's wait till get to turning the entire earth into an AI factory, but more like, I don't know, the twenty thirties. Um where you've gotten multiple people who are building on the order of five gigawatt or ten gigawatt sites. The value of the hardware is dependent on its complement, which is the software. Right. Like right now, AI models are fine.
And so the hardware they're running on, the economic value they can generate is sort of bottlenecked by how good the software is. But if you actually had HEI, if you had like a human level intelligence or maybe even better,
Ideally better, yeah.
Yeah, um running on an H one hundred. Uh that H one hundred is worth a lot, right? Like we're paying a lot for humans to do work. Right now, I don't think AI is that valuable. Like the models themselves aren't super, super valuable in terms of just pure economic value, right? Open AI is generating on the order of ten billion ERR or some uh you know, twenty billion ERR.
And that sucks. It's terrible. How how can they sleep at night? I know.
Um, but that's like for context, McDonald's and Kohl's generate more yearly revenue than that. But I think the promise of AGI is to automate human labor. Human labor generates on the order of sixty trillion dollars of economic value or like that's how much is paid out in wages to labor around the world, right? So that's what AGI can do. And even if you curtail it to just white collar work, that's still tens of trillions of dollars of value. So once we have models which are actually human level
Mm-hmm.
They will be worth at least that um pending the fact that you can build them.
Well I don't think we should constrain ourselves to being like, oh well, maybe that'll be some fraction of current payroll. Right. Cause like that that's kind of a very contingent on like humans being humans thing.
Yeah, no, I I think that's a lower bound, to be clear.
Oh yeah, low lower bound for sure. But like if you think about like Someone someone trying to like estimate the upper bound for the market value, the market cap of like caterpillar, right? Based on like, well, it takes, you know, this many men and like burrows and wheelbarrows to like dig a trench. And so, you know, it couldn't be more than that, right? But actually
Yeah. One way to think about the industrial revolutions is every time you figure out an industrial revolution, what you're doing is you're finding some way of like bypassing a constraint or bypassing a bottleneck. And the bottleneck prior to what we call the industrial revolution was uh metabolism. Right. It's just like how much like oats can a human or a horse physically digest and then convert into useful mechanical output.
for, you know, their their um their peasant overlord or whatever. And and nowadays we would giggle to think that like, oh, the amount of food we produce is meaningful.
in the context of like the economic power of a particular country. Right. Um, because ninety nine percent of the energy that we consume routes around our guts, you know, through the gas tanks of our cars and through our aircraft and in our grids and stuff like that. Interesting. And so right now The AI revolution is about Routing around. cognitive constraints. That in some ways writing, you know, like writing
Printing press.
computers, the internet have already allowed us to do to some extent. Uh a credit card is a good example of something that routes around a a a cognitive constraint of like building up network of trust, right? It's to centralize trust.
Yeah, th th that's interesting. It is also really interesting, something that came up uh and I want to credit James Bradbury and Gwyn with making this interesting point when I was talking with them a couple of days ago is
If you measure it by GDP, AI's outputs might be underwhelming, right? Th one of the complaints that economists have about the internet is that it's hard to measure the consumer surplus that's created by the internet because a lot of the um a lot of the goods and services that are made available. You you pay zero for them and so they don't show up in GDP. Yeah, th in that sense that it's only one percent of g energy's like one percent of G.
Oil's like eight trillion dollars a year or something, right? But if if you if you if you said, Well, one day we're gonna consume a hundred times more energy in the form of oil than in the form of food and the per joule cost of food is, you know, whatever it is, the cost of a Big Mac, then oil should be like eight hundred trillion dollars.
A year. Right. It's a hundred times like per per unit energy, oil, like gasoline's a hundred times cheaper than the cheapest food that humans can digest. So so so like does that mean that we've like shot ourselves in the foot by using oil to run our economy? Right. Because it's so cheap? Like no.
Right, right. And a and also the amount of the fra it's fraction of GDP also doesn't correspond to how important it is. For example, oil is like one percent of GDP or something, but um If you don't have oil, then you have these oil shocks, which cause double digit decreases in GDP. So the elasticity of demand often matters more than it's like raw fraction contribution to GDP. But anyways, on the original point about AI. So you're gonna have this huge deflation of
So Gordon put it this way, he's like if um if you imagine Dario's data center of geniuses, how is that showing up in GDP? Well it would be the inputs, which are the chips, the energy, et cetera, and the outputs, which are just the tokens. And neither of those is gonna be that astronomical in comparison to the value of those that data center of geniuses is producing. Um, so in terms of GDP numbers, like
Bye.
If that data center of geniuses automates a bunch of um or at least complements a bunch of human work, et cetera, it might actually cause like a nominal decrease in GDP while at the same time contributing massively to um what we might think of as the valuable stuff humanity or human civilization can produce. And so in the long run, uh it might make more sense to think of the size of our economy or the size of our civilization.
as the raw energy use that we do rather than GDP because again, GDP will see this huge deflation because the variable cost of running AI will just be pretty cheap um as compared to like paying humans' wages, etcetera.
I think I think when the we're we're at at at the point where like you've got a mixed economy with like An AI doing my job and also a human doing my job.
I love how this is the this is the new way we use the phrase mixed economy. Yeah.
then obviously like I still have some pricing power relative to humans and the AI thus has pricing power. Right. Yeah. But but if it was the case that like a new um a new kind of job emerges that AI is really well adapted to Like the because it's not competing against humans for most of those roles, it'd be competing against the other labs. Right. And so you'd actually see like the cost push down to you know a a multi a small multiple of whatever the marginal production cost of those tokens is.
That would be my guess. So I I think I think it might be a mistake to s to assume that like, well, if if we're gonna pay, you know, a top AI researcher two hundred thousand dollars two hundred thousand dollars a year. Lol. Um let's say the sort of AI researcher that I could be two hundred thousand dollars a year.
that if uh an AI comes along that's as good as me at that, even taking into account the fact that realistically speaking, I only get, you know, maybe ten hours of really top cognitive work done a week, that it would also be worth two hundred thousand dollars. Yeah. Right. Obviously it's It'd be worth much more than that in in the sense of like you can copy paste its output and much less than that in the sense that, you know, whatever the marginal additional cost of of spooling up H100s is.
Um and so if if some if some kind of role comes along that like the AIs are really well specialized at and out compete the humans quickly, then we'd also expect to see that their um both the the cost of providing that service to drop drastically at the same time as the overall value generated in the economy by that service would increase a lot.
Exactly. Um if we think that the value of cognition is going to be unbounded and the way to derive cognition, you can just to the extent you think solar will eventually win, you can just You can derive it from how much land it takes to power an H one hundred uh using solar panels. At a minimum we're going to just fill up All the land I mean at some point you might have like declining marginal value of cognition or something, but
We kind of discussed this earlier, but if you have like a megawatt of um ten acres, ten acres of of land feeding one megawatt H one hundred or something, it's generating like, let's say, a megawatt is a thousand humans. So one acre is a thousand humans worth of cognition. The implicit land value there is a lot higher than it is as like undeveloped desert, right? It's also a lot higher than it is as like the most productive farmland that humanity has ever had, right?
And current hardware efficiencies. I don't know if it's worth spelling out. Basically, AH one hundred has the same amount of flops as a human brain, but also uses way more energy than a human brain. Yes. Uh it uses like fifty X more energy.
Was that right?
So twenty watts versus one thousand watts?
Human brain.
Hardware can be at least as efficient as the human brain, and the human brain can generate this many flaws. Yep. So if you do that calculation, then that's fifty X one thousand. So fifty thousand
Yep.
AI souls off of the
And it could easily be much more than that because neurons are much slower than than um transistors, obviously. Um so I was probably ten years ago one of my friends reminded me, um, uh, you know, like the way your phone saves power is it goes to sleep between you like tapping out hello. Right. Like H it goes to it takes a nap for like ten thousand cycles, A, you know.
Um it's kind of nuts. So just that like humans I think Elon's talked about this in the context of self driving cars as well, which is like anything humans do is like glacially slow from the perspective of a computer.
¶ Silicon wafers in space with one mind each
actually go back to the original point of like I was explaining why I think it's plausible that there could be more than hundreds of gigawatts of extra demand from AI in the twenty thirties. I wanna understand what that looks like in the real world. Like at that point has become basically this industrial problem of Can you generate enough solar panels and solar modules and batteries and not to mention the chips themselves?
Industrial point and then there's a cultural point as well.
Mm-hmm.
I want to know what the year twenty thirty five looks like if we've got AGI and we're just bottlenecked by the ability to deploy.
Yeah, so you can ask questions like What do you need in order to run? in like what is the minimum amount of matter that you need in order to perform this these calculations. So so so right now we're talking about like AR racking and grid and transmission and a bunch of like ISOs and all that rest. You don't need any of that stuff, right? And like Obviously XA is on top of this because the first thing that Elon will always ask is like delete anything you don't absolutely need.
Um so what you actually need is a big slab of relatively cheap silicon to make the power and then a small slab of relatively expensive silicon to do the thinking. And if it's in space, that's all you need. Right,'cause it's in the sun all the time. So you don't need a battery, right? But if you're on the earth, you need a battery as well. So you need some interconnects. Um
And you don't need a transformer, right? You don't even need a DCTC converter. You can actually make do with buck converter or with relays or whatever. to basically match the the current output of your solar ray with the charge state of your batteries and the power consumption of the um of your you know uh uh GPU or something. But like a a solar ray about the size of this desk, for example, will generate about five hundred watts in in in full sun.
So you could actually imagine like aliens who have different silicon technology stack building their systems as like an integrated solar array with you know a bit of uh a bit of You know, computranium in the middle, for example. Uh in on the same wafer. Uh but that's that's basically all you need. And then
'cause it's not a silicon.
It's all silicon all the way down. What's silicon made of? Well, it's an it's an element, it's uh chemically in the crust. Uh there's no shortage of it.
Is it a great prompt for a sci-fi exercise?'Cause if especially in space you don't need batteries. So you just like the the prompt is uh the the future T SM C just manufactures integrated solar.
Uh and they can fly around, right? They're solar cells. Yeah. And they don't they're they're relatively dense, so they don't fly crazy fast, but they don't need to because they're
Is this what the Dyson serial will be though, Casey? Is it just is it is it gonna be compituronium at the center of uh
They can fly closer to the sun to get more power. Right. Right. Up to their thermal limit. And they can fly further from the sun to go and explore or like fly to other planets or something. Uhhuh. And they can they can adjust the uh orientation of the solar sail with uh L C D panels so that it could be integrated into the into the wafer itself. So I mean that's uh that's actually if you say what what's the what's the posthuman state, that's it.
One human's worth of of computation, one human brain, you know, can be simulated and roughly a square metre of silicon floating in space.
What how how much are you?
One one square meter of silicon, like a s like a the signature sheet of paper floating in space. Yeah, that's it. That's a future human form. That's that's my final form.
That's its rector state.
That's assuming that's assuming a little bit of software improvement, but like I don't think that's
Ha ha.
Yeah, software improvement. Um the Dyson Spear, that's all it needs. A little bit of software, a little bit of tweaking on the other.
If the software d like the the the the area of the panel, you know, is is kind of the the variable there. Right. Um so you can ask well what what do you need in order to make the silicon uh making uh solar rays making ships is a kind of multi stage process. But but basically you start off with uh silica silicates, which are rock
uh ideally in a relatively pure form, you uh chemically reduce them. Um there's a couple of different processes that can do that and then purify them into like ideally like six nines of purity for solar ray or maybe nine nines for like really nice computers.
um silicon purity and uh grow crystals cut wafers, et cetera, et cetera. So then then the constraint is like, well, how quickly can you convert the crust into enough silicon to support, you know, silicon thought? Yeah. Um, what does the silicon ecosystem look like?
Any thoughts?
Well, it's it's pretty quick, right? Like if you like how many if you're like one kilowatt per square meter and then you use that just to like rip oxygens off the underlying dirt, you know, it doesn't take all that long to you need about twenty microns of silicon to make uh solar P V array. So
So like from dirt as you mean like actual dirt?
Yeah, actual dirt has plenty of silicon in it. Uhhuh. So for example, setting up a brand new silicon refinery takes about eighteen months. Right. Right. Um but that's just with the current technology, right? There's I'm I I actually think
We we may find ways. So one of the nice things is if you have infinite infinite free solar power, approximately free solar power, you can revisit a bunch of legacy industrial processes that are have been optimized for efficiency and say, well, what if we just like use twice as much power? And we just want to do them faster and cheaper. Right. Like less capex.
Less lead time, more power. Right. Well, you can start solving problems. It turns out that um that if you want to chemically reduce silicon, you can do it electrolytically, like with less efficiency and a bunch like under a hydrogen rich rich atmosphere or something and then Uh so one of the ways that silicon can be refined is by turning into silane, which is a silicon tetrahydride.
Thank you.
I'm not really a chemist, but I think that's right. So S I H four. uh which is a gas. It's like um it's actually like methane, uh but one down on the periodic table. Um and don't breathe it though. And um yeah, and then and then once it's a gas you can filter it from all the contaminants which don't form gases or can be separated uh by density.
Um, much like how uh uranium is sometimes enriched, but much, much less difficult. Uh, and then uh heated up to separate it back into pure silicon where you can then you know precipitate out of
I mean the reason I think this is interesting is because um whenever people who are talking about the AI singularity, often their expertise is not in energy or physics or whatever. So they focus only on the cognitive elements of the singularity, which is like how much faster can we make AI smarter, et cetera. Mm-hmm. I think this is really interesting because
If we have a
unbounded cognition which sets up both the ability to supply and to demand more energy. I'm very curious, like what does the energy singularity look like? Um where how you know, we're just trying to saturate as much energy that the earth receives and turn it into cognition.
I hadn't thought about that before, but like there's this idea that like evolution resulted in this like continual like ramification and complexification of the thermodynamic gradient. Right. So you start with like very simple like RNA based organisms and then you get this like industrial economy. But it may be the case.
And I don't have a strong reason to suspect one way or the other, that like what we're seeing is like the beginning stages of a collapse back towards the simplest possible thermodynamic thermodynamic to cognition stack, which is We have fusion in stars and the inky blackness of space, and that provides our our temperature gradient. And then the the most efficient way to convert that into usable cognition is
Silicon like literally electrons being pushed across the Fermi gap in a solar array and then taking the return path through some like set of gates, right? Uh making decisions about things and then like beaming lasers to their friends saying, Hey, I just made up a new meme.
That that is an interesting concept. That for four billion years we've been increasing the sort of like variance in complexity.
Uh
creatures and then you might see like this big collapse. Um should I give you the opportunity to plug why uh why people should work for Terraform?
Yeah. So actually just to give you an introduction, Terraform is my day job. It's a company I founded almost four years ago. We are making synthetic natural gas from sunlight and air. We are also working on other core Primary materials stuff. We also have a methanol processed methanol and methane together.
Precursors to every hydrocarbon you could possibly want. Uh, another chemical, uh, ammonia process steel, uh desalination, and we can also make cement and a few other things. So basically, everything but the primary. Uh primary industry does except for glass and paper. We are hiring. Uh our jobs are available on terraformindustries.com. Yes, the website's meant to look like that because we're very cool. Um we are some
very special people. You know, I know a lot of smart people and I'm privileged to work with some of the smartest people I know. We are mostly mechanical engineers. I will never hire anyone who can't do math. I will never have the problem at astronomer because we don't have a head of HR.
And also the CEO is not having an affair.
Yeah, I mean like step one.
I think that was a more crucial issue, Casey.
I guess heads of HR can get into trouble. I'm just saying. Everyone does math. Terraform, it's very important to me that Terraform is the place that ambitious hardware people go to become the best they can be. Right. That is really important. I'm not it's not here to like check in and get your paycheck and like optimize some shiny widget. It's still a small team. It's still like one project per person kind of situation.
Um and I will level you up. Like maybe not quite like Jensen torture into greatness kind of situation, but like at times it's gonna feel that way and you'll get to work with the the best people that there are, at least uh on the west coast of the United States on on this sort of thing. And it's also a unique company. I thought years ago, like by now I'll have competition. We don't. No one else is doing this except for a s a small smart uh startup in the UK.
Um and uh and so, you know, you get in on the ground floor and it's gonna be super cool technology. And uh we you know, eventually we're gonna go and build it all on Mars as well and like help our robot overlords make more of themselves out of dirt. It's pretty cool. Nice. Come come work for us.
Casey, thank you so much for coming on the podcast. Oh, thank you very much. This is fun. Yeah. I hope you enjoyed this episode. If you did, the most helpful thing you can do is just share it with other people who you think might enjoy it. Send it to your friends, your group chats, Twitter, wherever else. Just let the word go for it. Other than that, super helpful if you can subscribe on YouTube and leave a five-star review on Apple Podcasts and Spotify.
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