Nissa Darbonne, executive editor-at-large, Hart Energy: Thanks for joining us. I'm Nissa Darbonne, executive editor-at-large for Hart Energy. I'm visiting today with Wil VanLoh. Wil is founder and CEO of Quantum Energy Partners. We're visiting at SUPER DUG 2023 in Fort Worth. Will, thanks so much for speaking today.
Wil VanLoh, founder and CEO, Quantum Energy Partners: It's great to be here.
ND: I wanted to ask about something that you described as the Inflation Stimulus Act. Describe for us what do you mean by that?
WVL: Well, it was when we were talking about the Inflation Reduction Act, and I was just making a comment that it's actually gonna be very inflationary, right? I mean, clearly a lot of good things came out of that and will come out of that in terms of stimulating a lot of investment in lots of things for the energy transition, including things like carbon capture and storage and you know, other things that'll benefit the oil gas industry. But it's going to be inflationary, not deflationary, it's not going to reduce inflation because it's going to massively increase spending on a lot of things and on a lot of things that we're in short supply of. So that's gonna drive prices up.
ND: Well, how do we reconcile that, though, when the Fed is pulling on the reins to beat back inflation, but you have the entity that the Fed is part of—the government—that's, not dumping...that would be unfair to say, but just dropping billions and billions of dollars into the economy on top of what it already spends. How do we reconcile this in the short term?
WVL: Well, I'm not sure we will (laughs).
I think that the perceived need to significantly increase our spending...in particular, you know, if you look at the vast majority of the benefits of the Inflation Reduction Act are going towards the renewable power space, right? For wind and solar and battery storage. And so, in that area, in those particular areas of the economy, I think, you know, we're gonna see, you know, significant inflation. And it's a trade off of, you know, we've got this kind of, this dual challenge in front of us of, you know, trying to tackle the, you know, increasing levels of CO2 in the atmosphere. And I think the government's kind of making a value assessment of it's more important, even if we have some inflation. I don't think they were so much thinking about it that it would be inflationary. I don't think they really cared. I think they said that the issue of reducing CO2 emissions from the United States is of paramount importance, and this will help speed up our transition to these low carbon technologies.
ND: And, to be clear, Wil—Quantum Energy Partners is an investor in alternative energy in addition to oil and gas, so Wil is speaking from the perspective having looked at the economics of everything, and speaking of the economics of everything, wind and solar in particular, you said that that was not largely born, but it was encouraged early on by the incredibly cheap cost of money, but money's not cheap anymore.
Money is expensive and increasingly more expensive, and you described wind and solar will be increasingly challenged from an economics point of view. What is your outlook then for wind and solar? For additional wind and solar?
WVL: Well, I think we'll continue to increase. You know, we did have a big issue last year with getting solar panels from China. And so the installed solar capacity in the U.S. was down about 75% from what it was gonna be. Had we not had this basically you know, they blocked the import of panels from China if they couldn't be certified that there was no, you know, Uyghur labor in them. Right? but I think overall we're going to have a lot more solar and wind built in the U.S. and I think the point I would just make is, while over the last decade, the cost of that power has fallen 75, 80-plus percent, likely over the next decade it's gonna be going up. Like the PPAs--the power purchase agreements--that our wind and solar companies are entering into today are in a lot of cases double what they were two to three years ago. And the reason they're double is because we have to have that much higher price for the power we're producing because our capital cost went up so much. So to earn the same rate of return, we have to charge a lot more for that power. So, I do think what this massive, you know, build out of wind and solar domestically is gonna create is it's gonna create much higher over the next decade, probably much higher power prices for consumers, not lower power prices.
ND: Speaking of the PPA—the power purchase agreement of offsetting your carbon, Google, for example has relied, so does Target and other consumer facing industries, consumer facing businesses. But Google has relied on PPAs in the past, and I saw just this past week how their next gen now is kind of betting on or counting on or hoping somehow that geothermal will, instead of them generating carbon offsets for their own carbon footprint, that if they grow a geothermal business, they won't need to purchase carbon offsets.
In terms of geothermal as a tact, how do you like geothermal?
WVL: Well, you know, the interesting thing is geothermal is kind of a cousin of the oil and gas space, right? Because you're having to drill these wells using the same kind of technology we've developed in the oil and gas space over the last 10 or 15 years. You know, we've spent some time looking at geothermal. We've looked at some of the technologies, we've looked at, in our opinion today, it's pretty expensive. Could that cost come down? Sure. I mean, I think one of the things that we've learned is, you know, be careful betting against innovation in this country. You know, we saw it, what it did in the shale revolution. I mean, everybody said the oil and gas industry in the United States is dead, you know, and, and we were building LNG import terminals, remember in the early 2000s, and now we're one of the largest exporters of natural gas and oil in the world.
And so I never will bet against human innovation, especially in America. I think there is some merit for geothermal today. I don't think a case can be made that it's gonna supply a significant portion of our electricity domestically. But in select cases, I think there's certain geographies that you know, companies like Google may choose to pay more for their power. And, at least when they do that, they're truly off ... you know, these offsets, I'm very circumspect [because] a lot of these offsets are being sold multiple times. There's not a great market out there for policing, if you will, regulating the offset market, which I think we have to develop if we're gonna truly do that. But I also don't necessarily know if offsets like ... I think it makes people feel good, but you know, to say, well we're not gonna cut down this forest in Brazil and we're gonna just sell these offsets. Well, they probably weren't gonna cut down that forest anyway. Did that really help the environment? And I think that's what executives that some of these companies are starting to realize. Like, if we're really serious about climate change, then let's actually truly reduce our carbon footprint. Don't just ... [because] buying offsets arguably may or may not really be reducing in aggregate the amount of carbon going into the atmosphere every year.
ND: Well, to kind to resolve the ... you know, is it a real carbon offset or not, is the tokenization of carbon offsets the solution? Or do we need a ... like a NYMEX-type trading house instead?
WVL: I think we, we need something like an S&P or a Moody's okay, that, that truly rates carbon you know, emissions and ensures that it truly is emissions that are being abated and that they're, you know, what the actual measurements are. You know, that they're not estimates, but they're factual, accurate estimates and that that offset's not being sold more than once.
ND: Thank you for joining us. Again, that was a chat with Wil VanLoh, founder and CEO of Quantum Energy Partners. Thank you for joining us.
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