title: 219. Hyperscalers vs US Utilities - Mar26
author: Redefining Energy
contenttype: podcast
publication: Redefining Energy
published: 2026-03-09T01:05:02+00:00
sourceurl: https://dts.podtrac.com/redirect.mp3/api.spreaker.com/download/episode/70444191/219_woodmac.mp3
word_count: 6558
1 With a round Segal end from London and Gerard read 2 from Berlin. This is redefining. 3 Energy Today at Rated Finding Energy, we're going to talk 4 about hyperscanners and the utility landscape. 5 Yeah, because what it's crazy is we see the growth 6 of demand is geometric, and the utilities the supply it's arithmetic, 7 so there's really stress on the system. But first of all, 8 from our partner. 9 A b Loco Energy is Europe's premier leaser of ten 10 foot container mobile batteries built in Europe with COTL best 11 LFP cells. A Bloco Energy serves fourteen European countries, including France, 12 Germany and the UK. Our Blocko's batteries can be leased 13 for any duration between six weeks and six years and 14 they are monitored by the Dutch award winning platform school 15 a block O Energy. Make your life easier, make your 16 business more flexible. Back to the show, Lauren, But let's 17 be correct you that you're talking about us, You're not 18 talking about Europe. 19 Yeah, in the US, absolutely, because. 20 In Europe are not saying that's called demand growth. That 21 was saying in the States or anything like that. Yat, 22 you know it might happen, but right now or not. 23 In order to do so, we had invited, but unfortunately 24 you could not come because of your knee operation. How 25 it's getting better, Sliman. Our guest was. 26 Chris Seipel, who is the vice chairman of Whatmark Power 27 and Renewables Group. 28 And really he has delivered a master's class describing the 29 relationship between ut ties and I postcan. 30 Well, let's bring them on the show. 31 Chris, Welcome to the show. 32 Great to be here. 33 Well, Chris, we both have been working three years in 34 LG and I've just a first question for you. Have 35 you ever seen anything that what we're saying right now? 36 Not in my thirty years of working in power business. 37 I got into this business because in nineteen ninety two 38 I was in graduate school and I had two professors 39 from Washington, DC who would come up who were actually 40 negotiating the Energy Policy Act of nineteen ninety two that 41 deregulated the electric power business. And I got into this 42 business because I thought that was such an exciting time 43 because moving from monopolies to deregulation was going to change 44 the business so much, and it was a very exciting 45 decade as we went through that. But what's coming now 46 is having a much more fundamental impact on transformation of 47 the electric sector, which makes it just a super exciting 48 time to be in this business. 49 Yes, because for the past twenty years there's been a 50 lot of technological changes, but by and large, the demand 51 has been flat. So as we're going to try to 52 analyze what's going on, they are really two different aspects, 53 the demand and the supply. So first, probably let's jump 54 into the demand. And you are very kind to send 55 me this document called AI to War twenty seven, So 56 probably first explain to our listeners what is that crazy document? 57 It's a website. I spend some time in San Francisco 58 lifes Fall meeting with people deep in a research and 59 they all pointed me to this document and it lays 60 out month by month path to how AI could evolve 61 between twenty twenty five and twenty twenty seven. And a 62 core thesis that they have is that while you and 63 I are probably interacting with chat GBT and experiencing hallucinations 64 and things that it gets wrong and seeing some of 65 the limitations of it, all of the research that's happening 66 behind the scenes right now is oriented around actually dealing 67 with one of the biggest constraints, which is the availability 68 of AI researchers to improve models, and the focus is 69 on building the capabilities within the models themselves to become 70 the AI researchers. And it lays out this thesis around 71 how the pace of innovation in the AI model itself 72 is just going to start to go faster and faster 73 as the models are essentially able to work twenty four hours, 74 and instead of having a limited pool of researchers, you're 75 just limited by how much compute you can have in 76 having researchers work on the model. And so it lays 77 out this picture of just massive improvements in models achieving 78 artificial general intelligence, which is models that are as smart 79 or smarter than humans, and ultimately all of that resulting 80 in massive increases in electricity demand as more compute is 81 needed to transform industries and economies. 82 I know nothing about AI except what I read, but 83 I don't suffer from the dun Incog effect where liberally 84 reads five articles and think is becoming a world expert. 85 More compute I can buy, but with marked meat is 86 the infamous Mark Mets. Twenty five years ago, we predicted 87 that the Internet would don the planet and consume half 88 of the world power by two oh ten, and of 89 course nothing happened. So it's also realized a lot on 90 how fast the chips and the softwares can get the efficiency. 91 What do you hear? 92 I love that reference to the Mark Mills study. It's 93 a great case study. And for those who aren't familiar 94 with it, there were US power companies that were telling 95 Wall Street analysts that they were building so many new 96 power plants because of this explosive demand in digital economy 97 and the need for power to supply all of it. 98 And if you look back on that study, one of 99 the things that got most wrong was the extent to 100 which the industry that was managing all of that information 101 became so much more efficient than what it was in 102 two thousand. I do think today is fundamentally different than 103 when Mark Mills produced that study back in nineteen ninety nine, 104 in the sense that here's just an interesting statistic for you. 105 The hyperscalers, the large tech companies, all of them except 106 for Amazon, actually publish their historic electricity consumption. And when 107 you look at that data, even before AI was becoming 108 the growth engine, like the large language models and data 109 center compute, just the migration to the cloud and the 110 need for cloud compute was resulting in essentially a growth 111 rate where their need for data centers was doubling about 112 every four years, and the data center industry has already 113 gotten to a scale we're just like that doubling every 114 four years requires a large amount of data center capacity. 115 But so what's different is that there's this underlying trend 116 that's been around for four or five years. There's a 117 race to win in artificial intelligence with a lot of 118 companies now trying to compete in this space and add 119 a lot of data center capacity. And so over the 120 next five years there's going to be a very large 121 growth in data center capacity. But just like Mark Mills 122 back in two thousand, as we move beyond that, like 123 into the twenty thirties, there's a lot that could happen 124 on the efficiency improvement side and the efficiencies of the 125 models themselves and how much compute they require. 126 There are as many numbers floating around as consultants, but 127 one that I've seen kind of coming more and more 128 is number of one hundred and eighty gigawa of US 129 Electrictic commitments for data center for our listeners, that's one 130 or eighteen nuclear plants by and large, knowing this about 131 one hundred in the US. That is absolutely massive. And 132 if I can give another number, the hyperscalers who've invested 133 three hundred billion US dollars in capex into twenty five, 134 I've all announced that for Tour twenty six that's going 135 to be seven hundred billion dollars. Now it's not just 136 going to be powered, mostly going to be chips. Now, 137 if you look at the capex of a data center, 138 about twenty percent is power and eighty percent is chips 139 or you know, you'll tell me from right or wrong. 140 So how do you interpret that thirst for energy? 141 So let's take that one hundred and eighty gigawatts number. 142 It would result in about a thirty percent increase in 143 demand in the United States for electricity. It is equal 144 to like two French power systems. 145 That they would have to be rebuilt. 146 To put it into perspective, the number that we are 147 watching most closely is what have US utilities actually committed to? 148 And what I mean by that is a data center 149 has made an application to interconnect with an electric utility. 150 The electric utility has studied what it's required for it 151 to do to be able to accommodate that demand growth. 152 It has figured out how much it's going to cost 153 to add us to the system, and an agreement has 154 been signed, and typically the data center company is making 155 down payments to the electric utility for long lead time equipment. 156 So that's where the one hundred and eighty gigawatt number 157 comes from. That's what US utility have committed to at 158 this point. And what's important to keep in contexts and 159 the evolution of this is that for fifteen years, US 160 utilities have had no growth, so they didn't have teams 161 of people to respond to all of these requests. They 162 didn't have a culture of dealing with growth. The regulators 163 that regulate the utilities haven't regulated in an environment, most 164 of them where the industry is actually growing. Industry is 165 very unprepared for it, and a lot of change is 166 happening as they respond to this one hundred and eighty 167 gigawatts of commitments. 168 Well, one or eighty, that's for real, that's extraordinary. But 169 as you said, the industry has lost the muscile memory 170 of growth and they've been mostly managing their dividends and 171 you know, making sure the trees didn't fall on the line, 172 but that was kind of boring, and now it turns 173 out to be there in the one of the most 174 exciting sector are going on. And Chris, the most extraordinary 175 thing is you just tooking that center. So we're not 176 even talking about the electrification of transport or electrification of heat, 177 which in other countries are as big, if not then 178 data center. So I don't know what numbers are going 179 to look like because they're going to be antification of 180 transport at some point. 181 Correct part of the way I'm thinking about this is 182 that what's happening in the US right now is really 183 the first time that we have had a deregulated electricity 184 market experiencing substantial growth, and this is kind of a 185 precursor with provide lessons to be learned as other parts 186 of the globe, like Europe in particular, where electrification of 187 transports and heating likely become a bigger part of the 188 story what those markets are going to go through in 189 a few years as that becomes a bigger part of 190 the story. But I would say in the US, though, 191 the large loads are not confined to just data center demand. 192 Data center demand is most of it, but we also 193 have chip manufacturing facilities that are under construction. We have 194 electric battery manufacturing facilities. Those are all large loads that 195 are of a scale in size that the electric industry 196 hasn't had to deal with in the past. 197 And the interesting thing is that those clients can pay 198 because what you used to have with big industrial loads 199 is that those who are like large volume, low margin, 200 like you know, steel or refining, where every sense petkida 201 whateur would count was here. The margin on computer is 202 so ginomous, and those people are willing to pay a 203 lot in order to get their power fast, which was 204 not probably the case before. 205 Yeah, that is a super important point. The reason that 206 I think that is so important is that you have 207 a buyer that puts enormous value on something, namely electricity, 208 that they're not able to get enough of right now. 209 When you have those type of conditions, that is the 210 type of condition the results in innovation that is difficult 211 to predict. We don't know exactly where it's going to 212 come from. But when you have somebody that values something 213 so much they can't get that's when we see innovation. 214 That's part of what makes this time period so exciting 215 in the electric power business. As we talk, we're starting 216 to see some of that innovation take place. 217 Now. You have clearly defined the sector in the US 218 as really been in two buckets, the regulated part and 219 the unregulated part, which probably reminds you how you started 220 your career. Let's dive first into the regulated part, which 221 are regional, fully vertically integrated dutties, and then we talk 222 about the unregulated market. So what's your take on the 223 regulated utilities. 224 The first thing I would say is there's differentiation happening. 225 There are regulated utilities that are finding ways to transfer 226 themselves to become a home for data centers, and those 227 utilities are actually becoming growth stocks, not something you would 228 normally associate with an electric utility. But let us focus 229 on the ones that are innovating in what they're doing 230 and the types of innovations that they're bringing to kind 231 of become a home for data centers. Three years ago, 232 they were getting inundated with data center requests. They have 233 chip manufacturing facility under construction. They actually have all of 234 the different types of loads I was talking about. They 235 had no process whatsoever to deal with it. It's literally 236 like a group of executives sitting around the table saying 237 I'm going to prioritize that project, not that project. We're 238 going to call this politician to tell them we're not 239 doing the project that's in their district. And it wasn't transparent. 240 Not a great way to communicate about it. You know, 241 another thing about this electric utility, I don't think they 242 had a single load over five megawatts in two thousand 243 and twenty, and probably by the time that they get 244 to two thousand and thirty two thousand and thirty, one 245 thirty percent of all of their demand is going to 246 be coming from just a few large load customers. So 247 to deal with this where they have to make a 248 large investment to support one facility, they've changed how their 249 tariffs work. Historically, tariffs have been you average up all 250 the costs of electric utility and you allocate that across 251 all of the customers, with some differentiation in customer classes. 252 What they're trying to do is develop tariffs that are 253 very specific to this customer, where they allocate all the 254 costs of serving that customer directly to that individual customer. 255 And unlike electric utilities of the past, they have all 256 types of credit requirements, they have minimum payment charges that 257 this data center company has to make to be able 258 to mitigate the risk of those costs eventually falling on 259 existing customers if something went wrong. But what I found 260 even more kind of transformational about this particular electric utility 261 is that they're now able to analyze their system and 262 have a conversation with a data center company, And this 263 is a real life example where they can say, if 264 you give us three hundred hours of interruptible power during 265 the wintertime between the hours of eleven o'clock at night 266 and seven in the morning, we can get you online 267 four years earlier because we can meet your demand from 268 our existing resources. So that's like an analytical capability that 269 they didn't have before. Is kind of an example of 270 them finding a way to get somebody online even faster. 271 And now they've even gone beyond all of that to 272 develop like a subscription model where they have acquired a 273 site that they can put two thousand megawatts of gas 274 fire generation on, so very large gas fired power plant, 275 and data centers are basically bidding to subscribe to that 276 capacity and to pay for the cost of building all 277 of that capacity. So that's just kind of like one 278 example of how a regulated electric utility has transformed itself 279 in responding to this demand growth. 280 And we've seen recently in the price a lot of 281 announcement of hundreds of billions of investment from those regulator utts. 282 So I'm going to name a few juke ANTLG Southern 283 Center point to a lesser extent, those guys are really 284 boosting their investment like we've never seen before. 285 Yeah, And talking with one of the data center companies, 286 they were telling me what their ideal energy supplier looks like. 287 One of the things that they said was interesting was 288 we want an energy supplier who can actually go into 289 the local community and help us with the permitting of 290 our data center and help change the zoning requirements that 291 we need at a local level. They want a partner 292 who who cannot just necessarily deliver energy to them, but 293 knows the local community really well and can deliver these 294 other benefits. And when you think about who's best poise 295 to do that in the energy world, it's the regulated 296 monopoly utilities that have really strong political connections, typically within 297 their service territories. And you're seeing that, you know, most 298 of the companies that you just mentioned are those vertically 299 integrated regulated electric utilities. 300 So now switching to the unregulated utilities, and here I'm 301 gonna name a few Constellation, Vistra, and RG Those guys 302 have mostly been busy buying existing assets, somehow bitting that 303 the price on a regulated market would go up, whether 304 it's on PGM, COT or is where those der regulator 305 market looks very, very different from the regulator utilities. 306 Yeah, let's step back a second and dissect the deregulated markets. 307 In the deregulated markets, you have regulated utilities, but they 308 only own the wires. They don't own generation supply. So 309 that's how they're different from the regulated utilities group we're 310 just talking about which are regulated. Their generation is regulated, 311 their transmission is regulated in their service territories. The data 312 center doesn't have a choice of who they buy from. 313 They have to buy from the regulated utilities. In the 314 deregulated market, the wires only utilities. They represent about half 315 of the commitments to adding data center capacity to the grid, 316 but when they study the request to connect somebody to 317 the grid, they only look at what investment has to 318 be made in the grid to accommodate this data center. 319 They have no responsibility or obligation and for the most 320 part aren't even allowed to participate in the generation market 321 and figure out how to meet the generation supply to 322 be able to supply power to that data center. So 323 so it's creating a real kind of planning predicament for 324 the industry. You have utilities in Texas, single state, that 325 have committed to fifty gigawatts of new load coming onto 326 the grid, and there's no coordinated plan for how supply 327 will be brought on to match it. And there's two 328 fundamental problems. The first is you can build a data 329 center a lot faster than you can build a new 330 power plant. That creates a mismatch and being able to 331 maintain demand and supply. And the second problem you have 332 is a political problem, which is the regulated utility I 333 describe is able to allocate all of the cost of 334 building its power plant directly to the data centers and 335 the deregulated markets. The way it's supposed to work is 336 Adam Smith's invisible hand and price setting mechanisms that result 337 in new supply getting built. And what that means is 338 if you look at the power markets right now in 339 the US, our prices are at about half the level 340 of what's required to provide a price incentive to build 341 a new power plant, to get somebody like Vista or 342 Constellation of the companies that you mentioned to build a 343 new power plant. And if prices rise to provide that signal, 344 then prices have to rise for our customers. And that 345 has become a big political problem, as affordability of energy 346 is one of the biggest political issues right now in 347 the United States. 348 So basically what you're saying is that something also we've 349 seen all around the world is when the market are tight, 350 government or at least a central command control is more efficient. 351 Was when the market are laxed and over supply, This 352 is where the market creates a good price discovery. And 353 now as we are moving from one relatively laxed market 354 to a more stressed one, it looks like naturally the 355 regulated central command a more efficient into responding to this 356 rise of demand. Yeah. 357 I sometimes have a hard time emotionally saying this, Laurel, 358 because I got into this business because I saw the 359 promise of drying in all the innovation that it could create. 360 But the reality of what I'm seeing right now is 361 that the vertically integrated regulated utilities, some of them, not 362 all of them, are doing a better job at responding 363 to the demand growth. And I think there's one critical 364 reason for this. It goes back to the story that 365 I described earlier of an electric utility being able to 366 communicate to somebody that if you give me interruptable power, 367 I can get you online four years in advance. It's 368 because the vertically integrated regulated utilities are looking at their 369 system on an integrated basis what investment needs to be 370 made in transmission and distribution and generation to most efficiently 371 support this customer. In the deregulated markets, there's not co 372 ordination in the planning right now between how generation gets 373 added to the grid and how load gets added to 374 the grid, and that disconnect makes it a lot harder 375 to efficiently accomplish this. In the deregulator markets plusters the 376 political overlay. 377 Plus on the top of that, the price of equipment 378 has gone Ballistick. You used to have your assistant BC 379 at one that apple What now it's at three that apple. 380 Wa So go get any type of LCE below one 381 hundred that up and make what our those prices can't 382 be done? Yeah? Sure, when we all know so, we'll 383 always find this way. But you need a lot of 384 land and some batteries. But so somebody don't mean the 385 other day, I just puts it out on the roof 386 of the data center, as my friend, you're gonna put 387 the five hundred megawat data centers. Okay, you're gonna copy 388 the roof. You're gonna get ten mega? What well the 389 four ninety coming? And of course that opens a lot 390 of fantasies around SMRs and fusion and whatever, because everybody 391 who supposedly as a solution is going to propose whatever 392 in their book. Chris, how do you see that playing 393 out in the de regulated market. 394 There's a couple potential paths that it could take, and 395 this has important implications for investors in the sector and 396 how things will work out for the companies that you mentioned, 397 like the Vistras and the Constellation Energies. One plausible scenario 398 is we actually see some reregulation of the market to 399 some extent and allow some of the regulated utilities to 400 get back into the regulated generation business, and some of 401 them are pushing for that. I think a second more 402 likely possibility is what we will see emerge is a 403 market that has one price for new capacity and one 404 price for existing capacity, and we will see structures put 405 in place in those markets where the new load that 406 is coming into the market essentially has to sign long 407 term purchase power agreements. That has to come from a 408 new power plant that has been built. It can't come 409 from an existing power plant, and that has very important 410 implications for the value of existing assets, and there will 411 be an attempt by politicians to kind of have this 412 one price for the new capacity, make sure there's overall 413 oversupply in the market as it relates to all of 414 the existing capacity, and we get differentiation in those prices. Ideally, 415 we would see an attempt to try to make the 416 market work and develop structures that result in better connection 417 between generation planning and transmission planning, but I think it's 418 likely that politics will interfere with a plan that does that, 419 where you would see substantial price increases for all customers. 420 One other thing to note, just on the regulated sides too, 421 is just on the transformation in the innovation side. Because 422 of the pressure on regulated rates, we're starting to see 423 things like utilities pushed by the regulators to embrace more 424 things like grid enhancing technology that get more capacity out 425 of the existing grid. It's causing a lot more pressure 426 on developing mechanisms and structures that create more opportunity for 427 distributed energy resources and things like that, and you can 428 see the early signs of that starting to take hold, 429 which I think is going to create opportunities for other 430 players to come into the space. 431 Yeah, because they're old models of utility used to be 432 what can we build, what can we build, what can 433 we put in the rates? And probably at some point 434 they're also going to be reregulated in the sense that 435 they will need to account for a much more efficient 436 system to be run and just not piling a passet. 437 There's so much to be built that they have a 438 wrong growth story even as they become more efficient, and 439 when they didn't have that growth to do it, there 440 was things that would make them more efficient might take 441 away any growth opportunity they had. So it's really a 442 new kind of paradigm for the regulated utilities. 443 Well, Chris, from what we discuss, it looks like there 444 is a chinomus investment opportunity at every level. Where is 445 it going to be. 446 The scale of the opportunity that exists for investment in 447 new sources of supply? We need all supply sources, So 448 this is an opportunity for investment and gas power plants. 449 This is an opportunity for investment in batteries, in solar 450 and wind like all resources are necessary to all hands 451 on deck right now, and the scale of that opportunity 452 is larger than it's ever been during my thirty years 453 of working in this business. But that's where the most 454 concentrated opportunity is right now. 455 To my friends and listeners from the investment funds, open 456 your checkbooks, game on exactly. Chris, thank you so much 457 for coming on the show. 458 Thank you so over. 459 What's your thinking? 460 I can literally not comprehend the demand for power from 461 the perscalars. I recently had a conversation with one of 462 the top guys at Google and he told me our 463 budget for two twenty six for data centers, and of 464 course that includes chips and everything, but our budget is 465 one hundred and eighty four billion dollar. So I said, 466 oh wow. They no, No, you don't understand. One hundred 467 and eighty four billion dollar for Google alone. That's more 468 than the Russian military budget. 469 Yeah, I mean side, the numbers are off the charts absolutely. 470 So I say, yeah, but all this AI you know 471 is the I I say, no, No, it's not about 472 the AI. It's just normal cloud it it's way more 473 so automous vehicle. It's YouTube, but we just can't have 474 enough compute so er Yes, but it's just the normal 475 cloud development that is so power hungry. And the interesting 476 thing is that if AI does not materialize the way 477 everybody's thinking, they will repurpose their data centers. So this 478 is a real demand and it's happening. 479 Yeah, I'm not worried about the electricity side of things either, 480 because worst case, let's assume you're in an AI bubble 481 and a bus, that power will have other uses. At 482 the end of the day, we are electrifying society and 483 that power go to over the places. 484 Yeah, so we'll see it in China, we'll sit in 485 the US, and we're all eager to see in Europe 486 because right now it has been a bit of a 487 misery in terms of demand of all those years. So hopefully, 488 even if it's only partial, that demand from my postcalor 489 is going to come here. 490 Yeah, well, it all yes coming here. I mean, at 491 the end of the day, you're talking about Europe here, 492 It is coming here. But the demand in Europe is 493 more on the cloud side than it is the AI side. 494 But doesn't that change come forward, No doubt about that. 495 Absolutely. And look I can tell you because I'm checking 496 electricity map all the time the stress point. I can 497 tell you there's a stress point right now. It's Norway. 498 Norway used to export a lot of power and now 499 they need to import, which is crazy. And maybe it's 500 because the hydro season is not very good. And that's 501 also the power of interconnectors. And of course we took 502 about batteries morning an evening, but interconnectors are also extremely 503 important to give resiliency to the system. 504 Without a doubt we need to and by the way, 505 I think the come back to the Norway situation. What's 506 interesting about this is maybe the Norwegians will actually realize 507 that interconnectors are not just win laws, they're also a 508 win win And what I mean by that is huge 509 amounts of sort of I say, anger from Norwegian customers 510 about the power price is going up because of the 511 fact that Norwegian our has been exported to Britain, in 512 Germany and now actually to the way around exactly. 513 So we want to think. Chris, really a great conversation 514 and job I hope you on this is getting better 515 and I took to you next week, look Quarters. 516 Thank you for listening to Redefining Energy. 517 Don't forget to rate the show and subscribe on Apple Podcast, Spotify, 518 or the platform of your choice