The natural gas ‘bridge’ becomes a highway

radically. Who needs influencers when you have the tech companies who run the platforms? This month, Meta announced it would fund 10 natural gas plants for a single AI campus in Louisiana, enough capacity to power the entire state of South Dakota. Microsoft, Google, and Amazon are all investing in gigawatts of new gas capacity. Utilities and IPPs have tens of gigawatts more in their development pipeline.

And this once called bridge fuel is suddenly looking like a four-lane highway. This week we're gonna talk about what's behind all these gas deals, what it means for the power mix and emissions targets, and what an off-ramp could look like.

And because FlexGen's solutions integrate with a variety of hardware, teams can adapt as technology and energy strategies evolve. Discover how FlexGen is powering more strategic energy systems at Flexgen.com.

So let's get into the show. Um, we're gonna talk about gas this week. We've seen a slew of gas plants planned by the hyperscalers in the last few weeks. And what's striking about this, the reason why we're talking about this now is because it's not just like one company making a big bet. It's all of them almost simultaneously. Meta tripled its gas commitment for Louisiana in under a year, going from 2.3 gigawatts to 7.5 gigawatts across 10 plants at a cost of nearly eleven billion dollars.

Um, Microsoft entered exclusive talks with Chevron and engine number one to build a natural gas plant in the heart of the Texas Permian Basin. Uh that'll start at 2,500 megawatts at a projected cost of$7 billion with the potential to expand to five. thousand megawatts. And fun fact about that, engine number one was the investment group that ran the in activist campaign against Exxon years back. And at the Goodnight campus in Texas,

Uh, a project Google has invested in alongside Crusoe Energy. Uh there's a permit filed for almost a gigawatt of gas that would operate behind the meter. And speaking of Crusoe, this is a company that once declared plans to build a climate aligned cloud, but is now primarily investing in gas. And I think I saw that it secured about four point five gigawatts of gas equipment for gas generation.

So let's walk through some of these examples first, and then I want to just step back and talk about what it means collectively. Um Caroline, first to the Louisiana deal for Meta, this isn't structured like a normal PPA. It's got you know, it's financing generation, transmission, and storage for a single campus. Gas is by far the dominant resource. What do you see in this project?

Or you would go and just take the CNI tariff and then over the course of the first couple of years, because it takes five, six years to actually build a data center and ramp into it, that was the old way. Um, you try to work on what your climate strategy was with that. And maybe that would be to build a CNI solar program. Maybe that would be to, you know, purchase solar and win someplace else if you didn't have a locational matching program like Google and Microsoft did.

Um or you would do nothing. Um and you would put it in the hopper of we'll when we can find cheap offsets, we'll we'll pursue cheap offsets. It's not that different. What's different is it required new construction. new power plants being built in over in order to service load. And so I think what Meta did was they said, you know, whatever the utility thinks is best. is what will get built and that's what will take.

And that's a pretty standard response in most of these systems. It's just what's shocking is how much new had to be built because we couldn't eat up existing capacity on the grid. But in terms of the actual mechanics, it doesn't really look that different to me than what many did before.

Really high quality gas turbines at half the price of what everyone else is paying for gas turbines. And so that price is not$2,800 a KW. That price is lower than$2,800 a KW. Now in the southern companies case, They had bought the turbines in twenty twenty one.

Right. And so it was fine. They got it at a cheaper price when gas turbines were$800 a KW and there were no orders in the books. But in Entergy's case, there's no chance that they bought these gas turbines in 2021 because they were not expecting seven and a half. gigawatts of load growth, right? And so I'm trying to figure out whether there's a repricing coming later when they actually figure out what the actual costs are that they're gonna have to like, you know, talk to the commission about.

what was their agenda? And I think their agenda was probably to build as quickly as possible and to build with the least amount of friction, um, and the most amount of security. And from energy's point of view, energy is gonna say building gas is gonna be the way that we get you on the system fast enough. And

You so you can point the finger at Meta and say, why did Meta have to build all this? Or you can point the finger at Entergy and say, why did Entergy have to build all this? But or you can point the finger at the regulators and say, why did the regulators approve to build all this? you know, I think all of'em uh uh essentially came to the the collective conclusion that it was the

The easiest path with least resistance to getting electrons on the system. And it's what Entergy knew how to do. And I don't think that Meta was. was going to push to do something new. And that's that's just I mean, that's the boring story of it, but that's the story of it, you know.

uh in the last ten years. They're planning though of building ten thousand megawatts of new solar over the next ten years, right? So they're building a lot more renewable energy. And part of that is because it's cheap, right? And and they've been behind. And so there's actually a lot of great sites to put um solar down. And I think one of the big challenges I see is that

This is leading to the least optimized grid you could possibly build. Right. And so so one of the big challenges I see is I don't think that this ends with a one time deal with Meta. I think this is gonna be we're gonna put in a one-time deal. Then there's gonna be a whole bunch of other people who build solar and build other things. And then they're gonna like, well, we had to back the gas off. And so now the gas.

Plants are costing us a lot more money on the capacity side just to keep them available. And we're only running 35% of the time instead of 57% of the time like we thought. And so now we have to raise rates another 10% to like cover those costs. And then something else is going to happen. And along the way, you and I both know Meta is not going to cover all of those costs.

Right, they are going to be peanut buttered across all of the different rate classes. And they're going to say, Well, this wasn't Meta's fault. Meta did the first. rate clo rate case and now all of these other costs are gonna be spread across all the poor people in Louisiana. And so part of my challenge with this is that

I'm not taking an anti-gas approach. My thing is is that one, the cost of the turbines right now, everyone knows are in the two thousands per kilowatt. That is not the number that they reported. And I don't know how entergy got a good deal. Two, like, I don't think Louisiana is being honest about what the five-year trajectory is for the costs of. The full integration of all these things into their grid, right? And so I think that there's a lot more shoes to drop here.

And at that point they're gonna be like, Well, the turbines have already been ordered, so we can't change our mind now. And like all this stuff is already in like, so they're not giving people enough information to actually have a robust conversation at, you know, the regulator.

understanding where your grid is going and where load is going. And if load doesn't materialize in any circumstance, if load doesn't materialize like and grow, then everyone's at risk of that particular situation and that's why it's important that you know the right tariff structures be put in place and and the right guardrails be put in place and then energy be held accountable to that. Uh but I

Yeah, yeah, it is. I mean I think that the I think the the the bigger concern uh you know that Jiggers articulating really for me only falls down is if you know, Meta decides not to continue growing there. But I don't see why they wouldn't do that. I mean, most most, you know, entities, once they have enough land and they have enough space, they're gonna continue to grow out, you know.

Um, they didn't want to do virtual power plants. Now the city of New Orleans is making them do virtual power plants, right? You've got companies like Carrier that are now deploying, you know, air conditioning systems with seven kilowatt or with four kilowatt batteries associated with them, right? You've got all of this innovation happening around them, that is most certainly gonna lead to them not running the natural gas plants as much as they plan to in the base case.

When that happens, that by definition raises the cost per megawatt hour from each megawatt hour that does get produced by that natural gas plant. And Energy is going to have to file a new rate case when they figure that out. This is stuff that they could know now, but they refuse to be honest about now. And so like because they've got their head in the sand and they think that they can just keep VPPs and edge technologies and other things, like off

the radar screen and not into Louisiana. And I was like, that's not possible. Like this stuff has come into all fifty states, electric vehicles, everything is, right? And so like when that happens, these gas plants are going to run at a lower capacity factor.

Over the next 10 years, everything's gonna get more micro, right? I mean, this is what Jigger's talking about, like behind the meter solutions for customers and load management, smart thermostats, storage, electric vehicles, everything, everything's gonna get more micro.

And so in those micro markets the signal you actually need is flexibility. This is sort of what I think the UK went through at some point and then, you know, come out on the other side. But If you have a flexibility signal, certain type of gas and the way gas is built and the way you expect it to run can be in the money or out of the money.

If you expect it to run at a ninety percent capacity factor the entire entire time, you could risk it being out of the money, right? If we're moving into what's gonna be more micro market, more flexible space. And so I think the conversation needs to be less about gas work to firm the the duck curve essentially of of solar, as opposed to saying, how does gas work in a highly micro, highly flexible grid?

And then how do you build it according to that and match it with a better portfolio around, you know, load management, demand response? I don't think that's what happened in Louisiana, but that's what I hope is happening moving forward.

uh robust for massive chunks of load growth. That's what happened all throughout AEP system. Um or you're in a situation where You don't have enough generation, but you have the transmission capacity. Right. And if you d if you don't have enough generation, the the ease the low-hanging fruit, the easiest thing to do is like, okay, we're just gonna build

a gas plant. But if you don't have both, which I know transmission has been a struggle in Georgia, just the way it's been built in terms of where demand is and where supply is. um constructed, then storage becomes a very easy component of of it. But I don't think storage is still being seen as a generation um or even and and just to add one more thing on that. All of these data centers, if they're AI training, are going to have to have storage behind the meter.

It's a massive data center, which I assume is going to have training and I assume is going to need a significant amount of storage. Maybe Meta's doing that on their own. I don't know.

all throughout the data center development space. But then on the flip side, it's being attacked for how sort of, you know, seemingly run of the mill it is on the energy side.

We could probably raise capital quicker. Right? And they were right. Um, and so they sort of standardized the way they they were doing that. And standardized is is probably generous. They created a model that could be replicated, you know, if picked up that way.

As power demand rises, flexibility and control have never been more critical. Discover how Flexgen is powering more strategic energy systems at Flexgen.com or click the link in the show notes.

uh generating electrons on gas to serve serve the data centers. And because we didn't want to talk about it, we actually didn't put our weight behind cleaning up anything in in the gas industry. So now my question is Okay, if you're we're being more open and honest about this, are we gonna be held accountable to put our weight behind uh cleaning up, you know, things that are kind of low-hanging fruit. um have significant environmental impacts on cleaning up on on the gas side.

get the gas out of the Permian. And so gas is trading at a negative price. You have to pay people to take the gas in in the Permian because there's not a pipeline capacity. So I'm assuming Chevron's gonna build more pipeline capacity too to be able to like get the Permian gas to the

um twenty four seven carbon free energy and doing things the right way. Uh was it surprising to you that there was gas in this data center or is it just feel like gas Google has always had more gas than people realize?

in in in like let's take this Louisiana scenario, pushing back and saying, No, there needs to be a more balanced portfolio here. Okay, we understand if this we have to build seven gigawatts, it may be two, three, four need to be natural gas. But I think Google would have been the ones to push and say it's it's not all gonna be natural gas, right? And I think that that's that's really

what the point was the entire time. I think I think and I I take more responsibility for this than anyone because I took that mantle and I ran with it at Google. Which was to say th it is possible, therefore we shouldn't accept anything less. But I don't think anyone at Google truly expected that others would be able to replicate everything that we did.

And so that's where the the the gap widened. And when and the truth is Google is not gonna be able the energy team is not gonna be able to go to you know, leadership and say, well Amazon is gonna kick our butt.

Because we decided we couldn't run on natural gas. Like that that conversation is never gonna be allowed to happen internally, you know? So as hard as they are trying, and I think they are trying more than anyone, I actually think that they also recognize that well responsibly built natural gas plants. that provide that stability, allow for the for more renewables to come on or, you know, integrated flexibly with, you know, virtual power.

Is is a is a is a good future for for the system. What's not a good future is when it's it's sort of built. Behind the meter, irresponsibly, and we've talked about this before, a ton of recep. Um no load planning. No entity that has the desk to be able to balance it. That's an irresponsible way to do it. And that's gonna end up in stranded assets for sure, in my mind, right? So there's a responsible way and irresponsible way to do this is all I'm saying.

And the natural gas gets dispatched under the merit order. And so it only gets dispatched when wholesale market prices get to a certain price. Right. And so now you may have to dispatch it in the Permian just because there might be certain

stability issues or the things that you need to like compensate for. But my sense is is that that in In Texas, a lot of this gas is actually going in as capacity that's gonna run whatever it is, 300, 400, 500, 600 hours a year, then it's not like gonna be baseload per se, because There's no need for it. There's actually plenty of power in Texas ninety percent of the time.

Right. And so like when you look at the data, like they are not actually building in any way, shape, or form based on all of the ridiculousness that I have to read on Twitter and these stupid reports. and whatever else and I only have to like believe that they are purposely obfuscating the data. Like, like it does not seem impossible.

to speak clearly about which projects have received funding, which projects are moving forward. And to Carolyn's point on four different podcasts, there's not a single person building a merchant natural gas plant. Not one person. And so then like if you're not building a merchant power plant, then there is a buyer, there is a seller, there's an equipment provider, there's an EPC contractor that got a contract. This should be something that you can be precise about.

mo goes away because some guy said, Oh, I got stuck with this land that my daddy gave me. I thought I could like make a quick buck on it with data centers and now I'm not gonna spend twenty million dollars to be in a load queue. Fine, right? But then on top of that, right, you still have all of the physical constraints.

of the grid. And so when you go into a public service commission, you and I both know it's hard enough to educate those public service commissioners on a good day. And then when there's all of this just ridiculous data just like, you know, being thrown up right in their faces and saying, look at this data, look at that data, look at this data without any sort of screen around like, these are real projects, these are not real projects.

here's data that you should look at. Here's data you should not look at because it's purposely meant to just like, you know, like make some sort of Twitter meme. Right. Like I think that like when you look at Michael Thomas's report. Like Carolyn's been saying six ways to Sunday. I talked to Jeff Bladen from Varys yesterday. They're like, there's no chance that any of those are being built, right? Like there's like 56 or 67 or whatever gigawatts of projects.

And so there should be when you're spending a trillion dollars on infrastructure or whatever the number is that people make up in the Wall Street Journal today, like someone should spend money to figure out what's what's truth and what's fiction.

And I think what ends up happening in a lot of these circumstances is this is just sort of extrapolated based on some statistical number around where we've seen the stair step in demand. And the stair step in demand is not reflective of anything other than a catch all approach, right? Everyone's just going out and trying to get as much as they can right now.

Because they functionally do not know are they gonna get another hockey stick and load growth in two in two years or is it gonna flatten or is it gonna come it's probably not gonna drop off. So worst case scenario is that they're left with something they have to sit on for three, four years as they grow into that training load or they grow into that inference load. And that three or four years.

It's it's not a rounding error, but it's not dramatically significant into the cost of not having enough to train.

So on the flip side though, power plants are built over what a five-year, six-year scheduled timeline, and those two don't connect at all.

rate filings in in, you know, New Jersey, they've gone from eighteen billion dollars over the next five years in twenty twenty three, twenty two billion dollars in twenty four, like, you know, twenty-six billion dollars in twenty-five. Now they're gonna come out with thirty billion dollars over the next five years, right?

Duke, same thing. And then when you read their transcript from their from their thing, they're like, Well, we're building all these new natural gas plants because of data center load growth, right? And so then on this side, they're saying, I'm raising your rates nine percent a year because of

data center load growth and also the load growth that we're facing and the natural gas plants that we have to pay twenty four hundred dollars a KW for, right? Because we're talking about gas now, right? And in that case, the utility doesn't care about an off-take agreement because the utility is saying

I can rate base stuff because I like to rate base stuff. And I have old gas plants I built in 2004 that I'd like to replace. And this is a convenient way for me to shove this right in, right? And so the data center companies by deliberately being terrible at planning. are leading to higher rates for everybody. And like all of this speculation on gas by these utility companies who expect to have data centers.

in five or six or seven year planning cycles, which the data center companies themselves have not committed to, but I am having to deal with all this stuff in public service commission filing.

Right. So in some ways I think it it will amend itself. But what Jigger hold up, Jigger, what you were saying is actually interesting. And I think this is something we haven't talked about, but it's something we need to point to, which is that in a vertically integrated market. The IOU can absorb the shock with its balance sheet and with the way it can raise capital because it doesn't have the same investor scrutiny.

uh than compared to a competitive supplier. And that ability to absorb it is one of the reasons why. Uh hyperscalers and data center developers will go with an IOU because the sticker price, they're not paying. for the capital costs of building out these plants. They're just paying the energy cost. For the generation. Everything else is absorbed into the rate base. I don't

And so what'll either happen is they'll develop those muscles and in those cer situations, in those bilateral situations, absolutely I think you can control. Um easily for the rate impacts being shifted onto the residential customer or the commercial customer. And I will say in the vertically integrated space, you can as well, but it requires some

some articulate math, right? Um, which the utility may choose to do or not do. And so I think that there is a learning curve here, and if we go back to the meta example. The tech companies, none of us are we weren't hired because we knew how to build power plants. Most of the commercial teams in these tech companies were built because they knew how to do renewable.

finance development. Like they knew how to run large RFPs. They knew how to do these bilateral contracts. They knew how to negotiate. They knew how to understand a hedge. You know, that is a very different skill set than saying we're going to build a new CC. and deal with the interconnection of that, the pipeline risk. and then balance that against the overall wholesale market. Totally different skill set. And so there's a an additional learning curve in here. And what I don't want to see.

is build out, get pushed completely into the IOU territories where it does get sort of lazily absolved. And then you have, you know, a residential cost system or a cost increase problem. Because because The tech companies just they don't know how to do it. So maybe they'll learn. They don't want to do it yet. And it's the easier way out to be like, well, let's just let the utility rate base cover cover what really should be our our cost responsibility.

Right. And so gas plants generally last 20 years, right? So when you think about the the Q, right? So like For instance, if Chevron were to take one of these turbines that they're building in the Permian and they actually ran that data center off grid and then they blew a shaft on that turbine. It would take five years to get a shaft. Like they basically would be in the same queue as people who want to buy a new C C GT, right? So like, so basically, like that.

That was what Southern Company was buying gas plants for in twenty twenty one. Like all of these folks were basically buying stuff to replace stuff that was retiring in, you know, two thousand and four. Right. And so now What if you have growth from that number, then that growth number comes from lower heat rate turbines, probably like recips or lower or like recycled aircraft engines or

Whatever like startup company that just like decided to take their airplane business and turn it into a power plant business. Whatever goddamn thing that like I'm having to force to read on Twitter. And so like

How much of those hundred gigawatts are high heat rate gap gas plants? Like that is not provided in the question, right? It's just an aggregate number. And then, you know, caterpillar stock is doubled.

We set our twenty-four-seven goal at the end of twenty twenty. By the end of twenty twenty-three, we realized we were an order of several magnitudes off on what we thought load, our load projections were going to be. So we had two and a half years to scale technologies to be commercially viable to meet our load. That's not enough time.

When you think about the hockey stick of what happened. And so what we're what's happening is maybe maybe if we'd had five more years, there would be less hypothetical gas in the system'cause you would have scaled other technologies like geothermal or maybe even some degree SMRs, or more likely, we would have figured out how to do load management better and commoditize that, you know, which I think is is still the silver bullet.

But that's two and a half years. That it it's not a ton of time to see a sea change in the way the vast majority of this industry feels confident and willing to take deliverability risks. and willing to take reliability risk in a market. And I think that's what it's saying.

Right. And they're designed to run 50 hours, 60 hours, 80 hours a year. Right. But like they're included in the number with CCGTs and other things, which is not how we define. The space in the past. People have been buying backup diesel generators for a long time. That doesn't mean I'm predicting that eight percent of all US electricity is coming from diesel.

Right. But now we're saying like 43% of all electricity from the United States comes from natural gas. Like, are you saying that that number's gonna go to sixty? If you are, I'm telling you that I know which 40 utility CEOs will lose their job by 2030. Because that is dumb. Nobody in their right mind would have an energy mix that's 60% natural gas.

Right. Then that means that you go from you go up to forty-three percent because natural gas was at like twenty-five percent of our of our mix, right? And then they basically destroyed a lot of the coal. Compa uh, you know, like sort of production from the 2004, 2005 time frame, right? Now the question is, where is it gonna go? Right. And is it gonna go up a little bit? Probably, right? Is it gonna go to 60? I doubt it.

Is it gonna like go back down in the future? When? Right? That's sort of what a bridge conversation looks like, right? And so my point to you is that I don't think in a decarbonized world. we're gonna have a lack of natural gas capacity because it provides the flexibility and you know, in like a polar vortex or a heat wave, like it's useful to have it as capacity.

But I don't think that in general, we're building a lot more than the 500 gigawatts of gas plants we have operating now to run the grid.

Order books are sold through twenty twenty seven, prices are up one hundred and ninety five percent since twenty nineteen. It doesn't seem like any of that has slowed gas development. I mean, are people f finding their way around these challenges?

They don't have the workforce, they don't have the desk. Uh they may still they probably still have a lot of the contracts in place, but then they're gonna come up with How how are we actually going to do this? And that's where, you know, rubber is gonna meet the road. But no, the workforce, the workforce, available workforce does not match the eyes or the ambition for growth.

Um, and neither does the supply chain. And so what's gonna happen is this is gonna be consolidated to a handful of players who actually know how to build these things.

Uh, we are responsible for a lot of residential customers throughout the US, right? And so we're just as sensitive to the affordability issue um as anyone because Uh, we're in competitive markets and we don't want to lose our customers and we care about our customers and we don't want to see their bills go up because um this power development isn't done responsibly. So we're we're very committed to the the bring your own power and that needs to be done through uh a bilateral negotiation.

Uh and that looks different in ERCOT than it looks in in PJM. Um, but I also think that there's a lot of opportunities for NRG to partner with cooperatives or even smaller IOUs that don't want to take the development or balance sheet risk of of building some of this. Uh, because we're one of the few uh entities in the country that actually knows how to build power plants and we've kept our entire gas team and gas desk and we actually know how to integrate

new gas with uh virtual power and with renewables and how to wrap everything from the CNI down to the residential space. So I think for us it's an opportunity for growth, but it's also an opportunity where we feel like we know how to do it better than anyone, and so we'd like to set the bar. for how you do it well. And so none of these residual issues that we've been talking about for months occur. Um, and that's at least that's what I'm focused on. Yeah.

Look, these companies are walking back their climate commitments. They've been promising the world to us and now They're doing everything they can to walk away from, you know, what they said they were going to do and this is a climate disaster. Um, like how should we think about what these companies are doing, considering those two ends of the spectrum?

were able to set the narrative of who's responsible and who's not responsible. And I saw this a little bit in states, you know, three or four years ago where I was like, why why are Why are the tech companies being held to a higher bar in legislation in terms of their renewable deployment?

than the utilities that have been there for fifty years. Like that was interesting to me. But I sort of said, you know what, whatever, we'll meet the bar, let's move on. And it was a somewhat a social license to operate question for me as well. And I didn't mind having the bar be high for us because it meant that I would get to do more cool stuff, right? So But what the risk of that was is that we put all of our faith

and all of our, you know, energy, so to speak, behind a handful of companies that weren't energy companies. They weren't energy companies. We don't know how to do a lot of this. And if we don't know how to do a lot of it, and there's sort of a a gun to their head around meeting a fill need in order to To stay competitive, which with in a rat race that we've deemed a national, you know, security risk.

They're just doing whatever is right in front of them because they weren't given the run rate and they don't have the workforce to do it. And they also, in my opinion, shouldn't be the ones. that are held first accountable. We should be held holding the utilities and the suppliers accountable for doing this well.

So when they were thinking about doing these things, we were helping them with modeling and this and that and whatever. And because we had a relationship with the utility companies, they sort of went along and they looked at those models and worked with us on that, right? Whether it's Georgia Company, Georgia Power or others, right? And now that we've left office and the new folks are in the US Department of Energy.

They have been vibe coding energy markets, right? So they've been saying we can actually just run the entire energy market with 202 letters to keep coal plants open, even though those coal plants aren't needed in those markets.

Or we can just power the whole thing with natural gas because I woke up at a Holiday and Express last night and that's what they told me, right? Fine. And so like as the tech companies are doing exactly what DOE is telling them to do, which is great. And they're getting permission. The problem with that is that there is no modeling on the planet that actually says that that's the most affordable way to run the grid. Right. And so we are in this weird spot where we are deliberately choosing.

to do things based on a secretary of energy who basically is like natural gas or bust because all of these other things are unreliables. Right. And I'm like Okay, but like there is a whole body of work that shows that that is not the cheapest way to provide generation or transmission or distribution. And so we will just have to wait for sanity to like re-emerge.

of Open Circuit on YouTube. Just subscribe to Latitude Media. You can find the audio version, of course, anywhere you get your podcasts. And head on over to latitudemedia.com to read our newsletters and uh get more stories on the stuff that we talk about here. Thanks so much for being here. We will catch you next week and we will see some of you at Transition AI.