Exponential Growth: Why AI, Solar & Batteries Will Keep Getting Cheaper | Exponential View & Cleaning Up Podcast

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Azeem Azhar?

  Hi there, it's Azim. I'm bringing you a conversation with a good friend of mine, Michael Liebreich. It was originally recorded for his podcast Cleaning Up, but it's too good not to share. Now, I've known Michael nearly 20 years. I met him just after he had founded a market research firm called New Energy Finance. He was amongst the first analysing the emerging clean energy sector and I was lucky enough to join as an investor. Very lucky because a few years later Bloomberg acquired the business and Bloomberg NEF became an essential part of my syllabus in understanding what was happening with the energy transition. Now, Michael has since left that business and he works as an investor, a podcaster

• 0:45Azeem Azhar?

  and an advisor on that topic he knows so very, very well: the energy transition. He and I had a fantastic conversation about what happens when energy becomes a technology, whether the exponential trends we see in solar and batteries are real, and how the energy system might meet the demands of artificial intelligence. Finally, Michael challenged me quite a lot about whether I'm just too optimistic about all of this. Enjoy the discussion.

• 1:14Speaker 01

  Hello, I'm Michael Liebreich and this is Cleaning Up. In 1961, had you wanted to build one gigaflop of compute capacity, that would have cost you the equivalent in today's money of $190 billion. In 2023, that figure was one and a quarter cents. Solar power in 1975 would have cost $130 per watt to buy a solar panel. By this year, the number is 31 cents. And batteries are headed the same way.

• 1:53Speaker 01

  In 1991, to get 1 kilowatt hour of lithium ion batteries would have cost $7,500. Today, you can buy that for less than $50. My guest today has spent the last decade of his career examining how these sorts of trends work and their implications for the economy and for society. Azim Azar runs something called Exponential View. It's a podcast, it's a Substack, it's thought leadership, and the man himself is here with me today. I must say, of all the pieces of content that land in my inbox every day, the only

• 2:37Speaker 01

  one that I make sure that I open and read is actually Exponential View. This episode will also be going out on Exponential View, so it reaches a broader audience. Please welcome Azim Azar to Cleaning Up. Azim, thank you so much for joining us here on Cleaning Up.

• 2:54Azeem Azhar?

  I'm so excited to be here because I listen to this podcast on my flights, when I'm driving around, and to actually be on the show, Michael, is a real honour.

• 3:02Speaker 01

  So this is the mutual fan society, because I likewise listen to yours. Let's do the following, because this is a bit of a different episode of Cleaning Up in that you're also going to put it out on Exponential View. So I want to start with the way I normally start.

• 3:17Azeem Azhar?

  Of course.

• 3:18Speaker 01

  And ask you who you are, the short version, and what you do, and then who knows, maybe you'll want to reciprocate.

• 3:23Azeem Azhar?

  I will try my best. So I'm Azim Azar. Right now, I'm the founder of Exponential View, which is a newsletter, podcast, Substack that I set up about eight years ago. That looks at exponential technology change, artificial intelligence, computing, renewables, and it does it from the perspective of having been a founder and an investor. And I spend about half my time investing in early stage, very risky but very exciting companies, and I try to bring it all together for my audience. And the reason I know you, of course, Michael, is that I was lucky to be an investor in new energy finance 15 years ago. So for my audience, though, please tell them who you are in a sentence.

• 4:03Speaker 01

  So I'm Michael Lebrake. I was, when we first met, the founder of something called New Energy Finance. I'd like to think we were amongst the sort of, maybe not the riskiest, but the most exciting startups. And what we were doing was unpicking what was going on in what was at the time called alternative energy. Of course, now it's 95% of all investment is going into the clean stuff. And so we met then. Since then, I built that business, sold it to Bloomberg, and I now do, like yourself perhaps, investments, but I'm also building a number of businesses. One is this media business cleaning up. One is an advisory business called Eco Pragma Capital, which is part of our leadership circle here.

• 4:45Speaker 01

  And the third is actually an HGV charging business called Pragma Charge, because I try to put my money where my mouth is.

• 4:55Azeem Azhar?

  And the word Pragma shows up because it's your heritage as an engineer, of course, which is engineers are very pragmatic, very practical, they get things done.

• 5:04Speaker 01

  Well, that's right. And it's also, there's a nuance. It's not just engineering. It is also, for instance, the advisory business is Eco Pragma, because if you say eco, everybody gets that. That's climate change, but you can be a real ultra and you can be very sort of almost fundamentalist about it. Whereas Pragma is, I'm sorry, somebody has to be able to make it, somebody has to buy it, you have to be able to make. The only way to scale things, and I did this with New Energy Finance, I scaled it enormously because it made money, because it was an actual product that people wanted to buy, not because some billionaire gave me some money and said, "Michael, send out the best information you can." That would have failed because I would have been focused on the billionaire and not the market. So that's Pragma.

• 5:47Azeem Azhar?

  Well, you know, I think that that is one of the keys to why we're seeing this vast expansion of investment in solar and batteries. It's because the premium has disappeared or is disappearing, or people can see a path to it disappearing. And so you have technologies that are fundamentally, in many, many ways, better than the ones they're replacing, but there's no price premium you have to pay. And that's, that... Reality that when the economics makes sense, under the umbrella of the law of physics, you start to see markets expand rapidly.

• 6:22Speaker 01

  That's exactly right. And the analogy that I use for that is mobile telephony. Now, you go back 20, 25 years, you had to pay a premium for mobility. So you had a landline was cheap, but if you wanted to be mobile, you paid more. And there just came a point when it was like, no, you pay less for mobile. So now it's got all the attributes of the landline plus the mobility and it costs less. And this is what's happening with, you know, some of the solutions we're going to be talking about. Solar, of course, first amongst them. But let's talk about exponential view. And actually, I want to back up. I want you to talk about not just what you do, but how did you get there?

• 7:02Speaker 01

  Why? Because you're now, you've gone sort of all in on, in a sense, the exponentiality or in a number of sectors, which we'll go through, right? But what's your background and what was your epiphany?

• 7:14Azeem Azhar?

  Well, my, my background is actually being born as a child of the microprocessor. So I was born a few years after you in the early seventies. And the first computers showed up when I was seven or eight years old.

• 7:28Speaker 01

  You had to get that in, that you are younger than me, right?

• 7:30Azeem Azhar?

  Well, I mean, age is a state of mind. So we can, we can see at the end of this show who's really younger. But, but I, you know, I grew up at the point at which computers were making their way into our, our homes. And so I had lived with the idea of Moore's law since I was a teenager, reading about it in computer magazines. And having watched the internet really follow an exponential curve in those years from 1980s through to about 2005, when you looked at the number of people coming online, I started to really understand that you could get these exponential phases that last quite a long time in technology. So it's, it's really been, you know, the drumbeat in my, my career.

• 8:12Azeem Azhar?

  And when I sold my last company a decade ago, actually this year. I needed something to do and I thought a good way of disciplining myself would be to write every week and that writing turned into exponential view. What I discovered after about a year was that it wasn't just silicon chips that have this characteristic of exponentiality, which is that they get cheaper by 20, 30, 50% per annum every year. There were other technologies. There were technologies like solar panels, technologies like lithium ion batteries that were getting cheaper and cheaper and cheaper, genome sequencing as well. And once I looked at that, I tried to make sense of it. And of course, I rediscovered,

• 8:54Azeem Azhar?

  or I discovered myself the first time, Wright's law about learning curves in 1936. And I saw in the data that several technologies were at a point where they were about to break through in the economics sense that you described. So I looked at those trends across a number of different technologies. And I tried to ask, what happens if they all cross this point where they are good enough and affordable enough? And so that became this idea of the exponential age and focusing on exponentiality and constantly facing the criticism that of course, an exponential doesn't last forever. And my view is it's going to last for long enough to change the world.

• 9:38Speaker 01

  Well, that resonates because I wrote a piece, which you may have seen early this year about, I did, first of all, I did the five villains, the five reasons why we'll never get to net zero.

• 9:49Azeem Azhar?

  Yeah.

• 9:49Speaker 01

  The five supervillains, you could call them. I think I call them the five horsemen of the horsemen.

• 9:54Azeem Azhar?

  And the five superheroes.

• 9:55Speaker 01

  But then I did the five superheroes, of which one is exponential growth.

• 9:59Azeem Azhar?

  Yeah.

• 9:59Speaker 01

  Homage to you, of course.

• 10:01Azeem Azhar?

  Thank you.

• 10:01Speaker 01

  But I also made the point that, of course, it's not really exponential, but it is the point of, very often, it's the point of penetration curves where things sort of look exponential. And anybody who has bet against them being exponential has lost.

• 10:17Azeem Azhar?

  Yes.

• 10:17Speaker 01

  That's the important point. It doesn't matter whether they are truly exponentials, does it?

• 10:21Azeem Azhar?

  No, but it's also about over what timeframe do you look at this? So I've done a piece of work to look at the total amount of computing capability on the planet. And of course, I start in 72 because that's when I was born. It's easy to count the number of computers. And if you total up the number of computers times the amount of compute they have, which is measured in operations per second or floating point operations per second, and you run it through to 2023, you see a 62% compounded annual growth rate. That's over 51 years. So yes, I'm sure at some point that exponential may stop,

• 11:03Azeem Azhar?

  but 51 years of 61% growth is a really, really long time and it's enough to transform economies and transform the ways we live. And I think the same, we're seeing similar patterns when we look at something that is completely the reverse of a silicon chip. Let's look at a lithium ion battery and look at the cost per kilowatt hour. $1,200 in 2011, you say $50 in 2024. So that's a huge reduction. I'm just going to do my maths, a 24-fold reduction in 12 years. I mean, that's remarkable. And what we know from the battery manufacturers is that they think there's much further to go. Right? I mean, how far? A dollar? I'm not going to say that, but certainly much further than 50.

• 11:47Speaker 01

  Well, I don't know. The analogy there would be perhaps solar, where, you know, it went from being this thing that you could only ever do on a satellite to a thing you could only ever do on a pocket calculator, to a thing you could only ever do on, let's say, a parking meter, to a thing that you could do on a roof, which was ridiculous. And the statistics now, from the time that since I started New Energy Finance, since you invested in this risky and exciting business, at that time, one gigawatt of solar took a year to install. One gigawatt, one year. Six years later, it took a month. Six years later, it took a week. And six or seven years later, it took a day. And where we are today, you've

• 12:32Speaker 01

  now got the Chinese solar industry, which can produce enough solar to produce two terawatts of power. It'll take another year or two to get to two terawatts. It's over a terawatt now. But when it gets to two terawatts, what that means is that 10% of all the Electricity that we use today could be replaced with one year's output of Chinese solar manufacturing.

• 12:55Azeem Azhar?

  Right.

• 12:56Speaker 01

  It's just a different world.

• 12:57Azeem Azhar?

  And they're bringing more factories on stream as well, right? That's not the, that's not the full capacity of the Chinese solar industry.

• 13:04Speaker 01

  It is. I mean, look, I, I actually think some of those will go bankrupt because we're not going to install two terawatts. Because there are some rate limiters in terms of just how many people there are, how many electricians, how many people can connect things to the grids. Potential trade tensions and so on. So that industry has never worked at a hundred percent capacity utilization, nor will it. But it's very interesting. We're at the point where frankly, in solar.

• 13:28Azeem Azhar?

  Yeah.

• 13:28Speaker 01

  Either we'll be installing maybe not two terawatts, but certainly a terawatt or a terawatt and a half. Or there'll be huge bankruptcies of Chinese solar companies. And of course, you know, that's not the end of the world. There'll be others will pick up the assets and keep going.

• 13:42Azeem Azhar?

  Yeah.

• 13:42Speaker 01

  But we're going to see some pretty nonlinear things.

• 13:45Azeem Azhar?

  Yeah. So let's go, let's go back to a couple of things you said. One, particularly for your cleaning up audience, which may not be familiar with exponential processes. As, as my audience is, is that that analytic where you said, how long did it take to put a gigawatt on stream? And it's gone from, you know, many decades to years to, to months to weeks to days. That becomes common in industries that are going through an exponential transformation. You certainly saw it in terms of how quickly people got onto the internet from the eighties to the nineties and then into the two thousands. You see it with the, the growth of, you know, SaaS or cloud.

• 14:25Azeem Azhar?

  And it's a really, really good way to figure out where you are in, in the curve is to look at that compression. But there, there are two other points I'd make. One, one is on one of your shows. In, it was either you or it was your colleague, your, your, your guest who said the, the cure for high prices is high prices. The old commodity traders adage.

• 14:47Speaker 01

  That would probably have been around minerals.

• 14:49Azeem Azhar?

  Maybe.

• 14:49Speaker 01

  There was a discussion probably about lithium.

• 14:51Azeem Azhar?

  That's right.

• 14:52Speaker 01

  Exactly.

• 14:53Azeem Azhar?

  Right, so at the time, I mean, I wrote about lithium and I said, look, there's going to be no supply problem. We're going to have a few sticky quarters. It's going to make journalists excited and then we'll come through it. And when all of the things that you've described about the rate limiting factors that exist within the market, which is the number of electricians, the number of widgets you need to stick a solar panel on on a roof, all of those things create economic incentives for entrepreneurs to respond to. So when you see something like that, my experience would be that complementary businesses will emerge in order to take advantage of that shortage, that blockage. Then the third thing I think that we should understand

• 15:34Azeem Azhar?

  is that solar behaves, exponential technologies behave very, very differently because at some level, they are mostly highly modular. And what modularity means is that you can enter that market at many, many different sizes of customers. So in 1973, I think the time of the man with the golden gun, with the James Bond film about solar power, because it was so powerful, you were willing to send 007 after it, only a handful of companies in the world had computers. If you or I wanted to buy a computer, we would have needed to front half a million dollars. As soon as computers became modular through the PC,

• 16:15Azeem Azhar?

  the computer that I would have bought in 1990 would have been the same computer that a big investment bank would have bought. They would have bought a thousand of them, but it's the same machine. And that's what modularity does. And what's happened with solar PV in particular is it's transformed who can access the energy system and what the addressable market is. Thirty years ago, the addressable market for energy was essentially only really big companies who could find billions of dollars and stand up a nuclear reactor or a gas plant could enter that market. And today. Homeowners, businesses, mid-scale businesses, mid-scale investors can get into this market.

• 16:55Azeem Azhar?

  And it really expands the market much, much faster than ones that have been constrained by by an older technology with an older configuration. And we know that's happening. We know all over the world, the energy system is changing because of that.

• 17:08Speaker 01

  Now, you've done some work on a problem that, or an issue that Jenny Chase raised.

• 17:14Azeem Azhar?

  Yes, wonderful Jenny.

• 17:15Speaker 01

  On cleaning up a few, a couple of months ago. Which is where is all the solar going to in Pakistan?

• 17:20Azeem Azhar?

  Right.

• 17:21Speaker 01

  And you've done, you've tracked some of it down. And that's a great example of what you're saying, that Pakistan, economic growth, but grid tied electricity is actually dropping. And the delta is people are buying these very cheap solar panels.

• 17:33Azeem Azhar?

  It's behind, it's behind the meter. So, you know, we, I mean, I theorized that a few years ago by, from looking at what had happened to the internet in particular. Once the internet allowed anyone to be a producer of services, people started setting up web servers and blogs cropped up everywhere. And you didn't just rely on the Times or the Financial Times or the Guardian. And, and by analogy, that's what we started to see. And Pakistan is a great example. So of course, as you might imagine, the, the grid is strained, there's not enough generating capacity, there's not enough transmission capacity. So a lot of brownouts and load shedding. And individual businesses started to buy solar panels. And Pakistan became the sixth import, largest importer of solar panels in the world.

• 18:18Azeem Azhar?

  And then Jenny and people at Ember Climate, which is a wonderful resource, started to look at satellite photographs and see these solar, physically see these solar panels. And of course, the other data point was, as you say, the split between GDP growth and reported energy consumption from the Pakistani regulatory authorities. But it's important to note, it's not just Pakistan. And the first time I wrote about this was about four years ago, looking at South Australia. Because South Australia reached a point where rooftop solar was generating 50% of the state's energy demand. And it's quite a demanding place, you know, of the Australian electrical system. And and that suggested to me that there was this opportunity.

• 19:03Azeem Azhar?

  And of course, South Australia is well positioned. There's high levels of insulation and so on. But it indicated that this decentralized bottom up approach could could take place. And I would say that the other place that we've seen this battle play out has been in South Africa, but not with solar, with wind around the Cape, where individual entrepreneurs and businesses were investing in wind resources. And Eskom, the sort of national utility, was making it very, very difficult. And, you know, it came to a court case to allow these people to effectively bring their resources into the grid, but outside of the Aegis of Eskom's national pricing. The reason I bring those stories up is because, again, for listeners of Cleaning Up,

• 19:46Azeem Azhar?

  you're seeing these these slightly somewhat radical technologies come into a market that is regulated against particular technology assumptions. And whereas where I've been a historian of technology, I've seen that same pattern emerge in the the computer industry relative to mainframes and in the communications industry when you looked at the internet relative to the centralized, highly controlled telephony system. And I just bring it up as a sense of saying, ask that question in a particular way, because you may find these results, Pakistan, South Australia, South Africa, unsurprising as a result.

• 20:28Speaker 01

  Okay, so so far it's all been sort of smooth sailing. We're talking about, you know, how to spot exponentiality and what it does. And and I think a lot of people find it very hard. You know, humans are quite good at linear growth, quite bad at exponential growth. But it's a tradition on Cleaning Up that I push back.

• 20:45Azeem Azhar?

  Of course you should.

• 20:46Speaker 01

  And I say, wait a minute, that all sounds much too easy. And so I've got a couple of, I've got, I've got four problems with that perspective.

• 20:54Azeem Azhar?

  Sure.

• 20:55Speaker 01

  The first is that it doesn't work everywhere and in every technology. So, you know, you know, I've spent an inordinate amount of time working on hydrogen. And I would She put up my hand and say, I got it wrong. I was always very skeptical. When I wrote my first pieces, first big pieces on hydrogen called separating hype from hydrogen. I did the supply side, the demand side. The demand side, I said, it's going to be very hard to see where this hydrogen is going to go. Because it's expensive to transport, expensive to store, expensive to distribute and expensive to use, unless you're already using hydrogen.

• 21:30Azeem Azhar?

  Right.

• 21:31Speaker 01

  So I couldn't see where it was going to go. But on the supply side, I said, ah. You know, my friend Azim says these things are exponential. I agree. By the way, I was, I was calculating learning curves in my first job in nineteen eighty five or six. So I also had a kind of privilege.

• 21:44Azeem Azhar?

  Around PVC manufacturer.

• 21:45Speaker 01

  It was around, I did, funnily enough, I did, um, I did fiber optic cable. I did PCB.

• 21:51Azeem Azhar?

  PCB, I knew.

• 21:52Speaker 01

  PCB boards, yeah. But I even did, I did, um, rock quarrying. Rock quarrying also has a learning curve. It's just that we don't double our cumulative knowledge. Every year and a half, or whatever we do in computer chips, or every few years, every three, four years, like we do in solar. So, you know, I'm a complete convert to experience curve. So I said, hydrogen gets cheap. And it's only been much more recently, the last couple of years, that I thought, hang on a second. The electrolyzer stacks for green hydrogen get cheap, that they could go to zero, it doesn't matter. But they are only, and the data now that we know is eleven percent of the cost of green hydrogen today. The rest of it is either electricity, which has already become pretty darn cheap.

• 22:34Azeem Azhar?

  Sure.

• 22:35Speaker 01

  You know, clean electricity, or it's a chemicals plant, it's heat exchanges, it's tanks, it's.

• 22:41Azeem Azhar?

  It's storage and distribution as well, right?

• 22:44Speaker 01

  Well, and, and pipelines and so on. But even in the green hydrogen plant, even on the production side. It's a bunch of stuff that is not going to go down by five or 10 times in the next decade, decade and a half, whatever.

• 22:58Azeem Azhar?

  Yeah.

• 22:59Speaker 01

  Unless you tell me I'm wrong.

• 23:00Azeem Azhar?

  No, I mean, you're, you're absolutely right about that. And that's one reason why there is a disconnect between how far the price of PV, solar PV can fall and how rapidly the prices of actual installations will fall. Because when you get to the actual installation. And you've got to put down a hundred thousand panels on on ground that's been surveyed. Even if it's very flat, it's not very flat, you know, it's not like a factory factory floor. Lots of odd things will will show up and somebody will drop a, you know, a crate load of panels. They'll crack and you'll be delayed by a day and that that'll add to cost. So when you have to look at the full, you know, the full system cost of these things.

• 23:41Azeem Azhar?

  With with hydrogen, I mean, I I went down a journey where I really thought that the electrolyzers would would find themselves on a on a learning curve. That one of the problems we had had with hydrogen previously had been that

• 23:57Azeem Azhar?

  each hydrogen facility was treated as a plant, an N of one, and people hadn't approached hydrogen as a a problem of modularity. Can we produce products? And I tracked down some startups doing this and they were they were quite compelling with it. But what really persuaded me, the two things that persuaded me, one was you know, listening to you and hearing what you were arguing about about hydrogen and the physics of hydrogen. But the second thing was that the competitive alternative technologies were getting so much better and so much faster to the point at which in your famous hydrogen ladder, more and more things are, I think it's green is bad for hydrogen. Is that right?

• 24:37Speaker 01

  Well, green is the things that could go to bio and yellow are the things that can go to direct electrification.

• 24:42Azeem Azhar?

  Right, okay, right. So so you know, essentially the the space for hydrogen keeps keeps falling. And then one of the things one one sees is that, you know, effectively, if there is an ecosystem that is being built around electrification, around batteries of different types, around moving chemical processes to electric first, more in more innovation goes there, more invent inventors go there, more capital goes there. And those solutions get better and better, whereas all the things on the hydrogen stack slightly wither wither and die. So I I think that that, of course, I mean, you know, hydrogen had it had a much, much better learning curve. Might have had a bigger chance, but but right now it doesn't have enough to nurture

• 25:26Azeem Azhar?

  a big economy around it. A souffle that has flattened perhaps?

• 25:30Speaker 01

  Well, I, yes, so that's my hashtag hydrogen souffle when I.

• 25:34Azeem Azhar?

  Yeah, I mean, I'm more simple. I call it the the bubble that burst.

• 25:37Speaker 01

  Yeah, I don't. You see, I don't take joy in things failing and people losing their jobs. But, you know, at some point, when it's predictable that they're, but what's interesting, I find in the context of exponentiality is that there are people, you know, I pointed out that, for instance, the density of hydrogen means if you put it on a ship, that ship will carry one third of the energy of an LNG ship.

• 25:58Azeem Azhar?

  Right.

• 25:58Speaker 01

  And then people say, Michael, I'm surprised you're so negative when you're the person who was so convinced solar would get cheap. And I'm like, yes, but physics, but physics. And people sort of seemed, many people seem to think that that that exponentiality or the learning curve can actually overcome. I I hear you that the focus of innovation moves to the constraint. So you then get, you know, lots of people. So if solar, you know, apparently there's this real problem that the sun doesn't shine at night.

• 26:28Azeem Azhar?

  I've heard that, yeah.

• 26:29Speaker 01

  You know, well, I, it was a surprise to me, but there you go. But now there's so much innovation around batteries because it's the theory of constraints. You move on to the next thing and so on.

• 26:37Azeem Azhar?

  Yeah.

• 26:38Speaker 01

  But I want to keep going with my pushback.

• 26:39Azeem Azhar?

  Three more pushbacks, yes.

• 26:40Speaker 01

  I want to do my pushbacks, right? One is that you talked about, you have to take the whole system cost. And I agree, we're just talking about solar, then the innovation around batteries. But there's also a system, which in many cases is highly resistant. So what is the role or what, how, you know, all of this is a bit utopian because it's easy to do a few percent of wind and solar. But, you know, once you get into sort of grown up bits of the energy system, and by the way, it is regulated and regulators answer to political masters and mistresses or political leadership, and they are paid for, bought and and and trussed up like like Christmas turkeys by the oil and gas industry. There is a point where none of this stuff can continue to happen.

• 27:24Azeem Azhar?

  Right. Well, I'm, I I think that we're seeing this in the UK and we'll give you a US example as well. But in the in the UK. Dear old Greg Jackson from Octopus Energy, guest on your show, but also on the nightly news regularly, making the point that the energy system is now exponential technology first, wind and solar and batteries. And we need to make changes to the framework by which the market operates, that we need to have nodal pricing, which means that we price the electricity relative to where it's actually produced, that we need to look at this question of marginal pricing, where expensive natural gas plants set the price for most consumers.

• 28:06Azeem Azhar?

  And of course, he hasn't gone into the other areas that we care about, like demand response and all these other things that actually make the electricity market work more like a market. You know, I need the electricity more, I need it more consistently, I'll pay more for it, you're willing to consume when you need. But I think the other place to look is what's happening in the US and who knows what will really happen. But the Texas electricity market and Texas as a state and kind of ERCOT more broadly has really transformed and it's transformed towards predominantly solar, but also a lot of wind. And you know, Greg Abbott, who's the governor there, you know, has been messaging the point that Texas is the leader in leading electricity energy market in the US for this reason.

• 28:52Azeem Azhar?

  And I think that what you start to see is, you start to see a moment, and we saw it with the internet compared to telecoms regulation, where the momentum of the market starts to overwhelm the objections that the politicians have. When will that happen? Will it be within four years? Will it be within two? It's hard to say, but ultimately, you know, we have the law of physics, then you have laws of economics, and then the third line is just the law of reality. And if the demand, if the electricity market is not functioning governed as a fossil fuel market, because it's now 35 to 40% renewables. I don't believe lobbies will be able to stand in the way.

• 29:36Speaker 01

  So you're confident that, in a sense, Greg Abbott or Texas, I wrote something in 2014 saying that clean energy needs less regulation, not more.

• 29:46Azeem Azhar?

  Yeah.

• 29:47Speaker 01

  And we need more price signals.

• 29:48Azeem Azhar?

  More price signals.

• 29:49Speaker 01

  More price signals work. We know this. This is why did we get cheap renewables? It was basically, it was the experience curve and innovation. But then it was when we changed from feed in tariffs, state pricing, to reverse auctions of various sorts, including the CFD with the auction. And then suddenly these cheap prices got delivered. So I agree with you, that's what should happen. But I guess, so Greg Jackson came on Cleaning Up, beginning of this season, first episode of this season, our most popular episode yet.

• 30:21Azeem Azhar?

  Second most, hopefully by the end of this episode.

• 30:23Speaker 01

  Maybe second most after this one, I hope, I hope. So, but the, I think it's the third or fourth most popular is Yanis Varoufakis.

• 30:31Azeem Azhar?

  Right.

• 30:32Speaker 01

  The firebrand lefty from Greece.

• 30:33Azeem Azhar?

  Yes.

• 30:34Speaker 01

  And he came on the show and argued that the electricity system should be nationalised, there is no innovation that a national electricity system couldn't deliver better and faster, that this is a fake, this is fake competition, fake innovation, fake businesses, nationalised a lot. I thought it was the most ridiculous argument possible, but let me tell you, looking at the comments on all the social media, the people were saying, Yanis is a god, the person who interviewed him was an asshole.

• 31:01Azeem Azhar?

  Well, I mean, that can be true and he can still be wrong. I think you're wonderful. I want to say just because you've, you've sort of caught, potentially referred to yourself as that. I mean, I think of, you know, that you understand this market better than nearly anyone. The reason you don't want to have a nationalised energy system is because this is a technology. Electricity, which was essentially driven by as a commodity.

• 31:28Azeem Azhar?

  Gas prices, oil prices determined it. They were determined by whatever happened in the market and whatever the local autocrat wanted to do. We've turned it into something that's driven by knowledge, by research and development. That is what the learning curve is. And once you have something that is driven by learning curves, it is so dynamic that if you try to control it, you will ultimately control it in the fixed state of last year. In the same way that if, you know, Bill Gates has reputed to have said, oh, 640 kilobytes should be enough memory for any computer. We now have a million times that in some computers. If the state had then come in and said 640K will be enough, because Bill Gates has said

• 32:11Azeem Azhar?

  that and regulated that, the industry would never have taken off. And, and the reason it was inappropriate is because it was a learning curve industry, an exponential industry, and the energy system is becoming that. So what we need to do is make sure we have the right incentives, price is one fantastic signal for it. But I think, you know, there's a second one that we, I think, are also well aware of, which is that we're moving from to technologies that are, or, or, or energy systems that are high upfront cost and low running costs, they become a financing problem. And I don't think that's solved exclusively by a price signal. I think that is solved by, you know, active policies that will foster the kind of financing that make it practical for businesses and homeowners to, to, you know, make that transition.

• 32:58Speaker 01

  Cleaning Up is brought to you by the members of the Leadership Circle. That's Actis, EcoPragma Capital, EDP of Portugal, Euroelectric, the Gialdini Foundation, KKR, National Grid, Octopus Energy, Quadrature Climate Foundation, SDCL, Vazila, and new member Alcazar Energy. For more information on the Leadership Circle, please visit cleaningup.live. That's cleaningup.live.

• 33:34Speaker 01

  If you're enjoying Cleaning Up, please make sure that you subscribe on YouTube or your favourite podcast platform and leave us a review. That really helps other people to find us. Please recommend Cleaning Up to your friends and colleagues and sign up for our free newsletter at cleaninguppod.substack.com. That's cleaninguppod.substack.com.

• 34:03Speaker 01

  Objection three. You said, oh, it's so marvellous. Pakistan is the example. Suddenly, everybody can participate in the energy system. This is kind of, small is beautiful. How marvellous. But, you know, that's actually not how it works. I mean, those may be the consumers might be, but just because you have a little mobile phone and you can now microblog or whatever on your phone, let's be absolutely clear, we've now got these companies that are worth $3 trillion each that absolutely dominate that space. So what's really happening is it's just as much concentration, but instead of having Standard Oil or Exxon Mobil and Aramco, we're just going to have, I don't know, Longi and Goldwind and a whole bunch

• 34:47Speaker 01

  of just colossal Chinese companies dominating everything. We are not going to be any freer at the end of this than we were before.

• 34:55Azeem Azhar?

  Yeah. Well, we will be freer because the Chinese companies making solar are much more like the people who made RAM chips in the computer industry. And the RAM chip, who makes them, who knows? Because it's a super commodity. They compete on price. As you say, they are, they're going to be swayed by boom and bust cycles. Many will go out of business. We shouldn't shed a tear for their shareholders. They've got, they've got, you know, broad portfolios. But the monopolies came from silicon chips and they came from the fact that the chips were programmable, had operating systems over the top. And solar PV is much more like DRAM than it is like chips. So although the Chinese companies may

• 35:37Azeem Azhar?

  be the biggest producer, they'll be the biggest producer of a pilot high, sell it cheap product and they'll have to continually to compete on that, on that level of, of price. And, but I thought, I thought where you might take that objection is, is to the fact that

• 35:56Azeem Azhar?

  You know, a few thousand, a few thousand kilowatts here or there just doesn't make aluminium. Right. It's just not enough. And, and but it does have in aggregate the problem of breaking the way the grid works. And in Pakistan, this is a real issue, right? Capacity payments that are required may put some of the producers out of business. And that in a country like Pakistan, there's not a lot of cash to go around and to bridge that. So I think one of the hardest things in the, as the energy system goes through the electricity, this exponential transition is there are going to be these breakpoints where ultimately someone's business model is not going to work. And we're going to have to figure out who's going to take that, take that pain. And that may be where political resistance slows things down.

• 36:41Speaker 01

  Thank you. You've come up with a fifth objection, which is how do you do the really big things? But also, also, how do you keep the lights on? But when everybody's got their very cheap system, which is fine 48 weeks a year, but on the four weeks a year that it's not fine, they turn around and say, I want the government. What's the government doing about the fact that my lights don't go on anymore? Because they've defected, they've gone off and done the cheap thing. So how, I mean, which is part of the same.

• 37:07Azeem Azhar?

  It's part of the same thing. I mean, I mean, you know, the, the way that I think about this is the, the types of new language that you need when you go through a transition like this. Again, by analogy, again, for cleaning up listeners, before the internet, we had these things called publishers. Everyone knew what a publisher was. The internet came along and now we don't really know what a publisher is. Like, is Facebook a publisher? Is it not? It's still fought over in the courts. You, you don't have the words for it. And so when we think about building an exponential, renewablely driven energy system, a phrase that comes out is overbuild or overcapacity, which only makes sense in the context of a fossil system, fossil based system. Because if you were designing a system that has intermittent resources that are very, very cheap, so you could put lots of

• 37:50Azeem Azhar?

  them up, that you can interconnect and exchange, and you can have storage systems of different capacity and cost, you would never really think about overbuilding. You'd think about a measure of availability and, and resilience. And, and I think that that design issue is one that we will need to figure out. It might be that we have to keep a bunch of gas plants. You know, idle as insurance and be willing to underwrite their costs for those weeks where we have cloudy skies and Dunkleflaut going on. I think the other thing that's really underrated will be that by the time we get there, sixty, seventy, eighty percent of all the cars in the UK being sold will be electric vehicles, which means about twenty percent of those on the road

• 38:33Azeem Azhar?

  will be EVs. An EV will have an eighty kilowatt hour battery. It'll power my two neighbours' home and mine and not really affect how far I can drive the next day when I do the school drop off. So I think that there are resources that will emerge.

• 38:46Speaker 01

  So I have two points to add to that. The discussion about sort of capacity utilisation over capacity, it drives me crazy because there is not an asset class that we manage for a hundred percent utilisation, right? Your car used four percent of the time, your bed used thirty percent of the time, your whole home used fifty percent of the time, your school used sixty percent of the time, your hospital, nothing, nothing. Your gas peaking plant used ten percent of the time, your hydro plant used forty percent of the time, your-

• 39:19Azeem Azhar?

  Nuclear, ninety-two percent.

• 39:20Speaker 01

  Nuclear, some nuclear. Look at the average across the world and it isn't. And by the way, when it doesn't get used, when it falls out in an unplanned way, which is rare, but you know, half of France's nuclear.

• 39:32Azeem Azhar?

  That's right.

• 39:33Speaker 01

  I'm a fan of nuclear, I have to say that for your listeners-

• 39:35Azeem Azhar?

  Yeah, I'm a fan of it as well.

• 39:36Speaker 01

  Who might not know all of my background. I'm a fan, but we shouldn't pretend that it's this kind of hundred percent reliability thing, right? Why is it that only when it comes to renewables, people say, oh, the expectation is we must use it. It doesn't work, it's rubbish because it doesn't work hundred percent of the time, or whatever it could produce, we must use by building, and you know, we're back to hydrogen, we must electrolyse using surplus wind or whatever, without understanding that it is so much cheaper just to build a little bit more wind or definitely a little bit more solar-

• 40:10Azeem Azhar?

  Right.

• 40:10Speaker 01

  And not go through this acrobatics of trying to use a hundred percent.

• 40:14Azeem Azhar?

  Sure.

• 40:14Speaker 01

  The other thing, the other point that I'd make there is when it comes to the aluminium smelter or, you know, whoever it is-

• 40:23Speaker 01

  They need to pay for the fact that they need 24/7 dispatchable power. What's actually happening is some of these companies are lobbying, using their influence to say, the whole system must provide six nines or five nines or whatever it is reliability because we need it. Whereas the homeowner can simply say, well, do you know what? I can do a little bit of demand response. Frankly, you know, if I have to, if once a year, once every two years, I have to tell the kids not to have long showers or whatever it is, the homeowner will do that.

• 40:55Azeem Azhar?

  Right.

• 40:56Speaker 01

  But the aluminium smelter or whatever is using their influence to try to force the whole system to meet their needs. And it's a form of subsidy.

• 41:04Azeem Azhar?

  It is a form of subsidy and it's one of the, I mean, I would love for more people to understand that, that ultimately in the energy market, the most demanding users pay the least. It's a bit like, you know, when you go on a flight and it turns out that the passengers in first class are paying a third of the price of their economy. But there is a real, there is one objection to that view, which I, by the way, I'm 100% aligned with you, which is that if the aluminium smelter or the hospital or the glass manufacturer did have to pay the real price of this constant electricity, it would get reflected either in business closures or in costs going up for the consumer, right? And when they get the product.

• 41:48Speaker 01

  There is a whole episode to be done on the macro inflationary impact, sector by sector, country by country of all of this.

• 41:56Azeem Azhar?

  Right.

• 41:56Speaker 01

  I got to figure out who to do, but I definitely want to do that one. Whether it's, you know, it gets framed as deindustrialisation, but you can also look at it through different lenses, like inflationary force and so on. Now, those electricity users that need 24/7 dispatchable power, right? We talked about aluminium smelters. This is the most contrived segue possible.

• 42:17Azeem Azhar?

  Absolutely.

• 42:18Speaker 01

  To AI data centres.

• 42:20Azeem Azhar?

  Of course, yeah.

• 42:20Speaker 01

  Which you've also done and I've done an enormous amount of work on. So I've just written a very substantial piece for Bloomberg. You have worked on AI for, I mean, tell me how many years? A lot longer than me.

• 42:32Azeem Azhar?

  Well, I mean, the first time I worked for an AI company was in 2001. We competed with Google. They won. I would add.

• 42:38Speaker 01

  I was going to ask, and how did that go?

• 42:40Azeem Azhar?

  Well, it's, you know, we, you've got to be in it to win it. And we were definitely in it.

• 42:45Speaker 01

  So, so they did AlphaFold and you did?

• 42:47Azeem Azhar?

  Well, we did, they did, they were doing search. We would do it. It was back then, it was sort of natural language, those, those types of things. So AI data centers, again, I mean, I think this is a, this is a function of the media environment really needing stories. Data centers were growing by the boatload before AI, this new AI showed up. Companies were digitizing, they were generating more and more data. They then didn't want their data just in one location, they wanted it in many locations. Then they wanted it, they had to have it locally because of local regulations. The data centers had to grow, grow there. And if you actually look at the incremental, the incremental build of AI data centers relative to traditional data centers, I mean, I think in one Goldman Sachs report from

• 43:31Azeem Azhar?

  May of 2024, it was about an additional 20% on data center.

• 43:37Speaker 01

  So far, so far. And let's just back up because, you know, I've done a deep dive into the history of how much electricity is used. You've, you've, you probably are across the numbers of flops.

• 43:47Azeem Azhar?

  Right. Well, I know a little bit about the electricity, but go ahead.

• 43:49Speaker 01

  So what my, my potted history of electricity demand for data centers is go through till 2000, when the internet came along and people just had their data center. It was just called a server and it sat in the corner of somebody's office or in the IT department, in the basement, right? And then the internet came along, suddenly everybody went digital crazy. But also there was a lot more video started to be produced, so a lot more, a lot more data.

• 44:13Azeem Azhar?

  Yeah.

• 44:13Speaker 01

  And for the first time, having, having, the millennium bug didn't, you know, sort of didn't, didn't trouble anybody in the, in the end, it didn't happen. But suddenly there was this new problem, which was power demand of data centers. But it never really happened because people moved the data centers into the cloud and they got so much bigger. And then there was this thing called Kumi's Law after a, an academic called, I think Jonathan Kumi, who said, well, you know, everybody thought it was going to grow exponentially.

• 44:44Azeem Azhar?

  Right.

• 44:44Speaker 01

  But it was pretty much flat and it stayed very flat until about 2020. So one or two percent of global electricity being used by data centers. It didn't do what the World Economic Forum, they said crypto meant that it would use.

• 44:58Azeem Azhar?

  As much as Taiwan, then Poland, then China.

• 45:01Speaker 01

  World Economic Forum, and I think it was Time Magazine, said that it was going to use all the electricity in the world. Crypto would use all the electricity in the world by 2020.

• 45:10Azeem Azhar?

  Yeah, it's a day, that's a danger of taking a curve that's going like that and keep drawing it without looking at what's going on underneath.

• 45:15Speaker 01

  This exponential stuff doesn't really work. That's what you're saying.

• 45:17Azeem Azhar?

  Well, sometimes it doesn't, right?

• 45:19Speaker 01

  Right, we've established that.

• 45:20Azeem Azhar?

  Yeah.

• 45:20Speaker 01

  So, but, but in 2020, the power demand did start to go up. As you say, there were boatloads more just data centers everywhere. And we started to see these new, you know, we did see 2022, we saw Alpha Fold, we saw then of course ChatGPT.

• 45:38Azeem Azhar?

  Just to come back to physics, right?

• 45:42Azeem Azhar?

  That was two years after your, the growth you tracked started. And, and the 2020 growth would have been ordered in 2017 and 2018 by the businesses, which is, you know, five years before anyone knew ChatGPT was going to be a thing. So that's part of the observation that I wanted to make really, which is that the curve bends well before this new AI, newfangled technology shows up.

• 46:05Speaker 01

  So, but what we've got then is without doubt, it is being turbocharged by generative AI, which is extremely power hungry. And by the way, I'm going to argue the other side as well, which is that by the electrifying heating, electrifying electric vehicles will absorb vastly more power than any of the above, any of this AI stuff.

• 46:25Azeem Azhar?

  Right.

• 46:26Speaker 01

  But it will be different because it's distributed in the economy and some of these AI. Data centers have to be huge and centralized in order to train these models.

• 46:38Azeem Azhar?

  Yeah.

• 46:38Speaker 01

  And.

• 46:39Azeem Azhar?

  I mean, the AI companies have put in orders for 500 megawatts, 700 megawatt data centers. And they're talking about gigawatt and five gigawatt ones in a few years' time, which will be centralized, which will need to draw that kind of power or produce that kind of power because of onsite nuclear reactors or solar. Is there sort of back of a napkin sketch?

• 47:00Speaker 01

  So onsite nuclear, that's funny because they have got, they have all sort of headed off to say, well, the only solution here is nuclear.

• 47:06Azeem Azhar?

  Yeah.

• 47:06Speaker 01

  And, you know, I'm just sort of smiling. I don't know how to pronounce the word gnomically.

• 47:12Azeem Azhar?

  Yeah, gnomically with a bit of knowledge inside.

• 47:15Speaker 01

  Like, like, like the Mona Lisa, I'm just smiling quietly to myself because they will discover exactly what everybody else has discovered, which is you can build new nuclear, but it's very expensive and it takes a long time. And by the way, if you co-locate it, when it does fall out for whatever reason, you've got a real problem. Now you've got no grid connection, no backup.

• 47:37Azeem Azhar?

  Absolutely. Well, they'll try and think about the backup. I mean, they're smart people. One of the things I would say is that the, the prize is so large that, you know, Microsoft and Google have both talked about spending more than $100 billion to develop them, that state, super state of the art models, not the ones they have today, but the AI models of a couple of years' time or beyond. And that is, that is a big, big prize. And they're in a, they're in a game theoretic standoff where every boss believes the cost of not getting this right is existential. And these are companies with access to hundreds of billions of dollars. So when a nuclear plant is expensive, and even if it is a Hinkley Point level of cost,

• 48:21Azeem Azhar?

  it's kind of affordable to a, to, to a big tech company if they, if they really think the prize is there.

• 48:27Speaker 01

  Absolutely. I just, and, and they will do some of that, right?

• 48:30Azeem Azhar?

  Yeah.

• 48:30Speaker 01

  I just think with my nomic, I don't know how to pronounce it, smile, that they will also find that other things are cheaper.

• 48:39Azeem Azhar?

  I suspect they will. Yeah. I mean, I mean, you're thinking. Grid connections, solar, solar and batteries.

• 48:44Speaker 01

  Absolutely. And so there's a data center being built in Portugal, in Sina, just south of Lisbon. And it's going to be a lot of solar, a lot of wind, and then it's going to be a lot of batteries. And then it's going to be some form of longer duration outage backup, which will probably just be fossil.

• 49:00Azeem Azhar?

  Sure.

• 49:00Speaker 01

  Used for a small amount of time. But you know what? It could be, we're back for our third bite at hydrogen. It could be. Because if it's used only a little bit, it doesn't matter how expensive it is. And actually, that's one of the things about these companies, which is, or data centers, which is fun, which is the, these bulk buyers or bulk needers of gigawatts of dispatchable clean electricity are suddenly not, you know, industrial companies working on low margin commodity products. It's suddenly the richest companies in the world. So it's a fantastic source of demand to test geothermal and long duration backup

• 49:42Speaker 01

  and nuclear SMRs or whatever. It's kind of exciting.

• 49:46Azeem Azhar?

  And, and these companies are the few companies in the world who know how to work with innovation and know how to work with scale. So if you, when you go into the data centers at Meta, which is what Facebook used to be, and Alphabet, Google, they have really done their own hardware design, you know, they're not, of course, they're buying Nvidia chips, but lots of the other technology that lives within there has been designed themselves to their own specification, their own architecture. And so I can't think of companies that are better positioned to be innovative while also deploying large amounts of what is effectively risk capital than this particular sector.

• 50:31Azeem Azhar?

  That doesn't mean they'll get there, but I do, I do think it's a really great opportunity for anyone who is building innovations in the energy system to be able to find partners willing to fund this.

• 50:43Speaker 01

  So I am a bit more skeptical. They do build and the complexity of a modern AI data centre, because this is not, they're not putting in CPUs, single chips, they're putting in these, the GPUs, they're all, you know, one rack, a single rack can be 130 kilowatts.

• 51:00Azeem Azhar?

  Sure.

• 51:00Speaker 01

  A single rack, and you've got to then get rid of all that heat. So you've got liquid cooling to the chip, you've got all sorts of, then you've got N plus two, N plus three power redundancies on the power supply. They are, they're as complicated, I say they're as complicated as aircraft carriers.

• 51:14Azeem Azhar?

  They're remarkable. I would recommend people go and watch the YouTube video inside the X dot AI data centre that they're currently building, the Elon Musk one. And they look at these racks, they show how complicated they are, they show the cabling, which is beautifully done. And then in the basement, they, all the manifolds from the cooling aggregate into this, this large pipe and the basement is huge pipes, probably five feet in diameter, that are moving the water around the cooling system. I mean, it's remarkable.

• 51:51Speaker 01

  We'll put a link to that video in the show notes. Do they also show that that data centre has got, I think it's 14, two and a half megawatt, natural gas generators. I think it's now got, it's now got 150 megawatt grid connection has just been approved, but it was started with natural gas generators. The reason I'm skeptical about their abilities is that I think that there is a big, if they step out into the world of developing small modular reactors, then I think they're going to find, you know, that this is, I don't want to say it's an order of magnitude, it's just very different. The things that go wrong when you're building a nuclear power station or any power station, just very different than, you know, because the data centre world has come largely out of real estate.

• 52:34Azeem Azhar?

  Sure.

• 52:35Speaker 01

  We build a big shed and then we put some stuff in it and then we put a cooling system.

• 52:39Azeem Azhar?

  But I mean, the big real estate owners I've spoken to in the US have been talking data centres for a while. I mean, they're not, they're not reading this in, you know, the Financial Times, the Wall Street Journal are big surprised. They've been having the conversations for a little bit, which is why I think. We see the numbers trend up so quickly.

• 52:55Speaker 01

  They've been talking about it. They've been trying. They've been doing it, but they've been doing it as a real estate development with a 25 megawatt, 50 megawatt connection, right? A gigawatt, you know, how many of the people have they hired out of aluminium smelting? Or out of the glass industry or out of, you know, some of these, out of the big utilities, the transmission networks and so on.

• 53:16Azeem Azhar?

  That look in the time, there are some time horizons that don't add up. So on the one hand, you have the, the pronouncements by the big tech companies and the hundreds of megawatts or gigawatts they, they want per data center within three or four years. Then you have the reality of needing to build new technologies, which will take 10 years, not four, even in this accelerated time. Then you have the issue of can you actually get the grid connection? Can you get the permissions to do it? Can you get the land and can that be done in three or four years? So I suspect that that timeline will not be as close as three or four years. It will get pushed out a couple of years. I mean, that's just the, the reality of it. But I did want to bring in a couple of numbers because Morgan Stanley, actually just before we, we got on this

• 53:59Azeem Azhar?

  discussion, sent out a note and there was some interesting data about their forecast. So they felt, they believed that in the globally, there'd be $140 billion invested in data centers this year. That excludes the chips. The chips are another $140 billion.

• 54:16Speaker 01

  Or the GPUs.

• 54:17Azeem Azhar?

  The GPUs. Yeah. Yep. And, and then, and then sort of networking chips that go with them and so on. Right. But, but by 27, that would rise to 250 and 260. So effectively doubling over a three year period. And it would result in a $200 billion incremental investment in the power system. Now, the reason I raise that with you is because I think the global renewable investment is about to cross the $2 trillion a year. Mark. So it is, it is meaningful, but it's also only 10%, right? I mean, it's not 50%.

• 54:52Speaker 01

  No, exactly. We are seeing, you know, so the things that I tracked in 2004, it was basically renewable energy because there wasn't, there were no electric vehicles and it was 36 billion.

• 55:04Azeem Azhar?

  Yeah, but there was probably a hydrogen car back in 2004.

• 55:07Speaker 01

  Oh, I'm sure there were, but they were very, they were.

• 55:09Azeem Azhar?

  Selling better than they are today.

• 55:10Speaker 01

  There were still so few of them, they didn't, they didn't actually sort of register.

• 55:13Azeem Azhar?

  Yeah.

• 55:14Speaker 01

  But it was 36 billion. And now, if you add all of the clean technologies, you get to, I think, 1.4 trillion. And you add the grid on top and you'll get to your figure of 2 trillion. And now what you're saying is it's 200 billion more.

• 55:26Azeem Azhar?

  Yeah.

• 55:27Speaker 01

  I'd say the, the interesting thing is a lot more of it will be in the US.

• 55:32Azeem Azhar?

  That's right.

• 55:32Speaker 01

  For all sorts of reasons. Two thirds of that could be in the US.

• 55:35Azeem Azhar?

  It's probably that much.

• 55:36Speaker 01

  Simply because you can't export the latest black weld Nvidia GPUs to China and Europe is mired in its own sort of, you know, I don't know, stagnation or its own issues.

• 55:48Azeem Azhar?

  We've got lovely cathedrals.

• 55:49Speaker 01

  We have lovely cathedrals. It'd be nice to have a cathedral of AI. But so that I want to just, so I think I agree with you. The direction, look, it's going to happen and it's not super scary. It's just, it's really interesting because it's such concentrated demand with such rich companies. I think they'll get delayed, not by a couple of years. I think that the things that they think they're going to be able to deliver by 2030 are probably 2035.

• 56:15Azeem Azhar?

  You mean from a power standpoint?

• 56:16Speaker 01

  Because energy.

• 56:17Azeem Azhar?

  Yeah.

• 56:17Speaker 01

  Well, and that's an interesting question. What is the constraint to rapid rollout of AI services? Is it lack of energy? Is it lack of, you know, what is the, I think power is going to be a constraining issue.

• 56:32Azeem Azhar?

  So when we look at, there are two different things going on within AI. One is the, the training of these big frontier models that are enormously energy intensive the first time. They're just hard to get around. Right? The second is what happens when they actually get deployed and distributed? And after the, the first big expensive model gets trained. We're able to do optimizations for the models that actually get run. And in fact, that is orders of magnitude. And so GPT four, which is, you know, the best model we currently have. When it's actually GPT four class models are run for businesses, they're using.

• 57:12Speaker 01

  For inference, for actually used to answer questions rather than just trained.

• 57:16Azeem Azhar?

  They're millions of times less power intensive than when they're being trained. But even when you train a new GPT four class model today, you can probably do it for a one thousandth of the energy because of optimizations. So I just want to just finish that point, which is that we have not the, we've not broken all of the use cases of GPT four yet. So when I think about this sort of hypothetical experiment, imagine you just can't train GPT five or six for energy reasons, power reasons, or anything else. I still think you have this enormous demand to build AI data centers to run GPT four level applications for businesses and for for consumers.

• 57:57Speaker 01

  Right, and those, but those will be the inference data centers, which will look much more like today.

• 58:01Azeem Azhar?

  Like big versions of today.

• 58:03Speaker 01

  Yeah, there'll be a hundred, hundred and fifty megawatts. They won't be the one gigawatt, five gigawatts.

• 58:07Azeem Azhar?

  That's right.

• 58:07Speaker 01

  Okay, now, but let me, let me come back to very interesting. So if we agree there's going to be some delays and some speed bumps, and there's also, there was a piece written called AI's, it was the first a $200 billion question.

• 58:24Azeem Azhar?

  That's right, by Sequoia Capital.

• 58:25Speaker 01

  Sequoia Capital, it was a fantastic, we'll put link in the show notes. And it became a 500 billion question. And the more they invest, and the question is, the, the, the nature of the question is, who's going to pay enough for the AI services to justify the investment? And where it's going, what I want to challenge you with is.

• 58:46Speaker 01

  Haven't we seen this behaviour where there's an arms race? The companies think it's existential, they have to win. And we've seen it in railways, we've seen it in electric light, we've seen it in the internet. We saw it and you and I spoke about it with crypto. Do you remember there was Terra and Luna?

• 59:04Azeem Azhar?

  That's right.

• 59:05Speaker 01

  And I was laughing at the chap that you were very excited about, Mr Quark.

• 59:09Azeem Azhar?

  Well, I mean, he was very exciting. I mean, he's.

• 59:10Speaker 01

  Very exciting. He's now excitingly a fugitive from the law.

• 59:13Azeem Azhar?

  Yeah, absolutely.

• 59:14Speaker 01

  But, you know, aren't we going to see not this sort of smooth pathway to 2030 or 2035 of enormous additions to AI infrastructure, power use and model capability and so on? Aren't we going to see a correction at some point along the way?

• 59:30Azeem Azhar?

  I mean, we are bound to see a correction. The question is, what type will it be? With the railways that you, as you brought up, 1846 was the peak, 1845 of these stock market capitalisation before the collapse. Some shares didn't get back to their par level for 70 years. Now.

• 59:50Speaker 01

  Many, many never.

• 59:51Azeem Azhar?

  Many never.

• 59:52Speaker 01

  Many disappeared, many then went away.

• 59:53Azeem Azhar?

  But I mean, essentially, if you look at the UK stock market, it took decades to recover.

• 59:56Speaker 01

  The NASDAQ took 20 years, I think, to recover from.

• 59:59Azeem Azhar?

  And look at where it is now.

• 1:00:00Speaker 01

  Yeah, from the internet boom.

• 1:00:02Azeem Azhar?

  But, and if you think about where Amazon was after the dot com bubble collapsed, it's gone up certainly 100 times, if not more. I think the, a few of the things that are different between railways and AI are that some of this is infrastructure, right? The absolute frontier models are infrastructure, but the deployed models, the ones I use many, many times a day are not infrastructure. And the rate with which companies are actually using them is growing extremely, extremely fast. And there was some data that was published in the Financial Times, which showed that

• 1:00:44Azeem Azhar?

  the time it took an AI enterprise company, so that's an AI company that sells to businesses. To get to a certain revenue level was three times, which I believe was $10 million per year, run rate was three times faster than the best in class, cloud-based software companies from five years ago. And that's real companies in the real world buying these services from, you know, flashy startups. So I think that because there is money flowing into the system, it feels quite different to crypto, certainly to the dot com where the mantra was built it and they will come. It was a Kevin Costner movie at the time, Field of Dreams. And it feels

• 1:01:27Azeem Azhar?

  like there's, there's real use. Now, that doesn't mean there isn't exuberance in private markets from startups I've been investing in. I've seen some hair-raising valuations for companies without products. And, and that isn't to say that there aren't public company stocks that aren't overvalued. However, what I would say is that if I look at the future demand for chips, and you've got, you have to remember, only 300 million people are using ChatGPT today. And my perspective is that that type of technology will be embedded in every phone for the 6 billion of us who have phones. That growth rate still looks like it, it's going to continue for a few more years.

• 1:02:10Speaker 01

  I agree with all of that. I guess the, if you agree that there's a sort of 600 billion of revenue needs to flow into AI to justify the dreams.

• 1:02:18Azeem Azhar?

  Sure.

• 1:02:19Speaker 01

  That turns into, and I did the numbers.

• 1:02:21Azeem Azhar?

  Yeah.

• 1:02:22Speaker 01

  It's either $600 per person for a billion people.

• 1:02:25Azeem Azhar?

  Sure.

• 1:02:25Speaker 01

  Or $6,000 per person for people like you and me who use it a lot. And I just think it takes probably a decade to get there, just to identify and isolate the budgets and to build the kind of connective tissue around how you use it and so on. So I do think that the chance of a correction is

• 1:02:43Azeem Azhar?

  Yeah.

• 1:02:43Speaker 01

  larger than 50%.

• 1:02:45Azeem Azhar?

  But, but I would say to add something else, which is, of course, a lot of these companies are expected to fail because for every, or they're going to be bought up in a, in a consolidation, right?

• 1:02:57Speaker 01

  Not if they're Meta or, or

• 1:02:58Azeem Azhar?

  No, not the Metas, but I mean, the startups that are pursuing, you know, that are pursuing online translation using, you know, GPT-4, right? That, that's where you'd expect.

• 1:03:07Speaker 01

  I'm just conscious of time.

• 1:03:08Azeem Azhar?

  Oh, sure.

• 1:03:09Speaker 01

  And I'm also conscious of one thing, which is something that I, I said that there were these five pushbacks and we only did four. There is a last one I like to close with.

• 1:03:17Azeem Azhar?

  Yeah.

• 1:03:17Speaker 01

  Which is Herman Daly, economist at the World Bank, environmental economist. He said, there's no such thing as infinite growth on a finite planet.

• 1:03:28Azeem Azhar?

  Sure.

• 1:03:28Speaker 01

  And, you know, I'm on the record as disagreeing with him.

• 1:03:31Azeem Azhar?

  Yeah.

• 1:03:32Speaker 01

  But when you get these technologies, and the reason is that the nature of growth is not just, you know, adding value to materials, it's actually knowledge and dematerialized services and so on. But when the things that we've been talking about, solar panels, batteries, AI data centers, those are physical things. So I guess I would challenge you, you know, can you continue with exponential view, exponential growth on a planet that is really stressed environmentally and from a climate perspective?

• 1:04:07Azeem Azhar?

  You know, I think the climate crisis will get addressed in large part by by these technologies. They'll it'll get addressed by being able to provide power, electricity in all sorts of places so they can better, you know, adapt to the new environmental realities through air conditioning powered by solar panels, through battery storage, through, you know, desalination, all technologies that are going to improve over the over the coming years. But there's a bigger question about this idea of infinite growth on a on a finite planet. I mean, infinity is a really big concept. Maybe we don't have to get that far.

• 1:04:48Azeem Azhar?

  But I like to play the the thought experiment of saying, well, look, if you were in 1750 and you were presented with that question, you probably wouldn't believe we could do what we did by 1950, let alone by what we're doing by 2024. And there's a lot that we don't know. We know about the laws of physics and there's a lot that we can can learn and we can can research. And maybe one key limitation in in in his claim is the idea of, you know, where the resources come from. I mean, I've met companies now who are starting to planning on building data centers in space for many reasons, so that you you might choose to go off and do that. You can power them 24 hours a day. You don't have the same heating problems.

• 1:05:31Azeem Azhar?

  You have got high bandwidth laser and connections back to back to earth. And so I wouldn't doubt. The capacities of our science over the hundreds of years and bound them by the limitations of the science of today.

• 1:05:47Speaker 01

  Yeah, I suppose, you know, there's a company called Lumen Orbit. I've looked at that's a space-based.

• 1:05:52Azeem Azhar?

  Yeah.

• 1:05:52Speaker 01

  They want to do data centers in space. And I looked at that. It doesn't, their numbers for the cost of this don't stand up to the very slightest of scrutiny, completely. The idea of building forty megawatt type power stations.

• 1:06:05Azeem Azhar?

  Yes, of course, yeah.

• 1:06:06Speaker 01

  Completely absurd. Now, in hundreds of years, I'm not going to say, you know, no, but I'm kind of worried about twenty years and thirty years when we're going to see this kind of climate pinch point. And I worry that these technologies, the first people will use them, could easily be using them to do more fracking or to exploit frozen methane in the seas.

• 1:06:27Azeem Azhar?

  Or to build.

• 1:06:28Speaker 01

  To do all sorts of, you know, things that are going to be extremely negative for the planet.

• 1:06:32Azeem Azhar?

  To build even faster commerce than Temu and Shane, disposable, instant commerce for billions of people.

• 1:06:38Speaker 01

  Or even a very, a very good scenario where they enable wealth for, you know, billions of people, something I want to have happen. But it happens at a speed where those people then just, you know, the emerging lower middle class, they all buy vehicles because with AI, manufacturing the vehicle became so cheap and robotics became so cheap that they can all drive cars and.

• 1:07:02Azeem Azhar?

  Yes, but you know, we can imagine that that dystopian system, because what it does is it requires thinking around along one axis alone. And we get to set some of these values and we get to articulate them. And I think, you know, I think of my little trifecta of people who've influenced me around how I think about climate change. And they're very, three very different people. It's Elon Musk, it's Greta Thunberg, and it's Michael Liebrecht, my little.

• 1:07:30Speaker 01

  That's a pretty good crowd.

• 1:07:31Azeem Azhar?

  Tripod.

• 1:07:32Speaker 01

  That would be good. That would be a good dinner party.

• 1:07:33Azeem Azhar?

  Yes. And well, of course, you've, you know, you've got Jim Hansen as well and so on and so forth. I mean, there are lots of names. And but, but. I think when you, when you, when we look at what starts to matter and what didn't matter 20 years ago, look at recycling, lithium ion battery recycling, look at the extent to which there, there is confidence that we will get to 25, 30, 50% of all the lithium batteries recycled reasonably soon.

• 1:07:59Speaker 01

  We're already at 90%. There just aren't any lithium batteries. The recycling that we've built is, is 25% capacity utilization because the batteries just last too long.

• 1:08:09Azeem Azhar?

  Right, and they last too long. Yeah. But, but I think the, the, the thing to, to think about is that we haven't for years scratched questions like, how do we scale out heat pumps? How do we make desalination work far, far better? What, what do we do with, to make, to, to enable circularity within industrial processes and, and the consumer economy? And I think that we, we have those choices ahead of us. I mean, if we, if everybody in Sub-Saharan Africa behaved like an American in the 1970s with their muscle cars and expanding their houses and buying AC, then we're in, then we've got a big problem.

• 1:08:51Speaker 01

  AC is not, not, because AC pairs beautifully with solar. So it's the least of the problem, although it requires minerals, but that's it.

• 1:08:56Azeem Azhar?

  Well, but except that when people think about AC today, they think about it, it being powered by a coal plant, right? That's in India somewhere, right? Junkie out of them.

• 1:09:04Speaker 01

  Yeah. Look, I, I love this because I think there's been three points where you've been more optimistic than me. You think that the regulatory or regulatory capture pushback will lose to these fundamental pressures. You think that the data centers will get built a bit quicker than me.

• 1:09:23Azeem Azhar?

  A bit quicker, yeah.

• 1:09:23Speaker 01

  And you think that we will generally use these technologies for the good rather than for the bad. And I think where I am on that last one is that that's a choice that we get to make. That is a choice, then it will not be made by Elon Musk or by, you know, the CEOs of the tech titans. It will be made by society as a whole. And I suppose.

• 1:09:48Speaker 01

  This week, it's a little harder to be optimistic than last week. But overall, I think it's just a choice that we have to, you know, we have to be prepared to fight for and to make sure that those technologies, you know, are used for the good because we could be in a land of pain otherwise.

• 1:10:04Azeem Azhar?

  Well, that's why more people need to listen to our two podcasts, Michael. I think that that's the ultimate message there.

• 1:10:11Speaker 01

  That that is a very, very good place to end up. And I couldn't agree more. I couldn't agree more that the world will be set to rights if only everybody who's listened this far tells all of their friends and all of their colleagues and family to listen as well, because I think it's been an absolutely tremendous conversation. Thank you so much.

• 1:10:27Azeem Azhar?

  Thank you so much, Michael. Appreciate it.