Invest Like the Best with Patrick O'Shaughnessy
· Scott Nolan
[00:00:00] S1: The whole argument from the 90s almost till 2020 was something like, even if it would increase the economy, would you want to? So, okay, do I want to have dozens of aluminum smelting facilities in my country or is that better done overseas? And it's low margin and not interesting and not going to accelerate your economy, and why do you have people working on that when they can be in the services world and do more interesting things? Certainly that was an argument, but I think we're seeing it right now – what happens when you're not proactive about it, when you don't have the capability even of expanding rapidly. And you don't want to be caught completely flat footed when there's a large demand for energy production, and now here we have it with AI and data centers. And you look at some of these curves and it looks like data centers could consume, if they were allowed to, the entire grid by 2030 at this growth rate. And so I think in theory, you would say energy production will come online as we need it, but then in practice, if you don't develop it, you may bias yourself towards other things – because while our energy costs are kind of high or our energy cost is higher than other countries because we're tighter on supply, and they've overbuilt and they're subsidizing. But then they take those industries and then they take the front of the supply chain and just start marching forward to where they can dictate a lot of different things about the economy. That was the classic view – economies are efficient, markets are efficient. If there's a demand for energy, we will bring it online when we need to, but physical world stuff has a timeline with it. And then in the U.S. it can be very hard to get stuff permitted to go do things. And so when there's unexpected demand that's very rapid in its increase, you might be caught completely off guard, which I think is the situation in the U.S. now with data centers, and them scrambling to find power. And where, a few years ago, if you looked at a data center and you thought, okay, where are they going to place it? The answer was they'll put the data center where there's stranded power. Stranded wind in West Texas, stranded flare gas in South Dakota, North Dakota. And now those stranded assets are gone and now it's time to build new capacity.
· Scott Nolan, Patrick O'Shaughnessy
And data centers are completely backed up on getting natural gas turbines, and nuclear takes a few years to get installed. So I think just from an energy stability, economic robustness point of view, you want to have capabilities, and at least the ability to stand those up as you need to. [00:00:00] S0: Obviously you're doing something about it, but how do you feel about the state of things overall? The state of energy in the United States overall, both state and direction? [00:00:00] S1: The state's been fine until now, and then the direction is completely flat. So to me, the issue is that we have not increased at all in decades on the supply side. The direction doesn't feel great. The state, I wish we had more. I wish we were not one third of China. I think we could be doing a lot more things if energy was not just abundant, but cheap. And so, just making more high cost energy also won't bring back certain industries. It won't cause us to start doing things we used to do. [00:00:00] S0: You think energy is the bottleneck to us bringing back some of these industries that have left? Or is it more labor? [00:00:00] S1: I think the labor is actually the one that's probably the most responsive. If there's really compelling jobs in a field, people will shift over to that. The classic one, the last couple of years has been electricians. [00:00:00] S0: Massively undersupplied. [00:00:00] S1: Massively undersupplied, can't get enough to build all the data centers. They're commanding very high, great wages. Can make more than people who went and got a masters.
· Scott Nolan, Patrick O'Shaughnessy
[00:00:00] S1: Massively undersupplied, can't get enough to build all the data centers. They're commanding very high, great wages. Can make more than people who went and got a masters. [00:00:00] S0: Who work at Bain. [00:00:00] S1: Yeah. It's an incredible career, and now we get a lot of people shifting into it. I think labor responds. It probably takes a few years, but it's faster than building infrastructure. Infrastructure is probably the bottleneck. And then, is it just energy? Probably not just energy – permitting can take a while. And so I think there's a bunch of different bottlenecks to getting things online. [00:00:00] S0: Why do you believe in nuclear? Why that specifically? [00:00:00] S1: If you look statistically, it's always been the safest, cleanest baseload. So I think for the economy, what you really want is baseload. You may be able to get to something that's like baseload. [00:00:00] S0: Baseload meaning always on?
· Scott Nolan
[00:00:00] S1: Always on, very reliable supply of electricity. Not intermittent, but something you can actually design an industrial process around as the foundation of the economy. Even data centers want baseload. Solar with enough storage could be baseload, but typically it's not anywhere near that amount of storage. Usually solar's more intermittent, more for peak shaving. So if you really want baseload, if you want something that businesses and industry can rely on, it has to be on almost all the time. You need it to be highly reliable. And nuclear is the most reliable. So you check the baseload box. People only in the last 10, 20 years have started caring about climate even remotely as much as they do now. And if you care about climate, I think maybe you care about carbon. You probably also care about particulate. Nuclear is the cleanest by far on these dimensions. So on the environmental side, nuclear wins for baseload. And then on the safety side, this is the part that people think – they question. The safety side, it's the safest by far of baseload too. You have fossil fuel plants that have known impact on human well-being from emissions. And nuclear has none of the carbon emissions. And there have been high profile accidents with nuclear. You think of Chernobyl, Three Mile Island, Fukushima. But the actual risk associated with nuclear, despite those high profile incidents, is still far, far lower than any other form of baseload energy. And so it's like, okay, if you ask me, what's the safest, cleanest form of baseload? Nuclear absolutely. Why do I believe in nuclear? I think those things are important. Okay, what about cost? How does it stack up on cost? And this is the piece where it gets really exciting. To where, over time we did less and less and less nuclear, probably starting in the seventies. And you see the cost of nuclear going up as we do less of it. You look at where the cost of nuclear is today, and it's more than fossil fuels. It's like, okay, unless you really care about safety, which is pretty acceptable from all forms, or you really care about carbon emissions, is it really worth it? Are you really going to do nuclear when it can take 10 years, 15 years to build a reactor? And they can be double the expected budget.
· Scott Nolan
That's really hard for a utility to stand up to and say, "Yeah, I want to do more of this." They need to bring costs down for ratepayers. They need to have predictability in when they're going to bring capacity online. On those dimensions, nuclear has not been the best. It's not highly responsive, new energy generation, and it hasn't been the lowest cost. So you say okay, why care about nuclear? It's because on first principles, it should be one of the lowest cost. You've got much more powerful physics, much potentially smaller reactors outputting a lot of energy. You look at a pellet of nuclear fuel and the amount of coal that that's equivalent to is like a ton of coal. And so I can take all this stuff, all this space, and pack it in so much smaller. I don't need as much material for my reactor. I'm not going to be going through as much mined product. It's just an order of magnitude different. And so on first principles, nuclear should be an extremely affordable thing, potentially much more affordable than fossil fuels. Now it has not been at all, but that's the goal. And so now you see this whole wave of advanced reactors trying to make that true on the reactor side, and then we're trying to do it on the fuel side.
· Patrick O'Shaughnessy
[00:00:00] S0: Can you create a taxonomy of the advanced reactors? What kinds of approaches are being tried? I think everyone thinks of nuclear as the massive kind of plants and the stacks that they're used to seeing pictures of and are very evocative. And it's sort of been that same way for a long time. They cost $10 billion to make or something. What are the things being tried?