The Grid And Complex-Adaptive Systems | The Acquirer's Multiple®

During their recent episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discussed The Grid And Complex-Adaptive Systems. Here’s an excerpt from the episode:

Tobias Carlisle:
JT, do you want to do insights from running the power grid?

Jake Taylor:
Yeah.

Tobias Carlisle:
Do you want to tell everybody what you used to do before you were an investor? Or at the same time you transitioned?

Jake Taylor:
Eat our vegetables. For 12 years before, a lot of people don’t know, I ran the power grid for the State of California. There’s a lot of interesting overlap there.

Bill Brewster:
Wait, there’s a question that’s a necessary follow up. I ran the power grid for the State of California. Can you break that into what that means?

Tobias Carlisle:
Also, was that during the Enron messing with the power grid time?

Jake Taylor:
I came in just a little bit after Enron, but most of the people that I worked with had been pretty heavily involved with that. I literally sat in a room with eight other people that looks like Mission Control, screens everywhere, numbers, charts and maps and stuff that was operating the power grid for California. That’s what I did.

Bill Brewster:
That’s pretty sweet.

Tobias Carlisle:
What does that involve you bringing on different power stations, turning them off?

Jake Taylor:
Right. It’s combining the economics with the engineering. Trying to operate it with the least cost, bringing on different supplies, so generators in different areas, because if you have… The electricity has to travel to wherever the demand is. If it’s too much over one particular line, you could melt that line down. You have to bring on power that can counterbalance if a line is getting overloaded, those kind of things. It’s pretty technical, a lot of-

Bill Brewster:
I’m going to ask a follow up here about our favorite company in the world. How does a smart grid that collects sun and then sells it like this Tesla vision of the world, how does that complicate the grid or make it easier, any of that stuff? I don’t even know the question to ask.

Jake Taylor:
Yeah, how does solar fit into the future of electricity?

Bill Brewster:
Homes being able to shift that onto the grid, what does that do to somebody like you or your old position when you’re watching? How does that get smart for lack of a better term?

Jake Taylor:
It’s difficult because the sun is often not when you really want the electricity. They have now-

Tobias Carlisle:
Sun’s out in the daytime, correct?

Jake Taylor:
Yeah, but most places, yes. What happens then is that a lot of times… And they’ve actually seen this now where there’s a lot of negative prices in late morning, because the demand is not up enough to meet all of the supply.

Tobias Carlisle:
If you had a good enough battery, you can get paid to store… Not unlike the oil, that you can get paid to store.

Jake Taylor:
Yes.

Tobias Carlisle:
Is there any-

Jake Taylor:
That’s the real limit there right now is why… One of the problems with solar is that one, it can go away with a cloud quickly. It’s much more intermittent than say, a big nuclear plant that is just chugging along and it has a very steady output. The other problem is that it doesn’t ramp particularly well. Let’s say that you want to have a… Let’s say a bunch of people want to turn their lights on all at the same time. Well, how do you get all of the machinery to ramp up at the same rate? Because electricity is consumed and produced instantaneously. Supply and demand have to balance 24/7, 365 every 1/60th of a second, which is called a cycle.

Jake Taylor:
It takes quite a bit of coordination to make sure that you have all of these machines on. The solar plants typically, they’re not great at moving up and down to meet when someone wants to turn a light switch on or off.

Tobias Carlisle:
Being able to shift it by storing it as a battery really is a good solution but it’s an interesting difference. We’re trying to move… Internet is being moved from a home or your storage on the cloud is going to be no longer in your business, it’s going to be with AWS or someone else or Google or whoever. But then-

Bill Brewster:
In Iowa where the electricity is sold to you by Buffett, holla!

Tobias Carlisle:
But then it’s possible too that the reverse happens with energy that you start storing it locally, if there’s a battery good enough. Is that technology existent? Is that what Musk is trying to build, or has built?

Jake Taylor:
That’s what a lot of people are building, not just Tesla, but that is what is… If they could get the price of batteries down, then it is a game changer for being able to smooth out the curve of how much you demand from outside of your own little unit of your house, and your solar panel.

Bill Brewster:
You can reduce the amount of base need almost. Because if you can store your battery, then you’re wasting less sun, if that makes… Am I thinking about this correctly.

Jake Taylor:
No, it’s more that you’re shifting the electrons to when you need them. They’re collected at a continuous rate over when the sun is out, but your usage is not on any kind of a continuous rate. You need some kind of smoothing there, and the battery provides that.

Bill Brewster:
That makes sense.

Tobias Carlisle:
To move to your initial point, what’s the connection to investing?

Jake Taylor:
A couple of things. The first one is that when you have a blackout, when you shut down an electrical system, it happens instantaneously, and it takes multiple days typically to get it back up and running. What you have to do is you have to bring on a little generator, bring on a little bit of load, and you’re doing this constant balancing act. While you’re doing it, the voltage and the frequency are swinging around wildly because you’re adding load, you’re bumping up it, you’re adding little pieces and you’re building these little islands, and then you reconnect them as you’re going and eventually you get the whole system back up and running together on the same frequency.

Jake Taylor:
Well, eventually, I think what we’re running into that might be a problem right now if we continue to be shut down like we are, it may take a lot longer than people are expecting to get our economic power system back up and running. The same problem of having little islands and being able to reconnect them, it’s not obvious to me. There are some power plants that take more than a week actually to get online and running because they have to warm up things and they have to stay out a certain temperature zones because it’s bad for the metal.

Jake Taylor:
It’s not obvious that you can just snap your fingers and rebuild a power grid. I think the same complex system that has emergent behavior that is the economy mirrors that same problem. That’s number one takeaway.

Tobias Carlisle:
That’s interesting. Just to destroy the analogy a little, is the power actually… What’s the load like through a period like this? Are we using more or less?

Bill Brewster:
I think I’m using a lot less.

Jake Taylor:
I think we’re using a lot less right now.

Tobias Carlisle:
The only reason I ask is the power consumption seems to go up when people go home, or is that just because they’re turning on lights?

Bill Brewster:
You’re not using any of the office buildings, you’re not using any of the public transportation. Aggregate energy usage is definitely down. I would imagine power’s down.

Tobias Carlisle:
Makes more sense. Just wondering.

Jake Taylor:
Takeaway number two and this is a little bit more abstract, but as you add load on to the system. Let’s say you turn on your hairdryer, you notice that the lights will dim a little bit in your house That is because load added will lower the voltage a little bit. What you need then is a generator that’s nearby to ramp up its output a little bit to then boost the voltage in your house so that your back up to the normal voltage and now your light bulbs, they look the same as they did before.

Jake Taylor:
Well, I’m not going to get into some of the technicalities of the difference between a megawatt and a volt ampere reactive, but there’s actually two kinds of power. You guys might not know about that.

Tobias Carlisle:
I didn’t know that.

Bill Brewster:
I have no idea what he just said.

Tobias Carlisle:
I thought there was AC and DC. That’s all-

Jake Taylor:
There is AC and DC but there’s-

Bill Brewster:
[crosstalk 00:20:54]

Jake Taylor:
Exactly. There is a little magic trick that you can play in this whole system, if you don’t have a generator that’s nearby to prop up your voltage. It’s you add a series capacitor. If you add a capacitor to an AC system, it will actually boost the voltage up.

Jake Taylor:
Now, capacitors are much cheaper to build than say a generator because they don’t require any kind of prime mover, there’s no fuel source for it. With a generator, I have to have some sort of external energy to capture to then turn into electricity. A series capacitor doesn’t require that. As you can imagine, we spent a lot of time and money adding series capacitors to the system over the years, in place of maybe generation a lot of times because it’s cheaper. But what you’re doing there is you’re just artificially propping up the voltage.

Jake Taylor:
What happens is they have this thing called a knee curve and it’s basically as you prop up the voltage, you get closer and closer to an edge where if you add load, you can fall right off of it and you will instantaneously crash the entire system. There’s no slowly ramping down. We’re talking like 1/60th of a second, you could black out if you’re right on the edge of that load curve.

Jake Taylor:
Well, in my mind, a lot of our money printing is really a series capacitors for the system. We’re just propping up the voltage in a way, we’re not actually creating any real generators that will provide the real power. That’s something maybe that I thought people might find interesting.

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