The Electric Grid, Explained

1. 0:00 – 2:18

   Decentralizing the Electric Grid

   1. SPSpeaker0:00

      Brace yourselves for more blackouts.

   2. SPSpeaker0:02

      There's been a major transformer leak. PG&E tells us someone may have fired some shots into that transformer.

   3. SPSpeaker0:09

      As Texas gets hit with record heat, the state's power grid can't keep up.

   4. SPSpeaker0:15

      They're working very hard to restore full power, but at this point, there is no definitive timetable.

   5. SPSpeaker0:19

      Some getting flashbacks to the deadly cold wave in 2021 that collapsed the electric grid and resulted in at least 246 deaths.

   6. SPSpeaker0:29

      I bet you've heard that our grid needs an upgrade, but I'd equally bet that the majority of people, myself included, don't have the faintest idea of how the grid actually works. We just assume when we're cold and we turn on the heat, that our furnace kicks in, and we just get a bill at the end of the month. But as technologies like AI heat up, so too does their demand for power, and this trend happens to coincide with several others, including the rise of intermittent renewable sources, the increasing bloat in the approval process for new grid infrastructure, supply chain delays exceeding 12 months, and a whole lot more. All of these things make for the fact that our grid relying on outdated technology, in some cases from over a century ago, something of a national emergency. And that's why we brought in a16z American dynamism partner, Ryan McEntush, to break down how all this actually works. So in this explainer, we'll dive into the grid's increasing complexity, what's broken, and how we got here, how technologies like solar, batteries, natural gas, and nuclear might play a role in this future, and why solving these problems is essential in allowing our economy, but also our country's technological dominance to thrive. As a reminder, the content here is for informational purposes only, should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any a16z fund. Please note that a16z and its affiliates may also maintain investments in the companies discussed in this podcast. For more details, including a link to our investments, please see a16z.com/disclosures. All right. Let's kick things off.

2. 2:18 – 4:21

   The Need for Modernization

   1. SPSpeaker2:18

      Maybe an obvious question for some listeners, but why does our grid even need a refresh? And why do some people believe that this might actually be one of the most important issues for our country to address?

   2. RMRyan McEntush2:30

      The grid supports all really energy transfer or industrial capacity in our country. Um, there's this assumption that when you f- you, you turn on the light switch, the lights are just gonna turn on. But behind that, there's a lot of industrial processes, both in the power generation and moving that power around. And for the last, you know, couple decades, we really haven't seen a growth in energy demand. Um, so the grid has sort of not really changed that much. But increasingly over the last, you know, twenty years, and, and especially with the increase in, in data center AI, we're seeing the grid change a lot. Increasingly, people are seeing the effects of that. We, we have an increase in outages, a lot of this weather-related. Um, the price of electricity is now a lot more volatile. Um, and I, and I think people are becoming more aware of not only, like, sort of the climate-related effects of energy, but how it affects their daily lives.

   3. SPSpeaker3:18

      Yeah, absolutely. And you mentioned some of these new technologies. We're talking electric vehicles. We're talking about AI and data centers. But what is that gap really? Like, if we look ahead, are we super far behind the energy requirement that we'll need, or are we actually pretty close?

   4. RMRyan McEntush3:34

      All the projections seem to indicate a huge gap. A lot of the current world is powered by things like fossil fuels, like your car, you fill up with gasoline. That's likely going to increasingly shift as more people adopt electric vehicles. A lot of the things in our home, you look at, like, thermostats, heating with some of these heat pumps. You look at, like, new induction stoves. Every single device now has a battery. It's connected to the Internet. So we were seeing huge demand there. And then also on the industrial side, we're seeing a lot of processes that were previously using fossil fuels as inputs now increasingly using electricity. Um, you know, another good example is, like, data centers, as you noted. Uh, you know, these regions where a lot of these data centers are located are expecting huge growth in energy demand, uh, to the point now that some large hyperscalers are looking at things like nuclear

3. 4:21 – 6:33

   Understanding the Grid's Operation

   1. RMRyan McEntush4:21

      to support, uh, and make sure, make sure that the data centers stay online, uh, in periods, uh, of lower reliability or price volatility. This is a huge concern a lot of people are paying attention to.

   2. SPSpeaker4:31

      I mean, to your point earlier, we just kind of assume when we flick the light switch on that the lights turn on and that we get this electricity not just sometimes, but all the time. And so let's just quickly discuss how the grid actually works. Um, what is it composed of, and how do each of those components contribute to electricity actually being generated, but then also transmitted and distributed to all of our homes?

   3. RMRyan McEntush4:55

      Sure. So, so I, I think the, the most important idea is that the electric grid is not some sort of monolithic entity that, that is, is, you know, the same across the United States. It's actually made up of three sort of major interconnections. The grid is made up of AC or alternating current, but between these interconnections, they're a different phase, which means that you can't directly connect these interconnections. And they're split up basically as East, Texas, and West, and a lot of that was just for, for historic reasons, also, as I said, technical reasons with the phase, but also regulatory reasons. Texas, for many reasons, wants to have independent grid, whereas the West and the East Coast are completely fine having sort of these interstate networks. And then beneath these interconnections are things called RTOs and ISOs. The difference is really mainly that RTOs oversee multiple states, so these are regional transmission entities, whereas ISOs are really just focused on a state level, which allows that more direct regulatory oversight and funding.

   4. SPSpeaker5:53

      Quick note, ISO stands for Independent System Operators, while RTOs are Regional Transmission Organizations. To put it simply, these entities help ensure the grid is reliable. And practically, that means balancing the grid, enabling efficient markets, coordinating infrastructure, and more.

   5. RMRyan McEntush6:12

      A good example is California. California's, uh, Cal ISO i- is just specifically looking at California, whereas some other RTOs are looking at the entire Northwest region. These balancing authorities, as they're called, essentially operate the... these wholesale markets. They also operate a lot of the feasibility studies and planning and oversight of the entities involved i- in those local grids.

4. 6:33 – 8:24

   The Complexity of Grid Management

   1. SPSpeaker6:33

      Got it. And so when we think about it, there's the interconnections, there's different entities that actually generate the power as well.

   2. RMRyan McEntush6:39

      Mm-hmm.

   3. SPSpeaker6:40

      And then there's market and there's regulation. Maybe you could speak to some of those other buckets and how they fit into the broader mix.

   4. RMRyan McEntush6:45

      There's deregulated markets and there's regulated markets. So in regulated utilities, essentially it's top-down controlled by the government. Tennessee Valley Authority is a really famous example. There's a lot of these sort of regulated entities in the Southern United States, like Southern Power Company, where like a lot of these nuclear facilities were built, and a lot of this in sort of the Western United States, SPARE, California. In this case, the power generations, like the actual power plant, the transmission and distribution lines, and actually interfacing with the end sort of rate payer customer, all of that is controlled by the government with sort of guaranteed profit margins and things like that. The other type are deregulated markets, which started really becoming a thing over the last, like, 20 or so years, largely pushed forward originally by Enron and, and pushing these policies of sort of these free markets where energy was gonna be traded in these wholesale markets. In these areas, the dominant markets would be California, Texas, the East Coast. There's power generators, people who own the plants, and then oftentimes different companies will own the power lines and be in charge of maintenance and operating the congestion and making sure that the power moves and is delivered. And then there's separate companies that actually interface with the customers, these interfacing, providing like a retail experience to the end rate payer. So oftentimes these are completely separate different companies. Sometimes they're the same. Sometimes these look like a little bit of a hybrid structure. It all gets very confusing, but it's part of the complexity of the grid that there's very, very different structures depending on where you are.

   5. SPSpeaker8:14

      Yeah. I mean, it's, it certainly sounds complex, and I think there's probably a bunch of misconceptions. I mean, even just the idea that the grid is a monolith is clearly not true. Does anything

5. 8:24 – 11:43

   Increasing Outages and Volatility

   1. SPSpeaker8:24

      else jump out there in terms of this idea of public misconception around the grid and how it works and ultimately who runs it, who's getting paid, and how people ultimately get their electricity?

   2. RMRyan McEntush8:35

      Yeah. I, I think, I think the high... at a high level, uh, uh, there's like a technical idea o- of, of people just... People think that, you know, you plug something into the grid, and it's, it's magic. But electricity is not like a commodity. It's certainly not magic. Electricity is generated basically at the moment it's being used. When people say the grid needs to remain balanced, it's measured in terms of frequency. I- in the United States, it's 60 hertz. In Europe, it's like 50, I believe, and I think in Japan it's 50 as well. But basically you, you need to make sure that the demand for electricity, basically people sucking electricity out of the grid and then other power generators pushing electricity in, is always the same to maintain that perfect hertz level. And if that ever falters, when people say, like, the grid is unbalanced, that means it shifts away from that point, in which case a lot of the electrical equipment hooked up to the grid that is calibrated to a specific frequency is damaged. And if things happen too quick, you have to shed load, meaning you have to-

   3. SPSpeaker9:32

      Hmm

   4. RMRyan McEntush9:33

      ... pull things off. And if you can't do that, then you have blackouts, where essentially equipment's fried, and you have to, like, completely replace it, which could take weeks or months. It can be very dangerous very quickly. As the winter storms in, in Texas over the last couple years and the East Coast, uh, are, are made really very clear. Um, and then also the other big point i- is about sort of this, this reliability. It's, it's very hard to predict the, the demand for electricity and the supply of electricity that's gonna come in the far future. Uh, most of the time it's really just looking at weather, and increasingly so as solar and wind become larger portions of our grid. You can assume the sun's gonna shine every day, but not always. Like, sometimes it can be cloudy-

   5. SPSpeaker10:14

      [laughs]

   6. RMRyan McEntush10:14

      ... and it can re- decrease the percent. People often say, like, the wind is always blowing somewhere, but that only matters if you have the transmission lines to move wind from one place to another. So, like, a nightmare scenario could be you set up a grid with a large portion of wind, and it's winter, so everyone has their heaters on. But the wind for some reason is not blowing right as, like, a cold spell hits. So that's when you have this issue of huge spike in demand but not enough supply for it. And so there's a bunch of scenario studies that these grid operators will do trying to figure out, like, can we ever guarantee the wind will be blowing in a certain time? And it's really, really hard to do that. Um, so that's why it's so important that, you know, it's not gonna be all nuclear, all solar, all wind, or all natural gas, 'cause there's situations where pipes freeze. Um, and so it, it becomes very, very complex. Um, and it's not as simple as, you know, just connect as much solar as possible. Uh, reliability is a huge issue. In, in, in a modern country with our modern luxuries, we can't afford for the grid to go down at all.

   7. SPSpeaker11:16

      That's such a good point because it really does feel pretty much binary, right? It's not like, uh, we want uptime of 95%. It's like we want uptime of 99.9999% or 100, right? Just basically people... We cannot afford for the grid to go down. And so it does feel like people automatically assume, like, let's add more supply, and there are many reasons it seems like why that is not such a simple solution. We'll get into the energy mix in a second,

6. 11:43 – 15:29

   The Role of New Technologies

   1. SPSpeaker11:43

      but maybe you could just speak to this broad dynamic that you mention in your article. That is that the price to generate electricity has come down over the years with new technology, yet the price to actually distribute it or deliver it has gone up. Sounds kind of counterintuitive. Where are things really breaking down there?

   2. RMRyan McEntush12:02

      Yeah. So I, I think the, the most important point to understand here is that when you pay your power bill, for me, PG&E in Northern California, you're paying a combination of prices. You're, you're paying on one hand the price of the energy itself, which in deregulated markets is, is known as like the wholesale price. So this is the price of, like, the power out the door cost that the power plant is selling the power to these other entities in these power markets. That's one portion of it. And then there's also the cost of the infrastructure and the operational costs of these utilities like PG&E who own the lines and might interface with the customers-

   3. SPSpeaker12:36

      Mm-hmm

   4. RMRyan McEntush12:37

      ... to deliver that power to you. And so, like, if you look at your electricity bill, typically they'll separate out these fees, and you can see, like, many times, and increasingly so in California, the cost to deliver is, like, over 50% of the bill. It's becoming increasingly high. And, and the big reason for that is that the infrastructure to build new power lines, to build new power plants, um, is incredibly, incredibly expensive. The interconnection queue is something that people might have heard about before, but basically there's over, like, two... I wanna say there's, like, two terawatts in the queue right now, which means that there's, like, two terawatts of power-generating capacity, a nameplate at least, like what it could max out at, waiting to be connected to the grid.

   5. SPSpeaker13:16

      Could you just super quickly ground us on how that compares to how much electricity is on the grid?

   6. RMRyan McEntush13:21

      I believe our grid today is about 1.2 terawatts.

   7. SPSpeaker13:25

      Oh.

   8. RMRyan McEntush13:25

      So this is almost effectively double what our current national generating capacity is. So what this shows to me is that it appears like there's a lot of demand for electricity. Now, when you sort of unpack what's going on, there's some interesting, uh, I would say disincentives, uh, of how this, this queue works, where because of what I mentioned earlier, like the frequency and understanding, you know, grid balancing, there's a lot of feasibility studies that go into, you know, can I put, you know, a gigawatt of power-generating capacity here, and then how does that affect the ability of this localized region as well as the, the broader grid. Um, and, and these things take a lot of time, um, especially when, you know, people are sort of I, I wanna say spamming projects where they're, you know... It's a company who puts in, like, 10 proposals of different power plants waiting to see which ones are gonna have the cheapest interconnection fee.

   9. SPSpeaker14:16

      Right.

   10. RMRyan McEntush14:16

       And then they'll pull back all the ones that are too expensive and just end up trying to build the one that's the cheapest. But the problem with that is that all these feasibility studies have to run with the idea that all these plants are legitimate. And so this has created this massive queue of maybe... I think it's like 10 to 20% of projects are actually built.

   11. SPSpeaker14:33

       That's wild.

   12. RMRyan McEntush14:34

       It's crazy. There's a lot of really interesting new policy coming from the federal level about how to manage these queues. Um, Texas famously has a, a way that they handle it. They call it, I believe, connect and manage. Uh, if anyone has been paying attention to electric grid recently, they'll know Texas has been able to connect a lot of assets. Um, but instead of running these feasibility studies, they'll basically, you know, uh, levy that risk o- of connection to the, to the developer and say, you know, "You can connect your solar or wind anywhere, but if it at all risks our grid, we're gonna cut you off." Um, whereas in California or other places, they're like, you know, "We wanna make sure it's always gonna be delivering power, and it's not gonna dis- uh, you know, destabilize our, our connection." So there's a lot of ways to handle this, um, but that makes it, you know, any sort of new construction very, very difficult. Um, but the success of Texas and how much wind and solar and batteries they've been able to connect and why a lot of companies are flooding there is because of this policy that makes it very, very easy

7. 15:29 – 17:49

   ERCOT's Incentives and Infrastructure Challenges

   1. RMRyan McEntush15:29

      to, to connect new assets.

   2. SPSpeaker15:30

      Now, if you didn't catch that, basically what Ryan is saying is that ERCOT, the Electric Reliability Council of Texas, is flipping the incentive. So instead of the onus being on them to prove that a project can work, it's on the developer to make that a reality. And of course, if they don't, there are consequences. But there are other approaches being explored in TANF.

   3. RMRyan McEntush15:50

      There are also interesting ways through FERC, which is a, a, a national body overseeing this, uh, of trying to bundle up different projects, providing sort of fees. So instead of, like, being able to sort of just, you know, YOLO projects in, uh, you are now sort of, uh, taking on some sort of financial risk, uh, by putting in fake projects, so trying to disincentivize, uh, doing that. Um, but even if you can get these projects approved, things like transformers are, you know... have crazy lead times, like, over a year or more. Not to mention that it's increased in price dramatically. Um, if you're trying to build out, like, a, a, a new sort of housing project or something like that and you have to build, like, sort of a substation, you know, securing these things is also a huge problem, which are just additional things to worry about. Um, both cybersecurity, uh, and physical security, I think, over the last couple years, people have been shooting substations, and it takes down, like, a local grid. There's very little you can do there besides just paying somebody to just be on site and securing that. Perhaps lastly, like, just the existing power lines, the PG&E fires that people might have seen in Northern California, I believe Camp Fire was one of them, but some of these lines were built in the early 1900s. I was up hiking at Muir Woods the other week, and if you're up at the top of the hill, you can see these transmission lines that are going through, and, and there's trucks that will go and manually check a lot of them.

   4. SPSpeaker17:12

      Mm-hmm.

   5. RMRyan McEntush17:12

      If one of these lines falls over dry grass, like, it's likely gonna start a fire, and that's what we continue to see, especially if they're that old. And when something like that happens, they don't know where the line actually fell. They know, like, uh, what type of power line it fell, but not specifically the spot. It actually often takes trucks driving through to see where these damages occur. So there are a lot of interesting, like, potential upgrades that need to be done, and all of this just ends up being, you know, sort of pushed onto the, the, the consumer.

   6. SPSpeaker17:41

      That's so interesting. I did not realize they can't actually tell where things are breaking down at the local level. Um, so

8. 17:49 – 19:25

   The Pros and Cons of Renewable Energy

   1. SPSpeaker17:49

      I've heard a few things. You mentioned that the actual queue is increasing in terms of adding more power. I'm also hearing things maybe around supply chain, security. Is there anything else you'd mention in terms of just the overall set of challenges that exist as we're trying to improve this grid?

   2. RMRyan McEntush18:07

      Yeah. I mean, I, I, I think this rise of intermittent power, um, it just introduces a lot of complexity. And n-not just intermittent power, but where the power is generated. Um, I think one of the big theses we have is that there's gonna be a decentralization of the grid. Now, it's not like we're gonna start taking offline all of our large power plants, but as the demand for energy is increasing, it's gonna become easier for people to generate power on site. Solar is gonna be the big reason for that-

   3. SPSpeaker18:36

      Mm-hmm

   4. RMRyan McEntush18:36

      ... but also battery storage. And as I mentioned earlier, people are gonna have electric vehicles that can store energy and connect to their house. Your stove is gonna have a battery likely. Your heating might actually have some energy storage capabilities as well. That power is gonna be flowing in many different directions-

   5. SPSpeaker18:52

      Mm-hmm

   6. RMRyan McEntush18:52

      ... which is very different from a world where power is generated at a big plant and just going in one direction. So people need to rethink how grid infrastructure works and functions. It's not as simple as just pressing the button and the power going backwards.

   7. SPSpeaker19:04

      Totally.

   8. RMRyan McEntush19:05

      So that's something that the grid operators are thinking about as well.

   9. SPSpeaker19:08

      Yeah. That sounds really important. And maybe at the crux of us needing to distribute more of the grid is this idea that a lot of our new sources, as you're saying, are more of that intermittent, uh, type. So we're talking a lot of renewables. So maybe we can just start there and address the question,

9. 19:25 – 21:53

   Energy Storage in Grid Sustainability

   1. SPSpeaker19:25

      which is why are renewables alone not enough, especially as we increase the capacity of solar and wind? You spoke a little bit to this, but maybe you could just break that down explicitly.

   2. RMRyan McEntush19:36

      Renewables, I wanna be clear, renewables are fantastic. They are cheaper. Even without subsidies, LCOE is often a metric thrown around, which is the levelized cost of energy. Solar and wind are really, really good. The problem is that you cannot guarantee that they're gonna be available when you need it. I mean, it's often the case that, for example, if you look at the demand profile for energy in, um, in any sort of modernized economy, it's typically in the early mornings everyone's waking up and energy use is high. And then there's a trough in the middle of the day, which is right when it's sunny, when the solar panels are generating the most electricity. And then there's a huge spike in the evening when everyone comes home, turns on their TV, starts cooking dinner, and there's a drop as well later into the middle of the night. So the problem with this obviously, and this is a phenomenon known as also as the duck curve, if people are familiar with that. But basically, the middle of the day when energy is essentially free, when solar, the sun is blaring and energy is really, really cheap, but the demand is at its lowest point. So you need to find a way to capture that energy in the middle of the day and have it available in the evenings when the sun is not shining or when it's dusk.

   3. SPSpeaker20:41

      Mm-hmm.

   4. RMRyan McEntush20:41

      And then similarly with something like wind, it's, it's, you, you cannot guarantee that wind is going to be blowing. You can generally, you can look at trends, um, to have this idea of wind's gonna be blowing and, and generally at night it's windier, but this is really, really hard for, for operators to rely on. So this is why energy storage is, is so critical. Um, if you're doing intermittent sources, you need some way to, to sort of level it out. So, uh, operators know that, you know, we're gonna have enough energy when we need it. Um, and this is coming from a world where we used to have natural gas plants that could chug along twenty-four seven. Um, same with nuclear, which is, you know, these are things that are, are base load. Um, geothermal is another one. Previously in our country, almost all of our energy storage, I think it's like ninety plus percent today, is through hydro, through dams. So when there's a shortfall at all, we would just sort of open the floodgates a little bit on the dams, and that would... water would trickle through and be able to make up smaller changes in energy fluctuation or major ones. And so if we're going to increase the, the, the amounts of solar and wind on the grid, we also need to proportionally increase the amount of storage. Um, and this is going to be very significant challenge.

   5. SPSpeaker21:52

      Yeah. I

10. 21:53 – 25:19

    Batteries Storage

    1. SPSpeaker21:53

       mean, to your point, it sounds like we need some balancing mechanism. We'll talk about natural gas and nuclear in a second, but let's speak directly to batteries. Something that I found really fascinating from your article is the point you just made about hydro. Like when I think about storage and many people think about storage, they automatically think of batteries. And this table says that only 2% of our US storage in 2022 actually came from lithium-ion batteries, which was surprising to me. And 94% from pumped hydro, like that's-

    2. RMRyan McEntush22:25

       Yeah

    3. SPSpeaker22:25

       ... totally, you know, talk about misconceptions from earlier. I did not know that in any capacity. And so-

    4. RMRyan McEntush22:31

       Yeah

    5. SPSpeaker22:32

       ... can you just speak to, you know, where we are today and the storage demand, whether that comes from battery or otherwise, how do we get to where we need to be? Is it just a matter of creating a bunch more batteries or hydro capacity? Is this all really feasible to do in the next few years?

    6. RMRyan McEntush22:48

       Yeah. So, so it's difficult to make projections here because a lot of this comes down to the cost of batteries.

    7. SPSpeaker22:54

       Yeah.

    8. RMRyan McEntush22:55

       If batteries are, you know, $10, $30 a kilowatt hour, then a lot of the steps becomes meaningless. Uh, obviously there's critical mineral, uh, concerns about where we access this stuff. This newer generation of, of batteries that are less energy dense, like sodium-ion becomes less of a concern. Regardless, that's gonna be sort of the key thing to pay attention to. What I will say is in the near term, um, batteries have already sort of dominated this very, very short timeframe, uh, markets. So I mentioned these wholesale markets earlier, but they're sort of structured in different time durations. So, uh, depending on how quick you need to supply energy. So I mentioned sort of the fact that you need to maintain a certain frequency. There's a market that's called broadly ancillary services, which is really just focusing on power quality. So if it, if it moves from 60 hertz a little bit, um, the grid will, will, will sort of seek, uh, uh, uh, more energy or less energy to balance it out. Batteries already dominate that because they're very, very good at moving very, very fast, but it's a very, very small amount of energy. Um, increasingly as batteries enter the grid, which as you've noted from the chart, it's not that significant penetration yet. They will start to be able to, to cycle over sort of a daily timeframe. So as I mentioned earlier, taking energy from the middle of the day and allowing its use in the evenings when people actually need it.

    9. SPSpeaker24:13

       If you didn't catch that, batteries currently only cycle from minutes to hours. But the hope is that their storage duration will become hours to days, just like hydro, which composes the lion's share of US current storage capacity.

    10. RMRyan McEntush24:27

        Now, the problem with batteries, uh, they, they can't solve, uh, these sort of longer duration spells. So I mentioned this case where if your grid has a huge wind, uh, component, it might be not windy for, for weeks. Unlikely, but it's possible. Batteries are not very good at storing energy for long periods of time. When I say long, days or weeks. Um, you'll need alternative methods of storing that energy. There are a lot of things proposed, a lot of companies, uh, trying novel solutions like synthetic natural gas or hydrogen. There's gravity batteries, there's sort of iron air batteries, a bunch of different ways to do this. Um, but these are essentially trying to, uh, do almost, uh, weeks to months to seasonal storage. Um, and, and that's also gonna be a component as well that I'm excited to see continue to build out. Batteries in the energy sense, but, but not the same batteries you'd, you'd, you'd see in

11. 25:19 – 30:27

    The Future of Natural Gas and Nuclear Power

    1. RMRyan McEntush25:19

       cars.

    2. SPSpeaker25:19

       And then let's jump to natural gas and nuclear, which are two other, you could say, balancing mechanisms that have been used in different capacities in different places. They have their pros and cons. Just tell me a little bit more about where natural gas and nuclear currently play a role, and then also the potential for them to play a different role.

    3. RMRyan McEntush25:38

       So, so natural gas is, is dominant on our grid. United States is a major natural gas producer. Fracking was huge for this country in terms of energy independence. Today, there are sort of two different types of natural gas plants. There's some that are running twenty-four seven, and there's some plants called peaker plants that essentially, if there's a shortfall or if there's no other sort of generating capacity, peaker plants will bid, um, to fulfill that gap. And it's more expensive. Um, you know, let's say you're building a natural gas plant. Uh, you can amortize it twenty-four seven, and it's gonna be cheaper to run that power plant as opposed to, you know, some of these peaker plants might run at a one percent capacity factor.

    4. SPSpeaker26:17

       Hmm.

    5. RMRyan McEntush26:18

       Respectfully, you know, one percent of the time-

    6. SPSpeaker26:20

       Right

    7. RMRyan McEntush26:20

       ... um, that they could be running. And those are gonna be way more expensive to generate that power, but it'd probably be cheaper than using solar and storing it in batteries today. Now, natural gas is also good because you don't really rely on the weather, so you can always sort of turn it on.

    8. SPSpeaker26:34

       Mm-hmm.

    9. RMRyan McEntush26:34

       Um, and you can typically ramp it up pretty quickly. There's a lot of benefits there as well. Um, also, I would note that the, the sort of relationship between natural gas and nuclear are, is sort of a historic one. Natural gas was sort of, I don't wanna say the reason that nuclear found a lot of competition, but, like, from a price point, as we sort of looked at nuclear in the late twentieth century, it was the same time that natural gas became very big.

    10. SPSpeaker26:59

        Interesting.

    11. RMRyan McEntush26:59

        And natural gas quickly became very, very cheap, and nuclear became very expensive. So natural gas became a very big piece of our grid, and will likely continue to be a major piece of our grid as long as our domestic production continues and there's no sort of radical change in, in energy source. Now, if, if we can make nuclear fission incredibly cheap, we can have nuclear fusion become incredibly cheap, then a lot of this, you know, need for dispatchable or, or ready-to-go energy sources will change. Uh, but, but until then, natural gas will probably remain a significant piece of our grid because it is reliable.

    12. SPSpeaker27:34

        We've been working on nuclear for decades, right? And, and it would be surprising. I know there's, there's a, a long charted history of, you know, what's happened in those decades, but, um, it does seem like even just purely from the technological perspective, we have new reactor designs coming online or at least being developed, and maybe in a new renaissance of public discourse around it.

    13. RMRyan McEntush27:54

        Yeah, absolutely. I think the main thing to understand for nuclear, uh, particularly the historic nuclear, which are these gigawatt-scale power plants, the newest of which the designs with AP1000. This is Vogtle. This is a southern power company that is a regulated utility that saw a lot of government support to build this. In fact, the local companies, a lot of times when people are building nuclear power plants, the utilities will go out of business. The government needs to sort of step in to help them. It's been a really, really difficult journey for utilities to buy large nuclear power plants. So I think that's the primary reason you haven't seen it done. And those-

    14. SPSpeaker28:32

        Mm-hmm

    15. RMRyan McEntush28:32

        ... who have tried, like Vogtle, you see these sort of horrible cost increases and, and a lot of problems. And I think I go into that in detail in my essay of what those causes are. Um, but it is sort of rational. Like, why would a utility risk bankruptcy? Uh, or even more so, like, I don't know when the, the power plant's gonna be up. Is it gonna be ten years? Is it gonna be twenty years? You don't really know. Um, and so it's really hard to make that, you know, ten billion dollar bet. So that's why it's very, very hard for, for especially deregulated utilities. It really takes a government, which is why nationally, you know, look at Japan and France, uh, and even, like I said, our regulated utilities in the United States. A lot of our nuclear power plants are, you know, government-supported. Um, it's very, very hard to, to take on that risk as a, as a private entity. Now, the future of nuclear, I think what we're seeing is the rise of SMRs in, in smaller reactors. Um, I, I think the, the reliability o-o-of power, um, I think is gonna become increasingly relevant for, for a lot of people. Um, you could see, you know, in the news you've seen Microsoft or some of the other hyperscalers talk about, we wanna do nuclear-powered data centers.

    16. SPSpeaker29:35

        Yeah.

    17. RMRyan McEntush29:35

        We wanna have access to clean energy that is available twenty-four seven. Now, you know, you could achieve this with, uh, a large solar farm and batteries. Um, you can do it with geothermal, which, you know, some of these hyperscalers are also looking at. Uh, but nuclear is one of the most compelling. Um, if you're one of these data centers, you wanna ensure reliability. You want something that you plug it in, it's gonna last, it's gonna last, you know, fifteen, twenty years.

    18. SPSpeaker29:59

        Mm-hmm.

    19. RMRyan McEntush29:59

        Um, and nuclear sort of uniquely provides that. In terms of this decentralization trend, uh, you know, solar and batteries are gonna be a piece of it residentially and perhaps like these local communities. Uh, but it's likely that, you know, these off-the-grid or incredibly... You know, this, this focus on reliability over sort of cost Nuclear is gonna be a very compelling option. Now, all that's to say that we solve some of the, you know, the issues on the regulatory side, and some of these new designs get approved and built.

    20. SPSpeaker30:26

        Since we're

12. 30:27 – 33:51

    The Impact of Policy on the Grid

    1. SPSpeaker30:27

       on the topic of policy, does anything jump out at you in terms of where policy can help kind of usher this new grid forward or to kind of help solve some of the gaps that we just talked about in terms of, like, the interconnection queue or the different energy mix that we're discussing?

    2. RMRyan McEntush30:43

       FERC i- is sort of like the federal body that oversees a lot of the, the transmission and distribution and, and grid infrastructure. The stuff I've read, at least, uh, seems very positive. People are aware of a lot of these issues. Um, and there's a separate group called the NERC, which is a semi sort of government associated, um, but they run these sort of, the- these risk reports. Uh, and they have highlighted that one of the key risks for the grid over the next decade is actually policy. So a lot of people will, will say things like, "We need to, you know, go completely renewable. We need to be completely solar and wind, uh, uh, expeditiously." The problem with that is, as I said, like, the reliability concerns, it's gonna create a lot of, lot of issues. But I think when we think about, you know, w- what are the, what are our climate goals, like, these are, these are human goals. Like, we want to live in a better world. Uh, that better world near term is not a world with increased blackouts.

    3. SPSpeaker31:35

       Mm-hmm.

    4. RMRyan McEntush31:35

       Um, there are a lot of countries that were once had great grids. South Africa, great example. They have nuclear power, but much of the day in South Africa, the grid is actually completely down.

    5. SPSpeaker31:44

       Really?

    6. RMRyan McEntush31:45

       So dysfunction from a policy perspective, there are worlds where it can revert.

    7. SPSpeaker31:50

       Right.

    8. RMRyan McEntush31:50

       And the reliability that a country once had disappears. Now, I don't think it'll get that bad in the United States, but there are a lot of interesting warning signs, and, and people in utilities, uh, and people who have been in the power industry for a long time are, are beginning to speak up. The last thing I'll mention is the IRA. Um, so Inflation Reduction Act put a lot of the policies first for, uh, forth for, for energy. So a lot of companies, for example, batteries, uh, manufacturing credits, uh, various incentives to, to both sort of, um, bring onshore a lot of this production, also make available a lot of funding for grid enhancement, uh, both locally and sort of regionally. Uh, so there's a lot of funding available for this, which is, which is very exciting. Um, and so a lot of the things that need to be done it seems like are beginning to happen, so I'm optimistic.

    9. SPSpeaker32:40

       All right. That is your Call to Build. Clearly, the grid is no monolith, and solutions can't stand alone. They need to be thoughtfully interwoven into the matrix of an already complex energy mix, dated infrastructure, changing regulation, and more. But another area that is prime for opportunity is applying technology to the grid. Despite a multi-decade wave of software eating the world, it seems like the grid hasn't quite helped pace. And if you'd like to hear Ryan's take on the possibility of a smart and decentralized grid, we have the extended version of this episode live on our podcast feed. You can check that out at a16z.com/electricgrid for more. And be sure to check out the links in our description for two articles from Ryan that break down the electric grid and nuclear energy even more deeply. And with that, we will see you next time. [upbeat music]

Episode duration: 33:51