Five big questions emerging from the OBBB

The One Big Beautiful Bill (OBBB) complicates things. Together with a related executive order, it dismantled key parts of the Inflation Reduction Act, while also injecting uncertainty into tax credit eligibility. The uncertainty in particular throws a wrench into project planning and leaves big questions about the impact across climate tech. So what do we know about the complexities of the new policy landscape? And what questions still need answers? In this episode, Shayle talks to his colleague Andy Lubershane, partner at Energy Impact Partners and the firm’s head of research. They cover five topics: The foreign entity of concern provision and why Andy calls it the biggest unresolved issue Safe harbor and under construction guidance Tax credit disparities in coming years — tax credits for nuclear, geothermal, and CCS, not solar and wind — and how that might alter the generation landscape Hydrogen’s extended tax credit timeline, and how much will get built EV tax credits and their impact on both personal and commercial vehicles Resources: Latitude Media: The GOP megabill will reshape the tax credit transferability market Latitude Media: Congress just reshaped the solar industry. Here’s what comes next Latitude Media: How OBBB will impact the power grid Latitude Media: With help from Chris Wright, geothermal is spared in the budget bill The New York Times: Ford Says Battery Plant’s Tax Break Survived Republican Attacks 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 Anza, a solar and energy storage development and procurement platform helping clients make optimal decisions, saving significant time, money, and reducing risk. Subscribers instantly access pricing, product, and supplier data. Learn more at go.anzarenewables.com/latitude. Catalyst is supported 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.

• 0:02Speaker 00

  Latitude Media, covering the new frontiers of the energy transition.

• 0:08Shayle Kann?

  I'm Shayle Khan, and this is Catalyst.

• 0:11Shayle Kann?

  I think you can make a case that solar, in particular, would be relatively robust to an expiration of the tax credits. But I think that the semi-existence of tax credits really complicates things.

• 0:27Speaker 02

  It's cliche to say it, but like, you know, capitalism loves certainty, and that's like, I completely agree with you.

• 0:33Shayle Kann?

  Coming up, the wonkier questions that emerge from the one big, beautiful bill.

• 0:48Speaker 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? Gridbeyond is the end-to-end solution for flexible energy management. Gridbeyond's advanced DRMs 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. 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,

• 1:32Speaker 00

  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 antenna group.com.

• 1:45Speaker 03

  The power plant for the modern grid isn't a building. It's a network. Energy Hub's DRMs platform connects batteries, EVs, thermostats, and commercial and industrial sites into virtual power plants that over 230 utilities dispatch as reliable grid capacity day in, day out. VPPs deploy in 60 to 100 days at 40% to 60% less cost than traditional infrastructure, and they perform like conventional generation from day one. Learn about the flexibility platform for the modern grid at energyhub.com.

• 2:21Shayle Kann?

  I'm Shayle Khan. I invest in early-stage companies at Energy Impact Partners. Welcome. Well, the O triple B, as I guess some people call it, has passed. And like the original Inflation Reduction Act itself, it contains a lot. So rather than speculating at the high level about every sector it affects, what I thought we should do here is pull out a few of the more nuanced questions that I think fall out of the legislation and talk about what they might portend for the various markets that are affected, from batteries to wind to solar to hydrogen to CCS. And as usual, my partner in prognostication for this one is Andy Lubershane, who is my partner at EIP and our head of research.

• 3:05Shayle Kann?

  So before Andy and I get into it, I'm hosting an Ask Me Anything episode coming up. It's, I think, the third or fourth of these that we've done. I will attempt to answer as many of your questions as I possibly can. We've actually already gotten a bunch of really good questions, so thank you for sending them in. Please keep them coming. Email us at [email protected]. That's [email protected]. Episode will be soon. And in the meantime, here's Andy.

• 3:32Shayle Kann?

  Andy, welcome.

• 3:33Speaker 02

  Hey, thanks, Shayle. Always great to be back on Catalyst.

• 3:36Shayle Kann?

  Speaking of being back, I had, as you know, our mutual friend Nat Buller back on a few weeks ago to talk through some interesting utility tariff finding stuff and utility docket stuff. And he pointed out to me, both there and then publicly thereafter, that he thinks he's the most frequent guest on Catalyst, beating you out as number two. Recently, I wonder how you think about that?

• 3:59Speaker 02

  I heard through the grapevine that Nat was boasting about that. And I just want to set the record straight that if you include both Catalyst and your prior podcast, The Interchange, I think I win hands down. Although I will say, like, it's clearly not a fair competition, just because I think I have the home court advantage. You have me on speed slack. So.

• 4:25Shayle Kann?

  It's true, though you get a lot of credit for the the deep cut of the previous iteration of this podcast. Anyway, let's just we'll use this one to to one up Nat for you.

• 4:35Speaker 02

  I needed it.

• 4:36Shayle Kann?

  Yeah. All right. There's so much to talk about on this. Okay, first of all, what's your shorthand for this bill? What do you? What do you call it when you're just like in conversation? I've heard people say O triple B, OBBB, the beautiful bill, the budget bill.

• 4:47Speaker 02

  I haven't had to refer to it in that many times. Like I OBBBA, but that's too long.

• 4:51Shayle Kann?

  Too long.

• 4:53Speaker 02

  Yeah.

• 4:53Shayle Kann?

  The bill. Should we just call it the bill?

• 4:55Speaker 02

  The bill. Let's call it the big bill.

• 4:57Shayle Kann?

  All right. There's a lot to talk about on the big bill as there was with the IRA in the first place when it passed. And this this bill is mostly changing the IRA, at least as it pertains to the stuff that that we're going to talk about here. But I think what we want to do, rather than opine at the really high level, is just focus in on some areas that we think are the biggest, most important open questions that emerge from the bill. So we're going to run through five of them that you and I identified before. Let's start with the first one. I'm going to call this one what the FIAC. So FIAC restrictions abound in this bill. Talk me through, I guess, at the high level, the FIAC restrictions, like where do they come into play? And then your high level view on what it means?

• 5:41Speaker 02

  I think FIAC is the biggest question mark because it's so omnipresent. You know, it cuts across like the the the three most important categories, at least in my opinion, of of the tax credits that are being modified here. And those are the ITC and PTC for renewable projects and storage projects. I mean, deployed projects, that is. And then the manufacturing production tax credit, the 45x, all of which are subject to slightly different versions of FIAC restrictions, which, you know, very simply, in my mind, I'm just thinking about as, you know, you can't buy stuff that is originating in or controlled by companies

• 6:23Speaker 02

  in China, basically. It's more complicated than that. I'm sure lawyers would jump down my throat and point out all the the nuance there. But that's the basic gist of it, as far as at least as far as I think I need to understand.

• 6:37Speaker 02

  And you know, that has really different impacts across each of those categories. Right. So for wind projects, it's not a huge impact because it's very easy to source components from non-China sources. There's plenty of wind turbine component manufacturing in America and Europe, et cetera. Not a big deal. Although, you know, wind has other troubles in the, in the, the big bill. For solar and battery storage, it's, it's more complicated. Right. I think, yeah. And, and then for manufacturing, I think it's probably the most complicated.

• 7:10Shayle Kann?

  For solar projects, I think it's manageable largely because the supply chain has already moved outside of China. This is where we get into the nuance of it, right? Like, we're already not really buying solar panels from China. We are buying solar panels that have wafers from China. We are buying solar panels from companies that are based in China, manufacturing in Southeast Asia. And so the nuances of all the FIAC restrictions get really complicated there when it comes to solar projects. I think on solar manufacturing side, it seems more clearly a challenge.

• 7:44Speaker 02

  Yeah. For solar projects, I think, I agree. I think we're pretty much fine when it comes to FIAC. Like, I think most solar projects already can figure out a way to avoid that restriction. Mainly because, like you said, we've already, the solar industry has already been avoiding companies and sources that are associated with China or that have already been found to be, you know, circumventing tariffs on China in certain Southeast Asian countries, for example. And it sounds like, you know, everything I'm hearing and reading is that the global solar industry has done a pretty good job already diversifying to India and some, some other countries in South and Southeast Asia.

• 8:24Shayle Kann?

  Yeah. And there will probably be more of that. And there are new tariffs that could be introduced separate from this. There's an ongoing ADCVD case, anti-dumping case on a bunch of Southeast Asian countries. Like, it's, you know, the solar supply chain has gotten increasingly messy and complicated. But the fact that it has already been somewhat messy and complicated in some ways insulates us a little bit from the, basically the battery equivalent, which we're going to talk about in a second, which is where the introduction of the FIAC restrictions in this bill, the, again, FIAC being foreign entity of concern, which basically means China, present a unique challenge. I think there's a challenge in solar, but it doesn't seem like it's like.

• 9:07Shayle Kann?

  It's not the the end all be all because the solar supply chain has already been spreading out.

• 9:12Speaker 02

  Yeah, I agree with the exception potentially for solar manufacturing, like you noted, in which the one area in which the solar supply chain has not become a lot more flexible yet is in ingot and wafer manufacturing. In fact, like, if you look across all of the areas of clean energy that we care about and everything that the IRA was focused on, you know, I think ingot and wafer manufacturing is actually probably the most concentrated of of all of those like supply chain steps in China still. And from what I can gather, you know, that's okay today, right? If you were to start up a new solar cell manufacturing

• 9:56Speaker 02

  facility in the US today, you could probably qualify even buying wafers from China, right? Because, you know, together in the ingot and wafer manufacturing steps are like ballpark somewhere around a third of the cost of a complete cell. And you only need 50% non-FEOC components, you know, start starting in 2026. But by 2029, you need 85% non-FEOC components. And so that could present a problem, like, if you were still reliant on Chinese wafers by that point.

• 10:30Shayle Kann?

  Right. And and that gets to this, I guess, this bigger thing, which is going to be the segue into talking about batteries here, which is on the manufacturing side, right? So the big thing about the IRA was that it it brought with it this boom in planned domestic manufacturing of solar, as you said, lots of solar cell and module stuff, but I think even more so of batteries and battery components. And that was driven by like this combined carrot and stick approach, where you had tax credits for the ultimate consumption of a thing that were that were tied to either Fiat restrictions, or in the case of batteries,

• 11:11Shayle Kann?

  complicated stuff around friendly countries and so on. But then also the carrot on the manufacturing side, which is really the bigger one, which is the tax credit for the manufacturing itself. And so there is this incentive, but a lot of that manufacturing is not has not been stood up yet. A little bit of it has. But a lot of it hasn't actually been built yet and was planned. And so the question is, what happens to all of that? Manufacturing in light of the changes to the IRA, which sort of remove or at least place an early sunset on a lot of the demand side incentives, the EV tax credit, for example, or the ITC PTC for solar and wind, which expires earlier than it would have in the IRA.

• 11:54Shayle Kann?

  But on the other hand, keeps 45X, which is the manufacturing tax credits all the way through the early 2030s. So you still have, but of course introduces FIAC, right? So it's like a very complicated equation to determine, is it still worth it to stand up your new, I don't know, battery cell factory in the US?

• 12:17Speaker 02

  It's super interrelated, and that's why it's so hard to parse. But I actually think that battery manufacturing, simulating battery manufacturing, in my opinion, is probably the most important thing that the IRA was trying to do when it comes to making clean energy manufacturing overall more robust and less subject to geopolitical risk intention in the US. And so I think it's worth starting at the beginning, which is like, can you comply with these FIAC restrictions and make battery cells in the US? And it's tricky.

• 13:01Speaker 02

  I think there's some real uncertainty there, and it really depends on the kind of batteries you're making. Because especially if you're making NMC cells, so the more expensive cathode material cells, then that cathode active material can be like roughly half the cost of a cell. Now, there is supply outside of China. There's some relatively minimal supply of that material today coming in out of the US, with some more on the way. But if you add up that cam, the cathode active material, and then anode material, which is much more concentrated in China, that's graphite anode powders,

• 13:45Speaker 02

  which is another, say, 10 to 15% of the cost of a cell, then it's hard to comply with FIAC if you were buying those materials from China today. Because right out of the gate, starting in 2026, you need 60% non-China.

• 14:04Speaker 02

  Components in your battery cells. And so you're going to need to find another source probably of cathode materials. And again, you know, today, that's it's it exists outside of China, but the market is more limited. And so, you know, at the very least, you could see that make it more expensive to produce battery cells in the U.S. And, you know, there could also be just pure bottlenecks on supply if you were trying to ramp up a bunch of new cell manufacturing all at the same time, which, you know, we can talk a little bit more about when I think when we get when we get to EVs. But I am still pretty confident in the fundamental trend of electrification of vehicles, even in the U.S.

• 14:47Speaker 02

  And I think there are still some pretty good signals, pretty strong signals that battery manufacturing is moving forward. Just to give you like one quick anecdote, our colleague Bryant E. Bright, who heads up our research and commercialization efforts at EIP focused on on electric mobility, he sent me an article earlier today about about Ford. It was in the New York Times that Ford has basically said, we're moving ahead with this $3 billion battery plant in Michigan where they're licensing lithium iron phosphate technology from CATL, the Chinese battery giant. And they they claim in the article that they'd been in contact with the administration frequently

• 15:29Speaker 02

  throughout the drafting of this bill, and they believe that they have a pathway to you know, to complying with the Fiat rules. And and I guess I'll add one more point. This is, I think, illustrates how the architects of the IRA, especially around battery manufacturing, were being pretty clever in that they were really trying to insulate the way that they were rolling this out from political risk. And, you know, that Ford plant, for example, is in a county that President Trump won by 56%. It's going to be serving battery cells to two new EV facilities in also in red districts,

• 16:13Speaker 02

  I think in Kentucky and one other state that reliably votes Republican. So there are a lot of jobs now on the line in, you know, in Republican supporting counties that are dependent on these EV battery plants moving forward.

• 16:30Shayle Kann?

  Well, I'll tell you one thing about this whole FIAC fiasco, so to speak, which is it's great for lawyers. It's going to be, there's just going to be so much to do to determine compliance, to set up a supply chain for compliance. Great situation for the lawyers. All right, let's, let's move on from the FIAC bit. I mean, it's still relevant to everything else that we talked about. As you said, it's sort of, it lays above a bunch of the other credits. Well, let's talk about the other thing that, that I think is a big open question. Certainly, we're sitting in a 45 day period right now, we're in the midst of it, where there is a big remaining open question, which is around the wind and solar, ITC, PTC, the tax credits

• 17:11Shayle Kann?

  for wind and solar, where the rules are set in the bill such that you can commence construction by the end of 2026 and then not be subject to a restrictive placed in service date. And so per the historic precedent of the definition of commencing construction, there's a couple of different ways that you can go about doing it. You can, you can begin groundwork and so on. But a lot of people would also do what's called safe harboring, which is to buy some of the equipment, 5% of the cost worth of the equipment that allows you to safe harbor and then consider yourself to be in construction. And then you can have

• 17:52Shayle Kann?

  a few years to, to then begin operation. Important, of course, because wind and solar developers don't necessarily control the timeline under which they can enter operation. That is a function of interconnection amongst many other things, which is tough to predict. So that is the bill that passed. Then, of course, there's an executive order that came right afterwards that says that Treasury basically needs to go look at the rules for safe harboring and commence construction amongst other things, and presumably take a more aggressive stance on those. So we're not, 45 days haven't passed yet. We don't know what those rules are going to come out to be. And so we're in this really weird

• 18:35Shayle Kann?

  limbo period right now. And I've spoken to a bunch of developers about this too, where like,

• 18:42Shayle Kann?

  Clearly, you want to get as much of your pipeline into quote unquote "construction" as possible, as quickly as possible. But how to do that and what will definitely qualify is uncertain. So it results in a kind of a strange, I think, outlook for the next two, three, four, or five years of wind and solar, maybe particularly solar, where historically, whenever the tax credits would be about to expire, you'd see a boom. And then if the tax credits seemed like they were going to expire, there'd be a bust right afterwards, and then the market would kind of cycle and it would come back. Here, there's so many mini boom and bust possibilities that I actually don't know how to frame it, right?

• 19:25Speaker 02

  Yes, yes. I mean, I started really like my career focused on renewables and clean tech, looking as an analyst covering the wind energy industry. And I remember like the first boom bust cycle I lived through was 2012 to 2013, where we went from like 12 gigawatts of wind bill because in 2012, when everyone was expecting the tax credits to expire, and then nothing basically in 2013. It was, it was the steepest drop really possible. I don't think we're going to see that again. But this is probably the biggest area of uncertainty, and it's not really because of the bill, it's because of this executive order and associated reporting around that

• 20:10Speaker 02

  executive order, which suggests that, you know, Treasury is going to be pretty aggressive in terms of redefining start of construction and safe harbor rules. And so I think for the 45 days until we have clarity there, and hopefully it is only 45 days, I don't think that much happens. I think people kind of sit on their hands. And then after that, if the... If the rules are anywhere close to what we've seen in the past for safe harbor, where you can spend 5% of a project cost and continuously make progress, then I think we see a lot of the biggest developers who have balance sheets to buy, to safe harbor those components like inverters or modules,

• 20:55Speaker 02

  and also who have enough visibility and enough diversity in their project pipeline that they know there'll be a project to eventually put them into, which favors the bigger, more well-capitalized developers, by the way. But that's just one other side effect of this. I think we'll still see probably another three, four years, well, past 2017, of pretty solid, consistent wind and solar additions. Because previously, the bottleneck has been interconnection. Like you pointed out, it really hasn't been demand. And especially if they continue to qualify for the tax credits, the economics still look really good.

• 21:37Speaker 02

  I think there is also just an open question in the market that we're in today. And I want to be careful about this because the tax credits clearly matter. They make a huge difference to the economics of a wind or solar project. But it's not clear how that much they matter to the near-to-medium-term opportunity to build more wind and solar because of the demand conditions that we're seeing out in the power market.

• 22:12Speaker 00

  For data centers, connecting to the grid quickly means two things: building distributed energy and having a plan for demand flexibility. GridBeyond helps with both. GridBeyond's Terms and VPP platform unlocks the potential of distributed assets and dispatches flexibility into the right market at the right time. And this is more than software. GridBeyond supports developers every step of the way. From modeling your highest ROI energy mix to orchestrating the full set of assets around a data center, the track record speaks for itself. GridBeyond manages over 1,400 sites and more than 3.7 gigawatts of load across Europe, the UK, and the US. Learn more at gridbeyond.com or click the link in the show notes. If you work in energy or climate,

• 22:56Speaker 00

  you already know the company's Antenna Group has helped build. For three decades, they've been the communications and marketing partner behind the industry's breakout companies, category creators, and market leaders. Today, their team is working across the most consequential areas of the energy economy, from data centers and grid modernization to nuclear, geothermal, storage, critical materials, and next-generation technologies. Antenna helps ambitious companies become the names everyone in the market knows, trusts, and wants to work with. They build reputation, elevate executives, drive demand, and turn momentum into market leadership. If your company is ready to lead its market, Antenna is ready to help you get there. Visit antenna group.com.

• 23:38Speaker 03

  When you harness the power of millions of DERs in a VPP and put artificial intelligence behind the dispatch, the outcomes exceed conventional generation. Energy Hub's DERMs platform has been trained on years of real dispatch data from over 2.6 million DERs, so utilities can plan with confidence. That means consistent load reduction across a four-hour event window, even during the widest, most uncertain peak periods. Utilities target, shape, and verify capacity down to the meter. Unlock flexible capacity that costs 40% to 60% less to deploy than traditional infrastructure in a fraction of the time it takes you to break ground on a peaker plant. Learn more at energyhub.com.

• 24:21Shayle Kann?

  I think you can make a case, and many have made the case, that solar, in particular, would be relatively robust to an expiration of the tax credits. But I think that the semi-existence of tax credits really complicates things. Like, if you just absolutely eliminated them overnight, the market would see a shock, and every project would get repriced. Some projects would die. The market would have to adapt, and then it would end up at the size it ends up at, right? And it probably wouldn't be as big as it is with the tax credits, but it also wouldn't be zero. To me, the trickiest thing is if we're entering this period wherein some projects

• 25:05Shayle Kann?

  will qualify for a substantial, like it's 30% tax credit, if you still get the, you know, domestic content bonus, coal communities, et cetera, like you can get, they're big credits. So some projects will have that and some projects will not. And that, to me, actually might be more of a risk to the overall scale of the market than if you just had certainty, one direction or the other.

• 25:29Speaker 02

  It's cliche to say it, but like, you know, capitalism loves certainty and that's like, I completely agree with you. I was looking at some, just kind of some basic math a couple of days ago, just to get, you know, get myself, make, give myself more confidence in, in what I thought would happen with wind and solar. If, let's say, there are highly restrictive new safe harbor rules that make it really hard to qualify. And so basically like 2027 is the end. And I think like, if you have solar wind at $25 a megawatt hour today, which is feasible, those are good wind and solar projects, but

• 26:09Speaker 02

  maybe not even the best. And you, you take, that's with the ITC or PTC in the case of wind, and you take away that subsidy, you probably go back up to, you know, $40 to $45 a megawatt hour in both cases, you know, according to a bunch of different sources and people who've really crunched these numbers with like really sophisticated cash flow models, right? And, you know, that, that is a big difference because at $25 a megawatt hour, you are less than the marginal cost of natural gas generation. So you can build those wind and solar resources solely, and you'll make money solely off the avoided

• 26:53Speaker 02

  cost of burning gas at existing natural gas power plants. Whereas at $40 to $45 a megawatt hour, it's not so clear. You're closer to the line, you know, it's harder to compete straight up with, with gas. You really need, you need to want that energy as an additional resource, not just to offset gas you're already burning. And I think that's probably where the, where the line is in the market and why you will see lower. Deployment, but still not, it's, you know, I don't, I don't exactly know how to, you know, bet on the market, but there's still a market there. It's just, it is less if, if the tax credits really go away in 28.

• 27:31Shayle Kann?

  So that's a good segue to topic number three, which is, you know, you're referencing solar wind versus natural gas. Now, the other category here are other forms of clean energy that did not see their tax credit expiration dates moved up. So specifically nuclear, geothermal, and I guess you could include carbon capture, which retains its credits for a longer period of time as well here. So, you know, again, it's hard to predict how this goes without knowing exactly how long solar and wind projects will still have the tax credits. But they're, assuming that this version of the law holds, there will be some period

• 28:12Shayle Kann?

  of time, starting later this decade sometime, when nuclear, geothermal, and CCS projects will get tax credits and solar and wind projects. Oh, and by the way, storage projects also will get tax credits and solar and wind will not. So in your mind, does that change or does that significantly change the calculus for, I don't know, the volume of nuclear and geothermal we build and over what time period?

• 28:39Speaker 02

  Yeah, I don't think it changes my calculus within the next five years because I think for pretty much all three of those resources, nuclear, geothermal, and then, and then carbon capture, gas with carbon capture and sequestration, which is the other, the other one that, you know, continues to get, get subsidized. You know, I, I think all of those, like nuclear in particular, obviously takes longer to develop. I don't think we're going to see, we might see a little bit, you know, in the 2030, early 2030s timeframe, but I think for the most part, we're talking 2035 and beyond, when we, when we'd actually have new nuclear power at, at scale coming online. And I think in that timeframe,

• 29:24Speaker 02

  The tax credits really help, but what matters most is how much power we need, really. Like it's, nuclear, my own view is really never going to look great from a pure economic basis on paper, relative to, say, just more natural gas power generation, unless we have like significant gas, natural gas resource constraints, which we might have bottlenecks in, in the US, but you know, there's, there's a lot of gas underground. So I think, I think nuclear is really, you know, we turn to nuclear as a hedge against

• 30:04Speaker 02

  natural gas resource constraints and because we want clean power more and more over time. And because you just can't build and, and, and extract enough new gas fast enough. And so that's where the value in, in starting to develop new nuclear projects today really is. I don't think it crowds out wind or solar at all, really. I think they're sort of added for separate reasons. And probably the same thing with geothermal. You know, geothermal is much more resource, much more geographically constrained. I think we're really only talking about the Western US, you know, Nevada, California, places where you have heat that still rises fairly naturally, reasonably close to the

• 30:48Speaker 02

  surface of the earth. And in those regions, like probably solar is still cheaper on a levelized cost of energy basis than geothermal, even subsidized, even when geothermal is subsidized and solar is not for quite some time. But you don't, you don't add geothermal because you're competing with, you know, your, geothermal's not really competing with solar. It's, it's being added as an additional energy and capacity resource.

• 31:15Speaker 02

  And I think similarly about CCS, the CCS story is more complicated for a bunch of reasons.

• 31:22Shayle Kann?

  Yeah, I guess on the margin, it advantages nuclear and geothermal over wind and solar. In practical terms, it might not be that important. I think that that said, nuclear and geothermal really do need the tax credits, I think, like more so. They are more expensive resources, at least in the near and medium term. And so if you were to remove those tax credits, it'd probably be even more painful than it is for wind and solar. So in that light, like extending them further sort of makes sense.

• 31:53Speaker 02

  There's like, it's just a much better economic and political argument you can make that we want these resources to come down the cost curve faster. And one way to do that is to give them a little boost. I mean, that's kind of what we did 15 years ago with wind and solar.

• 32:08Shayle Kann?

  Yeah, exactly. Okay, so on to topic number four. So we've talked about wind, solar, FIAC. Let's talk about hydrogen. Hydrogen went through kind of a whirlwind over the course of the drafting and changing of the legislation in the bill. As a reminder, hydrogen in the US, it's already been a journey, right? Since the IRA, like the, there was this extremely lucrative on paper tax credit, $3, up to $3 per kilogram. But then the government under the Biden administration took a really, really, really long time to actually set the rules under which you could qualify. So there was a ton of uncertainty in the market. Then they set the rules and the rules were really strict. It's this three pillars guidelines for what you have to do in order to source clean energy that qualifies you to generate the $3 tax credits at least.

• 32:53Shayle Kann?

  And then basically immediately after that, Trump got elected, a bunch of new uncertainty got introduced. Then the bill gets sort of introduced first in the House. And most versions of the bill early on would have killed the credit for any hydrogen projects entirely. They didn't begin construction by the end of this year, which is very few projects. There are, I don't know, a couple under construction, not very many.

• 33:20Shayle Kann?

  Then, of course, the final version of the bill extends that a bit. So that gets it out to beginning construction by the end of 2027, which is a big difference, right? Two and a half years to begin construction on a project is, again, depending on the definition of commencing construction, which we talked about, it's a fair amount of time. On the other hand, those really strict guidelines for the three pillars still apply. And so I think the fundamental question in clean hydrogen is, how many projects can satisfy the three pillars criteria? Can source enough clean power? Like really, you gotta go buy, you know,

• 34:02Shayle Kann?

  essentially 24/7 clean power from resources that were constructed in the last three years or new resources that are deliverable to you, you know, that are time matched. You gotta do that, and that gets you the ability to qualify for this credit. And because we're also sort of limiting the amount of new solar and wind that can get developed, and because there's all this other demand from data centers and other things, like really hard to find that stuff. And that stuff is getting more expensive, as we've talked about before. So it's an interesting dynamic in hydrogen where it got a real reprieve, but it doesn't mean it's gonna be easy to go qualify for the credits in the first place. So I wonder how you think about that.

• 34:41Speaker 02

  You know, when the elec-, right after the election, actually, my assumption was because of some of the political economic variables around hydrogen, I assumed that actually one of the biggest, I assumed that if there were a bill like this, that hydrogen, that the tax credits would be extended similarly to CCS, largely because they're at times, and again, hydrogen's been through a roller coaster, but at least during the first, you know, big, big surge in hype around hydrogen, there was a lot of excitement from the oil and gas industry, which I thought would have made it more politi-, the tax credits more politically robust. And in fact, you know, my assumption was that if anything,

• 35:21Speaker 02

  we'd, we'd get some guidance from the administration to Treasury to loosen those three pillars restrictions, which would make for a bigger hydrogen market. And actually, I haven't heard anything about that recently. I'm curious if you have, because if they were to loosen those restrictions, especially if they were to do it soon, right? Like, again, if you hadn't accelerated. You know, uh, rulemaking timeline like in the next forty five days, similar to the, the under construction and, and safe harbor rules that made those restrictions looser than, yeah, maybe I could, I could imagine more projects getting done or getting started in

• 36:01Speaker 02

  the, in the next two and a half years. Absent that, given we're also seeing all this uncertainty around renewables build, right? So you need new renewables, but we're not sure what new renewables cost and, and how much you can build. And all the demand we're still seeing for power, period, clean power in particular, um, from highly price insensitive buyers like data centers, uh, hydrogen, anyone making hydrogen is not going to be a price insensitive buyer. They're very price sensitive. They want the cheapest clean power. Um, I don't know. I, I'm not personally super bullish on this making, helping make hydrogen make a turnaround, but you, you're actually closer to this world than I am. So I'm curious if you think differently.

• 36:44Shayle Kann?

  I broadly, if you're looking at it from the high level market perspective, I think that's right. I think, I think you won't see, you know, a booming hydrogen economy as a result of this, this bill and the extension from, from end of twenty five, or I guess the early expiration being not as early as it could have been. I, it does mean I think some projects are going to move forward. Like very, very, very few would have moved forward if the rule was commenced construction by the end of this year. The extra two years will make a difference. Like there, it's not, it's not zero projects. It's not one or two projects that can figure out how to source enough clean power, but it's probably not a hundred projects either. So I think you're going to get a, a much narrower market

• 37:24Shayle Kann?

  that generally, again, favors the larger developers, larger projects who can go buy big chunks of clean power and piece together multiple resources and so on.

• 37:36Speaker 02

  Yeah. It's interesting because you think about the two pathways, right? The, the bill was trying to incentivize clean hydrogen and it was trying to incentivize battery manufacturing in the U.S. Battery manufacturing moved fairly quickly and we now see.

• 37:50Speaker 02

  A bunch of new plants getting up and running today or already under construction and again, building constituencies for those tax credits because they are hiring jobs in specific locations where they're going to make a big difference for the community. Hydrogen, because of all the uncertainty around qualification for the PTC, because of the, the pretty, pretty strict three pillars, didn't get off the ground under Biden. And so there's not a constituency for it to like advocate. And I'm not sure that two and a half years and a few more projects builds a constituency, just from a like political economy standpoint, to, to make much of a difference.

• 38:35Shayle Kann?

  The hydrogen hubs, the hydrogen hubs were where there was a constituency. And this is why you saw, I think, like Senator Shelley Moore Capito from West Virginia, talked a bunch about hydrogen. She seemed to be one of the advocates of, of continuing those tax credits. There's a hydrogen hub there. I think that's the extent there was. You're right. But yeah, I mean, this was one of the areas where the slow rollout of guidance during the Biden administration, I think, hurt the, the political heft of the, of the nascent market. Nonetheless, let's see what happens. I think there will be certainly more hydrogen, large, clean hydrogen projects in the US than there would have been under previous versions of the, the bill. Certainly fewer than there would

• 39:20Shayle Kann?

  have been had the IRA held entirely and the guidance come out sooner. Okay. Last one, EVs. So EVs took a beating from a tax credit perspective in the bill and the EV tax credits expire pretty quickly. You alluded to this earlier, you know, you have a pretty sanguine view, I think, on, on consumer EV demand despite this. So make, make your case.

• 39:46Speaker 02

  Yeah, I, I continue to be very bullish on electrification. I think at a fundamental level, EVs are a better product. I think they are going to win in the medium term globally. In fact, globally, we're already seeing that happen. And I think we've basically just gotten to the point at the consumer level where the $7,500 tax credit, like, of course, it makes a difference on the margins. There's no question about that. And would the market be bigger next year if the tax credit remained in place? I have no doubt that it would be somewhat bigger next year and every year thereafter. But I don't think this changes, this changes the, the timing of the curve, but I don't think it changes the shape of the curve all that much.

• 40:27Speaker 02

  And it certainly doesn't kill the market because consumers are not buying cars still, for the most part, on, on all that rational economic grounds, right? If, if you are an EV consumer, you're buying a, still today, especially in the US, where, where we're at, you know, around 10% new, new vehicle purchases are electric. Like, it's still a pretty unusual consumer who's buying an electric vehicle, and that person is probably not as price sensitive. So, yeah, it, it makes a difference, but I think the, the market goes on and, and I still have high confidence in, in the medium term.

• 41:05Speaker 02

  And in part, that's actually because I think we're still seeing American auto OEMs lean in. We're still seeing battery manufacturing in America progress, even despite some risks to the tax credits from these FIOC rules that we talked about earlier. Like, there's all kinds of activity right now. LG Energy, in partnership with a couple of different automakers, is standing up battery manufacturing facilities and, and electric vehicle manufacturing facilities associated with them. So I still think we're seeing mostly positive signals from the market on the consumer side.

• 41:47Speaker 02

  On the commercial front, you know, I'm less bullish in the near term. And I will say, it's not just, it's not just the big bill. There's this other administration action that I think will, will make a real impact, which is, uh, which is clamping down and, and stopping California from pursuing its own vehicle emission standards under this waiver from the Clean Air Act, which, you know, California, under...

• 42:22Speaker 02

  Under those standards had extremely ambitious, aggressive targets, not just for consumer EVs, but for zero emissions vehicles, which basically means electric vehicles at the commercial level as well. Honestly, like, targets that I would consider probably overly ambitious, and I'm a big believer in electrification. And a bunch of other states had adopted those standards under the same waiver that California had as well. And so there's now a lawsuit going on between a bunch of those states and the Trump administration. But if those states are no longer, if they are indeed no longer allowed to set more aggressive, zero emissions vehicle mandates for commercial vehicles, I think that makes a big difference, too, at the same time as you're losing the tax credit.

• 43:07Shayle Kann?

  Yeah, and that $40,000 commercial for like mid and heavy duty vehicles, that $40,000 tax credit is meaningful. And that market is less, it has less of a foothold, right? Like, consumer EVs, there's a market there already. It's that there's reasonably high penetration in some places. Not true yet in the medium and heavy duty world. So it feels like you're sort of battering that market when it doesn't yet have solid footing, which I think is concerning.

• 43:34Speaker 02

  And also, commercial entities, fleet owners, they're making decisions about whether to electrify and how much of their fleet to electrify, mostly on an economic basis, right? They're not unlike consumers who are like, oh, I really want an EV. I'll, you know, oh, it's a little bit more expensive this year, no big deal. Commercial fleets are very sensitive to, to cost. And so when EVs are the right economic choice, and they feel confident in the infrastructure availability and, you know, in the performance, the range that they can get, they'll buy them, I think. And that's what, you know, we will still see that happen to a certain extent. But this does, this sets that decision back by a few years at least, I would imagine.

• 44:16Shayle Kann?

  All right. Well, that was five interesting questions coming out of this bill. I'm sure there will be a dozen more as the market unfolds a little bit. But as usual, fun to talk to you about it, Andy. I think you've retaken the crown for a number of podcast appearances, but we'll have Nat back on. You guys can keep up the...

• 44:33Speaker 02

  That was really my goal here.

• 44:36Speaker 02

  Also to force myself to think more clearly about the impacts of this bill. And I guess we're all waiting on pins and needles for 45 days in particular. Forty-two days now? I don't remember when the EO came out.

• 44:50Shayle Kann?

  I don't know how many days it is. The point is, you thought it was done, it's not done. Andy Lubershane is my partner at Energy Impact Partners and our Head of Research. 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. This episode was produced by Daniel Waldorf. Mixing and theme song by Sean Marquand. Stephen Lacey is our executive editor. I'm Shayle Khan, and this is Catalyst.