Not Waiting For The Grid

Podcast Transcript

Ed Coyne: Hello, and welcome to Sprott Radio. I'm your host, Ed Coyne, Senior Managing Partner at Sprott Asset Management. I'm pleased today to welcome Brian Gitt, energy entrepreneur, writer, and public speaker. Brian joins us today with over 20 years of experience in the energy industry. Brian, thank you for joining Sprott Radio.

Brian Gitt: Thanks for the invite. I am looking forward to our conversation.

Ed Coyne: Yes, same here. Brian, before we explore all the opportunities we're seeing in the energy market today, I thought it'd be interesting for our listeners to hear a bit about your background and some of the work you're doing at your current company, Oklo Inc.

Brian Gitt: Sure. On a day-by-day basis, I lead business development for Oklo, and Oklo designs, builds, and operates advanced nuclear power plants. Most of my day is filled with talking with data center developers and operators, industrial sites, commercial, and any large energy customer interested in purchasing power. That's how I spend my time today, but over the last 20 or 25 years, I've worked in the energy industry, not necessarily nuclear power. That's more recent. I've just joined Oklo a little shy of two years ago, but I've worked on all kinds of energy technologies.

I've worked on wireless power. I've run utility programs in California, whether energy efficiency programs or various commercialization efforts of new technologies like alternative fuel vehicles or carbon sequestration of power plants—all kinds of stuff. All of these experiences led me to focus on nuclear power because it is clear that it is the path forward to having low-cost, reliable, affordable energy.

Ed Coyne: In addition to your day job at Oklo and before Oklo, you somehow found the time to write a book titled In The Dark. If you don't mind, share a bit about that whole process, what you learned from that, and what drew you to take that endeavor on.

Brian Gitt: Writing a book is hard. Distilling down all your ideas is a challenging process, and I think what compelled me to write the book is to share some of my experience and background working in the energy industry. As I mentioned, I've been working in the space for over a couple of decades. I made a lot of errors and judgments and thought about which technologies I thought would scale, reduce emissions, and minimize our environmental footprint.

Today, I see many of our leaders, whether politicians or corporate leaders, making many of the same mistakes I made on my journey. I thought I'd share some thoughts and lessons from those experiences. What is the path forward? How should we consider designing and evaluating energy programs and technologies to get us to the end goal?

Ed Coyne: Coming to the nuclear side of things, I believe that writing that book brought you to nuclear. Certainly not the answer, but it is a huge part of the overall answer as we move forward. Talk more about what you're seeing in current nuclear technology, but more importantly, what you and Oklo are all working on with newer technologies. What's happening in that space today?

Brian Gitt: I think if we look backward across time, what we've seen is human progress, and all of our evolution as a culture across many thousands of years is all predicated on how we harness and leverage energy, and it's always moving to higher and more concentrated forms of energy.

We started with renewables, using the sun, wind, and wood. Then, we worked from there to more dense energy, from wood to coal, gas and oil, et cetera. Ultimately, we moved towards nuclear power because nuclear is the most concentrated form of energy that can give us the key attributes we're looking for: reliable, affordable, and clean.

I think that's the journey we've been on as a species over thousands of years, and that is our destiny and where we're going. This is not to say that there aren't multiple energy technologies that will play a role in our energy system because they are, but ultimately, I think it is essential to realize that's where we're aiming. There are differences of opinion today, but I think the trajectory is clear regarding where we will evolve.

Ed Coyne: When you think about energy, are you guys focused predominantly on the production or creation, or are you also looking at the consumption? How are companies using it? How are individuals using it? What's driving you all at your firm as relates to thinking about new technologies going forward?

Brian Gitt: We're in a unique time right now. Looking back about two decades, for example, in the U.S., the electricity consumption and load have been flat. We haven't been growing, and utilities didn't have much incentive to invest in new technologies because we had cheap natural gas. The load wasn't growing.

For most of that time, we didn't have many intense climate policies or emission reduction policies that truly drove investment decisions from the utilities and other actors. You didn't see a lot of activity, and it was business as usual. All of a sudden, the whole game has changed.

Number one, power demand is soaring, and we're seeing this in all the major data center hubs throughout the U.S., as well as lots of new manufacturing demand. We're looking at—depending on which study you look at, you look at Boston Consulting Group or McKinsey or any of these—they're all saying we're going to increase power consumption just from data centers alone by two to three times by 2030.

Then, when you look at corporations and how much clean power they will buy between now and 2030, they say they will buy 105 gigawatts of clean power. All these big Fortune 500 companies are saying they will buy all this new clean power. We're seeing data centers and manufacturing capacity growth just skyrocketing, and when we look at what are the available solutions to this? How are we going to meet this surging demand?

Most of the solutions are suboptimal. Most of these require transmission, which can take over ten years to build out in many parts of the country. It's a big bottleneck to connecting any generation. It's just having that transmission infrastructure. We’re certainly not going to be building new coal plants, and maybe we will.

India and China continue to build coal plants, but it's not politically feasible in the U.S. and parts of Western Europe. In fact, the U.S. EPA just released a new power plant rule a few weeks ago that will force the premature retirement of coal plants and restrict the building of new natural gas plants.

Effectively, by 2032, these plants will have to have carbon capture in storage, which will add a huge amount of additional cost to building these plants. It has a huge tax on their productivity because you can cut the overall productivity of a plant by 25% due to the energy you're using to run that carbon capture and storage system. Ultimately, we're not building many coal plants, and these requirements will restrict the amount of natural gas plants.

When you look at intermittent renewables like wind and solar, we're certainly going to build more of them, but there are massive interconnection queues to connect them right now. For example, in PJM, a grid that covers about 65 million people in the mid-Atlantic—in Maryland, Pennsylvania and Ohio—that region of the U.S., they're looking at a five-year interconnection queue.

They're queuing up for five years to connect to the grid and it's getting worse, not better. Large nuclear plants are fantastic, and we're huge fans of them. Let's build lots of large nuclear plants. Still, the reality is, in the U.S., at least, after the recent experience in Georgia with the Vogtle plant, that project was seven years behind schedule, $17 billion over budget, and there's just a real risk aversion to putting that kind of upfront capital into these projects.

Even though we learned a lot from it, the AP1000 design, even in China, takes over nine years to build. The Chinese have a very sophisticated workforce and supply chain and don't have the impact rule that the Nuclear Regulatory Commission has over them. They know how to build nuclear plants, and it still takes China over nine years to build AP1000. We're not going to build those quickly. Those will not come online anytime; I hope we build more, but they're not coming online anytime soon.

What are we left with here? We're left with natural gas and small nuclear. Those are the two different options. We're certainly going to build more natural gas. Still, as I just said, new EPA requirements will increase the cost, restricting where you can build them and making it harder overall to incorporate carbon capture and storage by 2032. That's not so far from now. In addition, most of the Fortune 500 companies, like all the big data center companies, whether it's Amazon, Google, or Microsoft, have very aggressive emission reduction targets. Although natural gas is a clean burning fuel and a perfectly viable solution, those companies don't share that opinion.

Therefore, they don't help them meet their various emission reduction goals. That puts natural gas at a huge disadvantage. Now, that doesn't mean we're not going to build more of it; it just means that that's not what they prefer. Advanced nuclear and small nuclear power plants are well positioned to tackle this because you don't need the same amount of transmission build-out, and you can co-locate next to the load.

You can build right next to the data center on-site or at the factory. You're not waiting those ten years for transmission build-out. You're able to have zero emissions, whether it's air emissions or CO2 emissions. It's perfect for all these Fortune 500 companies trying to hit those emission reduction goals. I think as this scales, we'll be able to be cost-competitive.

Let's be honest: Nuclear power has historically faced three really big challenges: high upfront costs, long build times, and public perception challenges around safety and waste. Now, perception is not always reality, but it is reality. You have to deal with people and where they are. Those were the three big challenges historically. Oklo is innovating in several areas to tackle each one of those. We can walk through those if that's useful.

Ed Coyne: Yes, that would be great.

Brian Gitt: Let's talk about the high upfront cost. Traditionally, if you're going to build, let's say, a 1,000-megawatt nuclear power reactor in the U.S., you're talking about five-plus billion dollars worth of investment capital. Traditionally, a technology vendor would have to partner up with a utility and then come up with all that capital. If you're a data center, you're a factory, and you're not going to be building that. You won't be able to access that unless you're contracting through the utility.

One of the big innovations that Oklo is unlocking is scaling down the size. We build 15-megawatt and 50-megawatt electric modules. These are individual powerhouses, and you can scale them. If you want to build a 500-megawatt deployment, great; just put ten 50-megawatt blocks there. It's just Legos where you can mix and match and scale up and down.

Now, instead of a minimum threshold investment of $5 billion, you're on an order of, let's say, $100 million. It's a difference in the risk profile and the appetite for project finance. Now with long-term power purchase agreements, you can finance against the revenue of the asset of the power plant. This is the same way that renewable energy projects have been financed. This reduces the project's risk profile.

Now, because you've scaled it down, you can contract with data centers, manufacturing companies, and various industrial sites. Business models can change industries. This is why Oklo is making real innovations here in the business model and licensing strategy. The technology has been around for a long time as it developed in the '50s. There are over 400 reactor operational years of experience working with sodium fast reactors, the basic technology we're building.

There's been over 20 of these built around the world. It's not a technology problem; it's a business model problem and a licensing strategy problem. This is similar to what Amazon did with cloud computing. When Amazon first introduced Cloud as a service, basically compute where if you were a Fortune 500 company, instead of taking a bunch of your capital, going out and investing in all these servers, hiring a bunch of people to rack those servers, test them, operate them, decommission them, deal with that whole life cycle, all of a sudden you could plug into Amazon web services and buy the computer as a service.

Well, Oklo is doing something similar with nuclear power. In contrast, these companies would never in a million years design, build, and operate or even-- forget to design, build and operate a nuclear power plant. If you're a data center, you're a factory. Now they can plug in and buy energy as a service like Amazon offers. Amazon didn't design brand-new servers, and it wasn't a technology breakthrough. The business model completely changed the entire industry, which is what Oklo is doing with advanced nuclear.

Ed Coyne: Do you see a future where someone like Amazon gets into the energy business, effectively having module reactors built for their centers and not even hitting any of their grit? It's theirs. Do you see a future where that's a likelihood, or are we already seeing that? We don't know about it yet.

Brian Gitt: There are two big trends that are conversion. First is power availability. That's what I was alluding to earlier. I think through the eyes of history, when we look back, you're going to look at the summer of 2022 as the starting gun when the whole game changed. What happened was the utility that serves Northern Virginia, basically one county where a huge concentration of the data center capacity is, basically told the data center industry that they were out of power because they didn't have enough transmission capacity to bring in more power to allow the data centers to grow.

This was unexpected and set off an absolute panic in the data center industry. These large companies started spreading out and going on a land grab across the U.S., across all the major data center hubs, whether it's Atlanta, Georgia, Dallas, Texas, Columbus, Ohio, Phoenix, Arizona, or Chicago, Illinois. They started buying up any available capacity and land adjacent to infrastructure.

Once that was all bought up, it suddenly became a real problem: Where will we get more power? Power availability is the number one challenge. Then, when you add to the power availability challenge—and this isn't just about data centers—because they are eaten up and soaked up all that power, now all the other industries don't have access to it either.

Ed Coyne: That's exactly what I was going to point out.

Brian Gitt: If you want to build a new factory, you're competing for energy with those data centers if there's not that available capacity there. It's not just in that one vertical; it impacts everyone. Now you layer on top of what's happening with all these climate action and very aggressive emission reduction goals that all the Fortune 500 companies have.

Just this morning, I was on a call with the U.S. Army, which is putting out a new solicitation. They want to see microreactors as a form of resilient and reliable power at military bases. The U.S. military and the Department of Defense are the largest purchasers of power in the country.

Ed Coyne: I want to stop you there for a second because I don't know that many people can say casually, I was on the phone this morning with the U.S. Army.

Brian Gitt: Well, this is a public webinar.

Ed Coyne: This is what we're talking about—how you guys are so far advanced and what you're working on.

Brian Gitt: Yes. Just to be clear, this wasn't a private conversation. Honestly, the thing I love most about my job is every day, I am getting to have these interactions and conversations and tour the inside of these mission-critical facilities and data centers, go to these chemical manufacturing plants where they're making this stuff, or talking with Department of Defense about what their resilience and reliability requirements are.

It's fascinating. You get to learn so much about these unique industry verticals and their needs and aspirations. You have this convergence, those two trends, power availability and clean power, all smashing together simultaneously. As I alluded to before, all the existing solutions are relatively suboptimal in their own way, and everything has trade-offs. Advanced nuclear isn't perfect; there are always trade-offs in anything, but it presents a viable and preferred option for many of the core attributes of the technology.

Ed Coyne: This is the developed world, where our biggest concerns are more computing power and more storage of our material through data centers. What about the rest of the world? They need more energy also. I have to believe, and you alluded to this earlier, that this supply-demand squeeze is, I think, not being fully realized yet as the world is all saying, "Hey, we need more power over here also for basic block and tackle things." Forget the advancement of AI and so forth.

Brian Gitt: Yes. Energy is so foundational to modern life. If you and I woke up tomorrow and didn't have access to reliable, affordable energy that we do today, I mean, think of every part of your day, from how you keep your food from going bad to how you get to work, can't use the internet, you can't leverage all of these tools and information and communication systems. It shines a light on the huge disparity between the developed and developing worlds, as you alluded to.

Quite frankly, the developing world understandably wants to live like we do. I don't blame them. Let's do everything we can to support their growth and prosperity. When we talk about energy, it's important to ask what energy is. If you cracked open a physics book, it would say energy is the capacity to do work, which is true. However, I think there's a clear definition that expands on that. Energy is freedom.

Energy is freedom. Energy is freedom from darkness, it's freedom from cold, it's freedom from disease, it's freedom from drinking dirty water. It's all of the critical things; survival aspects and enablers of modern life are facilitated by energy. It's mind-boggling, for example, today, where you can have an entity like the World Bank restricting power plant development in pipeline infrastructure, let's say in Africa or other developing countries, in the name of reducing CO2 emissions when those countries, those developed countries get over 80% of their energy from fossil fuels.

To me, that is completely immoral. Energy is foundational to everything that we care about. We should enable freedom and prosperity worldwide, not cut it off. When you choke off energy, you're choking off freedom and economic opportunity.

Ed Coyne: Let's go back to something I read and a brief video I've watched as it relates specifically to your company, Oklo. A term I'm seeing talked about more out there is fast reactors versus fast breeder reactors. It would be cool for our audience to hear basically what they are, how they're different, where you guys are going, or where you are leaning towards or within your company. If you crack that open, walk us through the fast reactors versus fast breeder reactors and what they're all about.

Brian Gitt: Sure. The definition of a fast reactor is the speed at which the fission process is happening. A lot of our traditional large light water reactors use a moderator to slow the neutrons down in that process, whereas fast reactors don't use a moderator. They're just moving at a much higher speed, and ultimately, fast reactors can usually operate at higher efficiency levels and use higher enriched fuel in the process. You're getting more energy out of the same process.

Now, the difference between a breeding reactor is that breeding means you're, in essence, making new fuel in the process. You're saying one plus one equals three, in a way. Now, we're not breeding fuel. To be clear, Oklo, we operate a fast reactor, a sodium metal fast reactor, but we're not breeding to create new fuel. Now, we are incorporating fuel recycling into our strategy.

This is important, especially for your audience here, given the interest in uranium and investment in the space. What I find fascinating is that in the U.S. today, after 70 years of commercial operation of large nuclear power plants, there are about 90,000 metric tons of spent fuel. That fuels over 90% of that energy but is still in it because, for economic reasons, it only goes into these large light water reactors for about 18—to 24-month refueling cycles.

That means that 90% of that energy is in it. You can recycle that spent fuel and turn it into new fuel to go into these fast reactors, one of the key advantages of fast reactors versus the traditional large light water reactors. You can leverage recycled fuel. 90,000 metric tons sounds like a lot, but all of that is because uranium is so heavy; all that by volume could fit in one Walmart Supercenter. Think about it.

Ed: Wow.

Brian Gitt: 70 years of commercial operating plants generating approximately 20% of all the electricity in the U.S. could fit in one Walmart Supercenter. That energy still in that so-called waste, which is not really waste, could power the U.S. for over 150 years.

Ed: Wow.

Brian: That is what we want to unlock, and we want to recycle that and turn it into new fuel to go into our powerhouses. We're not the only company that can do that. TerraPower also utilizes a similar approach in its technology. It's a huge opportunity. What that impacts, though, is that it does impact you as you start thinking through the future of uranium demand and mining and all these things.

First of all, for the foreseeable future, we're going to need as much fresh fuel as possible and use as much recycled fuel as possible. I don't think the level of demand will outstrip the market's ability to respond.

Ed Coyne: That's across everything. Are we talking about basically every field source out there?

Brian Gitt: Yes. The good news is the tailwinds are pushing this right now. What just happened at COP28, the big climate conference, was that you had a bunch of the major countries in the West, like the U.S., Canada, the UK, and Japan, I think, involved. They've committed over $4 billion to building more uranium enrichment capacity. You have these countries around the world investing in that infrastructure.

In addition, in the U.S., President Biden recently put the finishing touches on this new rule and requirement that bans imports of Russian-enriched uranium fuel. This will affect our 94 operating reactors in the U.S. Currently, 20% of that fuel source comes from Russia. This has a very significant impact on the supply chain for U.S. capacity.

Now, obviously, it's not happening tomorrow. They have some time before this goes into place, but the federal government is investing $2.7 billion to help bolster the domestic uranium enrichment capacity here. There are a lot of positive signals, both domestically and internationally, that are building out this fuel supply chain.

In our mind, that's a good thing for advanced reactors, traditional reactors, and all of them because we're going to need them. Even if we get recycling up and running, there's still going to be a huge demand for fresh fuel as well.

Ed Coyne: I think a lot of investors and consumers look at this as one versus the other. As this story continues to develop, more and more people recognize that it's everything. We need oil, we need gas. As you said, India and China are still building coal plants. Now, this isn't going away anytime soon, but nuclear's part of the story has become larger and larger, and we think that's going to continue. Just hearing you talk for the last half hour or so, it's clear to me that we're probably in the second pitch of the first inning of this development. Is that fair to say, or where are we with the way this is growing right now?

Brian Gitt: In the U.S., for example, 20% of our overall energy is just for electricity. That means 80% of it is not electricity. It's for all other types of fuels, whether it's transportation fuels, industrial heat or manufacturing processes. Although nuclear energy can be used for industrial processes and other applications, we're not going to be replacing hydrocarbons anytime soon. We will need oil and gas for many decades, especially for these transportation-related applications and industrial processes.

First, most of our products, materials, clothing, and chemicals are made from fossil fuels. Fertilizer is made from natural gas. We feed almost half the world with natural gas. Petrochemicals are growing radically. There is no scenario where we will phase out fossil fuels anytime soon. This is the lifeblood of human civilization. We can't phase that out. There aren't replacements for many of these applications yet that are scalable and cost-effective.

All that said, nuclear energy, I believe, will play a more substantial role over time and start eating into especially the power aspect of it. As well as starting to chip away at some industrial heat applications. That's going to take longer, quite frankly, because they've invested already in the equipment in many of those processes, and they're not just going to rip it out. They're going to wait till they have to replace that particular furnace or that various power plant on site, either that boiler, et cetera.

They're not just going to rip these things out. Based on the capital investment cycle in upgrading equipment in some of these industrial applications, we will be somewhat limited. Over time, we will use a lot more nuclear power. I mean, 25 countries around the world, just at the last climate conference, said they're all going to triple their nuclear energy by 2050. Now, I don't put that much credence in a lot of these aspirational goals.

Ed: 2050 seems like it's around the corner. The more you read about this stuff, it seems like it's happening tomorrow.

Brian Gitt: Governments say things all the time, and it's good to have aspirations and good to have goals, but ultimately, it's about the market embracing these things and driving it forward. We are seeing just tremendous uptake in traction across the board. This isn't anything specific to Oklo. You open up Financial Times, Wall Street Journal, or any of these, and you see this massive appetite for 24/7 clean power from all these industries. There will be a lot of growth in the sector for a whole variety of reasons, and a healthy ecosystem of companies will thrive over the next couple of decades.

Ed Coyne: Are there any other topics you wanted to get across or mention to our listeners that I didn't have the foresight to ask? Is there anything else that we should be thinking about out there?

Brian Gitt: No, we had a good mix of different topics here, from fuel recycling to growth in these sectors like data centers and industry and some of the different technologies. No, I'm feeling good about what we covered, but I'm happy to come back anytime. I appreciate the opportunity.

If people want to learn more about any of the ideas we've been discussing today, one is to try to share as much as possible or what I'm learning now. It's called X, formerly Twitter. You can find me at my name @BrianGitt, G-I-T-T is a good place. Also, I often try to write about what I'm learning on my website, briangitt.com. You can also get the book you mentioned earlier called In The Dark: Fixing Energy Policies That Hurt People & the Planet.

You can get that on my website. I give away the digital version for free. I don't make any money on the book. The book is mainly to get the information out there. The hard copy is like nine bucks. It includes shipping; it's just our printing and shipping costs. People can learn a little more about these topics in some places. Then, what we're doing at Oklo, come and check it out. Go to oklo.com. We have some good content and a cool recycling video. If you want to learn more about fuel recycling, go to that tab on oklo.com. You can watch a great three-minute video that breaks down the whole fuel recycling process.

Ed: That's cool, Brian, and I appreciate you taking the time. This is usable information so that people can be smarter about how they think about consuming and investing. I appreciate your time today, and once again, thank you for your generosity and for sharing some information with us.

Brian Gitt: Thanks for having me on. Appreciate it.

Ed Coyne: Once again, I'm your host, Ed Coyne and thank you all for listening to Sprott Radio.