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by Stephen Lacey
December 02, 2016

We're now offering Squares transcripts to our two podcasts, The Interchange and the Energy Gang. Below is an edited version of our latest episode of the Energy Gang.

From Greentech Media, this is the Energy Gang, a weekly digest on energy, cleantech, and the environment. I'm Stephen Lacey. It's often said that electric vehicles are the key to bringing back load growth for utilities in the US, but maybe there's another way: marijuana. After the November election, seven states and D.C. have now legalized marijuana for recreational use, causing a frenzy of entrepreneurial activity. 26 states have legalized marijuana for medical use.

In Washington State and Colorado, where marijuana has been legalized for years, utilities are seeing a spike in electricity consumption. In Denver, for example, cannabis growers account for 2% of electricity use. In Washington State, grow operations can suck up more electricity than electric cars over the coming decades.

This also poses a challenge to utilities, which are seeing increased outages and may have trouble addressing cannabis head on because of the conflict between state and federal laws. This week's guest has been watching all of this play out. We're going to learn about the energy impact of marijuana legalization, as well as the financial opportunity for clean tech in managing that energy use.

In the second half of the show, we're going to discuss the legal, cultural, and environmental motivations behind the Dakota Access Pipeline protests that are rocking North Dakota. Then we'll end with a quick discussion about what comes next for Tesla now that it has acquired Solar City. In Washington D.C., it's Katherine Hamilton. Hey, Katherine. How are you?

Katherine Hamilton: I'm doing great. Thanks.

Stephen Lacey: In New York City is Jigar Shah. Hey, Jigar.

Jigar Shah: Hey, I finally got out of my car.

Stephen Lacey: That's right. I had re-recorded the intro last week because of a statement that Donald Trump made. I'm sure people who heard the end of the show heard that Jigar was in his car, but I didn't mention it at the beginning of the show. If you didn't hear that, Jigar was actually podcasting from outside of Starbucks in his car last week, which had some pretty impressive sound actually.

Our guest comes to us from New York City as well. Tim Hade is a microgrid specialist and the co-founder of Scale Energy Solutions, which is a startup looking to build renewable microgrids for indoor cannabis growers. Before that, he was designing microgrids for ENER-G Rudox, a company that specializes in cogeneration and backup power systems. Tim, welcome to the show.

Tim Hade: Thanks, Stephen. A big fan of the show, really happy to be here with you guys today.

Stephen Lacey: You're not coming to us from your car today, are you?

Tim Hade: No, but I definitely did not notice that Jigar was doing last week's podcast from outside of Starbucks. It all worked out.

Stephen Lacey: A question that I have, to start off, is why cannabis? If I had the story correct, you took a look at a grower's energy bill a year and a half or so ago, and you knew that this was the industry you wanted to serve. Tell us about the energy profile of marijuana growing operations and what compelled you.

Tim Hade: Sure. Before I do that, I think it's important to note that the objective answer to almost every question about energy and marijuana is we don't really know. This is actually one of the biggest challenges in dealing with energy issues in the cannabis industry is we simply don't have a lot of data, primarily because this industry has operated on the black market for so long.

With that said, the thing that really drew me to this industry is how big the energy challenges are. The best academic research done to date on this issue came out of Lawrence Berkeley National Labs in 2011. The primary conclusion was that cannabis production consumes 1% of all US electricity. I'll be the first one to admit that when I first read the study a few years ago, I dismissed it as crazy.

As you mentioned, by happenstance, a grower had reached out to me and asked me to looked at their energy bills. After I looked at that one facility, some of the stuff that came out of that Berkeley Labs report really started to make sense. You fast forward a few years now and we now have some real data out of states that legalized during the 2014-2015 cycle, and it turns out that the 1% number might not be that crazy.

For example, in Colorado, right now the cannabis industry is using about half a percent of all the electricity in that state. That figure doesn't account for home grows or the black market, which is still a piece of the economy. When you add that in, I still don't think you get to 1%, but 0.6% or 0.7% is a distinct possibility.

Then if you take that scenario and you play it out, where marijuana is legal in all 50 states, the industry's energy consumption has the potential to be the equivalent of about three million homes. That raised a red flag to me. I believe it's a really big issue. I think that we need more people in the clean technology industry to get involved in this so we can solve some of these problems.

Stephen Lacey: Let's just give people a sense of why these grow operations are consuming so much energy. They require a lot of ventilation, AC, and of course lighting. Historically, they've used metal-halide lamps or high pressure sodium lamps, which are crazy energy sucks. Increasingly, these grow operations are using LEDs, but more in an experimental fashion. Just talk about how these indoor grow operations consume energy and why they're so intensive.

Tim Hade: Sure. To begin with, there's three primary ways that legal cannabis is produced in the U.S. market. The number one question people usually have for me, when I start talking about the energy profile of the cannabis industry, is why not just grow it outside? It turns out that today, only 2% of legal cannabis is grown outside.

For a host of economic, regulatory, and legal reasons, I don't think that's significantly going to shift moving forward. In essence, we're going to have a situation where even in a best case scenario, 80% of legal cannabis is going to be produced in either indoor grow houses which are essentially just converted warehouses or greenhouses.

Then when you look at why this product in particular uses so much energy, it really comes down to economics. There's three phases that the cannabis plant goes through before you get the flower, which is ultimately what is sold on the market. Two of those phases, which represents about half the growth cycle, require that you essentially bake the plant 24/7, 365. You're doing that, in essence, by recreating the sun indoors. Out of that, you get a huge lighting load.

Traditionally, the way the industry has grown this product has been using high pressure sodium bulbs, which are not at all energy efficient and give off a lot of heat; although there is some progress being made from HPS vendors in reducing the energy profile. It still uses a lot of energy and it gives off a lot of heat. That heat has to be dealt with. That means you have big HVAC load, a big ventilation load. There's a significant dehumidification load in a lot of areas of the country. Then there's some odds and ends, like CO2 injection and pumps for your water systems and things of that nature.

When you add all that up, it turns out that marijuana is the most energy-intense manufacturing process in the United States today. By some estimates, producing a pound of marijuana uses 300 times more energy than producing a pound of aluminum. It just is a very energy-intense process. Because of that, I think there's a lot of really, really good opportunities for clean tech companies, including tech entrepreneurs, to enter the space.

Jigar Shah: My start with the cannabis industry was really around...in the '90s, when you looked at real goods and why real goods was actually in business, it was because the DEA under Reagan was going after cannabis growers by looking at their electricity bills. The reason why there was so much solar purchased in Mendocino County is because a lot of folks are trying to hide their electricity bill.

I think the solar industry and the cannabis industry have been in bed together for a very long time. In some ways, we can say the solar industry was probably saved by the marijuana industry in the '80s and the '90s.

I think going into today, though, one of the things that I've been concerned about, I've been looking at the marijuana industry probably for the past two years, just because I get a lot of inbound inquiries from folks, is that the marijuana industry is a really fast-growing industry and, because of that, you're seeing a tremendous amount of failure in the industry.

When a company gets a bunch of money, that's great, but 50% to 70% of these growers are actually going out of business every two to three years just because it's so fast-growing and it's not all boats are rising. It's similar to the solar industry, where you see some companies going out of business and other companies thriving, but, overall, the industry is doing well.

Tim Hade: Yeah, absolutely. I think there's no getting around the fact that this is a very risky industry to enter. I think a lot of that has to do with the fact that it's so dependent on policy and regulation. We'll probably get into this a little bit later, but the disconnect between federal policy and state policy is a real issue in the space, but there is a lot of risk.

I think one of the reasons that you see the failure rates that you see is, quite frankly, the people who are best at growing marijuana, who can produce the best product, are typically people who have been doing it for a long time. If they've been doing it for a long time, that means that their background is primarily in the black market. That doesn't always translate well when you all of a sudden legalize things.

A lot of these people, I think, had a business model for how to operate in the black market and hasn't necessarily translated into the above board market, if you will. At the same time, as it's been legalized, you see a lot of people who are just entering the space from other industries who don't really know anything about growing marijuana. I think they find that it's a lot harder than perhaps they initially thought. I think the combination of those two factors is what leads to that failure rate you talked about.

With that said, I'm very confident, having looked at the industry, that that stuff is going to work itself out over the next few years. I think, in the next few years, you're going to see a lot of really successful companies be built in the space and perhaps expand into other industries as well. I think it's a good point and certainly not something that I want to dance around, but I do think that I'm optimistic about the future.

Katherine Hamilton: Yes. Tim, when you talk about policy, I think that there are two big components. One is just our national federal drug policy. Senator Jeff Sessions, who has been proposed as the U.S. Attorney General, made a joke one time that the Ku Klux Klan was fine ... He thought they were fine until he found out they smoked pot. I know he said that was a joke, but I don't imagine that if he is confirmed as Attorney General that he will loosen restrictions, federal restrictions on pot.

That said, that, as you've mentioned, is one of the rubs, but the other piece is just the energy piece. This really would, just as the air conditioning industry, when it increased significant load on our utility system, or databases and computers as they've increased load, one of the best methods of pushing energy efficiency is through our Appliance Standards Program through the Department of Energy. This seems to be an industry that would be really well-suited to having some kind of standards put into place so that you are making sure that you have the most efficient lighting and the most efficient processes for that industry.

Tim Hade: Yeah. I think you brought up a few really important points there, Katherine. The first one is this is a real issue when it comes to the disconnect between federal and state policy. I think maybe this is worth talking about a little. I don't think people realize that despite the fact that marijuana is now legal for recreational consumption in the eight states and the District of Columbia, it is still absolutely illegal for both medicinal and recreational purposes at the federal level.

When Colorado and Washington became the first states to vote yes in 2012, the Obama administration was forced to deal with this issue. The way they decided to do that ultimately resulted in this thing called the Cole Memo, which was essentially a policy put in place that said in states where cannabis is legal, the federal government's position is going to be to look the other way.

Like a lot of issues we talk about with clean tech, this wasn't a law. It wasn't passed by Congress. There's really nothing formal on the books. In theory, that could be torn up on January 20. I don't think it will, but that's certainly a possibility.

Now I think another point you brought up is very important to talk about, which is Jeff Sessions. When President-elect Trump announced Senator Sessions as his pick, I happened to be at a cannabis industry conference with 7,000 people from the cannabis industry, and I can tell you that the consensus was basically that this was a worst case scenario. Certainly I think there's a lot more risk of conflict between the federal government and state governments today than there perhaps was this time a few months ago.

Stephen Lacey: Let's just be more explicit here.

Tim Hade: Sure.

Stephen Lacey: It's not even that the administration would not loosen laws, it's that they would crackdown because there are still federal laws in place. The Obama administration looked the other way and now we could see the federal government actually saying to states, "No, absolutely not. This is a federal crime." That messes up the flow of money, that makes lending risky, that blows up the entire industry potentially.

Tim Hade: Yeah, that's exactly right. Frankly, just the way the policy and the laws are setup right now, it would be very, very easy for the federal government to destroy the industry. With that said, I don't think it's going to happen. The biggest reason I'm confident in that is just there's overwhelming public support for this process. I think you saw that on election day. Of the five states that had recreational legalization on the ballots, four passed it.

You saw similar results on the medicinal side. A great data point was Florida passed medicinal marijuana use. 71% of people voted for that initiative. Katherine might know this better than I do, but I don't remember the last time 71% of people in Florida agreed on anything. I think the will of the people is there, and I think that'll prevent the federal government from really cracking down on this, but again there's just a lot of uncertainty in the market today.

Stephen Lacey: I want to talk about how that feeds into your business model, but I think we should learn more about what your business model is, because we have a lot of engineers and investors and folks that would be interested in the type of microgrids that you're actually proposing here. What's suitable for these type of indoor operations?

Tim Hade: Sure. What our company, and the men and women I work with, have really been interested in for a long time is pushing the issue on microgrids because we believe that microgrids are a big part of solving the broader climate change problem. I don't think enough innovation is taking place in the space. That's ultimately our mission, was try to get microgrids to a point where they can be a real scalable solution for climate change.

The thing that attracted us most to the cannabis industry was we started finding counterparties who really cared a lot about energy. This is driven by a bunch of reasons, but the biggest thing is economics. In a lot of cases, we see facilities where 20% or 25% of their total operating budget is energy costs. In order to be competitive in state markets, you really have to be a sophisticated energy consumer.

When you're trying to develop microgrid projects at the facility level, one of the hardest things to get is a time commitment from the executives at the facility you're working at. There's a lot reasons for that. If you look at a hospital, for example, big energy-consuming industry, but most of the time energy costs are less than 5% of their operating budget.

When you go talk to an executive team about that, they might care a lot about the environmental footprint. Ultimately, they're typical driven by a fiduciary responsibilities, and it's just not practical for them to spend a ton of time working with you to try to develop these projects.

That's been the best surprise for us out in the cannabis industry, just how eager people are to learn about energy issues, how willing they are to give you their time and talk about these issues. I think that's the biggest thing, albeit a subjective assessment.

From a technical standpoint, though, these facilities have a technical profile that is ripe for all sorts of clean technology solutions, both on the demand side and the supply side, to be implemented. The thing that makes them really attractive is they tend to have a relatively large electric and thermal base load and pretty predictable variance.

When you add up those factors, you can do a lot of things in the cannabis industry that you can't necessarily do in a lot of traditional industries. On top of that, and I think this is getting back to Katherine's point earlier, I'm certainly not a policy expert, but my experience to date is that it's a lot easier to put policy in place when there isn't a precedent than it is when there is a precedent.

When you look at Massachusetts or California, for example, they're going through this process right now, now that the ballot initiatives have been passed. They're trying to figure out how to enact that into law. I think they can very easily start looking at this energy problem and put some practical regulation in place. This helps address this issue. I think that's just, frankly, easier to do because there's not a lot of people to fight for precedent, if that makes sense.

Jigar Shah: This space certainly has a lot of attention right now that I'm hearing, where either it's like Scotts Miracle-Gro, who started a marijuana equipment division that features LED lighting, or whether it's Envirotech Greenhouse Solutions that has humidification solutions or your company. It just seems like it's not clear to me that you can really figure out which company is going to be around and which company is not going to be around.

Tim Hade: Yeah. I think every issue you just brought up is a completely legitimate concern. Truthfully, and this specially pertains to the financial aspects of doing anything in the industry, whether it'd be a direct growing or auxiliary service provision, there is a lot of risk. A lot of these companies don't have credit ratings. The traditional metrics that financiers would look at to evaluate credit worthiness don't exist.

My perspective on it has been that this is a big enough problem and a big enough opportunity that figuring that stuff out is worth it. I don't look at this that dissimilarly from where the solar industry was when you started SunEdison. There was a product that could add a ton of value. I think, in the case of cannabis, there are a ton of clean tech products that can add a lot of value, but deploying those is difficult. There's legal challenges, there's financial challenges.

We just need a lot of smart people to enter the industry and start getting to work. I think all the problems we have are solvable, but they're not going to be solved without a lot of effort. Hopefully that's something that starts to happen in the short term.

Jigar Shah: Okay. I get it, Tim, but, ultimately, not all problems can get solved. It may be the case that it is literally not possible to figure out which companies are going to succeed and which ones aren't going to succeed right now. If you can't do the underwriting, you just can't project finance the space.

Tim Hade: Yeah. I think that's a legitimate point. I don't want to underplay any of these issues. I think they're real challenges, and, frankly, I don't have an answer, but here's what I can say. When you look at the data and the analyst projections post our latest election cycle, it's predicted that this industry is going to do something in the neighborhood of $23 billion of revenue in 2020. For reference, that's basically twice the size of the NFL.

My bet is that when you have that amount of upside, it will attract the financial community. With certainty, I think it's going to be a riskier investment landscape certainly in the short term, but for those financial institutions that are able to figure out how to pick the winners, there's a huge amount of upside.

You know a lot more about this than I do, but, from the people I know in the financial industry, that tends to be an attractive value proposition to pursue. We'll see what happens, but it's certainly something that's going to take a lot of smart people getting together and trying to figure it out.

Katherine Hamilton: Tim, another stakeholder, I would think, that would have interest would be the electric utility industry because they love consistent base load. It's been tough for them as we become less energy-intensive, but have increased peak. Peak doesn't look like it's going away, but this industry that you said has pretty consistent load might look really attractive to them. What have you heard from utilities and could they potentially be allies in this?

Tim Hade: Yeah, it's a great question, Katherine. Like many things, I used to know the answer to this question, and now Donald Trump is our president. I had a lot of conversations with utility folks prior to the election about this. They haven't really been picking up the phone since.

I think prior to the election, the utility industry, like most of us, had planned on an outcome that didn't occur. With that planning, I think many of them had assumed that either the Clean Power Plan or something like that would be enforced. When you take that as a given, their strategy for dealing with the cannabis industry was essentially they had to do something because the load growth that was coming post-legalization, I think, was really going to hurt their ability to hit emissions targets.

Now we're in a completely different environment because I think it's pretty well understood that that Clean Power Plan is likely dead on arrival and it's very unlikely that anything substantive is going to replace it in the short term. I think the question is, more broadly, what are utilities going to do? Are they going to take a step backwards and have a more aggressive approach, or are they going to execute the plans that they've generated to date and try to continue on a path towards carbon reduction?

I think that's unknown in general. I think where they come out on the cannabis situation will likely be consistent with where they come out on the broader climate action strategy. I don't think anyone really knows what the industry is going to do yet.

Katherine Hamilton: In a perverse way, Tim, it does actually increase kilowatt hour sales. I would think whether or not you have any kind of Clean Power Plan, you still have the ability for utilities to increase their rate base.

Tim Hade: Yeah, that's absolutely true. The industry's consuming a lot of electricity, and utilities make money selling electricity. There's definitely an economic consideration that utilities are looking at what when they're considering how to address this problem. What I will say is utilities run into a lot of the same risk challenges that Jigar was bringing up before, and I think they're struggling with them.

For example, in Colorado, one of the things we see is a lot of these grow facilities are being stood up in retrofit warehouses. In Denver, for example, I visited a place that used to be a mattress warehouse that's now a cannabis grow operation.

What happens is let's say you buy a mattress warehouse. You come in, you have a 400-amp incoming service, then you retrofit the facility with all the lights and ventilation components and dehumidification ports that you need, and all of a sudden you need a 4,000-amp service entrance. That's a huge cost burden for the utility. They have to come upgrade the service, in some cases build new substations. They don't know if that company is going to be in business in a year or two later, or whether it's going to revert to a mattress factory.

I think utility industries have some upside in this and there's some risk for them as well. I think it's an opportunity for the utility industry and the clean tech industry to work together and try to figure out what the optimal solution is. I think that's ultimately a combination of energy efficiency on the front end, a distributed generation component, and then integrating with the traditional grid infrastructure, but I think that can be done in a smart way that benefits all parties, which is why I find it appealing.

Stephen Lacey: Until then, you have a pretty mixed bag for utilities. For example, the Bonneville Power Administration, which is a federal power administration, doesn't want to assist or work with utilities that are served by that administration that are serving grow operations. Furthermore, banks that have federal deposit insurance can't lend to these grow operations and retail outlets.

For utilities, and therefore for financial institutions, you just have really high risks right now because of the disparity between state laws and federal laws, so many utilities just won't touch the stuff. You have some utilities in Washington or in Colorado or in Oregon that are setting different rates for grow operations, but it's still really utility-specific.

Jigar Shah: They won't touch it with a 10-foot transmission pole.

Tim Hade: Yeah, I think --

Stephen Lacey: But there are some utilities that are approaching the space. There are a handful that have reached out to grow operations specifically and set new tariffs.

Tim Hade: Yeah, I think, ultimately, this is going to be an issue where performance talks. There are 3,000 different utilities in the United States. I don't need all 3,000 utilities to want to work with me, I just need a handful. If there's a handful of utilities that are willing to think more progressively about how to deal with this issue, and we can assemble the right constituency of clean tech professionals and contractors and legal people and financial people to make these projects work, ultimately I believe that we can just do this in a better way, do this in a way that's cheaper, cleaner, and more resilient for the customer, and ultimately benefits all of the parties involved more than the status quo approach of just going with the grid infrastructure.

That's ultimately the bet. If we can do this better than the utility alone can do this, then I think we'll get traction. If we can't do that, I don't think we'll get traction, but I'm pretty confident. Ultimately, I just think it's a matter of getting some of these projects in the ground, figuring out the right way to do it, and then using those results to convince the next set of utilities that might be a little bit hesitant, for many of the very real reasons you guys just brought up, that there's a better way to do this.

Jigar Shah: I guess what I would say, though, is that we're at an early stage, which is fine, but given the regulatory risk, et cetera, I think this is going to be a cash business. I think that, in general, we're going to be forcing a lot of these marijuana growers to pay upfront for a lot of this infrastructure, which will make it difficult for more expensive infrastructure to get in, because a lot of these big Wall Street investors who are investing in these guys, I think, are looking for lowest first cost because they just don't know how long their investment's going to work out.

Stephen Lacey: Yeah, and these retail outlets are cash businesses. You read stories all the time of these companies that can't get loans from the banks, so they just have a couple of safes in the back and they just run a completely cash business.

Tim Hade: Yeah. Again, I think these are all very real problems, and absolutely what you just said happens all the time right now.

Jigar Shah: So are you taking hundreds or twenties?

Tim Hade: Yeah. It's funny, one of the things we looked at is how do you pay for a $3 million energy project in cash? It's harder than you would think. I think, ultimately, it just comes down to do you think that a $23 billion revenue business is unbankable?

Jigar Shah: Yes, yes. I do think it's unbankable right now.

Jigar Shah: I think until Jeff Sessions figures out how to make his piece, which may involve smoking some marijuana, I do think this is unbankable and I do think that, for many of us who are quasi-banks, I don't think institutions are going to play in this. I think that, for us, we're a little bit more flexible because we're funded by family offices that generate, but for a lot of the folks who have any FDIC restrictions or other restrictions, I think this is going to be very difficult to finance.

Tim Hade: Again, no argument from me. I think the key is is it difficult or is it impossible? The bottom line is I think that when you look at this industry, there's no avoiding the fact that this industry is associated with very unique risks that are very real things, but there's huge upside.

Ultimately, what I'm betting on is the fact that when you have an industry that's going to generate billions and billions and billions of dollars of revenue in the short term, that will attract financiers who are interested in figuring this stuff out. In fact, we've already seen that as there are a lot of boutique investment firms that have been stood up to service the cannabis industry.

Now, again, I think there's no getting around the fact that there's more risk in this industry today than there was prior to the election, but, again, for a multitude of reasons, when you look at all the pros and cons, I don't think that this will be a priority issue for the federal government, and so I don't think you'll see a huge federal crackdown on the states. Therefore, I think you'll see state markets grow and thrive. In that event, I think the finance industry will follow.

Again, I think the points that Jigar brought up are all real concerns. Ultimately, that's just going to be evaluated by individual financiers on a case-by-case basis.

Stephen Lacey: By 2030, the industry will be spending $3 billion to $5 billion a year on energy if the trajectory continues. A huge opportunity for clean tech and for utilities, generally. We'll see if they can capture that upside without getting overtaken by the downside.

Tim Hade is the co-founder of Scale Energy Solutions. He came to us from New York City. God, this is a fascinating space. The risks are just incredible here, but certainly a wide open opportunity, so we'll see if you guys can capture it. Thanks, Tim.

***

Let's turn now to a story that continues to intensify: the protests over the Dakota Access Pipeline in North Dakota. Since April, the Standing Rock Sioux Tribe has been blocking construction of a key piece of an 1100-mile pipeline intended to bring northern North Dakota shale crude down to Illinois for refinement.

On the surface, this seems like another example of anti-fossil fuel protesters blocking another pipeline, but it is far more complex than that. The Standing Rock Sioux are blocking the pipeline where it would cross under the Missouri River, close to a lake that provides drinking water for the tribe. It should be noted that that pipeline was previously rerouted because it threatened urban drinking water. The tribe also claims that the State of North Dakota, the Army Corps of Engineers, and the developer, and Energy Transfer Partners did not properly consult them before citing the pipeline.

There is currently a case playing out in federal court. This has caused the feds to question whether they need to revisit the consultation process between the government and Native Americans on similar types of infrastructure projects. Energy Transfer Partners has, in recent months, unleashed private security contractors bearing water cannons in freezing temperatures, rubber bullets, dogs, and tear gas to break up the protests. Those attempts have only strengthened the resolve of activists so far, although many have gone to the hospital and have been arrested, and one tragically had her arm nearly blown off by a concussion grenade.

To the Sioux and to other Native American activists who've joined them in blocking the pipeline, this fight isn't just about clean drinking water or about blocking fossil fuels, it's about upholding their sense of pride and fighting against the forces that have trampled over Native Americans for the last 300 years. Allies have poured in across the country in support, and the legal case continues to play out.

Katherine, this is, admittedly, a very complex story. I've only come to realize the complexity of the story in the last couple of months, even though it's been ongoing since 2014 and really heated up this Spring. Some press outlets have been criticized for not covering it enough. This is the first time we've covered it, of course, or oversimplifying it. How is this different from, say, the fight over Keystone XL in 2011, 2012?

Katherine Hamilton: Yeah, the policy difference is that Keystone is an international issue, whereas this is a cross-state issue. You're right, it's super complex because this has to do with treaty issues and nations that really feel like their land rights, but then also their public health and water safety issues are at risk. What I did was I thought there's got to be a real public policy issue here that I can dig into since that's what I do.

I contacted the Sierra Club because I knew they had been involved in some other court issues regarding land use and eminent domain. They're not legally involved in this issue, but what they have been working on is the permitting process.

The Army Corps of Engineers under the Clean Water Act has this Nationwide Permit 12, NWP 12, that is being used to fast track this type of project. This permitting process was intended for water crossings as in crossing ditches, or regarding docks for boats, for minor infrastructure. This is not really minor infrastructure. This is 1200 miles of pipeline, it's cross-state, and yet it was still fast tracked.

Part of the issue is really about how we permit projects, and that's really what they're trying to get at is if you permit projects that are done in a very piecemeal way that really are intended to cross very limited distances, then you're not dealing with a pipeline in a more holistic process that allows for environmental review and a full public process and tribal consultation which, had that been done, perhaps we wouldn't be in this really tragic situation that we're in right now.

Stephen Lacey: Part of the legal dispute is over this 1992 federal law, which requires Native American groups to be consulted whenever a project like this takes place. The Sioux Tribe basically said that the federal government didn't consult them early enough in the process, the Energy Transfer Partners was developing the project on burial grounds that, if a local contractor had been used, would have known they were sacred grounds. Although they were consulted, they claim they weren't consulted early enough in the process and that the project had already gone forward and had been fast tracked, as you said, Katherine.

Katherine Hamilton: Yeah, because if they had consulted the archeologist who understands about the sacred sites, that archeologist could've said, "Look, just avoid this area," and it would have saved a lot of time and money and heartbreak in the process.

Stephen Lacey: Then there's a whole other land rights issue. The protesters, they don't like calling themselves protesters, I should note. They call themselves water protectors.

Katherine Hamilton: They're water protectors.

Stephen Lacey: Exactly. I've been calling them activists. The protectors are partly on private land. The Standing Rock Sioux Tribe claims that this land was taken away from them in the 1800s and it was never recognized by the federal government, so there's this legal dispute over whether or not that land is actually theirs, which is adding complexity to this issue. The relationship between the federal government and these Native American tribes and the deep scars for how these tribes have been treated and had their land stripped away from them are a huge part of this dispute. Jigar, do you want to weigh in here on the significance?

Jigar Shah: For me, I think that I couch this less in the Native American piece of this, although it's a tragic story what's happening there, and more around really the influence of Josh Fox and the anti-fracking movement. I think that when you look at the number of pipeline projects that they've killed in Connecticut and in New York and lots of other areas, this is, I think, successful in terms of a protest movement because Josh Fox spent the better part of three or four years building up this movement and donors and funders. You've got Mark Ruffalo and Shailene Woodley and all of these famous people who are involved now.

I think that it's really a credit to Josh Fox, I think, to the movement here. Then the Standing Rock Tribe just happens to be the ultimate expression of frustration around natural gas and fracking in pipelines and their attempt to find weak spots within the natural gas fight.

Katherine Hamilton: The Sierra Club person said that, definitely, this movement has resonated across the country. There are lots of people who are showing support in indigenous communities and other communities, but just from an economic perspective and from a use perspective, the project doesn't make sense in a lot of different ways. Oil prices are low. There's not really any need for this type of pipeline infrastructure. It just doesn't make financial sense or use sense.

One of the public policy issues that is at play here is that in January 1, these shipping contracts have to be renewed. In order to get a shipping contract, you have to plan to ship something. If there is really no need to ship something, those contracts for this well will really be at risk. That's another way, in addition to the permitting and then the White House and Army Corps perhaps being able to not grant the permit and the easement, that you could also have this contract issue of really just not making any economic sense to do it.

Stephen Lacey: I have a different take on this, Jigar. I wonder if the celebrities and the climate activists who have come in, if they've co-opted this movement and made it about something else. One of the things that's appealing to me about this story, as I've started paying more attention to it, is the fact that it represents the deeper struggles that Native Americans have faced in their relationship with the government, but now you have a lot of these climate activists who've come in and re-branded it. I wonder if it's co-option here.

Jigar Shah: Oh, no. I think we're saying the same thing. My point is that the fact that Josh Fox had tens of thousands of followers and had this entire infrastructure of people who are anti-fracking and then anti-natural gas pipelines, because that's what they found was the soft underbelly of how they could kill a lot of these natural gas fracking sites was to kill some the pipelines that we're taking the natural gas from the Marcellus to their markets. They already had a built-in infrastructure setup. Then when you had this heartbreaking story of Standing Rock, they're able to actually bring a tremendous amount of firepower. Even with that firepower, he wasn't able to really breakthrough the media cycle because of the presidential election until recently.

Katherine Hamilton: Yeah, I just don't want to discount the efforts of the people there. He may be amplifying, but the movement is really based on the indigenous people who live there and feel like their environmental justice, their sacred lands, their rights are being trampled on.

Jigar Shah: Oh, no. I'm not disagreeing, Katherine, I'm just saying that these corporations have a very effective way of trampling people's rights, whether it's economic justice, areas around poor people who live in the wake of coal plants or whether it's pipelines that are getting built in lots of areas where there are folks who don't have a lot of power to stop them.

In general, these infrastructure projects either get killed by billionaires who are doing the courts, whether it's electric transmission lines or natural gas pipelines, or they get stopped by a bunch of celebrities and others who bring a bunch of firepower to the thing. If the mainstream media had not covered the story, this would've been dealt with and killed a long time ago.

Stephen Lacey: The mainstream media was very slow to come on to this story. Admittedly, I was slow to pay attention to it as a result. Only when I realized the historical context of this story did it become super interesting to me.

Now beyond that, the question that I have is whether fighting pipeline infrastructure and fossil fuel infrastructure and the co-option of this type of battle among the environmentalists is now going to be the central strategy of the environmental left under a Donald Trump administration. Is this indicative of what we're likely to see over the next four years?

Katherine Hamilton: I think it may be the only way that people can fight because there are a lot of agencies that have to weigh in on any project like this: federal agencies, EPA, Department of Interior, certainly Army Corps, and the White House. While the White House right now could do some things that would delay this particular project from going forward, I think for a lot of other projects, it's going to be tough based on the people that we're hearing might be leading those agencies.

Jigar Shah: I think the nuances here matter. I think that the ability of the environmental movement to have these types of protests has, I think, basically gone away. Most of the environmental movement has shifted to hiring tons of people in Washington D.C. to kill things through government regulation. My sense is that where the environmental groups are going to be most effective with Donald Trump is raise $700 million worth of money into a fund that actually then pursues the stuff in the courts with folks wearing suits.

Stephen Lacey: Then just as one final point, an aside here, Donald Trump actually held stock in the pipeline developer Energy Transfer Partners worth over half a million dollars. The CEO of the company donated a hundred thousand dollars to the Trump Victory Fund. There are some direct political ties to this company. Most people believe that the Trump administration will do anything it can to get the pipeline approved.

Now the Army Corps of Engineers has said it's going to give the protesters another week before it tries to kick them off the land, but it's not clear exactly how they would remove them because they said they wouldn't forcibly remove them. My guess is that they stay there and this fight continues as it works its way through the courts.

***

That brings us to the third topic. We're just going to briefly talk about Tesla and SolarCity. It's official, Tesla now owns SolarCity. With very little resistance from shareholders, Elon Musk crossed off another to-do item in his master plan and bought SolarCity for $2.5 billion. That's roughly half the price of SolarCity's all-time high. The majority of Tesla investors clearly believe in Elon Musk's long term vision of dominating the consumer energy landscape.

We're all waiting and hunting around for details on the so-called synergies that will come from this deal. The two companies themselves haven't released much aside from Musk talking a lot about the solar roof. We're poking around, trying to figure out where changes are going to take place first. Jigar, what are you keeping your eyes peeled for now that this is a combined company?

Jigar Shah: I really think this is all about sales and marketing, and I think I've said that over and over again. Elon Musk has a unique way of reaching out to customers and getting folks excited and really revving up sales on the Tesla side. I think the question becomes is he going to be able to do that on the SolarCity side? Because the US solar industry, particularly the residential industry, is really far behind, where Australia achieved it within a five-year period, where Australia reached one in seven households. I think the US industry can match that feat with the economics of solar today, with the extension of the tax credits. It'll be interesting to see whether they really focus on figuring out the sales and marketing dilemma here.

Katherine Hamilton: Yeah. It's interesting to me because the energy storage piece of Tesla has been very quiet until they've got something in the ground. This project in American Samoa, which is 600 residences that are fed from a 1.4 megawatt microgrid, that they can go three days without sun based on 60 Tesla power packs that they have installed. Nobody knew that that was happening until it was completed. It'll be interesting to see how that meshes with what SolarCity is very outward-facing mode most of the time.

Stephen Lacey: Yeah, that's probably one of the biggest public-facing changes that we're going to see. Elon Musk, in numerous speeches, has shown that he wants to work directly with utilities. Peter Rive, the CTO at SolarCity over the last year, has been more conciliatory. Ryan Hanley in SolarCity's grid modeling unit has talked a lot about how they're going to work with utilities on infrastructure as a service. Jon Wellinghoff, of course, speaks utility language.

I think the combination of SolarCity's strategy before it was bought up by Tesla and Elon Musk's statements about wanting to work with utilities and the push to develop that Grid Scale Storage Solution, the power pack, is evidence that this company is going to take a much different public strategy in how it works with utilities and the types of projects it develops. Does anyone agree or disagree with that? I'm really sensing a different approach to how the company works with traditional actors.

Jigar Shah: Look, I certainly think that Tesla as a company has been working with utilities. One, because the electric vehicles are supposed to be providing more demand and more stresses on the grid, which that allows them to rate base more infrastructure, which is a self-fulfilling prophecy. I think that's good. Then the microgrid industry as a whole has been very much embraced by Exelon and others, Duke.

My sense is that you're right. I think the challenges is that the enthusiasm and the votes for a lot of the legislation that Tesla is using to push through all these battery mandates and a lot of these other things are coming from folks who support net metering. They have to reconcile the fact that they have to keep the flock enthusiastic while, at the same time, selling utilities. If they just partner with the utilities then they won't be able to pass any new legislation, which means that they won't actually be able to force utilities to deploy.

Stephen Lacey: There is one thing that was really troublesome to me during the investor vote. When the votes came in and Elon Musk took the stage and he took questions from shareholders, they wanted to talk about nothing but the solar roof and he wanted to talk about nothing but the solar roof.

This is a pretty limited, economically serviceable market thus far. SolarCity, as a company, is going to hit a million solar roofs here in the next couple of years, but, meanwhile, their growth has started to slow. They're switching from PPAs and leases to loans, their customer acquisition costs have grown, and there are some pretty fundamental questions associated with SolarCity's business model that were glossed over because Musk and shareholders wanted to focus on the solar roof, which is a pretty small market thus far.

That really worried me. They're picking up a company that is at half the value of its market high and faces some pretty fundamental financial challenges, and none of those have gotten address publicly by Musk or by the SolarCity team. There are investors like David Einhorn who are really worried about it, but the majority of shareholders just don't seem to care.

Jigar Shah: Look, we just elected Donald Trump president. People love a wag-the-dog strategy. I don't want to talk about the solar roof. I think the solar roof is not a real product yet.

Now when I actually see spec sheets on their website and actually get pricing from them officially and all those things, then we can talk about it, but right now ... The solar roof was clearly announced way too early on purpose so that Elon Musk didn't have to talk about the rest of these things. He has every right to be able to do it as long as people don't hold him accountable.

Stephen Lacey: Completely agree. That strategy worked very well during the shareholder vote meeting because he was allowed to gloss over everything. We're going to be searching around for more clues, as are a lot of other media outlets. We'll keep you updated when anything actually major happens, but we wanted to just mention the fact that this happened because we haven't covered it in the last couple of weeks since the shareholder vote.

Let's tell our listeners something they don't know now to wrap up the show. Katherine, what's your story this week?

Katherine Hamilton: Yes. I'm back to my FERC line here. I missed it last week. I didn't mention it, although I had known about it. FERC issued a NOPR, which is a notice of proposed rulemaking, on November 17. It was to integrate electricity storage and organize markets. This is about energy storage, but it's bigger than energy storage.

What this proposed rulemaking, which they're going to be taking public comment on and then going through a rule making process, would require each regional transmission organization or independent system operator to establish a participation model consisting of market rules that recognize the physical and operational characteristics of energy storage and accommodates that participation in the wholesale electric markets. It also will define distributed energy resource aggregators as a type of market participant. They can participate in wholesale electric markets.

When you talk about wholesale electric markets, this includes energy markets, capacity markets, and ancillary services markets. This could potentially really set the stage for compensation of a variety of flexible resources that are on the edge of the grid that will be able to participate much more holistically in the wholesale market and in the larger grid system and really change the way we use and value electricity.

Stephen Lacey: I was chuckling here as you were describing that, imagining FERC staffers briefing Donald Trump on those details and explaining the consequences and seeing his eyes glossed over.

Katherine Hamilton: He's going to be able to appoint several commissioners and a chairperson, and we'll see how that goes. But the process is in place, and I feel like it'll be on track.

Stephen Lacey: Jigar, what is your story this week?

Jigar Shah: I want to talk more about nuclear subsidies with Exelon. They look like they're at the finish line in Illinois to get their nuclear plant. I can start over.

I want to talk about nuclear subsidies with Exelon again in Illinois. They look like they've gotten to a final bill with the governor around providing new subsidies to keep their nuclear plants running for a minimum of 12 years. They have agreed to some community solar and community wind projects, as well as greatly expanding utility-run energy efficiency programs. What's interesting is that they made it clear that they would not allow this bill to pass if there was an open, well-functioning, market-based wind and solar industry.

What's interesting is that Exelon gave on certain points on solar and wind to try to get some votes, but would not actually create a real partnership with the renewable energy industry. As a result, they lost the Illinois Manufacturers Association which generally works with them, they lost the Illinois Black Chamber of Commerce, the Illinois Retail Merchants Association, and many other folks who wanted them to partner deeply with the energy efficiency and renewable energy sector. Exelon chose to figure out how not to do that and still carve up enough votes to get their subsidies.

Stephen Lacey: Did they not read your piece with David Duchovny?

Jigar Shah: Clearly, they do not believe in the X-Files.

Stephen Lacey: The Exelon Files.

Jigar Shah: Exactly.

Stephen Lacey: I just had another Donald Trump anecdote. We can just chase our tails around all day about what he is and isn't going to do. I don't want to hang on this anymore because we had two shows speculating on what a Trump administration would look like, but after Trump did make his statement at this meeting last week with The New York Times, saying he would keep an open mind about climate change, his chief of staff, Reince Priebus, said his default position is that climate science is a bunch of bunk.

I just wanted to let that hang out there. Again, we can speculate about what President Trump will or will not do, but the chief of staff of the next president of the United States has come out and said that he believes the president, and therefore this has been the default position of the GOP, largely, in Congress, that climate science is a bunch of bunk. Until we get real policy ideas and figure out exactly what's going to happen here under Congress and the administration, I think that should guide how we feel about the approach this administration is going to take.

With that, we're done for the week. We're actually going to be off next week, unfortunately. A lot of travel for me, and we're not able to record, but we will be at the Storage Summit. We'll, hopefully, see some of you there in San Francisco.

In the meantime, you can listen to all our back episodes on Soundcloud, on Stitcher, and iTunes. Subscribe to us on any podcast app of your choice. Send us an email at podcasts@greentechmedia.com, and then send us a tweet or connect with us on Twitter on our individual accounts. We love to hear from our listeners.

With Jigar Shah and Katherine Hamilton, I'm Stephen Lacey. We are the Energy Gang, a production of greentechmedia.com. We'll catch you next time.