Zach Dell - Powering the Future - [Invest Like the Best, EP.434]

Episode Summary

Executive Summary: Patrick O'Shaughnessy interviews Zach Dell, co-founder/CEO of Base, about how the aging U.S. grid works, why electrification and AI are stressing it, and how Base uses distributed home batteries to provide backup power, grid services, and lower-cost electricity.

Main Topics: How the grid works (Priority: 5/5): The grid is a real-time supply-demand machine split into generation, transmission, and distribution. Regulation and incentives (Priority: 5/5): Utility regulation rewards capex and rate-base growth more than innovation, slowing modernization. Energy demand is rising (Priority: 5/5): AI, EVs, and industrial electrification are set to drive a major step-up in electricity use. Base's distributed battery model (Priority: 5/5): Base installs home batteries that back up customers and act as grid assets when not needed locally. Battery economics and capital structure (Priority: 4/5): The business depends on lowering installed cost and financing volatile cash flows efficiently. Vertical integration as strategy (Priority: 4/5): Base controls design, manufacturing, installation, ownership, trading, and retail to build a cost edge. Leadership and personal motivation (Priority: 3/5): Dell describes lessons from Blackstone, Thrive, SpaceX, Tesla, and his parents shaping his style.

Key Arguments: The grid is aging and unprepared for faster demand growth from AI, EVs, and electrification. Utilities are rewarded for capex in rate base, so innovation is structurally discouraged. Distributed batteries avoid interconnection and transmission bottlenecks that slow utility-scale projects. Base can make money from arbitrage, retail margin, and homeowner fees while lowering bills. Lower battery install cost improves payback and makes the model more financeable. Energy abundance is tightly linked to prosperity and compute costs, so power is strategic. Vertical integration lets Base cut costs across the stack and compete in a commodity market.

Data Points: Grid age: little over 100 years old - Zach describes the electrical grid as a century-old machine U.S. grid structure: three grids - Eastern Interconnect, Western Interconnect, and ERCOT Utility ownership: about 70% of the country - Share with vertically integrated utilities Transmission/distribution lines: hundreds of thousands of miles / millions of miles - Scale of U.S. grid infrastructure Home power access at turn of century: sub-5% - Early 1900s household electrification Texas competitive market: 80% - Share of Texas in the competitive deregulated market Texas regulated market: 20% - Share still served by municipally owned utilities and co-ops Battery installs today: almost 1,500 - Current Base customer/install count Customer upfront payment: $500 up front - Base residential offer Customer monthly fee: $16 a month - Base's quoted monthly service price in the intro Customer monthly fee: $17 a month - Base's economics discussion Typical home backup battery cost: $15,000 to $30,000 - Cost of buying full-home backup on the market Battery install cost today: on the order of $10,000 - Base's current all-in cost to get a battery in the ground Tax credit: up to 30% - IRA investment tax credit for the project Energy community bonus: 40% - Some Texas areas qualify for a higher credit Retail power gross margin: 10% to 20% - Typical economics for retail electricity businesses Battery trading value: $100 a kilowatt hour - Example of a highly profitable battery year in 2023 Battery trading value: $20 a kilowatt hour - Example of a weaker battery year in 2024 Battery average value: $40 a kilowatt hour - Base's expected 10-year ERCOT average Gen 2 battery size: 30 kilowatt hour - Base's current form factor referenced in the discussion Revenue from battery trading: $1,200 of income a year - $40/kWh times 30 kWh Electricity bill average: $150 a month, $1,800 a year - Typical household power bill used in the unit economics Current useful life: 10, 15 year useful life - Expected battery life range Electric car share in U.S.: 7% - Current share of new cars sold that are electric Electric car share in Europe: closer to 25%, 30% - Comparison point for EV adoption Electric car share in China: upwards of that - China EV penetration referenced as higher than Europe Historical electricity demand growth: roughly a 2% CAGR - Average growth over the last 50 years Expected electricity demand growth: 2% to 10% - Consensus-style view of future demand acceleration Interconnection queue vs grid: twice the amount of capacity in the queue than on the grid today - Illustrates bottleneck in new supply

Pivotal Quotes: "The grid is one of the most interesting machines in the world." — Zach Dell: Opening explanation of why the grid matters "Electron is electron. There's no special electrons." — Zach Dell: Discussion of energy economics and commodity pricing "We think of ourselves as an energy technology company, but really what we are is a battery developer and asset owner." — Zach Dell: Highest-level description of Base's business

Implications: The grid upgrade race is now strategic infrastructure policy; listeners should watch storage economics, utility partnerships, and capital markets as the next bottlenecks.