Casey Handmer

Thank you.

It's great to be here finally.

Do you think that China is better at capital allocation than the United States?

Do you think the Chinese business environment is better for business than in the United States?

Well, people say, oh, look, they're so much better at building high-speed trains than the United States.

Right.

I would never hold up a flag saying I'm really good at building high-speed trains.

That is just a sign that you're really bad at capital allocation.

Why would you devote, in 2025...

so much industrial effort and money, right?

Which would count for something.

Well, they're in a similar situation to Europe, but unlike the United States.

So the United States...

is the luckiest goddamn country on earth because it's surrounded on two sides by oceans and on the other two sides by like friendly allies, right?

China's surrounded by 15 countries who are mostly hostile to it, right?

With no good like mountain ranges or rivers or anything to really separate them.

And then they get all their oil, almost all their oil from the Middle East, right?

In countries that they don't control, don't have strong diplomatic relationships with on fleets of oil tankers that they can't defend because their Navy doesn't have the ability to operate effectively in the Indian Ocean.

We're not currently working with China.

We don't plan to, but the physics is very obvious.

And synthetic fuels have been around for 100 years.

There are projects in China right now working on synthetic fuels.

It would not surprise me if they were thinking pretty seriously about this.

This technology levels the playing field.

It levels the playing field a lot.

But at the end of the day, China still contains the poorest Chinese people anywhere on Earth.

Never underestimate the capacity for an autocratic dictatorship to shoot itself in the foot.

Like the Indian middle class is larger than the U.S.

middle class.

Yeah.

No, I'm saying don't underestimate it, but at the same time, we want to find the truth here, right?

Right.

And the truth is we should not count the United States out of the battle and just give up.

We're very much still in the race now, provided we don't take extra effort to shoot ourselves in the foot.

It would be asymmetrical.

It would hurt them worse than us.

Yeah, well, China obviously depends upon like the US export market for its economic dynamism, right?

And the United States, it's going to hurt both parties to like sever that link.

But if you sever the link completely, China's ability to make advanced chips right now is like basically not there, whereas the United States can make them.

And United States' ability to make solar arrays is embryonic, but it's actually not that far behind China's, right?

It's maybe five years behind.

We're already on track to do that.

My views on this are somewhat different from the mainstream, which is great because this is a podcast.

So the mainstream view would say, well, China has cheaper labor.

which is no longer true because they compared to Mexico.

And it's got lower environmental regulations, which is true.

And that it is more business friendly, which is absolutely crazy.

I've never heard, like, there's no way you could justify that, like, your company having to have an inspector from the CCP on its board who, like, harasses you about Xi Jinping every day, like, helps you do your business.

And also the rule of law is not great.

So you're constantly having to pay bribes to people in order to stay in business.

The idea that the United States cannot compete against that with mostly or fully automated solar panel manufacturing in the United States, which has cheaper natural gas by far, abundant oil, abundant human resources, great financial capacity, world-leading automation, et cetera, et cetera, is crazy.

We could literally copy-paste solar manufacturing factories.

This is a good question.

When Russia invaded Ukraine, I thought, ah, finally, the Europeans will see sense.

And they'll like pull the trigger on like, we need to localize production of solar panels from dirt to the finished module, which is like roughly a four-stage process.

They didn't.

So they're still paying Russia like a billion dollars a day for the privilege of being invaded.

But at the time, I thought they could probably do that in about two years.

And I think the

If you started today, like it's currently 11 o'clock.

So like we're going to start cutting checks by noon.

Um, and, uh, and yeah, I think you could, you could ramp up pretty quickly.

A lot of technology already exists here.

It's not like it has to be reinvented from scratch.

It's mostly at a case of like putting in phone call to all the different manufacturers here in Germany and so on and saying, we need you to 10 exercise your factory starting today, blank check, go.

It was, right?

So if you look at XAI, which Elon is involved in, obviously, what are they actually focusing on right now?

Right?

They're focused on the chips, right?

Because they understand like the key bottleneck is the chips, not the solar power, right?

Because even if Trump puts in a 200% tariff on Chinese solar, right?

And we're not able to bypass it via like Vietnam or something, right?

It's still a bargain.

It doesn't matter.

If you need solar to run your data center, it doesn't hurt in terms of the overall cost picture.

It doesn't matter at all.

What matters is having the chips at competitive capabilities per chip and enough of them installed in your PCBs, in your data centers, hooked up to your liquid cooling, ready to go.

And that's actually something that Elon and his companies are great at.

It's figuring out this mass production, semi-automated mass production strategy.

They've got this facility in Texas, which is making the Starlink receivers completely automated.

At what point does like, oh, we don't have a solar panel factory become on the critical path, right?

I very much doubt it's ever going to be on the critical path.

There's dozens and dozens of manufacturers of solar panels worldwide that are all competing against each other.

So why are they wrong and you're right?

I mean, it's their job.

They probably know more about it than I do.

But no, in all seriousness, if you're like XAI right now trying to build Colossus One data center in downtown Memphis, right?

You want to get it done super fast.

So you're like, what are all the different things we need?

What are the factors of production to build this?

We need a building.

Well, we don't have time to build a building.

We'll buy a building.

Okay, and we'll adapt it.

We need power.

We need thermal cooling.

That stuff you can deliver on a truck.

So that's what they did.

You need access to gas.

They had access to gas there.

They could tap into a local gas line.

And actually, if you can tap into a gas line, generally speaking, you can get enough power.

Like the energy transmission capacity of like your regular gas delivery pipelines is way, way higher than electricity overhead lines.

And it's easy to upgrade or whatever.

And so if you're in this situation right now, you say, well, are we constrained by our ability to go and rent gas turbines?

And no, they're not because there was enough available.

once, maybe twice, right?

But at a certain point, you realize, well, as you grow, you start to touch all these additional constraints.

And some of those constraints include gas availability.

So there's a lot of chat about doing this in Pennsylvania, for example, where there's quite a lot of stranded gas in parts of Texas.

But at the same time,

United States is gearing up in its ability to export natural gas overseas.

So the price will not be infinitely low forever.

You start to run into constraints around turbine manufacturing rate, around transformer production rate, around grid capacity, and also kind of running into problems where the AIs and the humans who depend on legacy electricity production and delivery utilities are kind of competing with each other.

We just saw this recent Ford auction in PJM result in

in kind of very high, unsustainably high prices for consumers who depend on cheap electricity to heat and cool their houses and have general prosperity.

So if you kind of look far enough in the future, you say, well,

you can just turn up the dial arbitrarily high.

You can say, well, we're going to put in a gigawatt a year.

Well, we can meet that constraint with gas turbines.

We're not going to run out of natural gas at one gigawatt per year indefinitely.

Okay, what if we're doing five gigawatts per year?

What if we're doing 50 gigawatts per year?

What if we're doing 100 gigawatts per year?

You can just break the situation.

Does that make sense?

Not to reach prematurely for analogies, but

But Henry Kaiser set up the shipyard in Richmond, just down the road here in San Francisco, over near Berkeley, and initially making ships for the British.

And then by the end of the war, four separate shipyards operating in parallel, to the point where he was bottlenecked on his supply of steel, because steel was rare enough in the war, because everyone was using it for different things.

that Kaiser Industries went off and built not only a steel mill, but also a steel mine.

They went and started digging rocks out of the ground to turn into ships.

And it's the same sort of situation you have here where these massive industrial verticals, and here I'm quite bullish on XAN in particular because the Elon Cinematic Universe has just done so much industrial stuff compared to the Googles and Metas of this world.

can kind of reach all the way through down into primary material supply if they need to.

They have nuclear as well.

They have gas.

They have coal, all kinds of stuff.

And actually, this price here is probably driven...

more by the delivery cost growth than by the generation cost growth, if that makes sense.

So when you pay your utility bill, the cost is sometimes broken down by like a delivery cost and a generation cost, sometimes importation costs and things.

And so the delivery cost is the cost of basically what it costs the utility to build and maintain all the power lines that connect

All the houses to all the power plants in some gigantic area divided by your marginal usage with all kinds of other complicated rules designed to make it fairer.

And the problem that we see and the reason that PG&E here in California, for example, is perpetually on the brink of bankruptcy is that even though like the cost of an additional solar panel or additional wind turbine or additional gas turbine or whatever is relatively cheap.

getting that power to your house is actually really expensive.

Right.

Why?

Because you've got, you know, generally like unionized labor that has to build and maintain power lines in areas that already have built up infrastructure.

So you have like multiple collisions, whether this is like a power pole on your own street or like building a new transmission line, which requires you to like eminent domain land.

So you're in court for like,

Years and years and years spending public money litigating against other people who are also spending public money to litigate against you on behalf of other interest groups and so on and so forth.

And then you've got wildfires and it's just like the poster child for Balmoral Costasies.

So one of the reasons that we're going to see large-scale pruning of these grids is that we just can't afford under our current regulatory regime to maintain.

When you say pruning, are you just like everything will just go off-grid?

Yeah.

Well, I mean, it's fairly clear to me that for really large captive loads like our data centers or aluminum refineries or whatever, you're going to have to build your own power plant for them, which is how it used to work.

If you had an aluminum plant back in the day, you would be building your own power plant for it as well.

It would seem inefficient, but actually, if you are sensitive to the cost of power expressed maybe in supply elasticity or something like that, you just have to do it.

There's no two ways about it.

Is it inefficient for the XIA Colossus data center to have its own captive power plant, which it does, on the backs of a bunch of trucks in their parking lot?

No, it's not inefficient.

Well, I think we haven't completely exhausted the supply of the turbines relative to GPUs.

Well, I think everything before about 2030 is spoken for at this point.

Yeah, you could make more turbines.

The funny thing is it's actually relatively expensive, I think, to spool up additional production of these turbines, for example.

So actually, here's one thing you have to grapple with sooner or later.

Conventional power generation is a steam engine.

So you have some kind of chemical that you find inside the Earth that is out of chemical equilibrium with the atmosphere, and you burn it and it makes heat.

It could be coal, it could be gas, oil, whatever.

You're going to be the true birds and bees here.

Yeah, exactly.

And it makes heat, and you boil water, and the water goes through some kind of mechanical contrivance that creates motion, and then that motion twists a magnet and generates an electrical field, which then pushes electrons down wires, which then push electrons through a series of gates that then approximate thinking.

It's kind of complicated.

But the key step in this, which is converting heat into electricity, in the most efficient, most common, and this is the same if it's a nuclear plant or a gas plant, combined cycle plant or a coal plant or whatever, is what's called a Brayton cycle.

A jet engine on an aircraft is a Brayton cycle as well.

And just any time you have a Brayton cycle with a bunch of Inconels spinning at high speed, it's just going to cost you a bunch of money.

Sorry, because it's inherently inefficient or what?

I guess, yeah.

I don't actually know what the retail price is.

I would suspect that if their price is flexible, it would have gone up a lot.

But if I recall correctly, it's like $35 a megawatt hour is just the flag for cost for... How much, right?

$35 a megawatt hour, just for the Brayton cycle, right?

So we're not talking about the fuel.

We're not talking about the heat exchanges.

We're not talking about the cooling ponds or anything like that.

Just the amortized cost of the high-speed, high-temperature spinning components is $35 a megawatt hour.

Do you think the hyperscalers are being irrational, or do they have some reason?

Oh, to be clear, they don't care about cost.

For cost of power, this seems extremely, like, it's very counterintuitive.

So for, like, Grandma Kettle in Pennsylvania, she's very sensitive to electricity cost, and we don't really want her to, like, suffer in her retirement from...

unaffordable electricity costs and having to sit there shivering.

That's not the image that we want.

At the same time, what is the economic value to you of using, I don't know, Claude or Grok or whatever you use on a monthly basis?

A lot, yeah.

But it's obviously much more than the subscription, but is it like 10 times more than the subscription maybe?

Okay, so let's say the subscription is on the order of 10 bucks, the value is on the order of 100 bucks, no, actually probably like 100 and 1,000.

How much does it cost...

XAI or Anthropic or whatever to serve your usage.

And the cost of electricity is about 10% of that.

So it's like 10 cents of electricity is generating $1,000 worth of economic value.

So it's very obvious that Anthropic could be like, our electricity cost basis is increased by a factor of 100.

And now instead of paying 10 cents on your $100 bill for power, you're paying 10 bucks.

So we're putting your subscription up to $110 for an electricity capacity charge.

And then they could go out and buy turbines for prices that would make your eyes water.

Yeah, I do.

The learning rate for natural gas is nowhere near as steep as solar, which just tells you that it's easy to make solar panels, much easier to make solar panels.

There are actually very few manufactured products which are easier to make.

Like the learning, the right solar coefficient is 43%.

So every time we double communal production, we get a 43% reduction in cost.

Well, I mean, roughly speaking, there's like 10,000 manufacturing process engineers working on this full-time.

Yeah, so in order to sustain this over a long period of time, you obviously need to have demand elasticity that exceeds your learning rate.

So otherwise, after a couple of booms, you would saturate your market at the current price and you'd have no additional growth.

But in this case, roughly every two years, we're doubling production, two and a half years doubling production.

The price is coming down by a factor of 40-odd percent, so roughly 15-20% per year.

And then just as a result of that price reduction,

demand skyrockets by probably six times more than that additional marginal production capacity increase.

And this is one point where I'll say, actually, the so-called pros are definitely wrong.

Conventional wisdom is like, oh, solar demand is going to saturate this week.

It's going to saturate.

We've got a graph here somewhere that's like, this year is it.

It's never going to grow anymore.

And instead, it's just like blasting out the top of the graph.

And this conventional wisdom is wrong.

It is not only the case that solar adoption, production price decreases are continuing, they're accelerating, and the rate that they're accelerating is still accelerating.

In the sense that its fitness for the markets that it is being produced for is increasing over time.

So it is still extremely early.

We're still at the Apple II computer era of solar.

Why isn't that true for... Well, let's say you're a bank and you're trying to decide whether to lend, I don't know, like, gee, a bunch of money to expand production of the gas turbines.

Yeah.

You can write them the check today and then they'll start scaling up their factories and then they'll start to see the benefits in three or four or five years.

You don't know if the AI bubble will burst by then.

You don't know if China will have invaded Taiwan by then.

You don't know if Siemens or Philips or someone will have out-competed you.

You don't know if GE's major looming structural problems will cause it to be unable to compete as it has in the past.

You also don't know.

In order to make that money back, you have to then operate that plant at that capacity for 20 years.

And if I was looking at the same charts as they're looking at right now, I'd say, what are the odds that in 25 years' time,

we can produce gas turbines at a price that is relevant in a world where solar is already at its current price.

And batteries are at a price where they're already.

You cannot win.

Did they end up indeed ramping up their production?

I think so.

Well, so when someone says, we can't do it, we won't do it, no way, no how.

I mean, not in the U.S.

What they're saying is, write me a check.

Right.

Right?

And they did.

And now Samsung's coming on board in the States to build T6 with XAI, I think.

So, like, they all got there in the end.

Yeah.

So I mean, obviously, like legacy production coal and stuff is going to retire over time.

Right.

And if a gas plant is still making money, people will keep operating it.

But at a certain point, like it is the case right now that operating a coal plant costs more than building a new solar plant.

So it's just cheaper to turn it off.

So, yeah, I want to know what the... And obviously capacity is going to increase a lot.

So that helps to dilute the existing production.

Well, I think the question to ask is, like, what is the major constraint on that ramp up?

Right.

And then everything else will just draft in behind.

And I suspect that the hardest thing to make will always be the silicon, like the GPUs.

So the question is really, how quickly does TSMC ramp up its production of GPUs?

And that's a question for you, not for me.

Yeah.

Okay.

So it's like 100 gigawatts.

Okay.

And that's, I mean, that sounds roughly right.

You're not the first person to give me a call and ask me about this.

I'll put it that way.

I'm not going to name names, but like pretty much all the names you've heard of have given me a call and said, like, we know that you're a minority voice on the paper that came out recently with scale microgrids talking about how you could do 90% solar, 10% gas.

And I said, you can go all the way 100% solar.

I wrote a blog post about it.

And so they always call me up and say, what about this?

And they're all talking like five gigawatts in the next few years.

So that's just like 90 plus percent solar for just those.

So I think within a few years, we'll probably see that like the majority of new DCs that are going in will be mostly solar.

Within, sorry, how long?

Let's say by, let's see, what's it, 2027, majority of new DCs going in at that point would be mostly solar.

um my consulting fees are extremely affordable um but i really i don't have deep visibility because i'm not in the same room with like with the meta people as to like when we're going to hit the wall on transformers and when we're going to hit the wall on like just how much like municipal like peak peak load can we shave off um which is the latest thing that's been doing the rounds which it turns out like there's a handful of of places in the united states and by handful i mean like literally handful um

where they might have used to be in an aluminum smelters as a bunch of latent capacity in the grid.

There's also a bunch of generators on the grid that are notionally turned down and they're like operators, say 40, 50 percent capacity factor.

But they max out at about 80 percent capacity factor because you got to bring them down for maintenance pretty often, especially if they're old.

And so they're saying, well, we could pay you just to operate this old coal plant or something at high capacity.

It'll go down this power line to this place where the smelter used to be.

We'll set up there.

And then we promise to curtail when you need the power, which basically means they just have a massive captive battery plant as well, which is fine.

You just buy that and it arrives on a truck.

The major advantage of doing that over the pure solar play is that the power is already there.

So there's no risk there.

And then you don't need a massive amount of land.

The problem with the solar approach is that there's no two ways about it.

It's a farming operation.

You need a huge amount of land.

The total amount of land that you're using, less than 1% is under batteries, under roads, under data center structures, et cetera, et cetera.

It's mostly solar.

It's kind of a nightmare.

I mean, like...

There's this very popular misconception that like there's not enough land to do solar.

Right.

Right.

This is garbage.

If you've ever flown in an aircraft in the United States and you've ever looked out the window, you'd be like, oh, wow, look, there's a lot of land you could put solar on, especially west of like 110.

Yeah.

Right.

Does it need to be flat or no?

No, it doesn't matter.

Like do trees grow on mountain slopes?

So it doesn't matter.

And the total amount of land, so just for reference, Nevada is something like 80 million acres or something like that.

So just Nevada, which is like 90% federal land, is 80 million acres.

And I would never say that we should sacrifice Nevada to the AI and pave the entirety of Nevada from one wall to the other.

But I just saw a bunch of things in my feed the last couple of days that like,

You know, Vegas is falling apart.

Well, like, the boomers are retiring.

No one goes there anymore.

People would go to see, like, the 100 million acres of solar.

Yeah, okay.

So 5 gigawatt plant.

So even if you did it in Nevada?

You can do it anywhere.

You can do it anywhere you can find the land, right?

People say, well, you can't do this in Europe because Europe doesn't have solar power.

Europe has solar power.

I've been to Europe in summer.

It's, like, sunny for, like, 20 hours of the day.

It's a bit seasonal, right?

But that's not a big deal.

Yeah, so in practice what happens is, let's say Europe hypothetically awakens from its slumber and decides it wants to participate in AI.

Okay, I hope it does.

They say, well, we're going to have to put 100 gigawatts down of solar at some point to build these data centers.

It'll most likely be in Southern Europe.

Spain is not particularly heavily populated.

That's a great place to start.

So we put in 100 gigawatts of solar data center in Spain.

And then in order to achieve...

Basically, if you're spending AI hyperscaling money on your GPUs, you want to have four nines of uptime in order to maximize your tokens per dollar spent.

OK?

Tokens per dollar spent on the entire project, not just on that.

This is a very subtle point.

I can go into vast detail on it later on, maybe.

But let's just say you need four nines of uptime.

In order to achieve four nines of uptime in the middle of winter, you need to have a lot of solar overbuilt.

Is solar overbuilt a bad thing?

No.

Is the fact that we produce 40% more food than we need a bad thing?

No.

It's much better than producing 40% less than we need.

And it just means that, effectively, you have a giant captive power plant attached to a data center that...

99.9% of the time produces more power than it needs.

And 99% of the time produces much more power than it needs.

And that can now actually be the source of power that the local utility, instead of being like, naughty, naughty data center, you must disconnect.

When we tell you to, they say, hey, data center, I notice you've got like a bunch of power you're not using 360 days of the year.

Would you mind ever so much if we threw a power cable over the wall and we powered our entire town?

off your spare power at essentially zero marginal cost plus whatever residential batteries that we need in addition to local power supply.

Yeah, but also, like, the market will be made at the place, like, the new marginal, like, consumption and production, right?

So, like...

All the people who are working in the space right now are like, oh, I'm in the business of delivering power or storing power.

I'm going to serve the AI market because that's where all the growth is occurring.

That's where all of US GDP growth is occurring right now.

It doesn't need to be contiguous.

Well, I mean, it helps if it's contiguous.

It doesn't need to be convex.

Um, so this is, you know, you can have a bit over here and a bit over there and you can wire them together relatively easily.

In fact, in the limit, in the limit, you have fields upon fields of solar arrays with... Tell me your dream case.

Okay.

Fields, just, just solar arrays as far as I can see.

And then within the solar arrays, roughly in the middle of them, you have your, your batteries and your...

I remember this.

Yeah, so you've got your batteries and you've got your data centers.

So in terms of ground floor area, it's roughly, let's say, 10% racks, 10% access to the racks, maybe like...

50% batteries stacked up on top of each other and that's just cooling.

Something like that in terms of what sits in the centralized node, right?

And that could be 100 megawatts or it could be 10 gigawatts, depending on how you want to scale this.

But then all you need to connect that to the outside world is like an optical fiber.

An optical fiber cable, which you can string up on poles.

You can run it underground.

You could even use microwave links if you really wanted to.

You could use Starlink if you really wanted to.

I don't know what the... Starlink would be fast enough.

I'm not sure if it's like capacity is high enough.

You could use laser links if you really needed to.

And that's it.

It's like this completely self-contained world of like... Because it's off-grid.

Yeah, of computation that occurs off-grid.

Like on private land somewhere in the backwoods of Texas where like no one lives and no one will ever live because it's completely inhospitable to humans.

It's like a megawatt per rack is what they're heading to now, which just seems bananas to me.

So let's get concrete here for a second.

Let's say you got one rack and it's one megawatt.

And I'll leave the cooling to someone who specializes in air conditioners.

But it's basically three air conditioners that are the problem.

And then you have batteries.

So in order to get four nines of uptime on this, you need, in South Texas, you actually need less than this.

But let's just say 24 hours worth of battery storage.

Because that means it'll get you through two bad nights in a row, basically.

And actually it turns out that you can significantly decrease power consumption with a very small reduction in overall compute.

So if you've got like three really bad days in a row or something, you can actually just like, you can dial back your power usage quite a lot without compromising your inference or training.

Okay, so you've got say a Tesla Powerwall, something like four megawatt hours.

So one megawatt rack and then six Tesla mega packs, each of which is roughly one truckload worth of stuff.

So like one truckload worth of rack and then like six truckloads worth of batteries.

And then in order to operate this at an average power of one megawatt, your solar arrays in Texas would be something like 25% utilization.

So on average, you know, if the sun came up every day and the day was the same length all the time, you would need four megawatts of solar arrays, which is about four acres of land.

But in practice, because you're aiming for four nines instead of like one nine, you need an overbuild about two and a half X.

So you've got about 10 acres of solar.

So 10 acres of solar, six truckloads of batteries, one truckload of data center and some cooling stuff.

One megawatt.

That's just one megawatt.

So 10 acres, one megawatt kind of situation at four nines.

Yeah.

So if you want five gigawatts and that's 5,000 times 10, so 50,000 acres.

And actually at larger scale, you can probably cut all those numbers down by 10, 20%, but like on that order.

And like 50,000 acres sounds like a lot.

The amount of land put aside for Oak Ridge was 100,000 acres.

The amount of land put aside for Hanford was about 100,000 acres.

Hanford was where they made the plutonium in the Manhattan Project.

It was about 100,000 acres.

Well, so the reason they, and it's still largely unpopulated now because it's a national laboratory.

But the reason they did that was they thought, oh, we're going to need four acres.

piles to produce plutonium.

These are not, these are not nuclear reactors that produce excess thermal energy.

So you can't actually make nuclear power with them, but you're making plutonium with them.

And then in the end, they only needed two, I think.

And they wanted them spaced out because they thought like they might just like spontaneously like explode.

Right.

And a bunch of other facilities and plants and stuff as well.

Yeah, yeah.

So basically there's a balance here.

So this is not a very complicated optimization problem.

Like for people who do optimization problems for fun, this is how you do it.

You start off with a bunch of like NREL data on like what your solar abundance is in this particular part of the world.

And then you just start throwing solar panels and batteries at it.

over the course of a one-year simulation until you hit the number of nines you want.

And then to an extent, you can trade the amount of panels and the amount of batteries you've got back and forth, and there's a very, very broad optimum.

Or you can throw in a third thing like a diesel backup or a gas turbine or whatever.

Why don't I just outbid like Microsoft or Meta outbids Google or something for the last gas turbine that's available that year?

Yeah, I mean, totally.

The thing that I think Meta has realized is like,

It's like Zuck is running out of time to spend his money to win.

The capex is not crazy high.

Just to be clear, like the capex is still dominated by just the GPUs.

Right.

So like how much does five gigawatts worth of GPUs cost?

Yeah.

250 billion.

Sounds about right.

Yeah.

Okay.

So like is 50,000 acres going to cost $250 billion in Texas?

Yes.

That's a lot of money.

Maybe hundreds of millions of dollars, something like that.

So it's literally 0.1% of the cost is land.

How much does a megawatt of solar cost?

Well, if you go and ask the usual suspects, it's a million dollars.

But this is one of the things that breaks my brain at Terraform, which is my day job, which is that the modules themselves, without tariffs, would be like $0.08 a watt.

So that's like $80,000.

$0.08 a watt?

Yeah.

But they're like a dollar a watt, including installation and everything.

Including installation and everything.

But like the panels are the magic part.

They're the thing that turns sunlight into pure electrical energy at 25% efficiency.

Everything else should be like less than that.

If you want to work on that project, come and work with us at Terraform because we're very cost sensitive.

We'll give you an opportunity to show, don't worry.

Constantly.

But in all seriousness, like the central takeaway is that

is that the hyperscalers are not power cost sensitive, they are power availability sensitive.

And for all these things, you just run into this like supply elasticity wall at the sort of rates of increase that we're talking about.

And solar is by far the best option for like,

fire hosing energy at a given problem.

Because it rains down from the sky.

But electricity prices at this point are a reflection of a regulatory irrationality, right?

And it's the same situation in Europe and Australia, for that matter.

Like, your prices will rise until you've had enough.

And you say, no, we demand that you allow us to take advantage of electricity.

power technology that's been invented in the last 50 years.

In terms of things that are causing us to lose to China, tariffs are neither here nor there because as we've discussed, we're not sensitive to cost on power, but the environmental regulations that are actively preventing us from deploying renewable energy in the United States

Like this is the reason Texas is winning.

Texas is out deploying California 10 to 1.

The regulatory environment around solar is just insane.

It's insane.

The regulatory environment.

Okay.

So in the United States, part of the reason that solar has not been deployed at massive scale yet is that a bunch of laws went into action in the early 1970s that were intended to protect our environment.

And that makes a lot of sense.

And our environment's a great thing.

Well, let's say you've got a bunch of private land out in the middle of nowhere, right?

And you want to build it, solar on it.

You'll probably end up triggering NEPA, right?

At which point you now have to do what is not in the law, but considered necessary under current regulations, which is like your four-year environmental impact review, which generates like so much paper that just the environmental impact of producing the report, because you have to cut down trees to make paper,

is more than the environmental impact of just deploying the solar.

This is bonkers.

It is crazy town.

The thing that drives me particularly crazy in Southern California is that just because solar is kind of new and off-grid solar is very new, unless you're very, very careful, you end up getting regulated as though you're trying to build a chemical plant, even though it's a solar array.

And the impact of solar around desert is arguably positive because it shades the ground and improves soil moisture retention.

Like if you wanted to reverse desertification, you would basically just place all the panels on it and that would pay for the process.

But you end up having to go through more stringent environmental review process than if you just wanted to like grade the whole thing and cover it in concrete or grade it and then park a bunch of like old rusting cars that are dropping oil into the aquifer.

Right.

Which in many cases you don't need a permit for at all.

Right.

But to build the solar, you have to go through this whole process.

And like if there's one thing that anyone listening to this can do, it would be like

have a categorical exemption for solar deployment or just like if I put money in escrow account that says like if after 20 years we have to pull this out, like we'll pull the solar out of the desert and it goes back to being desert, right?

I will do that in a heartbeat.

But like if I have to hire another biologist for $10,000 to be like,

Well, on that 40-acre plot, we found a tuft of grass, which we believe might be a critical, you know, one of the 20 species that this particular species of bee sometimes eats.

And this species of bee is not technically endangered, but it might be at some point in the future.

Therefore, you can't deploy there, even though it's like zoned unrestricted industrial and it's sandwiched between a rocket test stand and like a chemical plant, for example.

Right.

in an industrial part of the desert, I'm going to become the Joker.

It is insane.

I just think we need to be a bit balanced about this.

I don't want it to like drive species into extinction, but like the meta problem here is if we don't move our industrial stack off fossil fuels in 10 or 20 years, first of all, we'll get poor the same way UK did, right?

Because they ran out of coal basically.

And the second thing is we'll get poor because we'll flood our coastal cities in Florida underneath climate change.

We need solar synthetics for that part.

We also need to do sulfur injection and a couple other things.

That's a really great question.

So actually, you and I had a conversation along these lines almost two years ago when we first met.

And-

And it caused me to go and write a blog post.

So this is a good way of thinking about it.

That's much more recent, yeah.

That was after dinner, I think.

Yeah.

And to be fair, like, I usually am fairly clear in my blog posts if I'm posting or if I'm serious.

But this one, actually, I'm dead serious on.

It's actually the one where I'm...

It's like the most out of the money bet as well.

Like everyone else that I consider to be like a respectable forecaster in this area disagrees with me on it.

So that's one side.

Well, so the grid, we know where the grid is expensive.

It's a lot of wires strung up in like hard to reach places that are hard to maintain, especially as, you know, the workforce ages and regulations and all the rest and eminent domain and so on and so forth.

Okay.

So grid's not going to get cheaper anytime soon or easier to build.

And if you look at the projections of like how much grid, you know, DOE would have us needing to build in the next 10 years versus how much actually being built, it's like, it's not even in the same order of magnitude.

So you say, well, are we totally screwed?

The answer is no, we're not totally screwed because batteries actually do the same job that the grid does.

But this is kind of weird to hear me out.

The grid transports power from one place to another.

It transports almost instantaneously at the speed of light.

So it's actually performing a spatial arbitrage.

So the idea being that right outside the local nuclear power plant, power is really cheap because they make a lot of it.

And in your house, power is really expensive because you don't have a power plant in your house.

And you pay the intermediator a small fee and they allow this trade to take place.

And that's basically how the grid works.

And until quite recently, the only way we had of meaningfully storing electricity on the grid was pumped hydro.

And that only works in a handful of places in limited capacity.

And it doesn't work all that well either.

The efficiency is not great.

Now we have batteries.

Batteries store power at one time of day, and they release it at another time of day.

So batteries are performing a temporal arbitrage, an arbitrage over time.

But they can be local or they can be more remote.

I think we'll end up seeing batteries next to the solar arrays and batteries in the middle of the grid at substations and batteries on the sites of existing power plants that get turned off and batteries in your house and batteries everywhere in between.

One way of thinking of this is what is your per capita allocation of batteries in kilograms per head?

And like when you and I were much younger...

You know, the lithium-ion battery was in a cell phone, say, so you got like 10 grams per person or something.

And nowadays, half the people in this town drive Teslas.

So your per capita allocation of lithium-ion battery is...

100 kilograms or something like that.

So we're talking like four or five ohms of increase of total battery per person.

That trend is only going to continue.

And then you say, well, okay, we've got batteries that are performing this temporal arbitrage and the sun comes up every day, right?

So like the power swing from like midday, you're otherwise curtailing the solar array to dusk when everyone's watching TV and cooking dinner or running the air conditioners to cool off in the evening is very predictable, right?

Whereas like, oh, we had like...

Really bad weather, so we had to use the power line that runs to the extra power plants over by Hoover Dam or something.

It doesn't get used nearly as much, or its peak utilization happens almost never.

Which means that the utilization of the batteries is, on average, let's say 300 days a year, and the utilization of your most expensive grid, highest voltage grid assets is much, much lower.

And that includes the substations and transformers and stuff that serve that.

So it's a really bad position to be in if you're a grid operator.

Because you've got this aging, existing thing that the batteries are cannibalizing, the batteries are being installed behind the meter, you don't have a say in whether they're being installed, how they're being used.

All you know is that you're

that your utilization of your asset where you get to charge top dollar for it is just dropping year after year after year after year as the same time as your operating costs are increasing year after year after year.

So it's just very clear that like the average distance the electron is going to travel between generation and consumption is going to decrease in the future pretty radically.

It's already decreasing.

It's going to continue to decrease.

Well, actually in the limit you can, because you can put them on trucks and drive them around.

So there could be a capacity market for batteries where you drive them around to people who need them in a pinch.

In practice, it's going to be cheaper just to double the size of your battery.

Because batteries can get cheaper and cheaper and cheaper and cheaper.

But what it does mean is you can say, well, I know that I'm going to have three low days.

So I will start curtailing now by 5% so I don't have to curtail by 50% in three days.

And then overall for the whole year, I'll only curtail, you know, five hours.

So I'm still at four nines instead of having to curtail 24 hours because I can't predict the weather.

Well, I don't think we should constrain ourselves to being like, oh, well, maybe there'll be some fraction of current payroll, right?

Because like that, that's kind of a very contingent on like humans being humans thing.

Yeah, I think it's a lower bound, to be clear.

Oh, yeah, lower bound for sure.

But, like, if you think about, like, someone trying to, like, estimate the upper bound for the market value, the market cap of, like, Caterpillar, right?

Based on, like, well, it takes, you know, this many men and, like, burrows and wheelbarrows to, like, dig a trench.

And so, you know, it couldn't be more than that, right?

But actually...

One way to think about the industrial revolutions is every time you figure out an industrial revolution, what you're doing is you're finding some way of bypassing a constraint or bypassing a bottleneck.

And the bottleneck prior to what we call the industrial revolution was metabolism.

It's just like, how much oats can a human or a horse physically digest and then convert into useful mechanical output for their peasant overlord or whatever?

And nowadays, we would giggle to think that, oh, the amount of food we produce is meaningful.

in the context of, like, the economic power of a particular country.

Right.

Because 99% of the energy that we consume routes around our guts, you know, through the gas tanks of our cars and through our aircraft and, you know, grids and stuff like that.

And so right now, the AI revolution is about...

routing around cognitive constraints that in some ways writing, you know, like writing, printing press, computers, the internet have already allowed us to do to some extent.

A credit card is a good example of something that routes around a cognitive constraint of like building up network of trust, right?

It's decentralized trust.

Well, oil is like $8 trillion a year or something, right?

Yeah.

But if you said, well, one day we're going to consume 100 times more energy in the form of oil than in the form of food, and the per joule cost of food is, you know, whatever it is, the cost of a Big Mac, then oil should be like $800 trillion a year.

per unit energy, gasoline is 100 times cheaper than the cheapest food that humans can digest.

So does that mean that we've shot ourselves in the foot by using oil to run our economy?

Because it's so cheap?

Like, no.

Right, right.

I think at the point where like you've got a mixed economy with like,

Yeah.

Then obviously, like, I still have some pricing power relative to humans, and the AI thus has pricing power, right?

Yeah.

But if it was the case that, like, a new kind of job emerges that AI is really well adapted to,

because it's not competing against humans for most of those roles, it'd be competing against the other labs, right?

And so you'd actually see the cost pushed down to a small multiple of whatever the marginal production cost of those tokens is.

That would be my guess.

So I think it might be a mistake to assume that, well, if we're going to pay a top AI researcher $200,000 a year, well, let's say the sort of AI researcher that I could be, $200,000 a year, that if an AI comes along that's as good as me at that,

Even taking into account the fact that, realistically speaking, I only get maybe 10 hours of really top cognitive work done a week, that it would also be worth $200,000.

Obviously, it'd be worth much more than that in the sense of you can copy-paste its output, and much less than that in the sense that whatever the marginal additional cost of spooling up H100s is.

If some kind of role comes along that the AIs are really well-specialized at and out-compete the humans quickly, then we'd also expect to see that.

both the cost of providing that service to drop drastically at the same time as the overall value generated in the economy by that service would increase a lot.

There's 10 acres of land feeding one megawatt H100 or something that's generating, let's say, a megawatt is 1,000 humans.

So one acre is 1,000 humans worth of cognition.

The implicit land value there is a lot higher than it is as undeveloped desert.

It's also a lot higher than it is as the most productive farmland that humanity has ever had.

Is that right?

20 watts, yeah, could be.

Yeah.

And it could easily be much more than that because neurons are much slower than transistors, obviously.

So probably 10 years ago, one of my friends reminded me, you know, like the way your phone saves power is it goes to sleep between you like tapping out hello.

Like H, it takes a nap for like 10,000 cycles.

It's kind of nuts.

So just that humans, I think Elon's talked about this in the context of self-driving cars as well, which is like anything humans do is like glacially slow from the perspective of a computer.

Yeah.

That's an industrial point and then there's a cultural point as well.

Yeah, so you can ask the question, like, what do you need in order to run, like, what is the minimum amount of matter that you need in order to perform these calculations?

So right now we're talking about, like, AI racking and grid and transmission and a bunch of, like, ISOs and all that rest.

You don't need any of that stuff, right?

And, like...

Obviously, XAI is on top of this, because the first thing that Elon will always ask is, like, delete anything you don't absolutely need.

So what you actually need is a big slab of relatively cheap silicon to make the power, and then a small slab of relatively expensive silicon to do the thinking.

And if it's in space, that's all you need, right?

Because it's in the sun all the time, so you don't need a battery, right?

But if you're on the Earth, you need a battery as well.

So you need some interconnects.

And you don't need a transformer, right?

You don't even need a DC-DC converter.

You can actually make do with buck converter or with relays or whatever to basically match the current output of your solar array with the charge state of your batteries and the power consumption of your...

GPU or something but like a solar array about the size of this desk for example will generate about 500 watts in full sun so you can actually imagine like aliens who have different silicon technology stack building their systems as like an integrated solar array with you know a bit of a bit of

you know, computranium in the middle, for example, on the same wafer.

But that's basically all you need.

On the same wafer, because it's all silicon.

It's all silicon.

It's all silicon all the way down.

What's silicon made of?

Well, it's an element.

It's chemically in the crust.

There's no shortage of it.

They're solar cells, right?