So all this data set of numbers are weighted towards the end of the decade, whereas the new solar is right here, right now, crushing power prices. So you actually want to be a little short power for the next few years and then flip to being long. And if you can figure out when that flip is, you can make a lot of money in either the forward power curves or the natural gas curves. But as far as your original question, as I said, data centers, 2 or 3 years to build new power plants, 4 or 5. But then you don't need as many new power plants as everyone's saying. So Constellation's CEO said on a call the other day, he said he used the Texas market. He said 87 gigawatt peak market. You could add ten gigawatts to Texas tomorrow, which would be the equivalent of sending every single Nvidia chip for an entire year to Texas and running them 24/7. That's ten gigawatts. He said you could run it right now, existing grid, existing plants, for all but 40-50 hours a year. We stress tested it. There are some coal plants that could ramp up capacity factor. There's plenty of gas plants that can. So I don't know if it's 40 hours, 100 hours, 140 hours, but it makes more sense to pay someone else not to run their chemical company, their refinery company, for 40-50 hours a year, rather than have the utilities go out and spend $10 billion connecting faraway wind farms. That's the argument. We're sort of in the middle of it, but there is plenty of existing capacity on the grid that could ramp up to meet it.
Hello, and welcome to another episode of the Odd Lots podcast. I'm Tracey Alloway and I'm Joe Weisenthal. Joe, imagine you are a utilities analyst.
And for years you are laboring in the utility analysis mines. And you know, we like talking about utilities. We talk about energy. We find pretty much anything interesting.
That's right. Equal opportunity interest people.
We are. But yes, you got to say utilities for a while. Some people would say it was a little more quiet.
No, that's right. I mean, for most of our careers, I think if you were a utilities analyst, a really big part of your job — and maybe I'm wrong, but I just didn't — the popular discourse was like talking about yield relative to treasuries, right? They were seen as sort of bond-like instruments, etc. Maybe a little bit of growth, but roughly stable, safe haven-ish dividend plays like us.
Totally. And since I know where we're going with this conversation, one of the themes of the last few years has been what I would say is the old industries that were either stable or cyclical becoming secular in the way they grow.
I think that's right. So what is happening now is if you were, I don't want to say a lowly utilities analyst, but you know maybe a sort of forgotten utilities analyst outside of your sector, suddenly you are very in demand, right? Because all you hear about nowadays is the AI buildout and energy constraints on that. And so obviously a lot of people want to look at it from a utilities perspective.
Totally. I always think like, what a great look that some people have in their careers. You know, you could be an analyst and learn the modeling skills and all kinds of stuff, and then you get allocated, and someone gets allocated, I don't know, farm equipment, and another person gets allocated to, they wind up in utilities in 2022. And it's like, man, they're on TV all the time. My old boss at Business Insider, Henry Blodget, it's like he was there as an internet analyst in like the late 90s, what amazing timing and luck. And so it's like journalism in the air. It's the same. It's the exact same thing. I started out covering airlines. Yeah, of all things, but those were interesting. Anyway, I'm glad to say we do in fact have the perfect guest. So we're going to be speaking to a utilities analyst, someone who happens to have a very contrarian take on the data center buildout and how much energy is actually required. We've been hearing a lot from people who are very, very bullish on the data center buildout. So this will be a useful counterpoint. I love their point, I love it. Okay, so without further ado, Andy DeVries, head of investor and credit, and head of utilities and power over at CreditSights. Thank you so much for coming on Odd Lots.
Thank you. The pleasure's mine.
So is it great to be a utilities analyst right now?
Your Bloomberg News reporter, Josh Saul, wrote an article about how much it's changed for utilities analysts now that the data centers are here. But the pushback: we did have the largest bankruptcy of all time, Enron, oh yeah, the largest LBO of all time, TXU, which then went bankrupt, and the largest private equity return ever, Calpine, $25 billion, which exceeds Apollo's Lion/ELP trade and Blackstone's Hilton trade. So we have had a lot of fun along the way. Have you been a utilities analyst throughout that entire timeline? How long have you been doing it?
I started with the first gas bankruptcy and then I went to the second. And here we are with data centers for 25 years.
Wow. So you really have seen it all.
It is fair to say so. You're absolutely right. There have been some disasters and home runs in utilities. You know, they do get central in the news obviously with the fires that we saw, for example, in California several years ago and the court trials about allocation of risk in those situations. You mentioned Enron, etc., but it is also fair to say that much of the discourse day to day has been like these are sort of bond-like instruments.
Absolutely. Before we get into that, just like, sort of like talk to us about what a normal day is like. And when you're thinking about utilities before, you know, data centers.
Yeah. Pre data centers, five years ago, whatever, pre data centers, you're looking at a lot of rate cases, okay. Studying a lot of local news. You're looking at legislation. You're reading, you know, dry regulatory documents. And then you're tracking natural gas prices and start setting the price of power.
On the federal level, you obviously have the renewables displacing coal. And that's, you know, obviously having a big impact now. So it's a little — I actually think it's a lot of fun.
My impression was always the policy aspect of it seemed kind of the most important thing to keep track of. Is that right?
Absolutely. And that's down to the state level, but also the federal as well.
Yeah, we've done a few energy episodes. Yeah. So I'm still trying to wrap my head around the sort of patchwork of rules that seem to govern our energy infrastructure. But anyway, there's something, by the way, a little bit like — I'm trying, I'm going to try and not say an offensive word.
You should think a little Aspie about the way, like, you talk to people in this space and you're like, well, how is this get priced? And they're like, well, are you talking about market or central? It's like, okay, I don't know. You know, it's like, are you talking about a rate board or are you talking about market prices? It's so hard anyway, especially in a 40-minute podcast, to try to generalize that. But I love the people. Don't get me wrong, those are my favorite people anyway.
Andy, what is the mood like at the moment among utilities people, analysts, investors? Wasn't there a conference recently? Everyone's gung ho on this.
So the biggest conference of the year is EEI in November. And it was packed. It was standing room only for some of these presentations.
Wow. Your competitors at CNBC were broadcasting from the floor for the first time. That's probably a sign of a top.
So, yeah, people are very happy. And just to quantify it, utilities have generally grown around 4 or 5, 6% a year, and then that's moved to 5 to 7% a year. And now certain names, which we'll talk about later, are up to 8% a year. And that's driven by data center growth.
Talk to us a little bit more about that. So what is the — I mean, I'm like looking at a chart of the XLU ETF. I don't think it's like insane. But talk to us a little bit about like maybe quantify the exuberance for us. So it's like, okay, we are no longer just in the business of measuring bond proxies and looking at policies, etc. There was a secular growth driver. Talk to us about like the bull case, and then also how we would see the bull case sort of like how it's manifesting into tradable instruments.
Sure. And you pulled up the graph of the XLU. Obviously, it's still a very interest rate sensitive sector.
Yeah. That's like dividends. You can find higher yields in other fixed income instruments.
Yeah. Right. So, you know, maybe it didn't do so well last year. But the industry argues that as this EPS growth rate goes up to the high single digits, mid to high single digits, that it shouldn't be as interest rate sensitive. So that's the big debate going on with investors right now in this talk. I mean, the XLU has done very well.
So you have gotten both the capital. It has done well. If you zoom out, it looks pretty good. It's done well. That's my impression of a bitcoin investor, by the way. Zoom out. Just zoom. All right. You've got — and you've gotten that coupon, right? So like you get — so like you might in normal times just be happy with the coupon. You're getting coupon plus — I mean it worked out. The Fed went zero interest rates for so long. So utilities are the place to be. That's just math. And then as soon as the Fed starts jacking up rates, ChatGPT comes on the scene and all of a sudden there's data centers. So now all of a sudden you're taking the leg up on growth when you don't need to be so interest rate sensitive. Interesting. So one of the reasons we wanted to talk to you is because you have that contrarian take on the data center buildout, and we wrote it up in the Odd Lots newsletter, which everyone should subscribe to. It got a lot of attention. Your analysis, interestingly, is just based on some pretty simple math. So why don't you, just to start out with, why don't you walk us through the calculations that you're actually making to try to analyze how much capacity the utilities are taking on to actually power data centers?
Sure. So, as you said, it's pretty simple math here. So utility — so data centers now are consuming around 45GW of power. And you can switch between capacity and throughput. I'm going to stick with capacity, okay. So 45GW of power. And then there's lots and lots of third-party estimates for where they're going to be in 2030. And they are centered around this, you know, 90-95GW. So you need to add 50 for 2035. There's a lot fewer estimates. You come around 160. Now these estimates, they, you know, they're all over the place. They come from sell-side banks. They come from consultants. They come from everyone. BNEF has one. They're, I think, one of the best out there.
We use them a lot. So, so that's on the demand side.
I'm where you're going to come out on these.
And then you look at the supply, and everyone talks about the demand, right?
But then you look at the supply and all these tech bros are too cool to actually look at the supply and do utility analysis.
Right. Who wants to be a utility.
And I'll say we were making fun of us before. But if you look at this, you're fitting you. But when we realize our pretty well misplaced — but we're not making fun anyway, this is great. So you look at the supply and these utilities are tracking all these data centers connecting to the grid because they've got to do a lot of work, spend a lot of money in transmission, distribution, new substations, transformers. It's a lot of work, but it boosts their earnings growth. So they're happy to talk about this. And so you look at where they're at and where they see things coming. And they've got around 140GW of near-term supply. Now kudos to the utilities. They break out with firm committed, signed, contracted versus pipeline behind it because there's a lot of double, triple, quadruple counting. So if you're going to build a data center in the Southeast, you're going to tell Duke, you're going to tell Southern, you're going to tell Dominion, you're going to build one. So that's the pipeline potential. But looking just at the firm committed, whatever they want to call it, around 140GW. Now that's — you got to adjust that. So when you connect two data sets — peewee. Yes. When you connect a data center to the grid, you've got lights, you've got cooling. Those third-party estimates I gave you are just for raw compute.
Why did you split those out though? Because I mean, all data centers are going to need to be cooled down, right? What's the point of splitting it out?
I'm not splitting up. I'm just adjusting it downward because the third-party estimates are just compute. So you're connecting to the grid. You're going to ask the lights, the cooling and everything.
So I want to go apples to apples versus the third party. So what do we stand for? Power usage effectiveness. Great. Power usage efficiency. Keep going. So they're at 140. So that power is down to 110 on apples to apples. So just to go back, you only need 50 on the demand side between now and 2030. And the utilities are working on connecting 110. So the utilities are working on already connecting almost as much as you need by 2035. So again, just to make sure we're on the same page. Third-party estimates: 45GW for data centers now going to 95. That's 50. Utilities are working on 110. They don't give timing for that. Some of it's going to be past 2030. What I'm trying to say is there is a lot of supply of data centers coming. And it's very unclear if there's going to be demand for this. So that's, that's the issue there. And then it might be worth pausing that and just saying how we're tracking these things. Yeah. So what we do for the demand side is we use the original AI agent, you know, that is a Gmail alert.
So anything that's not on our trade pops, not on Bloomberg News, we got picked up by a Gmail alert. And so then we get all that in a spreadsheet. So that's on the demand side. And then on the supply side we use Diego. And that's not a large language model. That's my junior sitting several blocks west of us right now. So he tracks all this in utility calls. Just yesterday NextEra moved another two gigawatts from the potential into the committed. And these utilities are chomping at the bit to sign more and more of these deals. And I think it's just going to be oversupply. We're going to overbuild these things.
Just to be clear, the firm commitments, those are signed agreements to actually build this capacity.
And so I was talking with the CFO of Oncor and they made these comments on their call as well. They're owned by Sempra. And I said, you know, no one really believes these data center estimates. Texas is a walled-off market, as you guys know, 87 gigawatt peak market.
That is the one thing I know about Texas is it's its own walled-off market.
There you go. So 87 gigawatt peak market. And the demand estimates are they're going to add 30GW by 2030. And I said to the CFO of Oncor, I said there's just no way. He said it might not be 30, but it's going to be closer to 30 than it is zero. And I said, I just — the forward power curves don't reflect that at all. And he said, then they're mispriced.
So just for the entire market, just for the benefit of your users, you cannot trade forward power in Texas on Interactive Brokers. I know that.
Oh, that's a bad audience. It's too bad.
Everyone's like, look it up then. No, but this is great. And this gives us a bunch of technical questions to get into some already. Let's just keep talking about Texas. Explain to us kind of what the forward power curves are and how you can back out the implicit assumptions that traders are making based on those forward power curves about how much demand there's going to be.
Sure. So, I mean, obviously you're going to go from 87 to — you're good at 15 or 30, whatever it is, you'd expect that curve to go higher. But what's the curve measuring?
Okay. You say there's a forward power.
So the forward power curve is around the clock, peak or off-peak. There's three separate curves. And the difference between peak and off-peak is actually, you know, narrowed because data centers run 24/7. So it depends on your north Texas or south Texas. And those are in the high 50s.
But what would we be seeing in the curves for like 20 — like are there — or is there trading happening at the 2030?
10 or 30 might not be so liquid, but 27 and 28 certainly are there. But there's another energy market. So if you look at nat gas, for instance, although gas traders are really weird about the futures curve in gas, which I don't really understand. But if you look at that,
you point out that over the longer term it's downward sloping, which suggests that there isn't going to be as much demand, or maybe there's going to be more supply out in the future.
I love it. We're morphing into natural gas because that is the main driver of power prices, especially in Texas. And the forward curve for gas is much more liquid than it is for power, and the forward curve for gas is inverted. It goes from 370 to 360 by the end of the decade. So as my energy analyst Charles Johnson points out, the bigger driver there isn't data center demand. We're at six BCF a day. There — a lot of people are, but 10-12, we can get into that. But LNG exports, we were exporting 18 BCF a day. Now we're going to add another 12. Like you'd think that curve would be at least upward sloping by $0.25, $0.30. By the way, you can trade that in your Interactive Brokers account. So that goes into is there going to be a glut of LNG? It starts getting outside of my expertise. But that's — but we heard from a lot of clients last week when we went on the road all over New York City.
This is very interesting. I actually want to ask another question about the pure power curve. But since we are on LNG and then we can get back to the power curve, just setting aside data centers, etc., intuitively you would think that what is a growth business in the United States? LNG exports. And in fact, one of the sort of policy debates around the whole question of building out LNG terminals is it's going to make gas more expensive for American consumers because now we're going to be competing with European buyers. Whereas when we didn't have LNG export terminals, we were just swimming in it because it had nowhere to go.
So it's very interesting to hear that even with everyone acknowledging a booming domestic demand and b the expected expansion of international demand, their downward sloping gas curve, yes, maybe, I don't know, maybe they're reflecting world peace in Europe and Russia.
LNG is unacceptable to the rest of the world. That could be a driver. Then they would have to rebuild that pipeline.
Yeah, but back to our original conversation on demand.
The reason I was talking to the Oncor CFO and asking him about this is he said he's holding $2.5 billion of cash collateral postings from some of that demand. And he's like, you're not some, you know, Joe Schmo startup. I'm going to build a data center to connect to your grid if you're posting $2.5 billion. And he says, and this is what he said in their earnings call as well, you know, that's real demand that is coming. It's material.
I'm sure. Just now to go back to the power curve, which I get is much less liquid out there. But there are trades that happen. These are prices — like how do you infer volume from price? Because these are prices. We don't get the volume. But it's a yearly curve. And then right for the year starts, it splits into 12-month curves and then it goes into weekly. But what I'm saying is how do you infer what expected volume in 2028 is going from a price curve?
Sure. It's flat. It goes up a dollar from here to 2030. Whereas if you're going to add 20% to your good demand, then you'd expect it to go up, okay, several dollars.
All right. I see. I'd want to see $0.40, $0.50. I see what you're saying. Okay, with that. And then just to go back to the forward, you're upper 50s in Texas, low 60s for peak. And the data center companies are paying 95. So Vistra just did a deal off $95 a megawatt hour, okay, for round the clock. So Vistra contracted at its Comanche Peak plant in Texas $95 a megawatt hour. So Big Tech is paying a very pretty penny. You can argue some of that for the CO2-free aspect of it, and some of it's just to lock in the supply. So just to go back to the math and your overall argument, I mean, you're basically saying that utilities are already committed to building out, I guess, twice as much capacity as is forecast to be needed by 2030.
The wild card to me seems to be the demand forecasts. Right. And we're already seeing those change pretty wildly. I know you mentioned BloombergNEF, but you know, they've raised their forecast because of the data center buildout. So they've raised their forecast of how much energy is actually needed. How much confidence do you have in those demand numbers, and how could they change over time?
Moderate confidence. But like, look, we're right now like OpenAI built all of ChatGPT using two gigawatts. All the big tech hyperscalers, they haven't given their 2025 volumes yet. But if you take their 2024 volumes and then double it, and this is output. So I'm going to transfer it back to capacity. And you assume a 60% capacity factor. All the hyperscalers combine around 15GW. And that's got to be over half the data center demand. So to talk about 95GW, I mean, it's a staggering number. And then you get more advances and, you know, Nvidia chip efficiency.
Yeah, obviously Jevons Paradox kicks in. You've had numerous guests talk about that.
It's just a lot of power, a lot of power.
Can you just remind us, one gigawatt is enough to power what?
I like these comparisons, million homes. But it depends if you're in Florida or the Northeast. But generally speaking, that's where you're at.
Not only do I find electricity market structure and electricity very difficult to wrap my head around, even after all of these conversations, I have built no heuristics or intuition for what these are — gigawatt, kilowatt, megawatt — like you say these things and I know gigawatt's bigger than a kilowatt, but like what is actually me here? And then the fact that even there we're talking about the difference between a gigawatt and a gigawatt hour. And like, I've yet to develop the sort of intuitions that I have elsewhere.
