Ghazal Izadi:
Welcome to Power Shift, where we explore the bold ideas and investment strategies shaping the future of energy. Today we are joined by Aaron Feuer, founder and managing partner of Thin Line Capital. Thank you so much to be here.
Aaron Fyke:
Absolutely, no, it’s a privilege to be here. Thank you, Ghazal. Thin Line Capital is the firm that I founded because I’ve spent my entire career going back to the mid-90s related to the energy the transition, the growth of electric vehicles, the growth of renewable energy, the decarbonization of industry. I previously was an entrepreneur. I started six companies in this space. Two of them became unicorns. And then in 2017, I started talking to some investors about raising a fund and now several funds to invest in this space. And that’s what Thin Line Capital has become.
Ghazal Izadi:
Aaron, as you know, the world is running on data. And artificial intelligence is one of the key topic plus cloud computing and digital infrastructure. So what’s the biggest challenge in securing clean, reliable, powerful data centers from your point of view?
Aaron Fyke:
So this isn’t new. I mean, industry for a long time has been very power hungry. What’s interesting is the time sensitivity that’s in place. There’s a real push to bring on the data centers can meet the growing needs of AI and then to procure the power sources that can run those data centers. And I think that’s what’s new. That wasn’t the case even two years ago. And so that’s driving a lot of activity in the space that’s far greater than the rate of load growth, which has historically been the case. And so renewable energy has traditionally been growing relatively extremely quickly, but to serve existing load growth. And now the curve has bent and there’s a new set of demand and that’s being driven by the growth of data centers and particularly because of AI.
Ghazal Izadi:
You have been a strong advocate for energy storage, which is critical for balancing renewables on the grid. How do you see the role of storage evolving and what technologies excites you the most for this future of new energy that we are talking about?
Aaron Fyke:
So two of the companies that I was involved in starting were grid scale energy storage companies. And the reason for that is that exactly like you’re saying, solar is now the cheapest new source of energy on the grid. And its costs are declining at a rate unmatched by any other technology. Wind is also an incredibly cheap source of power. And both of those are available when the resource is available. And they’re not when the resource is not. That is seen as a detriment to renewable energy, but there are a number of ways that this can be managed. And it’s certainly very easy to handle when the penetration of wind and solar is not very large on the grid. You can smooth out wind resources over a large geographic area, that kind of thing. But the fact is solar will never produce electricity at night because the sun isn’t available.
Aaron Fyke:
So storage is a really big piece of that in order to balance out without the supply variability from renewable energy, particularly as renewable energy becomes a greater and greater percentage of the grid, you need energy storage.
Ghazal Izadi:
One challenge for geothermal has always been location, which historically everybody is looking at this volcanic region that they have heat and water and certain geological characteristics. So how did you came through the geothermal path? What made you to make those? But that’s a different type of avenue.
Aaron Fyke:
It is. It’s funny because geothermal is also not new. I first started looking at the technology in 2007 in Australia. There was a company called Geodynamics that was drilling and there were other things in place. And of course it’s been going on much earlier than that. And it’s exactly like you said, the locations where geothermal made sense ends were extremely limited because you needed to have the right temperature, you needed to have water availability, you needed the geology structure to be right. And so people were drilling deeper and deeper in order to make the economics of the projects work. The challenge is this, it’s very similar to ocean power actually. You basically had all of the risk of very deep oil drilling when the payout wasn’t $100 barrel oil, the payout was eight cents of electricity. And so it didn’t make any sense. What’s changed in geothermal and really changed in the last two years or so is that a number of companies started addressing the problem of being able to find resources anywhere, either through better fracking technology, better drilling technology, or technologies that closed loop technologies that don’t require water. And once you reduce the requirement that there’s only a very small number of places that you can find geothermal assets, then that opens the map right up. And then that solves a number of, going back to the discussion about data centers, you can now site geothermal facilities that are near the load, as opposed to where the few rare locations are. And geothermal has the advantage of being being not having the variability that wind and solar has. Solar has its daily variability, geothermal is just drawing on a continuous source of heat and can front continuously. So now you’ve got a carbon free, dispatchable energy source located near load centers, which is literally ticking every box. It couldn’t be better and that’s what’s created this new interest in geothermal in the last couple of years, even though people have been looking at it for a very long time.
Ghazal Izadi:
I think what you said very interesting because you touch on sustainability of this resource as well as dispatchability.
Ghazal Izadi:
So this really brings up this topic that the data center can be built anywhere.
Aaron Fyke:
Yes. Yeah, that’s exactly right. You want to build a data center at the intersection of good connection to internet backbone, good connection to water for cooling, and good connection to electricity sources. And of those three, all of them have challenges. Connecting up to the electricity grid is now proving to be a huge problem, especially when I said time is of the essence. Utilities move slowly and the ability to dump a huge load at a particular point on the grid is quite challenging.
Ghazal Izadi:
So grid management is one aspect, right? And then even you mentioned about cooling. So geothermal can provide both heating, cooling, and the power. So I think if you think about that concept, geothermal can also solving the cooling challenges for the data centers.
Aaron Fyke:
Yeah, I mean, any kind of artificial cooling like that requires energy. And so if you have an abundant source of energy that’s economic, then you can solve these issues through that means. And that’s a huge advantage.
Ghazal Izadi:
Aaron, you have invested in multiple clean energy solutions. Do you see geothermal as a niche player or a major component of the future energy mix?
Aaron Fyke:
So I think it’s useful to look at what happened with wind and solar and link that to geothermal, for example. So in 2022, there were 16 gigawatts of geothermal capacity installed in the world, which is roughly where solar was in 2008. Solar now is somewhere around 1.2 terawatts. So that’s roughly 100 times increase in that time period. And so geothermal is going to go down the same path. But what’s interesting is that solar saw that extraordinary growth and it still suffers from the problem of supply volatility. When the sun’s not shining, solar doesn’t produce that. Whereas geothermal doesn’t have those same limitations. So I actually expect the adoption of geothermal to be faster than what we saw in the solar industry and I think that’s pretty extraordinary.
Ghazal Izadi:
I would like to switch a little bit on the geography. So you have LPs that connected to international market like the Philippines, Taiwan, Indonesia. And they are basically have developed a lot of geothermal project and they use this source of the green baseload power in these regions. So what should we learn from those experience internationally?
Aaron Fyke:
So what’s interesting is My investors in those geographies happen to own those assets because they happen to be in a location that had what was required for geothermal to work. Remember traditionally geothermal, the difficulty with it was there were very few locations that made sense. But if you owned a location that made sense, then fine, you could develop geothermal. The problem was it wasn’t scalable. Now for those, the Philippines, Taiwan, other places, places in Asia that are part of the ring of fire with volcanic activity, there are locations where geothermal makes sense. But the reason geothermal is particularly attractive for them and for a number of island nations is that energy is very expensive with island nations. You look at Hawaii and basically all of the oil is imported into Hawaii. And that’s true for pretty much every other island nation, the Caribbean, Southeast Asia, whatever. The problem is that renewable energy tends to struggle with island nations. Clouds form at the intersection between the ocean and the land, and islands are nothing but intersection between ocean and land. So solar resources in island nations tend to be pretty poor. There’s a reason that Hawaii has a rainbow on their license plate. It actually rains a lot there. So solar’s not very good. And wind is also– the one downside of wind and solar, for that matter, is that they are very area inefficient. They require a lot of land? Well, if you’re putting wind farms in the Midwest US or you’re putting solar facilities in Australia, that’s not a problem. But when you’re the size of Taiwan, it’s very difficult to develop renewable energy projects that fit given your land constraints and as I mentioned about the clouds. There’s an additional factor for places like Taiwan, but any country that being concerned about energy security, developing energy resources in the country itself and not being dependent on imports is extremely important. Well, geothermal doesn’t have a large land footprint. It’s dispatchable unlike renewables. It doesn’t have the cloud problem that solar has. And it’s domestically produced. So these are all the reasons that geothermal has been developed today where it could be developed and why I happen to have investors who own geothermal resources. But now it’s scalable in a way in a way that it wasn’t before.
Ghazal Izadi:
Great segue to discuss about, you mentioned and hit on a lot of advantages of geothermal, right, versus solar and wind, and what not to love about. So let’s move on on investment side and financeability. Why do you think that we don’t have similar amount of investment compared to solar and wind? Why do you think, where should geothermal go and what type of technology need to come to market that we attract investors to have the same size of investment like other renewables?
Aaron Fyke:
Well, a big question that I ask when I look at any investment, or a lot of investors ask, is why now? If this is so great, why didn’t we do this five years ago? And sometimes there is a technological reason. Sometimes the market wasn’t ready. There’s various reasons. In geothermal’s case, it’s entirely technology. Five years back, the companies that are now coming to market with geothermal solutions that unlock this larger market, they didn’t really exist five years ago. I don’t know the reasons that they didn’t, but they didn’t. And so it’s been a technological shift. But what’s interesting and what is a bit of a paradox with investment is investors want something new, but they don’t want any risk. They don’t want the risk of something new.
Aaron Fyke:
And so where geothermal is in a unique position is that what the foundations of the technology primarily have a long history in the oil and gas industry. The work that’s been done for fracking for natural gas can apply with some companies for geothermal. The work that’s required for drilling holes is well understood and that can apply to geothermal. And so even though the application Manufacturing is new for geothermal. The underlying components are relatively understood. And so actually this is unique then compared to solar. To drive solar down the cost curve required building larger and larger solar manufacturing facilities. And these are basically clean rooms. These are, you know, Intel facilities for managing silicon and putting manufacturing together. And the cost curves only drove down by scale. But there wasn’t anything similar. You couldn’t say, well, this is like a chip fab, because solar has a very different cost structure than selling Intel chips. Geothermal doesn’t have that problem. It can literally say, this is like drilling and not even difficult holes in the ground. I mean, the oil and gas industry has advanced to horizontal drilling and a number of very advanced drilling technology. Geothermal doesn’t necessarily require that, although There is a geothermal company today that does require advanced drilling, but even their argument is fine, but that’s well understood. So I think that it isn’t really a case of how do we attract investors. I think as the various technology companies that exist today advance, investors will be there waiting for them. There’s a large amount of pent up demand of investors, especially very large later stage investors can’t take the technological risks that earlier first stage investors like I can. And so they’re really waiting for investors like myself and other people who are backing these companies to help these companies grow to the point that they have the scale that large scale investors who are really looking to back proven technology and proven projects that require an enormous amount of capital. They’re waiting for that to get to that stage so they can do that. And I think I really don’t think That’s going to be a challenge. I think a number of investors are hungry to do that because their only other alternative today is to invest in wind and solar projects. And they’re the paradox of cost. As it gets cheaper and cheaper and cheaper, that’s wonderful for consumers. It’s actually not terrifically good for investors because it makes the margins much, much smaller. So I think there’s going to be a big opportunity for geothermal.
Ghazal Izadi:
For our audience, your investor and for enterprise, start-up people that they are working on new technology. What is your recommendation? What is your suggestion when they want to attract investment from VCs?
Aaron Fyke:
It is very difficult to attract investment from VCs. I’ve looked at about 1,500 companies and I’ve made investments in 14 of them. I might be doing a 15th one soon. That’s roughly one in a hundred for the companies I look at. I invest in maybe two, maybe three companies a year. Now there are larger funds that mine that invest more, but it’s still on the order of those numbers. When I look at a company to invest in, a big part is, and I’m investing in clean energy, I’m investing in industry and automotive. These are well-established industries. But this applies if you have an AI company or if you have some some software company or something along those lines as well. I think in all cases there’s two things that an entrepreneur needs to prove. One of these two things they need to demonstrate, which is either they know the market extremely well or they’re leading the technology. They know the technology extremely well. And so for example with AI, that’s more of a technology side. The entrepreneurs who are really attracting investment have demonstrated in some way or another that they are a leading voice in developing AI technology. People are less concerned about the market. Now, for the industries I invest in, I’m really looking for someone who understands the market quite well. If someone has spent a significant amount of their career in Ford or Tesla or automotive space, and now they’re developing something that will serve the automotive market. That’s that’s attractive to me because the biggest challenge in in traditional industries is penetrating the market. These are the automotive and utilities and industry. These are very risk averse customers and they should be. They’re not going to jeopardize their production for some new startup that fails. And so have serving an understanding of the market needs is almost more important than the technology. Every company I’ve backed in some way or another, it’s been someone who’s had deep expertise in the industry that they are serving. And like I said, most of my companies play a supporting role. I’m not investing in a new manufacturer. I’m investing in the analytics. The team in that particular company, that team had a long history providing battery analytics for battery manufacturers. And then they took what they were doing and they turned it into software platform and they continue doing what they’re doing, selling to customers. I saw that, okay, this is a growing area that is in my thesis, EV adoption. It’s a team that has experience providing a technological solution and they understand the market really well. So those are the things that really make a difference for me in deciding who I would invest in.
Ghazal Izadi:
So two things, either your technology experience or you are a market expert. So those are the two key things that you need to.
Aaron Fyke:
I feel that, it’s funny because you look at Apple and you could argue that Steve Jobs was the market expert and Steve Wozniak was the technology expert. They had both sides covered. But it’s really one of, and it doesn’t have to be, it absolutely does not have to be both. Yes, it’s one or the other. It doesn’t have to be both.
Ghazal Izadi:
Fun questions. So you spent years in high tech, Deep Tech and Clean Tech. So if you were not in the VC world, what would you do?
Aaron Fyke:
To give you an oddball answer, actually, one thing that I do find interesting is more on the humanity side, education, politics, policy, those things, being able to convey a message, being able to influence honestly may have made a bigger difference in the adoption of clean energy than simply technical achievements.
Ghazal Izadi:
What are your hobbies?
Aaron Fyke:
Well.
Aaron Fyke:
You start a venture capital fund and that becomes your hobby. I’m not sure anymore. I really spend a lot of my time working with my company and helping them. I feel really obligated to support the people I invest in. But– you- like traveling? I absolutely like traveling. No, that’s true. It’s funny, something that is quite common in the UK, in Canada, and Australia, but less so in the US is this notion of a gap year, of taking a year before or after uni and traveling. And I did– that was one of the most extraordinary experiences of my life. I spent time in Australia and Indonesia. I’ve lived in Japan on a rotary scholarship, lived with a family speaking Japanese. I’ve spent time in Germany. Understanding other countries and cultures is something I’ve really been fortunate enough to have been able to have spent a lot of time doing. And so yeah, that’s been really important to me.
Ghazal Izadi:
It was a fascinating discussion. And I would like to say that do you have the last word to the audience?
Aaron Fyke:
Market forces are the biggest forces in the world. The Soviet Union tried to have a command and control economy and it did not work. The current political environment has moved away from supporting renewable energy and electric vehicles, but that’s in the long run irrelevant. We are now on the other side of things and electric vehicles will be become cheaper than gasoline cars. That is now inevitable. Renewable energy is cheaper than existing fossil generation. That is inevitable. This is the next wave of what we’re seeing with energy and industry to, you know, massive industries is, is really important. And I don’t feel that the opportunity has diminished at all, and that’s really very exciting.
Ghazal Izadi:
Aaron, thank you so much for joining Power Shift and sharing your insight. It was very, very valuable. To our audience, this is Power Shift and we are looking forward to bring the next generation of the leaders to discuss the future of the energy with you. Stay tuned. Thank you so much.
