Is electricity a commodity? If not, why not? If so, how do you get exposure with the demand for electricity set to possibly outstrip the world’s forthcoming technological advancements. Join us on a high-energy episode of The Derivative by RCM Alternatives for an in-depth exploration of “Electrifying America” with Timothy Kramer, a seasoned energy and power trader and CEO of CNIC Funds – the group behind the AMPD electricity ETF. In this stimulating conversation, Kramer sheds light on the difficulties of accessing the power market, why electricity should be part of any inflation protecting commodity investments, and what the overall landscape looks like for America’s electrification journey, unveiling three key pillars: importance, inflation, and imbalance.
From the coming era of all-electric vehicles to the challenges facing renewable energy, Kramer navigates the complexities and opportunities. He also delves into the creation of innovative indices and the dynamic interplay between power and commodities — SEND IT!
From the episode:
Check out the complete Transcript from this week’s podcast below:
Portfolios of Power Futures with AMPD ETF’s Tim Kramer
Jeff Malec 00:07
Welcome to the Derivative by RCM Alternatives where we dive into what makes alternative investments go analyze the strategies of unique hedge fund managers and chat with interesting guests from across the investment world. Hello there welcome back when a couple of weeks sorry about that. We had a guest cancel last minute then some summer vacations and well you know thing called life. But we’re back in action bringing you some 40x flavor the next two weeks. That will be with Russell Kellites of Alpha Centrix Premium Opportunity Fund next week, talking through the improving environment for volatility and option traders and how you stuff all that into a mutual fund. And in today’s episode, we’ve got a powerup conversation, a high energy gas and electric atmosphere with a light bulb really came on. See what I’m doing there. All right, and have fun. We’re talking power trading inflation hedges in the electrification of America with Tim Kramer, the CEO of CNIC funds, which is the group behind the ice us carbon neutral power index, and the amp, AMPD ETF which tracks the index, send it This episode is brought to you by our CMS clearing and execution group, which helps ETFs like the one we’re talking about today, get access to and efficiently trade exchange traded futures and Derivatives Markets. Even stuff like power futures. Visit our RCMALTS.com to learn more. And now back to the show.
Jeff Malec 01:43
Alright, Tim, how are you?
Timothy Kramer 01:45
I’m fine. Thanks. How you doing today?
Jeff Malec 01:47
Good. Thanks. And where are you again? Down in? Cool Breeze Houston.
Timothy Kramer 01:52
Oh, yes, tropical Euston, Texas.
Jeff Malec 01:55
What the I think it was as hot here in Chicago yesterday is down and we were 100 here yesterday.
Timothy Kramer 02:01
Yeah, that’d be a cool cold front for us. Yeah,
Jeff Malec 02:04
it’s been brutal summer.
Timothy Kramer 02:06
It’s been pretty hot. Yeah. I mean, typically, we usually don’t break 100 Very often in Houston, because we’re close enough to the Gulf. But you know, you’ll hit 99 for a heck of a long time. And then the worst part about it is like in the in the evening, and in the morning, you don’t get that low temperature rises. So the humidity just killed you.
Jeff Malec 02:25
What was that reading the other day that Vermont, the bottom of Vermont is narrower than Houston is why?
Timothy Kramer 02:34
Yeah, that sounds like there’s all sorts of crazy facts like Harris County is the county that has Euston in it. And somebody had been saying that Harris County is bigger than Connecticut. Yeah. So I’m not sure my geography on that. But there are interesting sound bites. I
Jeff Malec 02:49
don’t know about that either. But maybe Texas pretty big down there. Yes, it is. And what brought you down to Houston? Are you born and raised down there? Are you? Oh, no, no, I’m originally
Timothy Kramer 02:58
originally from Pennsylvania. So in the energy industry, they have a saying and that is all roads lead through Houston.
Jeff Malec 03:06
So you eventually got down there decided to stay down there.
Timothy Kramer 03:09
Yeah, came down here like in 1999. And I thought it would be like a three year tour of duty. And here I am.
Jeff Malec 03:14
Which what firm was
Timothy Kramer 03:17
originally with Duke Energy. Okay, so they you know, Charlotte utility, but they had an unregulated trading arm that was based here in Houston.
Jeff Malec 03:26
Do you get tied up and run at all or anything like that with these trading arms in Houston? Not nothing, not not in a bad way. So moving on, I read your electric electrification, try and say that 10 times electrification of America paper and kind of wanted to start there. And from a high level, just why you wrote it, what you’re seeing what your concerns are, and what it means for investors. So I’ll let you take it away.
Timothy Kramer 04:01
Oh, absolutely. So I’ve been doing electricity commodity energy trading for 25 plus years. And we just happen to see kind of what I think is a once in a lifetime opportunity here. So we use the phrase electrification of America, because that seems to get people’s attention. When we talk about kind of the products and you know, term structure and backwardation and all sorts of things like that people just kind of gloss over a bit because it’s new. So the electrification of America kind of gets their attention. And then there’s just three basic tenants of that thesis. And the first is important is the second is inflation and the third is imbalance. So just like you know, it’s difficult to say electrification of America, we go with the alliteration of the three eyes on important disinflation and balance. And so when we talk about importance on a retail notional basis, electricity is the most consumed commodity in the US. But up until now, it wasn’t in any mutual fund, it wasn’t in any ETF, there was no index, there was really no way for anybody to invest in that. The second part inflation, month after month, when the CPI comes out, if you take a look at what the contribution is of electricity is to the CPI, it goes from like 2.48 to like 2.67. It’s in that band for like, the last 10 years. And so, you know, if you would like not
Jeff Malec 05:25
as a percent of the reading, but as its inflation itself is 2.4%.
Timothy Kramer 05:31
Yeah, so like, when you get the CPI numbers that come out monthly, they’ll have like a page, and they’ll it’ll add up to 100. And of all the components of that piece 2.5% ish is electricity,
Jeff Malec 05:42
okay? Or they’re saying, but also that it’s growing at 2.5, it’s probably,
Timothy Kramer 05:48
it comes in there. Yeah. Now, we actually think it’s going to be growing a lot more significantly like that than that, because that’s the direct component. But if you think about, like the indirect effect of higher electricity prices that you don’t really see in that direct reading, I think they’re gonna go through the roof. So it’s the importance, the inflation, and the third one is the imbalance. And so we actually think that demand for electricity is massively understated in the US, and we think that supply is overstated. So when we say that we think that demand is understated, the best way to look at this is Elon Musk had an article in the Wall Street Journal on July 31. And he in essence, said that whatever you think electricity demand is going to be quadruple it and you still haven’t hit the number. And some of the sound bites I believe he uses for that is if you take a look at like a Google search, would use about one watts of electricity, and AI search would use somewhere between five to 10 watts of electricity, and it takes anywhere from 100 to 1000 watts of electricity to train the AI to do that search. So that’s just kind of one example on the demand. But if you think about we know what the US is doing,
Jeff Malec 06:59
and that’s just, that’s not anything we actually use electricity for it today. Oh, yeah. I mean, Google searches. Yeah. But like, yeah, powering your home powering your car?
Timothy Kramer 07:10
Well, so and there’s a stated goal by the US auto manufacturers, almost global manufacturers that somewhere between 20 and 2035. No new vehicles are supposed to be combustion engines, all new vehicles, by that time are supposed to be electric. And then in New York state, if you can’t hook up, we can have a gas stove anymore, you can hook up your retail home to the gas supply lines. California has tighten their emission standards Biden’s looking at tightening them even more. I mean, there’s just so many things that make you you know, kind of really bullish on what the demand scenario was in the US.
Jeff Malec 07:43
How do those, I was thinking about that with California? Are they gonna be the first to know combustible and no gas engine cars?
Timothy Kramer 07:50
Yeah, they’re, they’re getting pretty aggressive with that they like one example is I think they outlawed gas powered leaf blowers, ya know, like all of it. And so they actually started a fund, where, you know, we all people can turn in their equipment for electric equipment. So I think it’s 20 fours when that starts, but I’m not sure the exact date.
Jeff Malec 08:09
But yeah, and I don’t know if you’ve know the details of this, but how’s it in California won’t be that you can’t use a gas car, it’ll be that you can’t buy one in the state, I believe, right, they’re not going to come around and say you can’t drive that car.
Timothy Kramer 08:22
Well, they tighten their emission standards so much that I think like the example that people are citing right now is by 2026. And Jeeps won’t pass the pass the emission standard. So you know, there’s ways that they can kind of make you get rid of those cars. And then there’s, there was talk about the Biden administration, they’ve done a lot of things in the in the inflation Reduction Act that are actually geared towards electricity and or the infrastructure in the US. But they’ve seen looks like they’re also talking about tightening some of their emission standards, they’re also talking about incentivizing people to get rid of their gas, or combustion engine vehicles. So I’m not quite sure how this plays out. But it seems like there’s a lot of different groups that are serious about getting anything other than electric cars off the road.
Jeff Malec 09:10
And it seems like you’re not taking a political stance or whether that’s right or wrong, but just saying, Hey, this is gonna have massive effects on the demand for electricity for the imbalance, like we’re gonna have a huge supply demand imbalance because of all this.
Timothy Kramer 09:25
Right, right. Exactly. So so that’s kind of there’s, you know, lots of examples we can cite on the demand side, on the supply side, for thermal generation, so absolutely coal and to some extent, what you’re seeing with natural gas fired plants. The coal plants are retiring at a much faster rate than people anticipated. And that’s just because of the you know, the ESG tidal wave, and banks won’t finance them now or refi them they can’t get letters of credit. You can’t get in directors and officers insurance. There’s just so many things that are going against the coalface are plants that those things are retiring at a much faster rate?
Jeff Malec 10:03
Now, it’s interesting like you work in a coal plant, forget it. We’re not giving you insurance. We’re not giving you anything. Yep.
Timothy Kramer 10:10
There’s banks that before would be providing hedges for these coal fired power plants. And they’re like, you know, sorry, we can’t do it. We can’t financially, we can’t give you hedges, we just have to leave you alone. So you’re seeing the thermal retiral? I know a lot faster than people thought. And then
Jeff Malec 10:26
what’s the terminology there with thermal, I think of thermal with geothermal. But no, just yeah, it’s just burning something heating it up.
Timothy Kramer 10:34
Yeah, there’s a different term. So. But basically something that burns I’m just talking about coal or natural gas fired stuff right now, currently, coal but to some extent, natural gas. And so the US now is trying to replace all that with renewables. So there’s a stated goal in the US to have at the goal is 85%, renewable generation by 2030, and 100%, carbon free generation by 2035. And so in order to achieve that target, there’s there’s such a backlog for wind and solar and, and other types of renewables. So it used to be that you could get those things built within will say, you know, permitted build online in like three to five years. There’s a study that came out by Berkeley, I think, maybe two, three months ago, and that backlog now is like up to seven years. So that’s one delay in the supply. And then after continued, decreasing in the price of what it costs to build these things. You’ve seen offshore wind, and during this year is up about 60% in terms of cost to build, and then Lazard put out some research on levelized cost of energy L. Coe, and it’s also showing increased costs and just onshore wind and solar. So you know, as you see, interest rates go up, and you’ve got, you know, labor shortages, etc. So for those things, the costs are actually going up to build them. So for those, all those different factors, we see the supply is just being, you know, not as robust as people think.
Jeff Malec 11:58
The we did a pod with Jeff masters, he does Weather Underground was the founder of Weather Underground. Yeah. But I was curious, like if you threw a wind farm along the entire west coast of the United States, right, what did basically steal that wind? Would there be no wind in the Midwest and the East Coast? Because it’s all coming mostly west east? But he was kind of saying, yeah, like, it’s taking it out of the global equation. Right, it’s turning that wind power into. So that’s just interesting to me of like, at some point, there’s a trade off here, like we’re taking all this from from this place. It’s not totally pre renewable energy. Who knows what that looks like? Where does Where did that wind that we took out of the system go? But anyway, that’s
Timothy Kramer 12:40
interesting point. Yeah. The other thing, too, is I mean, if you take a look at Texas, right, so when, when you’ve got normal weather, and the wind and the solar show up as anticipated, you know, the prices are 20 to 40 bucks a megawatt hour, they’re pretty tame. But when you’ve got hot weather and or that wind, or solar doesn’t show up, you’ll, you’ll skyrocket to the cap of $5,000 a megawatt and it’ll stay there for a while. So you’re kind of balanced on the knife’s edge there. And so there are some studies that were put out in terms of can we actually have 100% renewable grid. And the issue right now is because energy is not storable. You know, you need to take a look at what the battery capacity is. And I think like right now, we’ve got less than 2% storage capability with batteries in the US. And because of the difficulty in getting access to those metals, that’s not expected to grow anytime soon. But with the actual, like wind and solar, New England put out a study and they said, We need 400% more wind and solar than what our actual like peak hour of the year is just to make sure that we can meet everything. But then MIT put out a study and said not possible, it is not possible to have enough wind and solar on the ground, to meet 100% of the energy demand renewal, because you just can’t tell when it’s going to show up.
Jeff Malec 14:00
The footprint, it’s out there saying or the even if you had all those stations, you wouldn’t know if it’s going to show up,
Timothy Kramer 14:05
even if you had all those stations. So they’re saying even if you had you know, 400% more than what you thought your peak was, there are going to be ours where you just get no wind and solar, and you won’t even be close to serving that load. So that’s kind of the first problem with those renewables. The second problem is the generation that you’re taking offline, like the coal and to some extent, you know, natural gas plants, those plants, you can control the output, they call that dispatchable. And so as the load varies throughout the day, you can kind of use load following services with those types of plants to kind of match the load, but wind and solar, they’re not dispatchable. So you just get whatever you get. And so that’s another element. And again, there was some some recent reports that were done that talked about, you know, what the cost is to take wind and solar, the non dispatchable generation and what it cost like what they could call it firm it up, or to make it being able to follow a load and it had significantly the cost of that.
Jeff Malec 15:03
So that’s dispatchable. Like I’m thinking of the Old West steam engine, right? We needed to go faster Shovel more coal in there. Yeah, that’s That’s it? Yeah, basically, yeah, we can turn the dial one way or the other. Yeah, so
Timothy Kramer 15:14
So like most gas fired plants up, you know, you’ve got some pretty decent response times with those. And then they’ve got like oil fire plants that they call peakers, that you can bring on pretty quickly mediums like diesel engines that you can bring on some really old stuff, but they’re inexpensive, I’m sorry, they’re really expensive, and the emissions are kind of bad. So loose, things are going away. So they the ability to kind of follow that load or meet that load following demand is, as you add renewables is becoming more difficult.
Jeff Malec 15:41
And as you’re adding as you’re getting rid of coal fired, mostly getting replaced with natural gas.
Timothy Kramer 15:47
So if you take a look at the development queue, right now, there’s some natural gas that’s on there. But the bulk of what’s supposed to get Bill is primarily solar and wind.
Jeff Malec 15:58
Cut, and that is that an issue of like, nobody wants those pipelines rent, right to get the gas to all those plants across the country. There’s not a good way to do that currently.
Timothy Kramer 16:07
It’s that’s one element that makes it difficult. Another element of it is just again, the ESG tailwinds. And so even if you’re burning natural gas, you still have emissions. And if you’re trying to be 100%, carbon free generation, you can’t do that with natural gas. Now they are talking about carbon sequestration or low catch that carbon and buried underground, or they’re talking about, you know, helping using hydrogen to help burn in those plants. And that way you can reduce what the carbon footprint is, but natural gas still gives you a carbon output.
Jeff Malec 16:39
We Michael cow kayo. On the pod once he was saying, he said you need three to five times more pipeline than is existing in the US, which took over 100 years to build out that infrastructure. It’s like that’s a pipe dream, literally and figuratively, a pipe dream. Like there’s no way that it’s going to get done politically, financially, like there’s just no way you can build all that in any sort of reasonable timeframe.
Timothy Kramer 17:05
Yeah, and the economics of just, you know, the carbon sequestration piece of this and or what you’re looking at with the green hydrogen, it’s really expensive. So I mean, you do retain load following capabilities with those plants if you use that technology, but it’s just really expensive.
Jeff Malec 17:27
What’s your thoughts real quick on ESG? It seems to me from what I’m reading, there’s getting a lot more pushback these days. So
Timothy Kramer 17:35
yeah, Texas is I think we get a really good split, right. So there are some people that will we even just mentioned the word ESG. Like, oh, yeah, I want to do something I want to show I’m doing something ESG done. And there are other people that are like, I don’t even want you to spell ESG in my office, or I’m going to kick you out of here. Because you know, again, being in Texas, the hand of the land, to oil and natural gas. They just don’t really see the economic viability of that
Jeff Malec 18:04
when I think there’s been right when they got greenwashing. So hey, well, we’ll buy this plan, we’ll do this that is economic friendly, just that get the ESG stamp. So it seems there’s a lot of I don’t know if corruption is probably too strong of a word. But clouding of what’s actually going on and whether you just get the stamp or not.
Timothy Kramer 18:23
So so when we get into what we did, like we created the index, and then it is carbon neutral. So what we do, and we’ll talk about it, but we buy the correct amount of Exchange Traded carbon allowances that match the portfolio so that the whole footprint of the overall portfolio is carbon neutral. So that’s on the index name, and it’s on the ETF name. So the the SEC is allowing us to do all that. And so we’re not trying to say green or ESG complying or something like that, because that’s just those are just undefined terms. And so where we really got kind of a head scratcher was, we wanted to find an independent third party that would stamp and verify that said, Okay, you guys are green, or you guys are ESG compliant, something like that. And so we talked to pretty much every, like, major rating agency you can think of, but we’ll just kind of skip their names. So we don’t call anybody out. And we’re like, hey, take a look at our portfolio. You know, you take your your knee and you got a lot of gravitas. Just make sure that we qualify for this and then we’d like to be able to say yes, we are ESG compliant. And pretty much every one of those rating agencies said new not touching that like what do you mean you guys did it for I’ll do it for bonds, so I cannot do this. We’re not doing that.
Jeff Malec 19:35
So we did. Teachers gearing. Oh, yeah.
Timothy Kramer 19:39
Yeah, they were like you gotta be kidding me. Right. So we found one group that does this and they actually do it for a lot of different mutual funds and some big banks, etc. And so this is pretty cool. So we qualify for SFDR article eight, so ever in Europe, they had like article 689 And we qualify for eight which is like the second highest and Um, this group that can give us the stamp on this, they said, Look, you probably qualify for nine, but you want to really think hard about that. Because for what you’re doing with these electricity, futures and the offsets, etc, you need to tie it back to something to, to show improvement, and that needs to be auditable. So you need to, you need to be able to say that your fund allowed 16 wind farms to get built or whatever, this quarter. And then you got to track by which thing is getting built and getting online and then show that continuously, like, we’re not sure that that SFTR Article Nine stays around much longer, and just the cost to do it, and kind of people’s attitudes towards it, you might want to really think hard, but easily got it. But the point being is, to your question about ESG, it’s still kind of the Wild West, you don’t really know what qualifies for what classification. And you don’t really know if people have an appetite for it or not. And so what we did is we just said, Listen, we are carbon neutral. And if you like ESG, then there you go, we’re carbon neutral. And if you don’t, well, we’re giving you exposure to an asset class that previously didn’t exist.
Jeff Malec 21:06
Yeah, we’ll come back to that I was coming at it more from the angle of like, it’s going to start to be pushed back. He’s going to from the imbalance angle of like, okay, we went too far too fast on we got to make everything renewable, we got right. Think of Germany, we’re getting rid of all these nuclear plants. Oops, we’ve added the coal plants, we forgot that we still need energy. So well, it feels to me like there’s going swinging back a little bit. The other way of like, Let’s pump the brakes on, on converting totally to a green infrastructure, because it’s expensive, and it’s gonna take a long time. And so whether we’re getting that right where we are in that, if Level One is we don’t care at all, we’re burning fossil fuels all day long. Level 10. Is we have zero fossil fuels, like where are we on that range? To me, we went down to like four. And now maybe we’re back to seven.
Timothy Kramer 21:53
You’re much more polite and politically correct. Never be right. I’m very cynical on this. So yeah, no Pick, pick the numbers when you’re a Dow 40,010 years at 2%. And unemployment is at 3%. We want to be green, and we’ll spend lots of money. But one of the Dow is treading water. And you know, you’re looking at long term interest rates rising and unemployment starting to rise. It’s like well, wait a minute. Wait a minute. Yeah, that’s, yeah, that’s kind of what it seems like. That’s, again, it’s an example by exaggeration. But that seems to be the prevailing sentiment here. But I
Jeff Malec 22:27
guess bringing it back to you, like, do you think that can swing so far bank credit, diminishes the imbalance, right, that this will be back to full load, right, we’re burning coal, like crazy. And we have full old school energy infrastructure, which will handle the imbalance.
Timothy Kramer 22:45
So I think from a supply standpoint, it can lessen the imbalance. But you’ll still be looking at some pretty sparse reserve margins in terms of like excess capacity. So the demand, I don’t really see you curtailing the demand at all. And the supply might be a little bit stronger might might, the green might take a little bit longer to get in there. So it may mute it, but I still think that imbalance is there.
Jeff Malec 23:13
Yeah, and we talked a couple of weeks when we were talking, I was just saying like, yeah, in my house, probably three times more things plugged in, and there were five years ago, 10 times more things than 10 years ago. Right, just like that, right? You have a picture frame, you have basically everything has a chip and Internet of Things. And like all that needs power needs electricity. Yep. Exactly. Any other takeaways from the paper?
Timothy Kramer 23:45
So that’s kind of another three, you know, the the electrification, America sets the importance, the inflation and kind of the supply demand imbalance on that. And then so you know, what we did is we each kind of viewed this as an opportunity. So we, we created an electricity index, because one didn’t. And then, you know, Tim Kramer publishing electricity index, nobody cares, right. So we partner with ice, the Intercontinental exchange, and just absolute great group of guys that work with just amazingly user friendly, like Varun Kumar, and the guy and Preston peacock and the guys that run that group, just very commercial, and they, you know, very dynamic of want to make things happen. So we feel very lucky that we’re able to partner with them and create that index. And then we launched the ETF. We did the we published the index in January 18 of this year, and then in mid May, we launched the ETF and the ticker on that is amped a NPD. And that’s because all the cool tickers like vote and shock and stuff like that were taken, so we were pretty good.
Jeff Malec 24:47
I want to spend 10 minutes. What were some of the other cool names you came up with?
Timothy Kramer 24:52
Oh, well, it’s so the process is the New York Stock Exchange, which is happens when you go to listen ETF, you can call contact them and they’ve got a person there, then they do all sorts of research and you’d say, give me your top three names, and then they’ll tell you what’s available. So then they’re there, you know, again, a great group. But I think we probably went through like 15 or 20 possible names and kind of amped was the one that kept coming up as nobody was using it. And it was the closest to conveying the essence of what we’re doing.
Jeff Malec 25:22
Right, there’s, we’ve got a lot of fun ones. And some, but they won’t let you sit on them. Right. I think a lot of groups grab them. But I think you can only unless you launch, you have to basically rerelease it into the while.
Timothy Kramer 25:33
It’s there the give you I think it’s like a three month maybe a six month period, you can kind of hold on for a little longer than I thought you could, yeah. But it’s not in perpetuity now.
Jeff Malec 25:45
So first step, create the index, right? This is so old fashioned. Now people just create a ETF and trade it right, the old school ETF was, hey, it’s supposed to track an index. Now these people just create one and based on a strategy, and it kind of lost the index ability. But for you guys, the index was important,
Timothy Kramer 26:02
oh, the index was massive for us. Because if we just did the ETF, people would say, I don’t know what this is. And we’re gonna watch it for 234 years and see how it trades and then we’ll figure it out. But if we have an ETF that is benchmarked to the index, and ice publishes the index, and ice is the index administrator and the data in the index now go back to January one of 2014. So you now say, Okay, well, there’s a track record for the index. So we know that you guys are are having like a 95% correlation to that, which is in the prospectus. So they come back and say, okay, that kind of helps us jumpstart our ability to invest in ETF because there’s a long dated track record, which is the index
Jeff Malec 26:44
into index name, again,
Timothy Kramer 26:46
the index is the ice us carbon neutral power index,
Jeff Malec 26:52
US carbon neutral power index. And the idea being right, what’s the one line tense of that? That’s this whole concept electrification of America, this gives you exposure, this is an index of what it costs to provide electricity.
Timothy Kramer 27:06
Right, right. So so what this index consists of, if you think of a map of the US, what we did is we took six of the major electricity trading hubs. And so electricity has been trading, you know, on ice IntercontinentalExchange, since about maybe 2001 2002 ish. And so it’s been around for a while it trades just like other commodities do on exchanges. So you’ve got, you know, the different months, the different contract specifications. And so what we did is, we took six of the major trading hubs. So we took what’s called knee pool, which is New England. And then we took New York. And then we took what’s called PJM, which stands for Pennsylvania, New Jersey, Maryland. And then we took ERCOT, which is Texas. And then we took misos, to be just think, like Chicago. And then we took California. So we take what the average annual power consumption is, and each one of those regions, and then we wait to the index, pro rata across that. And then you go on to the EPA is publicly available information. And you see what the carbon footprint is of that portfolio of carbon futures. And then you pick up the right amount of Exchange Traded carbon futures, so that you’ve got this thing that’s carbon neutral. So that’s kind of the index and then the carbon neutral piece of it.
Jeff Malec 28:20
Let’s dig into the index, we’ll leave the carbon neutral assign. So right away, I think we’ll didn’t you leave out a whole bunch of the country? Or you’re saying these six cover? Right? What’s the correlation with the is there a national average cost outside of those six?
Timothy Kramer 28:35
There hasn’t really been any index that was published for a national average cost? I mean, there’s money there’s, there’s data that the EIA puts out and they do it you can you can carve it up and look at that as a national average, but to do it more like sector like industrial, transportation, commercial, etc. But those six are are the ones that have the most liquidity the most activity in the futures market. And geographically, they give you kind of the best representation of the US.
Jeff Malec 29:03
And what is the BLS who does see CPI? I’m forgetting who does that. But what’s inside the CPI, these six
Timothy Kramer 29:14
CPI takes the retail the retail number from the EIA website. Okay, which is based on that yeah, so that should be BLS. Yeah.
Jeff Malec 29:26
And then next question is so ERCOT is famously deregulate and or what’s what’s the term they’re, they’re not, they don’t play well with the others.
Timothy Kramer 29:36
So they’re, they’re basically their own violin will say that they’re kind of isolated in terms of regulations from the other part of the US. And for the most part, there’s not much transmission in or out of record either.
Jeff Malec 29:51
Okay, so that’s what makes that more volatile. Sometimes they can’t, they don’t have things in place to pull from other grids.
Timothy Kramer 29:59
Yeah, There’s a leak even with other grids, that there’s kind of a limit to what you can do in terms of getting things in and out. But that is one of the things that contributes to the volatility, yes.
Jeff Malec 30:09
And then help me understand. So this is all heavily regulated, right? Price control utilities. So isn’t there a cap on how much it can go up.
Timothy Kramer 30:19
So in the, in what’s called the spot market, so if you think about this electricity is not storable. So when anytime you generate it, it’s gonna get consumed. And so what happens is, you’ve got different tenders. So just like other commodity markets, you’ve got contracts for different months out for 60 months, or like you’re doing crude or natural gas, you have the same thing that goes on with electricity. But then just like you’ve got, you know, markets where things are consumed daily in like the natural gas, or the crude oil markets, you have electricity, and it’ll trade on a shorter timeframe. So it’ll trade what they call Bao Mo, which is balanced with the month, it’ll trade, you know, weekly, or trade daily, you can even trade like next day, and you can treat hourly. So the caps that you’re talking about. So for ERCOT, they’ve got a price cap, which is around $5,000 per megawatt hour. And that’s for when you’re inside of the day. So that’s kind of like the hourly price that you can max out on that.
Jeff Malec 31:16
And what does that look like? If someone in Texas average home? is paying 5000 megawatt per hour for the whole month? Right, what’s their electric bill by $50,000? Or what? Something right which you saw some of those during that freeze spells?
Timothy Kramer 31:32
Yeah. So that that gets there’s a little bit of a mismatch in this. So once you’ve got like some of the retail providers, what they’ll do is they’ll guarantee you a price. And so you know, you may pay it kind of above what the wholesale price is, but you’re not exposed to that volatility. And then you’ve got other retail providers that will say, Okay, I will, you know, sell you this price, and I will sell you this for x amount of volume, but anything above x, then you’re just subject to whatever kind of the market prices are. And then there’s, you know, a third tranche of retail providers that just in essence, just, you get kind of what the averages are. So there’s different types of plants. And not everybody is really exposed on a retail basis to what that that price volatility is. But if you just kind of think about what that looks like, right, so if you see, like, we’ll say, summer and ERCOT, for 24 calendar for like July and August 24. So it’s trading around, we’ll say 110 or 115 bucks right now. But if you see this summer, like July and August of 23, and it trades, you know, $5,000, several hours a day, that price may average out to be 200 300 bucks for those months. And so if you say, Wow, okay, well, if I hit those caps in the intraday market, and that’s kind of what the price averages out to, if I’m two or 300 bucks in summer of 23, then some are 24 and 110 bucks is a bargain. So you’ll see that volatility in the short term market will kind of propagate out the term structure in the curve.
Jeff Malec 33:05
And but each of these markets is similar is are kind of able to trade it and have more variability than the other markets or any other markets. Like the caps are way tighter.
Timothy Kramer 33:17
There’s markets with the other rest of the country. They’ve got caps around, we’ll say, like, I think their range is like one to 3000. And but you still have different dynamics that go on with these things. So like one of the interesting aspects right now is one of the California has, I think, the largest penetration right now in terms of renewables, and they’ve got the highest prices in the foreign market and the highest volatility. And then Texas or COD has kind of like the second highest penetration of renewables, they’ve got like the second highest volatility and the second highest prices. So
Jeff Malec 33:52
that comes back to being dispatchable. Yeah.
Timothy Kramer 33:55
And yeah, so it’s playing out the way that you think it would given these dynamics. Absolutely.
Jeff Malec 34:01
But do they you to in California or elsewhere? Do they dampen that volatility to the customer? So they’re kind of taking a price? Or you said there’s some groups basically guarantee you a price and trade, the volatility other groups are giving the customer the volatility?
Timothy Kramer 34:15
Yeah, yeah. So the retail providers will do different things like that. And so it kind of depends upon what plan you’ve signed up for, or what you look like with your with your provider, but there’s different ways that you as a consumer can kind of take that volatility off the table.
Jeff Malec 34:32
And is it ever been loaded out there politically? Like why do we let these retail Why isn’t this government utility? Oh, why isn’t it a kept price and just here’s what every American gets, this is a basic need.
Timothy Kramer 34:45
So what happened in just reference in Texas again, when you had the winter storm, and you had the blackouts and everything else was going on? Yeah, you had a number of those retail providers, go bankrupt, actually. Look, there was kind of a call again for Hey, you know, we really need to reevaluate what we’re doing here. The issue though is if you take a look, I think in like any market that’s been deregulated, once that genies out of the bottle, you really don’t see it go back in.
Jeff Malec 35:14
Yeah, tough to do. And so it’s across the country directly, not just Texas, like each of those. So each of those markets has these private traders and providers. And so you have the retail providers. So how does that work, you have your basic comed, their retail provider, they’re doing the power generation, then you have retail providers on top of that. So my Chicago when I knew in Chicago,
Timothy Kramer 35:40
no, fine. So you’ll have like, you have utilities right now that’s still on generation. And then you’ve got some utilities that have kind of divested the generation, and they’re just, you know, what they call tnd. So it’s the transmission and distribution aspect of it. So it just depends upon which way they want to go. You had a really large turnover of actual physical plants starting around, we’ll say 2010 2015, where that got shifted into the hands of private equity, infrastructure, funds, things like that. So I mean, typically the markets that the players that you see active in the markets right now. So you’ll see generators, whether they’re, you know, privately held, or whether they’re in utilities, you’ll see generators look to hedge forward. And then you’ll see retail service providers looking to buy, you’ll see developers guys that want to build plants, they’ll hedge forward, because they want to have security and cash flows, they can get financing, put leverage on their projects and make their returns, you’ll have speculators that do this, you’ll have you know, hedge funds that do this, she’ll have a number of banks that will do this. So there’s a lot of different flavors of guys that will step into the markets and and trade this up.
Jeff Malec 36:56
And coming back up to the top level, this is very technical, lots of moving pieces. So you guys said, Hey, let’s make this simple to get this exposure. Right. One, one product, one ETF, you can get exposure to this without having to figure out these six markets without having to figure out the trading the volatility.
Timothy Kramer 37:14
Yeah, I mean, the thing that really crystallized it, right is if you take a look, and there’s like, numbers will vary, but there’s somewhere between like 800 billion to like over a trillion dollars. It’s tied to commodities in the US. And so like right now,
Jeff Malec 37:28
and investments, you’re saying, yeah, yeah, yeah.
Timothy Kramer 37:30
So if you if people just want commodity exposure, typically, they’ll go pick up something that is linked to the B column, which is the Bloomberg commodity index. So the GSCI, which is the Goldman Sachs Commodity Index. And so those indexes tend to have like we’ll say, five different subsets. So like the B coms got energy, precious metals, industrial metals, AGS, and sauce, and then in each one of the subcategories of the individual futures, so that becomes got like 2425 different futures in it. So if you take a look at the Be calm, and and they’re all like this, right, the energy subset, it’s got, you know, WTI, Brent, natural gas, gasoline, you know, things like that, right? Why does it not have electricity? Electricity is like the most consumed commodity in the US. Why is it not in any one of these indexes?
Jeff Malec 38:21
Because they were designed in 1978? Yeah,
Timothy Kramer 38:24
exactly. Exactly. Yeah. And so when it just didn’t make any sense. And so we saw an opportunity, and we still wants to just see what happens here.
Jeff Malec 38:33
But could you argue, right, if I’m at pension XYZ and I have 5%, in those commodity indices, while I’m getting it indirectly, right, there’s some correlation between natural gas and oil prices and the price electricity. So getting it indirectly there. What’s that correlation look like? Is it getting less perfect?
Timothy Kramer 38:53
Yeah, renewable? Yeah, yeah. So if you take a look at the correlation of, and this kind of gets a little bit into the weeds, we take a look at the correlation of natural gas to electricity, it tends to be and this is just using like NYMEX natural gas contracts to like the electricity index. That correlation runs anywhere from like 60 to 77%, depending on the time of year, etc. But if you take a look at it, we make the joke and it’s not true. But it’s it’s a good soundbite. We make the joke that electricity is going to go and take over everything and that natural gas and crude already go to zero. And so if electricity is the most consumed commodity in the US right now, and retail notional basis, and it’s not in any index, and natural gas and crude oil are gonna go, you know, less and less and less, then we just think this becomes a much bigger component of that. So you know, when you talk about pensions and endowments, wouldn’t you like is that we’re holding a proxy that’s 77% correlated and the correlation is supposed to drop down to 44% in the next 10 years. Would you want that exposure? Would you want something that’s like the exact exposure?
Jeff Malec 40:05
Well, that’s a whole different podcasts on whether whether 70% Correlation is worth it for them to remain lazy and not do the work to to get higher. Right? A lot of them are like, Yeah, this is what we do. It’s fine. Don’t don’t need to change. No. But the main idea there is right, the renewables is coming online, the electricity is going to be driven by different things. So that correlation by definition is going to change.
Timothy Kramer 40:30
Exactly. So you’re right now we’d like to think that you’re at the crest of the wave here. And this is the place to be one of the stats would be, I believe, and this is from the research was from BNF. But I believe they showed that oil consumption in the US is about 102 million barrels per day. And of that, I think they said like 40 million barrels per day goes to what they call road fuel and motor fuels. And electric vehicles right now have cut like 2 million barrels out of that. And by 2030, they’re supposed to cut I think, 25 or 30 million barrels out of that. So that just goes again. And when we recognize that, you know, oils not going to go to zero, but it’s going to be significantly less consumed, just like natural gas. So would you like to own one of the most consumed commodities right? Now let’s only get bigger and better? Or do you want to hold one of those correlated products where the correlation is going to drop? Use is going to
Jeff Malec 41:22
drop? Oh, and by the way, you’re not saying don’t own commodities, you’re saying add does not replace your commodity exposure with this, add this. This is a big piece of the commodity Picture Unit.
Timothy Kramer 41:33
Yeah, we’re saying rebalance your commodity exposure. And this is the most efficient way to do that. If you want to look at electricity. Yep. The
Jeff Malec 41:42
I think one of the tough parts in the energy space right now is to drive all that renewables. You need fossil fuels to build the ship to do all this stuff. Right. So you could almost see like the correlation breaking but breaking the other way. We’re using so much fossil fuels to get to the renewable place that it’s disconnecting from the electricity price the wrong way. But that again, like so, yeah, have that exposure to those commodities, but also have the electricity exposure.
Timothy Kramer 42:11
I understand your point about what you’re doing to the environment in order to build the renewables and I’m not touching that.
Jeff Malec 42:20
Well, I always told me like, okay, cool. We’ve got all these electric cars need the batteries? What do you think ignoring people think there’s like slave labor digging them up in Africa and China, ignoring that for a second? Like, what do you what machine do you think’s digging him out of the ground? When wherever it’s coming from? What do you think’s driving that machine? Diesel? Okay, how is it getting from there to the factory? A ship on diesel? Okay, what’s the factory running on? That’s getting a little different, but
Timothy Kramer 42:47
I know exactly what you’re saying. And there’s a reason why I’m just smiling. Yeah. While letting that go. Yes.
Jeff Malec 42:55
And so let’s circle back. So got the idea. Okay, we’re gonna get electricity exposure. This man, do you think it’s ignoring all the white paper? The electrification of America? Do you think it’s just a pure play on like, GDP as well? I don’t know those stats, if you know, right, as if there’s a recession does electricity usage go down? It’s a rather stable.
Timothy Kramer 43:18
So what we did is we plotted the index, which goes back to 2014, you plotted it against, you know, COVID, and different things like that. Yeah, I mean, when you have a recession, and the COVID, hygge, etc, electricity use went down, but the correlation of electricity to, you know, like, the s&p and, you know, the bond indexes, etc. It’s like, literally, almost 0.00. So, if you want to talk about, you know, recession in GDP, I think the best indicator for that is still the s&p, right. Yeah. And so our correlation to the s&p is, you know, on the day to day price changes over a long period of time, it’s still like, almost zero. So I think you will see electricity use and a recession come off of it. Absolutely. But I don’t think it’s going to be it’s going to be muted in Skyping, not nearly what you’d see from other types of exposures.
Jeff Malec 44:06
And COVID. Actually, I don’t know what what are those stats that go went down? I would assume it went up because everyone’s stuck in their houses. But I guess if you shuttered offices and factories and
Timothy Kramer 44:16
you shut it offices and factories and everything right, so yeah, it fell off pretty hard or they fell off
Jeff Malec 44:29
okay, and then let’s circle back to the carbon offsets. So part of me is like that should just be part of the portfolio those carbon offsets that’s a bunch of trend followers trade those and different hedge funds trade those to begin with, not for any ESG reason, just because, right? It’s by definition, supposed to go up every year.
Timothy Kramer 44:48
Yeah, yeah. So so the actual carbon markets like that the two prevalent ones in the US that are exchanged that have Exchange Traded futures. You’ve got what are called reg Reggie, so they’re the East Coast like Pennsylvania, New Jersey, Maryland area. So it’s Regional Greenhouse Gas initiatives. And in the West Coast, they call them CCA is California carbon analysis. Washington State of Washington just came out with errors, etc. So there, there are legit ones out there. And there are also ones that you just kind of like shake your head and say, I don’t know about that. So when we were looking at putting this together, we had somebody say, oh, here, you should be using these offsets. It’s like what, like, Oh, they’re Chinese hydro offsets, and they’re 25 cents a ton. And it’s like, there’s a reason they’re on the discount rack guy, no one’s gonna believe. So there’s, I mean, there’s actually, this has been a year or two ago, and I’m probably oversimplifying this, but there’s like an article in the Wall Street Journal where some girl little girl in third grade plants a tree in your backyard and wants two tons of carbon offsets and wants the money. And so it’s some of the voluntary things are actually legit, and they’re good. And other ones you just like, Wow, that really should actually count. And so the markets are kind of vetting that out right now, in terms of saying, Okay, wow, I’m not really sure. We should be looking at this and using this. So what we do is we just use the exchange trader ones that are out there, that the CCA is in the Reggie’s, and like you said, what happens is they auction off those allowances, and they’ve got a reduced supply coming into the marketplace every year, and then they’ve got an increase on the ceiling, and the floor of the price of those things should be going up every year.
Jeff Malec 46:25
Right. The risk is that there’s regulatory change, and they say, Okay, we were increasing the limit this year or whatever. But we’ve seen in Europe that things basically stair stepped up COVID had a little setback. But yeah, so but your idea was, hey, we don’t want to capture that price increase. That’s a nice added benefit. But we want this so it’s ESG compliant, though, the font.
Timothy Kramer 46:49
Yeah, I mean, if you if you want to capture, if you want to play carbon itself, there’s a number of ways you can already do that. Those things are already out there. But there is no way to do electricity. And so it was one of the things that I forgot to mention this is we’ve got an A three year exclusive with ice on the index in the data. So we’re the only shop that can do the index. And we’re the only one that can do this, this ETF. And so this is a unique product, if we did just the carbon, there’s a lot of stuff out there that does that.
Jeff Malec 47:20
And then the ETF is trading these ICE Futures on each of those six markets. Yes, no over the counter, that kind of stuff.
Timothy Kramer 47:28
Nothing over the counter. Because the reason we do this is most commodity indexes. What they do is they assume in the index that you’re 100%, collateralized, so what they say is, you know, if you buy 100 bucks worth of futures were like the Bloomberg commodity index or anything like that. They assume that, that you take that $100, and you put that into like three month treasuries, the index itself, the power index is using three month treasuries for the collateral component that it’s benchmark to. But realistically, you need to put up we’ll say, 20%, with the exchange for, you know, initial and maintenance margin. So the reason we do everything on the exchange is because it’s legit, number one, and number two, it saves us from having to get is does and credit agreements, and everything else, what bilateral counterparties. So those things are a little bit more difficult to see. But we wanted the transparency of the ETF. And, you know, we wanted the transparency of the future so you can see what the price is and kind of know what you’re getting?
Jeff Malec 48:30
And are you seeing any hedge funds or other types of traders kind of trading the ETF against their own OTC baskets? Or? Right, it seems like there’s a couple of different ways you could trade, you know, not just owning it as an investment on electricity, but trading it. Right? Simple example would be against natural gas or ETF or something right? You could have these relationships between it and other instruments.
Timothy Kramer 48:54
So the the short answer is yes, the long answer is I think that there are some really, we just designed it as a long term, you know, buy and hold. And so again, if you’re a pensioner endowment and 2.5% of inflation is electricity, then you should hold 2.5%. Or if you’re a pension and endowment, and you’ve got 5% commodity exposure, well, you should dial that back and pick up some of this. So we think this is a long term buy and hold product. But there are some very interesting ARBs that exist and we occasionally, you know, when we take a look at some of the trading activity, like oh, okay, I think I see what they’re doing there. So, and we’re okay, man, that’s great. Right? That’s why should
Jeff Malec 49:35
only help the customers bring down the spreads and makes it more liquid. Yeah, I mean,
Timothy Kramer 49:39
the whole purpose of this is so that you can express a view on the sector and gives you exposure to the sector and if guys find a way to make money off it, that’s great. Yep.
Jeff Malec 49:48
And talk through a little bit of okay, why do I need that I own these utilities are women, right like the utility versus the raw power, raw power?
Timothy Kramer 50:01
Look to see if there’s a ticker for that, right? So if you own a utility and the utility is hedged, then what do you really don’t?
Jeff Malec 50:09
Okay, so that’s what their management, right? Yeah.
Timothy Kramer 50:12
Okay. So I mean, you got to take a look, take into account how hedged? Are they? What are they actually doing? If they have a bunch of power plants? Are you those things, you know, assets break? You saw it, I don’t want to, you saw what happened in Hawaii, right. And other things that so you’ve got, they’re exposed to a lot of these utilities, a lot of the ways that you typically look at getting exposure, electricity, have kind of exogenous factors that don’t deal directly with the price of electricity. So this is a clean, clear way to get electricity exposure, where with the other ones, you get management, you get accounting irregularities, you get equipment breaking, you get, you know, overhead, it’s just, it’s just not that effective to play it anymore.
Jeff Malec 50:52
And what it can do, and I love this, give me your Give me Asia. Right. What Can Can that be done?
Timothy Kramer 51:00
Oh, yeah. So we we’ve had inbounds on. Okay, this is great. Can you do European? Yes. Can you do Asian? Yes. Global Yes. But it’s the whole crawl, walk run. So the second product that we’re working on, which we’re almost done with is if you take we’re taking an existing commodity index, like we talked about, and we’re putting power in there. So right now, if you just want power, we’ve got that. So if you want to do your own version of, you know, fund managers call it smart beta. So if you have $100, tied to a commodity index, and you want to do smart beta, you can dial it down to 80 bucks and pick up 20 bucks on amped. And we’ve done the math on that, it gives you better returns, less volatility, better Sharpe ratio, etc. So it does add Smart beta to it. But if you didn’t want your portfolio manager, and you didn’t want to do the math, or you didn’t want to deal with the individual components of that, product number two that we’re working with ice on right now, we should be launching an index in we’ll say, late October or early November, that has all an all commodity index with power inserted in the correct weight. And then the next move then would be to launch an ETF with that probably, you know, end of the year, early next year. So that’s product number two. And then in terms of the other products, we’ve had a lot of inbound call. So again, it’s like, you know, Asian market, global power market, European power market. We’ve had somebody asked us if we could do water, they said, Listen, you guys wrangled electricity, we can’t get our heads around electricity, because you can’t see it can’t store it. We want to find a way to go water, you know, cents per gallon. Because everywhere we read water is an issue. And so that’s something else that’s kind of in the laboratory. And then there are some other products that people have approached us about. But again, it’s so crawl, walk, run, so we got amped up and running, like a little bit more AUM on that. And then we have the second product that we’re going to launch which is the All Commands plus power. And we’re looking for a cool name and a cool ticker for that if you got any ideas.
Jeff Malec 52:50
Yeah, mol that went over. What what does it look like in terms of is is a dampened volatilities and increase the return? Like for inserting power into that commodity index?
Timothy Kramer 53:00
Yeah, it does that it dampens volatility and increases the returns. Yep. All right.
Jeff Malec 53:05
What else? What else you got? What else can you put in?
Timothy Kramer 53:09
And again, you know, we’re looking at this over a longer term period. I know, there may be individual periods where it doesn’t quite do that. But this is something that again, we think from a portfolio perspective, if you buy and hold commodity exposure for as a pension or endowment, then you have that for a long period of time, we kind of see this in the same light.
Jeff Malec 53:31
All right, I might have to sell some of my uranium holdings and add amp, right, I’m up the feeling this is eventually going to get to a breaking point. And they’re just everyone’s going to be like, Okay, let’s build more nuclear. Like, it’s not it’s not as scary as we think. Let’s do it. But even that, what’s that take 10 to 20 years to Yeah, that
Timothy Kramer 53:48
takes a long time. So So, um, we’ve there’s some interesting companies right now that are doing SMR. So it’s like small modular reactor. That’s still like, really expensive, and they’re still the whole not in my backyard thing with that. Yeah, that probably does get some traction. And then there’s, there’s the fusion there’s a couple of companies that are really well capitalized that are that are working on fusion right now. And I mean, that’s interesting, but I don’t I might be wrong, but I don’t think fusion has done has existed for more than like five seconds outside of a laboratory. So I think those things like you said, are several years away and they’re also like really expensive,
Jeff Malec 54:33
if not hundreds of years away, right? Yeah. What else did we cover any other thoughts?
Timothy Kramer 54:45
Um, I just think that you know, this is like we said, an interesting product. It’s the only way you can invest in the sector. And so there’s a there should be an interesting appeal to you know, family offices pensions, endowments to some extent or retail. investor. And again, the idea isn’t Oh, you know, you should put 40% of your portfolio in here. The idea is just take like, whatever your commodity exposure is, and just put in the right have the right weight on this and just kind of it’s a buy and hold for the exposure.
Jeff Malec 55:16
years. So we I forgot to mention your CMAC funds. Yep.
Timothy Kramer 55:22
Yeah, so we are the website is www dot CNI. Si funds.com. And what we do is we try to publish a white paper on there once a month that takes whatever is the most asked question by investors that month, and we try to address it like in a five or less page white paper, just because I my attention span will let me read more than five pages. And then anytime we do, like, you know, a podcast, webcast interview supplement that we try to put the link on there also. So again, because this is new, we’d like people to be educated and make an informed decision if I decide to do something.
Jeff Malec 55:57
I did have one other question I’ve got on crypto and Bitcoin mining and all that. Do you think it’s a legit use on the power grid? Probably not in America right now. But maybe in America or elsewhere in the in the world? Right? That was one of the knocks on Bitcoin takes up too much power. And it was like all the mining was as much power as Sweden was using are some of these different stats. Look, it’s
Timothy Kramer 56:22
energy intensive. But I mean, all the different Kryptos have been out there long enough and kind of established that I don’t, I don’t know how you would shut that down.
Jeff Malec 56:33
And you’re saying AI will dwarf that, anyway?
Timothy Kramer 56:36
Oh, yeah. I think about that. I mean, there’s like some interesting dynamics like so for instance, in Texas, there were some bitcoin miners. And during some of the extreme weather events, they actually have provisions in their contracts where they will shut down and not pull electricity and actually sell back into the grid at a profit. So some of these Bitcoin miners made a lot of money by actually not operating during some of these extreme events.
Jeff Malec 57:02
And then last thought is we’re talking about Bitcoin in the volatility V. As more renewables come online, we fix that imbalance is that kind of, but it’s also causing volatility in those individual markets. So will the whole thing become a little bit more volatile as you have a larger renewable mix?
Timothy Kramer 57:20
Yeah, yeah, well, we’ve kind of seen that volatility trending up in terms of the renewable mix of the areas that have higher renewable penetration, tend to have higher volatility right now.
Jeff Malec 57:31
And there’s no way to fix that until they saw storage.
Timothy Kramer 57:36
You can you can have storage that will help you solve that, or if you just kept some of the dispatchable generation around to kind of firm it up or fill in. But then that kind of defeats the purpose of having the renewables. So I’m not really sure people want to go to that solution.
Jeff Malec 57:51
Right? What comes first fusion or efficient electricity storage?
Timothy Kramer 57:58
Ah, well, you have efficient electricity storage and the batteries right now, it’s just that they’re, they’re expensive to build on a merchant basis. They’re just not profitable yet. Some, some areas are still putting battery storage in, they’re making a directional bet on what’s gonna happen on prices. And or they’re just, you know, they just want to check a box and say, I want to be 5% battery storage, and they just make a call and they get 20 offers, and they lift the three cheapest to get the 5%. So it’s kind of out there right now, but it’s like you talking, it’s really difficult to get the metals and the Yeah, it’s just a tough one to address. I just don’t think that you’re gonna see the storage you need come on with the speed that you needed to come on.
Jeff Malec 58:45
Right. And like archive, it’s not. They couldn’t store like a day’s worth of ERCOT usage. Right. Like, what, how big would that battery farm be? Like, a quarter of Texas or something? Right.
Timothy Kramer 58:58
Well, we started out by talking about how big Texas is. Yeah, yeah, that’d be huge. Right.
Jeff Malec 59:04
Alright, Tim, thanks so much. We’ll leave it there. Go check out amp go check out the website. And we’ll put some links to this electrification white paper, and everything else in the show notes.
Timothy Kramer 59:17
And I appreciate you having me on your thank you for this and I’m gonna I’m gonna hold you responsible for helping me figure out a ticker for product number two.
Jeff Malec 59:23
Done I’ll think on it. Awesome. Thanks, Tim.
Timothy Kramer 59:28
Appreciate it. Thank you for your time.
Jeff Malec 59:33
Okay, that’s it for the pod. Thanks to Tim for coming on. Thanks to our Sam for sponsoring thanks to Jeff burger for producing. We’ll see you next week with Ross colitis, peace.
This transcript was compiled automatically via Otter.AI and as such may include typos and errors the artificial intelligence did not pick up correctly.