The case for colocating data centers and generation

Sheldon Kimber says the grid is broken — at least for new data centers and other large, industrial loads that need lots of clean power, fast. But the founder and CEO of Intersect Power believes there’s a workaround that enables larger data centers and speeds up time to power: colocating behind-the-meter generation and storage on megasites rich with renewable resources. In short, instead of bringing clean generation to load, bring load to clean generation. Major partners are on board with the strategy. Last December Intersect announced $800M in investment from Google and private equity firm TPG, along with a goal of catalyzing $20B in projects by 2030. So how does colocation work? And how far does it go? In this episode, Shayle talks to Sheldon about how colocation can help sidestep the challenges associated with grid upgrades, transmission, and permitting. They dig into topics like: Major forces shaping the market, like AI demand, the IRA, and tariffs Optimal PPA prices and tenures The right mix of grid-connected and behind-the-meter power The extreme version of colocation: off-grid data centers Megasite developers for hydrogen and crypto and how they took advantage of the AI boom Whether DeepSeek will cause energy demand to temper or accelerate Recommended resources Latitude Media: Google’s new data center model signals a massive market shift Latitude Media: Load growth is changing how Silicon Ranch develops solar projects Latitude Media: Amazon’s data center strategy: ‘Get back to being grid-tied’ Catalyst: The US power demand surge: The electricity gauntlet has arrived Credits: Hosted by Shayle Kann. Produced and edited by Daniel Woldorff. Original music and engineering by Sean Marquand. Stephen Lacey is executive editor. Catalyst is brought to you by EnergyHub. EnergyHub helps utilities build next-generation virtual power plants that unlock reliable flexibility at every level of the grid. See how EnergyHub helps unlock the power of flexibility at scale, and deliver more value through cross-DER dispatch with their leading Edge DERMS platform, by visiting energyhub.com. Catalyst is brought to you by Antenna Group, the public relations and strategic marketing agency of choice for climate and energy leaders. If you're a startup, investor, or global corporation that's looking to tell your climate story, demonstrate your impact, or accelerate your growth, Antenna Group's team of industry insiders is ready to help. Learn more at antennagroup.com.

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

• 0:00Speaker 00

  You listen to this podcast for incisive coverage of the tech, business and market forces shaping clean energy and climate tech. You can get them in your inbox, too. Latitude Media's flagship newsletter, The Latitude, offers B2B analysis, commentary and curated news from across the industry. It's the perfect complement to the show. Subscribe to receive The Latitude daily or weekly in your inbox, or get our AI Energy Nexus newsletter on Wednesdays. Go to latitudemedia.com/newsletter to subscribe today.

• 0:31Speaker 01

  Latitude Media, podcast at the frontier of climate technology.

• 0:37Shayle Kann?

  I'm Shao Kahn, and this is Catalyst.

• 0:41Speaker 03

  When people say, oh, these data centers are bringing back coal or whatever, like, there are opportunities to actually make these data centers some of the most, you know, sort of clean-powered industrial loads in the country, and to do it at costs that are actually probably the most competitive.

• 0:55Shayle Kann?

  Coming up, when and how it makes sense to co-locate power generation with data centers.

• 1:10Speaker 00

  Catalyst is brought to you by Antenna Group, the communications and marketing partner behind the most influential companies in energy, climate and infrastructure. For three decades, Antenna has helped ambitious companies stand out, build market leadership and become category defining brands. From breakthrough startups to global industry leaders, their team brings the expertise, relationships and track record to accelerate your momentum. Learn more at antennagroup.com.

• 1:36Speaker 04

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• 2:08Speaker 00

  Demand flexibility is now an essential part of the data center's speed to power playbook. But how do data centers actually curtail load? Grid Beyond is the end-to-end solution for flexible energy management. Grid Beyond's advanced DRS and VPP platform is tailored to what data centers care about most. Maximizing reliability, intelligently meeting curtailment obligations, reducing costs, and managing all your distributed resources in one place. Ready to transform your distributed energy management? Get started at gridbeyond.com.

• 2:42Shayle Kann?

  I'm Shayle Khan. I invest in revolutionary climate technologies at Energy Impact Partners. Welcome. All right, so here's the operative question of the moment. How exactly are we going to power the tens of gigawatts of data centers that are in development, or in planning, or in major proclamations, including presidents and Masa from SoftBank and so on? One thing that is clearly happening to answer that question is a mad dash to identify any sites where the grid already has enough excess capacity today to fit a few hundred megawatts of load, or a gigawatt, or multiple gigawatts of new load. So that's happening. A second thing that's happening is a close examination of every opportunity to add a lot of new capacity in one location to the grid,

• 3:25Shayle Kann?

  be that through nuclear, see Three Mile Island as an example, or renewables, or gas. But a third thing that's starting to happen more and more is the idea of building behind the meter, or onsite, or co-located generation at the site of these data centers. A lot of this to date that has been announced is natural gas. This, for example, is how XAI is partially powering its rapidly built data center in Memphis. But lots more similar announcements with new natural gas have arrived. But here's a question that hasn't been as prominent, I think, until recently. What about solar, or wind, or storage? Will we see significant amounts of onsite renewables at data centers? And if so, then there's a cascade of questions that come after that.

• 4:09Shayle Kann?

  Will the data centers be grid-connected or off-grid? How should we think about the load profile, et cetera? So it was cool to see an announcement in December from Intersect Power, which is a leading renewables IPP and is led by my friend Sheldon Kimber. Intersect partnered with TPG, which is a big investment firm, and Google on a partnership that initially will inject about $800 million into Intersect to develop solar and storage and wind and some gas, co-located with data centers in the United States. There's lots to dig into on that. And beyond that specific topic, it's also an opportunity for us to get an update from Sheldon on what's going on in the solar and storage markets more generally, because things are, as always, in motion.

• 4:53Shayle Kann?

  Anyway, here's Sheldon. Sheldon, welcome back.

• 4:56Speaker 03

  Thanks. Thanks for having me. It's good to be back.

• 5:00Shayle Kann?

  How many times a day do you think you say the term "data centers" right now?

• 5:07Speaker 03

  You know, probably more than I'd like, to be honest. It's a moment in time where I think you have the curse and the blessing of, you know, in the power sector, for many years, we've wanted the world to pay attention to us. We've been the most boring people at cocktail parties. And now, all of a sudden, you know, the world is paying attention to us. And we're learning that, you know, what comes with that is not all necessarily positive.

• 5:36Shayle Kann?

  Yeah. All right. Well, I'm going to add to your daily count of data center mentions, a whole bunch, I think. But before we start talking about data centers directly, I guess I want to talk about data centers indirectly in the sense that I want to talk about the broader picture of what's going on in the solar and storage markets, which is partially a story of data centers anyway. But we'll attack it head on later. In the meantime, how would you characterize like the state of the market in the US today for utility-scale solar and storage?

• 6:04Speaker 03

  I mean, I think the state of the market is... Kind of this weird limbo where, you know, we have this sort of supply side policies of the Biden administration, which are driving growth, you know, growth in American manufacturing, in particular, growth in sort of American driven solar and battery storage. But then we've got this enormous demand side, you know, push coming from AI and not just AI, right? I mean, we're talking about the convergence of some other trends, which we can talk about when we talk about data centers. But, but, you know, electrification, decarbonization, advanced manufacturing, all of these things are actually legitimate load drivers as well. So you've got this double dip of supply and demand.

• 6:46Speaker 03

  But then I would also say that at the same time, these massive macros that are pushing the industry are also both, both fraught with, you know, uncertainty at this moment. So it's a, it's a crazy time when we don't know whether our businesses will be 10 times as large or, you know, nonexistent.

• 7:05Shayle Kann?

  And that's not to mention, like, the complexity of things like tariffs, which are super dynamic in general, but I'd say particularly so in solar and storage because it's not just the latest, like, what Trump took office and wants to introduce tariffs on X, Y, and Z, which is definitely happening. There was like already an ongoing complexity around tariffs in solar, I guess, especially, right?

• 7:31Speaker 03

  Yeah, yeah. I mean, I think, you know, for Intersect, we've been the sort of, you know, cheerleaders. I've got the pom poms to show it for, for, you know, American manufacturing for, for some time. And so we have less risk in this regard. But, you know, I've often talked about how it's not just tariffs, it's, it's, it's sort of multiple agencies and parts of the federal government. You know, you've got the, the commerce and trade, you've got DOD and national defense, you know, all kind of coming at, in particular, the Chinese sourced equipment for renewable energy. So that's been happening for a while. I don't anticipate it to get any better under Donald Trump.

• 8:14Speaker 03

  To be quite honest, I've been quite shocked that it hasn't already gotten much. Worse with some of the day one threats against China. You know, I think, and as someone who has, you know, a pretty robust, almost entirely American supply chain, I guess, whereas under Biden, we would otherwise have gotten the the bonus credits in the IRA. I guess I'd be fine with falling back to just having the IRA being, you know, focused on American made equipment. And I think that's probably where it's headed. So, you know, my, my, my hope is that for our company in particular, we won't be that affected, but for the industry at large, it's going to be a big, big problem.

• 8:55Shayle Kann?

  So on the supply demand balance question, one thing that you and I have talked about before, I can't actually remember if we talked about it on the podcast or not, but is where PPA prices went over the years, right? And, and there was a time before, I guess, inflation really took hold here in the US where PPA prices were at record lows. And I think you were the one who was really ringing the bell of like, actually, this is too low. Like, we, we need PPA prices to be a little higher. They have gone higher since then, but that's been coincident with higher interest rates, which raises the cost of capital on projects anyway. So I guess I'm interested in your, your updated view.

• 9:36Shayle Kann?

  Are we in a, a good, steady state for where PPA prices are today? Do they need to go higher? Do they need to go lower? Like, what's healthy for the market?

• 9:44Speaker 03

  Yeah, I mean, I think when we, when we have talked in the past, you know, we've got $4 billion of assets that are running right now that are probably less contracted than, you know, than the average in the marketplace. We've got some open positions in ERCOT. We've got open positions in California. Those cut across different power products from energy to capacity to, you know, the wrecks themselves. So we're pretty sophisticated in terms of how we trade and risk manage for an organization of our size. You know, I, I think that. Right now, we've seen an evolution to longer term contracts because of these price points, right? So, you know, the prices are increasingly in a position where I think they are commensurate with the risk that people are taking. They are rewarding, you

• 10:28Speaker 03

  know, the entire value chain for what they're doing. I think a lot of why they've gone up honestly is because, as you say, the input prices. So you haven't seen, say, developer margins blowing out, right? I think developer margins are probably, you know, more stable than they were before. You know, we can talk a little bit about what developers were taking and what that has resulted in, in terms of like, there's a, you know, for a lot of developers in the marketplace, there's a lot of chaos going on right now. We could talk a little bit about that. But a lot of those people are in that position because they took on some of those lower price contracts and they can't deliver. So I think it hasn't so much been a windfall for developers, but it has stabilized the businesses, made them,

• 11:10Speaker 03

  you know, more, you know, sustainable. And then also just stabilized sort of the supply chain, particularly the American attributes of the supply chain. It's now possible to build some of the stuff in the US.

• 11:20Shayle Kann?

  That's interesting. So am I understanding you right that, okay, so the historical dynamic here was PPA prices back, you know, as, as the market started to develop, it was, or sorry, not prices, terms. It was like a 20-year PPA was standard. And then in more recent years, in part, I think, thanks to you, or you and a bunch of others, folks started signing shorter tenor PPAs, maybe 10-year PPAs or whatever. And then, as you said, you know, figuring out how to hedge or at least plan around the merchant risk on the tails. It's going to be a project that operates for 25, 30 years. And so you plan around what the, what the value is going to be in the, in the open market after those 10 years. But it sounds like you're saying now it's trending back toward longer term PPAs as prices have risen?

• 12:05Speaker 03

  Yeah, I'm not sure that tenors have, have, have really expanded beyond the 15. I mean, they sort of collapsed to 15. And we can talk about whether that was sort of, whether it was folks like us who were going for shorter tenor or not.

• 12:18Speaker 03

  I see it more like our move to sort of five-year deals or having a merchant slice that's totally open was almost a response to 15, right? If people are only offering 15, they're really saying, why don't you take a bunch of merchant risk on the way back end of this project, which is exactly when you don't want it, right? So in fact, the 15 years is kind of part of the problem and kind of part of what we were getting away from. So I don't necessarily see a return to 20-year deals. But it's more just the pricing on the 15 starts to look commensurate with something that can give you a reasonable return of capital on a risk-adjusted basis. You know, I will say there's kind of an odd thing going on where spot prices remain

• 13:02Speaker 03

  quite low, but PPA prices for 15-year deals are kind of floating up. And I think a lot of that's based on the fact that you've got CCAs and corporates and others, they know what their load is, they know how much they can pay and still kind of make money or make their customers and ratepayers deliver good rates. And so I think they're just not willing to, they're wanting to take that risk off the table, so they're willing to sign those 15-year deals, even though spot prices today are quite low. So there's a separation there that's a little bit strange right now. And that's been something we've been observing in the market.

• 13:44Speaker 00

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• 14:28Speaker 04

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• 15:09Speaker 00

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• 15:54Shayle Kann?

  All right, you mentioned corporates. Let's dive into data center world. Okay, so the historical norm here was I'm a big, I'm a hyperscaler. I'm Google, Meta, Amazon, sorry, whatever. And I build a lot of data centers. I have a lot of electricity demand. I want it to be clean. I build my data centers wherever, basically. And then I sign virtual PPAs for as much of that as I can. And then in more recent years, I try to hourly match those virtual PPAs such that it's as close to a 24/7 time-match PPA as possible.

• 16:32Shayle Kann?

  What I'm finding interesting is this trend that I think you are on the vanguard of here of this new wave of data centers maybe being co-located with generation. Happening certainly with natural gas as well, but you're pioneering it to some degree in part through this partnership with TPG and Google that you announced a couple of months ago to co-locate solar and storage with data centers. So I guess that I have a whole bunch of questions about this, but the first one is why co-locate? Like, is it about getting clean power to site? Is it about time to power? Is it about the interconnection woes? Like, what is the reason to co-locate?

• 17:10Speaker 03

  I mean, the story of what is necessary in the market for data centers and for all kind of digital and advanced manufacturing loads that are now growing so fast is a story of speed and scale. You know, that's something that it intersect. We've probably been one of the few providers in the market that's been really rapidly focused on those two things, right? Where can we provide really scalable 500-meg gigawatts scale, you know, plants quickly? And not sort of this kind of, you know, and then a miracle occurs development, right? Where you go in, you plant a seed, you sit on it for 10 years while you wait for a transmission line to get built. That's great.

• 17:52Speaker 03

  That's, that's, that's, if you have the patience and capital to do that, by all means, you know, I think there've been some great success stories there, but I'm not sure that as we move into this next era of power development, that that's really the solution set that a lot of these new loads need. So, you know, just maybe backing up to kind of the 50,000-foot view, it's not just data centers, right? We have these kind of three mega trends. You know, really, digitalization, we all know, you know, we can read every single newspaper about AI and e-commerce and everything that is driving data center demand. But then, the one that's been intriguing me lately is really electrification. And the electrification of load is not necessarily tied to decarbonization.

• 18:35Speaker 03

  This is something, you know, actually be fascinating to talk to you about more at length, but we're increasingly seeing, you know, Electrification, that is because the product is better, right? There are now better and better electric motors. There are better and better, you know, ways to make steel with arc furnaces. There aren't a lot of people building, you know, um, uh, a lot of this, this advanced manufacturing with, you know, co-gen units on site for thermal energy and things like that. We're moving to an electrified economy, not just because of decarbonization. Um, and then of course, there's the third trend, which is decarbonization, which no matter what policy environment you're in, it, you know, it, it's a real thing. It's a thing over the next few decades of our lives and our careers, and you can't put that down.

• 19:19Speaker 03

  So between those three things, you've got this huge growth of load that's unprecedented in my career. And then the grid is broken, right? Which is something to your point, we've been pointing out at Intersect for a long time, which means the load will have to come to generation. So for us, AI data centers are kind of, we thought maybe hydrogen would be first because of the supply side supports under the IRA. The demand just didn't materialize and now all of a sudden AI has just swept up all of the assets that we developed for, you know, behind the meter and co-located load for itself.

• 19:53Shayle Kann?

  But, but the reason to co-locate just to isolate it is the, the grid is broken thing? As in you are, I guess, maybe to put a finer point on it.

• 20:03Shayle Kann?

  Are you finding sites or do you expect to find sites where your addition of co-located solar and storage will enable either a data center that couldn't have been cited there otherwise because there isn't enough capacity on the grid, or it could be bigger than it otherwise would have been? Like this is a mechanism to get things cited?

• 20:23Speaker 03

  Yes, there are many of those sites where they can be bigger and get put in the ground faster than if you were to rely purely on a, a load interconnection to the grid. Um, you know, if you're, if you're a grid operator or a local government or a state government, you've got three problems with data centers, right? One, they jump onto your grid and they require you to pay for a bunch of, you know, essentially a load interconnect's a little bit different than a gen interconnect in most jurisdictions, where a lot of the load upgrades are paid for and socialized, right? So they require you to buy a transmission line for a hyperscaler and then everybody pays for it. That's one. Two, you know, do you have enough energy?

• 21:06Speaker 03

  Most places do. Most places have excess energy at most hours. And three, do you have enough capacity at the peak moments when the grid is really breaking down on you? Is the data center going to push you over the edge? And so I think, you know, what, what colocation can do, particularly when you bring either, you know, batteries or to some degree even, I mean, we're, we're working on, you know, gas fire dispatchable as well. Um, not combined cycle, that's silly. Um, but simple cycle, you know, combined with renewables. And when you bring all that together, you can answer kind of all three of those things, right? The, the, the gen interconnect ultimately often pays for the substation and things like that, because the generator interconnects usually have to pay for more of that. Um, the, the energy you've got plenty of behind the meter.

• 21:51Speaker 03

  And then the battery or the, you know, dispatchable load or the solar itself can, can relieve a lot of the capacity constraint. Um, and make it so that you're not contributing any. So from that standpoint, it, it, it's, it's the scale of being able to build massive projects. It's the speed of being able to bring renewables online. They're still absolutely the fastest form of generation to bring online in this country and will be for at least five or six more years. And then it's the speed and scale that also come through getting regulators and local communities to let you do this, right? Cause that I think is, is a huge hang up. We haven't even begun to look at the hang up that that is for brand new CCGTs and nukes and other things. But it's already a hang up for renewables. So why wouldn't it be a massive hang up for those?

• 22:37Shayle Kann?

  So obviously the, the extreme version of what you're describing is, is an off-grid data center, which has been much discussed, but not really done. What you're describing right now is grid connected, right?

• 22:50Shayle Kann?

  Do you think that that's a stepping stone? Like ultimately, this stuff should be off grid? Do you think there's ultimately that makes no sense whatsoever? Everything should always be grid connected? Is there some nuance to what the answer is situationally?

• 23:02Speaker 03

  I think it's all about if it makes sense for the grid in a lot of ways, right? If the grid in that location has some excess energy and they want to share it with the data center from time to time because, hey, you know, making money out of something that was otherwise making nothing is good for ratepayers. Or if they want to be in a position where, you know, potentially in an emergency, they can rely on the data center's battery capacity or dispatchable gas that's behind the meter, then, you know, grid connection makes all the sense in the world. But generally speaking, I think we're moving into an era where grid connection is optional and should be optional. And that, you know, we should be able to, you know, operate these things fully off grid if necessary. Now, I will tell you that a lot of customers still very much want the grid optionality, right?

• 23:47Speaker 03

  So they're gonna, they're gonna continue to, even if they go down the road of an off grid data center, try to pursue having the grid eventually come to that site just for insurance purposes. But increasingly, what we're developing for is an overlay with the gas grid as well as the power grid. So I'll give you an example. We've got two multi-gigawatt scale data center sites in the Panhandle of Texas. One of them's three gigawatts, one of them's over a gigawatt, single sites. And they're capable of being fully off grid if you want them to. They're on gas, they have, you know, multiple gigawatts each of wind and solar on site. You know, the ability to interconnect batteries for similar capacities.

• 24:32Speaker 03

  But they also have interconnection to the grid. So there's sort of this energy Disneyland that kind of can be all things to all people. But fundamentally, if you wanted to sever from the grid, you could.

• 24:41Shayle Kann?

  So operationally, for the ones, you know, the initial projects that you're developing in this mold where they are grid connected.

• 24:49Shayle Kann?

  Is the idea that the vast majority of the time the thing is operating, or at least the behind the meter generation is delivering all of the power that the site needs and it's pulling from the grid occasionally, is it more dynamic than that? And like you have a, I don't know, 60% capacity factor between your renewables and your storage. And so 40% of the time, you know, averaged out across days, you're the data center is pulling from the grid. Like, what do you think it looks like? What's the optimal? I mean, it's a question, really, it's an economic question, right? Like, you could overbuild to infinity on the solar and wind and storage side. And then, of course, you have enough energy, but sort of an optimal economic question, I guess.

• 25:31Speaker 03

  Yeah, I mean, I think that's what a lot of the folks that are sort of making this holy war between, you know, gas, renewables, nuclear, and don't understand is that there is a baseload solution that's like, you know, a little bit of a gassy renewables solution, if you will, where it's like, you know, you can go into the Panhandle of Texas, which is where these monster projects that we have are, and you can find yourself spots where you've got, you know, high 70% capacity factors of renewables. So, you know, 75 to 80% of the hours of the year, we can run fully carbon free with, you know, wind, solar and batteries, all on the same site. And then, you know, 20%, maybe a little over 20% of the time, we need to have some gas or we need to use the grid.

• 26:16Speaker 03

  That is, you know, the interesting thing about that is that is probably akin to the cleanest possible, you know, mix of renewables, maybe anywhere in the country other than California and Hawaii, right? So, so you're talking about, you know, when people say, oh, these data centers are bringing back coal or whatever, like, there are opportunities to actually make these data centers some of the most, you know, sort of clean powered industrial loads in the country. And to do it at costs that are actually probably the most competitive. If you go build a CCGT right now for $2,000 KW and, you know, like, you can't even find sort of like, you know, labor unions and pipe fitters and whatnot that have ever even built these things in many cases, right? You know, it's going to take five Six years and the first ones ain't gonna be cheap.

• 27:02Speaker 03

  You know, I would, I would put renewables and, you know, 12 heat rate recip engines for 20% of the time in against those CCGTs on cost all day. And, and we're effectively baseload as well. So I, I think that's what's being missed when people are like baseload resources, you know, the only way to do that is gas. Well, yeah, yeah, we need some gas, but just not the gas people are saying that we need.

• 27:27Shayle Kann?

  Have you seen any appetite for flexible load from these data centers? The other thing that people talk about a lot, but I've seen no evidence of it actually in action of like not basically operating the data center, anything other than 24/7. Is there any interest in doing that, whether for economic reasons, because you can offer lower, you know, electricity prices or emissions reasons? It doesn't really matter. Is anybody talking about actually doing that?

• 27:49Speaker 03

  So while power might be increasingly sort of sexy at cocktail parties because of AI, some things don't change. And, and, you know, one of those things is that we are still the, the tail of the dog, right? And, and, and, and we're not wagging anything. So when you think about the capacity factors on the capex themselves, right? Like let's, let's just take a gigawatt data center and I'm going to round to like the nearest, you know, whatever, uh, two and a half billion dollars. Okay. So, um, let's just say you've got a gigawatt data center, like the one I described that has wind, solar batteries, some gas, um, and, and, you know, that generation, maybe five, six billion dollars of power assets. Uh, you know, the, the data center itself,

• 28:34Speaker 03

  powered shell, maybe another two and a half billion, you know, built out, built a suit, takes you to 10 billion on the data center. So that's $10 billion structure of five to six billion of renewable as of power assets. And then, you know, $30 billion of chips. So, you know, every second you aren't running that at 100% capacity factor is enormous amortized cost, right? So that is just, it's one of those things where it's like, you'd be a fool to turn it down. You, you have to at some points because operationally, you know, there are things that you gotta do for maintenance or, you know, changing the way you're, you know, running your model or whatever it is that, that constrains the data center operation itself. But because the power grid is too expensive? No, never.

• 29:20Shayle Kann?

  You mentioned time to power as being one of the advantages of building renewables in part, but in general, it is, this is the, it's the term of art in this industry at the moment, certainly as it pertains to the intersection of data centers and power. What are you seeing there? Is there a, you know, is there a willingness to pay more? How much additional flexibility do you get if you can offer power in two years versus five, or five years versus 10?

• 29:50Speaker 03

  You know, I think it depends on who you're talking to. You know, up until about maybe nine, 12 months ago, no one wanted to even talk about anything beyond kind of like the prompt year, maybe 18 months out, right? Everybody was just so desperate for something right now. I think a combination of, one, they started to make some bigger bets and build a little inventory, and two, just the fact that they're starting to realize that it's not out there. People have begun to capitulate. You know, so for instance, for us, we announced as part of the Google deal that we would be bringing online a, you know,

• 30:29Speaker 03

  a very, very sizable data center in 26. So, you know, to be quite honest, that's sort of unheard of, right? And that that data center is going to have a colocation element to it. So, you know, while you might have Stargate with its first phase coming on out there, you know, in Abilene or wherever it is, that can come on quickly, that's most of the, even the big stuff is load, you know, load served from the grid right now. So, I think our projects will be some of the first, you know, very, very large scale, you know, co-located assets, and the first of them will be 26. And then those, those monster 3 gigawatt and 1 gigawatt systems out in the panhandle, you know, the first gigawatt scale phases of

• 31:14Speaker 03

  those can come on by end of 27, early 28. So, we are sitting on some stuff that could come on very, very rapidly. But a lot of that's because of the work we did on kind of how we interconnect. Our hydrogen loads, so we have some pretty bespoke interconnection configurations, both technically and commercially, that others I think are gonna... Look, it's not rocket science. People figure it out. You get enough regulatory attorneys and like smart commercial people, you'll get there. But I think we're a ways ahead of a lot of folks. And that's a lot of what will dictate speed to power.

• 31:59Shayle Kann?

  Yeah, it's interesting. It's a flip side of another thing that I've noticed, which is there's certain groups that have benefited from... It's not exactly luck, but they were working on something else and then happened upon a gold mine, basically, when this happened. So in your case, it is you were developing megasites for hydrogen production. And because you were already developing those megasites, you had a step ahead of everybody else when it turned out that we need a gigawatt or three gigawatts at a single location to build data centers. The flip side of that were the Bitcoin miners who were building sites that were load sites. And they were the ones who were

• 32:38Shayle Kann?

  early to looking for large capacity on the grid that you could site a data center at. And so this is where, I mean, Crusoe is a good example of this, speaking of the Abilene data center, right? Like, they were developing data centers for Bitcoin mining, and they had sites. And it turns out that's actually, that's the coin of the realm at the moment. And so now you get to flip from being a Bitcoin miner to being an AI data center developer, and you're a step ahead. So it's a matter of being in the right place at the right time, I suppose.

• 33:09Speaker 03

  Yeah, I mean, and not only are you now exciting at parties, but you're also more socially acceptable somehow. That's not true, actually. I mean, with crypto now, I think we've released the stigma in the administration. We're back. But yeah, I mean, look, we've been talking to folks on the crypto side for a long time. We were actually looking at a crypto deal that was frankly nixed by one of our banks years ago. And all of our

• 33:39Speaker 03

  Actions with the crypto folks, um, almost universally, I'd say, uh, that the reputable players in the space are some of the smartest and most creative people I've found in the power market. So, you know, we, we, we, I think, you have, share a lot of DNA. Um, they're entrepreneurial, they're, you know, uh, you know, developers like, like we are, they understand the rules, but they also, you know, see the rules as, you know, things to find creative ways to work within. Um, and, uh, and so, yeah, I mean, the, I, I would, I would definitely like, look, the last thing we are is, is, you know, uh, gonna sit here and tell you that we knew exactly what was gonna happen. I do, I do think that like, if you look at what we were writing and saying, hydrogen was the first of many things we were preparing for.

• 34:26Speaker 03

  I think the thesis-

• 34:28Shayle Kann?

  You talked about direct air capture and yeah, I remember.

• 34:32Speaker 03

  The thesis that the grid is broken and that, you know, in the case of what I've written in the past, you know, climate loads in particular, clean, clean steel, direct air capture, all of these things. If we were going to proceed with the climate policies of the prior administration or the path it looked like we were going down, would, would require enormous amounts of kind of co-located generation. Uh, you know, that thesis proved to be durable, just I think because it was based on some pretty, um, basic insight. You know, somebody, somebody asked me, uh, the other day, a similar version of this question, which was like, oh, it looks like you guys were, were pretty prescient on the, uh, on the, uh, uh, you know, behind the meter co-located stuff. And I said, like, no, you know, uh, really all it is, is like, we just, we just, we just decided that a miracle wasn't going to happen.

• 35:18Speaker 03

  And then did like the only, the most obvious thing you could, right? And so like, if, if, if deciding that you don't believe in miracles is the prescient thing, then I, yeah, I guess, I guess, uh, I guess that's what we are. But, uh, may one last comment, maybe it's karma too, Shell, uh, because, you know, we were in that like heavy fistfight with a lot of people in the industry about whether or not hydrogen should be co-located and time matched and, you know, and a lot of people wanted to, you know, we could have just as easily developed it on the ship channel with, you know, VPAs from West Texas and we didn't. And, um, and yeah, now we are benefiting from, from how we chose to develop it. So, you know, maybe, maybe, maybe there's a little karma in the world.

• 35:59Shayle Kann?

  You're getting paid in a different way.

• 36:02Shayle Kann?

  Has there been, so we're recording this, what, like three weeks past the public market meltdown of DeepSeek? Has there been any, have you felt any impact whatsoever on market demand for large-scale centralized data centers since then? Or was it a, you know, a brief public market overreaction? Jevon's paradox immediately took hold and we're right back where we were?

• 36:26Speaker 03

  Yeah, I mean, it kind of amazes me how little sort of critical thinking there is in the flow of, you know, hundreds of billions of dollars in our economy, right? I mean, like, it's, the first question I had was like, is this even real? Right? And turns out it kind of isn't.

• 36:47Shayle Kann?

  It's real. Oh, DeepSeek, you're saying?

• 36:49Speaker 03

  Yeah, DeepSeek. I mean, it's a distilled model, right? I mean, like, so great, you can make an energy-efficient model as long as the totally not-energy-efficient version of it came before. Like, so like, distillation is a real thing. I'm not an engineer in AI, but like, you know, the whole, the whole strategy of Apple, for instance, when I've sat with folks from Apple on the AI side, is basically distillation. We'll take very powerful models, we'll distill them down by sort of like, effectively kind of, you know, generalizing the nodes to make them almost as intelligent, but not quite. And then we'll just do inference locally. And, and that's kind of how, how we'll play the

• 37:28Speaker 03

  game on lower, lower-power equipment. And, and like, so there's that first, right? I think people, people have to understand that a model is not a model is not a model. Again, I'm not an engineer, but the engineers I've talked to since the DeepSeek announcement have, have made that pretty clear to me. Secondly, like, here's, here's China, right? China is an economy that is locked in a sort of mortal battle with the United States over AI dominance. Its incentive is, it's got to put out a model, right? It has to, it has, needs a public relations win that says it has a model that's as powerful as ChatGPT, Gemini, et cetera, right? But it also can't tell the

• 38:12Speaker 03

  World that the United States chip embargo is completely toothless and isn't doing anything. So kind of, of course, the press release is, yeah, we have a model. It's as it's as powerful and it doesn't use any chips, you know. I so I guess that's the first place I go, which is just like, it's it feels a little bit like BS to me. But let's let's just take it at its face value, though, that it is real.

• 38:37Speaker 03

  You know, the fundamental question I have is awesome. So, you know, what that means is that every megawatt hour of power can produce more intelligence. I don't I don't understand why you like, why you would use less now, right? Jevon's paradox.

• 38:55Shayle Kann?

  That's the Jevon's paradox, right?

• 38:56Speaker 03

  Like, like, you know, can it? Is there some reason why this model is very efficient and also can't be made smarter by putting more power into it? Because if that's true, yeah, then we have a problem. But like, it's it's not.

• 39:09Shayle Kann?

  I think the the narrative has quickly turned back to Jevon's paradox story of like, great. This is more efficient. We're going to use more of it and or we're going to use the same amount of it and get more out of it. I guess that's a better way to put it. The only counter argument to that that I see, and it's not really a great micro argument, but it is a macro historical one, is is what happened with power use efficiency in data centers over the past 20 years pre-AI, where efficiency just kept improving such that the overall power load of compute stayed relatively flat despite the fact that we did do a whole lot more computers. We were shifting to the cloud. So like, that was happening.

• 39:52Shayle Kann?

  And we sort of generally believe this time around is different. We are going to see significantly more power demand from compute, largely from AI now. And so we're going to we're going to break this cycle of efficiency equating to load growth, or I guess equating to demand growth for compute over time. And so I think that is what you have to believe. Everyone seems to believe it with a few exceptions, but it does stand to reason to me. That, look, the first major, again, to your point, like, let's assume DeepSeek is real at face value, that the first big efficiency step function improvement in these models is immediately gonna,

• 40:35Shayle Kann?

  should immediately decrease our forecast for electricity load growth. Like, all of a sudden, we're gonna, you know, we had already found the ceiling, and so now the ceiling is just lower. That seems unlikely to me.

• 40:46Speaker 03

  Yeah, I think, first of all, we should have like a source off on the kind of like, did data center, did data center load flatten? Because we were, you know, even four years ago, when we were looking at kind of like, load growth for the original, like, nexus of deep decarbonization articles and things that I wrote, like, you were still seeing data center, you know, load growth, just purely for like e-commerce and basic machine learning and things that were, you know, pretty significant, way, way more significant than, you know, electricity load growth in any other sector. So, you know, easily double-digit, you know, kind of, kind of load growth. So, I think, on a very substantial base, right? So, anyway, so I do think that there's that, that we have.

• 41:30Speaker 03

  It never really flattened out. But I think the other thing to keep in mind is like, what was that load growth fueling, right? A lot of that was commerce, e-commerce, web traffic. And I think a better analogy is to look at storage instead of compute, right? Storage is something that just, just goes, you know, like, like, there's, we seem to have it unbridled first for how much we want to store. And, you know, a lot of it's garbage, but a lot of it gets stored, right? And so I do think that there are, like, AI may scale more like that. The reasons for that are a couple of things. You know, commerce and the internet are limited by the number of people that have access to the internet, right?

• 42:14Speaker 03

  So when people looked at like, how does the internet economy scale? Whether it's fiber or data centers or Google's, you know, revenue for ads, they always looked at like, how many people have access to the internet, right? That was like a big statistic for a long time. And, you know, when Africa gets access to the internet, it's gonna be bonkers, right? Well, yeah, yeah, but, but, but now we're talking about something that creates load recursively, Shil. That's the thing, right? So, Apple's trying to convince me that they don't need a data center strategy or an AI, sorry, a big, like, big model AI strategy, primarily because they don't have one, I don't think. And, and, and this, and look, I'm not, I'm not throwing rocks, I'm, I'm, they probably have a lot, but the reality is that they're telling me, look, our strength is, you know, put it on the,

• 42:59Speaker 03

  put the smaller L L M on the phone, but the, the problem with that is that the smaller L L M on the phone is built to only do a couple of things. It'll like, check the weather, you know, it'll, it'll, it'll, it'll listen to you and hear your words and it understands you better, but then it's gonna launch a thousand ships, right? Every smaller distilled L L M that is power efficient, doing inference, is gonna launch thousands of queries to bigger, more capable models that can actually reason their way through buying something on Amazon and reason, so it's almost like increasing the world's population by billions of people who all will want to browse the web and engage in, you know, e-commerce transactions.

• 43:39Speaker 03

  So, you know, forget when Africa finds the internet, when, when, when the machines find the internet, they will be its biggest user by orders of magnitude. And so that's really where I think, you know, in the early days of, of AI, you know, two years ago, in the early days of the hype, there was this like, wow, you know, you, you as a power guy should be thinking about training only, because it's the only way that anybody's gonna put a big data center like that in place. I think now what we're seeing is that inference in the aggregate is actually probably a much larger draw than the training in the long run.

• 44:16Shayle Kann?

  When machines find the internet is really, it's like, hard for me not to have Skynet in my head, as you say that, but it is, it does evoke a, a, a strong image.

• 44:27Shayle Kann?

  All right, man. I know you have to catch a flight. This was illuminating and interesting as always. I'm super excited to see you put like massive data, co-located data centers with renewables online in the next, I guess, year and a half or something, if you're going to get something online in 26. So it seems like you've got to get to work.

• 44:47Speaker 03

  Yeah, we're, we're in the middle of project financing about $9 billion of CapEx right now. And next year, if we, if we sign these two deals we're negotiating, we'll probably be bigger. So it's, it's, it's a terrifying, but also exciting time. So thank you very much for having me on.

• 45:07Shayle Kann?

  Yeah, appreciate it.

• 45:10Shayle Kann?

  Sheldon Kimber is the CEO and founder of Intersect Power. This show is a production of Latitude Media. You can head over to latitudemedia.com for links to today's topics. Latitude is supported by Prelude Ventures. Prelude backs visionaries, accelerating climate innovation that will reshape the global economy for the betterment of people and planet. Learn more at preludeventures.com. This episode was produced by Daniel Waldorf. Mixing by Roy Campanella and Sean Marquand. Theme song by Sean Marquand. Stephen Lacey is our executive editor. I'm Shayle Khan, and this is Catalyst.