Ron Pernick is the founder of Clean Edge, a firm specializing in thematic research surrounding clean energy, transportation, water, and the power grid. In this episode, we discuss the evolution of these themes and how a new administration may impact their continued growth.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Ryan (00:10):
Hi, welcome to this episode of the First Trust ROI
podcast.
I'm Ryan Isakainen, ETFstrategist at First Trust.
Today, I'm pleased to be joinedby Ron Pernick, co-founder and
managing director at CleanEdge.
Cleanedge is an index providerand research firm covering clean
energy, the power grid, water,as well as transportation.
(00:30):
Ron and I are gonna discusswhat's happening in some of
those areas today, especiallywith the new administration,
with the threat of higherinterest rates and inflation.
What is the impact on some ofthose factors on the space and
what can we expect as we goforward?
Thanks for joining us on thisepisode of the First Trust ROI
Podcast.
Well, Ron, I am so happy to bein the studio here talking with
(00:53):
you at the studio at NASDAQ.
You've been at this for a whiledoing research and studying
green energy, clean energy, thepower grid, all the related
issues, water, the water systems, infrastructure.
But how did you get into that?
What's the origin story of yourfirm's clean edge Right?
How did you start doing that?
(01:16):
What kind of was the catalystthat led you to that?
Ron (01:19):
It goes back to the 80s when I was in university at
Michigan State back in themid-80s.
I was very interested in cleanenergy.
Back then we didn't call itclean energy, usually
alternative or appropriatetechnology and I was very
interested in getting into thatspace, took some classes in it,
graduated with a degree morefocused on telecom and ended up
(01:41):
working in telecom in Asia forabout five years, living
primarily in Japan.
So I've always sort of beeninterested in like what are the
emerging technologies that aregoing to occur in broader
economies?
And obviously telecom in the80s was deregulating and there's
a lot of similarities actuallybetween the deregulation we're
seeing in the energy space andthe connection between
(02:03):
digitization and telecom andwhat's happening now in energy.
So that was sort of theprecursor for me.
I moved to the Bay Area in 1990after being in Japan and I
really again wanted to do cleanenergy.
Timing was wrong.
I got very fortunate.
I was right in the epicenter ofwhat was happening with the
internet.
I started with early bulletinboards and went all the way
(02:26):
through to web-based travelservices and lots of other.
You can look up my name andinternet and you'll see some
early stuff.
But it was really a learningground for me about innovation
and I met tons of internet folksright.
So and what happened?
In about 1999, I was doingconsulting on web strategies for
(02:50):
all types of organizations andI realized half of my clients
were in cleantech Wasn't calledthat yet, but that's what I
realized and I went out andtalked to my venture capitalist
friends and other groups, ngosand government agencies and I
realized the timing was finallyright for basically an analyst
firm that would track the cleantech emergent sector.
(03:12):
And I hooked up with JoelMcHour at Green Biz and we
started CleanEdge in 2000,.
So 25 years ago, and thatproved to be, you know, on the
early end.
We were before new energyfinance, but it was an important
lesson about innovation andmarkets and that's kind of where
I've always played and I thinknow it's really exciting.
(03:34):
We'll talk about it today.
These are now mature industries.
2000 was early, yeah, but I hadthe bug, so got into it early.
The venture capitalists werecoming in at that point.
You know, the early investorsin Tesla were starting to form
like technology partners, and soit's been a really interesting
(03:54):
ride In terms of clean edges.
Real quick we started offconvening, putting on
conferences, consulting togovernment agencies, ngos,
corporates.
We worked with a lot ofdifferent organizations, we
wrote reports and we didbenchmarking and out of the
benchmarking work that we did,we realized the need for company
equity indexing.
Ryan (04:14):
And that's what we were able to do.
That's how the relationshipbetween CleanEdge and First
Trust started Exactly.
We of course have fourdifferent ETFs that track
indices that your firm publishesand you do the research for and
provide some of theintellectual capital for those.
Can I tell you a?
Ron (04:32):
brief, interesting story, since we're at a Nasdaq market
site.
We had created our first cleanenergy stock index.
This is like 2005 and we werelooking at organizations which
we could partner with because werealized a partnership would
make the index stronger.
And I got a phone call fromNasdaq three days before I was
(04:54):
going to sign an agreement witha different organization and and
they said, hey, like we keepseeing your name quoted and
stuff, have you ever thoughtabout doing a clean energy stock
index?
I said, well, yes, and I haveone.
And they said, well, let's talk.
And I said, can you movequickly?
And they said we can movequickly.
And a couple months later wehad the, the contract in place,
(05:15):
we had the agreement and then weconnected with you all and the
rest sort of played from there.
Ryan (05:20):
But that was about 20 years ago.
Yeah, exactly, yeah, yeah, and20 years it's yeah, it's a long
time.
It goes by in a.
It's a long time, but it reallydoesn't seem that long In terms
of at least from my perspective.
I feel like the time has reallyflown by, but it's watching
some of the maturity that you'rementioning take place in the
energy ecosystem overall, butespecially in some of the
(05:42):
renewable energy sources.
Where it was really early, itwas all dependent on subsidies
and there's still, of course,subsidies that people talk about
but costs have come down, somuch.
Ron (05:52):
So.
This is really interestingbecause I think when we started
CleanEdge, we looked at threepillars technology, capital and
policy.
Those is a three-legged stoolfor clean tech, for any emergent
technology, you need thetechnology innovation, you need
the policy supports and you needthe capital formation.
Those are all required, I think, because we came from the
internet space, we looked atclean tech and we saw it as a
(06:16):
innovation cycle, not an energyextraction cycle, and so the
growth that was going to happenwas going to come from PV panels
and the mass manufacturing,from wind turbines, from energy
THE ENERGY SECTOR.
We WERE ABLE TO HAVE ADIFFERENT VIEW OF THE SPACE THAN
SOMEONE COMING FROM THE ENERGYSECTOR, and WHAT'S PLAYED OUT IS
EXACTLY THAT.
The LEARNING CURVES THAT AREINHERENT IN SOLAR AND WIND AND
(06:36):
STORAGE LOOK MUCH MORE LIKECHIPS THAN THE ENERGY SECTOR,
and SO WE WERE ABLE TO HAVE theenergy sector, and what's played
out is exactly that thelearning curves that are
inherent in solar and wind andstorage look much more like
chips than they look like oiland gas.
Ryan (06:52):
Yeah, you know it's interesting.
One of the things over theyears that I've enjoyed about
conversations with you, ron,have been it seems like
renewable energy is one of theseareas that just becomes over
the years has become more andmore political, more and more
ideological, and you do a goodjob.
Obviously, everyone has theirown biases and ideologies and
(07:13):
political views, but you do agreat job in looking at data and
sort of saying you know, thisis what's happening to cost,
this is what's happening withthe actual numbers without
inserting you know some of the,I guess, those biases and I
really appreciate that.
But one of the things that issurprising, I think, to many
(07:34):
people when we think aboutdifferent presidential
administrations and theperformance of different types
of stocks.
When I look back historically,you know we're obviously the
start of the Trumpadministration and you know some
people might wonder why.
I'm talking to somebody who'sinvolved in renewable energy as
well as the power grid and someof these other things.
It's really fascinating to mewhen I look back historically at
(07:57):
different administrations andsee that during the first Trump
administration there was some ofthe best performance that we've
seen for the renewable energycompanies and actually some of
the traditional energy companiesdidn't do as well.
And then in the lastadministration, the Biden
administration, we saw that sortof flip-flop.
And that's not to say thatpolicy isn't important, because
(08:18):
obviously it is, but it'scertainly not the only driver of
what happens.
And I guess my question for youis how do you unpack that?
Why is it that during the lastTrump administration some of
these renewable energy companiesdid really well, at least in
the public markets, and thenthat was the opposite during the
Biden administration?
Ron (08:36):
So it's a difficult question to answer.
I agree that it's a bit of aconundrum to understand why
clean energy is up over 400percent over the four years of
the Trump administration.
A BIT OF A CONUNDRUM TOUNDERSTAND WHY CLEAN ENERGY IS
UP OVER 400% OVER THE FOUR YEARSOF THE TRUMP ADMINISTRATION AND
DOWN MORE THAN 50% UNDER BIDEN,and OIL AND GAS IS DOWN UNDER
TRUMP ONE AND UP CONSIDERABLYDURING BIDEN, and PART OF THAT
(08:59):
IS BECAUSE PRESIDENCIES AREN'TTHE MAIN THING THAT IMPACT THESE
MARKETS, because presidenciesaren't the main thing that
impact these markets.
They can try to exert theirinfluence, but there's global
efforts underway, there's statelevel and more regional
jurisdictions that are having animpact, and then there's just
the learning curves I talkedabout, and I think what happened
is that during Trump won, itbecame very clear to folks that
(09:23):
these economies of scale so forevery doubling of solar PV
manufacturing, the cost declinesabout 20%.
That's the learning curve.
It's a very similar learningcurve right now for energy
storage those transcend thepresidency, and so I think
people could see that.
The other thing that I thinkhappened although it can't be
(09:44):
explained just a post-COVID bump, because some of the best years
was the year or two beforeCOVID.
Under Trump, we were seeinggrowth as well in the markets,
but I do think there was anunderstanding that things were
going to shift and people wantedto reduce their carbon
footprint.
The other thing just to kind ofplay out here is that
(10:04):
corporations matter as well.
Sure, and most of thecorporations that were working
at that period were putting outpretty aggressive goals to
reduce their carbon footprint,therefore buying up and becoming
major owners and operators ofsolar, wind and storage assets.
Yeah, you look at a Google oran Amazon, things like that.
(10:25):
So that was also playing out.
The only other thing I would sayis right now, trump started his
presidency, trump II, with adrill, baby, drill mantra.
Sure, under Biden we now havethis is under his four years we
reached the largest amount ofexports of LNG in the history of
the United States.
(10:46):
We're the largest exporter byfar globally of LNG and we are
also the largest producer of oilRight 13 million barrels a day.
So that's kind of happenedunder Biden.
So the narratives don'tnecessarily align with the
reality and I think it's animportant thing to look at,
because a lot of people look andsay, oh, Biden was the climate
(11:08):
president and yet that's whathappened under his
administration.
So I think there is a lot ofother forces.
There are many different forcesand factors at play.
For sure.
Ryan (11:17):
And I think one of the forces that people have pointed
to that have maybe caused someof the renewable stocks to
underperform over the lastcouple of years anyway, have
been the combination ofinflation and higher interest
rates.
Obviously, if you're financingthe build out of a solar farm,
you know a lot of that costcomes up front, is that?
(11:40):
Do you think that hascontributed to or been the main
contributor to why some of thosestocks have maybe pulled back a
?
Ron (11:47):
bit.
I think I want to unpack thatin two different ways.
So, first of all, we take avery broad view of the energy
transition.
I think that's a better way tosort of think about what's
playing out right now.
And so within the energytransition, we have sort of the
clean energy pure plays,absolutely and then we have the
underlying grid, the backbonethat makes it all happen, of
course.
And so that's why, if you look,the performance of the grid
(12:11):
component of the energytransition has looked very
different than the performanceover the last few years of clean
energy Much different.
And so the reason I broughtthat up is like how can that be?
Like this is all energytransition.
There are different forces atplay.
You're asking about highinterest rates and things like
that, and yet one element didreally well and the other was
(12:32):
constrained.
I think part of what happenedfor clean energy is it got ahead
of itself.
I think there's a little bittoo much momentum there and
people got a little too excited.
It became a little bit like youknow, I went through the
Internet.
I people got a little tooexcited.
It became a little bit like youknow, I went through the
internet, I went through thebubble.
I went through the other sideof the bubble all the way
through to 99.
Well, I guess there weremultiple bubbles in the internet
, but so I think clean energyhad a little bit of that.
Ryan (12:53):
So it got a little ahead of itself, a little bit, yeah,
and then it came down.
Ron (12:58):
So the question would be where it goes from here?
Yeah, but throughout thatentire period, the grid
performed very well.
It performed like an industrialor infrastructure play, similar
to water, and you know thewhole water G I mean.
Energy and water are hard toseparate, so we track water as
well.
So I think that's one thing Ijust wanted to unpack.
High interest rates you're right, they absolutely impact clean
(13:20):
energy, in particular, becausethere's no fuel costs for solar,
there's no fuel costs for wind,there's no fuel costs for wind,
there's no fuel costs forstorage, but there's the upfront
capital cost.
So if you have a 2% increase ininterest rates, that could be
like a 20% increase per se in inthe LOI or the, the levelized
cost of energy for those sources.
(13:42):
However, throughout this period, let's not talk about the
companies, but the deploymentglobally.
In 2023, and we'll look for the2024 numbers will be out soon
globally, 83% of all newelectricity capacity additions
were from renewables, and wejust published on the CleanEdge
website our annual overview ofwhat happened in the US.
(14:04):
What percentage of energy doyou think came from solar just
from solar and wind last yearfor new capacity additions in
the US?
Would you gander a guess?
Ryan (14:12):
I would say it's a very, very high percentage, based on
how I presented that.
Ron (14:16):
So it's 90% Unheard of, never been there before, and
this year it's going to besimilar.
So the markets are going to thelowest cost, most easily or
most rapidly deployabletechnologies.
That's why this is sort of thetrain has left the station.
It's going to be hard.
You really can't stop that, andnot that you'd want to, but
(14:39):
that's where the action is,that's where the energy is.
Ryan (14:41):
I was just looking from the energy department.
They put out statistics aboutwhere the capacity adds are
going to be over the nextseveral years, and over the next
five years, far and away thebiggest capacity additions are
going to come from solar andthen from wind, and you know
they take away all theretirements from coal and some
of the retirements from naturalgas that are planned.
(15:02):
It's like all of the addedcapacity is coming from
renewables.
One of the things I waswondering about because of that,
though, is renewables, as weknow, are intermittent, and some
of the marginal increase indemand are coming from sources
of demand that are notintermittent, like data centers
or manufacturing things that weneed 24-7 power, so how do you
(15:26):
think about that?
Ron (15:26):
That's such a great question and first of all, I
have to say that historically,there were people who thought
that renewables couldn't reachmore than 10%, let's say, of a
grid's power source without itwreaking havoc, or something.
That was a misguided view.
Amory Lovins, who sort of wasthe father of clean energy in
the US, I would say THIS IS AFALLACY.
(15:47):
It's A FALLACY, IT'S ADISGUIDED VIEW.
Amory LOVINS, who WAS THEFATHER OF CLEAN ENERGY IN THE US
, I WOULD SAY AT THE ROCKYMOUNTAIN INSTITUTE, was LIKE NO,
that's A FALLACY.
We CAN GO MUCH HIGHER 30, 50%OR HIGHER.
So TODAY YOU LOOK AT IOWAproblem, but the breakthrough
that's occurred is storage.
Okay, and so when you pairsolar or wind with storage or
(16:10):
really with anything, you cannow get through those areas of
peak demand.
There's plenty of electricityon most of the grids.
It's just those three or fourhours when it's a hundred and
two degrees in taxes andeveryone's coming home and
everyone's putting up their ACand the loads just go crazy.
(16:30):
And so how do you cover thatload?
Well, both California and Texas,over the last three years, have
deployed an extreme amount ofbattery storage.
In fact, texas this year, maybenext year, but I think it'll be
BE THIS YEAR, 2025, we'llACTUALLY HAVE MORE DEPLOYED
STORAGE AND SOLAR THANCALIFORNIA.
(16:50):
The PERENNIAL LEADER, I SHOWYOU THE POLITICAL DIVIDE IS NOT
THERE.
You HAVE A VERY BLUE STATE ANDA VERY RED STATE, both DOING
THIS THROUGH VERY DIFFERENTREGIMES.
What HAPPENED THIS year in bothTexas and California?
Not a single blackout becausethat storage kicked in, the
solar is running.
You're using the solar for thegrid.
(17:13):
You're also charging up thebatteries the whole time and
then you discharge the batteryand both states right now are
seeing four to five gigawatts ofenergy storage discharge
Unheard of.
Yeah, that's the breakthrough.
That's where I get excitedstorage.
Ryan (17:28):
Is that the same sort of like lithium-ion batteries that
are in your car?
Ron (17:32):
ease your test yeah, that's pretty pretty much what we're
talking about.
This is really interesting.
So most of it is happeningutility scale okay in front of
the meter, most of its utilityscale behind the meter.
Though we're seeingbreakthroughs in like VPPs,
virtual power plants and theidea there is I have an energy
(17:52):
storage device at my campus, mybuilding, my home.
I can use it for backup whenthe grid if the grid did go down
right, I can have it islandedand use just for my own facility
.
But most of the time, as a VPP,I could interact with the
market and so I could sell itback to the grid operator, and
(18:13):
that's what we're seeing playout really well in Texas right
now.
I think Texas is showcasing howa VPP model might play out, and
then you've got companies likeSunrun and Tesla and others who
are selling those battery packs,and then there's the inverter
control companies all the stuffthat we cover in grid.
Ryan (18:28):
Yeah, that's really an interesting area so there's a
lot of technology that'srequired in order to be able to
sell energy back onto the gridand take it off and, like that,
the two-way flow.
Ron (18:40):
That's the other breakthrough we've been talking
about you know you and I havetalked about it yeah, or so
that's bi-directionality, right,those break, but I would say
the utility scale, because Isaid the majority are utility
scale.
You don't need all thosebreakthroughs, the grid operator
has them.
The other big thing that'shappening which I think will be
very interesting to watch Ithink a lot of people aren't
thinking about it yet, but it'sstarting to gain some adoption
(19:05):
will be for the data centers toco-locate with solar and storage
.
They might do some natural gasas well.
I don't see natural gas goingaway right now.
Coal, it's pretty much done.
Nuclear it's too far out tohave in the short term, but
really you could continue to useyour natural gas, of course,
(19:25):
and you've got the solar, windand the storage layers, so it's
a pretty interesting time.
Ryan (19:31):
So you brought up nuclear and I think that is interesting
because it's one of thesetechnologies that seems like
it's pretty close.
But it's just.
You know, the small modularreactors there's not really
commercialized in the US anyway,small, small modular reactors
and the big technology companiesare all talking about that as
being a solution to supply theirenergy for their data centers.
(19:51):
Right, how far out are thosesmall modular reactor nuclear
technology?
Ron (19:57):
so the SMR is?
It's very uncertain.
The the promise of SMR is isthat they could be deployed very
quickly, that it wouldn't takea long time to develop them and
have them commercially available, and that it would be cheap.
Well, it's not proving to becheap right now and none of the
SMR manufacturers have adeployable product.
So we're looking out at theleast five years.
(20:18):
I don't even think that can bereached.
On our maturation model you knowthe clean edge maturation model
that you've seen before we'vegot it pretty much at like a
number, nine or 10.
That's not the number of years,but that's how far out it is
from commercialization and massavailability.
There could be a breakthrough,but we're not seeing it.
So I just would say that theSMRs are a good eight to 10
(20:41):
years out at least, if they ever.
The question was, would youneed them?
Did solar and wind and andstorage and maybe geothermal?
I believe geothermal have amuch more adoption moving
forward in places with a lot ofgeothermal resources and with
heat pumps, yeah so, but I'm notsure about the SMRs yeah, yeah.
Ryan (21:02):
And then of course there's there's fusion, there's these
big.
Yeah, I just wrote that downhere.
Ron (21:09):
So for us, from a clean energy perspective, we have not
included traditional nuclearbecause of the waste issues
involved with nuclear, becauseof nuclear proliferation
concerns.
There are a lot of reasons whywe decided in the early days to
say nuclear was not part of ourclean energy value.
We don't punish it when we lookat the grid, like of course
(21:30):
there are a lot of grids with agood amount of base load nuclear
, that's great.
But new nuclear at largerscales probably unlikely.
Fusion would be thebreakthrough, absolutely.
That would certainly fit aclean energy framework.
But that is you know, let's see.
That would be interesting.
There are large companies likeMicrosoft and others who are
(21:53):
making purchase agreements withFusion.
That does not exist yet.
But if they can get it, yeah,power to them and we'll
definitely be tracking thosecompanies.
Ryan (22:02):
I did a podcast earlier this year with my friend Jim
Murchie.
Ron (22:06):
Oh yeah, I know Jim.
Ryan (22:08):
He's an energy guy and he made a funny comment about
fusion as being the technologythat's just always on the
horizon, it's always 10 yearsaway.
Ron (22:15):
Of course, it's always 10 years out.
Ryan (22:18):
And yeah.
I thought that was kind of afunny yet accurate comment about
fusion.
Ron (22:22):
I'm not going to bet that it's going to be here in 10
years.
Ryan (22:31):
But if it were as I said, it would match our definition of
clean tech.
Yeah, yeah, you know, itstrikes me that a lot of what
we've talked about whether it'swhat's happening in Texas and
California, or the wind in Iowa,or you know maybe where
geothermal is more appropriateWe've got such a big country
that's got such diverseresources and in that context it
seems difficult to have like abig federal policy on renewable
(22:53):
energy.
So a lot of that has fallen tostates, right, yeah, how do
states encourage renewableenergy or whatever source of
energy is going to be mostappropriate?
Ron (23:04):
So historically renewable portfolio standards, also called
RPS, have been the driver atthe state level.
There's something like 29states and the District of
Columbia.
I think there's 30 entities inthe US that have RPS.
Texas RPS is like 50%renewables on the grid by 2030.
(23:24):
California has 100% RPS by afurther out date.
So every state's been a littledifferent.
Those were the drivers for along time in the US.
So it's a great question.
I think with the cost now themarkets are making the decision
outside of the RPS, so you couldbeat your RPS target as long as
the free market is at play.
I think in the US we just needan all-of-the-above strategy and
(23:48):
everyone's kind of wonderingright now are we going to get
that?
But if it's an all-of-the-aboveenergy strategy, then you're
going to have the cheapest,fastest-to-deploy technology win
.
Ryan (23:57):
Right.
So, given the costs have comedown so much, how important are
subsidies?
And I ask that, with thebackdrop of a new administration
that is less friendly tosubsidies for renewables in
particular, do you think thatthat has an impact on deployment
of wind and solar, but also EVs, electric vehicles?
Ron (24:19):
I think, at the federal level, I see this as a question
of do we want to compete withChina?
That's the question here, of dowe want to compete with China?
Okay, that's the question here.
And I think anyone who's in apolicy lever decision-making
capacity at the federalgovernment has to ask that
existential question Are yougoing to see the future of EVs?
Are you going to see the futureof solar and wind?
Are you going to see the futureof transformers, storage,
(24:43):
lithium-ion battery packs all ofthat to China, because they are
leading in every one of thosetechnologies I just mentioned.
Now, we've been playing prettyclose.
If you look at where were thebiggest deployers of storage in
the last year or two, it's beenChina and the US.
That's where the activity'sbeen.
So do you see that or not?
I can't imagine.
In the end we see that, butthat is an existential question
(25:06):
and I think, in particular forEVs.
You mentioned that BYD yesterday.
This is incredible.
Did you see this?
I did.
Yeah, this is incredible.
Yeah, a five-minute charge to400 kilometers, which is 250
miles or something In fiveminutes.
So that's like filling up mytank.
That's the holy grail TANK,that's THE HOLY GRAIL.
And SO YOU KNOW GM AND FORD ANDTOYOTA AND NISSAN.
(25:28):
They CAN'T SIT AROUND AND WATCHCHINA DO THAT NOW.
China DID IT IN A VERYDIFFERENT WAY.
They JUST SUPPORTED IT LIKECRAZY.
They LET COMPETITION PLAY OUT.
It's WEIRD TO THINK ABOUT THAT.
The OLD FRAME OF CHINA IS.
You KNOW CONTROL BUT THEY JUSTyou know control, but they just
let all of these companiescompete it out.
Only a few will survive, or anumber or a dozen, or you know
(25:49):
five, whoever Xiaomi or BYD orNIO, whoever it's going to be,
but they're going to have fastcharging long range and they're,
you know, to be a 25,000-hourprice point.
We can't compete with thatglobally if we don't have
policies in place to support it.
Ryan (26:04):
Yeah, you mentioned China.
I was looking at some data theother day just looking at
capacity electrical powercapacity in China versus the US
and in 2010, which you know,that's 15 years ago or so the US
had more power capacity thanChina.
Today, china has something likethree times the power capacity
Two or three.
Yeah, yeah, I mean it's amultiple and, and they've done
(26:27):
it with wind, and solar and coaland nuclear Exactly, They've
really gone all in.
Ron (26:32):
They're actually the only place building nuclear today
successfully.
No other place is.
Ryan (26:36):
Right, and so you mentioned it as sort of seeding
the technology and existentialrisk.
But also they have morecapacity to work on things like
data centers and building up AI.
Everyone's focused on AI thesedays and they've I don't know
per capita, they probably haveless energy capacity?
Ron (26:57):
Oh, they do, of course, of course.
Ryan (26:58):
But they have all this new scale of capacity.
Ron (27:02):
Well, I wouldn't say they fully leapfrogged, but they're
getting pretty.
I don't know if you saw this,but last year in July, for the
first time, there were more newenergy vehicles sold in China
than there were internalcombustion engines.
It crossed the 50% mark.
That's going to continue.
So they're really ahead of thecurve here and that's for China.
(27:22):
There's millions of vehicles.
This is a lot of sales.
So yeah, it's going to bereally interesting.
When we wrote the CleantechRevolution this is crazy because
the book came out in 2007.
We were writing it in 2006.
We went to China to write thebook we had a whole chapter on
China.
So China has been at play for awhile now through their
five-year plans and that hasreally proven a very you know.
(27:48):
It's really proven out thatthey had that vision and they
were able to get there.
Ryan (27:53):
Okay, so shifting back to the power grid for a second, the
numbers are staggering.
When I look at some of theprojections for how much is
going to be spent on power grids, I was looking at a report from
Bloomberg and they estimate,depending on their scenario,
somewhere between 14 and $22trillion in capital expenditures
(28:15):
between now and 2050.
Why is it such a big number?
I mean, how do you spend thatmuch money?
Ron (28:22):
Yeah, so that's through the end of 2040, the 2040, so the
beginning of 2050.
Those are for a net zeroscenario.
Interestingly, as much moneywill be spent, if not more, on
the grid and storage becausegrid includes storage, storage,
because GRID INCLUDES STORAGETHAN ON CLEAN ENERGY GENERATION.
Yeah, I THINK WE'RE AT A PLACEI LIKE TO TELL THIS STORY OF,
(28:46):
actually WHEN WE WROTE OUR FIRSTBOOK, we TALKED ABOUT IF YOU
BROUGHT EDISON AND TESLA BACKFROM THE GRAVE AND YOU SHOW THEM
THE GRID, they WOULD SAY YEAH,great, yeah, yeah, I totally get
it.
Like what technology would thatplay out like 100 years later?
They'd get it.
Imagine like the mainframecomputer designers for IBM
looking at an iPhone.
They'd be absolutely blown away.
So it hasn't changed a lot.
(29:08):
It stayed very thatbidirectionality.
We talked about the HVDC lines,the high-voltage direct current
lines in the transmission realm.
So we need to rebuild the gridinfrastructure.
We have to recondition the gridinfrastructure.
We have to modernize the gridinfrastructure.
One thing that we did before wefocused solely on indexing is
(29:29):
we put on an event called theGrid Connects.
I don't know if you ever madeit.
It was in DC with our partnersover at Gridwise Alliance.
This is where a lot of activityis going to play out.
You're talking about thebackbone of electrified
civilization, so of course it'sgoing to cost a lot of money.
Ryan (29:47):
Yeah, and now there's these sort of new vectors of
demand whether it's AI, datacenters, evs have sort of been
around for a while.
Now we're seeing bigannouncements from huge
companies about manufacturing.
Apple said they're going tospend half a trillion dollars in
the next four years.
Eli Lilly is going to spendsomething like $27 billion.
Taiwan semiconductormanufacturers are going to spend
(30:10):
$100 billion in new spending.
All this manufacturing needspower as well and needs to hook
those things up.
One of the things that is kindof interesting, as you hear
about all the semiconductormanufacturing, is not just their
linkage to power, which we'vebeen talking about, but also
their demand for water and theultra-purified water that they
(30:32):
need, the resources.
I looked this up the other dayand with the aid of some of the
AI, chatbots, yeah sure.
And what it told me was that alarge fab processing 40,000
wafers per month could use 4 to10 million gallons of water per
(30:54):
day.
Yeah, that seems like a lot.
Ron (30:56):
Yeah, so it's another reason why we track water.
As I said earlier, there's alimited supply of potable water
for drinking.
There's a limited supply ofwater for industrial purposes.
Right now, the consumption ofwater goes hand in hand with
energy usage and energyconsumption.
Every query you do on chat, gbtor other AI systems chat boxes
(31:19):
uses considerably morecomputational power than a
Google search.
So we are moving into an age offlat growth, to demand growth,
and that's going to equate tomore water usage.
So that is another huge area ofopportunity.
I think one thing I would say isthe low-hanging fruit of
efficiency is always important.
(31:39):
We are doing more with us.
You look at, I used to live inJapan, right?
Japan is one of the mostproductive electricity users in
the world.
Because they have no naturalresources, they are now moving
towards renewables, but theyhave to be super efficient.
And the same thing is going toplay out in data centers, in all
types of processes, where youdo more with less.
(32:02):
So we got to work on that too,and as computational demands are
less but that's a little bit ofa paradox, because you might
use even more energy if you canget more computational queries
for less.
Ryan (32:13):
Yeah, it's like Jevons paradox.
I got to decide.
If I agree with that, Somethingbecomes more efficient, and
then you.
Well, that's why we all haveiPhones in our pockets right.
And laptops.
Ron (32:22):
And we'll all have, obviously, our own.
I'm just starting to use,finally, chat, gpt or it doesn't
matter which one I'm using, butwe're starting to use AI more.
I imagine I'll have my ownpersonal chatbot at some point.
I guess they're talking aboutthat.
I do believe I told my kids theother day I don't know if they
like this idea, but I thinkrobotics are finally are going
to happen.
(32:42):
So that's another area whereyou take AI and robotics and
you've got sort of helpers.
Ryan (32:48):
Yeah, I guess the robotics displays the consumer
electronics show were the bigshowstopper this year and I hear
that more and more from people,people that robotics are going
to be sort of the next big thing.
Ron (32:59):
I think robotics are where clean energy was 20 years ago,
and storage, so we could besitting here in 15, 20 years
talking about that.
Ryan (33:06):
Let me ask you this Would you want a robot like Butler?
Ron (33:09):
Well, that's what my kids are horrified Watching my
elderly parents.
Yes, I think I will want one.
Ryan (33:14):
It's tough to envision.
Ron (33:18):
Japan is leading the charge on that, because they have so
much of a decline in youngpopulation and their birth rates
are down, and so they're goingto need to take care of a lot of
elderly, so we'll see how thatplays out for sure.
Ryan (33:30):
I mean between you and I and the audience here.
I'm afraid that the robotbutler would turn on me.
Right, this is the fear,because it's because I was
raised on the Terminator movies,or you know it just in the back
of my mind.
Ron (33:43):
I understand that, and my kids, who are 17, felt the same
way.
Ryan (33:48):
The other thing with water that I've noticed.
You know we're all talkingthinking about inflation.
Obviously, inflation surgedover the last couple of years
and that's generalized inflation.
But one of the aspects ofinflation that has been very
under the radar over the lastdecade or so has been the
inflation, the cost of water andsewage yeah, that's a great,
it's actually gone up twice asfast as general inflation over
(34:10):
the last 15 or so years.
Yeah, why is that?
Ron (34:12):
I think there's two.
Well, there's a number ofreasons, okay.
One is that water historicallyhas been undervalued.
It's been really cheap, okay.
So that was one.
I mean.
One IS THAT WATER HISTORICALLYHAS BEEN UNDERVALUED.
It's BEEN REALLY CHEAP, okay.
So THAT WAS ONE.
I MEAN LIKE IT DIDN'T YOUWEREN'T PAYING A LOT OF MONEY
FOR YOUR WATER UTILITIES, rightCOMPARED TO YOUR ELECTRICITY OR
GAS, so I THINK IT WAS NOTREALLY PRICED AT TO COVER COSTS.
As WELL, we all use a decentamount of water because we
(34:33):
shower, we use it for sewage, weuse it for cooking and drinking
.
You need a lot of water.
So that was one issue.
The other issue is that newchallenges have arisen, so
watersheds have been depleted.
Obviously there's droughts thatare huge pressure.
There's been a lot of issueswith too much water where you
(34:56):
don't want it and not enoughwater where you do need it.
So the rates include sewage andtreatment and also managing
floodplains.
So there's all of that.
And then there's also been theadvent of the PFAS issue, which
are the forever chemicals, andthere's a lot more money that's
needed to be spent to make surewe can remove the PFAS from the
(35:17):
water, and that's justmicroplastics that we all Well,
there's microplastics as SPENTTO MAKE SURE WE CAN REMOVE THE
PFAS FROM THE WATER SYSTEM.
Ryan (35:19):
That's JUST MICROPLASTICS THAT WE ALL HAVE.
Ron (35:19):
WELL, there's MICROPLASTICS , as WELL, AND THEN THERE'S PFAS
, which ARE THOSE ARE DIFFERENTTHINGS, correct, which ARE MORE
FROM ITAFON AND OTHER STUFF.
So THAT'S KIND OF WHERE WE'REAT, we're INGESTING.
I've given a lot of reasons.
There's other ones, of course,but one other reason is the
aging infrastructure.
It's not dissimilar to look.
(35:41):
We have water systems that havebeen in place 30, 40, 50, 80
years, that's pipes that aredeteriorating, and so you have
to go in and scope them andfigure out where you're going to
have problems.
You have to dig up, of course,and rebuild.
Ryan (35:55):
So there's a lot of aging infrastructure and's going to
take great that seems likesomething where technology would
be helpful as well to have somesome way to detect breakages
and pipes and things.
Ron (36:07):
Yeah, yeah, so that's happening and that's why so.
The metering business is bothin the electric and gas and
water industry.
So like I-tron and Landis andGarin those companies, they they
make meters and Badger theymake meters not just for
electricity but for water, andso you can detect if there are
issues in the system.
They're using all types ofsmart metering and other
(36:30):
technologies and scopes tofigure out like where is the
problem on this?
You know, in a city, let's say,where we've got an issue?
In the old days they didn'treally know till there was a
major disruption.
Now they can kind of startdetecting that some the flow
ain't the same and it's like whyis that happening?
Ryan (36:47):
and they can go in and uncover the problem okay yeah,
you know, I'm looking at thetime and it's it's flown by here
.
It's been a great conversation.
My last question for you is, asyou're kind of on airplanes or
walking through, you know,listening to audio books or
reading audio or reading paperbooks or sitting in your office
(37:08):
in Oregon what is on the RonPernick reading list?
Any books that have come across?
Ron (37:13):
So I've been doing way too much reading on autocracy.
So I've done a little bit ofthat to understand what's
happening politically around theworld as some democracies move
to other types of structures.
So I'm trying to understandthat.
My fun reading most recentlywas a novel called the Wedding
Party Loved it.
I actually recommend it toanyone who likes it.
Yes, it's a novel.
It was great.
(37:33):
I won't go into the details ofit, but it was really great.
And then I just orderedAbundance by Ezra Klein and it
should be in Portland when I getback tomorrow, and that's my
next book on my reading list.
Ryan (37:46):
Very good.
Well, that is one that I'llhave to add to the list as well,
but again, I appreciate youcoming out.
You're a native of Oregon.
Ron (37:55):
No, no, I'm a native of Michigan.
You live in Oregon.
No, I'm a native of Michigan,you live in Oregon, though.
Yes, yeah, no, no, I left.
Ryan (38:00):
So I understand, okay, yeah.
Ron (38:02):
Michigan, Japan, Oregon and California in between.
Ryan (38:05):
But you did make the trip from Oregon.
Yes, I did, I came from Oregontoday, absolutely.
Yeah, well, we do appreciate it.
Thank you for coming on the ROIpodcast and it's been a great
conversation.
Ron (38:16):
So thank you so much.
Ryan (38:17):
Yeah, and thanks to all of you for joining us for this
episode of the First Trust ROIPodcast.
We'll see you next time.
Hi, welcome to this episode of the First Trust ROI
podcast.
I'm Ryan Isakainen, ETFstrategist at First Trust.
Today, I'm pleased to be joinedby Ron Pernick, co-founder and
managing director at CleanEdge.
Cleanedge is an index providerand research firm covering clean
energy, the power grid, water,as well as transportation.
(00:30):
Ron and I are gonna discusswhat's happening in some of
those areas today, especiallywith the new administration,
with the threat of higherinterest rates and inflation.
What is the impact on some ofthose factors on the space and
what can we expect as we goforward?
Thanks for joining us on thisepisode of the First Trust ROI
Podcast.
Well, Ron, I am so happy to bein the studio here talking with
(00:53):
you at the studio at NASDAQ.
You've been at this for a whiledoing research and studying
green energy, clean energy, thepower grid, all the related
issues, water, the water systems, infrastructure.
But how did you get into that?
What's the origin story of yourfirm's clean edge Right?
How did you start doing that?
(01:16):
What kind of was the catalystthat led you to that?
Ron (01:19):
It goes back to the 80s when I was in university at
Michigan State back in themid-80s.
I was very interested in cleanenergy.
Back then we didn't call itclean energy, usually
alternative or appropriatetechnology and I was very
interested in getting into thatspace, took some classes in it,
graduated with a degree morefocused on telecom and ended up
(01:41):
working in telecom in Asia forabout five years, living
primarily in Japan.
So I've always sort of beeninterested in like what are the
emerging technologies that aregoing to occur in broader
economies?
And obviously telecom in the80s was deregulating and there's
a lot of similarities actuallybetween the deregulation we're
seeing in the energy space andthe connection between
(02:03):
digitization and telecom andwhat's happening now in energy.
So that was sort of theprecursor for me.
I moved to the Bay Area in 1990after being in Japan and I
really again wanted to do cleanenergy.
Timing was wrong.
I got very fortunate.
I was right in the epicenter ofwhat was happening with the
internet.
I started with early bulletinboards and went all the way
(02:26):
through to web-based travelservices and lots of other.
You can look up my name andinternet and you'll see some
early stuff.
But it was really a learningground for me about innovation
and I met tons of internet folksright.
So and what happened?
In about 1999, I was doingconsulting on web strategies for
(02:50):
all types of organizations andI realized half of my clients
were in cleantech Wasn't calledthat yet, but that's what I
realized and I went out andtalked to my venture capitalist
friends and other groups, ngosand government agencies and I
realized the timing was finallyright for basically an analyst
firm that would track the cleantech emergent sector.
(03:12):
And I hooked up with JoelMcHour at Green Biz and we
started CleanEdge in 2000,.
So 25 years ago, and thatproved to be, you know, on the
early end.
We were before new energyfinance, but it was an important
lesson about innovation andmarkets and that's kind of where
I've always played and I thinknow it's really exciting.
(03:34):
We'll talk about it today.
These are now mature industries.
2000 was early, yeah, but I hadthe bug, so got into it early.
The venture capitalists werecoming in at that point.
You know, the early investorsin Tesla were starting to form
like technology partners, and soit's been a really interesting
(03:54):
ride In terms of clean edges.
Real quick we started offconvening, putting on
conferences, consulting togovernment agencies, ngos,
corporates.
We worked with a lot ofdifferent organizations, we
wrote reports and we didbenchmarking and out of the
benchmarking work that we did,we realized the need for company
equity indexing.
Ryan (04:14):
And that's what we were able to do.
That's how the relationshipbetween CleanEdge and First
Trust started Exactly.
We of course have fourdifferent ETFs that track
indices that your firm publishesand you do the research for and
provide some of theintellectual capital for those.
Can I tell you a?
Ron (04:32):
brief, interesting story, since we're at a Nasdaq market
site.
We had created our first cleanenergy stock index.
This is like 2005 and we werelooking at organizations which
we could partner with because werealized a partnership would
make the index stronger.
And I got a phone call fromNasdaq three days before I was
(04:54):
going to sign an agreement witha different organization and and
they said, hey, like we keepseeing your name quoted and
stuff, have you ever thoughtabout doing a clean energy stock
index?
I said, well, yes, and I haveone.
And they said, well, let's talk.
And I said, can you movequickly?
And they said we can movequickly.
And a couple months later wehad the, the contract in place,
(05:15):
we had the agreement and then weconnected with you all and the
rest sort of played from there.
Ryan (05:20):
But that was about 20 years ago.
Yeah, exactly, yeah, yeah, and20 years it's yeah, it's a long
time.
It goes by in a.
It's a long time, but it reallydoesn't seem that long In terms
of at least from my perspective.
I feel like the time has reallyflown by, but it's watching
some of the maturity that you'rementioning take place in the
energy ecosystem overall, butespecially in some of the
(05:42):
renewable energy sources.
Where it was really early, itwas all dependent on subsidies
and there's still, of course,subsidies that people talk about
but costs have come down, somuch.
Ron (05:52):
So.
This is really interestingbecause I think when we started
CleanEdge, we looked at threepillars technology, capital and
policy.
Those is a three-legged stoolfor clean tech, for any emergent
technology, you need thetechnology innovation, you need
the policy supports and you needthe capital formation.
Those are all required, I think, because we came from the
internet space, we looked atclean tech and we saw it as a
(06:16):
innovation cycle, not an energyextraction cycle, and so the
growth that was going to happenwas going to come from PV panels
and the mass manufacturing,from wind turbines, from energy
THE ENERGY SECTOR.
We WERE ABLE TO HAVE ADIFFERENT VIEW OF THE SPACE THAN
SOMEONE COMING FROM THE ENERGYSECTOR, and WHAT'S PLAYED OUT IS
EXACTLY THAT.
The LEARNING CURVES THAT AREINHERENT IN SOLAR AND WIND AND
(06:36):
STORAGE LOOK MUCH MORE LIKECHIPS THAN THE ENERGY SECTOR,
and SO WE WERE ABLE TO HAVE theenergy sector, and what's played
out is exactly that thelearning curves that are
inherent in solar and wind andstorage look much more like
chips than they look like oiland gas.
Ryan (06:52):
Yeah, you know it's interesting.
One of the things over theyears that I've enjoyed about
conversations with you, ron,have been it seems like
renewable energy is one of theseareas that just becomes over
the years has become more andmore political, more and more
ideological, and you do a goodjob.
Obviously, everyone has theirown biases and ideologies and
(07:13):
political views, but you do agreat job in looking at data and
sort of saying you know, thisis what's happening to cost,
this is what's happening withthe actual numbers without
inserting you know some of the,I guess, those biases and I
really appreciate that.
But one of the things that issurprising, I think, to many
(07:34):
people when we think aboutdifferent presidential
administrations and theperformance of different types
of stocks.
When I look back historically,you know we're obviously the
start of the Trumpadministration and you know some
people might wonder why.
I'm talking to somebody who'sinvolved in renewable energy as
well as the power grid and someof these other things.
It's really fascinating to mewhen I look back historically at
(07:57):
different administrations andsee that during the first Trump
administration there was some ofthe best performance that we've
seen for the renewable energycompanies and actually some of
the traditional energy companiesdidn't do as well.
And then in the lastadministration, the Biden
administration, we saw that sortof flip-flop.
And that's not to say thatpolicy isn't important, because
(08:18):
obviously it is, but it'scertainly not the only driver of
what happens.
And I guess my question for youis how do you unpack that?
Why is it that during the lastTrump administration some of
these renewable energy companiesdid really well, at least in
the public markets, and thenthat was the opposite during the
Biden administration?
Ron (08:36):
So it's a difficult question to answer.
I agree that it's a bit of aconundrum to understand why
clean energy is up over 400percent over the four years of
the Trump administration.
A BIT OF A CONUNDRUM TOUNDERSTAND WHY CLEAN ENERGY IS
UP OVER 400% OVER THE FOUR YEARSOF THE TRUMP ADMINISTRATION AND
DOWN MORE THAN 50% UNDER BIDEN,and OIL AND GAS IS DOWN UNDER
TRUMP ONE AND UP CONSIDERABLYDURING BIDEN, and PART OF THAT
(08:59):
IS BECAUSE PRESIDENCIES AREN'TTHE MAIN THING THAT IMPACT THESE
MARKETS, because presidenciesaren't the main thing that
impact these markets.
They can try to exert theirinfluence, but there's global
efforts underway, there's statelevel and more regional
jurisdictions that are having animpact, and then there's just
the learning curves I talkedabout, and I think what happened
is that during Trump won, itbecame very clear to folks that
(09:23):
these economies of scale so forevery doubling of solar PV
manufacturing, the cost declinesabout 20%.
That's the learning curve.
It's a very similar learningcurve right now for energy
storage those transcend thepresidency, and so I think
people could see that.
The other thing that I thinkhappened although it can't be
(09:44):
explained just a post-COVID bump, because some of the best years
was the year or two beforeCOVID.
Under Trump, we were seeinggrowth as well in the markets,
but I do think there was anunderstanding that things were
going to shift and people wantedto reduce their carbon
footprint.
The other thing just to kind ofplay out here is that
(10:04):
corporations matter as well.
Sure, and most of thecorporations that were working
at that period were putting outpretty aggressive goals to
reduce their carbon footprint,therefore buying up and becoming
major owners and operators ofsolar, wind and storage assets.
Yeah, you look at a Google oran Amazon, things like that.
(10:25):
So that was also playing out.
The only other thing I would sayis right now, trump started his
presidency, trump II, with adrill, baby, drill mantra.
Sure, under Biden we now havethis is under his four years we
reached the largest amount ofexports of LNG in the history of
the United States.
(10:46):
We're the largest exporter byfar globally of LNG and we are
also the largest producer of oilRight 13 million barrels a day.
So that's kind of happenedunder Biden.
So the narratives don'tnecessarily align with the
reality and I think it's animportant thing to look at,
because a lot of people look andsay, oh, Biden was the climate
(11:08):
president and yet that's whathappened under his
administration.
So I think there is a lot ofother forces.
There are many different forcesand factors at play.
For sure.
Ryan (11:17):
And I think one of the forces that people have pointed
to that have maybe caused someof the renewable stocks to
underperform over the lastcouple of years anyway, have
been the combination ofinflation and higher interest
rates.
Obviously, if you're financingthe build out of a solar farm,
you know a lot of that costcomes up front, is that?
(11:40):
Do you think that hascontributed to or been the main
contributor to why some of thosestocks have maybe pulled back a
?
Ron (11:47):
bit.
I think I want to unpack thatin two different ways.
So, first of all, we take avery broad view of the energy
transition.
I think that's a better way tosort of think about what's
playing out right now.
And so within the energytransition, we have sort of the
clean energy pure plays,absolutely and then we have the
underlying grid, the backbonethat makes it all happen, of
course.
And so that's why, if you look,the performance of the grid
(12:11):
component of the energytransition has looked very
different than the performanceover the last few years of clean
energy Much different.
And so the reason I broughtthat up is like how can that be?
Like this is all energytransition.
There are different forces atplay.
You're asking about highinterest rates and things like
that, and yet one element didreally well and the other was
(12:32):
constrained.
I think part of what happenedfor clean energy is it got ahead
of itself.
I think there's a little bittoo much momentum there and
people got a little too excited.
It became a little bit like youknow, I went through the
Internet.
I people got a little tooexcited.
It became a little bit like youknow, I went through the
internet, I went through thebubble.
I went through the other sideof the bubble all the way
through to 99.
Well, I guess there weremultiple bubbles in the internet
, but so I think clean energyhad a little bit of that.
Ryan (12:53):
So it got a little ahead of itself, a little bit, yeah,
and then it came down.
Ron (12:58):
So the question would be where it goes from here?
Yeah, but throughout thatentire period, the grid
performed very well.
It performed like an industrialor infrastructure play, similar
to water, and you know thewhole water G I mean.
Energy and water are hard toseparate, so we track water as
well.
So I think that's one thing Ijust wanted to unpack.
High interest rates you're right, they absolutely impact clean
(13:20):
energy, in particular, becausethere's no fuel costs for solar,
there's no fuel costs for wind,there's no fuel costs for wind,
there's no fuel costs forstorage, but there's the upfront
capital cost.
So if you have a 2% increase ininterest rates, that could be
like a 20% increase per se in inthe LOI or the, the levelized
cost of energy for those sources.
(13:42):
However, throughout this period, let's not talk about the
companies, but the deploymentglobally.
In 2023, and we'll look for the2024 numbers will be out soon
globally, 83% of all newelectricity capacity additions
were from renewables, and wejust published on the CleanEdge
website our annual overview ofwhat happened in the US.
(14:04):
What percentage of energy doyou think came from solar just
from solar and wind last yearfor new capacity additions in
the US?
Would you gander a guess?
Ryan (14:12):
I would say it's a very, very high percentage, based on
how I presented that.
Ron (14:16):
So it's 90% Unheard of, never been there before, and
this year it's going to besimilar.
So the markets are going to thelowest cost, most easily or
most rapidly deployabletechnologies.
That's why this is sort of thetrain has left the station.
It's going to be hard.
You really can't stop that, andnot that you'd want to, but
(14:39):
that's where the action is,that's where the energy is.
Ryan (14:41):
I was just looking from the energy department.
They put out statistics aboutwhere the capacity adds are
going to be over the nextseveral years, and over the next
five years, far and away thebiggest capacity additions are
going to come from solar andthen from wind, and you know
they take away all theretirements from coal and some
of the retirements from naturalgas that are planned.
(15:02):
It's like all of the addedcapacity is coming from
renewables.
One of the things I waswondering about because of that,
though, is renewables, as weknow, are intermittent, and some
of the marginal increase indemand are coming from sources
of demand that are notintermittent, like data centers
or manufacturing things that weneed 24-7 power, so how do you
(15:26):
think about that?
Ron (15:26):
That's such a great question and first of all, I
have to say that historically,there were people who thought
that renewables couldn't reachmore than 10%, let's say, of a
grid's power source without itwreaking havoc, or something.
That was a misguided view.
Amory Lovins, who sort of wasthe father of clean energy in
the US, I would say THIS IS AFALLACY.
(15:47):
It's A FALLACY, IT'S ADISGUIDED VIEW.
Amory LOVINS, who WAS THEFATHER OF CLEAN ENERGY IN THE US
, I WOULD SAY AT THE ROCKYMOUNTAIN INSTITUTE, was LIKE NO,
that's A FALLACY.
We CAN GO MUCH HIGHER 30, 50%OR HIGHER.
So TODAY YOU LOOK AT IOWAproblem, but the breakthrough
that's occurred is storage.
Okay, and so when you pairsolar or wind with storage or
(16:10):
really with anything, you cannow get through those areas of
peak demand.
There's plenty of electricityon most of the grids.
It's just those three or fourhours when it's a hundred and
two degrees in taxes andeveryone's coming home and
everyone's putting up their ACand the loads just go crazy.
(16:30):
And so how do you cover thatload?
Well, both California and Texas,over the last three years, have
deployed an extreme amount ofbattery storage.
In fact, texas this year, maybenext year, but I think it'll be
BE THIS YEAR, 2025, we'llACTUALLY HAVE MORE DEPLOYED
STORAGE AND SOLAR THANCALIFORNIA.
(16:50):
The PERENNIAL LEADER, I SHOWYOU THE POLITICAL DIVIDE IS NOT
THERE.
You HAVE A VERY BLUE STATE ANDA VERY RED STATE, both DOING
THIS THROUGH VERY DIFFERENTREGIMES.
What HAPPENED THIS year in bothTexas and California?
Not a single blackout becausethat storage kicked in, the
solar is running.
You're using the solar for thegrid.
(17:13):
You're also charging up thebatteries the whole time and
then you discharge the batteryand both states right now are
seeing four to five gigawatts ofenergy storage discharge
Unheard of.
Yeah, that's the breakthrough.
That's where I get excitedstorage.
Ryan (17:28):
Is that the same sort of like lithium-ion batteries that
are in your car?
Ron (17:32):
ease your test yeah, that's pretty pretty much what we're
talking about.
This is really interesting.
So most of it is happeningutility scale okay in front of
the meter, most of its utilityscale behind the meter.
Though we're seeingbreakthroughs in like VPPs,
virtual power plants and theidea there is I have an energy
(17:52):
storage device at my campus, mybuilding, my home.
I can use it for backup whenthe grid if the grid did go down
right, I can have it islandedand use just for my own facility
.
But most of the time, as a VPP,I could interact with the
market and so I could sell itback to the grid operator, and
(18:13):
that's what we're seeing playout really well in Texas right
now.
I think Texas is showcasing howa VPP model might play out, and
then you've got companies likeSunrun and Tesla and others who
are selling those battery packs,and then there's the inverter
control companies all the stuffthat we cover in grid.
Ryan (18:28):
Yeah, that's really an interesting area so there's a
lot of technology that'srequired in order to be able to
sell energy back onto the gridand take it off and, like that,
the two-way flow.
Ron (18:40):
That's the other breakthrough we've been talking
about you know you and I havetalked about it yeah, or so
that's bi-directionality, right,those break, but I would say
the utility scale, because Isaid the majority are utility
scale.
You don't need all thosebreakthroughs, the grid operator
has them.
The other big thing that'shappening which I think will be
very interesting to watch Ithink a lot of people aren't
thinking about it yet, but it'sstarting to gain some adoption
(19:05):
will be for the data centers toco-locate with solar and storage
.
They might do some natural gasas well.
I don't see natural gas goingaway right now.
Coal, it's pretty much done.
Nuclear it's too far out tohave in the short term, but
really you could continue to useyour natural gas, of course,
(19:25):
and you've got the solar, windand the storage layers, so it's
a pretty interesting time.
Ryan (19:31):
So you brought up nuclear and I think that is interesting
because it's one of thesetechnologies that seems like
it's pretty close.
But it's just.
You know, the small modularreactors there's not really
commercialized in the US anyway,small, small modular reactors
and the big technology companiesare all talking about that as
being a solution to supply theirenergy for their data centers.
(19:51):
Right, how far out are thosesmall modular reactor nuclear
technology?
Ron (19:57):
so the SMR is?
It's very uncertain.
The the promise of SMR is isthat they could be deployed very
quickly, that it wouldn't takea long time to develop them and
have them commercially available, and that it would be cheap.
Well, it's not proving to becheap right now and none of the
SMR manufacturers have adeployable product.
So we're looking out at theleast five years.
(20:18):
I don't even think that can bereached.
On our maturation model you knowthe clean edge maturation model
that you've seen before we'vegot it pretty much at like a
number, nine or 10.
That's not the number of years,but that's how far out it is
from commercialization and massavailability.
There could be a breakthrough,but we're not seeing it.
So I just would say that theSMRs are a good eight to 10
(20:41):
years out at least, if they ever.
The question was, would youneed them?
Did solar and wind and andstorage and maybe geothermal?
I believe geothermal have amuch more adoption moving
forward in places with a lot ofgeothermal resources and with
heat pumps, yeah so, but I'm notsure about the SMRs yeah, yeah.
Ryan (21:02):
And then of course there's there's fusion, there's these
big.
Yeah, I just wrote that downhere.
Ron (21:09):
So for us, from a clean energy perspective, we have not
included traditional nuclearbecause of the waste issues
involved with nuclear, becauseof nuclear proliferation
concerns.
There are a lot of reasons whywe decided in the early days to
say nuclear was not part of ourclean energy value.
We don't punish it when we lookat the grid, like of course
(21:30):
there are a lot of grids with agood amount of base load nuclear
, that's great.
But new nuclear at largerscales probably unlikely.
Fusion would be thebreakthrough, absolutely.
That would certainly fit aclean energy framework.
But that is you know, let's see.
That would be interesting.
There are large companies likeMicrosoft and others who are
(21:53):
making purchase agreements withFusion.
That does not exist yet.
But if they can get it, yeah,power to them and we'll
definitely be tracking thosecompanies.
Ryan (22:02):
I did a podcast earlier this year with my friend Jim
Murchie.
Ron (22:06):
Oh yeah, I know Jim.
Ryan (22:08):
He's an energy guy and he made a funny comment about
fusion as being the technologythat's just always on the
horizon, it's always 10 yearsaway.
Ron (22:15):
Of course, it's always 10 years out.
Ryan (22:18):
And yeah.
I thought that was kind of afunny yet accurate comment about
fusion.
Ron (22:22):
I'm not going to bet that it's going to be here in 10
years.
Ryan (22:31):
But if it were as I said, it would match our definition of
clean tech.
Yeah, yeah, you know, itstrikes me that a lot of what
we've talked about whether it'swhat's happening in Texas and
California, or the wind in Iowa,or you know maybe where
geothermal is more appropriateWe've got such a big country
that's got such diverseresources and in that context it
seems difficult to have like abig federal policy on renewable
(22:53):
energy.
So a lot of that has fallen tostates, right, yeah, how do
states encourage renewableenergy or whatever source of
energy is going to be mostappropriate?
Ron (23:04):
So historically renewable portfolio standards, also called
RPS, have been the driver atthe state level.
There's something like 29states and the District of
Columbia.
I think there's 30 entities inthe US that have RPS.
Texas RPS is like 50%renewables on the grid by 2030.
(23:24):
California has 100% RPS by afurther out date.
So every state's been a littledifferent.
Those were the drivers for along time in the US.
So it's a great question.
I think with the cost now themarkets are making the decision
outside of the RPS, so you couldbeat your RPS target as long as
the free market is at play.
I think in the US we just needan all-of-the-above strategy and
(23:48):
everyone's kind of wonderingright now are we going to get
that?
But if it's an all-of-the-aboveenergy strategy, then you're
going to have the cheapest,fastest-to-deploy technology win
.
Ryan (23:57):
Right.
So, given the costs have comedown so much, how important are
subsidies?
And I ask that, with thebackdrop of a new administration
that is less friendly tosubsidies for renewables in
particular, do you think thatthat has an impact on deployment
of wind and solar, but also EVs, electric vehicles?
Ron (24:19):
I think, at the federal level, I see this as a question
of do we want to compete withChina?
That's the question here, of dowe want to compete with China?
Okay, that's the question here.
And I think anyone who's in apolicy lever decision-making
capacity at the federalgovernment has to ask that
existential question Are yougoing to see the future of EVs?
Are you going to see the futureof solar and wind?
Are you going to see the futureof transformers, storage,
(24:43):
lithium-ion battery packs all ofthat to China, because they are
leading in every one of thosetechnologies I just mentioned.
Now, we've been playing prettyclose.
If you look at where were thebiggest deployers of storage in
the last year or two, it's beenChina and the US.
That's where the activity'sbeen.
So do you see that or not?
I can't imagine.
In the end we see that, butthat is an existential question
(25:06):
and I think, in particular forEVs.
You mentioned that BYD yesterday.
This is incredible.
Did you see this?
I did.
Yeah, this is incredible.
Yeah, a five-minute charge to400 kilometers, which is 250
miles or something In fiveminutes.
So that's like filling up mytank.
That's the holy grail TANK,that's THE HOLY GRAIL.
And SO YOU KNOW GM AND FORD ANDTOYOTA AND NISSAN.
(25:28):
They CAN'T SIT AROUND AND WATCHCHINA DO THAT NOW.
China DID IT IN A VERYDIFFERENT WAY.
They JUST SUPPORTED IT LIKECRAZY.
They LET COMPETITION PLAY OUT.
It's WEIRD TO THINK ABOUT THAT.
The OLD FRAME OF CHINA IS.
You KNOW CONTROL BUT THEY JUSTyou know control, but they just
let all of these companiescompete it out.
Only a few will survive, or anumber or a dozen, or you know
(25:49):
five, whoever Xiaomi or BYD orNIO, whoever it's going to be,
but they're going to have fastcharging long range and they're,
you know, to be a 25,000-hourprice point.
We can't compete with thatglobally if we don't have
policies in place to support it.
Ryan (26:04):
Yeah, you mentioned China.
I was looking at some data theother day just looking at
capacity electrical powercapacity in China versus the US
and in 2010, which you know,that's 15 years ago or so the US
had more power capacity thanChina.
Today, china has something likethree times the power capacity
Two or three.
Yeah, yeah, I mean it's amultiple and, and they've done
(26:27):
it with wind, and solar and coaland nuclear Exactly, They've
really gone all in.
Ron (26:32):
They're actually the only place building nuclear today
successfully.
No other place is.
Ryan (26:36):
Right, and so you mentioned it as sort of seeding
the technology and existentialrisk.
But also they have morecapacity to work on things like
data centers and building up AI.
Everyone's focused on AI thesedays and they've I don't know
per capita, they probably haveless energy capacity?
Ron (26:57):
Oh, they do, of course, of course.
Ryan (26:58):
But they have all this new scale of capacity.
Ron (27:02):
Well, I wouldn't say they fully leapfrogged, but they're
getting pretty.
I don't know if you saw this,but last year in July, for the
first time, there were more newenergy vehicles sold in China
than there were internalcombustion engines.
It crossed the 50% mark.
That's going to continue.
So they're really ahead of thecurve here and that's for China.
(27:22):
There's millions of vehicles.
This is a lot of sales.
So yeah, it's going to bereally interesting.
When we wrote the CleantechRevolution this is crazy because
the book came out in 2007.
We were writing it in 2006.
We went to China to write thebook we had a whole chapter on
China.
So China has been at play for awhile now through their
five-year plans and that hasreally proven a very you know.
(27:48):
It's really proven out thatthey had that vision and they
were able to get there.
Ryan (27:53):
Okay, so shifting back to the power grid for a second, the
numbers are staggering.
When I look at some of theprojections for how much is
going to be spent on power grids, I was looking at a report from
Bloomberg and they estimate,depending on their scenario,
somewhere between 14 and $22trillion in capital expenditures
(28:15):
between now and 2050.
Why is it such a big number?
I mean, how do you spend thatmuch money?
Ron (28:22):
Yeah, so that's through the end of 2040, the 2040, so the
beginning of 2050.
Those are for a net zeroscenario.
Interestingly, as much moneywill be spent, if not more, on
the grid and storage becausegrid includes storage, storage,
because GRID INCLUDES STORAGETHAN ON CLEAN ENERGY GENERATION.
Yeah, I THINK WE'RE AT A PLACEI LIKE TO TELL THIS STORY OF,
(28:46):
actually WHEN WE WROTE OUR FIRSTBOOK, we TALKED ABOUT IF YOU
BROUGHT EDISON AND TESLA BACKFROM THE GRAVE AND YOU SHOW THEM
THE GRID, they WOULD SAY YEAH,great, yeah, yeah, I totally get
it.
Like what technology would thatplay out like 100 years later?
They'd get it.
Imagine like the mainframecomputer designers for IBM
looking at an iPhone.
They'd be absolutely blown away.
So it hasn't changed a lot.
(29:08):
It stayed very thatbidirectionality.
We talked about the HVDC lines,the high-voltage direct current
lines in the transmission realm.
So we need to rebuild the gridinfrastructure.
We have to recondition the gridinfrastructure.
We have to modernize the gridinfrastructure.
One thing that we did before wefocused solely on indexing is
(29:29):
we put on an event called theGrid Connects.
I don't know if you ever madeit.
It was in DC with our partnersover at Gridwise Alliance.
This is where a lot of activityis going to play out.
You're talking about thebackbone of electrified
civilization, so of course it'sgoing to cost a lot of money.
Ryan (29:47):
Yeah, and now there's these sort of new vectors of
demand whether it's AI, datacenters, evs have sort of been
around for a while.
Now we're seeing bigannouncements from huge
companies about manufacturing.
Apple said they're going tospend half a trillion dollars in
the next four years.
Eli Lilly is going to spendsomething like $27 billion.
Taiwan semiconductormanufacturers are going to spend
(30:10):
$100 billion in new spending.
All this manufacturing needspower as well and needs to hook
those things up.
One of the things that is kindof interesting, as you hear
about all the semiconductormanufacturing, is not just their
linkage to power, which we'vebeen talking about, but also
their demand for water and theultra-purified water that they
(30:32):
need, the resources.
I looked this up the other dayand with the aid of some of the
AI, chatbots, yeah sure.
And what it told me was that alarge fab processing 40,000
wafers per month could use 4 to10 million gallons of water per
(30:54):
day.
Yeah, that seems like a lot.
Ron (30:56):
Yeah, so it's another reason why we track water.
As I said earlier, there's alimited supply of potable water
for drinking.
There's a limited supply ofwater for industrial purposes.
Right now, the consumption ofwater goes hand in hand with
energy usage and energyconsumption.
Every query you do on chat, gbtor other AI systems chat boxes
(31:19):
uses considerably morecomputational power than a
Google search.
So we are moving into an age offlat growth, to demand growth,
and that's going to equate tomore water usage.
So that is another huge area ofopportunity.
I think one thing I would say isthe low-hanging fruit of
efficiency is always important.
(31:39):
We are doing more with us.
You look at, I used to live inJapan, right?
Japan is one of the mostproductive electricity users in
the world.
Because they have no naturalresources, they are now moving
towards renewables, but theyhave to be super efficient.
And the same thing is going toplay out in data centers, in all
types of processes, where youdo more with less.
(32:02):
So we got to work on that too,and as computational demands are
less but that's a little bit ofa paradox, because you might
use even more energy if you canget more computational queries
for less.
Ryan (32:13):
Yeah, it's like Jevons paradox.
I got to decide.
If I agree with that, Somethingbecomes more efficient, and
then you.
Well, that's why we all haveiPhones in our pockets right.
And laptops.
Ron (32:22):
And we'll all have, obviously, our own.
I'm just starting to use,finally, chat, gpt or it doesn't
matter which one I'm using, butwe're starting to use AI more.
I imagine I'll have my ownpersonal chatbot at some point.
I guess they're talking aboutthat.
I do believe I told my kids theother day I don't know if they
like this idea, but I thinkrobotics are finally are going
to happen.
(32:42):
So that's another area whereyou take AI and robotics and
you've got sort of helpers.
Ryan (32:48):
Yeah, I guess the robotics displays the consumer
electronics show were the bigshowstopper this year and I hear
that more and more from people,people that robotics are going
to be sort of the next big thing.
Ron (32:59):
I think robotics are where clean energy was 20 years ago,
and storage, so we could besitting here in 15, 20 years
talking about that.
Ryan (33:06):
Let me ask you this Would you want a robot like Butler?
Ron (33:09):
Well, that's what my kids are horrified Watching my
elderly parents.
Yes, I think I will want one.
Ryan (33:14):
It's tough to envision.
Ron (33:18):
Japan is leading the charge on that, because they have so
much of a decline in youngpopulation and their birth rates
are down, and so they're goingto need to take care of a lot of
elderly, so we'll see how thatplays out for sure.
Ryan (33:30):
I mean between you and I and the audience here.
I'm afraid that the robotbutler would turn on me.
Right, this is the fear,because it's because I was
raised on the Terminator movies,or you know it just in the back
of my mind.
Ron (33:43):
I understand that, and my kids, who are 17, felt the same
way.
Ryan (33:48):
The other thing with water that I've noticed.
You know we're all talkingthinking about inflation.
Obviously, inflation surgedover the last couple of years
and that's generalized inflation.
But one of the aspects ofinflation that has been very
under the radar over the lastdecade or so has been the
inflation, the cost of water andsewage yeah, that's a great,
it's actually gone up twice asfast as general inflation over
(34:10):
the last 15 or so years.
Yeah, why is that?
Ron (34:12):
I think there's two.
Well, there's a number ofreasons, okay.
One is that water historicallyhas been undervalued.
It's been really cheap, okay.
So that was one.
I mean.
One IS THAT WATER HISTORICALLYHAS BEEN UNDERVALUED.
It's BEEN REALLY CHEAP, okay.
So THAT WAS ONE.
I MEAN LIKE IT DIDN'T YOUWEREN'T PAYING A LOT OF MONEY
FOR YOUR WATER UTILITIES, rightCOMPARED TO YOUR ELECTRICITY OR
GAS, so I THINK IT WAS NOTREALLY PRICED AT TO COVER COSTS.
As WELL, we all use a decentamount of water because we
(34:33):
shower, we use it for sewage, weuse it for cooking and drinking
.
You need a lot of water.
So that was one issue.
The other issue is that newchallenges have arisen, so
watersheds have been depleted.
Obviously there's droughts thatare huge pressure.
There's been a lot of issueswith too much water where you
(34:56):
don't want it and not enoughwater where you do need it.
So the rates include sewage andtreatment and also managing
floodplains.
So there's all of that.
And then there's also been theadvent of the PFAS issue, which
are the forever chemicals, andthere's a lot more money that's
needed to be spent to make surewe can remove the PFAS from the
(35:17):
water, and that's justmicroplastics that we all Well,
there's microplastics as SPENTTO MAKE SURE WE CAN REMOVE THE
PFAS FROM THE WATER SYSTEM.
Ryan (35:19):
That's JUST MICROPLASTICS THAT WE ALL HAVE.
Ron (35:19):
WELL, there's MICROPLASTICS , as WELL, AND THEN THERE'S PFAS
, which ARE THOSE ARE DIFFERENTTHINGS, correct, which ARE MORE
FROM ITAFON AND OTHER STUFF.
So THAT'S KIND OF WHERE WE'REAT, we're INGESTING.
I've given a lot of reasons.
There's other ones, of course,but one other reason is the
aging infrastructure.
It's not dissimilar to look.
(35:41):
We have water systems that havebeen in place 30, 40, 50, 80
years, that's pipes that aredeteriorating, and so you have
to go in and scope them andfigure out where you're going to
have problems.
You have to dig up, of course,and rebuild.
Ryan (35:55):
So there's a lot of aging infrastructure and's going to
take great that seems likesomething where technology would
be helpful as well to have somesome way to detect breakages
and pipes and things.
Ron (36:07):
Yeah, yeah, so that's happening and that's why so.
The metering business is bothin the electric and gas and
water industry.
So like I-tron and Landis andGarin those companies, they they
make meters and Badger theymake meters not just for
electricity but for water, andso you can detect if there are
issues in the system.
They're using all types ofsmart metering and other
(36:30):
technologies and scopes tofigure out like where is the
problem on this?
You know, in a city, let's say,where we've got an issue?
In the old days they didn'treally know till there was a
major disruption.
Now they can kind of startdetecting that some the flow
ain't the same and it's like whyis that happening?
Ryan (36:47):
and they can go in and uncover the problem okay yeah,
you know, I'm looking at thetime and it's it's flown by here
.
It's been a great conversation.
My last question for you is, asyou're kind of on airplanes or
walking through, you know,listening to audio books or
reading audio or reading paperbooks or sitting in your office
(37:08):
in Oregon what is on the RonPernick reading list?
Any books that have come across?
Ron (37:13):
So I've been doing way too much reading on autocracy.
So I've done a little bit ofthat to understand what's
happening politically around theworld as some democracies move
to other types of structures.
So I'm trying to understandthat.
My fun reading most recentlywas a novel called the Wedding
Party Loved it.
I actually recommend it toanyone who likes it.
Yes, it's a novel.
It was great.
(37:33):
I won't go into the details ofit, but it was really great.
And then I just orderedAbundance by Ezra Klein and it
should be in Portland when I getback tomorrow, and that's my
next book on my reading list.
Ryan (37:46):
Very good.
Well, that is one that I'llhave to add to the list as well,
but again, I appreciate youcoming out.
You're a native of Oregon.
Ron (37:55):
No, no, I'm a native of Michigan.
You live in Oregon.
No, I'm a native of Michigan,you live in Oregon, though.
Yes, yeah, no, no, I left.
Ryan (38:00):
So I understand, okay, yeah.
Ron (38:02):
Michigan, Japan, Oregon and California in between.
Ryan (38:05):
But you did make the trip from Oregon.
Yes, I did, I came from Oregontoday, absolutely.
Yeah, well, we do appreciate it.
Thank you for coming on the ROIpodcast and it's been a great
conversation.
Ron (38:16):
So thank you so much.
Ryan (38:17):
Yeah, and thanks to all of you for joining us for this
episode of the First Trust ROIPodcast.
We'll see you next time.
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