The Energy-Water Nexus

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Professor Shon Hiatt (USC Marshall School of Business) and host Ravi Kurani navigate the intricate nexus between energy, agribusiness, and water's pivotal role. Highlighting the urgency of sustainable practices, he critiqued traditional lithium extraction methods that rely on vast water evaporation in deserts. Instead, Hiatt championed harnessing geothermal energy, spotlighting the innovative approach of extracting lithium from geothermal brine, currently under trial in the Salton Sea area. He introduced the concept of binary geothermal energy production and elucidated the 'pumped storage' technique for energy conservation. Navigating the complex realm of water laws, he underscored the disparities in regulatory approaches across states and emphasized the need for a balanced energy portfolio. In conclusion, Hiatt shared insights about an upcoming energy innovation initiative at the University of Southern California, aiming to foster collaboration and address challenges in the energy sector.

• 💧 The importance of water sustainability: Hiatt highlighted the crucial role of water in the energy sector and the need for sustainable practices given increasing water scarcity.
• 🌋 Geothermal energy potential: He discussed the potential of geothermal energy, particularly through binary geothermal energy production and lithium extraction from geothermal brine.
• ⚖️ Complexities of water laws: Hiatt pointed out the complexities and variations in water laws across different states like California, Texas, and Utah, and their impact on the energy sector.
• 🚀 Upcoming USC Energy Innovation Initiative: Hiatt shared information on the forthcoming energy innovation initiative at the University of Southern California, aimed at fostering collaboration and discussion among entrepreneurs, scientists, and stakeholders in the energy sector.

Meet Shon

Professor Shon Hiatt is an eminent academic currently serving at the University of Southern California (USC) Marshall School of Business. His expertise lies in the intersection of energy, agribusiness, and water, with a particular focus on sustainability and strategic planning in these areas. Growing up in Idaho, he went on to study at Brigham Young University in Utah, where he developed an interest in entrepreneurship and microfinance. An impactful stint as a service missionary in Chile further cemented his dedication to these subjects. He then transitioned into academia, starting his career at Harvard Business School, where he taught in their Agribusiness and Energy Global seminars. At USC, he is involved in an energy innovation initiative designed to foster collaboration and discussion among entrepreneurs, scientists, and stakeholders. His current projects involve research on geothermal energy and efficient methods of lithium extraction.

The book, movie, or show

We ask everyone on the podcast for their favorite book, movie, or show. This is what Shon Hiatt had to say!

Unsettled: What Climate Science Tells Us, What It Doesn't, and Why It Matters by Steven E. Koonin

In "Unsettled: What Climate Science Tells Us, What It Doesn't, and Why It Matters," distinguished scientist Steven Koonin challenges the prevailing narrative that "the science is settled" on climate change. Drawing from his extensive experience, including as a top science advisor to the Obama administration, Koonin delves into the nuances of climate science, debunking myths and highlighting lesser-known facts, such as the global temperature decrease from 1940 to 1970. He critiques the reliability of models predicting future climate changes and underscores the limitations of many proposed solutions. Instead, Koonin advocates for data-driven approaches like adaptation and, if required, geoengineering. The book serves as a comprehensive guide to understanding the complexities of climate science, emphasizing the gaps in our knowledge and the implications for our future.

Transcript

00:00
Professor Shon Hiatt
Lithium is being extracted mainly from Brines in, say, like Chile and Argentina, but it's very water intensive. They're essentially pulling the water out in the desert and just putting it into these tailing ponds and letting it evaporate. They're losing that water, right, because you get it, they just let it evaporate. And this is what they're doing right now in northern Argentina and in northern Chile. This is the traditional way of doing lithium. Now, the idea, though, with the technology I talked before, is that water could be reinjected back into the reservoirs much more sustainable, given the fact that, as we know, water is becoming a scarce commodity. We've taken it for granted for so long, and with changing weather patterns and aspects right. That it's just becoming more scarce. So we need to treat it as a scarce item and price it accordingly.

00:55
Ravi Kurani
Welcome to another episode of Liquid Assets, where we talk about the intersection between policy, technology and management, all within the lens of water. Today we have Professor Shon Hiatt .

01:09
Professor Shon Hiatt
Hello, I'm Professor Shon Hiatt  at the USC Marshall School of Business. I'm an energy and agribusiness strategist focusing on how firms can gain a competitive advantage and what entrepreneurs can do to exploit and discover new opportunities in these spaces.

01:24
Ravi Kurani
I won't take the mic anymore from you, Shon. If you can, go ahead and just kind of quickly introduce yourself. Where are you a professor at and what are you working on?

01:32
Professor Shon Hiatt
Thank you, Ravi, and thank you for inviting me to this podcast. So I'm a professor at the University of Southern California and I am a strategy professor. I do research looking at particularly how companies in energy and agribusiness, what are the actions that they could take that can give them a strategic competitive advantage, particularly as the environment changes, and also policies. And a big issue, of course, today affecting both the agribusiness and energy is this push towards government policy, what they call this energy transition, which essentially is a much lower kind of carbon economy for energy. Right. And there's implications for both the issues of agribusiness and energy. But water plays a big role in this. So I think it's something worth exploring yeah, entirely.

02:18
Ravi Kurani
And let's kind of unpack a little bit about what you just said, right? You're focusing on government policy, on the lower carbon economy. Can you kind of unpack a little bit of that really quick? What policies are we seeing today? And when you say lower carbon economy, what is that moving from and what's it moving to? What are kind of just some examples?

02:38
Professor Shon Hiatt
Well, so let's just take California, for example, because they've been moving quite quickly, in fact, in my opinion, too quickly. And to try to get off of petroleum and hydrocarbon based type of energy. So, like natural gasoline, diesel. Right. I mean, not much coal. Ledwp does have a coal plant in Utah, but most nobody uses actually, coal produce electricity in the state of California. And so what this means is like, well, what are we going to replace it with? Okay? Because the nice thing about having these hydrocarbon types energy generation is they're base load, meaning that we can have them on and they're deployable, we can have them whenever we want them. So when there's a need, we turn them on. And one of the issues with pushing towards again, the choice is like, well, if we want to go towards a lower carbon, where are we going to go?

03:30
Professor Shon Hiatt
There are many choices out there. There's wind, there's solar, which are intermittent renewables. There's more baseload type of renewables such as geothermal and reservoir hydro and there's nuclear, right? These are the existing technologies we have right now. And of course, what you want is to create a nice portfolio that balances all of it and keeps one affordability still. Reliability is another aspect that needs to happen. We want to keep the light, we want the power when we turn on our lights, right? And I feel like in the state of California, of course, they've moved so quickly and they put all their bets into the solar and wind, which is a very difficult situation to be in because it's intermittent, which means you got to invest five times the amount of capital generation to get the amount of electrons that you need to run an economy that's expensive.

04:20
Professor Shon Hiatt
And that's what we're seeing. Our rates have just been going up and they're going to continue to go up until I think the policymakers here in the state of California allow the policy and allow the generator electricity generators to maybe explore other options beyond just wind and solar entirely.

04:37
Ravi Kurani
And I think you raise a really interesting distinction between intermittent and baseline.

04:42
Professor Shon Hiatt
Right?

04:42
Ravi Kurani
You were saying obviously just kind of resummarizing this, right? The hydrocarbon based energy, you can flip a switch on and off, right? And that is baseline. You mentioned geothermal and nuclear being kind of other potential baseline technologies. And then obviously the solar and wind being intermittent. If you have these peaks and valleys on the solar and wind side, if you had a magic wand and you could wave to the policy guys in California, what would your portfolio look like? How do we decrease that cost and make sure that we do get to a lower carbon economy a lot more efficiently? What is that?

05:18
Professor Shon Hiatt
Well, I guess this is one of the questions I was asked the other day by a reporter, like, what states are doing it really well? And I said, well, let's just look at three states. And I said, let's look at Texas one hand, which is completely deregulated, California, which has sort of like a competitive base market, but is really regulated in terms of where the policy is trying to push the future of generation. And then I said, let's look at Utah, right, which is still a regulated state, but they're very open to all new technologies as long as it remains reliable and affordable. Right. So those are the two key things that policy wants there. And as we talked about and compared it, I said, you know, we look at the decarbonization if this is like a metric you care about, but maintaining affordability, reliability, utah is doing a pretty good job at that because they're open to the experimentation of all the utilities and independent power generators as long as they keep the lights on and as long as the rates stay affordable.

06:15
Professor Shon Hiatt
In Texas, one of the issues they've been struggling with is being a deregulated market, is that they can't compete with the federal incentives for wind. Right. This is the biggest issue, not so much the solar, but it's the wind investment. So they've got now up to 30% can be generated from wind at any time for their grid. But when they have the large heat domes where they really need the power for air conditioning, that's when the wind stops blowing. Well, what do you do? And that same thing happens in the wintertime when it gets very cold, the wind stops blowing. And then this becomes problematic for them because they have to have essentially what we call gas peakers on the side, emergency generators to go up. But if you invest too much this is the issue with us. We think about whenever we make investments, capital investments in energy.

07:03
Professor Shon Hiatt
We have to think about what is the entire capital cost spread over the lifetime of that generation facility and its use. So what is it like? Is it going to be used 85% of the time, like a typical plant 90% of the time, or is it only going to use five to 10% of the time? That means the rates you have to charge when you're using for the peak have to be extravagant. Right. So that's what happens if we're relying too much on the wind or like the solar intermittent. And to pick it up, we have these gas peakers, which are great because we can keep the lights on, but the amount of energy we're going to be paying for that intermittent when it goes down from the peak generation is going to be very expensive. And that's really what's been driving this up. The same thing they said, well, let's just go to the batteries.

07:47
Professor Shon Hiatt
Batteries are I mean, that's another option for those four hour gaps. But that's also very expensive. So you can see then why rates go up the more you add more intermittent energy sources. It's because the power required that you have to buy for those hours where you really need it is very expensive. And that gets passed on to the consumers.

08:08
Ravi Kurani
Yeah, that makes complete sense. And I guess the kind of compounding problem here is population moving around, right. Because if you look at Texas ten years ago or 15 years ago, just in general, the load was probably less because per cap, you just didn't have that many people there, quite honestly.

08:26
Professor Shon Hiatt
Right.

08:26
Ravi Kurani
And so you make a state that is lucrative in terms of whatever reasons to move there, whether it be taxes or California moving over there or whatever that might be, your overall net load is just necessarily going to be higher.

08:40
Professor Shon Hiatt
And it is growing there. Right, yeah. Because a lot of people are moving. It's one of the that in Florida, right. The two biggest states for net income. And we're seeing people move to Arizona as well. Right. They call the sun states that seem to be attracting a lot of it. And it could be based because people like the weather know, also policy based. It's maybe more business friendly. That seems to be where the jobs are.

09:00
Ravi Kurani
Yeah, yeah, entirely. And you touched on this really interesting point around policy before I know, before we started hitting record, you also kind of mentioned that you're working on some things around policy as well. You raise a really interesting point, and this kind of ties into water a little bit of how energy generation is actually labeled.

09:21
Professor Shon Hiatt
Right.

09:21
Ravi Kurani
You had mentioned in California or Colorado, there's some distinctions on whether this falls into the energy side of things or the kind of oil and gas side of things. Can you walk us through that distinction? What exactly does all that mean? And how does policy fit in with the diversification of, know, intermittent versus baseline energy technologies?

09:41
Professor Shon Hiatt
That excellent question. Yeah. Before this podcast began, ravi and I were talking about this recent project I was working on geothermal energy. One thing I love about geothermal energy is that it is a baseload energy source, meaning it could run all the time, it's not subject to intermittency. But what's interesting is you look at the historical nature and then this is like a nice, fun fact I would throw out there is like, the companies that started geothermal energy back in the late 50s, early sixty s, and it started in California. They were the oil and gas companies. It was actually Union Oil Company of California. Why? Because it's the drilling technology. Right. That's what you need. And when you think about geothermal, I mean, it's expensive to drill a hole now is $15 to $20 million. So if you don't hit that well right. To get that hot geothermal water, the resource, we call it, you got to drill another one, that's another 40 million.

10:31
Professor Shon Hiatt
Now you're up to 60 to do three. Right. So the cost can really go up unless you get this right when you begin to drill. So anyway, but one of the issues what made California such a star in geothermal energy is from the beginning, they defined it in the books as energy. I was like, well, what is geothermal? We've never heard of it. Well, let's just define it as energy. And when they define it as energy. It fell under the oil and gas law, which the nice thing about that is, in state of California, oil and gas is just like a property, right? You could sell the rights to the oil under the ground just like you could the mineral rights anywhere else. So it became a nice transactive marketplace with geothermal. Now let's contrast that with the state of Colorado. Colorado, like California, has prior appropriation laws.

11:19
Professor Shon Hiatt
This is the idea, which you've probably spoken about already, I'm sure, in your podcast, Robbie, but for those who haven't, I'll give you a refresher for those that are listening to this podcast. So there are two types of water laws that we have, and they kind of go on a range. Here in the United States, we have riparian, which is essentially the idea that if the stream runs through your property, riparian means like the bank, essentially in Latin, then you can have right, to actually take the water from that stream that runs through your property because, well, it's your property and the water's running through it. And this is like basically a law that came from England, right? And we use it here for many of the eastern states have adopted this because there's a lot of water when you come back to the west.

11:57
Professor Shon Hiatt
And when they were beginning to settle the west, right, water scarce. We're in a desert, right? It's in the desert everywhere from this side of the Rocky Mountains. And so you had miners and you had farmers settling. These were the two major groups. And what do they have to do? Well, they had to set up water irrigation projects to get the water either to the mines, do the sluicing, or get the water to the farms. But they had again, how are you going to manage these rights? So they came up with this idea called prior appropriation, which was first come, first in, right? The idea is that if you were the first person to take that water, make an investment, and divert that water to, say, your mine to do the sluicing or take that water to your field, then you get the first rights to how much water you're using for that beneficial use.

12:46
Professor Shon Hiatt
And then anybody else comes in, they could take it too, if there's still left over in such and such, all the way down to the bottom, right? And so if there's like a drought that year, those at the bottom, they lose their water, right? And so the rights progressively go up to the first person who had the water rights. And that's just how things were done in the west. So California uses private appropriation, a little bit of riparian. It's not as strict as Colorado, but Colorado is so strict that you don't own the rain when it falls and hits your roof. You're not allowed to. Like here in California, I've got barrels collecting my water from my rain gutters. You can't do that in Colorado. That water is owned by the state and by those prior appropriators who have it. So it's very strict. And the thing about this is that one of the problems is that Colorado legislature, when all the states back in the 70s, basically early 80s, they're all like, oh yeah, this during the energy cris, right?

13:40
Professor Shon Hiatt
Well, we should define these new technologies. We see California's. Got geothermal. There's potential here. Let's define it too. They defined it as water. And this though, is problematic because what we find in our research is that by them defining it as water, it put geothermal in conflict with their very stringent water law. Even though Colorado has what I would argue the largest amount of economically extractable geothermal resource, meaning they could be producing a ton of geothermal power. Right. It's the potential regulatory costs of getting through these hurdles of the water law. They don't have one. They don't have one geothermal plant in the state of Colorado. Here we are in the year 2023.

14:21
Ravi Kurani
Wow, that is super interesting. So just to kind of unpack that a little bit, right, you have the riparian sort of way of looking at water rights, and then you have this prior appropriation. California looks at the geothermal and basically labels it as oil and gas. And actually, one thing I wanted to kind of double click into is in California regulating it as oil and gas. And it being, you had mentioned property.

14:51
Professor Shon Hiatt
Right?

14:52
Ravi Kurani
It's kind of a way to look at how you would have property. I understand thematically how that's different than what Colorado is doing, but what does that inherently do that obviously will increase the amount of geothermal plants that you have out there? And when you don't have this sort of prior appropriation methodology, how does that change? What distinction does that make, having it be a property versus the opposite?

15:15
Professor Shon Hiatt
Yeah, so let's think about this, the fact that it's labeled like a royalty, like a mineral, right? That's how we got to think about it. Geothermal is like a mineral, right, in the state of California. And mineral rights can be traded, right? Someone owned the land at one point. Maybe they severed the mineral right from the land surface and then they sell that right to somebody else, and then they've got the mineral, right? And then they could sell it to somebody else. Right? And so it can just go into a marketplace. That's the nice thing about it. The problem with prior appropriation is that there is already inherent bias and that there's a limited amount of that water. And so let's say someone who's like a really high prior appropriator, they have that water, right? Okay. In state of California, there are these prior appropriation federal water rights.

16:02
Professor Shon Hiatt
And they got state prior appropriation rights prior to say, like 1880, before the state decided to regulate and say, all right, we're going to do it differently from those after 1880? Well, those are, that are grandfathered in. They're never going to give up those water rights because they're actually tied to the investments made to where that water is going.

16:18
Ravi Kurani
Wait, so you're saying 1880, didn't California get its independent, like it joined the.

16:24
Professor Shon Hiatt
Union in 1850 and then I got to get the right year and I'm sorry, it's somewhere in the 1880s or like 90 right around there. The state decided to regulate so late it's the late 19th century. They decide to regulate water differently than what they had done prior. Okay, so then they start giving out water rights. But the water rights weren't necessarily tied to the prior appropriation regime that existed before.

16:48
Ravi Kurani
Sure.

16:49
Professor Shon Hiatt
And it allowed the state to actually restrict them a bit more when there was a drought. All of them got it. Okay. And it allows a little bit more for this changing of the water rights beyond just being stuck to the beneficial use of the investments where the water is going. So you have a pipeline that takes it to this spot and well, whoever has that spot has that pipeline that's essentially tied to that prior appropriation water right. That they have. Right, sure. So that's how it was back then and it essentially makes those rights very sticky. Right. Nobody really wants to give those up because and if they did, they're going to pay a load of money for it because you've got senior rights. No one's taking that away from you. Now, let's say if geothermal was classified as water, that means I'm coming in now in the year 2023 and I want to come in, I want to drill, right.

17:41
Professor Shon Hiatt
Water is the medium by which I take that heat out of the earth right, to run my turbines. I am at the bottom of the prior appropriation chain. And if someone above feels like that might infringe on their water rights by somehow taking it away, like, oh, no, if you do this might dry it on the water table, this might affect me and my ability, et cetera, though it probably wouldn't. But let's just say if it could, the legal regulatory costs would be very high because they'd be going to court. So that's what prohibits this so much, say, in Colorado, is that these people who have the prior appropriation water claims, they can take them to court and argue that any driller coming in and getting like a lower water right to do, they could be infringing upon their it.

18:28
Ravi Kurani
Okay, that makes complete sense. And so if we double click into actually water being used in California right, the geothermal obviously, as you mentioned, is listed as this kind of ownership standpoint. Is agriculture still under prior appropriation? You are our largest user of water. Was that politically?

18:49
Professor Shon Hiatt
Yes. All agriculture and their water rights are based on again, most of them are type of prior appropriation falling under early 19th century state water law, late 19th century state water to the present as well as a federal water. Law that was set up in the 1910s, 1920s, 30s, during the water reclamation where they built canals, federal water canals and essentially gave water rights to some of the farmers at that time. So we've got this whole myriad of different water rights. There was a podcast I was on with an environmental law professor from USC, and I welcome everyone to listen to that, because she goes deep into the different types of the water laws. As were debating about what businesses are doing. And I was suggesting, like, every farmer I spoke to says they just want to be able to sell and put these water rights on a marketplace, but we can't do it.

19:43
Professor Shon Hiatt
And she just went through all the major facts of, like, this is why.

19:47
Ravi Kurani
I'd love to grab that podcast. I can throw it on the I.

19:49
Professor Shon Hiatt
Can throw the spotify after, actually. That'd be great.

19:52
Ravi Kurani
Really cool. And so, first of all, it's actually really interesting that we have 100 and 3150 year old water laws that were made back in the 18 hundreds, early 19 hundreds, that are still regulating a very different world that we have today. And it's actually really interesting that we did kind of separate out geothermal to be on this more ownership model.

20:15
Professor Shon Hiatt
Yeah, like a mineral, right? I think that's the best way to say a mineral.

20:17
Ravi Kurani
Right, yeah.

20:18
Professor Shon Hiatt
Mineral, right, yeah.

20:19
Ravi Kurani
Is there any complexity between, especially in California, around geothermal being a mineral?

20:26
Professor Shon Hiatt
Right?

20:26
Ravi Kurani
I mean, does it have any sort of implications around the prior appropriation side? Like, if I'm drilling in the middle of the central valley for geothermal, will a farmer come to me and say, hey, wait up a second, budy, this is my groundwater?

20:39
Professor Shon Hiatt
Yeah, there's always that potential, right? But they're on much better standing, because if they own those mineral rights, meaning the heat, and they can go in and do this, and they'll have to follow it depends. Again, so most geothermals, they actually recharge their reservoir, right, by running the hot water up. It spins the turbines, and then they take that hot water and inject it back in the ground. So it has to pass section 403 of the clean water act, because there is essentially a recharge back into the ground. But that's pretty easy for the EPA. They're pretty positive in doing this. And once they say it's positive from the EPA, it's kind of difficult from the farmers to go in and to argue that given that it's a mineral right, and not water. And then the burden's on them now, the farmers, not on the geothermal company to prove that it's having any effect, whereas the opposite is true.

21:39
Professor Shon Hiatt
If it were water, it'd be the burden on the geothermal companies to prove that it didn't.

21:44
Ravi Kurani
Yeah, it makes sense. And I guess if you're recharging the water, I guess thesis is that whatever you started off with is kind of what you're ending up with at the end of the day anyways. For the audience that is a little bit unfamiliar of geothermal, we talk about geothermal. Can you kind of just go back to the basics and explain what is geothermal, how it works, energy source.

22:06
Professor Shon Hiatt
Yeah. So essentially how this works is that there's these hot rocks. Look, you go further down, you're going to hit the mantle, which is very hot, right. But in certain parts of the crust, it's very hot, right? That hot rock mantle kind of comes up closer. I mean, think about it. We're near volcanoes, so it makes sense if we go to the geysers region of northern California near mount Shasta and all the other right? Then this is why, right? You go to Hawaii on the big island, they have geothermal projects there, the puna station, right. Basically collecting their heat from the volcano. That's so close, right. The mantle that's so close. And so the idea then is like, you've got this heat, well then what can we do? So generally there's water always in the earth. And if we go to the first time where they develop it was at the place called the geysers, because they are geysers, right, similar to Yellowstone, water gets into that hot rock, it boils, it shoots off a steam, right?

23:03
Professor Shon Hiatt
It goes up into the air. And the idea was, oh, well, this is kind of cool. Maybe we could somehow take that steam energy kind of like early 18th century James Watt technology, right? Let's take steam and see if we can create this mechanical and electrical energy from it. And that's what they did. So the early technology essentially was having the oil companies come in, drill down to where there was enough pressure underground, because there's always pressure underground. And then as that water generally comes up, it's either in a steam, but it's usually in a hot water form because it's under pressure, it's liquid. And as it comes up, it turns into a steam because it's becoming less pressurized. And that turns a turbine. Then they'll condense it and throw it back into the ground. That's the earlier technologies. Now the latest technologies is called binary.

23:50
Professor Shon Hiatt
So we don't need water that's actually above boiling point anymore. We could take water that's say, I'm going to use fahrenheit, let's use Celsius here. So let's say like 90 degrees celsius or even 80 degrees Celsius. And we could take that and we run it in a heat exchanger with a liquid that has a lower boiling point. And then that liquid with a lower boiling point turns the turbine in a closed loop fashion. And then we just take that hot water and it gets injected back in the ground. So we're just pumping out hot water and it runs a heat exchanger, and that's called the binary cycle technology, and we've been using that now for the last 20 years.

24:28
Ravi Kurani
Really cool. And so in that binary technology, there's no water that's even coming out of the ground.

24:33
Professor Shon Hiatt
I mean, that's all just actually oh, no, it is, yeah. We are pumping that hot water out of the ground. Okay. And then we pump it back down. Right. And then as it goes through this heat exchanger, there's another fluid that turns into a gas, turns a turbine, then it recondenses in a closed loop fashion.

24:51
Ravi Kurani
Similar to like a heat pump.

24:52
Professor Shon Hiatt
That's right. Yep. Just like the heat. Yeah. Perfect. Yeah. So the nice thing about this binary is it makes geothermal essentially relevant in many parts of the United States, because we don't have to just look for water that can turn into steam anymore, we just have to look for hot water. And that's pretty abundant.

25:10
Ravi Kurani
Yeah, yeah. And so let's go back to this kind of Utah reliability affordability standpoint and take that lens and put it back on binary geothermal. Are we approaching close to what would be parity of hydrocarbon based energy or getting close to it? Are we still kind of way far off? Where do we stand from like a cost perspective outside of the $15 million to actually dig holes in the ground?

25:35
Professor Shon Hiatt
Yeah. So geothermal isn't cheap, and that is true. Right, but they could run a good 30, 40 years. Right now, utah does have geothermal plants, mind you, they do have quite a few in the middle section. And again, it's just this idea of balancing that portfolio. So utilities will come in and they'll buy it and they'll say, look, we want some geothermal, we want to lower our carbon emissions, we'll buy geothermal energy, we'll buy maybe some wind, some solar, but we're not going to go over in any one of these, right. Just because we want to keep the affordability and the reliability high. And I think that's an important aspect is balancing that portfolio because there's a lot of issues why? But one is, let's look at Germany. Okay. Today article I read today, I think it was actually DeVelt, which was one of the newspapers there, but one of the CEOs of a company said, we're not going to invest in Germany anymore.

26:28
Professor Shon Hiatt
They're a German company. And in fact, he made this thing. It's like we're in an energy crisis, we've shut down our nuclear, we don't have any more Russian gas. And you expect us to do this all with, like, wind, right, we don't have enough. And it's like we're not making any more investments. And he said in his thing that I'm really worried that we're going to begin to see the deindustrialization of Germany because they don't have that reliable, affordable energy anymore. Energy is the key to everything. If we don't have affordable, reliable energy, we will it's. What we're seeing in Germany is likely what's going to be happening in. Other parts of the United States. Now, again, we don't do as much manufacturing as Germany, as much as we hope. So with the trade wars and mean, that could come back, but it won't come back to states where they have unreliable and very high energy costs, of course.

27:21
Ravi Kurani
Yeah, makes complete sense. I want to take kind of a quick step back because I know we've been talking a lot about geothermal, but you work on a bunch of stuff at USC. We were talking before the call, you're an agro business. We're also talking about lithium mines. What is kind of your worldview of what you're looking at USC and what you're kind of working on? I'd love to pick you.

27:42
Professor Shon Hiatt
Yeah, no, here's the great news that we just got. A couple donors have decided to invest here in USC into an energy innovation initiative that we have. So we're going to be starting that up this year. And the idea is, like, fall 2024, we want to have an energy week. We're going to have an energy conference open to everybody. Practitioners is what we want, where we could bring in who are the latest people doing both the business side, the entrepreneurs, right? Maybe they got a hydrogen and a technology they're trying to sell, right? Have them come in, bring their pitches. We want to hear. And then we're going to bring in the real scientists doing the work in the background and tell us what they think about it. I was just speaking with some USC scientists at the Locur Institute, where we've had some Nobel winners.

28:24
Professor Shon Hiatt
It's the Hydrocarbon Institute, and they're doing like the cutting edge research on hydrogen. And one of the things that they told me, which is hydrogen, smallest molecule in the world, right? You can't put it through a steel pipe because two reasons it leaches through the steel because it's so small, and two, it makes it brittle in the process so you lose structural integrity. So the fact that I've heard a lot of these companies and some of them I've actually worked with, like gas companies that say, hey, we're going to go 100% hydrogen, not with your existing infrastructure. There's going to have to be some major upgrades in how we think about this. I mean, right now we only know of ceramics and some carbon fibers that can actually contain hydrogen gas. So these are the types of things we need to think about. And the idea is we're going to get together, who are the people doing the cutting edge of this energy innovation, both from the business, the entrepreneur side, and the scientists?

29:19
Professor Shon Hiatt
Bring them in. Let's talk about it. Let's hear the panels. And it'll be a nice networking event, too. So we're shooting for the fall of 2024. Okay.

29:28
Ravi Kurani
That's such a beautiful vision for an event, right? Let's throw scientists and the entrepreneurs both together in a room and talk about the hard problems that we need to solve.

29:36
Professor Shon Hiatt
That's awesome, because, you know, the entrepreneur is always going to be like it's going to be positive.

29:41
Ravi Kurani
Flowers and you've also done some work with entrepreneurs as well. Can you talk a little bit more about that?

29:48
Professor Shon Hiatt
Oh, entrepreneurs themselves? Yeah. See, a lot of my research is like looking at the entrepreneurs. So even from an energy or agribusiness, I'm looking at the companies and the entrepreneurs and what decides at what point do they believe that there's an opportunity enough that it warrants their investment and they make that decision? So I look a lot at startup that's the thing I'm very interested in is what leads to the startup. I do have some entrepreneurial performance aspects as well over time, mainly looking at sort of like policy aspects that might drive it. But this opportunity aspect is just fascinating. A couple aspects that I've found is that opportunity now can be affected by just what stakeholders are saying out in the environment. I have a couple papers, one looking at like the wood pellet industry in the United States. Not many people probably know about this, and the biodiesel looking at the emergence of that market too.

30:42
Professor Shon Hiatt
But what I found empirically was that in every one of these cases, these entrepreneurs were jumping in and they're deciding their technology choice and where they're going to operate by also taking a pulse of the environment. And what the potential, if we call them stakeholders, would say these wouldn't necessarily be their customers, but these are the people out there who may be for or completely against this type of business activity or technology use. Which was kind of a cool paper to see that these entrepreneurs I mean, before it was always about the common consensus was no entrepreneurs are completely driven by potential profit. Right. This is a shumtarian notion and it's true, that is a major aspect, but how do they make those strategic choices? And we find, like, they go beyond just looking at the potential profit margin or return on investment, but they're also looking at, all right, what are the potential risks or opportunities that can come through what these people out in the environment, these stakeholders are saying, right.

31:36
Professor Shon Hiatt
This community organization or these social activists. Sure.

31:40
Ravi Kurani
And if you kind of double click into that in the view of water and you take this non shamtarian point of view of entrepreneurs looking at opportunity, of what the other stakeholders are doing, if you're going to look forward to the next 5710 years looking at the stakeholders one hand and then kind of the technologies that are out there. Where should an entrepreneur that's like listening to this podcast that's coming up with the next idea. What should they be focusing on? What are you seeing? I know this is a little bit broad.

32:11
Professor Shon Hiatt
One thing I've been quite positive on, well, two actually, aspects on this water at the nexus of this is this idea of pumped storage for energy. So we talked about this, about if we're going to move more to these intermittent renewables because the federal policy is giving the money out and so people are investing in it and some states like California are pushing towards it. Well, what are we going to do to have those electrons when we need it at a low cost? And pump storage is actually a very good way of doing this. The idea is that you have a reservoir that's higher than another, and when you have the surplus electrons, you pump water up, so it becomes essentially like a battery. And then when you need it, the water is drawn down, spins another turbine and generates that energy that you need.

32:51
Professor Shon Hiatt
And what we're finding is it's an old technology. It's been around over 150 years, it's hydropower. But entrepreneurs are getting really creative at this. There is this one company, say, I believe it's in the state of Tennessee, Kentucky, around that area, or is it I wish I had the name of it right now, but essentially they've taken an old coal mine and in this coal mine they had like some big open pits up on a mountain. And they got the shafts underground, like another big pit down in a lower valley. And essentially they're using this huge open pit at the top of a mountain as a reservoir. And they're running the pipes through the shafts, the old mine shafts, to fill up this lower reservoir. And this is going to produce up to 400 energy daily wow. Through pump storage. So that is a really cool reuse of an old no longer using this coal mine, but now they've reused it into essentially a hydropower battery.

33:45
Professor Shon Hiatt
Right. So I'm very positive. I'm still bullish about the potential for hydropower in the United States. The second one, which is quite interesting at this nexus of energy and water, is the use of geothermal Brine to extract lithium. So this first was discovered about seven years ago in the Salton Sea area. There's a startup right now working with the existing geothermal operator. And so what they're doing is as this Brine comes up, this hot water to run the geothermal they're taking in, they're going to divert it and they're going to extract some of this lithiumions because lithium is essentially just the salt. So they're going to extract the salt from it and then the water just goes back into the geothermal well. And hopefully after a while they're going to extract enough of this that they'll be able to have enough of lithium that they could sell.

34:35
Professor Shon Hiatt
So that's really cool. Basically there's already existing infrastructure and they're just kind of building on it now with the Inflation Reduction Act that kind of incentivizes this idea of making all the battery components within the United States the supply chain. Right. We're seeing now large investments from oil and gas companies that have the drilling technology. And they're jumping into this not necessarily with geothermal, but just for the mere fact to extract these Brines from the ground. And when I say Brines it is, it's a salt water, right. That's where you're going to find lithium. And so, for example, ExxonMobil has purchased the rights of 10,000 acres in Arkansas to where they're going to be sucking up this saltwater and extracting that lithium. Now, there could be potential problems with this right, that we haven't foreseen. And this is where I think that it's a cool entrepreneurial opportunity.

35:28
Professor Shon Hiatt
But we want to make sure that the water has gone recharged back in there without causing too many problems. So I think there's going to be a lot of research on make sure, I think, oversight. Definitely. I think the EPA will be involved on this because once you get the lithiumion, you got to do like, this lime, this hydro oh, gosh, what is it called, this acid? Sometimes that's needed to refine it once you actually extract it out of the Brines in the water. So all of this means is that there could be some potential for environmental issues. But on the flip side, I believe that using this like water may be one of the lower cost and least environmental invasive than what we're currently doing right now. Lithium is being extracted mainly from rines in, say, like Chile and Argentina. But it's very water intensive.

36:17
Professor Shon Hiatt
They're essentially pulling the water out in the desert and just putting it in these ponds, these tailing ponds, and letting it evaporate. They're losing that water because they get it. They just let it evaporate. And this is what they're doing right now in northern Argentina and in northern Chile. This is the traditional way of doing lithium. Now, the idea, though, with the technology I talked before, is that water could be reinjected back into the reservoirs much more sustainable, given the fact that, as we know, water is becoming a scarce commodity. We've taken it for granted for so long and with different changing weather patterns and aspects right. That it's just becoming more scarce. So we need to treat it as a scarce item and price it accordingly entirely.

37:04
Ravi Kurani
Yeah, and I love those two technologies, especially using the potential energy and creating basically a hydropower battery. That's super cool, too, especially using existing infrastructure.

37:16
Professor Shon Hiatt
Right.

37:16
Ravi Kurani
Like you said, they use that mining, that old mining plant that they had. That's super cool.

37:21
Professor Shon Hiatt
Yeah.

37:23
Ravi Kurani
Let's take a quick left turn. I always like to ask this question, understand, from our guests, what was your through line like? How did you get to becoming Professor Shon Hiatt? Where'd you grow up? What's your background?

37:36
Professor Shon Hiatt
Yeah. So I grew up in Idaho, actually. Rural Idaho. I worked on our family dairy farm, and during the summer or months harvest, I always worked for my friends who were wheat farmers. And I envied them because I was like, you guys only work twice a year planting and harvesting, right? That's what you got to you want to be a wheat farmer. But anyway, the nice thing about also, though, being in Idaho is that we have a plethora of hydropower because it's natural. We have the Rocky Mountains that collect the water, and we have rivers where we use that. In fact, my little town actually has its own dam that was built in 1910 that provides still one third of the power today, right. Churning out a full seven cents a kilowatt hour for that's the charge. I mean, it's super cheap, the electricity. Wow.

38:21
Professor Shon Hiatt
And renewable, right. So it's a great place. So my interest in Agribus is energy kind of came from my background growing up in Idaho.

38:30
Ravi Kurani
Awesome. And what was your kind of train after the dairy farming and wheat farming stint? Did you go to the college at USC as well? What did that kind of oh, yeah.

38:42
Professor Shon Hiatt
Then I went to undergraduate at Brigham Young University in Utah and I started working for a professor who was a business professor. I was just an RA and I was quite interested in entrepreneurship because well, fast forward. So during that time as an undergraduate, I took a two year hiatus and went down to Chile as a service missionary. And there, you know, the know, in every emerging economy, there's like the struggles, the economic struggles. You were talking about this earlier with me, Robbie, like this idea of economic development and helping to bring people out of poverty. And I just saw know, those that were entrepreneurs and were able to grasp an idea. Those are the ones that pulled themselves out. And so I got interested in this and I found a professor at BYU when I was back doing research on microfinance and investments, giving capital, essentially, these entrepreneurs.

39:32
Professor Shon Hiatt
I was like, this is really then, you know, I went to this conference. This is kind of fun. I went to this conference in New York City, this microfinance conference, and really cool, great speakers were there. And I ended up in this lobby talking to this professor who was a professor at the Kennedy School of Government from Harvard. And he said, you know, I was just like you at one point. I wanted to change the world, but I knew I couldn't do without a PhD, so I was like, Gotta get a PhD. So that led me go to Cornell, did a master's PhD there. My first job was at Harvard Business School where I taught in their Agribusiness and Energy Global seminars. It's their executive education programs. And then I end up marrying as an undergrad, a woman from California. And so when USC came knocking, my wife said, you're.

40:20
Ravi Kurani
Is that is you're looking at it today with being in Agro business, focusing on energy. I mean, just that through line of doing the missionary project in Chile, studying entrepreneurship, and then being at the dairy, like the whole thing ties together so nicely. It's a little bow. It's so cool.

40:38
Professor Shon Hiatt
Our lines just kind of take us on these. Yeah, yeah. Entirely funny.

40:44
Ravi Kurani
You say microfinance. I was actually working with Grameen india when I was there. And yeah, very similar infrastructural technology that were using in terms of like m pesa and getting these kind of microfinance and the ability for people to actually send small sums of money to each other and then also us make smaller investments into the companies that we are working on but entirely. I haven't heard the words microfinance in a while, though, so really cool. We're coming close to time here. I have kind of one question that I love to get from everybody. Is there a book or a movie or, like, a TV show that has changed your outlook on life and particularly around a water agro business? Anything that the audience can pick up, I do.

41:29
Professor Shon Hiatt
I actually got to look this up, if you don't mind.

41:32
Ravi Kurani
Yeah, sure, go for it.

41:34
Professor Shon Hiatt
What is it called? There it is. All right, so there is a physicist named Stephen Coonan, right? He's at NYU. He was also professor at MIT. He served in the Obama administration, and his book called Unsettled is an excellent read for anybody interested in what is climate change and what does it mean? And essentially, as a physicist, he goes through and he pulls apart these models saying, we really know very little about this. And yes, the Earth's been changing climate for four and a half billion years. It's existed for four and a half billion years. But the fact that I just definitely read I mean, again, he's part of the Obama administration. He understands the initiatives, but he basically pulls apart these current models that we have and say know, these all things need to be thrown out. We need to start from scratch again.

42:26
Professor Shon Hiatt
So I think it's worth the read for anybody who wants to understand a little bit about what is it? Why do they say one and a half degrees Celsius? Is that even true? Right. And how do they come up with that? One and a half? Is that precise? So anyway, excellent book to read. It'll actually make you stand back and think and say, okay, think about our policies maybe a little differently.

42:51
Ravi Kurani
Sure. And I think back to the entrepreneurs in the audience and anybody that's looking out there to kind of enter this technology. It's always good to go back to first principles. It's always good to look at the assumptions that we're initially making because that helps us track what we're going to do next. And if the initial underlying assumptions I wouldn't say if they're flawed or not flawed, but it's probably good to understand where we're coming from.

43:12
Professor Shon Hiatt
And that's an awesome reference.

43:14
Ravi Kurani
So, Stephen Kunin, the book is unsettled.

43:18
Professor Shon Hiatt
Yes. Awesome. Cool. Yeah.

43:20
Ravi Kurani
Well, that's all that we have time for today. Thank you. All for listening to liquid assets. You can find us wherever you download your podcast. Be that on Spotify, Apple, Google. Today we had Professor Shon Hiatt at the USC Marshall School of Business. Sean, thanks a ton for coming with us today. This was an awesome discussion.

43:39
Professor Shon Hiatt
Thank you for the invitation.