Invest Like the Best with Patrick O'Shaughnessy
· 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?
· Scott Nolan
[00:00:00] S1: Take that one piece at a time. So on the reactor side, everyone thinks of the cooling towers. You have cooling towers in other industrial processes too, but everyone thinks of the cooling tower. Which all it is, is steam cooling off, hot water cooling off so that it can be reused as a coolant at the start of the cycle. So lots of industrial processes do that, but nuclear is known for it. That's typically about a gigawatt-scale reactor. Often in the US, an AP1000 Westinghouse gigawatt-scale reactor design, which we can get into the technical of what type of coolant they use and what type of fuel, which might be interesting. But the thing to think about in my mind is that's a big reactor. That's a gigawatt-scale. I think the interesting buckets are around the size, because they link to applications and markets. And that's grid. So you want to go battle it out on the grid. You need gigawatt-scale because it moves the needle on the grid and you're getting the scale that can bring your cost down as low as possible, at least for now. And that's a good format. On the other end of the spectrum, you have micro reactors where you're saying there's a stranded community that's doing diesel generators. This is both bad for the environment and not that cheap. We can beat them on cost. And so you go micro reactor, think one megawatt-scale, not gigawatt, megawatt. And then you have the middle, which is 100 to 300 total megawatts SMR, where SMR is small modular reactor. And all three buckets have different approaches on the technology side, but I think that all three are going to be important. And so if gigawatt-scale is for the grid and megawatt-scale is for remote communities or government installations, then the middle scale, I think, is going to find its niche behind the meter with data centers over the next five to 10 years.
· Patrick O'Shaughnessy, Scott Nolan
[00:00:00] S0: Where one unit could be dedicated to one data center, like something that doesn't interrupt the cost that I'm paying as a rate payer in whatever district I'm in, even if there's a data center there. Something that's more cordoned off. [00:00:00] S1: Yeah, exactly. So think of it as like the ultimate behind the meter thing. It's just an island. Imagine a fence around a few hundred acres, you've got a data center and you've got its nuclear power plant there or whatever other form that they might have Peaker plants, natural gas, turbines, maybe even solar in some cases. Okay, that's all cordoned off. It does not even touch the grid. It's not impacting the grid. It's not doing anything to the communities. Rate costs completely separate. I actually think there's a huge opportunity to improve communities through this. If you have a data center putting billions into both the compute and the power production, let's say they're even 50-50 on power production and compute. Can we increase that power production 10%, which is only a 5% project increase? And in the case of a gigawatt data center, bring an extra 100 megawatts to a community. That's huge. That would plummet utility prices for that community. So I think at a minimum, we're going to see people going behind the meter, or not disconnected from the grid. And ideally, we see them actually feeding the grid and feeding baseload. [00:00:00] S0: That reminds me of your BYOE concept. Maybe just spell that out in a little bit more detail.