First Trust ROI Podcast
On the ROI podcast, we discuss some of the most important questions facing investment professionals today, ranging from macroeconomic views, to perspectives on the equity and fixed income markets, to insights on practice management. We aim to cut through the noise, examine the data, and provide fresh insights to investment professionals as they help their clients find better ways to invest…seeking to generate attractive returns on their investments.
First Trust ROI Podcast
Ep 46 | Ron Pernick | Power and Infrastructure: Beyond the Political Narratives | ROI Podcast
Ron Pernick is the founder of Clean Edge, a firm specializing in thematic research surrounding clean energy, transportation, water, and the power grid. In this episode, we discuss the evolution of these themes and how a new administration may impact their continued growth.
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Hi, welcome to this episode of the First Trust ROI podcast. I'm Ryan Isakainen, ETF strategist at First Trust. Today, I'm pleased to be joined by Ron Pernick, co-founder and managing director at CleanEdge. Cleanedge is an index provider and research firm covering clean energy, the power grid, water, as well as transportation. Ron and I are gonna discuss what's happening in some of those areas today, especially with the new administration, with the threat of higher interest rates and inflation. What is the impact on some of those factors on the space and what can we expect as we go forward? Thanks for joining us on this episode of the First Trust ROI Podcast. Well, Ron, I am so happy to be in the studio here talking with you at the studio at NASDAQ. You've been at this for a while doing research and studying green energy, clean energy, the power grid, all the related issues, water, the water systems, infrastructure. But how did you get into that? What's the origin story of your firm's clean edge Right? How did you start doing that? What kind of was the catalyst that led you to that?
Ron:It goes back to the 80s when I was in university at Michigan State back in the mid-80s. I was very interested in clean energy. Back then we didn't call it clean energy, usually alternative or appropriate technology and I was very interested in getting into that space, took some classes in it, graduated with a degree more focused on telecom and ended up working in telecom in Asia for about five years, living primarily in Japan. So I've always sort of been interested in like what are the emerging technologies that are going to occur in broader economies? And obviously telecom in the 80s was deregulating and there's a lot of similarities actually between the deregulation we're seeing in the energy space and the connection between digitization and telecom and what's happening now in energy. So that was sort of the precursor for me.
Ron:I moved to the Bay Area in 1990 after being in Japan and I really again wanted to do clean energy. Timing was wrong. I got very fortunate. I was right in the epicenter of what was happening with the internet. I started with early bulletin boards and went all the way through to web-based travel services and lots of other. You can look up my name and internet and you'll see some early stuff. But it was really a learning ground for me about innovation and I met tons of internet folks right. So and what happened?
Ron:In about 1999, I was doing consulting on web strategies for all types of organizations and I realized half of my clients were in cleantech Wasn't called that yet, but that's what I realized and I went out and talked to my venture capitalist friends and other groups, ngos and government agencies and I realized the timing was finally right for basically an analyst firm that would track the clean tech emergent sector. And I hooked up with Joel McHour at Green Biz and we started CleanEdge in 2000,. So 25 years ago, and that proved to be, you know, on the early end. We were before new energy finance, but it was an important lesson about innovation and markets and that's kind of where I've always played and I think now it's really exciting. We'll talk about it today.
Ron:These are now mature industries. 2000 was early, yeah, but I had the bug, so got into it early. The venture capitalists were coming in at that point. You know, the early investors in Tesla were starting to form like technology partners, and so it's been a really interesting ride In terms of clean edges. Real quick we started off convening, putting on conferences, consulting to government agencies, ngos, corporates. We worked with a lot of different organizations, we wrote reports and we did benchmarking and out of the benchmarking work that we did, we realized the need for company equity indexing.
Ryan:And that's what we were able to do. That's how the relationship between CleanEdge and First Trust started Exactly. We of course have four different ETFs that track indices that your firm publishes and you do the research for and provide some of the intellectual capital for those. Can I tell you a?
Ron:brief, interesting story, since we're at a Nasdaq market site. We had created our first clean energy stock index. This is like 2005 and we were looking at organizations which we could partner with because we realized a partnership would make the index stronger. And I got a phone call from Nasdaq three days before I was going to sign an agreement with a different organization and and they said, hey, like we keep seeing your name quoted and stuff, have you ever thought about doing a clean energy stock index? I said, well, yes, and I have one. And they said, well, let's talk. And I said, can you move quickly? And they said we can move quickly. And a couple months later we had the, the contract in place, we had the agreement and then we connected with you all and the rest sort of played from there.
Ryan:But that was about 20 years ago. Yeah, exactly, yeah, yeah, and 20 years it's yeah, it's a long time. It goes by in a. It's a long time, but it really doesn't seem that long In terms of at least from my perspective. I feel like the time has really flown by, but it's watching some of the maturity that you're mentioning take place in the energy ecosystem overall, but especially in some of the renewable energy sources. Where it was really early, it was all dependent on subsidies and there's still, of course, subsidies that people talk about but costs have come down, so much.
Ron:So. This is really interesting because I think when we started CleanEdge, we looked at three pillars technology, capital and policy. Those is a three-legged stool for clean tech, for any emergent technology, you need the technology innovation, you need the policy supports and you need the capital formation. Those are all required, I think, because we came from the internet space, we looked at clean tech and we saw it as a innovation cycle, not an energy extraction cycle, and so the growth that was going to happen was going to come from PV panels and the mass manufacturing, from wind turbines, from energy THE ENERGY SECTOR. We WERE ABLE TO HAVE A DIFFERENT VIEW OF THE SPACE THAN SOMEONE COMING FROM THE ENERGY SECTOR, and WHAT'S PLAYED OUT IS EXACTLY THAT. The LEARNING CURVES THAT ARE INHERENT IN SOLAR AND WIND AND STORAGE LOOK MUCH MORE LIKE CHIPS THAN THE ENERGY SECTOR, and SO WE WERE ABLE TO HAVE the energy sector, and what's played out is exactly that the learning curves that are inherent in solar and wind and storage look much more like chips than they look like oil and gas.
Ryan:Yeah, you know it's interesting. One of the things over the years that I've enjoyed about conversations with you, ron, have been it seems like renewable energy is one of these areas that just becomes over the years has become more and more political, more and more ideological, and you do a good job. Obviously, everyone has their own biases and ideologies and political views, but you do a great job in looking at data and sort of saying you know, this is what's happening to cost, this is what's happening with the actual numbers without inserting you know some of the, I guess, those biases and I really appreciate that. But one of the things that is surprising, I think, to many people when we think about different presidential administrations and the performance of different types of stocks.
Ryan:When I look back historically, you know we're obviously the start of the Trump administration and you know some people might wonder why. I'm talking to somebody who's involved in renewable energy as well as the power grid and some of these other things. It's really fascinating to me when I look back historically at different administrations and see that during the first Trump administration there was some of the best performance that we've seen for the renewable energy companies and actually some of the traditional energy companies didn't do as well. And then in the last administration, the Biden administration, we saw that sort of flip-flop. And that's not to say that policy isn't important, because obviously it is, but it's certainly not the only driver of what happens. And I guess my question for you is how do you unpack that? Why is it that during the last Trump administration some of these renewable energy companies did really well, at least in the public markets, and then that was the opposite during the Biden administration?
Ron:So it's a difficult question to answer. I agree that it's a bit of a conundrum to understand why clean energy is up over 400 percent over the four years of the Trump administration. A BIT OF A CONUNDRUM TO UNDERSTAND WHY CLEAN ENERGY IS UP OVER 400% OVER THE FOUR YEARS OF THE TRUMP ADMINISTRATION AND DOWN MORE THAN 50% UNDER BIDEN, and OIL AND GAS IS DOWN UNDER TRUMP ONE AND UP CONSIDERABLY DURING BIDEN, and PART OF THAT IS BECAUSE PRESIDENCIES AREN'T THE MAIN THING THAT IMPACT THESE MARKETS, because presidencies aren't the main thing that impact these markets. They can try to exert their influence, but there's global efforts underway, there's state level and more regional jurisdictions that are having an impact, and then there's just the learning curves I talked about, and I think what happened is that during Trump won, it became very clear to folks that these economies of scale so for every doubling of solar PV manufacturing, the cost declines about 20%. That's the learning curve. It's a very similar learning curve right now for energy storage those transcend the presidency, and so I think people could see that.
Ron:The other thing that I think happened although it can't be explained just a post-COVID bump, because some of the best years was the year or two before COVID. Under Trump, we were seeing growth as well in the markets, but I do think there was an understanding that things were going to shift and people wanted to reduce their carbon footprint. The other thing just to kind of play out here is that corporations matter as well. Sure, and most of the corporations that were working at that period were putting out pretty aggressive goals to reduce their carbon footprint, therefore buying up and becoming major owners and operators of solar, wind and storage assets. Yeah, you look at a Google or an Amazon, things like that. So that was also playing out.
Ron:The only other thing I would say is right now, trump started his presidency, trump II, with a drill, baby, drill mantra. Sure, under Biden we now have this is under his four years we reached the largest amount of exports of LNG in the history of the United States. We're the largest exporter by far globally of LNG and we are also the largest producer of oil Right 13 million barrels a day. So that's kind of happened under Biden.
Ron:So the narratives don't necessarily align with the reality and I think it's an important thing to look at, because a lot of people look and say, oh, Biden was the climate president and yet that's what happened under his administration. So I think there is a lot of other forces. There are many different forces and factors at play. For sure.
Ryan:And I think one of the forces that people have pointed to that have maybe caused some of the renewable stocks to underperform over the last couple of years anyway, have been the combination of inflation and higher interest rates. Obviously, if you're financing the build out of a solar farm, you know a lot of that cost comes up front, is that? Do you think that has contributed to or been the main contributor to why some of those stocks have maybe pulled back a?
Ron:bit. I think I want to unpack that in two different ways. So, first of all, we take a very broad view of the energy transition. I think that's a better way to sort of think about what's playing out right now. And so within the energy transition, we have sort of the clean energy pure plays, absolutely and then we have the underlying grid, the backbone that makes it all happen, of course. And so that's why, if you look, the performance of the grid component of the energy transition has looked very different than the performance over the last few years of clean energy Much different. And so the reason I brought that up is like how can that be? Like this is all energy transition.
Ron:There are different forces at play. You're asking about high interest rates and things like that, and yet one element did really well and the other was constrained. I think part of what happened for clean energy is it got ahead of itself. I think there's a little bit too much momentum there and people got a little too excited. It became a little bit like you know, I went through the Internet. I people got a little too excited. It became a little bit like you know, I went through the internet, I went through the bubble. I went through the other side of the bubble all the way through to 99. Well, I guess there were multiple bubbles in the internet, but so I think clean energy had a little bit of that.
Ryan:So it got a little ahead of itself, a little bit, yeah, and then it came down.
Ron:So the question would be where it goes from here? Yeah, but throughout that entire period, the grid performed very well. It performed like an industrial or infrastructure play, similar to water, and you know the whole water G I mean. Energy and water are hard to separate, so we track water as well. So I think that's one thing I just wanted to unpack.
Ron:High interest rates you're right, they absolutely impact clean energy, in particular, because there's no fuel costs for solar, there's no fuel costs for wind, there's no fuel costs for wind, there's no fuel costs for storage, but there's the upfront capital cost. So if you have a 2% increase in interest rates, that could be like a 20% increase per se in in the LOI or the, the levelized cost of energy for those sources. However, throughout this period, let's not talk about the companies, but the deployment globally. In 2023, and we'll look for the 2024 numbers will be out soon globally, 83% of all new electricity capacity additions were from renewables, and we just published on the CleanEdge website our annual overview of what happened in the US. What percentage of energy do you think came from solar just from solar and wind last year for new capacity additions in the US? Would you gander a guess?
Ryan:I would say it's a very, very high percentage, based on how I presented that.
Ron:So it's 90% Unheard of, never been there before, and this year it's going to be similar. So the markets are going to the lowest cost, most easily or most rapidly deployable technologies. That's why this is sort of the train has left the station. It's going to be hard. You really can't stop that, and not that you'd want to, but that's where the action is, that's where the energy is.
Ryan:I was just looking from the energy department. They put out statistics about where the capacity adds are going to be over the next several years, and over the next five years, far and away the biggest capacity additions are going to come from solar and then from wind, and you know they take away all the retirements from coal and some of the retirements from natural gas that are planned. It's like all of the added capacity is coming from renewables. One of the things I was wondering about because of that, though, is renewables, as we know, are intermittent, and some of the marginal increase in demand are coming from sources of demand that are not intermittent, like data centers or manufacturing things that we need 24-7 power, so how do you think about that?
Ron:That's such a great question and first of all, I have to say that historically, there were people who thought that renewables couldn't reach more than 10%, let's say, of a grid's power source without it wreaking havoc, or something. That was a misguided view. Amory Lovins, who sort of was the father of clean energy in the US, I would say THIS IS A FALLACY. It's A FALLACY, IT'S A DISGUIDED VIEW. Amory LOVINS, who WAS THE FATHER OF CLEAN ENERGY IN THE US, I WOULD SAY AT THE ROCKY MOUNTAIN INSTITUTE, was LIKE NO, that's A FALLACY. We CAN GO MUCH HIGHER 30, 50% OR HIGHER.
Ron:So TODAY YOU LOOK AT IOWA problem, but the breakthrough that's occurred is storage. Okay, and so when you pair solar or wind with storage or really with anything, you can now get through those areas of peak demand. There's plenty of electricity on most of the grids. It's just those three or four hours when it's a hundred and two degrees in taxes and everyone's coming home and everyone's putting up their AC and the loads just go crazy. And so how do you cover that load?
Ron:Well, both California and Texas, over the last three years, have deployed an extreme amount of battery storage. In fact, texas this year, maybe next year, but I think it'll be BE THIS YEAR, 2025, we'll ACTUALLY HAVE MORE DEPLOYED STORAGE AND SOLAR THAN CALIFORNIA. The PERENNIAL LEADER, I SHOW YOU THE POLITICAL DIVIDE IS NOT THERE. You HAVE A VERY BLUE STATE AND A VERY RED STATE, both DOING THIS THROUGH VERY DIFFERENT REGIMES. What HAPPENED THIS year in both Texas and California? Not a single blackout because that storage kicked in, the solar is running. You're using the solar for the grid. You're also charging up the batteries the whole time and then you discharge the battery and both states right now are seeing four to five gigawatts of energy storage discharge Unheard of. Yeah, that's the breakthrough. That's where I get excited storage.
Ryan:Is that the same sort of like lithium-ion batteries that are in your car?
Ron:ease your test yeah, that's pretty pretty much what we're talking about. This is really interesting. So most of it is happening utility scale okay in front of the meter, most of its utility scale behind the meter. Though we're seeing breakthroughs in like VPPs, virtual power plants and the idea there is I have an energy storage device at my campus, my building, my home. I can use it for backup when the grid if the grid did go down right, I can have it islanded and use just for my own facility. But most of the time, as a VPP, I could interact with the market and so I could sell it back to the grid operator, and that's what we're seeing play out really well in Texas right now. I think Texas is showcasing how a VPP model might play out, and then you've got companies like Sunrun and Tesla and others who are selling those battery packs, and then there's the inverter control companies all the stuff that we cover in grid.
Ryan:Yeah, that's really an interesting area so there's a lot of technology that's required in order to be able to sell energy back onto the grid and take it off and, like that, the two-way flow.
Ron:That's the other breakthrough we've been talking about you know you and I have talked about it yeah, or so that's bi-directionality, right, those break, but I would say the utility scale, because I said the majority are utility scale. You don't need all those breakthroughs, the grid operator has them. The other big thing that's happening which I think will be very interesting to watch I think a lot of people aren't thinking about it yet, but it's starting to gain some adoption will be for the data centers to co-locate with solar and storage. They might do some natural gas as well. I don't see natural gas going away right now. Coal, it's pretty much done. Nuclear it's too far out to have in the short term, but really you could continue to use your natural gas, of course, and you've got the solar, wind and the storage layers, so it's a pretty interesting time.
Ryan:So you brought up nuclear and I think that is interesting because it's one of these technologies that seems like it's pretty close. But it's just. You know, the small modular reactors there's not really commercialized in the US anyway, small, small modular reactors and the big technology companies are all talking about that as being a solution to supply their energy for their data centers. Right, how far out are those small modular reactor nuclear technology?
Ron:so the SMR is? It's very uncertain. The the promise of SMR is is that they could be deployed very quickly, that it wouldn't take a long time to develop them and have them commercially available, and that it would be cheap. Well, it's not proving to be cheap right now and none of the SMR manufacturers have a deployable product. So we're looking out at the least five years. I don't even think that can be reached.
Ron:On our maturation model you know the clean edge maturation model that you've seen before we've got it pretty much at like a number, nine or 10. That's not the number of years, but that's how far out it is from commercialization and mass availability. There could be a breakthrough, but we're not seeing it. So I just would say that the SMRs are a good eight to 10 years out at least, if they ever. The question was, would you need them? Did solar and wind and and storage and maybe geothermal? I believe geothermal have a much more adoption moving forward in places with a lot of geothermal resources and with heat pumps, yeah so, but I'm not sure about the SMRs yeah, yeah.
Ryan:And then of course there's there's fusion, there's these big. Yeah, I just wrote that down here.
Ron:So for us, from a clean energy perspective, we have not included traditional nuclear because of the waste issues involved with nuclear, because of nuclear proliferation concerns. There are a lot of reasons why we decided in the early days to say nuclear was not part of our clean energy value. We don't punish it when we look at the grid, like of course there are a lot of grids with a good amount of base load nuclear, that's great. But new nuclear at larger scales probably unlikely. Fusion would be the breakthrough, absolutely. That would certainly fit a clean energy framework. But that is you know, let's see. That would be interesting. There are large companies like Microsoft and others who are making purchase agreements with Fusion. That does not exist yet. But if they can get it, yeah, power to them and we'll definitely be tracking those companies.
Ryan:I did a podcast earlier this year with my friend Jim Murchie.
Ron:Oh yeah, I know Jim.
Ryan:He's an energy guy and he made a funny comment about fusion as being the technology that's just always on the horizon, it's always 10 years away.
Ron:Of course, it's always 10 years out.
Ryan:And yeah. I thought that was kind of a funny yet accurate comment about fusion.
Ron:I'm not going to bet that it's going to be here in 10 years.
Ryan:But if it were as I said, it would match our definition of clean tech. Yeah, yeah, you know, it strikes me that a lot of what we've talked about whether it's what's happening in Texas and California, or the wind in Iowa, or you know maybe where geothermal is more appropriate We've got such a big country that's got such diverse resources and in that context it seems difficult to have like a big federal policy on renewable energy. So a lot of that has fallen to states, right, yeah, how do states encourage renewable energy or whatever source of energy is going to be most appropriate?
Ron:So historically renewable portfolio standards, also called RPS, have been the driver at the state level. There's something like 29 states and the District of Columbia. I think there's 30 entities in the US that have RPS. Texas RPS is like 50% renewables on the grid by 2030. California has 100% RPS by a further out date. So every state's been a little different. Those were the drivers for a long time in the US. So it's a great question. I think with the cost now the markets are making the decision outside of the RPS, so you could beat your RPS target as long as the free market is at play. I think in the US we just need an all-of-the-above strategy and everyone's kind of wondering right now are we going to get that? But if it's an all-of-the-above energy strategy, then you're going to have the cheapest, fastest-to-deploy technology win.
Ryan:Right. So, given the costs have come down so much, how important are subsidies? And I ask that, with the backdrop of a new administration that is less friendly to subsidies for renewables in particular, do you think that that has an impact on deployment of wind and solar, but also EVs, electric vehicles?
Ron:I think, at the federal level, I see this as a question of do we want to compete with China? That's the question here, of do we want to compete with China? Okay, that's the question here. And I think anyone who's in a policy lever decision-making capacity at the federal government has to ask that existential question Are you going to see the future of EVs? Are you going to see the future of solar and wind? Are you going to see the future of transformers, storage, lithium-ion battery packs all of that to China, because they are leading in every one of those technologies I just mentioned. Now, we've been playing pretty close. If you look at where were the biggest deployers of storage in the last year or two, it's been China and the US. That's where the activity's been. So do you see that or not? I can't imagine. In the end we see that, but that is an existential question and I think, in particular for EVs.
Ron:You mentioned that BYD yesterday. This is incredible. Did you see this? I did. Yeah, this is incredible. Yeah, a five-minute charge to 400 kilometers, which is 250 miles or something In five minutes. So that's like filling up my tank. That's the holy grail TANK, that's THE HOLY GRAIL. And SO YOU KNOW GM AND FORD AND TOYOTA AND NISSAN. They CAN'T SIT AROUND AND WATCH CHINA DO THAT NOW. China DID IT IN A VERY DIFFERENT WAY. They JUST SUPPORTED IT LIKE CRAZY. They LET COMPETITION PLAY OUT. It's WEIRD TO THINK ABOUT THAT. The OLD FRAME OF CHINA IS. You KNOW CONTROL BUT THEY JUST you know control, but they just let all of these companies compete it out. Only a few will survive, or a number or a dozen, or you know five, whoever Xiaomi or BYD or NIO, whoever it's going to be, but they're going to have fast charging long range and they're, you know, to be a 25,000-hour price point. We can't compete with that globally if we don't have policies in place to support it.
Ryan:Yeah, you mentioned China. I was looking at some data the other day just looking at capacity electrical power capacity in China versus the US and in 2010, which you know, that's 15 years ago or so the US had more power capacity than China. Today, china has something like three times the power capacity Two or three. Yeah, yeah, I mean it's a multiple and, and they've done it with wind, and solar and coal and nuclear Exactly, They've really gone all in.
Ron:They're actually the only place building nuclear today successfully. No other place is.
Ryan:Right, and so you mentioned it as sort of seeding the technology and existential risk. But also they have more capacity to work on things like data centers and building up AI. Everyone's focused on AI these days and they've I don't know per capita, they probably have less energy capacity?
Ron:Oh, they do, of course, of course.
Ryan:But they have all this new scale of capacity.
Ron:Well, I wouldn't say they fully leapfrogged, but they're getting pretty. I don't know if you saw this, but last year in July, for the first time, there were more new energy vehicles sold in China than there were internal combustion engines. It crossed the 50% mark. That's going to continue. So they're really ahead of the curve here and that's for China. There's millions of vehicles. This is a lot of sales. So yeah, it's going to be really interesting. When we wrote the Cleantech Revolution this is crazy because the book came out in 2007. We were writing it in 2006. We went to China to write the book we had a whole chapter on China. So China has been at play for a while now through their five-year plans and that has really proven a very you know. It's really proven out that they had that vision and they were able to get there.
Ryan:Okay, so shifting back to the power grid for a second, the numbers are staggering. When I look at some of the projections for how much is going to be spent on power grids, I was looking at a report from Bloomberg and they estimate, depending on their scenario, somewhere between 14 and $22 trillion in capital expenditures between now and 2050. Why is it such a big number? I mean, how do you spend that much money?
Ron:Yeah, so that's through the end of 2040, the 2040, so the beginning of 2050. Those are for a net zero scenario. Interestingly, as much money will be spent, if not more, on the grid and storage because grid includes storage, storage, because GRID INCLUDES STORAGE THAN ON CLEAN ENERGY GENERATION. Yeah, I THINK WE'RE AT A PLACE I LIKE TO TELL THIS STORY OF, actually WHEN WE WROTE OUR FIRST BOOK, we TALKED ABOUT IF YOU BROUGHT EDISON AND TESLA BACK FROM THE GRAVE AND YOU SHOW THEM THE GRID, they WOULD SAY YEAH, great, yeah, yeah, I totally get it. Like what technology would that play out like 100 years later? They'd get it. Imagine like the mainframe computer designers for IBM looking at an iPhone. They'd be absolutely blown away. So it hasn't changed a lot. It stayed very that bidirectionality.
Ron:We talked about the HVDC lines, the high-voltage direct current lines in the transmission realm. So we need to rebuild the grid infrastructure. We have to recondition the grid infrastructure. We have to modernize the grid infrastructure. One thing that we did before we focused solely on indexing is we put on an event called the Grid Connects. I don't know if you ever made it. It was in DC with our partners over at Gridwise Alliance. This is where a lot of activity is going to play out. You're talking about the backbone of electrified civilization, so of course it's going to cost a lot of money.
Ryan:Yeah, and now there's these sort of new vectors of demand whether it's AI, data centers, evs have sort of been around for a while. Now we're seeing big announcements from huge companies about manufacturing. Apple said they're going to spend half a trillion dollars in the next four years. Eli Lilly is going to spend something like $27 billion. Taiwan semiconductor manufacturers are going to spend $100 billion in new spending. All this manufacturing needs power as well and needs to hook those things up. One of the things that is kind of interesting, as you hear about all the semiconductor manufacturing, is not just their linkage to power, which we've been talking about, but also their demand for water and the ultra-purified water that they need, the resources. I looked this up the other day and with the aid of some of the AI, chatbots, yeah sure.
Ryan:And what it told me was that a large fab processing 40,000 wafers per month could use 4 to 10 million gallons of water per day. Yeah, that seems like a lot.
Ron:Yeah, so it's another reason why we track water. As I said earlier, there's a limited supply of potable water for drinking. There's a limited supply of water for industrial purposes. Right now, the consumption of water goes hand in hand with energy usage and energy consumption. Every query you do on chat, gbt or other AI systems chat boxes uses considerably more computational power than a Google search. So we are moving into an age of flat growth, to demand growth, and that's going to equate to more water usage. So that is another huge area of opportunity.
Ron:I think one thing I would say is the low-hanging fruit of efficiency is always important. We are doing more with us. You look at, I used to live in Japan, right? Japan is one of the most productive electricity users in the world. Because they have no natural resources, they are now moving towards renewables, but they have to be super efficient. And the same thing is going to play out in data centers, in all types of processes, where you do more with less. So we got to work on that too, and as computational demands are less but that's a little bit of a paradox, because you might use even more energy if you can get more computational queries for less.
Ryan:Yeah, it's like Jevons paradox. I got to decide. If I agree with that, Something becomes more efficient, and then you. Well, that's why we all have iPhones in our pockets right. And laptops.
Ron:And we'll all have, obviously, our own. I'm just starting to use, finally, chat, gpt or it doesn't matter which one I'm using, but we're starting to use AI more. I imagine I'll have my own personal chatbot at some point. I guess they're talking about that. I do believe I told my kids the other day I don't know if they like this idea, but I think robotics are finally are going to happen. So that's another area where you take AI and robotics and you've got sort of helpers.
Ryan:Yeah, I guess the robotics displays the consumer electronics show were the big showstopper this year and I hear that more and more from people, people that robotics are going to be sort of the next big thing.
Ron:I think robotics are where clean energy was 20 years ago, and storage, so we could be sitting here in 15, 20 years talking about that.
Ryan:Let me ask you this Would you want a robot like Butler?
Ron:Well, that's what my kids are horrified Watching my elderly parents. Yes, I think I will want one.
Ryan:It's tough to envision.
Ron:Japan is leading the charge on that, because they have so much of a decline in young population and their birth rates are down, and so they're going to need to take care of a lot of elderly, so we'll see how that plays out for sure.
Ryan:I mean between you and I and the audience here. I'm afraid that the robot butler would turn on me. Right, this is the fear, because it's because I was raised on the Terminator movies, or you know it just in the back of my mind.
Ron:I understand that, and my kids, who are 17, felt the same way.
Ryan:The other thing with water that I've noticed. You know we're all talking thinking about inflation. Obviously, inflation surged over the last couple of years and that's generalized inflation. But one of the aspects of inflation that has been very under the radar over the last decade or so has been the inflation, the cost of water and sewage yeah, that's a great, it's actually gone up twice as fast as general inflation over the last 15 or so years. Yeah, why is that?
Ron:I think there's two. Well, there's a number of reasons, okay. One is that water historically has been undervalued. It's been really cheap, okay. So that was one. I mean. One IS THAT WATER HISTORICALLY HAS BEEN UNDERVALUED. It's BEEN REALLY CHEAP, okay. So THAT WAS ONE.
Ron:I MEAN LIKE IT DIDN'T YOU WEREN'T PAYING A LOT OF MONEY FOR YOUR WATER UTILITIES, right COMPARED TO YOUR ELECTRICITY OR GAS, so I THINK IT WAS NOT REALLY PRICED AT TO COVER COSTS. As WELL, we all use a decent amount of water because we shower, we use it for sewage, we use it for cooking and drinking. You need a lot of water. So that was one issue. The other issue is that new challenges have arisen, so watersheds have been depleted. Obviously there's droughts that are huge pressure. There's been a lot of issues with too much water where you don't want it and not enough water where you do need it. So the rates include sewage and treatment and also managing floodplains. So there's all of that. And then there's also been the advent of the PFAS issue, which are the forever chemicals, and there's a lot more money that's needed to be spent to make sure we can remove the PFAS from the water, and that's just microplastics that we all Well, there's microplastics as SPENT TO MAKE SURE WE CAN REMOVE THE PFAS FROM THE WATER SYSTEM.
Ryan:That's JUST MICROPLASTICS THAT WE ALL HAVE.
Ron:WELL, there's MICROPLASTICS, as WELL, AND THEN THERE'S PFAS, which ARE THOSE ARE DIFFERENT THINGS, correct, which ARE MORE FROM ITAFON AND OTHER STUFF. So THAT'S KIND OF WHERE WE'RE AT, we're INGESTING. I've given a lot of reasons. There's other ones, of course, but one other reason is the aging infrastructure. It's not dissimilar to look. We have water systems that have been in place 30, 40, 50, 80 years, that's pipes that are deteriorating, and so you have to go in and scope them and figure out where you're going to have problems. You have to dig up, of course, and rebuild.
Ryan:So there's a lot of aging infrastructure and's going to take great that seems like something where technology would be helpful as well to have some some way to detect breakages and pipes and things.
Ron:Yeah, yeah, so that's happening and that's why so. The metering business is both in the electric and gas and water industry. So like I-tron and Landis and Garin those companies, they they make meters and Badger they make meters not just for electricity but for water, and so you can detect if there are issues in the system. They're using all types of smart metering and other technologies and scopes to figure out like where is the problem on this? You know, in a city, let's say, where we've got an issue? In the old days they didn't really know till there was a major disruption.
Ron:Now they can kind of start detecting that some the flow ain't the same and it's like why is that happening?
Ryan:and they can go in and uncover the problem okay yeah, you know, I'm looking at the time and it's it's flown by here. It's been a great conversation. My last question for you is, as you're kind of on airplanes or walking through, you know, listening to audio books or reading audio or reading paper books or sitting in your office in Oregon what is on the Ron Pernick reading list? Any books that have come across?
Ron:So I've been doing way too much reading on autocracy. So I've done a little bit of that to understand what's happening politically around the world as some democracies move to other types of structures. So I'm trying to understand that. My fun reading most recently was a novel called the Wedding Party Loved it. I actually recommend it to anyone who likes it.
Ron:Yes, it's a novel. It was great. I won't go into the details of it, but it was really great. And then I just ordered Abundance by Ezra Klein and it should be in Portland when I get back tomorrow, and that's my next book on my reading list.
Ryan:Very good. Well, that is one that I'll have to add to the list as well, but again, I appreciate you coming out. You're a native of Oregon.
Ron:No, no, I'm a native of Michigan. You live in Oregon. No, I'm a native of Michigan, you live in Oregon, though. Yes, yeah, no, no, I left.
Ryan:So I understand, okay, yeah.
Ron:Michigan, Japan, Oregon and California in between.
Ryan:But you did make the trip from Oregon. Yes, I did, I came from Oregon today, absolutely. Yeah, well, we do appreciate it. Thank you for coming on the ROI podcast and it's been a great conversation.
Ron:So thank you so much.
Ryan:Yeah, and thanks to all of you for joining us for this episode of the First Trust ROI Podcast. We'll see you next time.
