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When 47 million people across Spain and Portugal lost power for nearly half a day in April, the finger-pointing began immediately. “Too much renewable energy,” declared the critics. Even U.S. Energy Secretary Chris Wright piled on: “When you hitch your wagon to the weather, it’s a risky endeavor.”
There’s just one problem with this blame-renewables narrative: it’s completely wrong.
In this crossover episode with the Redefining Energy podcast, we examine the official Spanish grid operator report that reveals a complex web of failures.
While the blackout began with a solar plant sending frequency oscillations through the grid, what followed was a cascade of problems: conventional generators that failed to provide required voltage control, inadequate battery storage to balance massive solar capacity, weak interconnections to neighboring grids, and ultimately, poor system management by grid operators themselves.
Our guests, Laurent Segalen of Megawatt-X and Gerard Reid of Alexa Capital — co-hosts of Redefining Energy — help us decode what went wrong and what Spain needs to fix.
“Spain has installed 30 gigawatts of solar in the past 10 years and there’s hardly any batteries and there’s hardly any connection with the rest of the continent,” explained Segalen. “The system has become more fragile.”
“We’ve had, in the UK, an interconnector going down, 1.4 gigawatts. Well, guess what? There was no blackout. Why? Because batteries came in straight away,” said Reid.
We’ll discuss the many factors behind the outage, and explore why Spain’s grid operator is trying to avoid blame.
Then, we’ll look at how security is reshaping European energy investment. As America leans into its role as a dominant petrostate and pulls back from post-World War II security commitments, Europe is being forced to reconsider how to structure clean energy supply chains.
We also explore the emerging split between “petrostates” and “electrostates” — countries that control energy through scarcity versus those that build abundance through manufacturing and technology. While America doubles down on fossil fuel dominance, can Europe position itself alongside China as a leading electrostate?
Credits: Co-hosted by Stephen Lacey, Jigar Shah, and Katherine Hamilton. Produced and edited by Stephen Lacey. Original music and engineering by Sean Marquand.
Open Circuit is brought to you by Natural Power. Natural Power specializes in renewable energy consulting and engineering, supporting wind, solar, and battery storage projects from concept through financing. Discover how we’re creating a world powered by renewable energy at naturalpower.com.
Open Circuit is brought to you by Sungrow, the trusted provider of PV inverters and battery storage. With over 605 GW installed worldwide and a BloombergNEF ranking of “most bankable” in power conversion and energy storage, Sungrow provides solar tech you can count on. Learn more at sungrowpower.com.
Transcript
Stephen Lacey: Are vote-a-ramas in the Senate as fun as they sound?
Katherine Hamilton: I know. Doesn’t a vote-a-rama sound like a drinking game where every time you hear the word repeal, everybody has to take a shot?
Stephen Lacey: Gerard, Laurent, what is the word you would use to describe what’s happening here in the US right now?
Gerard Reid: Chaos. No, that’s the only word I would use is chaos.
Laurent Segalen: I’ve got other C’s for you, coercion, confusion, crypto corruption, China, climate, culture war, cruelty, capture, cluelessness, craziness, collapse, crony capitalism, complacency, coerceness, contempt, court of the medieval king. These are all my C’s.
Stephen Lacey: Did you just rattle that off the top of your head?
Laurent Segalen: I prepared this for some weeks now.
Stephen Lacey: From Latitude Media, this is Open Circuit. When 47 million people lose power, who do you blame? In April, the lights went out across Spain and Portugal and without an immediate explanation, the finger pointing started. “Too much renewable energy,” declared the critics. Even the US energy secretary piled on the blame. There’s just one problem with this narrative. It’s completely wrong. Now, we have the facts and they tell a very different story about voltage control, grid coordination, and the urgency of grid modernization. Then, we’ll revisit the New Joule Order with a European twist. As America dismantles the post-World War II global security order and leans into its role as a petrostate, how will Europe respond? We’ll look at how security is reshaping the EU’s role as an emerging electrostate.
I’m Stephen Lacey. I’m the Executive Editor at Latitude Media. Welcome. I’m joined as always by my two co-hosts, Katherine Hamilton and Jigar Shah. Katherine is the co-founder and chair of 38 North Solutions. Hey, Katherine.
Katherine Hamilton: Hey, so excited to be doing this.
Stephen Lacey: Indeed. Jigar is the co-managing partner of Multiplier and former director of the DOE’s Loan Programs Office. Hey, Jigar.
Jigar Shah: Hey.
Stephen Lacey: So before we bring in our guests and collaborators, I want to just timestamp this week’s episode for our American listeners. We are recording on Wednesday, July 2nd. The Senate just passed its version of the Reconciliation Bill that makes changes to clean energy tax credits. It’s going to go over to the house now. This is an ongoing situation. You’re going to hear this episode on July 7th so so much is going to probably change between now and then. Katherine, what’s the state of play as we know it right now?
Katherine Hamilton: Yeah. So the Senate passed the bill with some changes to the House bill that would make it slightly less horrible for solar and wind. Still not great but slightly less worse. And then, it went over to the House side. They are supposed to take it up this week. And again, you’re going to hear this after all of this. And with the president hoping to sign a bill on the 4th of July, our Independence Day too, with lots of fireworks to celebrate something that will turn us back in time not only from a lot of major social programs. But also, in clean energy.
Stephen Lacey: Yeah. And we’re going to have a more real-time conversation on what it all means for US infrastructure later in the week. But this week, we have a special treat. We have not one but two leading European energy investment experts here with us, Laurent Segalen and Gerard Reid, the co-hosts of the Redefining Energy podcast. Laurent Segalen founded Megawatt-X, a London-based energy transition investment platform. He’s been trading and investing billions of euros in clean energy for over two decades. Laurent, welcome.
Laurent Segalen: Well, thank you so much for having us. It’s a very emotional moment for us because the Energy Gang, the original Energy Gang, was our inspiration when we set up our podcast and we… I’m getting very emotional so I just have to say one thing and then I’ll let Gerard speak. Times have changed and times are strange. Here I come but I ain’t the same. Mama, I’m coming home.
Stephen Lacey: What a good way to start the show. I love it. Gerard, can you beat that?
Gerard Reid: Oh my god. What can I say after-
Katherine Hamilton: Is Gerard also going to sing? Yes.
Gerard Reid: I am definitely not going to sing. But I do want to say he’s dead right because myself and Laurent we’re in a pub one night having some beers and we were talking about your podcast. And we were thinking, “Actually, we could do something similar, couldn’t we?” So we did and it’s so great to be with you guys here today. It’s brilliant. Really looking forward to this exchange.
Stephen Lacey: Excellent. Well, Gerard Reid is a founding partner of Alexa Capital and an expert on commodities and energy and mobility transitions. It’s really good to see you.
Gerard Reid: Great to be here. Great to be here.
Spain’s blackout: What really happened and lessons learned
Stephen Lacey: Well, we brought you both here to talk about this really critical moment for Europe and we are going to start in Spain where on April 28th the entire Iberian Peninsula went dark for nearly half a day, crippling communications and transportation infrastructure. And the cause at first was a bit of a mystery and almost immediately in the US, we saw the usual suspects. People like Michael Shellenberger and Robert Bryce out there saying the cause was renewables. We saw Fox News featuring segments blaming solar. US Energy Secretary Chris Wright weighed in telling CNBC, “When you hitch your wagon to the weather, it’s a risky endeavor.” We decided to wait until we had an official report from Spain’s grid operator and now we have it and it paints a very different picture. So who wants to take a whack at explaining what happened in more detail?
Laurent Segalen: The fascinating thing in Spain is that contrary to all other blackouts, South Australia at 2016 or Storm Uri in Texas or the heat waves, there was no weather event. It arrives on a kind of normal day. So you need to go much deeper into the structural route and the fact that Spain has installed 30 gig of solar in the past 10 years and there’s hardly any batteries and there’s hardly any connection with the rest of the continent so they have created… The system has become more fragile. Now, in order to balance the system without batteries or interconnection, you need to use your CCGTs as backup and they have… Spain as 30 gigawatt of CCGTs. But guess what? The whole system was not managed. That’s how we see it. Gerard, maybe a bit more granular explanation?
Gerard Reid: Well, Laurent, I think I actually want to say something slightly different which is the question is what can we learn from this, right? And I’ll tell you what I would say first and foremost is that electricity is indispensable to our modern life, right? The Portuguese utility was speaking to one of the senior executives there and he made a point he couldn’t even get into his home when the power failure happened because guess what? He had an electric doorbell. And this is the biggest point that I would make…
And by the way, this was only a blackout, right? For a day. It wasn’t even a day. But can you imagine you do this for three days, what happens to society? And so, the learning that we would take all of it out of is just how serious blackouts are and we cannot afford for this type of thing to happen. And by the way, it’s not just, again, about blackouts, it’s also we need to think about resilience of the system in general, whether it’s climate-related, storm damage, fires, it could even be terrorist attacks. We need to think about these in a way. So the learning that I think of it was we need to rethink the way the system works and the way it’s managed and we need to do this very quickly. That’s the learning I take out of it, right?
Stephen Lacey: Yeah. And certainly, Texans here know a lot about multi-day blackouts and the consequences. Let me provide a really succinct explanation of what happened according to Red Electrica and then I want to get you out to weigh in on it so it wasn’t necessarily a renewable energy failure. It started with, according to them, a solar plant sending frequency oscillations through the grid which should have, in theory, been manageable.
But then, the conventional power plants that are paid to stabilize the grid did not do their jobs. And instead of absorbing excess voltage, they pumped more in and the result was this 27-second cascade that turned off the lights for 47 million people. Katherine, what do you understand happened here? Was this an issue with conventional generators not doing their job? Was it the solar’s problem? How do you think about who’s responsible here?
Katherine Hamilton: Yeah. Well, according to Red Electrica’s report, they were completely not responsible. When I was reading it, it was super confusing because I tried to follow the tick tock of everything that happened because they went sort of minute-by-minute. And the voltage would drop, there would be an oscillation, and then they would say, “But that should have been manageable and this should have been manageable and this should have been manageable.” And it just seemed like it was really a cascading set of events because there wasn’t this overarching, as Gerard says, this overarching systems thinking around what’s really going on here. It was very, very hard to actually decipher from that report what happened and if anybody was really to blame other than maybe the utility in some way. But I would love to hear the folks who are actually living there.
Stephen Lacey: Yeah. Well, I want to get your take, Jigar, here. What do you take from this Red Electrica report on where the blame lies? Was it the fact that these conventional power plants that, again, were paid to stabilize the grid were not providing those services?
Jigar Shah: Yeah. I think when you look at the through line from Uri to the Christmas surprise in 2022 to this project, the challenge is that the way people are trained to run the grid is the same as they’ve been trained in the 1980s, right? So they absolutely rely on inertia, rely on other things. I think today we are in a new place because solar is so large that you need access to data. I mean, the big challenge that I see with all of these is that solar projects are just so new.
And remember in the 1980s, we banned solar from providing all of these services. It’s not that inverter-based systems can’t provide some of this VAR support or frequency support or other things. It’s that they’re banned from doing that. We updated IEEE 1547 recently to allow for some of these services to be provided, but many of the inverter systems that are installed today don’t have these services.
And so, one, most of the independent system operators don’t get the real-time data on solar projects that they have from thermal projects. And so, we need to correct some of the data pieces here because that allows for folks to curtail load or curtail generators, do all the things that they normally when they have that data.
But the second piece of it is, as we are reminded over and over again, solar is not capacity even though we want it to be capacity. Batteries are capacity. And so, ultimately, as Laurent suggested, the Iberian Peninsula has to catch up to where the UK is, to where Germany is, to where other places are that have a far more healthy ratio of batteries to solar. I think when you think about where we are headed in a very high penetration grid, batteries is what you rely on for capacity. It’s not the solar panels themselves.
Stephen Lacey: Yeah. So Laurent, you want to jump on that. You talked about the massive Spanish solar capacity but very little battery storage and the lack of a integrated regional grid. Where do you put the blame here? Are you sort of pointing to the lack of storage as the big problem?
Laurent Segalen: At the end of the day, it’s up to Red Electrica to manage their systems and they have to work with what they have. So the batteries are going to come but that’s true what Jigar say. It comes much later than in other countries. So if you don’t have batteries, if you don’t have interconnection, you need to work with your gas fleet. And the way they have managed with their gas fleet… Now, of course, I read the report from Red Electrica. The next day, Iberdrola was putting another counter report saying, “Sorry. It’s not the gas plant, it’s you.”
Now, the trick is nobody needs to take the blame because the next day the insurance company are going to arrive and say, “Sorry, guys. I’ve got X billion of losses. Report says it’s on you so now you’re going to pay.” So you’re going to see a lot of reports coming blaming the other guys because nobody wants to be named responsible for financial reasons. And at the end of the day, they’re just going to kick the count down the road. Now, Gerard is right. Everybody know what needs to be done: interconnection. That’s going to take years. So batteries, yes, the short-term or the medium-term and in the short-term, they need to manage better. And as Jigar said, maybe they have a grid following inverters, they need to switch to grid forming inverters. But look, there are a lot of solution short-term if they manage better,
Katherine Hamilton: Is there a regulatory solution?
Jigar Shah: I think that’s exactly right, Katherine which is that I think that as the solar industry and the wind industry and the battery industry continue to scale, they need to be treated like infrastructure. And so, the regulator needs to start saying, “Here are the additional costs that you need to incur to be able to manage a high penetration grid in a way that our grid operators are familiar with these tools. I think that there are a lot of ways for us to theoretically run a grid. Frankly, using computers and AI and all sorts of stuff, right?
But today, we are in a place where the grid operators run things the way that they’re comfortable in running things. And when things that are not familiar to them come forward, then things get shaky. I just think that when you’re 80% of all grid connections in the entire world which is where solar and battery storage are today, we have to recognize that we need to bring everyone along with us. I don’t think that solar was to blame directly for this blackout but I do think that this is going to increasingly happen as there is a shift, really, to higher and higher penetrations of renewables and the grid operators are not really set up to deal with that.
Gerard Reid: Yeah. Listen, the thing that I just want to add to it is when I hear a solar plant goes down, what was it? 300 megawatts. Now, that’s nothing in the larger scheme of things and I’ll just give you a really simple example. I mean, we’ve had, in the UK, an interconnector going down, 1.4 gigawatts. Well, guess what? There was no blackout. Why? Well, because batteries came in straight away, right? Immediately came in.
And technology-wise, what you need to have is grid forming inverters in there that can react much quicker than a synchronous generator can. So for me, there’s a technology solution there. And I want to say… And I understand why Red Electrica don’t put their hand up and say, “Listen, we made a mistake,” but the reality is they did because there’s just no way around it. But it’s political now because the Spanish government is under pressure already and they don’t want to take blame or responsibility for this.
But that’s why I go back to what can we learn from this? And what we can learn is that we really need to make sure that we have the technologies in place to make sure this type of thing doesn’t happen again. And I will say, as we record, I just want to give you an idea of what happened in the power markets in Europe this week. So what we had is massive heat waves across Europe which means massive amounts of solar on the system and huge amounts of air conditioning, okay?
And then, guess what? No wind across the whole continent. And no wind means that you can imagine when the sun goes in, what happens? Power prices explode. Like they go from zero to, in some markets, 1,000 euros a megawatt hour but the system didn’t fall over, right? Because it’s got its incredible resilience within that system and the market worked. I want to give an example of… It does work, the Spanish just did a really bad job. That’s what I just want to say, right? Really bad job. That’s what we take out of it and it’s not a European problem. For me, it is a Spanish problem.
Stephen Lacey: Jigar, if I were to bring you on Fox… I just want to distill this down here. Jigar, if I were to bring you on Fox News and I asked you, “Solar power is to blame, right?” What would be your short, pithy answer on how we place blame for this particular incident?
Jigar Shah: That all technologies basically have to be coordinated like an orchestra and when the conductor fails to do their job, it’s not the fault of any one section of the orchestra that the sound is not beautiful, right? It’s the fault of the conductor. And so, in this case, it is again the fault of the conductor. Now, does each section need to have its own session where they need to tighten themselves up, they need to provide better leadership for the rest of the orchestra? Yes. But ultimately, the conductor has to take the blame.
Stephen Lacey: So Spain now has this decree, this anti-blackout decree. They are really leaning into renewables and distributed energy as part of their efforts to modernize the grid, strengthen the grid. What do they need to be doing as part of this decree to make sure that that expansion and those standards are meeting the right problem?
Laurent Segalen: Look, this means so much renewables put in the system. That if you look at the load factor of the CCGTs, if you take a British or Texan, you’re in the 45 to 50% load factor. So CCGT can make a reasonable living. But in Spain, you’re down to 25%. So in fact, those CCGTs are really fighting for relevance. On the top of that, we don’t have cheap gas. We need to import expensive gas. So they are really doing the minimum and there is this permanent stress between the gas operators and the system so they want more money and can say, “Oh, no, no. We don’t have the budget to do that.” So that’s the difficult situation which means that somehow, maybe there is a temptation to organize mini-crisis so they can be paid to solve those crises. And whatever decrease that stress inside the gas or the balancing system in Spain is going to remain. Because frankly, you don’t make any money by having to import expensive LNG and running only 25% of the time. So that’s an economic reality.
Katherine Hamilton: Yeah. I just wanted to give a couple of examples of times when we’ve had either blackouts or potential blackouts and what the technology solutions have been in the US and North America generally. So in 2003, I was in the Adirondacks expecting my fourth baby and we had the Northeast blackout. Remember, it hit the US and Ontario. I just thought since I was in my cabin, it was like the usual which is we always get blackouts. But what it ended up being was a tree on a branch in Cleveland. It took them a year to figure out that that was the cause of it. This was in 2003, so it was a long time ago. And since then, of course, the US has invested in grid technologies like synchrophasers that are giving them more visibility to the grid.
You fast forward to 2017 when there was a solar eclipse, remember? And it was going to take out… It started in California. It was going to be worst in California. And I was actually sitting in the California ISO when they were preparing for it and trying to figure out, “How are we going to manage the system as all these solar panels go down?” And what happened was 750,000 Nest thermostats were able to pre-cool homes so that they could turn air conditioning off as solar came off of the grid and it managed 100 million solar panels and was able to take on over 5% of what was lost with solar. Just through Nest thermostats. So that was in 2017.
Fast forward to today where we have, as you know, all of the issues around bad weather, hurricane Uri, and in Texas, the system operator, ERCOT, has just put out a report that says, “Our blackout risk has reduced from 16% below 1%.” And why is that? It’s because we have almost 10 gigawatts of capacity, over half of it in solar and four gigawatts of batteries and they are saying this is going to reduce our risk of blackout. So it’s very interesting the way over time, and it’s been over decades, we’ve been able to come up with technology solutions. That eventually, the grid operators are realizing, “Ah, these are the tools that we can use.” I think a lot of that has to do with innovation and more systems thinking. But it’s hopeful for the grid, I would think in Europe as well.
Jigar Shah: Well, and this is what I was suggesting before around what it looks like to be a grown-up industry that wants to be viewed as infrastructure and not just a bespoke solution that gets integrated into something. When you look at the way that California runs, they generally hate virtual power plants and distributed energy resources. They have 3,000 megawatts of behind-the-meter batteries and they have an integrated… The system, right? That’s a choice that they make. They pine for the past. They don’t want to embrace the future.
By the way, the same thing is true in China, right? China curtails so much of its renewables because it has a software integration problem which is largely being solved by startups in the US and Europe. Now, those ISOs though need to embrace those software solutions. Like we’ve talked about Pearl Street for instance and how they can do an interconnection study in 24 hours that normally takes GE and Siemens engineers 22,000 hours to do. These are all technologies that we’ve invented. When you look at ERCOT and how accurate their wind forecasts are now, they can predict an hour before exactly what’s going to happen in the future, which matters because it takes that full hour to ramp up the natural gas engines.
And so, that technology all exists and it’s all been proven in different independent system operators. But every independent system operator takes its own sweet time to figure out when it wants to pay for those software solutions. And then, Laurent and his investment firm ends up being like, “Damn you. Why do we need to raise more money for this company when they could get more revenue? Why can’t we just get people to buy this software? Why can’t we get them to implement these solutions faster?”
So I would suggest to you that, again, this is a cultural problem, right? Which is that people are used to doing things at the way they’ve always done things and they are trying really hard to say, “How do you make your solution look exactly like what I’m familiar with?” And unfortunately, we can only do that most of the way. We can’t do that all of the way. And so, there are actual real changes that we have to make.
But the beauty is we have all these solutions, as Katherine has suggested. But the challenge is in every single market, and I mean every market, whether it’s the Northeast United States, California, Illinois, the Midwest independent system operator, PJM, the Iberian Peninsula, every one of them seems to have their blind spots. And that is the responsibility of the clean energy industry to fund organizations that actually fill those blind spots. You have to pay more money at the National Association of Regulatory Utility Commissioners’ conferences. You have to pay more money at all these gatherings to educate people and we have, what you call, been skimpy on those budgets.
Gerard Reid: What I’d add to you, Jigar, is I thought what you said is very interesting, which is a cultural problem. And we’re clear, if you were a grid operator, you are not paid to innovate. You have no incentive to innovate. What you’ve got is one incentive and one job and that’s to keep the grid up. That’s all. And as long as you do that, you’re happy. And you see what happens in the Spanish case. And even when they don’t keep the grid up, they blame someone else.
Jigar Shah: And the one thing I think we do need to keep in mind, which maybe I should have said earlier in this segment, is that the reports that we’ve gotten so far are preliminary reports, that are what you call political in nature in my opinion. I think when you think about what Katherine suggested for the 2003 blackout, that took a year to really figure out and this will also take a year to really figure out. And so, I just want to make sure that people understand that the actual scientific report that we are waiting on will take a lot longer. Probably in 2026 before we get that published.
Stephen Lacey: So we’ve walked through a bunch of different solutions. I want to wrap this part of the conversation up and go around the horn. If you were to make recommendations for any sort of regulatory change, technological change, let’s distill this down for our listeners. What are the big changes we need to see?
Gerard Reid: Maybe I’ll start with the sort of big picture, right? Because for me, the big picture is energy security and that is we cannot do without electricity. So we have to rethink. It’s not about renewables or anything like that. As I said, there is a whole pile of other stresses that are in the power system in the 21st century. We have to recognize those stresses and those risks and change how we manage the grid. Because for me, it starts with the management of the grid and the future management of the grid is all about data.
Laurent Segalen: Yeah. So Gerard is a big strategist. Me, I’m a very simple man. So I just say, battery, battery batteries, software, software, software. That’s it. And forget about the regulation, just do the thing.
Stephen Lacey: Katherine?
Katherine Hamilton: Yeah. I would say better planning. We need a lot better planning. We need all of the resources to know and to prove what can they provide, when they can provide it, be called upon, be penalized if they’re not there, and actually have that all built into a much more holistic planning scenario.
Jigar Shah: Yeah. I agree. I’d say that we actually have all the data that we need to meet the transmission system operator and distribution system operator’s requirements. But we don’t often send it and when we do send it, they don’t often read it. And so, figuring out exactly how to do that is the software piece that I think Laurent was talking about.
I think on the batteries piece, and to Katherine’s point on planning, I mean, there does just need to be a recognition that transmission will always be the bottleneck. It was clearly in the Iberian Peninsula case, right? Because of their interconnections to the rest of the grid being weak but it will always be the bottleneck. And so, when that is the case, the clean energy solutions and solar and wind have to be forced to use the transmission system more efficiently. That means the ratio of batteries to renewables on each individual circuit needs to be managed. They can either be co-located, they can be separated, but they actually have to be on the same circuit.
And the same thing’s true as on the demand side. You’re going to start putting way more batteries in to optimize the transmission grid from that side, right? The transmission grid itself can actually transport double, triple the amount of power that we currently transmit with that system. But the problem is is that when you think about exactly what the timing is of when everything gets used, you need a lot more batteries to manage the timing. And so, that’s why I think whether it’s distributed capacity procurement that folks are doing in the US or whether it’s virtual powerplants or DERs or whether it’s just utility scale batteries, that planning function is something that is being done in a haphazard way today.
Stephen Lacey: And I guess I’ll round this out by saying one thing that stood out for me in the Red Electrica report was that these conventional generators that tripped offline were supposed to provide voltage control. They were legally obligated to provide voltage control and they did not. So I don’t know if that’s a regulatory enforcement issue, if that’s a communications issue. But certainly, that is a big piece of what happened here. So what I take away from this conversation is they need to do a little bit or a lot of everything.
Laurent Segalen: Well said.
Europe’s energy security and the petrostate vs Electrostate framework
Stephen Lacey: Let’s move on to a much bigger story about European energy security. So back in April, we had a conversation about a report from the investment firm, Carlyle, called The New Joule Order which argued that global investment flows in clean energy would be more influenced by security and localization of supply than decarbonization. And we asked, “Are we leaving the net-zero era into the energy security era?” And one of the precipitating factors of all this was America’s changing role in the global stage. As the US leans into its role as a dominant petrostate and pulls back on its post-World War II security commitments to protect supply routes, countries are re-evaluating their energy security and creating what Carlyle’s Jeff Currie says as peak trade of fossil fuels.
So a sequel to that report is out, it’s focused squarely on Europe. It looks at Europe’s defense imperative as America pulls away and the plan argues that Europe needs to spend 9 trillion euros over the next decade to build a very different economy. One with electrons and local supply chains at the center largely for security reasons. And this pairs really nicely with another analysis from two Columbia University scholars arguing that we’re in the middle of this split between two fundamentally different economic models, the petrostate versus the electrostate.
In petro states like America, Saudi Arabia, Russia, control energy through scarcity, through dominance of choke points, power through barrels and pipelines. And electrostates, particularly China and Europe, build abundance through manufacturing, advantages through technology, and generate value through innovation rather than extraction. It’s a very simplified way of looking at things but I think that’s how you sort of define the difference between petrostates and electrostates.
So America is now really leaning into, as I said, the petrostate strategy. And the question is, can Europe join China as a leading electrostate and increase both its security and competitiveness. And as it does, what can we learn from Europe’s malinvestment in renewables that was clearly pioneering but also very, very costly? So firstly, Laurent, do you agree with the assertion that security is becoming a more powerful force for Europe’s energy transition than decarbonization? How is that unfolding?
Laurent Segalen: Yeah. Everything changed so nothing changes. It’s still ESG. ESG, except now, and I quote Liam Denning from Bloomberg, ESG means economic security and geopolitics. So that’s the new ESG. The second is the Jeff Currie report was delivered in-person by Vice President JD Vance at the Munich Conference. And Gerard, were you in Munich? I mean, the message was kind of loud and clear.
Gerard Reid: Well, the message was loud and clear which is the future is fossil fuels, right? That’s what we got from the US. And I think what I would say is Europe’s in a sort of difficult situation because at the end of the day, we outsourced our energy future to Russia. That hasn’t worked out. And now, we’re very dependent on the United States but we’re also dependent on Saudi Arabia, et cetera, et cetera. And with the geopolitical situation in the present, you sort of say, “Oh, what can we do?” Well, there’s only one thing we can do and that’s move towards energy independence and the only way you can do that is to electrify.
Now, that’s the big picture, Stephen. So I think we’re all clear, that’s what we have to do. It’s not clear whether Europe is going to do that or not. That’s what I just want to say to you. It is clear that China’s going that route and we do need to go that route but geopolitics are difficult. And what I mean by that is the geopolitical situation is that Europe’s very, very tied into the United States and to break away from the United States means also breaking away from fossil fuels. Is that really going to happen? I’m not 100% sure. I hope it does.
And what I would add though is that the way forward is definitely… We have examples of the way forward in Europe and it’s called the Nordic countries. Because if you’re Norway, Denmark, Sweden, these countries have electrified their economies already, right? France to a certain extent as well but… Particularly, the case of Sweden. Sweden was totally unimpacted by what happened with the Russians cutting off the gas to Europe. The reason was because they don’t use gas. They use minimum amounts of it.
So it’s very clear that is the way going forward. But I would say, the bottleneck in all of this is Germany because Germany’s strategy was always to integrate close to the Russians. And industry has been really badly impacted by the fact that they’re now taking expensive LNG in and I’ve got your German economics minister who wants to go and build more and more gas power stations, which sort of doesn’t break the addiction. So as I said, definitely, we know the path forward and we hope that Europe goes down this road but it’s not clear where we’re going to go down there. Now, Laurent might have a different opinion on this but I certainly don’t think it’s clear.
Laurent Segalen: Yeah. Look, it’s a change of paradigm. If you look 20 years ago, the energy situation in the US and Europe was absolutely the same. We were literally importing molecules. And if you look at the price of power in the US 20 years ago, it was above Europe. When people say, “Oh, the price is crazy now in Europe.” No, if you just take the price of power 20 years ago, you add inflation, this is the price you get now. So the price has kind of followed inflation.
But in the US… I mean, ERCOT was above $60 20 years ago. If you add inflation, that’s $100. Now, the price is below 30. So in fact, in the US, the price of power has gone down to factor three. The reality is, and it’s all because of fracking in the Permian and everything, there’s been an energy divergence. And of course, the politics follow and the politics is the reality is now our interests are not aligned anymore because you enjoy energy dominance and we are left holding the bucket like morons. And yeah, of course, we’re going to do something about it. Now, the alliance with China, yeah, we take a lot of Chinese batteries, Chinese solar panels. There’s no tariff, no problem. Look, at some point, you need to bring answers. They are not pretty but that’s what it is.
Stephen Lacey: Certainly, historically, Europe, more than in the US, has been motivated in its energy transition for environmental reasons. And I’m wondering how you think security plays into Europe’s motivations now compared to environmentalism and climate action. So are we seeing security, urgency, and ownership of supply chains becoming the dominant force like this report suggests?
Laurent Segalen: Oh, yeah. I mean, security after the invasion of Ukraine by Russia, yeah, of course. It changed everything all of a sudden. It changed everything. And then, you add AI and all those type of things. I mean, the 2020s are harder, they are more digital, they are more disruptive. And people who stick on their 2010s, software view of the world with Kumbaya, let’s go to cup, let’s decarbonize, let’s all be friends, this area is done. It’s gone. The old ESG thing which was basically you build a portfolio of shares or you go long tech, short oil, and then you say, “Oh, look, ESG is so profitable.” That was not true. So we had a bit of a series of shock and, yeah, we’re adapting to those shocks.
Jigar Shah: I think the part of the story that people miss is that the United States coming out of World War II really had extraordinary amounts of manufacturing capacity. And we were able to use a lot of that manufacturing capacity to make planes and tanks and all sorts of other stuff. And then, when peacetime came, we turned it into an engine for the world. The reason our defense was so strong though was it was less than 5% of the supply chain. So most of it was used to make civilian equipment and 5% of it was used to make defense equipment. Today, our defense supply chains are used only for defense and they are horribly mismanaged. Today, I’m not even sure we could make a carrier if we wanted to. That is how bad our ports are in our shipbuilding capacities.
And so, one of the things that Europe has to figure out how to do is to avoid some of the problems that the United States is in today. So it needs to make sure that when it increases its budgets to 5% of GDP to defense, which many European countries have done, that it is based upon civilian supply chains. Not based on defense supply chains because defense supply chains are horribly corrupt and horribly inefficient. And so, it’s just one of those things that you just cannot build a modern society on pure defense supply chains and the US is falling off a cliff because we’ve ended up there. That takes real planning and that’s the part that scares me the most, is that when you look at what Japan has done around its industrial strategy, it has done things through these keiretsu’s, right? In Korea, it’s through the chaebols and these are major industrial powerhouses that play both roles.
So you start to see conversations around VW taking some of their factories and turning them into defense facilities. That makes tons of sense. They know how to manufacture stuff at scale at very low cost. But if VW starts getting 80% of its revenues from defense, you will see VW become sclerotic which is what’s happened to many of the supply chains in the United States. And so, I just think that people have to be careful. We have this extraordinary opportunity in front of us to use technology that has largely been invented in the west and scale them up in these places.
The other thing I would say is the European experiment which is this sort of EU hybrid, but each country sort of runs itself, has sort of led to the fact that you don’t have this transfer capacity, for instance, between countries on the transmission grid. It has led to a lot of these other challenges. But one of the other opportunities that it presents is there are many low cost areas of Europe. So whether it’s Hungary or Serbia or some of these other places, you can manufacture stuff really dirt cheap there even today.
So the question becomes, how do you get the political consensus across all of these countries to actually manufacture things in places of low cost in Europe? Because right now, Europe really still operates as if France needs to manufacture its own stuff, and Germany needs to manufacture its own stuff, and other people need to have their own sort of companies that are dominant in their countries. And that’s not really the lowest cost approach.
That’s one of the benefits of the United States is that you don’t need a passport to cross state lines. You have this ability to just do stuff in Georgia or do stuff in Florida or do stuff in Wyoming. And so, I think one of the big challenges with the EU experiment in this moment is that they are going to need to figure out whether this moment is the time where they tighten up the coordination across all of the countries or they still operate as a confederation of independent countries.
Stephen Lacey: Gerard, Laurent, what are Europe’s advantages or disadvantages in scaling up manufacturing, specifically in energy and clean energy? What do you make of that?
Gerard Reid: Well, let’s maybe talk about the difficulties that we have and then we can talk about the advantages. So the difficulties that we have are really geopolitical which is remember, we outsourced our energy to Russia? We’ve outsourced our tech to the US and we’ve now exported our industrial technology base to China. And we’re stuck in the middle between these three nations or these three countries that… We have precarious relationships with each of them. And that’s the real big challenge for us going forward is how do we manage the relationships between these three countries going forward?
I don’t know what the answer to that is but it’s the critical challenge because we don’t have the technology. We rely on Microsoft, Google, et cetera, et cetera. If you want to talk about electric vehicles, for example… Sorry. The best electric vehicles in the world are Chinese. They’re BYD. Without a doubt, right? That’s a challenge for the automobile industry in Europe, right? So that’s the challenging environment we have.
Now, let me talk about the advantages. What we have is in certain industries, we are still world leaders. So if you take the case of wind, right? Vestas is still the biggest wind turbine manufacturer in the world. We’ve got incredible grid companies across Europe, whether it’s a Siemens or an ABB or if you want to build power cables or something like this, again, Prysmian, all these sorts. So we’ve got great advantages there. And I think the other area that we’ve got great strength is the whole area of power. It’s controls and actually power controls, whether they be semiconductors or whether they be software. That’s the strength that Europe has.
And so, we have to build on that but that requires us to change our attitude a little bit to realize that, “Listen, we’re not necessarily going to be the biggest in the world at something and maybe we need to partner up with China. Maybe we need to partner up with the US. Do you understand?” So there’s a thinking change that’s also needed in Europe. But we definitely still have industries in the energy space where we’re leading and that’s the advantage we still have.
Laurent Segalen: We were absolutely amazed when the IRA came out and this is really rich people, luxury, and analyzing the IRA, probably from a European point of view, 40% made absolutely no sense because you are so… How do you call that? Profligate which unfortunately we can’t do. And now, you’re back to reality and they’re going to take all the subsidies and that’s it. We’re a mature industry. Okay. So rip the bandaid and do it in one go and go with it and the price of power is going to go up in the US. It’s a very tough moment. But look, I count on your animal spirit and you’ll get through it.
So yeah, a lot of things got to be done by reaction. I’ll take an example, rare earths. Everybody’s complaining about the rare earth. Well, in France, there’s a plant who used to do half of the rare earths processing in the world 20 years ago. It closed because of China but the plant’s still there. You can switch it back on. Boats, yeah, we do a lot of cruise ships. Okay. Are we going to do some submarines tomorrow? Yeah. Maybe. It’s there. And the advantage we have compared to the US is we are much compact. Everything is two hours flight from where we are and people speak different language but they think the same way. And when we see Russia, we see your administration, we see China, I can tell you, people understand very fast what their interest is. So yeah, we’ll muddle through that. Not brilliantly but we’ll get through it.
Stephen Lacey: Katherine, we’ve talked in multiple episodes and in our most recent episode with Kim Zou about how a lot of investors from around the world and in the US are looking to Europe. How do you think Europe might benefit from America’s current retrenchment in clean energy?
Katherine Hamilton: Well, I don’t think anybody in the globe benefits from retrenchment from clean energy. But I would say that the US spends 13% of our federal budget on the military. And that sounds terrifying, except that the military is also the source of a lot of innovation that has big impacts on civilians and not just from a military standpoint. So for example, DARPA, the Defense Advanced Research Projects Agency, of course, famously help inspired ARPA-E which is at the Department of Energy. And that’s kind of like startup technologies because the Department of Defense can take a little more risk. They can say, “We’re willing to try this experiment if it’s going to help us somehow deploy what we need to deploy. And if it has other benefits, that’s great.” We also, of course, have a system where the private sector is very, very involved. So it’s not like state-owned technologies, state-owned resources.
But the other big piece is the Defense Production Act. And so, this is a fund that can go to… Well, does go to private sector companies based on national defense, emergency response, essential goals and services that are declared by any president as being a crisis. And it doesn’t have to be a wartime crisis, it could be any crisis. So for example, during the Biden administration, he said, “We have a climate crisis so what are we going to fund through the Department of Defense?” So they funded critical minerals, heat pumps, electronics components. They are still funding like workforce, mining, geological, environmental engineering, metallurgical, all this workforce that we need because we need so many critical minerals right now, no matter what we do. Fabrics they’ve done, aluminum. Battery materials has been a big thing.
President Trump now has said, “Our emergency is for energy supply and infrastructure.” Well, that could mean transmission. It doesn’t necessarily have to mean coal plants. I think he would like for it to mean coal plants. But supply chains, et cetera. So we can put our Department of Defense to work on things that are considered important from a national security standpoint that are also from an energy security standpoint and work our innovation through that.
So we see… My company sees the… The folks that we work with, that are really always interested in non-dilutive funding and programs through the federal government, they see them drying up on the civilian side in a lot of ways. But then on the defense side, they see those growing. And I think that’s something to keep in mind is our Department of Defense does a lot more on innovation than we necessarily think about when we think about security.
Jigar Shah: The one thing I would say that the Carlyle piece focuses on is supply chains and I feel like that is something that Europeans never care about. And it’s something that they are going to have to care a lot about. I’ll give you an example. The Europeans love getting solar panels for 9 cents a watt right now from China. There are so many solar panel manufacturers that can manufacture in Turkey, in Jordan, in Ethiopia, in India at 13 cents a watt instead of 9 cents a watt.
And that is more expensive, I get it. But they should want the diversification of the supply chain for a technology that they depend on to decarbonize their grid. And I think that they will need to be very vigilant around not getting addicted to China. It is not good for them to have 80% of their supply chain coming from one country. It is important for them to strategically invest in other regions in the world, especially where USAID has taken a step back out of the United States. And the Europeans can play this critical role in being the offtake agreement for other countries building up their manufacturing base in their countries. And the Europeans have all of the expertise that they can share with those countries and help them to industrialize their countries.
But I think we’re in this weird spot where the US has always been focused on this and I think even the Trump administration is focused on this, but it’s not clear to me that the Europeans are focused on this. And that, I think, is what scares me the most around what the Carlyle Group has talked about is if the Europeans decide to just say, “You know what? China’s so good at scaling this stuff up. Let’s just do that and we’ll do the finished products over here in Hungary or some other place.” That would be a huge mistake on their part.
Gerard Reid: So I’m going to say it’s game over in solar. So I’m not even going to try and compete with the Chinese in solar. It makes zero sense. They’re technology leaders, they have the scale, complete waste of capital. However, there’s one area which is not and that is batteries. Because batteries is critical not just for our power system, but to the future of the automobile industry which is critical for Europe. But there’s an issue there as well which is China is leading in the technology as well.
The biggest battery manufacturers and technology leaders are all in China. So how do you compete? I actually think you cannot compete by trying to go in alone. We’ve tried this in Europe. We have Northvolt, complete another disaster. 10 billion put into it and nothing out of it. So we have no choice but to compete with the Chinese. You probably go, “Okay. If we’re going to do that, then we really need to cooperate intensely with the South Koreans or the Japanese.” That’s one possibility. Or, the second possibility is you say, “Fuck that. We’re going to go and compete… We’re going to actually cooperate with the Chinese in a different way,” where what we did with them 30 years ago where we went and did joint ventures with them, you do the exact same thing here. So my view would be very, very different. You have to… If you’re going to try and beat the Chinese, you have to beat them at their game and that means cooperate with them firstly. And then, learn from them and then see if you can leapfrog them.
Stephen Lacey: I want to wrap up with this petrostate versus electrostate framing once again and revisit this. Laurent, you flagged this piece for us on this dynamic and the split between electrostates and petrostates. Do you think this is a helpful framework for looking at the world and do you think Europe will emerge as a powerful electrostate?
Laurent Segalen: So first of all, let’s give credit to who coined the term electrostate, that’s our friend, Kingsmill Bond. I think it’s a very valid framework to have a different view. And sometime, you need those meta systems. And I remember the first time I read The Prize by Yergin when he was the great Yergin. Now today, I’m not that sure. Probably he’s past due date. But when I read The Prize, it’s the first time I understood that oil defined the 20th century. So that framework is very useful.
Now, you can come and say, “Oh, what about Canada? What about Brazil? What about Norway?”, which are post exporting fossil fuels and are big on hydro and you’ll be absolutely right. But generally speaking, it’s a very interesting framework. Now, Europe, we’ll tag along. I disagree with Jigar and I’ll give you three examples. Gerard and I, we have invested in a company who was installing solar rooftop in Germany. Yeah. We bought all our panels from Jinko or JS Solar but that was only 2,000 euro per roof. The rest of the value, let’s say 20,000 euro, was all European value. It was our vans. It was our systems. It was our inverters. It was our workers, the job we created.
Right now, I’m investing in batteries. I use CATL, LFP cells but just the cells. The rest, all the battery is made in Europe. And by the way, the Chinese can’t snoop in. There’s no kill switch because there is a cybersecurity law in Europe. So all the software are done in Europe. So whenever I buy a system of battery, let’s say $300,000 a piece, the value of Chinese equipment is less than 10%. So I create 90% value.
And my third example, and that’s something… Somebody we want to salute here is Greg Jackson. So Greg Jackson has created an empire in less than 10 years. Octopus Energy based on digital is now the biggest retail in the UK, starting from zero, and is the first person who has done a bundle retail power and vehicle to grid. But he has done it with BYD. And so, it’s a full package. Your car, power zero, and then when people charge at home, he has access to the BYD batteries and he does demand response with all those batteries. So these are three examples where we leverage on the part of the supply chain where Chinese are really good and we build value locally around it. Okay. So these are three examples. So I don’t make big theories. That’s what I do.
Stephen Lacey: Well, let’s wrap up and get each of your quick takes on the role of Europe as a counterbalance to the United States. So we are seeing more investor interest in Europe. Europe is starting to talk about taking supply chains more seriously. The US’s role in the energy transition is shifting and we are increasingly focused on fossil fuels. So will Europe emerge as a strong counterbalance to the US in the clean energy transition? Gerard, do you want to start?
Gerard Reid: Without a doubt, because we have no choice. In the United States, you have a choice and the choice is you’ve got lots of fossil fuels already so you can actually just stay with them. We have a geopolitical imperative, simple as that. And we also have businesses in this area where we have a competitive advantage. And if I do look at the United States in the energy space, there’s only a handful of businesses that I can think of that are actually international leaders in the space. If I look at Europe, I got a whole pile of leaders and I’d also go and actually look at our utilities as well. Because again, I don’t see… There’s not one US utility in Europe. There’s a whole pile of European utilities in there. So we’ve got a lot of competitive advantage in the space and we have to change, simple as that. So I’d be very positive about our future because the imperative is there.
Jigar Shah: I think the Europeans have a golden opportunity today. As Katherine suggested, I think we’ve spent the better part of 15 years spending a ton of money on innovation and all of that money has resulted in 1,600 companies that Kim Zuo and others are tracking out of London. And so, we actually know exactly which companies they are and which ones need saving and how to save them and all that stuff. But one of the big challenges of Europe is that a lot of these programs have been led by government regulation, feed-in tariffs, top-down sort of approaches. I think that for Europe to succeed in this moment, they’re going to need a lot more large corporates to step up and actually say that they want these things to be in Europe. And so, we’ll see whether they do that. But right now, we are in a critical moment where it can’t be the governments that lead. It has to be the private sector that leads.
Katherine Hamilton: Yeah. I’m not really willing to cede clean energy to fossil fuels in the United States. I’m still pretty bullish on clean energy. We’ve already started a lot of manufacturing here. We have deployed MAD and my biggest concern is that we are isolating ourselves such that the Europeans do not want to invest anymore here. And we are looking to what happens in Europe. I do think it’s an opportunity for Europe. I just would hate to cede everything in the US that we’ve tried to get done. So I’m going to keep fighting to make sure that we stay on the clean energy train and that we continue to try to do business with Europe as we can.
Laurent Segalen: So yeah, I started by a song, I’m going to close by a song. “Kathy,” I said, as we boarded a Greyhound in Pittsburgh. Michigan seems like a dream to me now. It took me four days to hitch-hike from Saginaw and I’ve come to look for America. I mean, for European, America, these are our cousins, our brethrens. And seeing America at the UN Security Council voting with Iran and North Korea and Russia against us, where have you gone?
Stephen Lacey: Many of us ask that question every day.
Laurent Segalen: Russia is our enemy. If you can finish Iran in 10 days, we can finish Russia in 20. And I can tell you, the world will be so much peaceful. You can decrease every defense budget by 50%. So yeah, I don’t want to cede from America. North Atlantic, this is our Mare Nostrum, this is who we are and I hope you’ll come back to senses. And of course, we need to take more responsibility and not rely on other people, but we are in it together. We only represent 25% of the world population at best but we have the best universities, the best research center. We are bound to do that together. So that’s my final words.
Katherine Hamilton: Amen, brother.
Stephen Lacey: Yes. I think the three of us feel that very deeply and a lot of Americans do as well and that’s part of the reason we wanted to have this conversation. Thanks to both of you. This was a lot of fun. Thanks for your podcasts and also keeping us informed. And Gerard Reid and Laurent Segalen are the co-hosts of Redefining Energy. You can find their show the same way you find this one, anywhere you download podcasts or you can click the link in the show notes and you can get to their page. Gerard, really good to talk to you.
Gerard Reid: Likewise.
Stephen Lacey: Laurent, a pleasure.
Laurent Segalen: Thank you, guys. We love you.
Katherine Hamilton: Thank you all. This has been so much fun.
Jigar Shah: In it to win it.
Stephen Lacey: Open Circuit is produced by Latitude Media. Jigar Shah, Katherine Hamilton are my co-hosts. The show is edited by me. Sean Marquand is our technical director and he wrote our theme song. Anne Bailey is our senior podcast editor. You can find all of our show notes at Latitude Media and we have transcripts as well if you want to reference those. And of course, you can find this show anywhere you get your podcast. Thank you so much for being here. Thanks to Gerard and Laurent. We will catch you next week.