Today's number: 400. That's how many meters long the world's largest ever tiramisu was. A record set last week by a consortium of 100 Italian chefs. Italy still faces severe economic challenges such as crippling debt and a stagnant economy. But points for sticking with the whole food thing.
Welcome to Prof G Markets. I'm Edson. Apologies to our Italian listeners. It is April 29th. Let's check in on yesterday's market vitals. The S&P and NASDAQ both fell due to a Wall Street Journal report that OpenAI missed its revenue and user growth targets. That news sparked a tech selloff with Nvidia falling more than 1% and Oracle and CoreWeave dropping 4%. Notably, Microsoft actually rose 1% ahead of its earnings which are due tonight.
Meanwhile, oil prices rose as negotiations with Iran continued to stall and the Strait of Hormuz remained shut. And finally, the United Arab Emirates announced it is leaving OPEC, putting more pressure on the oil cartel's already strained supply. Okay, what else is happening?
Alphabet, Amazon, Meta, and Microsoft are expected to spend more than $650 billion this year on data centers. And by 2030, data centers are expected to use twice as much electricity as they do today, enough to power France and Germany combined. The problem, though, is that the grid might not be able to handle it. Nearly 2,300 gigawatts of generation and storage capacity are currently stuck in the pipeline, more than the country's entire installed power capacity. Meanwhile, Americans are already seeing their power bills climb. In fact, residential prices could rise 15 to 40% over the next 5 years. As a result, 14 states are considering moratoriums on data centers. So, this leaves us with a multi-trillion dollar question, and that is, can the AI buildout actually happen the way Wall Street hoped that it would? Well, to discuss this, we're joined by a panel of experts: Jigar Shah, former director of the loan programs office at the US Department of Energy, and also Jon Parrella, CEO at Teraflow Energy.
And Jon, thank you so much for joining me. I'll start with you. When you look at the AI buildout right now and sort of the obstacles that are in its way — between compute, between people's feelings and political sentiment towards the technology, and then also energy — what do you consider to be the most important obstacle, the thing that's most in its way?
Yeah, you know, it's such a crazy thing, right? You know, when you think about the five different bottlenecks you have for data centers, right? So, there's the grid, right? Then there's transformers, then there's GPUs, then there's memory, and then there's CPUs. Now, it looks like they're short, right? They can't build more than 50 gigawatts of data centers between now and 2030 because of limitations on GPUs, memory, and CPUs, right? But if you go to communities, they're creating havoc at the level of 500 gigawatts across the country. So they are making empty promises to people across the country to disrupt their communities when they don't have the GPUs to fill it, right? And so that's, I think, what's pissing everybody off. I think people are just saying, if you're going to be a trillion dollars in size and you're going to be buoying the entire US economy, how come not a single analyst actually seems to know anything about what's possible and everyone else is basically like feeding the hype cycle all day, right? I'll give you an example. In the state of Texas, they are suggesting on official ERCOT letterhead, which is the transmission operator in Texas, that the load queue could be 300 gigawatts, right? Now, mind you, Texas is 70 gigawatts. That's a BS number, right? And of course, people in Texas are scared out of their minds around a BS number, but what's likely to happen in Texas? 30 gigawatts, right?
Yeah, Jon. I mean, this is coinciding this conversation with some pretty significant news about OpenAI, which is that OpenAI missed its revenue targets last year reportedly. Same with its user targets. And it reminds me of a lot of the promises that they have also been making. My understanding is that they were going to build 30 gigawatts worth of compute by the year 2030. I think they've built, I want to say, 2 gigawatts so far. I mean, the point being, it seems like that company specifically is probably guilty in particular of this overpromise-underdeliver dynamic that Jigar is talking about. I wonder if you have any thoughts on that.
So I don't know that I quite agree with Jigar on 30 gigawatts. I think it's going to be a little bit more than that. We're working on quite a few of those projects in Texas. But, and I don't know that I would put all the blame necessarily on OpenAI, right? I used to work for Lancium. That was the base land and power for the Stargate One project. I did a lot of work on that project before we knew it was going to be Stargate One. And in going back and looking at it, they've had a lot of issues because a lot of these companies, when they applied for their grid interconnect, they applied as if they were like a Bitcoin mine or traditional data centers that were very flat, stable loads. If you actually start to look at the load profile of an AI data center, it's one of the most volatile loads you've ever seen. 12, 14 times a minute load swings that are 30, 80% the size of the data center. And that's wreaking havoc on these data centers moving quickly because it's tearing up gen sets. They're literally breaking the crankshaft of the gen sets. They're burning through batteries. And it's a lot of these data centers that are all about time to power and moving quickly, and they got ahead of the tips of their skis because they didn't architect the infrastructure correctly for it to succeed. And so I know that even the Stargate project has had a lot of problems where the utility turned them back off and they've had to scramble to try and find equipment to be able to try and solve for these problems and get them stable load. So I don't know that I would necessarily blame everything. It was definitely ambitious on their part to be able to say that they were going to scale that big that fast. I think in a lot of ways they had to do that in order to get capital to be able to start scaling. But I think that they've also been hit by a lot of roadblocks where interconnection takes a lot longer than anticipated because these loads are big and complex. And I think that when they actually started turning these things on, what they expected and what actually happened were different. And that they started breaking equipment and finding replacements for the broken equipment is not easy right now. So it's a whole cluster, if you will, of problems. So while I do believe that they were a little overambitious, I do not believe that I would blame them 100%.
It seems like a four-letter word that's after the word cluster.
Yeah. Well, I didn't want to quite go there, but you're welcome to.
Someone can do it. Someone can break the ice.
Well, trying to be a little bit more family friendly.
Cluster. I said it. Okay.
Yeah. There you go. All right. So I guess, Jon, I mean, it sounds like what you and Jigar both agree that this is a lot more difficult than AI companies and investors had anticipated. It sounds like maybe where you may disagree is the extent to which they underestimated things or the extent to which they misjudged it. I guess my follow-up question to you, Jon, is, I mean, how bad is it really? From when we look at what's happening from Wall Street's perspective, for example, I don't think Wall Street is as clued into what is happening on the ground when it comes to energy and compute capacity constraints as you are. So, I mean, how big of a problem is it really, if it's not quite as big as Jigar might be suggesting?
I mean, I definitely think that power is the number one issue. There's no question about it. The thing that everybody's talking about is how long it takes to interconnect. Nobody's talking about what happens when you actually turn them on. And I think that obviously, as you see generators, you know, buying generators, there's a long lead time on getting gen sets. And you're seeing some deals come and some deals go. What you're seeing, it was no different before data centers were here. It was the battery craze, right? Like interconnection queue for people that went and had land and they could get power on land to interconnect and put a battery in. You know, it was like half the projects would never see the light of day, but everybody was connecting because if they could get the power to it, they could then flip it to a developer that would build it. I think you're seeing a very similar, at least we've seen this, where lots of people that have, you know, rural land and there's all of a sudden a big power line that comes through their land go, 'I can build a data center here.' And, you know, they might have been able to get $5,000 or $10,000 an acre, but if they can get a large load interconnect, they can get $100,000, $200,000, $300,000 an acre for the same land. So you see a lot of people that came in and said, 'Okay, if I can find the sweet spot of land where I can get gas and water and power and, you know, all these things, all of a sudden the value of that land goes through the roof and the data centers are willing to pay for it.' What's funny, though, is when you start looking at what they submitted as their load profile for those interconnects versus what the data centers are actually doing. And so the problem is now the utilities are trying to do these feasibility studies off of, you know, a legacy flat, very stable data center, and then these things show up and it's far from that. And that's, I mean, to be a little bit selfish, that's what our battery technology solves for. But it is a major problem. And the reality is, you know, even if I stand up gigawatts of manufacturing capacity of batteries, I can't make enough.
And that's the problem across the board with all of the infrastructure.
And back when the Bitcoin mine days were here and it was all the craze of building these monster Bitcoin mining data centers, you saw companies investing in, you know, PDU manufacturers and all the components because they wanted to prioritize their company over everybody else to be able to get the components. Same thing's happening with the data centers. The infrastructure funds, if you look at the Blackstones, are investing in TDSPs or utilities. They're investing in, you know, the land developers. They're investing in the infrastructure components. They're investing in all the different components to be able to try and prop up and accelerate the growth of all this to meet that demand. I think there's long lead items that are going to slow everything down and there's not much they can do to really accelerate that.
So, I mean, when I kind of synthesize what's happening here, what we're basically saying is these data centers are a lot more volatile than we had originally expected. They're also consuming huge amounts of energy to a degree that people a few years ago would never have anticipated. And at the same time, I also know that the Strait of Hormuz is closed and blockaded as we speak. I know that gas prices have risen 30% over the past two months since we launched the war in Iran. I mean, all of these things together make me think we're basically headed towards a full-blown energy crisis. Am I getting this wrong? What do you make of the energy picture in America right now?
No, you're not wrong. I mean, you know, the data centers have an approval rating that's lower than the Iran war amongst the American people, right? And all of it comes down to basic selfishness, right? Like when you look at our grid, if the data centers were willing to be flexible with their load for 100 hours, you could accommodate 100 gigawatts of data center load growth in our grid easily and reduce everyone's electricity bills by 10%. But that would require coordination between the data center and the utility and the governors, and, you know, folks would have to like each other. But instead they're saying, 'Screw you. We'd like to be run off grid,' right? Okay, that feels very selfish. I think when you look at where we are with the Straits of Hormuz, the US is in an extraordinary spot, right? We have a lot of oil production. We have a lot of refining capacity, that kind of stuff. When President Trump trumpets how many tankers are like heading towards Texas to pick up product, they're picking up product to take it to other continents, right? So they're picking up jet fuel, they're picking up diesel, they're picking up gasoline, and, you know, because we got a lot of it. Now, if we start shipping it all to other places, our prices are going to go up, right? And you already see that diesel is up to like, you know, $6.70 a gallon. Gasoline is above $4 a gallon, right? That means that for a minivan, it's 85 bucks to fill up that minivan. That's a lot, right? And so when you think about 4.5 million households in the Northeast are still using fuel oil to heat their homes, that fuel oil comes from the Straits of Hormuz. And so now they don't have fuel oil, right? And so there's going to be a disruption around the world. We're going to have a humanitarian crisis around the world. The US is better situated than almost everybody else is. But make no mistake, right? We're not putting fertilizer down for a lot of our land, right? Or we're going to put only half as much down. That means yields will go down. That means food prices are going up, right? And so part of the challenge I see right now is there's a way to use the best technology in the world, invented here in the United States, deploy it at scale to give people relief. But when you have a president that's paying people off to shut down offshore wind farms, right, you're not using the best technology in the world. You're instead figuring out how to make the crisis worse, right? And so we have got to scale up solar, scale up battery storage, scale up electric vehicles, scale up all of the things that take the pressure off of fossil fuels. We'll be right back.
And if you're enjoying the show, be sure to subscribe to the Prof G Markets YouTube channel at the link below.
We're back with Prof G Markets. Yeah, this is the strange thing. I'll point this question to you, Jon, is that I keep on hearing about how, you know, America is energy independent. We do it all on our own. And then it's like, well, why are prices rising as much as they are? And why are electricity prices rising as well? I mean, it's not just the gas bill, it's the electric bill, too. And it makes me think, okay, well, I mean, maybe we're more independent than other nations, but it seems like we're not that independent. We're not so independent such that we are actually insulated from things that happen abroad, and we're certainly not independent enough that we're able to keep up with the demand of these data centers at the same time. So I guess when you look at our energy picture, I mean, how independent are we really? And what would it take to get to a place where prices at least moderate or start to come down, or where data centers don't cause a full-blown cost of living crisis among Americans today?
So it's an interesting question, and I'll answer it a number of different ways. One, I think if you look at the economy right now, data centers are absolutely starting to prop up the economy. If you look at the amount of jobs that they're creating, if you look at the amount of factories and made in America, I mean, my entire company right now is here and the jobs that I'm creating because of this data center boom that's going on. Look, the cost of power is all about supply and demand. It's a real-time commodity. It's a real-time supply and demand. So there's no question that supply and demand at data centers, you know, when they first started, they were all about, 'I want grid power because it's very stable power.' Right now, most of the data centers that we're involved in, and we're working on over 100 gigawatts of projects across the United States and now going international. Right now, I would say probably 80% of them are planning to go behind-the-meter generation.
Could you explain what that means for our audience?
So behind-the-meter generation means that instead of grid connecting, at least for phase one, they're going to bring in natural gas and put up generators or turbines on their campus and they're going to generate their own power. And that was part of like that Trump pledge that he was really pushing is that you're going to build more generation. Now think about this challenge for a second. All of the generation assets are spoken for for the foreseeable future. You have companies like Microsoft and these big hyperscalers buying nukes right now so that they can power their data centers, which is the cheapest power out there, right? Coal, nukes, your base load powers. And so they're collocating their data centers with generation assets so that in some situations there's grid constraint because the lines aren't big enough to carry it, but at the same time they're buying the assets and almost removing them from the grid as part of the bid stack of what determines what the price of power would be. Now, think forward a minute, and I know everybody's looking at it saying they're raising the price of power. Look, the SB6 in Texas, Senate Bill 6 in Texas, forces the data centers to pay for all their own interconnect and all their own equipment. So they're not passing the load to the ratepayers.
Well, and to be interruptible.
And listen, that's where I was going. If you look at architecting grids, and I had this conversation literally two days ago, I personally believe that regulatory needs to come in and say if you want to build big, you have to be a grid asset. You have to be a responsive load rather than just a potentially controllable load. Let me explain the difference between the two. Controllable is something where the grid can come and say with 30 minutes notice, 'I need you to turn off for up to 12 hours.' That's Senate Bill 6 in Texas. And what that means is that during emergency periods, they would make the data center shut down. Well, there are 13 times in the last five years that might have happened. Okay. A controllable load means that you can set up the grid to use the frequency of the grid to control the data center or like a demand response program, if you will. So when the grid really needs it, the data center can curtail the load. Now, in many situations for those that built behind-the-meter generation, if their electrical power infrastructure is set up correctly, it can enable them to actually inject power back into the grid from the generation assets that they have. So now all of a sudden all these data centers are building out all this power and all the grids are building out all the infrastructure to connect them to the grid eventually. And now what you're going to do is you're going to see this huge revolution where there's more generation capacity available when needed that balances the grid.
If you look at what Jigar said before about, you know, if you look at like 95% reliability from a utility where you basically take the data centers off the grid during the five to seven peak hours of every day, in that situation you could actually fit most if not all the data centers that want to be built on the grid today and reducing everybody's rates by 10%. Like that's the thing that's so crazy. This is what Jon is suggesting is the unselfish way to participate in the system and achieve speed to power, right? Jensen Huang just said the same thing two weeks ago and said, 'We have all the technology to do exactly what Jon is suggesting.' And now the data center companies are mad at him because they're like, 'That's not masculine enough for us. We'd rather run off grid and be selfish.' I was like, 'What are you talking about?' Like, we're giving you speed to power faster because the generators are sold out and you'd reduce everybody's bills by 10% by using the grid we've already paid for more efficiently, right? But you'd rather be selfish than actually get connected faster and, you know, be a better neighbor. Of course, people hate you. So it's really a path to how do you get to turning these data centers into grid assets instead of grid liabilities.
That's a big part of what our product line does. That's a big part of what we've been trying to tout from the mountaintop is there are ways to do it. Google's trying to lead the way by looking at all different things. Everything from Emerald AI to be able to curtail load to shifting load to everything else. Now batteries are playing a huge role in enabling that, and that's part of what we're doing is building proper grid-scale energy storage that's long duration that enables the data centers to curtail load and then if they need to wield the generation assets, they have the ability to wield the generation assets. It starts with them building behind the meter because the grid can't get there fast enough. But if they apply as either a controllable load or responsive load or demand response programs, these huge liabilities become huge assets that will drive the price of power down. I don't agree that it's the data centers that are driving the price of power up. I think it's the economy as a whole. Okay. Yes, the data centers are contributing to it. No, I do not believe that everything that you see in the queue will be built. You have a lot of people that don't have the financial wherewithal that are just trying to, you know, ride on the gravy train, including Fermi. I think that the things that, for instance, ERCOT's enacting with deposits and everything else helps to weed out the fake ones and enable the ones that are real to get there faster. I think those things need to be done, and you've seen the president try to get FERC involved to accelerate because a lot of these grids are absolute cluster... I'm going to break it now. I'll say it. But like PJM can't get out of their own way. They can't get anything through the interconnection queue fast enough, right? And there's no reason for that, especially not with AI now. Like you should be able to accelerate the speed of feasibility studies leveraging AI's capacity to look at the network of the grid and look at it and say, is there room here or not? And how do we do it? The other thing I'll mention that's interesting is if you look at what happened in Virginia recently, there's a misalignment or misunderstanding of certain key terms that the grids are reacting to. And it's scary because I think you're going to see a lot of regulatory reaction and you're starting to see moratoriums because they're like, 'Okay, we need to slow everything down a little bit and pump the brakes to make sure we fully understand what this means.' In Virginia, they had a situation where it wasn't a fault of the data centers, but the grid faulted and like nine data centers went offline or they went to backup power. And when the grid came back up, the grid was expecting the data centers to be there and they weren't. They were still running off backup power. It's called low voltage ride-through. And what happened is the grid then had an overfrequency event because it's all real-time supply and demand. So you had generators online for the grid that were expecting a load and the load wasn't there when the grid came back. And so there was way more power available than needed to be. And what can happen in situations like that, and or if you connect one of these data centers directly to the grid when you have that much volatility that quickly, you can shunt air breakers or trip air breakers at substations.
