Sheldon Kimber has built from scratch multiple successful enterprises over his two decades in the energy industry. Now the CEO and Co-Founder of Intersect Power, a developer and owner of some of the world’s largest clean energy resources, Sheldon is working to bring innovative and scalable low-carbon solutions to customers across North America. Earlier this year, Sheldon published an article entitled, “The Nexus of Deep Decarbonization,” in which he discusses the five inevitable industries that have the potential for exponential growth as we work to decarbonize the global economy by leveraging increasingly affordable and available clean energy. These five industries include: Green Hydrogen and E-Fuels, Direct Air Capture, Electrification of Industrial Thermal Loads, Mass Electric Vehicle Charging, and Desalination and Water Transportation. In this episode, Chad Reed and Jeff Eckel dive deep into Sheldon’s unique background and discuss the five inevitable industries, and the related decarbonization policy challenges and opportunities given the current macroenvironment. To get the most out of this episode, we encourage you to read Sheldon’s aforementioned article, available in the show notes.
Sheldon Kimber has built from scratch multiple successful enterprises over his two decades in the energy industry. Now the CEO and Co-Founder of Intersect Power, a developer and owner of some of the world’s largest clean energy resources, Sheldon is working to bring innovative and scalable low-carbon solutions to customers across North America.
Earlier this year, Sheldon published an article entitled, “The Nexus of Deep Decarbonization,” in which he discusses the five inevitable industries that have the potential for exponential growth as we work to decarbonize the global economy by leveraging increasingly affordable and available clean energy. These five industries include; Green Hydrogen and E-Fuels, Direct Air Capture, Electrification of Industrial Thermal Loads, Mass Electric Vehicle Charging, and Desalination and Water Transportation.
In this episode, Chad Reed and Jeff Eckel dive deep into Sheldon’s unique background and discuss the five inevitable industries, and the related decarbonization policy challenges and opportunities given the current macroenvironment. To get the most out of this episode, we encourage you to read Sheldon’s aforementioned article, available in the show notes.
Links:
Article: The Nexus of Deep Decarbonization (Sheldon Kimber, February 11, 2022)
Article: Proposed US tax credit 'would instantly make green and blue hydrogen competitive with grey' (ReCharge News, February 9, 2022)
Episode recorded: May 11, 2022
Chad Reed: This is Climate Positive – a show featuring candid conversations with the leaders, innovators, and changemakers driving our climate positive future. I’m Chad Reed
Hilary Langer: I’m Hilary Langer.
Gil Jenkins: I’m Gil Jenkins.
Sheldon Kimber: There are these five inevitable industries. It's green fuels and clean hydrogen, it's desalination. It's direct air capture, large-scale EV charging, and thermal electrification of industrial loads. If you look at those five things, just between those five levers, they're all multi-gigaton levers, and you could probably solve most of climate change.The thing they all have in common is that cheap, clean electrons, make them all work.
Chad: Sheldon Kimber has built from scratch multiple successful enterprises over his two decades in the energy industry. Now the CEO and Co-Founder of Intersect Power, a developer and owner of some of the world’s largest clean energy resources, Sheldon is working to bring innovative and scalable low-carbon solutions to customers across North America.
Earlier this year, Sheldon published an article entitled, “The Nexus of Deep Decarbonization,” in which he discusses the five inevitable industries that have the potential to grow exponentially as we work to decarbonize the global economy leveraging increasingly affordable and available clean energy. These five industries include: Green Hydrogen and E-Fuels, Direct Air Capture, Electrification of Industrial Thermal Loads, Mass Electric Vehicle Charging, and Desalination and Water Transportation.
In this episode, we dive deep into Sheldon’s background, these five inevitable industries, and decarbonization policy challenges and opportunities given the current macroenvironment. I really enjoyed this wide ranging conversation with Sheldon along my co-host Hannon Armstrong CEO Jeff Eckel, and I hope you do as well. Note that you may get a lot a more out of the episode if you familiarize yourself with Sheldon’s article, which you can find in the show notes.
Hilary: Climate Positive is produced by Hannon Armstrong, a leading investor in climate solutions for over 30 years. To learn more about our climate positive journey, please visit HannonArmstrong.com.
Chad: Sheldon, thanks for joining us today.
Sheldon: Thanks for having me.
Chad: First you have a pretty fascinating personal biography that I imagine informs your career trajectory and your values. I'd like to dive into that a bit. You were born in South Africa, but you and your family left there when you were still rather young. Could you tell us a little bit about your experience there and your family's decision to leave?
Sheldon: I was born in a smallish town called East London. It's always very confusing when you tell people you were born in East London, South Africa. Moved to Durban when I was actually a week old which set the pace for my life as I moved a lot. My father was a Methodist minister and ironically enough actually before he went into the ministry worked for mobile oil. It was an energy background in my blood, but that was very when he was very young but in the ministry in South Africa a lot of why he actually joined the ministry was really this whole notion of liberation theology.
The political involvement of the church in fighting oppression and political authoritarian regimes and things like that. My dad was very politically active and said a lot of things that the government didn't love, and at the time in South Africa, the apartheid regime was very much like all authoritarian and repressive regimes claimed to have a strong relationship with God, which I don't know why that pattern exists but it does seem that way. That some of the most horrifying people in the world claim to have really strong relationships with God. What that meant though was that the church was often given a bit of a wide birth.
My father was allowed to say certain things and not other things and at a certain point, I think people like my dad saying that things my dad said probably would've disappeared in the night if you weren't aligned with the church and instead you were asked to leave. That's how we wound up coming to this country and we walked off the plane in Dallas, Texas. I was seven years old and it was a hundred and some degrees, you could feel it coming off the tarmac as we hit the jetway and my mom turned to my dad and said, "Should we just get back on?" Anyway.
Chad: You started your career in the energy space with Calpine, one of the largest generators of natural gas and geothermal power in the US and they were focused of course at the time of repowering America with clean natural gas. Tell us a bit about that experience and how that shaped your path going forward.
Sheldon: That was a pretty formative stage of my career. I'd gotten done with my first job in consulting and really wanted to dig into the industry deeper and get really a much deeper experience than consulting was offering.
Jeff Eckel: What years were the Calpine years?
Sheldon: I joined Calpine in 2001, and was there until 2000 until I went to business school in 2006, right around that period and for about four and a half, five years. The things that I really focused on there the things that really were interesting to me were coming out of my consulting career. I'd spent a ton of time doing price forecasting and dispatch modeling. That was very interesting to me. I love the microeconomics of power markets, but then being able to work in an environment where I learned a lot of corporate finance and a lot of valuation and spent a lot of time just doing financial transactions. Ultimately, I think the thing I learned most was got sent to Houston as the representative of corporate finance so the corporate office was in San Jose and was sent down--
I was working for the CFO and the chief risk officer sent down to Houston to do some financial transactions that involved a lot of derivatives. We were assigning big chunks of the trading book to assets and then doing prepaid commodity deals, highly structured derivative financings that were getting done then. Enron was doing a lot of these transactions they were not accounting for them correctly and we were doing them for cash. Because we were hemorrhaging cash and the growth plan just was so aggressive that Calpine had a totally unlimited desire for capital for growth.
I learned an enormous amount around commodity markets and derivatives in addition to deepening the corporate finance side and then also I got to work for a couple of legends in the industry, Bob Kelly at Calpine. Anybody who's ever met Bob, very colorful guy, extremely bright guy, learned a lot there and then also friends and colleagues to this day. I'm actually working right now on a big deal with Ray Wood from BofA, I remember meeting Ray when I was like 23 years old working on the Calpine Construction Finance Corporation, those big revolvers. It's been a very small world that I've inhabited for the last 20 years.
Chad: Then you actually went to business school at UC Berkeley Haas [unintelligible 00:04:45], (Go Bears!) and full disclosure. I actually took a project finance course with you while there to get into the energy industry and I do credit you and thank you for that course so it was very helpful, but you went to business school to get out of the energy industry. I've heard and read. Why was that and what went wrong with that plan?
Sheldon: First of all, I do remember that class and the diaspora of people that came through that class and the 10 years I taught it is pretty interesting. I'd love to see a reunion of that class. I was talking to Severin Borenstein the other day, love to see a reunion of the folks that went through his energy markets class as well, across the industry. It's a star-studded cast. Very lucky to have had a lot of people like you in that class. I got tired, I guess, of being the really boring guy at cocktail parties. I've said this a lot but power in the Bay Area in San Francisco. If you're not in tech, I don't know. It's not a very sexy industry.
The combination of that with the volatility that led to Calpine's bankruptcy as I was going to business school, just led me to believe-- I loved the math and I loved the detail of what I was working on, but it was one of those things where I was really looking at and saying, given the volatility in the industry and things like that, is this really where I want to make my career versus giving up and going over to the tech side? Then in the middle of my experience in business school, it hit all at once that California RPS, German feed-in tariff, and all of a sudden, solar in particular went from small-scale plants to increasingly large plants.
These guys that were frankly the true believers who had been driving the industry all along toiling in a very difficult situation. They needed the bankers and the lawyers to grow this thing. I got recruited back into it and I thought I was going to go into the financial services side, again, in banking. It didn't work out very well, I'm not a banker, I learned that early, and so wound up without a job. Accidentally in a small entrepreneurial startup. I don't think most people would have really pegged me for that right up until I did it.
Chad: That experience was that Recurrent, the solar developer that you helped build to a pretty decent size and then eventually sell. Any particular learnings or highlights from that experience?
Sheldon: There's many. I think that, first and foremost, you've got to create a strong culture. Building companies is really about people. I think that I learned very clearly there that the development and this in particular, is a human capital business. It's transactional, it's a lot like financial services. Building a strong culture, bringing together really outstanding people, and then making clear that mediocrity is not tolerated. Then you look to your left, look to your right, if you don't think that the people on both sides of you are at least as smart as you and working at least as hard as you, it's not very good for your motivation either, right?
Really learned a lot there about how to build culture, how to drive excellence, and how to hopefully motivate people. That was a big learning. I think tactically and with respect to the business, the biggest takeaway was really the things that formed the genesis of Intersect which are really understanding with a great deal of depth, the supply chain, and the technologies of some of these clean technologies and where they were going over time. Being able to see a little bit into the future, if you will, as to how low these prices could get is a big part of why we wound up where we are at Intersect.
Then secondly, I think, and probably most importantly, at Recurrent, we wound up doing a lot of what's the strategic plan for next year. The first question we would ask is, how many people do we have on staff? What's our overhead? Oh, okay, well, then we need to do this many megawatts to cover and flip them out to cover that overhead. That's a very, very difficult place to start from. That leads you down the road of chasing, in some cases, smaller, profitable projects but then you realize that those are not very efficient and you wind up with more headcount to cover those, and you wind up eating your tail.
This absolute focus, if you will, on scalability has been the hallmark of Intersect since the beginning. It's a small team, big projects, and very few of them. That's a lot of what we focus on. You've seen, I think, the first portfolio that we sold off that we don't own average project size was probably in the 300 plus range. This portfolio that we're building to own right now, average project size, some of these are multi-phase projects but across both phases, it's probably in the 400 or 500 range. As we move into this next phase, we're talking about average project sizes that are somewhere between 750 megawatts and a gigawatt. Well, we're very focused on scale.
Chad: Another thing you're focused on is shorter tenure revenue contracts and you've made that a particular selling point and value creation opportunity for Intersect. Could you talk to us a little bit about why you went down that route and how that's developed for you?
Sheldon: I think what we saw was that long-term contracts destroy value, ultimately, and I've said it over and over again. The only reason people were doing them and the only reason they continue to do them is because the financing structures are easier. They're easier in two ways. First, you need far less development capital because a lot of these utilities or big corporate buyers are effectively writing cheap options. Your down payment, your deposit capital can be quite small. Whereas if you want to go into the wholesale market and do a bank hedge, those deposits are massive because of or well, depending, but if the volatility in the market is high, they can be tremendous.
In order to actually develop those projects and lock those contracts, you have to have quite a bit of essentially credit in the development phase. We did quite well in the last two portfolios to focus on multi 100 million-dollar credit facilities to backstop our commodity deposits. Then secondly, the actual term financing is much different. The deals were closing. We closed in the fall for this current portfolio. It's a portfolio-level financing. It's not back leverage at the asset level, and so what that does is it provides a little bit more diversification for the lender, and it also is slightly more expensive in terms of we're not in the commercial bank market getting 4% money.
Finally, it has probably a slightly lower debt capacity versus levering at the asset level with fully contracted assets. A little bit less debt capacity as a percent of the asset value, a little higher cost, portfolio level diversification, you put all that together, what you wind up with is a financing that maybe hurts your economics a little bit on the financing side, but enables you to put on totally different revenue structures.
What people have been missing, and we'll talk in a second about whether they're still missing it, and the thing that I think we questioned openly and in a very clear manner, some people I think had picked around the edges of this, but I think we were the ones that drove a truck at it is, are you overpaying in terms of the revenue you're foregoing in order to get that really cheap money?
When you compare the foregone revenue to the benefit of financing with cheap money, they're out of balance at a certain point. We went too far down that track. All we've done is backed up to slightly less efficient financing that now we're not giving away a third to a half of our revenue.
Chad: I think that's consistent with what we're seeing in the market, too. Let's talk about that evolution from solar bonds, as you have described some of the sorts of projects and portfolios that were financed for the last decade or so, to active management, especially of merchant risk and maximizing or optimizing those revenue streams. How has that evolved, especially from the developer side, which you all are, and the investor side as well?
Sheldon: We're typically seeing our unlevered returns in the low double digits, and our percentage-- we use a metric for a percent contracted revenue, where we take the total revenue and the net present value of the contract and uncontracted at different rates at different IRRs and discount all that back. We have a metric we use as a percentage of total revenue that is contracted, and what we see is your average PPA. Because the PPA price itself is so low and the tender is quite short, you actually have a tremendous amount of uncontracted revenues just on the backend.
When you look at the percentage contracted revenue on some of those, they might be in the mid-40s tops, really, not a lot more than that. We're able to do deals anywhere from the low 30s to the mid-30s, pretty easily, and with our shorter tender structures. We're seeing low double-digit returns on those. Whereas on the PPA deals, you're still in this whatever, 7% unlevered, if you're lucky kind of range.
People are just giving up too much return to essentially just-- They're not even buying down risk. They're really frankly, just buying down volatility in the first 15 years. That's really what it is. It's not even risk. It's just purely front-end volatility that they're buying down.
Chad: Then now the phase of your company that you're entering now, you're really active in the hydrogen space and land acquisition as well, I believe. Could you tell us a little about that new phase of your business?
Sheldon: I think people are probably tired of hearing me talk about the nexus of deep decarbonization, but Intersect I think has laid out a strategy with a little bit more coherence and clarity than a lot of people in this space. I think there are a lot of our competitors that are like, "Hydrogen, yes, for sure. Great." We make green electrons. We can sell green electrons to hydrogen people. We'll put a page on the website or whatever, and we'll say, "Sure, we'll make hydrogen," but in most cases, that's going to wind up being [unintelligible 00:15:03] buying their green electrons. For us, I spent a lot of the time when the business plan first started coming together for Intersect working on this question of what happens when green electrons are so cheap in the right place, the right time that you do other things with them other than the grid. The outcome was this whole nexus of deep decarbonization. What we've landed on there is that there are these what we call the five inevitable industries.
Obviously, there could be more, there could be less, but it's green fuels and clean hydrogen, it's desalination. It's direct air capture, large-scale EV charging, and thermal electrification of industrial loads. If you look at those five things, just between those five levers, they're all multi-gigaton levers, and you could probably solve most of climate change. There's a whole bunch of other things we can do landfill gas, whatever, but those are the big ones. You can make not just a dent, you could actually solve most of the climate problem if you could make those things work.
The thing they all have in common is that clean electrons make them all work. Cheap, clean electrons, make them all work. When we have stepped back from that's what really, I think we've tried to articulate is the coherent driver of this change in the marketplace. Hydrogen is just one small first glimpse that is opening up into that broader world. We're doing a lot in hydrogen, but I think we will do well where I think many others won't because I hope at least that we've figured it out more broadly and are planning our strategy in a more proactive manner and forward-looking manner than reactive.
Chad: I want to dig a little bit deeper into the premise – the cheap, abundant, and clean energy that we've all seen expand exponentially over the last decade or two. The price of solar has fallen by 90% over the last decade, wind by 70%, but have recent developments-- there's 8% inflation, interest rates are rising, and many of these projects are very capital intensive, the Russian invasion of Ukraine, all these are really important macro developments that we've talked about that we grapple with every day and talk about on our earnings calls, how have these developments impacted that fundamental premise upon which this nexus of deep decarbonization is based?
Sheldon: Well, it's funny. I was just actually talking to Kate and some other people earlier today about this very thing because if I think about how we as a company have built our strategy and articulated what it is we do, we've been working in theory for a long time. We developed the first portfolio and we sold that off. A lot of that had short tenure contracts. It was the proof of concept if you will. Then we did our second portfolio, we financed it and we're going to own it. We've got the proof point on that, but now we we're moving from theory to practice.
Now we're going to see how robust the business strategy that we put together really is. Turns out our business strategy actually fares quite well in that confluence of events. I have never been more excited. Don't get me wrong. I'm terrified as a human being about all of this stuff, I joke with someone the other day that I no longer look at the paper when I wake up in the morning, I just open the book of revelation.
I think about what's next, but as a human being, I'm absolutely terrified by a lot of what you're talking about. When you think about our business, the theory and the strategy we put in place, couldn't have positioned us better for what we're doing right now. Natural gas prices are in $7.50 MBtu natural gas is on the margin in ERCOT. Natural gas is still on the margin in California in many hours. You’ve got massive export pressure now.
You’re seeing these megaprojects that we’re involved in on exporting green ammonia and other green e-fuels and hydrogen-based products to Europe and to the rest of the world. You couldn’t have asked for a better proof point of the fact that we’re giving away a lot of value when we sign those long-term contracts, because fundamentally we were giving away an enormous amount of option value and now those options are massively in the money.
Our business starts to see the impact as power prices and REC prices—The other piece there that I’ll point to is just the trade case. We’re luckily enough able to build most of our projects still because we got going early enough and we have the supply, but that market for RECs is tightening up. Texas RECs are trading north of $5 for solar RECs. That’s insane compared to what it was three, four years ago. All of this is tailwind to us because we have open positions and can enjoy the benefit of that rising revenue.
Chad: Absolutely. Let’s dig a little bit deeper into each of the five industries that you see growing over the next few years, we talked a little bit about hydrogen, but could you talk to us a little bit about how there can maybe a virtuous cycle and lower fuel costs can lead to lower electrolyzer costs, and how that could support the growth of that industry?
Sheldon: For sure. Yes. Actually what's interesting to me is we talked about this a lot, but there's almost in many of these industries, they exhibit the same issue, which is energy is their primary cost, but their CapEx is quite high and by nature of what they're actually trying to do, which is clean up the planet, they have to have clean energy. Clean energy is their primary cost and as that cost goes down, regardless of the high CapEx, at a certain point, the economics of doing something like making hydrogen from clean electricity, they turn on, they make sense and you start deploying more and more electrolyzers. As you deploy more and more electrolyzers you get the same effect that we had in solar panels and batteries, and the electrolyzers come down the learning curve and they get cheaper and cheaper.
What that means, ironically, and in a funny way is that you can now probably deploy electrolyzers at higher input costs of power, so what's interesting is it takes the really cheap power to drag that CapEx cost down on these new technologies. Then it turns around at the bottom. At a certain point, the CapEx gets so cheap, you can just start dumping power into these things and maybe not running them quite as cheaply, or frankly, you could also dial down the capacity factor because that's the other piece is on the frontend, when a CapEx is really expensive, it's really important to run that CapEx at a very high number of hours in the year.
You can't leave it idle for half the year because that doubles your CapEx cost. As you come through that bottom of that U, you can not only put more expensive power in, but you can run it less of the time and now that just blows open a whole range of flexible options on where and when you're going to do this stuff. Whereas at first, it will very clearly be fixated on the cheapest, most high capacity factor, green electrons you can find so hybrid wind and solar installations at massive scales.
Chad: Then direct air capture. First, could you tell us and our why it’s important, and then how we can really bring the cost down to make it a viable carbon removal part of the strategy?
Sheldon: Yes. First and foremost, let me say that I am not a technologist in this area. I understand a lot about the technology we deploy currently. I do not understand this technology at anywhere near that level of depth. What I do see though is I’ve seen enough technologies deployed, it’s come from the lab, and ultimately be deployed at scale. I’ve seen enough commodity markets and financing markets to know what will be that intersection of regulatory, technology, financial markets, and commodity markets. That is where I live.
Even if I don’t know the most about the technology, I’ve got enough pattern recognition to know something will be dragged through to fill that gap and so I don’t think it’s going to happen imminently. The technologies that are out there, many of them are pretty nascent. Most of them are very expensive, but at the same time, it has to happen. We’re not going to decarbonize every part of the economy. We’re going to have to take – have some ability to take carbon out of the atmosphere.
It may continue t’ be very, very expensive, but it'll be that last little b’t of carbon. At a minimum, it’ll be that last little bit of carbon that we have to take out of the atmosphere, and we’ll be willing to pay for it at high rates. I actually am more bullish having the conversations we are having with technology providers that we will find scalable opportunities that will become quite cheap in the $100 to $200 a ton or even lower eventual ramp rates at full scale.
I think the other thing to note here that I think is different than what a lot of other people are looking at is as a guy who makes green electrons and deploys industrial-scale infrastructure, I’m here to tell you that it would be a great thing if we all sequestered things in the soil and grew a bunch of genetically engineered seaweed. I’m all for that. I think those are cool opportunities that can do a lot, but I’ve spent 20 years in large-scale infrastructure and what I know about the world and certainly the United States and its capital markets and its economy is that we do industrials really well, so we will decarbonize industrially.
When people tell me that certain of these technologies are too brute force, they aren’t efficient enough. They’re like big inefficient factories that just aren’t elegant. They’re not elegant engineering solutions. They’re not all this – most of the time I just say, “I don’t really need to care about efficiency if my power is practically free.” There’s this thing that I think a lot of people are missing in these engineering problems, which is the efficiency is not really what we’re solving for in many cases.
Anyway, it’s not a point that you want to go—that is, I think has a lot more to say about it but I do think at a top-level starting point, there are a lot of people waiting for the perfect to come along, and that’s never how it’s worked in the history of modern economy. The other really good example about that is we have a lot of conversations with environmental organizations around pipelines and whether or not we should blend hydrogen into pipelines. I have a lot of respect for those organizations and I totally respect your point of view.
I am the last person who wants to extend the life of fossil fuels, but I do spend a lot of time trying to explain, we’re going to blend a little bit 10, 20, whatever it is. That’s the only way folks will ever realize that we need to build a dedicated hydrogen pipeline when they start seeing the demand. There’s a challenge there, which is, and I like to use this example when talking to folks about it is, if you had started back in the California RPS and the German feed-in tariff days, and you had said, “Oh no, no, no, no, that’s not the perfect program. Let’s not do that.” We wouldn’t be where we are.
Those programs were string—they’re very inefficient, and very expensive. At least on the front end, ultimately became very cheap. There was so many imperfections about those things. It was ugly and dirty and inefficient and just a mess, but we got there because that’s what markets and economies do. We need to leave room for that in these new areas of decarbonization and not have these massive theoretical debates that go nowhere.
Chad: Don’t let the perfect be the enemy of the good is something that I’ve heard a lot. You mention as part of your driving macro factors that we need to retrofit existing infrastructure, whether that’s fossil infrastructure in this case, for some of these new solutions because it does make them more viable, quicker, and more economically viable as well. You mentioned industry 30% of our global carbon emissions come from industrial loads, two-thirds of which, or 20% overall produce just from boiling water to support those. Tell us a bit about, how do we electrify industrial thermal loads?
Sheldon: Electrifying industrial thermal loads is harder than you'd think it would be. We've all got the electric kettle on our sideboard here, but it's not quite that simple. That said, of all the technologies we've seen, we actually are pretty excited about this one. Maybe most excited about this one, because there are a handful of companies that are working on it. There are obviously very big technical challenges they're solving, but at the margin with cheap enough power, this could work today, even with some of the technology at the stage it's at right now.
We think this is going to be a no-brainer pretty quickly here as these companies ramp their production and reach scale just on the technology they have right now. What we see is there will obviously be a lot of these electric boiler technologies, if you will, that I don't think they'll like to be called that because it sounds really boring, but there will be a lot of these that'll be grid-tied and just use power from the grid. That'll really just be arbing natural gas to electricity in some cases, but we actually see the opportunity for a very, very scale behind the meter.
For large industrial parks that have hundreds of megawatts of renewables powering things like this. For instance, a direct air capture facility oftentimes requires an enormous amount of heat and they require heat energy on a consistent basis, like round the clock. Something like this, not only allows you to provide that heat with electricity, but also allows you to provide it consistently because many of these act as thermal batteries as well. There will be combinations of these new technologies that will be really interesting.
Chad: Absolutely. Then mass EV charging. How do we go from where you have 5, maybe 10 chargers in a mall parking lot. I think all of which here have had to use on occasion to a much larger charging network that can potentially serve other purposes as well.
Sheldon: I think the answer to that is utility-scale infrastructure. The issue will be eventually that some of these charging stations are too large for the grid. You take a look at like some of the Tesla Semis. I read somewhere that a single charger for one of those is going to be like2 megawatts. What does a truck stop look like for 50 Tesla Semis? It's like a 100-megawatt load. Where are there places on the grid where you can put a 100-megawatt load.
Maybe a couple of defense military bases or research labs. I think that there's an enormous amount of opportunity for grid edge storage, again, behind the meter renewables, but not like rooftop solar. At scale behind the meter renewals and things of that nature to enable some of these much larger industrial scale electric vehicle evolution, if you will.
Chad: Right before we jump into policy, I want to talk about desalination. You mentioned this in the context of how can access to clean fresh water be related to climate change and emissions and why is this one of the industries that you see growing as a result of all these factors?
Sheldon: We look around the West and they're finding all the bodies of the gangsters in California reservoirs that are at levels that no one's ever seen. I guess, before you dump the body, you need to think about, I guess, the climate 100 years later or whatever. We won't maybe dwell on that one, but in a world where many of our large waterways are either drying up in megadroughts or becoming otherwise not useful, some of the aquifers in the Central Valley that are super salinated based on agricultural use and things like that. The environmental degradation of our freshwater supply is massive.
When you look at desalination, all it's saying is the water problem is really an energy problem. Because with enough cheap energy, it's not as though there's not enough water on Earth. There's plenty of water, it's just much of it is salinated. That's the first piece. The second piece that I think a lot of people miss is climate is not necessarily changing the total amount of water falling in the total atmospheric cycle, it's changing where it falls.
I think that many people believe that over time, we will be moving a lot more water between places. Those are massive pumping loads. You take a look at California, California moves a lot of water, probably more water than most any other place in the nation. Those are insanely large loads. That will be I think, another piece of the water problem that is an energy problem.
Jeff: Sheldon, on the policy front, I've long argued for a price on carbon but now I think we have a price on carbon, it just happened to come from Putin. What do you think?
Sheldon: I think that is an astute observation. I think that geopolitics has given us somewhat of a gift and again in a very tragic way, but as people who care about the climate, I think the combination of both the Ukraine war and also I would argue even the pandemic.
I think the pandemic really opened a lot of people's eyes to the fact that we live in a pretty intertwined system that is not as robust as people think. It can come undone quite quickly. I think the combination of what the war in Ukraine has done directly to energy markets as well as just the chaos of pandemic, war, logistics and supply chain issues, and just the general discomfort that people have been made to feel, even very comfortable people like Americans.
I hope that what we're seeing is the beginning of a more resolute perspective on carbon and climate change. I'm with you, though, Jeff. My wife is very, very involved in Citizens Climate Lobby. We're actually out there with the kids at Palisades at one of the ski resorts up here. You'd be amazed, we were going down the line. They had a big line for the train, we're going down the line, me and my wife and our kids, just asking people to take action and giving them a QR code to have them email and call their elected representatives and all that.
Obviously, a lot of people were very, very supportive but you'd be amazed at the number of people who are in line to go skiing in a state that has seen maybe two considerable snowstorms in the entire season. They were like, "Yes, I'm just not really interested."
Jeff: Yes, don't care. One of the challenges and one of the reasons I got into the industry was the Arab oil embargos of '73 and '78, which woke US and Europe and developed countries up to the risk of having your energy come from despots. So much of what Intersect is doing is actually you're decarbonizing, but you're also creating energy independence. Now, these are the twin goals, I think. It's the same solution to hit both climate change, as well as energy independence. I think you've been brilliant at the way you've articulated the big problem out there, and you now have a tragic tailwind to accelerate it even more.
Sheldon: I think yesterday, I got to spend a lot of the day doing the thing I really love, which is sitting down with our business development team and just talking through where they are on these new technologies and the big deals we’re working. Some of what we're seeing is insane with respect to what I'll call the new green version of the projection of power through energy. There's no doubt in my mind, and I'm actually very supportive, even as a climate advocate of building more LNG. We got to do it. We got to keep our allies safe.
Jeff: It's not that we're going to burn more hydrocarbons. It just matters where those hydrocarbons come from now. It's always mattered. We just forgot for 40 years.
Sheldon: That's exactly right. We forgot for 40 years. We were at the end of history and all that. It was supposed to be this grand new world, but I think I'm supportive of LNG and more capacity there but I actually also think as you're mentioning that what I like about where things are headed with, and I think will accelerate hydrogen and ammonia and methanol and all these other opportunities, is just that the world is essentially itching to bifurcate its energy markets. The developed world is ready to pay more for low carbon fuel sources, and stable fuel sources.
I think whether it's massive, clean fuels coming out of Australia, or, the Atacama, or North Africa, or the Central United States, that really high capacity factor, very large land availability, you're going to see multiple, 5 to 10-gigawatt facilities that are going to be exporting. What we have essentially, our head of hydrogen comes from Chevron, what we have essentially is oil and gas projects. Massive, multiple companies, big JV takes a village, multi, multi multi-billion dollar, oil and gas projects, but they use clean electrons to make clean fuels and export them. It's going to be fascinating.
Jeff: I've never been a big fan of the oil companies, but if we're actually going to decarbonize the engineering skills that they have are fundamental to figuring this out. We're blessed to have an oil and gas technology expertise. We may not be making oil and gas in the traditional ways, but in the new ways that you're going to power.
Sheldon: Yes, the partnerships we're talking about right now are super interesting. Because I'm also not a very big fan of the oil companies, most particularly their senior leadership and policy, let's say, the things that they've done for years and years, with the American Petroleum Institute and things like that. I think there's just obviously some just horrendous things that have gone on, but when I talked to some environmental advocates who are like, "Burn it to the ground," they don't recognize-- they've never built a company, first of all. They don't recognize what it means to-- these are people who move a gallon of liquid from a warzone on the other side of the world, to your convenience store for less than it takes to move a gallon of milk from a farm two counties over to your convenience store, right?
The capabilities of these organizations are insane, and we can't lose that because we're going to need it. The value chain for energy is incredibly complex and incredibly interconnected, and these companies know how it works. The future is a partnership, a partnership with people that have this expertise, and that we also look at even direct air capture. One of the interesting things there is there's the capture technology, and then there's the sequestration.
All of these oil and gas companies that have spent all of this time and money, especially in the last 20 years, subsurface geology, and subsurface mapping, and fracking, and, all of that tech is going to come back around and help us in sequestration, in proving out the reservoirs and the storage facilities for captured carbon. Yes, I totally agree, we're hopefully leveraging our partners from the conventional energy industry.
Jeff: I get asked, what do you want from the federal government in terms of policy, and having been through this over four decades, it's like, "Not very much, don't get in the way," yet, having a policy tailwind would be helpful. What do you think would help you?
Sheldon: Man, I'm about as disappointed as you are, that not very much comment is about where I'm at right now.
Jeff: If that's your expectation, you rarely get disappointed.
Sheldon: Yes, exactly. Unfortunately, I had very high expectations for this administration. I think a lot of people did, and we don't need to get into that, but it's been very, very frustrating. For me, I think that we have to-- obviously, need to have the solar and wind tax credits stick around, it'd be great to have more certainty. I never worry honestly too much about that, because, tax extenders, once something's in, oftentimes it's very hard to imagine it going away because usually, there's that vicious rumble down at the end of some fiscal year-- some lame-duck session where the conservatives want this, and we want that, and it all gets rolled together, and we punt it another, whatever, five years.
I feel pretty confident having gone through a few of those that that will continue if we don't get some long-term policy, but obviously, some long-term policy there would be great. I think the number one thing that I really would love to see is the hydrogen PTC, I think that that would be a game-changer. Other things that are in the basket, maybe the standalone battery ITC would be interesting, but I just, I don’t think we’re going to have—like, I don’t think that’s a game-changer in the way that the hydrogen PTC pulls through all the renewables. It pulls together a political coalition because it includes blue hydrogen. It changes the face of clean energy in this country, politically, and I think that’s important. I would say that and then the second one, and I’ve put this before—Honestly, I’d put this before even long-term certainty on wind and solar or standalone boundary storage is domestic manufacturing. I think we’re fighting this real guard action against China. It’s like, “Oh, well, we moved this piece of manufacturing into Southeast Asia. What are we going to do next? Next year, we’ll move the next one. Then the—on wafers now. Okay, well now you can buy all your silicon from China, but now your wafers.
It's like we play this strategy of incrementalism that I think we have to because don't get me wrong. We need to be competitive and I’ve bought plenty of Chinese modules. We’ve built businesses on them, and this is a good thing. At the same time, we work in an industry where political consensus and political buy-in is so important that I think if we could help design an industrial policy that actually had all Americans benefiting from clean energy, that really showed that there was large industrial-scale manufacturing jobs that were feeding this new green industrial revolution.
I don't think we'd have problems politically. This wouldn't be a political issue. This would just be a massive growth of the economy that everybody could get behind. Again, I don't want to say that I'd be in favor of punting on wind and solar tax credits, but it feels to me that if we put something in place that really helped benefit everybody on the manufacturing side, maybe we'd get more buy-in on having a long term policy on wind and solar tax credits.
Who knows what direction you go with it, but overall, I look at the climate tax credits that are out there that mansion keeps playing footsie with and everybody thinks we might get to something on still, maybe, but we don't talk about it for some reason. I look at all of that and I say, that's cheap. That's not even that much money. It's a drop in the bucket. What that would touch off in private investment is trillions of dollars over decades. It is so shortsighted, so incredibly shortsighted that we can't just put everything else aside past those things tomorrow. That's already written.
Jeff: As I said, 40 years, we've never actually had a national energy policy. We have bits and pieces. If we ever tried, it's a hard problem, but it's not as hard as we're making it.
Sheldon: Yes.
Chad: Well, Sheldon we've run out of time today, but this has been a really great discussion. Thank you very much for joining us. I don't know that there was a topic we didn't hit on [chuckles] is a popular energy topic.
Jeff: I want to thank you for your vision. You've done an incredible job of opening up a lot of people's eyes to the potential. We always talk about efficiency, wind, and solar, are a means to an end, the end is decarbonization. You on the development side are out creating the next markets that are actually going to be meaningfully scaled in a way that will drive deep decarbonization. Thank you, as a former developer, your job ain't easy. It's definitely not easy right now, but you're doing a hell of a job with it.
Sheldon: Well, likewise, I'll say right back at you guys, you guys are blazing the trail. You've even done some of the financings that we're talking about, but before we were doing them in various flavors, and also as a trailblazer in the public markets and across-- There's really aren't a lot of opportunities to invest in companies like yours in the public markets. We hope to follow you soon. How's that?
Jeff: Well, good. Good.
Chad: Excellent. Well, thank you again, Sheldon and we look forward to talking with you again.
Sheldon: Thank you so much.
Chad: If you enjoyed this week’s podcast, please leave us a leave a rating and review on Apple and Spotify, which really helps us reach more listeners.
You can also let us know what you thought via Twitter @ClimatePosiPod or email us at climatepositive@hannonarmstrong.com.
I'm Chad Reed.
And this is Climate Positive.