Full Interview with John Ketchum — POLITICO Energy Summit

[00:00:00] Matt Daley: Hello, everyone. I'm Matt Daley. I'm Politico's energy editor, and I'm delighted to welcome to the stage NextEra Energy's Chairman, President and CEO, John Ketchum. After a decade and a half of flat power consumption, U.S. electricity demand is set to surge in coming years. The rise of electric vehicles, growing demand for cooling as temperatures climb, the movement towards electrification, and most recently the advent of artificial intelligence, and the data centers that are going to be needed to run that, are all contributing to this surge. That's the challenge facing companies like NextEra Energy, which calls itself an all forms energy company. It owns and operates America's largest natural gas fleet. It's the world's number one generator of electricity from wind and sun, and a world leader in battery storage. It's also one of the largest nuclear operators in the U.S., and it's planning to invest $120 billion in American energy infrastructure over the next four years. That's quite a sum. So, thank you very much for being here today, John. [00:01:03] John Ketchum: John Ketchum: Matt, great to be here. Thank you so much for having me. [00:01:06] Matt Daley: Well, let's get right to it. Let's start out with the state of play in the power sector. President Donald Trump has declared a national energy emergency. That's not really based on where we are today, they say, but it's based on where we're going to be very soon. What we see, what do we see in the demand growth coming, in the coming years? Are we really on the precipice of an energy emergency? [00:01:29] John Ketchum: We are. I mean, I really see an energy, the potential for an energy shortage if we don't get our energy policy right, and I'm sure we'll talk more about that. What we're projecting over the next 20 years is a six-fold increase in the growth rate for power, and data centers get a lot of attention, but that's only really about a third of the demand. We're going to see the other two-thirds in, you know, around industry and economic expansion as we push our "America First" agenda here in the United States, oil and gas refiners, chemical companies, semiconductor chip manufacturing, and just consumption in the home as we advance our AI agenda. [00:02:16] Matt Daley: Well, that would seem to raise some real questions then about why the administration and Republicans in Congress are trying to sunset some incentives that were in the Inflation Reduction Act for wind and power, especially here. Those have been at the forefront of U.S. power generation growth in recent years, and renewables are expected to supply 25% of American [00:02:36] John Ketchum: electricity this year. What's your take on that? Yeah, I mean, Matt, you opened up talking about who NextEra is. We're unique. I mean, we're in every part of the energy value chain. Nobody's built more gas-fired generation in the last 20 years in NextEra. Again, the leader in wind, solar battery storage, a leading, you know, operator of nuclear as well. But there's practical realities around how we meet all this demand from a time and a cost standpoint. There's only three ways to generate electricity. You can generate it from renewables, you can generate it from gas-fired generation, or you can generate it from nuclear. Let's save renewables for last. One of the issues that we're having with gas-fired generation is we remember what things look like and what the environment looked like a few years ago where it was easy to get gas-fired generation up online and producing electricity. That's not the same today. Why is that? If we want to build a new gas-fired generation facility, and again, nobody's built more than 20 years, we know what we're talking about, we can't get it online until 2032. You might ask, well, why? First, you have to get in a long line to get a gas turbine. There's a lot of global demand for gas turbines today, not just in the United States for all the economic expansion opportunities that we have here. But Saudi Arabia just placed a very large order. You have a lot of demand out of Asia, a lot of demand out of Western Europe as well, tied to liquefied natural gas. And so the cost and the time to get your hands on a gas turbine has increased exponentially. It's just supply and demand. So the price of a gas turbine has gone up threefold just in the last 24 months. And then we have a big labor issue as well. I was talking to a CEO of a major EPC contractor about a month ago. And get this, it takes about 1,000 people to build a gas-fired generation facility. He has to hire 6,000 people just to get to 1,000 because the washout rate's so high. Why? Because he loses half of his workforce to data center build out, semiconductor chip manufacturing, industrial expansion, LNG terminals, chemical companies, you name it. The other third, because we haven't built gas-fired generation in the last decade, doesn't have the skill set and the muscle memory of how to do it. And so all those things add to cost. And the other piece is, you know, we just heard about aluminum. But with aluminum and steel tariffs up, you know, potentially 50% against China, that's creating a lot of uncertainty too on how to price if you're an EPC contractor or a gas-fired generation facility. Bottom line is, with all those things together, it's taking six to seven years to get gas-fired generation online, which means we're looking really at around 2032 for that to contribute. Nuclear is much further off. So small modular reactors, we have a development team just focused on advanced nuclear reactors. But the issue that we're seeing around the OEMs is that we're really not going to get to even first-of-a-kind generation around nuclear until about 2035 and then nth-of-a-kind later next decade. And the cost is really, really high. I mean, you're looking at anywhere from eight to 11,000 a KW to build a nuclear facility today. [00:06:19] Matt Daley: Well, that sounds to me like we're going to miss the AI boat here. Yeah. We're talking about a competitive advantage with China, and we're talking about building power generation now to meet this demand if gas isn't going to be around until 2032. And you've got you've got a project with GE Renova that puts you ahead of a lot of your competitors there. [00:06:36] John Ketchum: And Matt, that's the exact point is that our job at NextEra is to get electrons on the grid. I don't care what flavor they are. I don't care if it's renewables, gas, or nuclear. I have to get electrons on the grid to accommodate all the demand that we see in this country and do it at a reasonable cost. Well, if I can't get gas on until 2032 and nuclear on much later, I'm only left with one option, given there's only three ways to produce electricity in this country, and that's renewables. So we need a bridge to get ourselves to 2032 when that gas shows up. And when that gas shows up, it's going to be three times more expensive than it's ever been. So we're going to have really high cost energy when it does show up. But putting that aside, we need a bridge to at least get there. And if we take renewables off the table, we are going to have a real power shortage problem in this country. I fear perhaps leaving them blackouts during scarcity intervals. We'll create our own reliability problem just by not having enough electrons to be able to satisfy all the demand that we see. And we'll lose the AI race. We'll lose it. And even if we keep the lights on, [00:07:51] Matt Daley: are we going to price ourselves out of the AI data race? I mean, if I'm a data center -- [00:07:58] John Ketchum: and that's another concern, right? Because renewables -- not only does it take 12 months to build wind or 18 months to build solar, we can get it online quickly because those supply chains are in existence today and can respond quickly. We can get those electrons online by 2032 at a low cost until the gas shows up in 2032, albeit at a higher cost than the nuclear much later. Renewables play an essential role. We're projecting 450 gigawatts of demand between now and 2030. Only 75 gigawatts of that 450 pedal to the metal can be satisfied by gas. That leaves 375 gigawatts that have to be satisfied by something. If it's not renewables, what is it going to be? We're going to be short power in this country. We cannot afford to do that. If we do that, we will lose the AI race, and we will bring this economic expansion in the United States to a screeching halt. That's a big risk, but I see a couple other ones [00:09:09] Matt Daley: that we haven't even touched on yet that we could spend a lot of time talking about. So you're going deep into gas, and you're already there, of course. We're looking at forecasts, as my colleague Ben LaFave just said, forecasts that the rising LNG exports are starting to take the top off our shale revolution here in a way. Shale fields have done well for 20 years, and they've really powered this gas renaissance, but those prices and that output may be peaking here now. Are we at risk of seeing some changes in the gas [00:09:40] John Ketchum: price to the upside? I think so, and here's why. We're an upstream oil and gas as well. We drill for oil. We drill for gas. We know this market. We have a large trading and marketing operation as well, and so we have a lot of insight into where we think prices are heading. And not only is there a lot of LNG demand globally that's going to put upward pressure on natural gas prices, but one thing that a lot of folks don't talk about when oil starts to come down in price, and I think the goal is to get it to around $50, $60, you know, a barrel, that means there's a lot less associated gas being produced because there's a lot less oil being drilled. That's the gas that comes out of these oil There's a lot of associated natural gas that comes out of oil drilling. Well, if less associated gas is coming out of oil drilling at the same time that we are exporting more LNG, what's going to happen to natural gas prices? They're going to go up at the same time that we're doubling down on a technology that's three times more expensive to build. Now the operating costs are going to go up as well when it [00:10:51] Matt Daley: finally shows up in 2032. So there's some real hurdles coming up for gas. We'll see how the industry and how your company responds to those. But the one thing that you're talking about as our as our as our good go-to right now fill in that fill in that space is the renewables. And while we've got while we've got the ITC and PTC sunset very quickly under the house version of the reconciliation bill and the senate may make some changes to that. Are you nervous that they're going to pass that house measure? [00:11:18] John Ketchum: Yeah, I mean I look at three things there right coming out of that bill. One one was the placed in service requirement uh in the house bill right in order to be eligible for credits you have to place in service a renewable facility by the end of 2028. We've always operated under a start of construction standard where um we'd like to change that place in service language to start a construction which would get the get us the credits a little bit longer which would provide that perfect bridge to when natural gas shows up in 2032. The other piece is transferability that was in the house bill it's critically important we have the ability to transfer tax credits rate regulated utilities for example they have no other way to monetize the tax credits which have a huge impact on lowering utility bills without the ability to transfer. And the last piece are the foreign entity of concern provisions that are in the house bill the way they were drafted they're unworkable. Why do I say they're unworkable? Well they have two provisions in them one is what we call material participation provisions where um I'll just give you an example uh you know an average wind turbine has 10,000 component parts a solar project has 5,000 component parts an SMR oh my gosh I mean you know probably easily upwards of over 10,000 but let's take an SMR for example I won't even use renewables as an example let's use nuclear as an example say that we go and buy a fastener just a fastener that's using in an SMR from a company in Dearborn Michigan we think we're buying American right for the SMR we come to find out that one of the screws and the bolts that was used by one of the suppliers five layers down from the Dearborn Michigan company where we think we're buying American was actually sourcing the bolt and in the screw from China guess what happens you're disqualified you're disqualified all your tax credits for that small modular reactor go away so you think we've overstepped it's impossible to comply with how in the world are you going to trace five layers down to a subcontractor who's buying a bolt and a screw and I'm not kidding there's no materiality provisions a bolt and a screw from China and then there's payment provisions in there where if you're going to finance the build out and you come to find out that you're you say you place public debt to finance the small modular reactor and say that public debt is owned five percent by a Chinese company you have no idea right you're placing public debt you don't know who's going to buy it you have no control over it let's say a Chinese company buys five percent that disqualified lose all your credits on on that on that small modular reactor these provisions don't work and so they need to be fixed do you have any confidence that they might get fixed I do be I mean look our next era is fully behind moving away from China I mean if you look at our supply chain today we buy all our batteries here in the U.S. we source our gas turbines in the U.S. from GE out of South Carolina 90 percent of our wind turbines are made in Florida you know we have really pivoted to a domestic supply chain but let's make this at a component level where we're looking at the major pieces of equipment and and make it in design it in a way that can actually be complied with instead of a gotcha to where you lose all your credits because I mean there's no American company in any industry that could comply with these provisions well that sounds [00:15:10] Matt Daley: like a big hurdle and one of the big areas that you didn't really even touch on there is the battery technology which is a field that you you're getting into when are we going to see battery technology really make a big difference and start to show its strength on the grid yeah a great question man I [00:15:25] John Ketchum: mean we're the world's leader in battery technology it already is I mean so if you think about capacity resources right there's energy and then there's capacity which is you know having the energy during the hours of the day that you need it battery technologies come a long way and so when you really look at when customers need power for reliability purposes it's typically during those evening hours from five to nine at night but we have four-hour batteries that could accommodate that that can make renewables 85 percent firm and batteries are much cheaper than gas-fired peakers and actually are displacing gas-fired peakers in most parts of the country because of those phenomenons we talked about [00:16:08] Matt Daley: earlier but there's a lot of Chinese ties to this industry as well the technology yeah arts and what's [00:16:13] John Ketchum: great is we've been able to now source all of our batteries from a from a company right here in the United States being able to decouple almost entirely from buying from Asian suppliers is that going to [00:16:28] Matt Daley: meet your demand and your and your peers demand or is that going to be a constraining factor in [00:16:33] John Ketchum: terms of the men well you know it's it's something next era has been able to do I think you'll see the rest of the industry continue to pivot to more domestic purchasing and what's happening what's great about this is that as we're moving the supply chain here to the US we have the 45x manufacturing credit we're creating a ton of jobs right here in the United States we're having a huge impact on rural economies on state economies through property taxes through sales tax revenue I mean it's a multi-trillion dollar industry today and these these domestic first provisions of transferring the manufacturing capability U.S. is working and next era is fully behind that well I'm getting the I'm getting the high sign here [00:17:18] Matt Daley: that we need to wrap it up I got I got one other one other thing I've noticed here in this conversation I'm guessing the audience has probably noticed it too there's one word we haven't discussed on stage [00:17:26] John Ketchum: here today coal why is that well I'll tell you what I mean with coal we just had an executive order to keep coal online for a little bit longer it just unfortunately is not going to make a dent coal the trains left the station on coal most of the coal facilities have already been retired even if we slow down some of the retirement you're looking at at max 45 gigawatts let's go back to that 450 gigawatt number I gave you earlier to accommodate all the demand by 2030 45 gigawatts just doesn't make a dent in that even if you delay some of those slowdowns and the issue with coal is look folks folks in our industry when you run a rate regular utility your goal and your obligation is to provide the lowest cost power to your customer and so you make decisions around your generation profile that result in that and unfortunately coal is the most expensive some of the most expensive generation that you can provide your customer so you've seen a lot of utilities move away from it and the last point that i'll make along those lines is let's not forget that when we're designing a solution for a customer we're not matching a generation resource against a data center the data center is being built in the context of a generation system that already exists and so we're making the most economic decision on what the incremental marginal source of generation should be to accommodate that dentist that that data center demand taking into account what the current system can already produce for example in florida we have the largest gas fleet in the united states 24 gigawatts of natural gas fire generation in florida building another gas plant is not the best solution for my customer the best solution for my customer is to build more solar or more battery storage because it's a third of the cost and i can lean on that gas fire generation during the hours of the day when the sun's not shining and the four hour battery doesn't work which is at night because i have all this excess gas fire generation that's going unutilized so you have to make these decisions within the context of an existing system which i think gets lost in the shuffle sometimes it's a complicated uh equation that's for [00:19:56] Matt Daley: sure it is well that's all the time we have today thank you very much for your insights and your uh and and your willingness to come up here to washington and uh and share them with us matt thank you for [00:20:05] John Ketchum: the time appreciate it