Invest Like the Best with Patrick O'Shaughnessy
· John Arnold, Patrick O'Shaughnessy
[00:00:00] S1: The worst scenario is that the energy system becomes the bottleneck for both U.S. innovation as well as individual flourishing in this country. On U.S. innovation, especially on technology and AI data centers, it's largely around – can we build, can we create the supply that industry is demanding? And on individual flourishment, it's can we do so and maintain the affordability and reliability components that Americans have come to not only desire, but demand? There's this politics around energy and food and housing, because we need all of those. Those aren't optional for people. But there's this politics around it, that if you start to lose affordability of any of those, then there’s real, tremendous political ramifications of it. You can start to see if an energy system goes bad, it will have a huge impact on politics in this country. [00:00:00] S0: If you think about that bad case scenario, both supply and demand wise. I'm curious, starting with demand, how certain you feel that this big increase in demand, for really the first time in decades in the U.S. – how lasting it feels to you. Does it feel pretty certain that we're just going to get a ton more data centers, almost no matter what, or demand for them anyway? And then on the supply side, what the reasons would be that we just fail to meet that demand? Why we would stumble and not succeed?
· Patrick O'Shaughnessy, John Arnold
[00:00:00] S0: If you think about that bad case scenario, both supply and demand wise. I'm curious, starting with demand, how certain you feel that this big increase in demand, for really the first time in decades in the U.S. – how lasting it feels to you. Does it feel pretty certain that we're just going to get a ton more data centers, almost no matter what, or demand for them anyway? And then on the supply side, what the reasons would be that we just fail to meet that demand? Why we would stumble and not succeed? [00:00:00] S1: Visibility through 2030 is pretty clear. The investments are being made. The actors that are making these investments are the largest, most profitable companies that have ever existed on this planet. Many of them are growing at very healthy clips, and so their free cash flow is increasing. They have the financial capability to execute on these plans, and they're making the investments today. I think the 2030s on is – who knows? The assumptions that have to go into any model on this have such wide error bars, and you extrapolate out that many years, and you just create a garbage in, garbage out model. [00:00:00] S0: What about our ability to meet that demand? What would screw us up on the supply side most?
· John Arnold
[00:00:00] S1: I think it's policy. It's gotten harder and harder to build in this country over the years. There's always this tension between what the needs of society are and what the preferences of a local community are. Everybody realizes we need transportation and housing and energy. People also want it not in their neighborhood. This is the whole NIMBY movement. "We need affordable housing, workforce housing. We need transportation. We need energy assets. But don't put them by me. And if you try to, I'm going to go fight you in the courts." For developers, time is money. Opponents to projects have gotten very clever about how to use the existing regulatory laws to delay and delay projects. And in doing so, can often kill them. I've been very focused, through our foundation, on how you do permitting reform. To make sure that the projects that are good for society and aren't unnecessarily painful to any community, will get built. While maintaining the parameters that the bad projects don't get built. This NIMBYism and this difficulty in building is what would lead to the problem of not being able to supply, or energy becoming the chokepoint for development of the United States. And particularly, bringing it back to the first part of the conversation, on China and just the speed and scale that they can build. They don't have this problem. I'm confident of that. It is one of the biggest differences between the two countries, and I really worry about if energy becomes a choke point in the U.S. – it has real ramifications for the strategic ranking of this country.
· Patrick O'Shaughnessy, John Arnold
[00:00:00] S0: If you were a politician, would you use the China story as fuel to the fire to try to communicate and market this concept that we're getting lapped by someone that's – if not our adversary – our competitor? [00:00:00] S1: Yeah, 100%. Not only is it a good narrative, but it's true. If energy becomes the constraint, we will become less competitive vis-a-vis China. [00:00:00] S0: You mentioned the asset side being so exciting on the energy side. If I was an energy asset investor, and I really wanted to fund stuff that would help us solve this problem, where you've got the joint growth in demand and this rise of NIMBYism, where does this whole thing break down? Is it in transmission? Is that the problem? Because, presumably, if we could just produce lots of energy in remote places that nobody lived or cared and transport it efficiently, the problem would be solved. Is that the right way to think about it? Do you think about it differently? I want to get towards the best version of things you could imagine in five, ten years’ time, that would solve this problem and make us energy abundant and not slow.
· John Arnold
[00:00:00] S1: Transmission is certainly a component of it. It's not the only component. We can talk about supply chains, can talk about land use, but transmission is a huge component of it. I actually started a company about five years ago trying to build inter-regional transmission lines, because it was an industry that had become so difficult to permit and build that private capital had largely given up trying to do new projects. It's one of the solutions that can be a win-win-win for everybody. We were talking about the goals of the system, right? It can reduce costs, it can increase reliability, it can reduce emissions, it can make the country more secure, it can create more jobs. Yet, it had gotten so hard to build these lines, and it’s still very hard to build these lines, that most of the developers who had gotten started with projects in the 2000s gave up. They started things thinking these were going to be five-year projects, and they were 10-plus years in, and many of them hadn't broken ground yet. Again, this is part of the challenge of America. It just takes so long, and part of this is there's not one entity that can just say, "Okay. Do it." There are multiple veto points along the way, and you have to convince a lot of different actors of this project. I talk to a lot of federal politicians on both sides of the aisle. One of the things I hear from almost all of them is this need to figure out how to permit and build faster and more efficiently in the United States. There's very broad agreement at the top level. But you can get disagreements about the details about how to go about that. I think I remain reasonably optimistic that we can get federal permitting reform done this year. It'll be, probably, the only bipartisan legislation that happens, besides maybe a budget. But there is this will that I sense, that is unlike any other issue in D.C. right now. There is this realization that this can set the country back. People will look at it for different reasons. Again, people will have prioritized those goals in different ways. So, how can you do a bill that helps all of those goals? That's what we're shooting for.
· Patrick O'Shaughnessy
[00:00:00] S0: What do you think about nuclear – both new forms of fission, but also the panacea potential of fusion?