How AI data centers are reshaping electricity prices and energy politics across the US

days in one. He's figured out how to manipulate time.

You are manipulating time. Uh anyway, we have our next guest in the reream waiting room. Let's bring him into the TVP and Ultradome. How are you doing? Sorry to keep you waiting.

What's happening?

I'm doing great, guys. Any any opportunity to follow up Ryan Johnson is is one I will take.

It is a fun It is a fun story. He was your opener.

I mean, you've clearly been doing a lot of looks maxing. Uh what's working for you? You know, I I do have friends actually John and I uh play a poker game with a Ray Pete Ray Pete acolyte. So,

okay.

I've been at least hearing about Peting, you know, forever

early.

I've been I I immediately resonated with the work of Ray Pete.

Yeah.

Have followed a lot of it myself. I'm I I think it would absolutely

astonish and scare Brian Johnson how much sugar I have. that that's kind of one one of the main

takeaways from Ray Pete's work is that sugar is is uh not nearly as bad as many people would say and and may may be actually great

in a lot of ways. So, I' I've been running that experiment.

We'll find out.

But I have a

I have a 2-year-old at home, so uh I can't eat cookies around him, you know. I can't

It's a It's you know, then he starts asking for them and it's getting in the way of my peing. Actually,

I had a friend who had had a bunch of and wound up just obsessed with dark chocolate because it was the only thing that was at all sweet that he could eat that the kids wouldn't immediately go for and consume all of

the the explaining to my four-year-old why I can have cookies before bed, but he can't is not good.

That's a tough one. That's a tough one.

Yeah. I'm still waiting for that level of cognitive development from uh from my son. We're not really at the explaining stage yet.

Yeah. Yeah.

Well, uh

anyways, it's great. It's great to have you on the show. Uh I've we've we've covered a bunch of your posts over the last uh 6 or 12 months and always always enjoyed them. Why don't why don't you give a quick intro on yourself and then you know we can talk about all the stuff that you talk about.

Yeah.

Yeah. My name's uh Matt Zelin. I'm a reporter at Heat Map. We're a climate and energy focused newsroom. We report on climate and energy every day and uh I mostly write about you know uh energy policy generation a lot of data centers. You know we've kind of really reoriented what we're doing around data centers. That's where all the demand is coming from.

Yeah. When did that reorientation actually kick off? Because it felt like it became a story sort of mid last year. But have you been tracking it longer? Like when was the inflection point?

So I think around like uh summer of 2023.

Um I wrote a story about how just load growth was coming

that we'd essentially had flat electricity demand uh for since in the 21st century. Yeah. And when I wrote the story, it was more about electrification of cars and like home heating, you know, heat pumps, stuff like that, stuff that climate people are really interested in. And then

and data centers to some extent also factories were something I was really looking into as a big electricity demand.

And then yeah, it's I mean it was since the growth of G it was since the launch of GBT3, it became pretty clear that data centers was was where it was at as far as the load growth story was.

Yeah. And then how uh like how widespread is the focus of AI data center energy consumption? Because it feels like if it's going up next to your house, you're going to be calling your representative. But for a lot of people, it's abstract. Uh they maybe see an Instagram reel, some slop, and they're like, I don't like it and I don't want my rates to go up.

We've been kind of wrestling with this because uh in general, I think AI is very good. there's a lot to be excited about. I think that uh more intelligence having, you know, people globally being able to access intelligence, even if they're accessing a little bit of slop is like genuinely good. But at the same time, I understand the people that it's like, what's the what's the benefit of having a data center in your backyard? It's like actually probably close to zero because or negative because it doesn't I don't need the data center in my backyard. It's not exactly pretty. We're not making them look like cathedrals yet. uh maybe we should uh and I can just if it if it's out somewhere that I've never even been to I can still get all the benefit of it and so um so yeah I think these are things that the whole industry is wrestling with politicians are wrestling with and and for good reason. Yeah. I mean, so the way we kind of I like to look at electricity prices. That's kind of a nice solid thing to focus on. And obviously they've been up in a lot of parts of the country. You know, you guys are in California. I grew up there. Um

I hope you don't have a pool at home. You know,

anything around heating or something like that, a pool or something like that, a disaster as far as prices go.

Um but no, where we've seen electricity,

you're saying we got to replace the pools with data centers.

Exactly. Exactly. You need you need a

you need a Blackwell rack, you know,

or just a stack of Mac minis.

Mac John can send you over a Mac Mini.

Yeah.

But no, um, where we've seen kind of electricity price increases, California has been a big one and the Northeast have been big. Those are not areas with lots of data center development. I think in part because the prices are so high.

Um, where we have seen both data center development and price increases has been kind of in the Mid-Atlantic uh, Midwest areas. This is Virginia. This is Ohio. This is Indiana. This is areas um where if they're all in one electricity market called the PJM interconnection.

Okay.

And the way this market works is that um these uh utilities have to procure capacity in advance.

And that market, that capacity market and and the ability to get new generation online there has been completely messed up. And so we're seeing these auctions generate billions of dollars of revenue uh for the existing generators. And that is directing that is translating pretty directly into higher prices. New Jersey has probably seen their prices residential prices increase you know say 20%. That's because they're in a system that is not incorporating the data center demand that well. But there are other parts of the country where electricity prices you know haven't gone up.

How have you as much how have you been reacting to some of the big AI companies some of the hyperscalers uh start to put out statements saying that they will pay above market rates subsidize energy. Do you think that that's going to be effective? Can you just do that and then keep the prices stable? Also, a little bit of grid history here would be helpful because it feels very intuitive. But I believe like we sort of have a common carrier rule where even if if I'm doing, you know, research and you're watching Netflix, like we still pay the same price, we don't put like a moral weight that I'm aware of, but any of that would be helpful.

Yeah. So typically, you know, residential users pay the same kind of kil per kilowatt hour rate. Sometimes there's, you know, time of use differences, especially in a state like California.

Um, but to to get to this point about and then industrial users often pay

as well. Um, those would be the data centers. Uh, what what they mean when data center say they're going to pay for their own electricity,

it's not just like the literal electricity, the electrons they use, but when you bring on a gigawatt size data center, that's like putting a whole city. Yeah. you know on on you know a gigawatt can power 800,000 homes.

So that's like putting a whole city on the grid. So this requires a lot of uh upgrades to the whole system a lot of new equipment you have to buy and those typically system costs are spread out to everyone on the system and this is how electricity utility regulation and pricing has worked for like over about a hundred years. uh this guy Samuel Insil who worked for Thomas Edison in in Chicago in I think the 20s basically came up with a version of this idea and um so in theory having new sources of demand over time should lower prices for everyone because you have a big electricity buyer that can deal with those kind of distributed system costs but in the short run you know they're incurring lots of new costs and new infrastructure development to the system as a whole and so I think what the Microsoft oft has made a commitment to this in Anthropic uh yesterday did you know it's you can't uh you know do a utility rate case in a press release but what they are committing to I think is that in their electricity rate that they pay they want to get all of those extra system costs that they're incurring to just be on to them

what about the other uh the other the other stories and and push back to data center buildout uh how did you process the the whole water risk hype cycle. It feels like there was a lot of fear and then there was some more statements from Google, some studies. How has uh your community uh and you personally like processed that uh narrative?

Yeah, so like water this water issue is I think kind of a surprise for a journalist covering this space.

It is definitely something that uh that people especially people online are like really interested in. You know, it's actually pretty easy to track how data centers can affect electricity prices. Yeah. How data centers can affect water usage in any kind of systemat systemic sense. It doesn't really show up that much. The water usage isn't that great, but is definitely something.

But the numbers sound great. The numbers sound great. It's like we're using 100 million gallons. The typical typical golf course.

Yeah. Well, golf courses are extreme, but you know, household usage of water is huge, you know, and if people individual households usage of water over a year sounds

really, really big. Yeah.

Um, I think there's some issues around construction and water usage, but those are obviously more temporary. Sure.

Um,

yeah, but it's definitely something that people are concerned about. And so, I think these hyperscalers are really going out of their way to kind of talk about being water positive. they're really kind of leaning in on the water aspect, but I think the electricity aspect is much more where the rubber meets the road and they have to make some commit. You know, a 1 gawatt data center people think cost about $50 billion$50 billionish dollars. Obviously, the vast vast majority of that is the chips, but you know, 10 to 15% of the lifetime cost of that is electricity and you're paying all these extra grid costs. That means with like a one of these really really big data centers that all these companies are rolling out now and they're volunteering to incur what could be hundreds of millions if not billions of quote unquote extra costs but that just might be the price they have to pay to get approval from the state governments to build these facilities.

Yeah.

Who who have been uh some of the craziest beneficiaries of the general energy uh the boom in in sort of energy demand uh due to AI? any anybody that was just kind of like sitting around a few years ago uh and then you know just kind of like tripped into making like a hundred million dollars or a billion dollars due to

Yeah. I mean there's two great examples of this that are kind of on the opposite ends of of kind of technological sophistication. Uh one is Caterpillar um which we obviously associate with uh mining and construction. You know anyone I think with boys at home probably has some Caterpillar toys. Oh yeah, they probably identify all all the equipment they use. But they they also have a business called solar which builds these kind of small turbines, small gas turbines, you know, of a big gas turbine and a power plant is, you know, hundreds of hundreds of megawatts of capacity. These are a few dozen maybe at the biggest and they're kind of used for like remote power start often in the oil and gas industry or like you know compress on a turbine uh pipeline or something. This business has gone huge and they're now a huge supplier to data centers because they're so desperate for power. I mean Elon Musk XAI is a big innovator here of realizing that grid connection studies can last for years but if you just kind of pile up these small inefficient turbines, you can get the power going really really quickly. Um Caterpillar is a big supplier to Meta in Ohio. The Socrates project I think is a few hundred megawws and Williams which is actually a pipeline company is kind of assembling all these kind of uh turbines and reciprocating engines which essentially like giant car engines um to power these data centers and so that business has been doing incredibly well.

Car engines they run on gasoline, diesel

uh natural gas. Yes. Uh what uh what kind of environmental studies have been done? If a data center sets up, you know, in your backyard and they've got a bunch of these gas turbines and they're running, is that like, you know, if you can, you move away or does it dissipate quickly? Do has has there been any kind of significant there? These turbines are less efficient and dirtier than, you know, a very large scale turbine system you would buy from a GE Verna or a Seammens. I know with with XAI, they were kind of really monkeying around with these rules about how you could only have it up for 364 days there. By the time the EPA certified it, they were already moving to Mississippi. I mean these systems were not really designed to kind of be to function as power plants in the same way that like a power plant is but people are so desperate for power that

they are going to be using them.

Yeah. I mean it feels like there's going to be a variety of backlashes, a variety of pendulums swinging. The hyperscalers were very focused on net zero clean energy. Now it feels like they're trying to go as fast as possible. So there's a lot of natural gas, but then they're also still firing up nuclear projects, more wind, more solar. How do you see the mix like shifting over the next couple of years? Do you think there's any sort of white

bill? The biggest hyperscalers, your Google's and your Microsoft especially and and Meta and Amazon do have these sustainability commitments, these 100% renewable power commitments. Um they still are procuring lots of clean energy. Um Google bought a clean energy developer um pattern uh

for $4.5 billion at the end of last year. And what they do is that you know in some cases they get the natural gas turbines and they also buy say solar projects in a similar area. That's what Meta is right doing right now in Ohio. But yeah, I mean they do these emiss they do these reports and say Microsoft's emissions have gone up a lot because they're just consuming um a lot more power and they've gotten way more adventurous in the stuff they're willing to invest in because the scale of their power needs have really changed. So I think all four of the biggest hyperscalers have nuclear projects going on. Uh Google's a big investor in enhanced geothermal. Um

we just talked to Jeff Lawson yesterday. He raised what? $450 million to do uh not nuclear fision, traditional nuclear, but but fusion, which is

Yeah, he's doing the he's doing the lasers.

Yeah, lasers, which is, you know, he said there's no science risk, and I hope that there's not, but it feels like, you know, it hasn't really produced energy on the grid just yet. So, it is, you know, very forward-looking. But Google Ventures is one of the investors because they're and they also have a deal with Commonwealth Fusion Systems and bunch of nuclear projects as well. Uh, yeah, that's fascinating. Um what can you tell me about the nature of the push back politically against data centers? I was looking at this data center watch uh stat uh 55% Republican, 45% Democrats in affected districts. So uh it it feels like I don't want a data center in my backyard is not a left or rightwing issue, but

No, no, it's a fusion. It's one of these kind of fusion issues. We've done a lot of great reporting at this. We have a pro service called Heatmap Pro that really focuses on this stuff.

Okay.

And what we found is that uh yeah, it's like it's it's anyone who's kind of distrustful of institutions in general uh will tend to really not like a data center in their community. Also, people who um it also brings together Democrats and Republicans because people who oppose renewable energy projects, which at heat mapap is what we were kind of born to start tracking was local opposition to renewables.

Interesting. um the same people are opposing the data centers and they're using the same techniques. They're opposing say reszoning agricultural land into industrial land. Something really common with solar panels. Same thing's going on with data centers. Same type of people are are opposing it. And it's interesting because at the at the highest levels of politics, you know, uh the the administration right now is very pro the data center AI buildout. You know, they have, you know, they have Sam Alman at the White House announcing, you know, multi-billion dollar investments in this stuff. Yeah.

And yet,

a lot of data centers are built in Republican areas. That's typically where there's enough space. They tend to kind of be in exurban areas.

Um, and yeah, they get a lot of local opposition. There's been a lot of local opposition in Indiana, a lot of local opposition in Kentucky.

Yep.

Virginia. This is really kind of transforming the politics around there as well.

So, OpenAI has a pack now. Philanthropic has a pack now. I think uh for the drama heads in the chat, we hope that they're just going to fight with each other endlessly and make content for us. But assuming that they want to bring about support, broad support for their data center buildout efforts, what would you recommend? What's the playbook for an AI lab that wants to build a gigawatt data center somewhere in America? Where are they going? What promises are they making? What promises can they keep? What would you recommend?

Yeah, I mean we see this in the kind of renewable and nuclear space a lot is essentially you do a lot of kind of expensive extensive long-lasting local engagement

with the community and like look if you're a data center developer

you're going to end up you know building a lot of high school gyms. um you're going to really have to get the local people there on board with your project because typically at the state level you actually governors like data centers you know

they provide tax revenue um unions like data centers the IBW national international brotherhood electrical workers very pro data center and they're pro data center force in the Democratic party but often times these decisions are made at these kind of community board meetings zoning meetings

and for them you really have to convince that you're providing something on the Because what was saying at the very very beginning, there's no benefit in terms of what the data center produces to having it near you.

Yeah. There's no local AI movement. I want my

for yourself. I want low latency inference. I want it in my backyard. I'm a Yimi. Give me a massive data center. I was hearing bad stuff about living next to a golf course. Tee up a one gigawatt data center right there. I'm good to go.

My locally I like the idea of drone inference. I like the idea of showing up to the local uh te-ball league and being like, "Why is the team called the Core Weavers or something like that?"

So, nuclear power plants famously do this.

Yeah. I mean, the Simpsons parodyied it for, you know, you have the isotopes or whatever.

And you do see this in communities of nuclear power plants. Um,

but the thing about data centers, they don't provide very many jobs after they're constructed.

So, that that part is very difficult to get over.

I have Wait, I have the solution. Sorry to interrupt. The solution is you get they have the data center and then there's just a big room with a bunch of pelatons and you can just go in there and just generate energy for the data center and you get paid that way. So we get a gym jobs and a data center in one space

be good.

I mean I I think uh I think Brian Johnson for one might support that. Although you know

as we know with the 49ers they don't like being by an electrical substation when they practice. They're worried about the injuries from the EMF. So, that might be that might be a tough cell.

Yikes. Demystify New York for me. What's it like living there?

Oh, I love it. I, you know, I've been here for over for over a decade. You know, it's back. Uh, it's too cold right now. There's too much snow, which is quite weird. Uh, I I cover climate change. Um, where is the so-called global warming right now?

Who knows? Um, but no, it's it's uh it's great. People are on the subway again. Um really nothing to complain about. You know, apparently uh bonuses on Wall Street were great in last year. Our projected budget deficit almost got cut in half magically in a few weeks. So

what could you complain about?

There you go. What was your review of Davos from an energy perspective? From a tech perspective, it felt like oh like Davos is like a real place that needs to be taken seriously. Like every company should be figuring out their Davos strategy for next year. Whereas like previous years were sort of quiet.

Yeah. I mean, Davos used to be the place where um they would you would you would hear the most bogus sustainability commitments, you know, and uh for better or worse, they kind of stopped doing that. I think uh as it's gotten more serious, uh

they've they've stopped, you know, you know, you're not hearing that you're going to own nothing or be and be happy anymore. So,

it's just a more it just seems more serious. And uh you know as a as obviously as a newsroom and a reporter that's focused on climate change like I have a point of view on this but also like I just like seeing people deal in reality

and I think Davos is more of a reality based place now which I as a reporter sense is great.

That's good. Yeah. Jordan, you have something? How uh you said something which is funny because you cover you cover climate change like professionally, but you said there's snow out which is like we're supposed to have climate change. Doesn't feel like we have climate change. Um but like how how is kind of the broader clean energy industry even processing like how are they processing that? Because that that is kind of like more like the average viewpoint of Americans. like it's cold this winter, no climate change here. And that's obviously like, you know, you can have, you know, different spikes and and your kind of like lived experience is not necessarily entirely representative of kind of

but it might inform who you vote for, what you vote for.

Yeah. I mean, one of the great ironies of climate policy in the United States is that some of the strictest uh decarbonization standards and rules and restrictions uh are in the Northeast.

Um Maine, Massachusetts, New Hampshire, Vermont.

Okay. uh they're really into decarbonization. They're really into preventing climate change.

Uh and then in Florida, they don't really seem to care that much at all. And obviously that's the place that's most at risk in the United States from high temperatures and rising sea levels.

So yeah, I mean just an issue where uh I mean this is something that people in the industry complain about a lot. Well, now they're complaining about it.

This stuff is super politicized.

And you know, I think a lot of people in the industry are when a Republican is president really wanted to say like, "Oh, this is not about politics. This is not about climate change. just is about clean, fast, cheap energy. You know, solar is the thing we can get on the grid the quickest. Solar and storage we can get on the grid the quickest.

But yeah, I mean it's funny. The biggest um the most successful green tech entrepreneur and the biggest solar maxi in human history

uh is Elon Musk. He's also the second or third biggest Republican donor of all time. the Republican party has tried to dismantle a lot of tax benefits and programs that benefit Tesla and he doesn't seem to care that much.

So yeah, I mean people's politics are really kind of often override

everything else and that's that's not obviously that's not something unique to climate change but it's a huge challenge for these businesses.

Yeah. Uh what are you tracking on the solar panel manufacturing supply chain? Uh we we we talked to the CEO of T1 Energy. seems like there's some green shoots but even his optimistic case was oh maybe we get to like 1% production and relative to China

I mean yeah China has uh solar and batteries

uh the amount of kind of time energy and money that has been devoted to that has been immense and every time it's a it's a big balloon squeezing effort too I'm sure T1 and first solar is the other big American solar manufacturer can talk about this we try to you know put tariffs on Chinese-made solar These factories start popping up everywhere. They pop up Malaysia, Cambodia, Thailand, Indonesia.

And then we start putting tariffs on those factories because they're owned by China.

But it's tough. I mean, they're the cheapest. They're the cheapest panels. They get done the fastest. And yeah, these domestic solar manufacturers are really

similar to the car companies, XTesla, they're very dependent on government policy. You know, the developers, if they could, would just buy Chinese solar panels.

Yeah. But um you know there's a lot of political reasons why they're being encouraged and now because of these tariffs.

Yeah.

To buy American ones.

We have a friend Casey Hammer who says like hey look if they're going to be subsidizing them we need to buy by by buy every solar panel we can. And like that's I I talked to Casey for stories too and he he is a mind expanding person

to talk to. I mean, yeah, but it's it's true cuz it's just tough, you know, uh if you're trying to get everything onto solar and batteries, you don't want to then disemploy an American supply chain, especially because with energy right now, American energy is largely domestically produced, which is a huge change

from, you know, 10 to from, you know, 15 or so years ago. And so if you're trying to have a a climate policy that encourages solar, you you don't want to then also disemploy, you know, lots of people.

Uh zoom out a little bit for me and and and tell me your prediction or or feeling around like long-term energy production capacity in America. It's been flat and growing very low rates. Nowhere near the roll out of phones or electric cars or compute like everything else is growing exponentially. It feels like you're you're going to watch a you know a sharply uh exponential line crash into a linear line. What is your feeling around this idea that we might actually start seeing 10% growth rates in energy production nationally? I mean, just look at how hard it is to build a data center, which is just a warehouse with computers in it. And then think about building power plants on that same scale. I mean, people have a lot of trouble building solar power, which is zero emissions and it's fine. It just looks weird.

Imagine trying to do that with gas with gas power plants. So,

what if I billion AI lawyers in my college just suing everyone left and right? I show up into town, I sue everyone, make friends.

Well, I mean, this is a serious concern. You know, litigation risk is a huge issue with energy projects,

and one can only imagine what Harvey could do with filing with, you know, gumming up the NEPO process. Oh, yeah. For infrastructure.

Yeah. Well,

yeah. So, I think it's more like

we're kind of growing at half a percent a year.

Yeah.

Maybe two, maybe 5% some years. 10 would be tough.

Okay. Well, that's the next bottleneck after the chip bottle.

Well, I have something. So, your friend John Palmer is also our friend. We read his fantastic piece. To me, it was more impactful than something big is coming, something little is coming.

It hit me like a ton of bricks.

It really hit it really hit us hard. But he just announced that Stripe is acquiring

his company. Oh, no way.

Party Dowser. I wanted to ask, can we hit the gong with you for our friend John?

Be an honor. Oh. Congratulations.

Congratulations, John. Uh, this means you have to start buying in bigger, more frequently. Uh,

yeah,

you have to call my You have to call my worst bets. No more excuses.

Poker game. You Texas Holde.

Uh, no limit Texas hold. Yeah,

no limit Texas.

We're actually thinking that maybe the guys we could get together and start a podcast.

I think we call it Allin. I think it's probably kind of like a poker themed, a little talk about a little business, a little politics, a little tech, energy, geopolitics. I think I think you guys would have something there.

Yeah, I know. We'd wear expensive sweaters and Yeah, it' be great.

I I I would be the first one to subscribe.

Uh well, it's so so great to finally have you on. Come back on when you when you're going to publish your next story.

We'll talk to you soon.

Thanks so much.

Have a good one. Goodbye.

Let me tell you about Plaid. Plaid powers the apps use to spend, save, borrow, and invest securely connecting bank accounts to move money, fight fraud, and improve lending with now with AI. Uh, is there any other breaking news, Jordy? Anything we need to talk about before?

Super I'm super excited for John Palmer and the Party Dow team. Uh, it's funny, John and I, uh, didn't meet until last year,

but we used to kind of have this like tension because

I had a company called Party Round. He had Party Dow. We're both in that 2021 era. I was doing

sort of a team of rival situation.

Crypto kind of stunts with party round.

He was he was getting quite a lot of attention. We both raised from Andrees.

Oh, okay.

Uh but uh now we're now we're now we're buddies and very happy for the whole team

turned business and very bullish for Stripe Crypto

for sure. And that's why he's probably on Cloud9 writing long form jokes which is great. You're like,

"Oh yeah,

shocking the internet." shocking me.

Uh well

well you know what time it is? It's time for the lightning round. The lambda lightning round. That's right. Bring down the second gong mallet. Fire up the