Techno-Economic Concrescence
Many things...are happening!
Concrescence is a concept I pulled from Alfred North Whitehead’s process metaphysics. It refers to the process by which a concrete entity comes into being through the integration of multiple potentialities.
Essentially, it’s the act of becoming a unified, singular reality by weaving together diverse influences, culminating in a novel, determinate existence.
NH Senate has been Second Powered
Although not a mover and shaker (yet!), Second Power has recently had some mild impact on state level politics. After our interview with the guys from CRE, a state politician from New Hampshire reached out to Travis and Glen for help drafting a provision that would open up CRE type opportunities in the Granite State. It has since passed the NH Senate!
The bill is poised to be signed by the governor sometime in July.
Nuuucular (Nuclear) Updates
Is there anything worse than the Nuuucularr pronunciation? Absolutely horrific.
Anyway, Trump’s nuclear EOs put him on the path to being the most consequential (positive) president for nuclear energy since Eisenhower. After we get some reps in and re-capture some atrophied muscle memory, given the advancements throughout the economy in communication, construction, finance, and intelligence, the United States is being put into position to bring more nuclear power online this decade than the peak buildout of the 80s.
Lucid Catalyst has the best comprehensive breakdown of all the EOs and their potential impact(s). These are rough estimates and aggregates but Lucid has a pretty good pulse on these things. If we trust them, I do, it’s fair to say at least a $100 billion, maybe much more, in private capital has been moved from, “doesn’t make sense for us, good luck” to “ok, I’ll hear you out, the calculus is changing.”
But that’s not good enough to actually make the big money move into specific projects. There’s still a lot of uncertainty around government policy and a lack of critical services to move capital from being unlocked to actually feel good about being deployed.
Policy
On the policy front, the DoE’s Loan Program Office (LPO), and Congress’ Investment Tax (ITC) & Production Tax Credit (PTC) paradigm is on the ropes.
The LPO provides robust, cheap, and long-term financing. This financing is critical to maintain momentum, breaking-ground, and attracting the scale of private capital necessary to meet our ambitious goals and the tsunami of demand on the horizon. Emmett Penney created an excellent proposal for nuclear focused deployment of LPO funds. Hopefully key power centers in Congress and the Admin take Penney’s proposal, and those like them, into serious consideration.
The ITCs and the PTCs are not financing vehicles in and of themselves but they make the breakeven math more attractive and palatable to capital looking for a cozy home it can feel safe and happy in. Fiscal hawks and doctrinaire free-marketeers on the Republican side are the biggest roadblock here.
LPO funds are naughty because it involves “picking winners and losers” and ITCs and PTCs are pseudo-subsidies that have been the life blood of wind and solar. This is a toxic mix for this group of congressional votes. They’re something that could and should be cut from this perspective.
I have no idea how this will play out. But if the ITCs, PTCs, and LPO funding are cut out or severely cut, this definitely dampens the amount of capital that could flow in, putting severe downward pressure on how many GWs of power, not just nuclear power, we can bring on-line over the next decade.
Financial Services
For the sake argument, lets put our positivity hats on here and assume, that these three programs are largely kept in place. Nuclear power is still not very legible, computable, and investable for a lot of institutional capital. This is a much different genus of capital than VC Capital which likes making long-tail bets and are more open to funding moonshot science projects with vague business plans. The major capital needed to bring GWs online are in pension funds, infrastructure funds, sovereign wealth funds, insurance funds, REITs, endowments, etc.
This group needs much more granularity and certainty. Standardized data and cost modeling, neutral risk models, credit rating agency support, securitized products, insurance coverage, telemetry for real time insights on performance, are either missing or inadequate in their current form, but are all needed. Any tool or framework that creates some firm cognitive grounding for capital to stand on and compare projects, will help capital march forward into specific projects.
For those who want to go deeper on these needs, Bailey Todtenbier lays this out in much greater detail here.
The institution that is best suited to lay the foundation for this type of work is the World Bank. The WB was instrumental in creating these very resources for the global buildout of renewable energy over the last half century. The WB has become more publicly open to nuclear power over the last six months due to three primary pressure points: emission goals, geopolitical competition, and major shareholder pressure. Hopefully this is enough to get the WB moving quickly.
DeAI
Distributed (intelligence) training is on fire. A foursome seem to be the front runners in this space: Prime Intellect, Nous, Pluralis, and Bittensor.
This is a complex game of technical breakthroughs in architecture, networking, verification, and incentive design. I know enough to know I’m out of my depth to know if any have a clear advantage over the other. I’m not sure anyone on the planet can know for certain but smart builders and investors are making their bets. We’ll see how they play out. May the most intelligent win.
The strongest prediction I can make about this space, given what we’ve recently seen play out in crypto, AI, as well as in technology and markets more generally, is we can expect a power law distribution of relevancy.
Pure monopoly or pure competition is hardly ever the outcome. There’s usually a dominant player with some respectable also-rans keeping the dominant player strategically anxious, capturing most of the market share and value, followed by a long tail of somewhat interesting, small niche servicing players.
The hyper-scalers with massive compute campuses are all the rage, rightly so, but these distributed training runs will only get bigger, putting even more demand signals into an already hot market. An advantage they have, though I’m not sure of its magnitude at the moment, is they would be much less reliant on the buildout of new capacity. They can soak up slack in grids everywhere like Bitcoin. We have a new species of dung beetle crawling on to the grid.
ZK-Proving
AI mostly, and to some extent Bitcoin, is sucking up all the oxygen in the data center demand conversation, but lurking in the background is zero-knowledge proving. This is a key primitive that brings scale, privacy, and trust to crypto-finance and AI powered technologies.
Three cutting edge projects (I know of), Boundless, Nockchain, and Succinct, are now live. There are others that are close to being live and probably loads of others I don’t know exist.
Their current digital footprints are tiny but the demand for ZK-proofs are essentially only bounded by the demand for crypto-finance and AI.
The energy demand of the two headed monsters of AI and Bitcoin were infinitesimal at their earliest stages and inconsequential a decade ago. Using these as guide posts, we shouldn’t be surprised if ZK-mining is another serious source of compute power and energy demand by 2035.
On-Chain EnerFi
Media that act as own-able and transferable abstractions of underlying assets are as old as ledgers and coined money. Financial assets aren’t new. Securitization isn’t new. But, what I’d like to impart on you is that old things transmuting into new forms, that move through new mediums, is powerful and you should pay attention.
The pieces are coming together for physical infrastructure to be financed through tokenization. In a previous piece, I wrote that this was important not because it was new or “on the blockchain” but because it ultimately lowers the cost of capital. It can onboard and coordinate more capital, quicker, and with much less intermediation (middle-men/admin), meaning cheaper, than the financial rails that currently power our capital markets.
An analog to what will happen here is what happened in the late 70s and1980s. The tri-parte forces of technological advancement, financial engineering, and deregulation led to the emergence of what became known as the junk bond market.
Telecommunications and computing were being adopted at breakneck speed by the financial system, bankers were creating novel securitization products, and the US was shedding its New Deal-era financial regulatory skin.
The junk bond market got its derogatory name because, like any financial innovation, it was rife with adverse selection. Meaning riskier borrowers are going to seek out financial resources in the new space because they are shut out of the old. The higher quality and less risky a firm is, the less they need to use this financial innovation. But what’s lost in looking at this purely in a derogatory way is that many good firms and borrowers could be locked out because of technological, regulatory, and/or somewhat arbitrary constraints rather than just being “junk”.
This market gave many smaller, less established firms, access to capital they couldn’t access before. This gave startups, smaller corporates, and emerging industries the fuel they needed to grow and innovate. This translated into close to immediate economic growth and an expansion of the technological frontier, setting the stage for future economic growth. US industries became more competitive and less oligopolistic, the economy became more dynamic and less sluggish, and emerging industries like telecomm, computing, cable tv, biotech, and many others were able to access the capital they needed at a reasonable cost. The rest is history.
In our own time, similar trends are converging.
The SEC is being much more clear on what is and what is not a security, Congress is debating stablecoins, and the appropriate market structure is being worked out by industry and regulators. Meanwhile projects like Converge, Plume, Centrifuge, Ondo, Republic, and many others are creating the technological scaffolding and financial engineering necessary for a new era of capital formation, liquidity services, and corporate and project finance to emerge.
It pays to pay attention.
