The View From St. John’s: Investment, Energy, and Nation-Building

The View From St. John’s: Investment, Energy, and Nation-Building

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This week on the podcast, we discussed Jackie’s recent visit to St. John’s, Newfoundland and Labrador, to attend the Energy NL conference. Energy NL is the province’s energy supply and service sector association, which annually hosts the province’s flagship conference on conventional and clean energy.

This week, Charlene Johnson, Chief Executive Officer of Energy NL, joins the podcast to explore Newfoundland and Labrador’s energy potential and the discussions at the conference. Among the topics covered were potential nation-building projects, such as the Churchill River hydroelectric development—a joint $33 billion potential initiative by Newfoundland and Labrador Hydro and Hydro-Québec that aims to add nearly 4 GW of new electricity generation capacity on the river. Another significant project discussed was Equinor’s Bay du Nord offshore oil development, which could open a new offshore basin 500 km off the coast of Newfoundland.

In addition to covering the conference highlights, Jackie and Peter recapped the past week’s events, including the constructive First Ministers’ meeting in Saskatoon on June 2nd. During this meeting, Prime Minister Carney outlined the criteria for nation-building projects. Furthermore, on June 6th, the Carney government tabled new legislation, “Bill C-5: One Canadian Economy: An Act to enact the Free Trade and Labour Mobility in Canada Act and the Building Canada Act.” The goal is to pass the bill into law by Canada Day.

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Episode 288 transcript

Disclosure:

The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.

Announcer:

This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.

Jackie Forrest:

Welcome to the Arc Energy Ideas podcast. I’m Jackie Forrest.

Peter Tertzakian:

And I’m Peter Tertzakian. Welcome back. Well, Jackie, it just seems like one week goes by and there’s lots of news. In the intervening week since our last podcast we’ve had First Ministers’ meeting, we’ve had the tabling a Bill C-5 federally, the National Interest Legislation. We’ve had provincial legislation, I don’t know if it’s legislation, but AESO came out with something on the data centers. Of course, there’s the forest fires that are raging. Our thoughts are certainly with the people who have had to evacuate or been otherwise affected by those. Where do you want to start in terms of talking about things?

Jackie Forrest:

You forgot the really big news. You had your art show on Saturday.

Peter Tertzakian:

Oh, yes. Well, I had the art show in Canmore at the Elevation Gallery and Three Sisters, which was a expose or an exploration, maybe that’s a better word, an exploration of energy infrastructure and how to think about it. Some infrastructure persists, some becomes obsolescent, and some renews itself. That’s going to be a big theme as we think about the country’s aim to build out infrastructure. If you’re out in Canmore, I’d love to host you. If you’re out there, just let me know and try and get out there and show you the show.

Jackie Forrest:

Yeah, it’s around Three Sisters, the Elevation Gallery, and it’s open until August 5th, I guess, that you’ll have the art show up.

Peter Tertzakian:

Yeah, a lot of the pieces will be up probably beyond that in the gallery, but it’s the Studio Energy Gallery there in Canmore.

Jackie Forrest:

Okay, well, let’s talk a little bit about that AESO announcement, just because we just had our Beacon AI Center podcast. We had a lot of good feedback on that and a lot of people very interested in the topic, but there’s already some changes. Apparently, I hadn’t looked at the AESO queue at the moment we did it and it was already up to 16 gigawatts, so I got corrected on that. We talked about 12 gigawatts, so that’s how fast people are adding things to the queue.

But we also had the bigger news that the AESO has come out with a limit of 1.2 gigawatts to be allocated on a pro rata basis amongst developers, so that’s certainly a lot less than the developers would like. Still would increase peak load by 10%, and there will be another process post 2028 to add more, but this is coming with some negative response and I will put a link in our show notes to a LinkedIn post by Avik Dey, who’s the president and CEO of Capital Power, criticizing the decision, that we’re thinking too small here and this small amount is not going to bring the large scale data centers that the province really wants to attract, in his view.

Peter Tertzakian:

Yeah, it’s not that much when you think about what our guest, Josh Schurzler, said last week. We’re talking 10 gigawatts plus, as you just said, and so the 1.2 is hardly anything. Having said that, the process of building out a data center and commissioning it and getting it up and running and flipping the switch to on takes probably three to four years given the lead time for all the equipment, which we’ve also discussed. But nevertheless, it doesn’t necessarily send the right signal that you’re substantially choking off capacity potential.

Jackie Forrest:

Yeah, and at the same time, we want to have reliable power too, so it’s a difficult problem. But I think 2028 maybe there’ll be an ability to add some more, and of course these data center people, they could add generation to help bring on more as well. All right, let’s talk about the lots of news, the First Ministers’ meeting in Saskatoon. I mean, have you ever seen a happier set of premiers, Peter?

Peter Tertzakian:

No. No, I sometimes have to wonder if I’m in Canada.

Jackie Forrest:

Yeah, usually they’re frowning and angry at these meetings, but everyone seemed very happy and energized by this nation building project idea. It’s worth talking about the… We will put a link to the PMO statement that came out of the meeting because these were the same words that were in the actual legislation that got tabled on Friday about what defines a nation building project. It must be something that strengthens Canada’s autonomy, resilience, and security, supports economic growth. We keep talking about our goal of Canada becoming the fastest growing country in the G-7. Well, we certainly aren’t there now, so I think it’s going to have to be big projects, I think measured in tens of billions. That’s my words, that wasn’t in there.

But if you’re going to move the dial in economic growth in the country, a high likelihood of success, high priority for Indigenous leaders, and clean growth potential such as the use of clean technologies and sustainable practices. I don’t know that the project has to meet all of those, but those are definitely things to think about and gives us some clues, I think, to what we’re going to be looking at. I don’t think it’s 50 or 100 projects, I think it’s probably 12 or 15, something like that. I think they’re going to be big.

Peter Tertzakian:

I think it’s probably less than 10, to be honest with you, if you’re talking about these big projects, at least to start, and trying to prioritize based on those criteria. The criteria notionally makes sense, but getting down to actually quantifying things like contribution to economy in the future and autonomy, sovereignty, energy security, etc, quantifying the benefits and rank order in the projects is going to be the trick.

Jackie Forrest:

Yeah, and everybody has a nation building project. I’ve found that in my conversations in the last week, every single person is talking about why their project is there. I’m sure these members of parliament are getting lots of inbound letters and things about projects and why they meet the criteria.

But to finish off the week, and I think this was a surprise for me anyway, that the government’s moving so quickly, we actually have the Bill C-5, which was tabled, and I think the expectation is that this will be finalized before Canada Day, July 1st, but the aim is to fast track existing processes for nation building projects. It’s quite simple in its approach compared a lot of legislation that’s come out of this liberal government. I mean, it didn’t take me that long to read it. It seems like the right approach for projects to get unstuck, to me, and create that political certainty that the proponents need to spend billions of dollars in a reasonable amount of time.

Now, I didn’t notice that it actually had a timeline, but definitely that idea of moving fast is there. The minister can provide authorization with conditions and the regulator will be consulted in making this document. So for example, if it was a nuclear project that fell under the nuclear regulator, they would be consulted. If it fell under the CER, they would be consulted to look at some of these conditions and in the letter that comes out for the approval, but the actual approval would come from the minister. This legislation, if it went through, would go in force as soon as the gazette is issued. There is a requirement to do Indigenous consultation, so it’s not getting rid of that, but it is saying that you don’t need to follow a lot of the other requirements under an Impact Assessment Act or something like that.

Peter Tertzakian:

Yeah. Well, we’ll wait and see because the legislation will affect us here in Canada coast-to-coast. Speaking of coast-to-coast, let’s go to the East Coast. We’ve got a special guest today to talk about what’s going on from an energy perspective, energy infrastructure perspective, even. We’d like to welcome Charlene Johnson, who’s the CEO of Energy Newfoundland and Labrador. Welcome, Charlene.

Charlene Johnson:

Thank you for having me.

Jackie Forrest:

Right, Charlene. Well, I had the pleasure of visiting Newfoundland and Labrador, well St. John’s actually, last week and to your great conference, your Energy NL Conference, which is the real premier event for, I think, the energy industry, both green and traditional, conventional energy. I had a great time, so thank you for the invite.

Charlene Johnson:

Great to have you there. You gave a great keynote and lots of great feedback about it, Jackie, so thank you.

Jackie Forrest:

Well, and the entire business community out there was energized by the potential to get things done. You had your premier come, he had some great things to say about the conference. He described the meeting in Saskatoon as having incredible potential for Newfoundland and Labrador, and he talked about several nation-building projects, which we will get into. But before we do that, I wanted to talk a bit about your event and what was the mood of the conference this year?

Charlene Johnson:

Well, certainly pun intended, it was very energizing. This is our third year in a row that we have the sold out event now. About a thousand people come through the doors of the convention center. We have had a waitlist for our exhibition booth space and we had tremendous speakers, including yourself. We had updates on all of the major projects, including oil and wind, and of course the big hydroelectric project, the agreement that was struck between the premier of Newfoundland Labrador, previous premier, and the premier Quebec for the development of 3,900 megawatts of hydroelectricity, so a lot of interest in that. So a lot of discussion around the economy, regulations always comes up and the uncertainty of the regulations in Canada over the last number of years and how that is changing now, we’re seeing a shift from Prime Minister Carney, and also discussions around Indigenous partnerships. So a lot packed into three days.

Jackie Forrest:

Yeah, and I really enjoyed the conference because it was both clean energies and conventional energies altogether. You don’t get many conferences like that, so I really enjoyed the diversity of the conversation.

Peter Tertzakian:

Well, you’ve mentioned the hydro, Charlene, 3.9 gigawatts or 3,900 megawatts. Tell us about the $33 billion investment or potential investment on the Churchill River, and specifically I think it’s called the Gull Island Project.

Charlene Johnson:

Yeah, so that will be almost four gigawatts of power within the next 10 years to have up and running. So major upgrades to Gull Island development, upgrades to the current facility that is there, and as well as some smaller 550 megawatt upgrades. That is a tremendous amount of work for our members to happen in a very short order of time. We’re seeing, as was mentioned at the conference, there’s some site work being done already this summer. So things are happening fairly quickly and there’s also the need to construct a couple of hundred kilometers of transmission lines, so that’s the next biggest project here that will bring a lot of work to Energy NL members.

Peter Tertzakian:

Where does the power go? Where will it go?

Charlene Johnson:

Well, Quebec will receive some of the power, that’s why they are partnering in this project, but there will also be some more power staying in Newfoundland and Labrador. This can help with the mining sector in Newfoundland and Labrador. This can help develop other projects. One of the interesting things is the development of green steel is being talked about a lot. So with additional power, there are numerous uses. The opportunities are endless.

Jackie Forrest:

Right, and there’s a portion that’s been, I think it was at two gigawatts or something, that’s being reserved for Newfoundland and Labrador for power. I did want to just pause on the historic significance of this deal. You had a great panel where you had the CEO of Newfoundland and Labrador Hydro, Jennifer Williams, sitting there with Michael Sabia, president and CEO of Hydro Quebec. We have to just acknowledge the significance. This has been something like a 60-year dispute stemming from a contract that paid Newfoundland a very small amount for its electricity, something like 0.2 cents per kilowatt hour, and there was no inflation adjustment and it was really an issue that resulted in even something like Muskrat Falls, where they built an undersea cable to avoid having to take the power through Quebec because they had been warring for so long.

The fact that these two groups have come together, and obviously this to me is a very high contender for national interest, it was actually on the premier of Quebec and Newfoundland Labrador’s list during the minister’s meeting, but if this isn’t a project of national significance, I don’t know what is. It’s going to provide energy for Quebec, for Newfoundland Labrador, and potentially economic development that comes with that.

Charlene Johnson:

Yes, so again, you’re right. There has been a history here with the original Churchill Falls project, but it was great to hear both speakers focusing on the future and not dwelling in the past. For our members this will create a tremendous amount of work. At Energy NL, our mandate is to ensure that our members have the market intelligence and are ready for any of the contracts that are to come with this work. We don’t dive down into how much cents per kilowatt hour or how many billions of dollars the province is going to get from this project. We focus on work for our members. We did hear Michael Sabia say at conference that there’s so much work going on in Quebec right now for Quebec companies and that the focus will be on Newfoundland and Labrador companies getting this work, and Newfoundland Labrador Hydro has committed to the same, so we’re really looking forward to the work to come.

Jackie Forrest:

Right. Well, it’s worth clarifying, in addition to hosting the conference, your main association is representing service companies and construction companies in the energy sector. Is that right?

Charlene Johnson:

Yes, and before March of 2022, we were just NOIA, Newfoundland and Labrador Oil and Gas Industries Association. So our mandate was solely for oil and gas. That was at the time when Muskrat Falls was being developed and there was no association to advocate for work for Newfoundland and Labrador companies. There was no association to have supplier development sessions where they could get that market intelligence. As part of the consultation for considering to expand our mandate to include renewables, we had a lot of feedback from our members saying that there was no association to advocate for us during Muskrat Falls, and they’re very pleased to see that we are there doing that now for the Churchill Project.

Peter Tertzakian:

Wow, that’s amazing in terms of the scale of the project. The other big scale projects, of course, are offshore oil and gas. Fast fact, I’m not going to say how long ago, but for those who know the Hibernia Project, you know how long ago that was that I was one of the original on the team to characterize that reservoir and it started producing at late 1997. Since then the White Rose Project, which we’ll talk about here in a minute, but now there’s Bay du Nord. Can you talk about Bay du Nord and the excitement around that? Because a lot of that production in Hibernia has declined, so bringing new production on is really important to Newfoundland and Labrador, particularly from the perspective of royalties and maintaining a lot of the jobs and the service industry for the offshore. Can you talk about Bay du Nord?

Charlene Johnson:

Yes, happy to. So Bay du Nord was first discovered in 2013. Here we are 12 years later and we still expect first oil not to come for another six years, in 2031. This is truly a nation-building project. We had an economic impact analysis done for this project and it is expected over the life of field, approximately 25 years, to bring in $97 billion of GDP to the country, 82 billion of that to Newfoundland and Labrador, we are the primary beneficiary, but that still leaves $15 billion to the rest of the country for GDP. When you look at jobs, 14,000 jobs annually for this project. That’s direct, indirect, and induced. About 9,000 of those in Newfoundland Labrador. Again, that leaves 5,000 jobs for other provinces in Canada.

So when you look at manufacturing in Ontario and Quebec, project management in Alberta. The supply vessels that you would’ve seen at the conference in the harbor last week, that’s the Irving Company out of New Brunswick. So it’s truly a nation-building project in that it spreads the economic benefits throughout the country. But also, when it comes to energy security, the big topic these days as well given everything happening south of the border, as you know, Canada imports $20 billion worth of oil every year. This project could provide more oil to Canada if need be at some point.

Peter Tertzakian:

Well, certainly that energy security is important to central Canada, which gets, as you said, Charlene, the bulk of its oil and indeed natural gas from the United States. So having an eastern growth outlet to be able to bring that into central Canada from the east is very important to security

Jackie Forrest:

I would add too, the technical challenge of this project is really opening up this new basin, but it’s 500 kilometers offshore where the current projects are something like 300 kilometers offshore, just to give you a sense. It’s a long ways. It has to contend with icebergs and it’s in very deep water. Now, the project has the approval. It was delayed, it took longer than people would’ve liked, but it does have its approval. The actual challenge here is more economics. It’s just too expensive. We heard from Equinor Canada talking about they need to do it, but need to do it in a way that they can make some money here. Now, of course there are broader benefits, as you just talked about Charlene, and I think there’s a return to Canada by getting this project going. But do you think it’s going to take maybe some change in the government take to help Equinor find a way to make this project work economically? What is it going to take to get this one going?

Charlene Johnson:

So at the recent Prime Minister’s meeting, I know our premier, John Hogan, did raise having an investment tax credit to hopefully accelerate the final investment decision for this project, which isn’t expected until 2027. We understand from Equinor, if there was such an investment tax credit in place, that that would accelerate that decision. I know that he did advocate for that at the Prime Minister’s table, and this incentive was in place up until 2012. There was an incentive very similar to it called the Atlantic Investment Tax Credit. That was ended for oil and gas companies and mining companies in 2012, so we’re just asking that that be reinstated or have an energy security investment tax credit, call it what you like. We really think that help get this shovel-ready project with a proponent already in place, with an environmental assessment already done, we could see that project speed up.

The beauty of an investment tax credit for this government, it would be a quick win-win because there’s no upfront money required with it. The investment tax credit would only come into effect when the project is up and running and the government would get return on investment for that investment tax credit. Again, we did an economic analysis that showed that for this investment tax credit, federal government would receive a twelve-fold return when you look at corporate income tax, personal income tax, consumer spending tax. So this really is no risk and massive rewards.

Peter Tertzakian:

I should point out, I mean Canada and Newfoundland and Labrador was a leader in the technical aspect of this. I mean, I remember even when I worked on the project, the challenges of icebergs and offshore drilling and the inclement weather that is often encountered in those areas. That technology, of course, has really improved over the years, but really it’s an incredible achievement to be able to drill in those offshore waters. Let’s turn to White Rose, because that has been producing but there’s extensions to the oil field. Tell us about how those are progressing.

Charlene Johnson:

Well, the White Rose project had first oil in 2005, and at the time they expected to produce for 10 years. Well, here we are 10 years after that and we’ve already more than doubled the amount of expected produced oil. So when that came on stream in 2005, they expected to produce 210 million barrels of oil. That’s now over 500 million with more to come with the extension at the West White Rose Project. So like any of these four producing fields that we have, the difficult part is getting into the basin in the first place, the upfront capital cost. But once you’re in that basin, the probability of success of discovering more oil increases because the oil is already there. We’ve seen with all of our projects offshore that there’s been tremendous upside once you’re in there and up and running.

Jackie Forrest:

Right. Well, actually coming back to Bay du Nord, that’s another thing I heard while I was at the conference, is that if we can get this one project in this new basin, it will result in other developers coming in here. So outside of all those economic benefits you talked about Charlene, and I’m for giving the investment tax credit, there’s that broader impact that other developers will come just as they did after Hibernia. But yeah, this White Rose was really interesting. We heard from Cenovus Energy’s Jeff Jeworski, he provided pictures. I actually learned a lot.

I watched a YouTube video about Hibernia and how they took the big concrete base out and then they had to put the top side on top and land this thing in a very specific spot in this ocean with wave levels that can be like 80 feet at times. But they’re doing something similar with this White Rose extension, and they took out the huge concrete structure the week that we were there and he had photos of it being pulled out by these tugs. They’re going to eventually get it out into the exact place, land it on the ocean bed floor, and then they’re going to marry the top sides. So really technically a challenging, really amazing, very expensive project too. I think, is it in the range of 4 billion or something like that, in terms of the expense for a project like that? The oil production on the East Coast has gone down, it’s down about 40% from its peak about more than 10 years ago, and this is really going to give a boost to the production from the East Coast as well.

Peter Tertzakian:

Well, it’s also going to give a boost to the onshore service industry because as you know, you were just there, Jackie, and I been to St. John’s many times, but if you look in the harbor, there are all the service vessels and all the equipment. I mean, this is a livelihood of many people in that area, and so to have these extensions really is an extension of the community’s economy.

Charlene Johnson:

It’s the largest multiplier effect of any industry that we have. You mentioned the concrete gravity structure, that was built about an hour and a half outside of St. John’s, so in rural Newfoundland and Labrador. At peak, there were 2100 people working on that project. It’s an engineering marvel built right in our backyard. The ingenuity is incredible.

Jackie Forrest:

Right. Well, and the weight of that thing and figuring a way to get it out there safely, it’s pretty incredible. I learned a lot about Hibernia, the first project in, as you said, Peter, 1997, but I did hear many times how critical it was to provide jobs after the cod fishery was shut down. I heard that from so many different people. Maybe you can talk a little bit about that. It was really great, we had an update from Kerry Moreland from ExxonMobile, the president of ExxonMobile Canada, but they’re still finding more potential oil around the Hibernia project and that she thinks that although the project was only meant for 20 years, that it could be going for a good time longer because they continue to drill longer away from the platform and find more oil. So maybe just talk about the importance of that to the economy in 1997, and it’s still very important to the economy.

Charlene Johnson:

Yeah, well, in 1992 with the cod moratorium and so many people lost their jobs at the time, and I remember I was in grade 11 and the real state of despair. Businesses were shutting in, people were without work. Then just a year later, construction on Hibernia, first oil in 1997. A lot of those people involved in that fishery ended up being the workers on the supply vessels and it really injected new optimism and new hope into Newfoundland and Labrador, so the timing was perfect. I often refer to Hibernia as the gift that keeps on giving. Originally it was meant to be 600 million barrels, we’re over close 2 billion barrels. It did have a rough beginning, but the investment has proved to be very worthwhile and it’s the project that kick-started the industry here. Now we have four producing fields offshore. We just celebrated 25 years of the project in November of 2022, so a big milestone and we have never looked back.

Peter Tertzakian:

Well, that’s the oil and gas story. Let’s move on, because Newfoundland has a lot of natural resources all the way from oil, gas, critical minerals, but also a lot of wind and renewable energy. Actually, Jackie, we had a guest a couple years ago on the Green Hydrogen Project, Frank Davis from Pattern Energy, and I know there was some panels at the conference on green hydrogen. What’s going on there now?

Charlene Johnson:

Yeah, so we had updates from six potential wind, hydrogen, or hydrogen derivative projects present at conference. It was an opportunity to get the update as to where the projects are, what are some of the challenges that they’re facing, and what the timelines may be. When this originally first kicked off, there was a lot of enthusiasm, a lot of engagement with the community. There’s still tremendous interest and enthusiasm for these projects. I was just in Rotterdam recently for the World Hydrogen Show, our booth was a beehive of activity, a lot of eyes on Newfoundland and Labrador because we do have a lot of wind that is very strong and blows very consistently. I often joke, it’s one of the things I always curse because I hate the wind, but now we can monetize it, so I certainly like it. We have a lot of fresh water as well, and of course our proximity to Europe where a lot of this demand is coming from really strategically places us, well-positions us here in Newfoundland Labrador. Our grid is already 92% green energy, so that makes it very attractive for green hydrogen.

So they’re all moving along. It’s a little quieter now and I think the companies just really have their heads down, trying to secure off-take agreements, and that has become a little bit more challenging, but we’re still seeing a lot of investment. Again, these projects are all in rural Newfoundland and Labrador, so tremendous when it comes to an economic driver for rural Newfoundland and Labrador. We also heard from North Atlantic Refinery, NARL, they just bought the second-largest refinery in France, which happens to use hydrogen as one of their sources for energy. So the synergies there, I think that really helped kickstart the wind hydrogen industry here because now, I’m sure they’re still looking for off-take, but now they can provide to themselves. So they already have a built-in customer if that sale goes through. Still some hurdles to get over, still some challenges, but we remain very optimistic about what’s to come for these projects.

Jackie Forrest:

Now, I will just say, listening to the panel, talking to a lot of people there, definitely Newfoundland has some real advantages when it comes to, first of all, your wind, by the way, all the trees are bent over that I saw because the wind is so strong, your close proximity to Europe, which I think is pretty important, and the fact you have these deep ports everywhere that can make it easier to ship. I think the idea is serving the European market, you should have an advantage. Of course, we talked a little bit about it at the conference, the Americans are now looking to roll back. The big beautiful bill is not complete yet, but it looks like the hydrogen subsidies the Americans were offering, which were very generous and we couldn’t compete with them, if those go away, maybe a Newfoundland actually looks relatively better than the Americans because we have the investment tax credit and they wouldn’t have any subsidy.

I go back to that MOU signing with Germany and Canada in 2022 and the idea that we would do this very quickly. I think that was a bit naive. These are very complex projects and getting that off-take, getting the clients that want to sign up for 10, 20 years to pay for this really quite expensive fuel is taking longer. But it is interesting, the developers are grinding down the costs. That’s one thing they talked about, where they’re using this time to figure out how can we make this more economic? It is an expensive energy, but make it a lower cost one. There’s the potential for some of these projects maybe to develop the window only for now and maybe provide that to the grid. There may be an opportunity for that if there’s a call from Newfoundland and Labrador Hydro to procure wind. I thought that was interesting as well because they’re really just massive wind farms, and of course they have the green hydrogen, but you could go ahead with one part of it, which is the wind farm. Any thoughts on that, Charlene?

Charlene Johnson:

We understand from Newfoundland Labrador Hydro that they will go out with the request for proposals for about 400 megawatts of wind. So again, that is an opportunity to kickstart the wind industry here.

Peter Tertzakian:

So when we had that podcast with Frank Davis a couple of years ago, maybe it was almost three years ago, we were skeptical about the timeline at that time, Jackie, if you recall. What is the timeline now that you’re hearing from the conference in terms of what may be realistic for bringing hydrogen via ammonia to Europe?

Charlene Johnson:

I think we’re still a couple of years away yet, and final investment decisions have been pushed out a little bit. I think anywhere within the next three to five years we will see at least a couple of these projects providing hydrogen or derivatives to Europe. They’re all at different phases. One has been through the environmental assessment, several others are going through it now, and there’s one or two yet to file, but I understand it’s coming soon. So they’re developing at the pace that works for them, but realistically, in a couple of years I think we’ll see some first projects.

Jackie Forrest:

Charlene, I have to say, I was skeptical coming to the conference. But after meeting the developers and talking to them, I agree with you, I think we’ll see at least one or two projects actually come to life, especially because in Europe there are requirements for these types of fuels. They are expensive, but as long as those policies in Europe stay in place, there will be a demand for some amount of these fuels. To me, especially with this change with the US, Newfoundland seems really well positioned. If you’re going to have to get this fuel, it’s going to be expensive, but I think Newfoundland’s probably going to be able to give you a more competitive price than most other suppliers.

Charlene Johnson:

There’s so many parallels with the oil industry. It only takes one project to kick start an industry. I think once you have that first one up and running, like Hibernia did for our oil industry, the same will happen with the wind hydrogen industry here.

Peter Tertzakian:

Let’s move to policy and regulatory issues, particularly policy and regulatory reform or policy and regulatory encouragement. What did the conference talk about in terms of that and what’s needed to really get things kickstarted? I’d say things like hydrogen continue to need incentives, potentially the Bay du Nord and others. Pretty much everything these days in energy and energy transition is dependent upon policy and regulations. We’ve talked to ad nauseam, Jackie, you and I, about the policy density and complexity here, particularly in Western Canada on the oil industry. What’s the state of play in Newfoundland and Labrador?

Charlene Johnson:

What really needs to happen is the uncertainty needs to go away. For the last five or six years, the headlines that investors are reading when they open up their morning news is really, frankly, Canada is not open for investment in oil and gas. It started with Bill C-69, then emissions cap was first talked about in 2021. We have Nova Scotia right next door to us that had awarded a bid in an offshore exploration bid round, then between the province and the federal government they canceled that bid. We’ve seen the celebration of divesting of exploration parcels off the coast of BC, the federal minister at the time celebrating that. Those parcels were there for 30 or 40 years, they were never going to be developed, so celebrating things like that just sends all the wrong signals and all the wrong headlines to investors.

So what needs to happen is we need to have different headlines coming out of Canada. We have seen firsthand here what the emissions cap has done to drive capital investment out of this country. The last three out of four bid rounds offshore Newfoundland and Labrador, and this is where companies bid on parcels to explore to see if there’s oil, we’ve had the last three out of four turn up $0 in bids. This really corresponds to the time that the emissions cap was first talked about. Compare that to the years previous, there was $4 billion in bids over six years offshore.

So to go from $4 billion worth of interest, and that’s just for the right to go explore and look for oil, to go from that to a big goose egg, we have seen how uncertainty has eroded investment here. So this is the first time in 21 years that we do not have a rig offshore exploring for oil. There’s 80 to 100 wells being explored around the world in 2025, and we have zero. That is a direct result of uncertainty in the regulations in Canada. But we remain optimistic. We are seeing positive signals coming from Prime Minister Carney. I really think those headlines are hopefully starting to change, but we need some of these nation-building projects. We need Bay du Nord to get over the line to send the right headline to investors around the world.

Peter Tertzakian:

Well, it’s not only Bay du Nord, but a lot of the rigs that are working around the world and would indeed be working in Newfoundland and Labrador are there to maintain production. Because if you don’t continue to grow, the production drops, then your royalties and taxes drop. Then you said it’s a major contributor to the provincial economy there, so then it creates a huge deficit.

Jackie Forrest:

I’ll just add, Peter, our listeners know we’re not fans of the oil and gas emissions cap, and I totally agree, Charlene, it is sending the wrong signal. If we’re going to go ahead with these nation-building projects, which include potentially LNG export terminals, then how can we constrain the supply side. The same thing, how can we bring on a new offshore platform if we’re constraining the supply side?

The thing I learned, which I kind of already knew, but I saw the numbers, is how low carbon our offshore already is. So you’re saying that you’ve got to get even lower carbon than everybody else because you’re already almost the lowest carbon? It seems like a very high cost burden to put on an industry when you’re already some of the lowest emissions barrels in the offshore and require that to be even lower, and of course creates all the distortions in terms of winners and losers. We could go on and on about it.

But I did want to mention, there was an article in the Toronto Star over the weekend, which I will put a link to in the show notes, that the headline of the article is Potentially Carney Will Change the Emissions Cap, say Insiders. A lot of anonymous sources in there. I hope that that conversation is going on because I think that policy, which isn’t even a rule right now, but just a message saying that it isn’t going to happen, I think will be a strong signal to investors.

Charlene Johnson:

If it doesn’t change, we won’t see a change in investments. It takes $200 million to explore one well offshore Newfoundland and Labrador, and then you’re looking at a fast track 15 years to get to first oil and a cost of about 12 to $15 billion. Why are you going to look for oil in the first place if you can’t get a return on investment? Because this emissions cap will act as a production cap, you can’t get the return on investment out, you’re not going to put that upfront money in to look for oil in the first place. So it absolutely has to change. We have heard those signals too during the campaign that Prime Minister Carney would be open to continuing consultations with the industry. I really feel like we’ve participated in enough consultations that they know where we stand on it, but we are welcome to having more conversations in the future, and really this should sit with the provinces.

Jackie Forrest:

Yeah. One message in the article, which we’ve said many times, is if they go ahead with the Pathways carbon capture storage project and the methane rules, you actually accomplish the same thing. So the article, the anonymous sources talked about, actually, it’s not really doing anything. If we just make those other policies work, we don’t need it. So I’m glad that hearing from these anonymous sources that are insiders, that they get that point.

Peter Tertzakian:

Yeah. Well, I would say it’s not just the emissions cap. As we’ve discussed a lot on our podcast, Jackie, it’s a holistic review of all the carbon policies and the harmonization and just making them simpler to understand. Many people say, “Get rid of everything.” Let’s just get some sense of simplicity and effectiveness, and then the whole issue of the carbon markets, get them functioning properly. It’s just a rework of the entire carbon policy and regulatory system that’s needed. It’s not just the emissions cap, I would argue, that is inhibiting investments. So talk about policy as it relates to the clean energy projects. Do you feel that there’s stability and certainty around those policies?

Charlene Johnson:

Yeah, the feedback from our members is that those are really good investment tax credits that are there for the development of wind hydrogen projects. Would they want more? I mean, I’m sure that would be welcome if the Prime Minister is considering that to help kickstart these and get over some of the challenges with getting these off-take agreements. But overall, very positive feedback on those investment tax credits. Again, as you said, Jackie, we’re now even more attractive that the US is getting rid of what was very competitive, very hard to compete with in the past, the investment tax credits in the US.

Peter Tertzakian:

Charlene, is there anything else you want to talk about?

Charlene Johnson:

Yeah, I was just going to say on the emissions cap, it’s really these policies, while well-intentioned, can create carbon leakage, and that is the unintended consequence. Our offshore contributes 0.18% of global greenhouse gas emissions, that’s less than one quarter of 1%, but it brings in 20% of our GDP. It’s been upwards of 32% of our GDP at peak. So as long as the world needs oil, and even if by 2050 we’re at 50 million barrels a day down from 100 million barrels a day, that is still a huge demand for oil. It should come from Canada, where we focus on safety, environment, our governance structures are strong. Here in Newfoundland Labrador, we have that lower carbon per barrel oil, which Wood Mackenzie refers to as advantage barrels.

Peter Tertzakian:

Well, Charlene Johnson, CEO of Energy Newfoundland and Labrador, thank you very much for your insights. It sounds like it was a great conference. Jackie, I know you’ve been raving about it ever since you got back. I spoke at that conference, actually, probably about 10 years ago. I can’t remember. I lose track of time. But I would also put in the plug for tourism in Newfoundland and Labrador. Been there many times, spent a month driving around, went all the way up north to L’Anse aux Meadows and it was just a fabulous place. So if you’re looking for somewhere to go this summer, I encourage you to go to Newfoundland and Labrador.

Well, we talked about so many things, from oil and gas, to hydro, to renewable energy, wind, hydrogen. It’s a very exciting place. I think Newfoundland and Labrador has a lot to look forward to as we think about our nation-building here in this country and putting Canada on the map as the energy superpower, as our prime minister says. So again, Charlene, thanks very much, and good luck to everyone in Newfoundland and Labrador.

Charlene Johnson:

Thank you for that endorsement, Peter and Jackie. We really are, as some have said, at a hinge moment. I think next year’s conference will have some excellent updates to share as to what has moved along over the next 12 months.

Jackie Forrest:

Well, and congratulations on the excellent conference, and yes, I think next year will even be more exciting because we’re really at a time of new optimism. You could definitely fill that in the room, in the province and Canada, for both clean energies and oil and gas. So thanks so much, Charlene, and thank you to our listeners. If you enjoyed this podcast, please rate us on the app that you listen to and tell someone else about us.

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Inside the Coming Power Surge: Beacon AI Centers’ Bet on Alberta

Inside the Coming Power Surge: Beacon AI Centers’ Bet on Alberta

Produced by ARC Energy Research Institute | by

North American electricity demand is growing fast, driven by the increasing presence of data centers, as well as other load growth. In Alberta alone, the AESO has reported about 12 GW of requests for load grid connections from data centers.

This week, our guest is Josh Schertzer, Chief Executive Officer at Beacon AI Centers, which recently announced plans to develop up to 4.5 GW of AI data centers in Alberta, representing an investment of up to C$10 billion.

Here are some of the questions that Jackie and Peter asked Josh: Should Albertans be concerned about this substantial load growth and the potential for associated higher electricity prices, given that 4.5 GW would account for nearly a 50% increase in current average provincial demand? Can data centers introduce flexibility by curtailing demand during periods of power shortages? Will Beacon AI Centers rely on grid electricity, or will they build their own generation sources? Do the clients of data centers, such as major IT companies, view natural gas as an acceptable energy source, considering its greenhouse gas emissions? How much cooling water is required, and could freshwater availability become a growth constraint? Lastly, what is the employment impact of the projects, including construction, operations, and spin-off jobs associated with establishing a data center hub?

Content referenced in this podcast:

Please review our disclaimer at: https://www.arcenergyinstitute.com/disclaimer/

Check us out on social media:

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LinkedIn: @ARC Energy Research Institute

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Episode 287 transcript

Disclosure:

The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.

Announcer:

This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.

Jackie Forrest:

Welcome to the Arc Energy Ideas podcast. I’m Jackie Forrest.

Peter Tertzakian:

And I’m Peter Tertzakian. Welcome back. Well, Jackie, you did it. You got that coveted camping spot.

Jackie Forrest:

The BC campsite I’ve been trying to get. And now Peter, I don’t want to jinx it, but it looks like I’m going to actually see Mount Assiniboine, which is very exciting.

Peter Tertzakian:

And I’ve done that.

Jackie Forrest:

Something I’ve wanted to do for a long time.

Peter Tertzakian:

Good, good. Excellent.

Jackie Forrest:

Of course you’ve done that.

Peter Tertzakian:

Not for a long time, but I have done that. Okay, great. What’s in the news?

Jackie Forrest:

Today, we’re recording a little bit early. It’s May 29th and The Globe and Mail has just reported that Mark Carney will be visiting Western Canada. There’s going to be a Premier’s meeting in Saskatchewan on Monday, but we hear there may be some other meetings coming.

Peter Tertzakian:

Yeah, I think there’s some meetings here even over the weekend.

Jackie Forrest:

And we had Gordon Campbell on last week being a bit skeptical about if this government was going to act, but the reporting in The Globe and Mail, and I will put an article to it and by the time this is live, maybe they’ll be a lot more to say on this, but they’re proposing changes to legislation to fast track projects.

There’ll be a list of nation-building projects, and that these will have a much faster approval process and they will adjust regulations to modify that and to relax some of the requirements, and if they are projects of national interest. So more to come on that, but we want to see fast action. They’re talking about potentially passing this by Canada Day.

Peter Tertzakian:

Well, next time we record, we’ll know a lot more. We’ll know the outcome of that first Ministers’ meeting in Saskatchewan, potentially even some hints on what the list is of infrastructure projects that are prioritized. And I do think there’s going to be some legislation that accompanies that. So stay tuned.

Jackie Forrest:

Yes, stay tuned.

Peter Tertzakian:

All right. Well, we talk a lot about the supply side of energy. We talk a lot about politics lately, unavoidably. We talk about policy that emanates out of the politicians and government. I’d like to come back to one of our favorite subjects, which is on the consumption side of energy, and that’s data centers and still the tremendous momentum behind data centers. The tremendous excitement.

I can tell you that I voraciously use AI in my day-to-day productivity. I know you do too, Jackie. So we want to find out more. We want to find out more also because there’s some really fantastical numbers and excitement here in the province of Alberta with respect to the build out of data centers.

So who better to invite than a CEO of a data center company? So today we’re delighted to have a special guest, Josh Schertzer, who is the CEO at Beacon AI Centers based here in Calgary. Welcome, Josh.

Josh Schertzer:

Thanks for having me.

Jackie Forrest:

Okay, Josh. Well, your company wasn’t maybe not known to everybody a few weeks ago, but there was an article, and we’ll put a link to it, that introduced your company and talked about potentially a $10 billion investment here in Alberta, four and a half gigawatts potentially of electricity demand. So that got a lot of people’s attention and we’re really glad you could join us and tell us a bit more about it. So maybe we could start off with just telling us a bit about yourself and the company.

Josh Schertzer:

I’ll go quickly just into my background first for 60 seconds or so just to give some of that and then I’ll dive into Beacon and what we’re up to. So I am just newly appointed CEO at Beacon. I started in the middle of March, so I’m fairly fresh.

I’m coming off of what I like to joke about as just about a 17 and a half year sprint working at a private equity firm called Blackstone where I had a number of roles. I was the chief technology officer of enterprise technology. It was a team of five or six that led early stage investing off the balance sheet on behalf of the firm.

I advise both our portfolio companies and our business units on technology-related strategy and investments. And most recently, I was up in New York for the first 13 years of my career at Blackstone and in 2020, I relocated to Miami to both launch and co-lead that office.

That was a really exciting journey for me. It was pretty much the only place I’ve ever worked other than New York Stock Exchange for a brief period of time. And the story behind me coming to Beacon is Beacon is invested and owned by an investment firm called Nadia Partners that’s chaired by someone named Aidan Kehoe, who’s a dear, dear friend of mine.

I sat on the board of Aidan’s company years ago that he had successfully sold and we always knew after he sold that, that we would end up working together somehow. And credit to Aidan, he’s been trying to figure that out, try to pull me over for years and I could never bring myself to leave in the exciting role I had at Blackstone.

But when Aidan approached me again last summer about what they were working on at Beacon AI Centers, and it really resonated with me just mainly because of a few things. One is my technical background as someone who’s built and operated data centers across my career, someone that has built technology including artificial intelligence technology for quite some time.

And really just on the Blackstone side of the house, it’s very public that Blackstone is a very large, if not the largest data center investor in the world, and so I had this practitioner experience coupled with the exposure I got on the investment side of the house. And so when this opportunity presented itself via Aidan, it excited me quite a bit.

Peter Tertzakian:

Well, your pedigree is amazing and my experience with American PE and American entrepreneurs and CEOs is go big or go home.

Josh Schertzer:

For sure.

Peter Tertzakian:

And so here it’s go big, and come here and $10 billion. So tell us where you are going to place the data centers here in Alberta.

Josh Schertzer:

Yeah, sure. So a few things. So thank you for the support and stuff as it relates to the launch and to the release just a few weeks ago. If I’m being honest, we expected some inbound. It was quite more than we expected in a good way, especially up here in Alberta. If people didn’t know who Beacon was before, they certainly do now, and we’re very happy about that.

We are a data center development company. The problem that we’re trying to solve for is essentially the constraint that the large technology companies, the hyperscalers face as it relates to the crunch, as we call it, for compute.

As they continue to develop and build out artificial intelligence technologies and features and those things get released and as they train models and as these models continue to enhance, there’s just a big strain on compute technology, compute power to continue to power that.

And compute is really just CPUs and GPUs, mainly GPUs, used to crunch that information, but compute really equals power. If you don’t have significant power, you can’t provide that compute. And so it’s really a power constraint at the end of the day.

And it’s no secret that in North America and more broadly globally, power is obviously very scarce and grid power in particular is very, very scarce. And so the credit’s to the team. The company’s founded by a person named Joe Shovlin. And credit to him, we’ve been here in Alberta since 2023 quietly using data and other sources to really try to find where the right places are to locate these centers.

Alberta is a really exciting place when it comes to building data centers because a number of things. It’s obviously got really great access to natural gas. It does have some excess grid capacity that can be used in the short term. It’s got a great workforce, it’s very business friendly, et cetera. So all those things really really matter quite a bit.

And so after, again, some really careful research and decision making over the last two years, we made some investments in a number of sites. The six that you read about in regards to that 10 billion that you just alluded to are the ones that we are committed to. But we do have a few other sites up here as well that are a bit more opportunistic in nature.

And so we’re still trying to explore how to leverage those three sites in the greater Calgary area and three sites in the greater Edmonton area. Of those six sites, five of the six of them are capable of what we call what’s 400 megawatts of power each. And then the sixth one is actually capable of up to, call it between 1.4 and 1.8 gigawatts of power.

And so what does that mean per site? So for the five of the six sites that are capable of 400 megawatts, it’s essentially four buildings, so 100 megawatts per building. And the sixth one can obviously go to four buildings, but that’s a 960-acre parcel, so it can go quite larger to that, assuming that we can provide the power to it.

Peter Tertzakian:

Well, I always feel like we need to put these numbers into perspective. So to me, one gigawatt is the equivalent of a mid-size nuclear power plant.

Josh Schertzer:

That’s correct.

Peter Tertzakian:

And so 400 megawatts is like a very large gas-fired power plant that serves a large fraction of a city.

Josh Schertzer:

We were having a meeting earlier today and somebody actually was also trying to put that into context, and don’t quote me exactly on the numbers here, but that 4.5 gigawatts is basically almost three Calgaries if you talk about the power required to power the entire city.

Jackie Forrest:

Well, and the province is, on average, consuming about 10 gigawatts, although our peak is closer over 12, just to help our audience understand what a big load that is. Now, that load has come with some concerns as well.

Josh Schertzer:

Sure has.

Jackie Forrest:

… because it’s not just your project. In fact, the AESO, which is our electricity system operator has 12 gigawatts of data center load in their queue. You can see your six projects, but there’s others there as well. And if all this demand were constructed, we’re talking about doubling our consumption.

And that doesn’t even include, by the way, these other projects that have been announced that aren’t connecting to the grid, which would add another 10 maybe to that. So how should Albertans look at this? You say we have some excess capacity now that could be easily consumed.

And I know Beacon’s aware that we’re redesigning our electrical system right now because you are actually contributors to some of the feedback to the government on that, and right now it’s not really the best environment to get people investing in generation. So how should we look at that? Or should we be concerned by it?

Josh Schertzer:

I would say a few things. One thing I should clarify, it can be consumed, but I should say we feel it could be safely consumed. Now granted, there’s obviously concerns around some of that, but first off, everything that AESO and the broader regulatory priorities are doing here is the right thing to do.

They’ve got obviously a lot of demand that came within a very short period of time, coupled with, as you mentioned, trying to do things to expand and reinforce the grid more broadly for the future. And so we were just with one of the ministers today who was alluded to something very similar.

And it’s a legitimate thing to focus on and so I think that the steps that the AESO are taking here in terms of ensuring that the reliability of the grid is there, ensuring that the cost for electricity for the broader Albertans doesn’t go up as a result of what’s happening here with this large demand that’s coming in is imperative. And so our hats are off to them for the hard work that they’re doing to do this in such a short period of time.

Our view is this. The great thing about Alberta is that it is an unregulated market. So to some extent, even though there is work and there’s policy and things that need to really be either updated or reinforced, et cetera, the fact of the matter is that the opportunity to expand this grid safely and quickly is pretty remarkable when you compare it to other regions, particularly in the United States where it’s a lot harder to do this.

It does come with things that we need to remain focused on. But that being said, it is the right environment for it, if that makes sense.

Peter Tertzakian:

Yeah.

Josh Schertzer:

Our approach is a hybrid one. So we are running a business here, but one of our biggest values at Beacon is essentially really to make sure that we are really working with the communities in which we’re operating. The broader community in Alberta essentially, everyone really is excited for Alberta to become the next hub for artificial intelligence.

In order to do that, to some extent, you need data centers to do that. The approach we’re taking at Beacon is in order for it to be an AI hub, that means technology companies have to come here, they have to land here, they have to work here. People would obviously get the opportunities to work at these companies, et cetera, but you ultimately have to land the technology companies here for this to effectively become an artificial intelligence hub.

So because we are solving the compute constraint that the hyperscalers, the technology companies are dealing with, we’re representing what they’re looking for.

Peter Tertzakian:

Let’s unpack this a little bit more because we throw this term data center around as if it’s some monolithic building filled with racks of computers with blue flashing LED lights. So is Beacon constructing and running the building like a commercial real estate enterprise? Are you actually running the GPUs, CPUs and the server racks or all of the above, or what are you doing?

Josh Schertzer:

So it is commercial real estate, but I would say it’s fairly specialized and building a commercial office property is nothing like building a data center. Data centers are way more complicated, way more expensive to build. So there’s three stages to building data centers; powered land, which is basically just a large land parcel that’s got close proximity to power, water, fiber and transmission lines and things like that.

Then the next phase of that is what’s called powered shell, which is essentially everything in the powered land phase, but you’re also building the walls, you’re building the cooling, you’re building all those other pieces. Then there’s called built-to-suit or turnkey where you’re actually customizing it fully for a particular customer, hyperscaler.

And then there’s the running of those data centers. Currently, our strategy is to take it to the powered shell level. And the reason that we do that is a couple of things. One is there are obviously other data center operators out there that have done this at scale, and so for us it doesn’t really make too much sense to invest in something that someone else is great at and we prefer to partner with them in that.

The second piece of that is a lot of these large-scale technology companies, these hyperscalers prefer to either run it themselves or use one of their operators. Does that make sense?

Jackie Forrest:

So the Microsofts or the Amazons, they’d prefer to buy the servers and configure them the way they like.

Josh Schertzer:

Yeah. They actually all have their own specs. And so for us, we’re trying to create the most optionality we possibly can for them and not make it for a particular one. Now, if one of them came to us and said, “Look, we want three of these sites,” and we know exactly what you want to do, we would absolutely be open to that too.

Peter Tertzakian:

What is Beacon selling is selling and to whom? Are you selling to Microsoft and to Google?

Josh Schertzer:

Yeah. So we’re definitely going to those large-scale technology companies; Microsofts, Googles, Amazons, Metas, Oracles of the world, basically coming to market to them with a powered shell and then basically saying, “Here’s a powered shell. How much capacity do you guys need and how far do you want to take it? Do you want us to build it all away or do you want to take it to powered shell and go from there?”

Jackie Forrest:

Okay. Now you’ve come to Alberta. That’s great that you’ve scanned all of North America and see this as a great opportunity. But one question I have, one of the criticisms I’ve heard is that although our energy price at this moment is quite low, it’s been volatile, and then we have fairly high transmission costs relative to some other jurisdictions. So how important is electricity price? Obviously you settled on Alberta even with that, so just explain that to us.

Josh Schertzer:

So two things. Well, electricity price is clearly important to us. It’s also important to all of Albertans or any community that you would host this type of stuff. So today, and this is public data coupled with our own math and analytics, but the current price per kilowatt for electricity here in Alberta is quite similar to many of the popular regions in the United States that host data centers. In some areas, it’s cheaper. It’s actually slightly cheaper than Texas at the moment, according to our math.

Jackie Forrest:

Even with the transmission costs and everything in and the distribution?

Josh Schertzer:

At the moment.

Jackie Forrest:

Right. Because we have really low energy cost portion right now.

Josh Schertzer:

Yes. At the moment. But there’s a few things I would say there. One is in order to maintain costs and for operators like us that are going to draw this much power not to create more expensive electricity both for ourselves and for the broader Albertans, there’s got to be a way to do that.

So our approach, it’s really a hybrid approach. So it’d probably be helpful for me to explain how we’re thinking about the power and how we plan to come online and phase it in because I think it’ll clear things up a little bit.

So as I mentioned before, we’re representing customers and their needs and anybody that’s speaking, any data center developer or operator that’s speaking to hyperscalers today know that all the hyperscalers, the names I just mentioned and a long list following that, they are all shopping for what they refer to as called in-service dates, when they can take ownership of the data center and put their stuff in it.

They are shopping for the end of 2027 and beginning of 2028. And so we’re trying to help solve for that in the short term one, so that we can land customers, yes, because we’re a business, but two, to get them into Alberta.

For example, if we can’t land them in here in Alberta where they’re actively excited about, what ends up happening is again, they have to solve this compute challenge for themselves or their evolution of their artificial intelligence solutions will stall because they’re going to hit a brick wall when it comes to compute.

So hence they will essentially go shop in other markets, they will land there, they’ll commit there. And then it’s not to say that Alberta will completely miss the boat, but certainly now that these folks are all committed financially, they probably won’t be able to circle back until 2031, 2032.

So we’re really striving for, how do we land at least some of them here now and then ramp up over time? And so when you think about that as it relates to power and our power strategy, our approach is going to be draw from the grid. And by the way, most of these technology companies, the names we just mentioned, they require at least a strong percentage of grid power.

For the folks that are saying they’re going to only self-generate, especially if they’re a new company, and this is not just my opinion, this is industry knowledge, it’ll be very hard to land them because they have these requirements. And that’s really because they care about reliability, and to some extent, sustainability falls into that as well.

So we are committed to hybrid both grid power and self-generation. That being said, self-generation, if we start today, it takes quite some time to come online. That’s not something that happens in 18 months or two years. That could take four years. I think the earliest we’d probably be able to come online with self-generation is 2029.

And so as a result of that, what we’ve been trying to collaborate with AESO on quite a bit… And to be fair, it’s been a great partnership and they’ve really been listening, as has Minister Glubish, Premier Danielle Smith. Everyone is really trying to listen and understand the problems and, is there an incremental approach that can be taken to get Alberta started?

The incremental approach is to some extent grid power. Now, it doesn’t mean we have to draw all the grid power the second you say we get it, but it’s just a matter of, the only way to land someone here in 2027 is to give them some grid power. So let’s say, for example, we got 800 megawatts to a gig allocated of grid power out of the excess capacity that’s there now.

First off, we wouldn’t even start doing construction or development until 2026. So in reality, 2026, we’re not really drawing much except for construction stuff. And then really what it comes down to is when the hyperscaler lands and puts servers and racks in your data center is when that draw really starts to happen.

So even if we were given a gig today, it’s not really going to get pulled until the end of 2027. Fast-forward, say that happens, we get that, we land a few long-term leases on these hyperscalers via grid power, we know there’s not 4.5 gigawatts of excess grid capacity in the queue, and so self-generation is going to be required. Even if the grid is expanding, it’s still a significant amount.

And then again, to your point before on reliability and making sure the costs remain effective and doable, that self-generation is going to be required. So we definitely intend to do self-generation as well, and our thoughts are that we’re going to do self-generation, but that’s grid connected self-generation. And so the thought behind that is that we can also be contributors to the grid to some extent.

Peter Tertzakian:

So you will fund the development of self-generation-

Josh Schertzer:

Oh, yeah, absolutely.

Peter Tertzakian:

… like a natural gas-fired power plant? So we had a guest, I don’t know when it was, Jackie, several months ago, about the backlog of gas turbines and things like that. So you have to order today if you probably want one now by 2030.

Josh Schertzer:

Hence why I was saying everybody’s going to commit to self-generation, but in reality, what that means due to exactly your point around data center supply chain, it’s just physically as much as our desire would be to do it tomorrow, that’s just not feasible.

Peter Tertzakian:

No. I’m hearing that some of the data center proposals are also co-locating close to natural gas fields because then you can-

Josh Schertzer:

You can draw from them.

Peter Tertzakian:

… they could basically have the fully integrated supply chain from the gas molecules all the way to the power generator all the way to the data center and o-

Josh Schertzer:

To the extent that’s possible.

Peter Tertzakian:

… and only have the grid as a backup. Is that…

Josh Schertzer:

Yeah. To the extent that’s possible, that’s definitely one of the areas we’re exploring. The other one is you do virtual PPAs with some of the power companies as well, or you do it yourself. And so to be honest with you, all of those options are on the table. I think you said 12 or 14 gigawatts that’s in the queue. Some of that are actually these power companies.

So in reality, and respect to all of our peers and everyone that’s working here in Alberta, it’s pretty common knowledge that not everything in that queue is legitimate data center building right now. It’s a lot of them at the power companies trying to clean some of that power as well.

But it’s okay because the expectation’s going to be, and if you speak to some of the folks within the government, within AESO, we know that post allocation coming up in a couple of weeks that some of that is going to not clear itself out, but some deals will probably be done, but once people know what they’re getting and that number’s probably going to come down.

Jackie Forrest:

Right. Maybe some duplication.

Josh Schertzer:

Yeah, there’s certainly some duplication in there.

Jackie Forrest:

Now, Alberta, we have renewables, but we’re primarily a natural gas grid and we have the perception that a lot of these IT companies only want clean energy because they’ve made commitments to reduce their emissions. What has the response been when you talk about using a grid that’s using a lot of natural gas and has emissions?

Josh Schertzer:

It’s a couple of things. So I think people have come to the, call it understanding that in the short term, natural gas is the only way to get them what they need. And so we’ll be doing some renewables too, but the fact of the matter is renewables cannot power a fraction of the amount of capacity that we’re looking to bring online. And so it’s going to have to be, again, a hybrid approach.

If it’s not renewables that can do it all, coal is obviously not an option anymore for a good reason, and then you have natural gas and you have nuclear. Technology companies are also investing directly, the Microsofts of the world are investing directly in the small modular reactors nuclear power. But what comes with that is very, very long lead time, still.

Faster than 20 years ago, but still very long lead times and the cost to do so, and obviously the regulatory hurdles that they’re going to have to jump through to get that built, which again, gets you right back to natural gas is really the answer. And so to answer your question more directly, the way that they’ve been getting comfortable with using natural gas more.

First off, I’d say if you look recently, Microsoft or one of the large technology companies, I don’t want to quote the wrong one, but one of them recently, within the last three weeks actually, it was in the news because they actually pulled back on some other sustainability targets for the next two or three years simply because they are prioritizing continuing to move forward with artificial intelligence over that, and to some extent it’s not possible for them to hit those targets.

So that that’s number one. Number two, and obviously quite important is natural gas coupled with carbon capture. And so if you’re going to say you’re going to use natural gas to do that, do you have a carbon capture plan as well and, what is that? And can you show me how that’s going to work and what your emissions are really going to be?

And so it is a lot of work because you got to really… Based on the power that they’re going to draw because it’s per customer too. People think about it in the context of per land or per piece of land or per plot, but if you have four buildings on a particular land parcel and it’s different clients, it’s actually different targets. So you might have one piece of land and four different sustainability targets. And so we have to work through that complexity

Jackie Forrest:

One grid. Well hey, in the long term Alberta, I think we can do CCS. We already have proven that.

Josh Schertzer:

Absolutely.

Jackie Forrest:

We have the reservoirs, we have the people. It’s more about the economics, but that can also be the part of the future if that’s something the clients demand.

Josh Schertzer:

It is. And to some extent, you also have to think the way that these leases are pretty, not say flexible, but they’re structured differently. And so when you work with the customers and some of these costs are not just bared onto the data center developer, they’re also passed right through to the customers in certain areas based on the targets they want to hit.

Jackie Forrest:

I got to think if you’re willing to back a nuclear plant and pay that much for power, then you might be willing to pay for natural gas with CCS too.

Josh Schertzer:

It’s that coupled with, I think the technology companies, the customers, to some extent, and there’s a limit here, but to some extent, have also acknowledged that they can’t put all of that cost and burden on the data center developers, so there won’t be anybody building data centers anymore.

Peter Tertzakian:

Can you talk about reliability? And I guess they call it five nines, 99.999% uptime because certainly nobody wants to be interrupted during the making of a CAT video. So can you tell us about that?

Josh Schertzer:

Yeah, sure. I think it depends on the type. We call them AI factories. It’s an industry term that’s been used over the last few months. Essentially, it’s data centers that are purpose-built for artificial intelligence, but within that, you still have different categories.

So you have AI model training, so think of ChatGPT and ChatGPT constantly training and becoming more intelligent and providing more intelligent answers. And then you have things like inference and things where it’s doing true reasoning and reference. So there’s two things there.

One is the compute requirements are quite different. Once you start to get into inference, the compute requirements are like nothing the world has ever seen. Training was like that over the last two years, but that was just the beginning. And the simple example of that is one ChatGPT query is basically 10 times more in terms of the draw on the compute side and the power side as a result than a Google search is.

Peter Tertzakian:

But we don’t pay more than a Google search.

Josh Schertzer:

Well, the technology companies do though.

Peter Tertzakian:

But I find, and we’ve had this discussion on podcasts before, is that okay, then you go to the making of say, an AI query to write a paragraph and then it’s a short video and there’s a long video. The power consumption of these things is just astronomical.

Josh Schertzer:

Astronomical.

Peter Tertzakian:

Yet you only still pay a flat, relatively meager monthly fee.

Jackie Forrest:

A lot of them are totally free for individuals anyway.

Josh Schertzer:

For them. I’m sorry, I thought you meant for the…

Peter Tertzakian:

Yeah, correct. My thesis is at some point we’re going to have to pay per use, aren’t we?

Josh Schertzer:

So a couple of things. So one is technology features in general, not so much an AI, AI for sure, but in general when they come out they tend to be free and then they figure out how to monetize after the fact. You see that happening with OpenAI changing their corporate structure to be able to monetize that more. So for sure they give them out for free because that’s the best way you get them hooked. Once you get them hooked and then down the road, essentially they’ll put some version of-

Peter Tertzakian:

The day is coming, in my opinion, where people are going to have to pay for the computing power you use and make a decision about whether you’re going to turn the stove on or whether you’re going to make an AI video.

Josh Schertzer:

I think to some extent, it’s the same thing as how many subscriptions do you feel like paying for when it comes to video streaming or something else? I think people are going to have to be really smart about that. But let me get back to your question on the five nines.

Peter Tertzakian:

Yeah, because the five nines, because each incremental nine past the decimal point costs exponentially more, I would imagine. And so how much do you really need?

Josh Schertzer:

The first thing on five nines, and to your point on customers may like, “You know what? Who cares if ChatGPT goes down? I’ll just wait.” It all depends on the technology and the use case. So what do I mean by that? Training. So training models. So for example, I keep using ChatGPT because that’s the most known.

ChatGPT is constantly learning. So when you are giving it whatever prompt, it’s giving you an answer, you’re then iterating on that answer. You’re saying, “Oh, do this, but do that too, do that too.” As you’re doing that, ChatGPT is continuously learning, and that’s on a per person, per user, per prompt basis.

That training, you can argue, does not require five nines because it’ll just produce an answer with what it has at the moment. And it doesn’t have to keep learning to give you that answer. The answer might be slightly stale, but essentially it could still give you an answer. So training can be paused because training itself is not user-facing. Does that make sense?

Now, when you get into things like inference, let me give you a prime of where it does matter. Think about autonomous vehicles. So if you think about the proximity of those data centers, but also the speed in which they respond to something, that’s not only running computers in the car, it’s talking to artificial intelligence over internet and other things.

And so in certain situations, time does matter. Imagine a data center went down and all of a sudden, autonomous vehicles got funky or something. And I’m just giving you one example. You can think about in the context of airplanes, a number of things that autonomously that if they went down, it would create quite the scare.

Peter Tertzakian:

But isn’t there network redundancy in all of this? If one goes down, the other one’s still up, so it just quickly instantaneously-

Josh Schertzer:

Yeah, but five nines doesn’t just only apply to power, it applies to uptime as a whole. So you’re talking about network connectivity factors into that, power factors into that, all those things factor that. So if the network went down, the power went up, you’re down. If the power goes down and the network stays up, you’re down. So there’s always that balance.

And so again, my point being is, one last thing is outside of artificial intelligence, there’s other types of data center usures, for example, cloud computing, which was obviously a big thing prior to artificial intelligence. That’s essentially every company, every government hosting their stuff on Microsoft and Amazon.

Imagine your banking site went down or something like that. Well, some people might argue that they can wait for it. Others would say the banking systems must stay up at all times, and so that requires five nines. And so five nines was a thing way before artificial intelligence is my point. It’s always been a thing, it’s just becoming more of a thing now.

The difference being now is because of the different phases and use cases for artificial intelligence, companies can be smart about, where do they really need five nines, to your point, and where do they not? And not only can they be smart in that regard, they can then say, “We can do training in a very far remote region and it can turn off and we can lose it for a day and it wouldn’t be the end of the world.”

Jackie Forrest:

Following on that, and there was this recent study by Duke University, there’s been a lot of talk about it. I will put a link to it in the show notes, Rethinking Load Growth: Assessing the Potential for Integration of Large Flexible Loads. Basically the takeaway from the paper is that if these data centers could be a bit more flexible, that there’s a bunch of spare capacity in the system. The issue is most of the time the day, we’re not using nearly the capacity of the system.

Josh Schertzer:

Correct.

Jackie Forrest:

And so they said if just 0.25% of the time in a year, that these loads could be curtailed, then there would be an extra almost 80 gigawatts of new load in the existing system. So do you think that data center owners are going to become more flexible because you say the compute is so important and hard to get?

Josh Schertzer:

I’m happy you asked that because I think there’s probably a perception here that’s actually really good to address. This doesn’t solely fall on the data centers. The data centers are hosting it, but remember what’s in that data center, what’s drawing that power, data center owners like us, we don’t control that or even touch it or even see it for that matter.

So it would be the Amazons, the Microsoft, the Googles, the Oracles of the world. It’s their servers drawing the power, and to some extent, there’s two ways to solve for this. One is on the data center, and I’ll explain that. But the other is even Nvidia, they’ve announced that they’re working to get a lot more intelligent with their GPUs and their chips around, when is it going to draw all the power versus when it’s actually not being used why does it have to draw all that power?

So the chip technology in itself is going to get more intelligent, more sophisticated and say, “If I’m not being asked to do anything at this moment, don’t draw the power right now. Essentially, for lack of a better term, tune yourself down.” When that happens, the data center draws less power, so part of this will fall on them too.

Now, the other part, now, back to the part on the data center providers, this is actually something that’s come up quite a bit. Here within Alberta, the AESO has been very vocal about this for legitimate reasons. What we have proposed and what we’ve actually committed to with AESO is that in such situations, particularly in the summertime when everyone’s blasting their air conditioner or whenever peak demand of electricity is being used, there’s things that can be done.

We can work with AESO and any other organization that would be monitoring and operating this to essentially say, data centers will always have, in addition to five nines… The other thing that contributes to five nines is not self-generation to produce the power but backup generation. So if you were to lose, for example, grid power, the data centers can’t go down back to the five nines situation.

And so what happens there is we have backup generators. And so what we’ve been working with AESO on is saying, “Look, in the summertime if we need to pull 400 megawatts off of the grid because of peak usage, if you have a sophisticated way of effectively telling us, we can start the backup generators up and run it for 24 hours until the peak goes down, and we’d be happy to do that.”

The second thing is once we get to doing our own self-generation, we’ll actually be helping contribute back to the grid because if we’re not using it at that moment, then the grid can have it. We hope that that helps at least not shelve, but at least address some of the concern around peak load usage because it’s a legitimate thing.

Not only Beacon, any data center operator, that last position they can be in is the reason that they caused a brownout or some type of over usage on the grid. You think about it from our perspective, in addition to being good neighbors, if you will, we’re absolutely incented to ensure that this stays up because think about the burden and the perception that would fall on us if we created some type of unreliability as a result of what we’re doing.

Jackie Forrest:

Okay. So another concern you sometimes hear around data centers is their use of fresh water. And in fact, there’s been moratoriums in some locations, not here obviously in Alberta, but in other places because of water use. So how much cooling water is needed? And we have a constraint on water in southern Alberta. Do you perceive that to be an issue?

Josh Schertzer:

We’re in the design phase ourselves now, so it’s a bit hard to say how much water is going to be used. What I will tell you, though, water in general, the six sites that we committed to in Alberta, the solution for water for almost each one of those sites will be different based on what the local communities and municipalities allow for.

And also, you have to factor in things like environmental studies and other things in the surrounding areas before you can really nail down a water source solution. And not every land parcel is the same. It’s not close to the same things, the same proximity to other things like natural habitats, et cetera. So all of that has to really be factored into it.

So there’s a combination of that. Obviously reuse of wastewater is going to be a priority to the extent possible. While it’s not fully there yet, liquid cooling technology for sure helps with that outside of the water. What I would say in Alberta…

And again, we’re still doing math here with respect to our design, but one of the great things about Alberta, not if you’re from Miami like me obviously because it’s a bit cold for me, but one of the great things about Alberta is that it is a dry and pretty cool climate for the majority of the year, I would say.

And so while air can’t be used entirely, it’s definitely not that cold, especially with GPUs producing this amount of heat. It certainly can help and it can reduce the amount of water required because you can do a hybrid approach here using air and water.

Peter Tertzakian:

Surely you can do a closed loop water system?

Josh Schertzer:

Yeah, and you can do that too, but my point-

Jackie Forrest:

It just costs more, right?

Josh Schertzer:

It’s quite expensive. But my point is to say that is Alberta has a little bit more of that option. There’s other areas, like Texas, you can’t. You can’t use the air like that. You have to cool that air no matter what. We don’t have to cool the air. Even if we have to cool the air, we don’t have to cool it as much as if we would’ve to cool it in Texas in the summer.

Jackie Forrest:

So you’ll need it at some times of the year. But for a big part of the year, you don’t have the cooling requirements of a Texan, et cetera?

Josh Schertzer:

We are building AI, GPU stock data centers. They will produce heat. My point is that we have a lot more options here when it comes to solving for that cooling issue than we would do in other regions in North America.

Peter Tertzakian:

Let’s talk about employment because the criticism is that, okay, yeah, you build these giant warehouses and the racks of flashing lights and who knows, in a few years, it’s AI robots walking around doing all the tasks? And so actually there’s a surge of employment for the construction of these things and putting them together. And then after that, it’s just this concrete shell, a artificial brain that’s operating on its own. What do you say to that?

Josh Schertzer:

So I say a few things. Jobs, we think about it in different ways and phases, meaning there’s construction jobs I don’t think will be automated by AI for quite some time. So as it relates to the build out of data centers for the foreseeable future, construction jobs will be there. The second piece of that… And so just for context for us, we are estimating, give or take 1500 construction jobs per each site that we look to develop for those four buildings per site.

Jackie Forrest:

Is that over a couple of years?

Josh Schertzer:

That’s over probably a two-year period, two to three year period. And then subsequent to that, when the buildings are in service or where they go live, we’re estimating between two and 300 in terms of permanent jobs.

And my view, we’ve had third parties actually come in and vet this for us to make sure that we are thinking about this the right way, a lot of that obviously pertains to the size of the buildings and the things that you’re doing in it, but ultimately two to 300 jobs. If you look, Microsoft’s got a 350 megawatt campus somewhere in the US and they’ve got over 300 permanent jobs.

Peter Tertzakian:

So maybe a better question based on experiences that you’ve seen in these Microsoft campuses of already established data centers is what sort of peripheral technology jobs spin out in the immediate geographic orbit of a data center? Do you know what I mean?

Josh Schertzer:

Outside of the business?

Peter Tertzakian:

Like tech startups and things like that. Is that happening or are those still-

Josh Schertzer:

So we’re exploring that too. With respect to tech jobs, I think two things there. There’ll be data center related engineering jobs and the two to 300 number I mentioned. Separate from that, will data centers themselves create more tech jobs? Not on the data centers themselves is what I would say. You’re going to get the typical jobs that you expect, security, HVAC engineers, things like that.

However, when you build data centers like we’re building, hyperscale AI data centers, what happens, and this is proven all over the United States, all over Europe, all over Asia, is when you have data centers here, what happens is companies that also are building AI stuff, think of companies that are doing robotics or self-driving car technologies, things like that, where they need to be in close proximity to the data centers, they follow the data centers.

So the jobs that come outside are not because they’re working for the data center, it’s because they need to be close to the data center to build their technology. And as a result, they tend to come. So we view Alberta as not just a data center AI hub. We view data centers as the, I’m going to say draw, but excuse the pun, but the draw to make it an AI hub.

Because once this is here, yes, you’ll get some technology companies here and they’ll be hiring with those technology companies, et cetera. But more broadly, anybody that’s going to be building new artificial intelligence technology that needs to be close to a data center, and that’s a significant amount, they would move here or start from here as well.

Jackie Forrest:

Okay. And I have another one for you to add to your list, Josh. I’ve been thinking about this.

Josh Schertzer:

Sure.

Jackie Forrest:

If we see all 12 gigawatts, which I don’t think will all happen, but if we did, that would equate to about a BCF per day of natural gas demand if it was all supplied by gas. So think about it, it’s like basically half of LNG Canada phase one. So we’ve been working very hard to get LNG exports out of this country.

Well, the data centers can provide a new demand for our natural gas and we don’t have to build pipelines to get that. And then that provides jobs to the province in terms of drilling wells, royalties, taxes.

Josh Schertzer:

You’re right. Thank you.

Jackie Forrest:

So that’s another benefit.

Josh Schertzer:

That’s an excellent point.

Peter Tertzakian:

Well, we’re running out of time, but I want to ask you a final question. When’s the first shovel going on the ground?

Josh Schertzer:

No later than the first quarter of 2026, but we are striving strongly to get there by the end of 2025.

Peter Tertzakian:

Wonderful.

Josh Schertzer:

But you should definitely expect the, see our first data centers come online towards the end of 2027. January 2028 would be the latest.

Peter Tertzakian:

Well, Josh Schertzer, chief executive officer of Beacon AI Centers, thanks so much for coming in. I want to obviously welcome you to Alberta.

Josh Schertzer:

Thank you. Thanks for having me.

Peter Tertzakian:

And thanks for all you’re doing. It sort of blows my mind in terms of the details that we went into and all the information. It’s been great. All I can say is I think it’s a good time to be an electrician-

Josh Schertzer:

That’s for sure.

Peter Tertzakian:

… out of all this. And I’d say, yeah, thank you for coming in.

Josh Schertzer:

Yeah, thanks for having me. Thanks for the support. And thanks to the broader Albertan community for the love and support they’ve showed us. We couldn’t be more grateful. And now that we’re pivoting into this next phase, it’s our turn to deliver and execute and do what we say we came here to do. So we intend to do that.

Jackie Forrest:

Good. And thank you, Josh, and thanks to our audience. If you enjoyed this podcast, please rate us on the app that you listen to and tell someone else about us.

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