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From the source to the registers.

The term “heat pump” refers to any system that can extract heat from a colder space and transfer it to a warmer one. For example, refrigerators use heat pumps to remove heat from inside the fridge and expel it into your kitchen. Air conditioners use heat pumps to remove heat from inside the house and dump it outside. In this guide, the phrase “heat pump” refers specifically to HVAC equipment that is capable of both heating
and cooling the air inside a home. In other words, we’re talking about air conditioners that can also run in reverse, pulling heat from outside on a winter day and pumping it inside.
We’ve created this guide because when it comes to getting off fossil fuels, it does matter what you replace them with. Climate advocates tout electric heat pumps because they can create two to three times more heat per unit of energy than other heating equipment. Electric resistance heating, by contrast, is extremely wasteful, and if people start installing those systems en masse, that could actually increase emissions in the near term and make it more difficult to decarbonize the economy in the long term. By getting a heat pump, you won’t just be cutting emissions, you’ll be reducing the cost of cleaning up the electric grid because we’ll need less electricity overall.
That said, a poorly designed or installed system can negate many of the benefits that heat pumps have to offer. Whether you’re reading because you want to cut emissions, or save money on energy, or take advantage of the steady, quiet comfort heat pumps provide, it’s essential to do your homework and find a good contractor to work with. In this guide, we’ll cover how to know when it’s the right time to get heat pumps, the basics of understanding what your options are, common misconceptions about heat pumps, how to find and vet contractors, and more.
Larry Waters is the founder and president of Electrify My Home, a heating and air conditioning contractor in Northern California that specializes in heat pumps. Waters has worked in the HVAC industry for more than 40 years.
D.R. Richardson is the co-founder of Elephant Energy, a Boulder, Colorado-based startup that helps homeowners in Colorado and Massachusetts electrify by using building science and proprietary software to ensure good system design, and by managing all aspects of the project.
Jake Marin is the senior emerging opportunities manager for VEIC, a clean energy nonprofit that administers Vermont and D.C.’s energy efficiency programs among other decarbonization work across the country. Marin ran VEIC’s HVAC program for nearly 8 years and was recently given a “Champion of Energy Efficiency” award for his pioneering work bringing heat pumps to Vermont.
There are many, many kinds of electric heat pumps used for space heating and cooling. At a high level, there are two main categories that homeowners can typically choose from:
Within each of these are a handful of installation options:
The above designs aren’t mutually exclusive. You can install a system that’s fully ducted, fully ductless, or a combination of both. You can also combine a heat pump system with a fuel-burning furnace or boiler, known as a dual-fuel system. If aesthetics are important to you, there are also companies like Quilt that offer versions that can better integrate into the look of your home.
“Ductwork in unfinished space is easy. Ductwork in finished space is so expensive and hard that we typically don't recommend it,” said Richardson.Heat pumps also come in models with different “speeds” or “stages”:
There are also some technical specifications to be aware of, such as seasonal efficiency ratings:
The highest rated SEER2 device may have a lower HSPF2 rating, while the highest rated HSPF2 device may have a lower SEER2 rating.
Finally, heat pumps also come in many different sizes. Having a properly sized system is one of the most important factors for ensuring your heat pumps run efficiently and last a long time.
A good contractor will be able to walk you through different system designs and equipment options to find the answer that’s best suited to your house, your goals, and your budget.
“There’s a lot of companies out there that offer just what they have in the catalog and their salespeople can’t sell anything outside of that,” Waters told me. “That means the customer is going to get matched with that cookie cutter option if they go with that company. So how to choose a contractor is one of the most important things.”
Many people are used to setting their HVAC systems to different temperatures at different times of day — one temp for the morning and evening, another for when they leave for work, and another for bedtime. This makes sense with many furnaces and air conditioners because they’re usually designed to cycle on, blast hot or cold air at full capacity until they achieve the temperature you want, and then turn off, so turning down the system when you’re not home can save a lot of energy. But the most efficient “variable speed” heat pumps work differently — they use a lot of energy to reach a certain temperature, but once they hit it, they sip small amounts of energy to maintain it. Experts say a “set it and forget it” approach will give you the most efficient performance and the most consistent energy bills.
“Don’t worry about the number,” says Marin. “Just find your comfortable temperature, and then leave it alone, forget it’s even there.”
This topic can be divisive among HVAC experts, but in most of the continental U.S., you should be able to find a heat pump solution that will heat your home efficiently on the coldest winter days. The key is that the system has to be sized correctly. Richardson’s company, Elephant Energy, works in Colorado, where he says they’ve had two years in a row with days that got down to -13 degrees Fahrenheit, “and our fleet of hundreds of heat pumps have cranked out heat to keep homes nice and warm on those coldest days.”
There still may be scenarios where you
want to keep your furnace as a back-up, even if it’s not strictly necessary.
If you’re switching from fuel oil, propane, or electric resistance heating, you’re pretty much guaranteed to save money on your bills with heat pumps. But if you’re switching from natural gas, it really depends on where you live.
Richardson says that for a lot of his customers in Colorado, making the switch from gas to inverter heat pumps is cost neutral — they end up paying a bit more for heating in the winter but less for cooling in the summer, since the heat pump is often more efficient than whatever air conditioning they were replacing. At the same time, those who don't have air conditioning to start with could end up paying a bit more year-round.
Do you…
Short answer: Hold off on a heat pump, invest in weatherization.
Long answer: You may have arrived at this guide because you’re interested in decarbonizing your home, but if you have a relatively new heating and/or cooling system, it could actually be worse, emissions-wise, to replace it, due to the embedded carbon that went into manufacturing that equipment. Unless you’re really desperate to replace your existing system for comfort or financial reasons (if you have electric resistance heaters, for example, switching to heat pumps could save you a lot of money, since they use about a third of the electricity), we recommend getting a bit more life out of it first.
In the meantime, put your enthusiasm for decarbonization into making your home more efficient. Insulating and air sealing your home before you get heat pumps will help you save money in the near term and get you the best results from heat pumps later on.
Short answer: Consider a dual fuel system
Long answer: If you really need a new air conditioning system but your heater still has a lot of life left in it, consider installing a heat pump to work alongside your existing furnace or boiler. That way, you’ll get efficient cooling capacity that will save you money in the summer, and you’ll also be able to cut down on your fossil fuel consumption in the winter. You can set the heat pump to warm your home until it gets down to a certain temperature outside, at which point your furnace or boiler will kick in. (Many heat pump models can operate in very cold temperatures, so having a backup heating system like this is not necessary, but it may be a good intermediate step in certain cases.)
Short answer: It’s the perfect time to think about heat pumps!
Long answer: HVAC equipment typically lasts for 15 to 20 years, so 10 years is probably the earliest you would want to start thinking about a replacement. It’s probably safe to wait a few years longer, but you definitely don’t want to wait until your existing system breaks to start your heat pump journey. A heat pump retrofit can be a months-long process, from finding contractors, to evaluating quotes, to refining your plan, to getting permits and scheduling the work. If you’re in an emergency situation where your boiler broke and you really need heat, you could be forced to settle for a less-than-ideal solution. At the very least, start your research now and consider weatherization upgrades.
Short answer: Get a mini-split!
Long answer: Ductless mini-split heat pumps are a no-brainer to provide heating and cooling to a single room or zone. They can be very affordable — and in some cases free — with rebates and tax credits. If you want to retrofit the rest of your home to use heat pumps down the line, this will help you get familiar with the technology and will not preclude you from adding more later — though it is helpful to tell your contractor that now so they can take it into account.
Heat pumps can be a major investment. If you just want to add heating or cooling capacity to one or two rooms, it can cost $5,000 to $7,000 per room, on average, before incentives, Richardson told me. A whole-home solution averages $20,000 to $30,000 before incentives, but depending on the home and the system design can go much higher.
Do you have some rooms that are hotter in the summer or colder in the winter than others and you want to make your home more comfortable overall? Or is your goal to get better air filtration and ventilation? Or do you simply want to get off fossil fuels? It will be helpful to think through what you want to achieve and communicate that to your contractor so they can take that into account when they design your system.
The federal government offers a 30% tax credit for heat pumps, up to $2,000, not including labor, for certain energy efficient models. (Note that you can only get the full tax credit if you have $2,000 or more in tax liability the year you install the heat pumps.) The credit can’t be rolled over to the next tax year, but you can claim it in multiple years. Your state energy office, city, or utility may offer additional tax credits or rebates.
It’s important to learn about what’s available in your area before reaching out to contractors because some rebate programs require you to work only with approved partners. Also, the contractors you reach out to might not always be up to date on the latest incentive programs, so it’s a good idea to do some independent research and make sure you find someone who knows how to help you take advantage. There is, unfortunately, not yet any single directory where you can enter your zip code and find out about every possible rebate opportunity everywhere in the country, so it’s best to check multiple sources of information:
As with all home renovation projects, we strongly recommend getting at least three quotes from different contractors.
Heat pumps are common in some parts of the country, but in others it might be difficult to find a contractor who really knows their stuff. Dip your toes in a heat pump Reddit forum and you’ll find scores of homeowners asking what to do after a contractor told them that heat pumps don’t work and they should just stick with gas. Here are a few strategies for finding high quality heat pump contractors, in order of what we recommend:
Finding the right contractor is probably the most important decision you’ll make in this entire process, and it’s not uncommon to get quotes with wildly different recommendations. Here are some questions you can ask to help you get a sense of who really knows what they are talking about and is willing to go the whole nine yards to make sure you get a properly designed system:
Manual J is a formula that helps a contractor identify the right size HVAC system for your home. It requires taking detailed measurements throughout the building, inspecting your home’s insulation and other elements that will affect airflow and heat retention, and performing tests such as the “blower door” to assess how leaky your building’s envelope is. If you’re interested in using your ductwork or installing new ductwork, they should also perform a “Manual D” calculation. Waters told me that despite these calculations being industry standards, very few contractors actually go through the trouble of doing them. “What this does, it tells us exactly what size system I need for heating and cooling, and exactly how much air goes into each room,” he said.
Richards agreed, adding that you may want to ask what technology they use to size the system. “You need somebody who has a technology-driven tool that can actually measure the heating and cooling requirements of your home,” he says. “Are you doing a true Manual J, or are you sort of sticking your finger up in the air?”
If your contractor only works with one brand of equipment, you’re more likely to get a solution that’s convenient for them rather than one that’s custom designed for you.
Waters told me the registers — the vents that release air into a given room — are critical for occupant comfort. If your existing ductwork is designed to distribute air from a furnace, your registers may be designed to push air into the middle of the room. But with heat pumps, you want the air either pushed up toward the ceiling if the vents are down low or across the ceiling if they are up high, so that the house doesn’t feel drafty and you get proper circulation.
If you’re starting with heat pumps but you eventually want to electrify your stove, your clothes dryer, or your car, your home may need an electric panel upgrade or an electric service upgrade from the utility. What you don’t want is to put in heat pumps that eat up the rest of your home’s capacity and then have to deal with pricey upgrades down the line.
The Building Performance Institute and North American Technician Excellence are two organizations that train and certify contractors, auditors, and technicians in the latest building science and best practices. A certification doesn’t guarantee you’ve found the right contractor — it could mean they know a lot about installing heat pumps but still don’t know much about the models that work in the coldest climates, for instance. But it’s a helpful data point that shows they are investing in training.
After you’ve found a contractor or company to work with, settled on a system design, and secured financing, your installer is going to need to secure permits for the work. Then you’ll need to schedule the installation, which, depending on how busy your contractor is, can take several weeks to several months. The actual work should take one to three days, depending on how complicated it is.
Also — talk to your contractor about maintenance. Be sure to clean the filters regularly and do anything else they recommend to get the best performance and longest life out of your equipment.
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Current conditions: Snow is heading for the Northeast later this week, with some flakes in New York City on Thursday • A heatwave in central Argentina is driving up temperatures to 102 degrees Fahrenheit • A blizzard is set to dump nearly 3 feet of snow along Hokkaido’s Sea of Japan coast.
The United States’ biggest oil company is brushing off President Donald Trump’s promise to restore Venezuela’s drilling industry to its former glory under American stewardship. In an address to the White House on Friday, Exxon Mobil Corp. CEO Darren Woods said that Venezuela’s
current “legal and commercial constructs” and “frameworks” make the country “uninvestable.” The country’s basic systems need “significant changes,” and its hydrocarbon laws need to be overhauled before the Texas behemoth thinks it can put money into rebuilding the infrastructure in the South American nation. Still, Woods said he was “confident that with this administration and President Trump working hand-in-hand with the Venezuelan government that those changes can be put in place.” As my colleague Robinson Meyer noted in a recent interview for the Shift Key podcast, Trump’s push for imperial resource ventures generally might be a tough sell for actual oil companies.
Exxon’s main U.S. rival, the No. 2 producer Chevron Corp., has invested heavily in Venezuela over the years. Exxon, by contrast, has developed what’s considered the most significant new oil patch in the world, the offshore drilling operations in Guyana. But Exxon still benefits from the Trump administration’s intervention in Caracas. Venezuela has long argued that Essequibo, the sparsely populated jungle province comprising the western half of Guyana, rightfully belongs under Caracas’ rule. The move to threaten Essequibo and Exxon drilling platforms off its waters with the Venezuelan military in recent years drew fierce blowback. Now it seems unlikely such agitation will happen again anytime soon. Meanwhile, Trump said Sunday he may exclude Exxon from the Venezuela spoils, claiming “they're playing too cute.”
Until now, Meta has been the most cautious nuclear investor of its tech peers, brokering just one major deal to buy power from an existing atomic power station. By contrast, Amazon bought a stake in the reactor developer X-energy and put up the money for its first power plant; Microsoft pumped billions into reopening the working reactor at Three Mile Island; and Google is both bringing another reactor back online and investing in the next-generation reactor company Kairos Power. On Friday, the Facebook owner announced a sweeping deal to buy power from the nuclear utility Vistra, help build reactors with the Bill Gates-backed startup TerraPower, and pay cash upfront to finance the purchase of fuel for microreactor developer Oklo’s first power plants in Ohio. “Our commitments to Oklo and TerraPower support the next generation of American developers creating safer, advanced nuclear reactors and accelerating the development of nuclear technologies,” the company said in a statement. “Through our partnership with Vistra, we’re providing financial support for operating nuclear power plants, extending the operational lifespan.”

Illinois is the most nuclear-powered state in the nation, with atomic stations supplying nearly all of Chicago’s power at times. Yet the state put a moratorium on new reactors in the 1980s. That is, until last week when Governor J.B. Pritzker signed legislation lifting the ban. In 2023, Pritzker signed a bill that would allow for construction of more speculative technology, like small modular reactors, but maintained the ban on large-scale units. At the time, the Democrat vetoed separate legislation to legalize large-scale reactors, insisting they “are so costly to build that they will cause exorbitant ratepayer-funded bailouts.” Since no one has yet built an SMR in the U.S., there’s no way of really knowing how much the smaller units will cost. But more recent research by the Massachusetts Institute of Technology’s Koroush Shirvan finds the opposite. Building another gigawatt-sized Westinghouse AP1000 — the same type of machine that had major cost overruns in Georgia over the past decade — would be cheaper than building a first-of-its-kind SMR, since the supply chains and design are established.
“It’s striking that the same rationale Gov. Pritzker used to veto lifting the nuclear moratorium in 2023 — the prospect of new large-scale reactors in Illinois — is now being celebrated by his administration as a major win,” Madi Hilly, the managing director of the Chicago-based consultancy Radiant Energy Group, told me for this newsletter. “This reversal is a positive signal for future growth and long-term prosperity in Illinois.”
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China went from spending virtually nothing on nuclear fusion in 2021 to investing more than the rest of the world combined, as I told you last month. Well, it’s working. Last week, China’s leading fusion project, the Experimental Advanced Superconducting Tokamak, or EAST, pulled off a “novel high-density operating scheme” in the reactor. In the past, exceeding the limits of how dense the plasma that powers the fusion reactor could get ended up causing disruptions. “The findings suggest a practical and scalable pathway for extending density limits in tokamaks and next-generation burning plasma fusion devices,” study co-lead author Ping Zhu, an engineering professor at the University of Science and Technology in China, said in the statement to Live Science.
China plans to end its value-added tax export rebate on solar products on April 1. The finance ministry said the VAT export rebates for battery products will fall to 6% from 9% between April and December and phase out entirely at the end of this year. In a statement on the change, the China Photovoltaic Industry Association acknowledged that some Chinese exporters were, as Reuters put it, “using rebates as a price discount for foreign buyers.” This won few friends in Europe or North America, where governments who wanted strategic solar manufacturing industries saw factories close in the face of overwhelmingly cheap Chinese imports. Analysts told the South China Morning Post the policy is a signal “that Beijing is interested in serious trade relations and is a good partner.”
Biodegradable plastics are not always safer for rivers and oceans. When researchers at East China Normal University compared how microbial cities formed on the surfaces of traditional plastics and biodegradable materials after 88 days in a tidal river in Shanghai, they found that drug-resistant bacteria proliferated on both non-biodragable and biodegradable plastics, but saw a particularly intense but short-lived spike in pathogens developing on the so-called greener material. “Our findings show that biodegradable plastics do not simply dissolve into the environment without consequence,” Yinglong Su, the study’s lead author, said in a statement. “They create a different kind of risk that peaks during degradation and should not be ignored in environmental policy.”
In practice, direct lithium extraction doesn’t quite make sense, but 2026 could its critical year.
Lithium isn’t like most minerals.
Unlike other battery metals such as nickel, cobalt, and manganese, which are mined from hard-rock ores using drills and explosives, the majority of the world’s lithium resources are found in underground reservoirs of extremely salty water, known as brine. And while hard-rock mining does play a major role in lithium extraction — the majority of the world’s actual production still comes from rocks — brine mining is usually significantly cheaper, and is thus highly attractive wherever it’s geographically feasible.
Reaching that brine and extracting that lithium — so integral to grid-scale energy storage and electric vehicles alike — is typically slow, inefficient, and environmentally taxing. This year, however, could represent a critical juncture for a novel process known as Direct Lithium Extraction, or DLE, which promises to be faster, cleaner, and capable of unlocking lithium across a wider range of geographies.
The traditional method of separating lithium from brine is straightforward but time-consuming. Essentially, the liquid is pumped through a series of vast, vividly colored solar evaporation ponds that gradually concentrate the mineral over the course of more than a year.
It works, but by the time the lithium is extracted, refined, and ready for market, both the demand and the price may have shifted significantly, as evidenced by the dramatic rise and collapse of lithium prices over the past five years. And while evaporation ponds are well-suited to the arid deserts of Chile and Argentina where they’re most common, the geology, brine chemistry, and climate of the U.S. regions with the best reserves are generally not amenable to this approach. Not to mention the ponds require a humongous land footprint, raising questions about land use and ecological degradation.
DLE forgoes these expansive pools, instead pulling lithium-rich brine into a processing unit, where some combination of chemicals, sorbents, or membranes isolate and extricate the lithium before the remaining brine gets injected back underground. This process can produce battery-grade lithium in a matter of hours or days, without the need to transport concentrated brine to separate processing facilities.
This tech has been studied for decades, but aside from a few Chinese producers using it in combination with evaporation ponds, it’s largely remained stuck in the research and development stage. Now, several DLE companies are looking to build their first commercial plants in 2026, aiming to prove that their methods can work at scale, no evaporation ponds needed.
“I do think this is the year where DLE starts getting more and more relevant,” Federico Gay, a principal lithium analyst at Benchmark Mineral Intelligence, told me.
Standard Lithium, in partnership with oil and gas major Equinor, aims to break ground this year on its first commercial facility in Arkansas’s lithium-rich Smackover Formation, while the startup Lilac Solution also plans to commence construction on a commercial plant at Utah’s Great Salt Lake. Mining giant Rio Tinto is progressing with plans to build a commercial DLE facility in Argentina, which is already home to one commercial DLE plant — the first outside of China. That facility is run by the French mining company Eramet, which plans to ramp production to full capacity this year.
If “prices are positive” for lithium, Gay said, he expects that the industry will also start to see mergers and acquisitions this year among technology providers and larger corporations such as mining giants or oil and gas majors, as “some of the big players will try locking in or buying technology to potentially produce from the resources they own.” Indeed, ExxonMobil and Occidental Petroleum are already developing DLE projects, while major automakers have invested, too.
But that looming question of lithium prices — and what it means for DLE’s viability — is no small thing. When EV and battery storage demand boomed at the start of the decade, lithium prices climbed roughly 10-fold through 2022 before plunging as producers aggressively ramped output, flooding the market just as EV demand cooled. And while prices have lately started to tick upward again, there’s no telling whether the trend will continue.
“Everyone seems to have settled on a consensus view that $20,000 a tonne is where the market’s really going to be unleashed,” Joe Arencibia, president of the DLE startup Summit Nanotech, told me, referring to the lithium extraction market in all of its forms — hard rock mining, traditional brine, and DLE. “As far as we’re concerned, a market with $14,000, $15,000 a tonne is fine and dandy for us.”
Lilac Solutions, the most prominent startup in the DLE space, expects that its initial Utah project — which will produce a relatively humble 5,000 metric tons of lithium per year — will be profitable even if lithium prices hit last year’s low of $8,300 per metric ton. That’s according to the company’s CEO Raef Sully, who also told me that because Utah’s reserves are much lower grade than South America’s, Lilac could produce lithium for a mere $3,000 to $3,500 in Chile if it scaled production to 15,000 or 20,000 metric tons per year.
What sets Lilac apart from other DLE projects is its approach to separating lithium from brine. Most companies are pursuing adsorption-based processes, in which lithium ions bind to an aluminum-based sorbent, which removes them from surrounding impurities. But stripping the lithium from the sorbent generally requires a good deal of freshwater, which is not ideal given that many lithium-rich regions are parched deserts.
Lilac’s tech relies on an ion-exchange process in which small ceramic beads selectively capture lithium ions from the brine in their crystalline structure, swapping them for hydrogen ions. “The crystal structure seems to have a really strong attraction to lithium and nothing else,” Sully told me. Acid then releases the concentrated lithium. When compared with adsorption-based tech, he explained, this method demands far fewer materials and is “much more selective for lithium ions versus other ions,” making the result purer and thus cheaper to process into a battery-grade material.
Because adsorption-based DLE is already operating commercially and ion-exchange isn’t, Lilac has much to prove with its first commercial facility, which is expected to finalize funding and begin construction by the middle of this year.
Sully estimates that Lilac will need to raise around $250 million to build its first commercial facility, which has already been delayed due to the price slump. The company’s former CEO and current CTO Dave Snydacker told me in 2023 that he expected to commence commercial operations by the end of 2024, whereas now the company plans to bring its Utah plant online at the end of 2027 or early 2028.
“Two years ago, with where the market was, nobody was going to look at that investment,” Sully explained, referring to its commercial plant. Investors, he said, were waiting to see what remained after the market bottomed out, which it now seems to have done. Lilac is still standing, and while there haven’t yet been any public announcements regarding project funding, Sully told me he’s confident that the money will come together in time to break ground in mid-2026.
It also doesn’t hurt that lithium prices have been on the rise for a few months, currently hovering around $20,000 per tonne. Gay thinks prices are likely to stabilize somewhere in this range, as stakeholders who have weathered the volatility now have a better understanding of the market.
At that price, hard rock mining would be a feasible option, though still more expensive than traditional evaporation ponds and far above what DLE producers are forecasting. And while some mines operated at a loss or mothballed their operations during the past few years, Gay thinks that even if prices stabilize, hard-rock mines will continue to be the dominant source of lithium for the foreseeable future due to sustained global investment across Africa, Brazil, Australia, and parts of Asia. The price may be steeper, but the infrastructure is also well-established and the economics are well-understood.
“I’m optimistic and bullish about DLE, but probably it won’t have the impact that it was thought about two or three years ago,” Gay told me, as the hype has died down and prices have cooled from their record high of around $80,000 per tonne. By 2040, Benchmark forecasts that DLE will make up 15% to 20% of the lithium market, with evaporation ponds continuing to be a larger contributor for the next decade or so, primarily due to the high upfront costs of DLE projects and the time required for them to reach economies of scale.
On average, Benchmark predicts that this tech will wind up in “the high end of the second quartile” of the cost curve, making DLE projects a lower mid-cost option. “So it’s good — not great, good. But we’ll have some DLE projects in the first quartile as well, so competing with very good evaporation assets,” Gay told me.
Unsurprisingly, the technology companies themselves are more bullish on their approach. Even though Arencibia predicts that evaporation ponds will continue to be about 25% cheaper, he thinks that “the majority of future brine projects will be DLE,” and that DLE will represent 25% or more of the future lithium market.
That forecast comes in large part because Chile — the world’s largest producer of lithium from brine — has stated in its National Lithium Strategy that all new projects should have an “obligatory requirement” to use novel, less ecologically disruptive production methods. Other nations with significant but yet-to-be exploited lithium brine resources, such as Bolivia, could follow suit.
Sully is even more optimistic, predicting that as lithium demand grows from about 1.5 million metric tons per year to around 3.5 million metric tons by 2035, the majority of that growth will come from DLE. “I honestly believe that there will be no more hard rock mines built in Australia or the U.S.,” he said, telling me that in ten years time, half of our lithium supply could “easily” come from DLE.
As a number of major projects break ground this year and the big players start consolidating, we’ll begin to get a sense of whose projections are most realistic. But it won’t be until some of these projects ramp up commercial production in the 2028 to 2030 timeframe that DLE’s market potential will really crystalize.
“If you’re not a very large player at the moment, I think it’s very difficult for you to proceed,” Sully told me, reflecting on how lithium’s price shocks have rocked the industry. Even with lithium prices ticking precariously upwards now, the industry is preparing for at least some level of continued volatility and uncertainty.
“Long term, who knows what [prices are] going to be,” Sully said. “I’ve given up trying to predict.”
A chat with CleanCapital founder Jon Powers.
This week’s conversation is with Jon Powers, founder of the investment firm CleanCapital. I reached out to Powers because I wanted to get a better understanding of how renewable energy investments were shifting one year into the Trump administration. What followed was a candid, detailed look inside the thinking of how the big money in cleantech actually views Trump’s war on renewable energy permitting.
The following conversation was lightly edited for clarity.
Alright, so let’s start off with a big question: How do investors in clean energy view Trump’s permitting freeze?
So, let’s take a step back. Look at the trend over the last decade. The industry’s boomed, manufacturing jobs are happening, the labor force has grown, investments are coming.
We [Clean Capital] are backed by infrastructure life insurance money. It’s money that wasn’t in this market 10 years ago. It’s there because these are long-term infrastructure assets. They see the opportunity. What are they looking for? Certainty. If somebody takes your life insurance money, and they invest it, they want to know it’s going to be there in 20 years in case they need to pay it out. These are really great assets – they’re paying for electricity, the panels hold up, etcetera.
With investors, the more you can manage that risk, the more capital there is out there and the better cost of capital there is for the project. If I was taking high cost private equity money to fund a project, you have to pay for the equipment and the cost of the financing. The more you can bring down the cost of financing – which has happened over the last decade – the cheaper the power can be on the back-end. You can use cheaper money to build.
Once you get that type of capital, you need certainty. That certainty had developed. The election of President Trump threw that into a little bit of disarray. We’re seeing that being implemented today, and they’re doing everything they can to throw wrenches into the growth of what we’ve been doing. They passed the bill affecting the tax credits, and the work they’re doing on permitting to slow roll projects, all of that uncertainty is damaging the projects and more importantly costs everyone down the road by raising the cost of electricity, in turn making projects more expensive in the first place. It’s not a nice recipe for people buying electricity.
But in September, I went to the RE+ conference in California – I thought that was going to be a funeral march but it wasn’t. People were saying, Now we have to shift and adjust. This is a huge industry. How do we get those adjustments and move forward?
Investors looked at it the same way. Yes, how will things like permitting affect the timeline of getting to build? But the fundamentals of supply and demand haven’t changed and in fact are working more in favor of us than before, so we’re figuring out where to invest on that potential. Also, yes federal is key, but state permitting is crucial. When you’re talking about distributed generation going out of a facility next to a data center, or a Wal-Mart, or an Amazon warehouse, that demand very much still exists and projects are being built in that middle market today.
What you’re seeing is a recalibration of risk among investors to understand where we put our money today. And we’re seeing some international money pulling back, and it all comes back to that concept of certainty.
To what extent does the international money moving out of the U.S. have to do with what Trump has done to offshore wind? Is that trade policy? Help us understand why that is happening.
I think it’s not trade policy, per se. Maybe that’s happening on the technology side. But what I’m talking about is money going into infrastructure and assets – for a couple of years, we were one of the hottest places to invest.
Think about a European pension fund who is taking money from a country in Europe and wanting to invest it somewhere they’ll get their money back. That type of capital has definitely been re-evaluating where they’ll put their money, and parallel, some of the larger utility players are starting to re-evaluate or even back out of projects because they’re concerned about questions around large-scale utility solar development, specifically.
Taking a step back to something else you said about federal permitting not being as crucial as state permitting–
That’s about the size of the project. Huge utility projects may still need federal approvals for transmission.
Okay. But when it comes to the trendline on community relations and social conflict, are we seeing renewable energy permitting risk increase in the U.S.? Decrease? Stay the same?
That has less to do with the administration but more of a well-structured fossil fuel campaign. Anti-climate, very dark money. I am not an expert on where the money comes from, but folks have tried to map that out. Now you’re even seeing local communities pass stuff like no energy storage [ordinances].
What’s interesting is that in those communities, we as an industry are not really present providing facts to counter this. That’s very frustrating for folks. We’re seeing these pass and honestly asking, Who was there?
Is the federal permitting freeze impacting investment too?
Definitely.
It’s not like you put money into a project all at once, right? It happens in these chunks. Let’s say there’s 10 steps for investing in a project. A little bit of money at step one, more money at step two, and it gradually gets more until you build the project. The middle area – permitting, getting approval from utilities – is really critical to the investments. So you’re seeing a little bit of a pause in when and how we make investments, because we sometimes don’t know if we’ll make it to, say, step six.
I actually think we’ll see the most impact from this in data center costs.
Can you explain that a bit more for me?
Look at northern Virginia for a second. There wasn’t a lot of new electricity added to that market but you all of the sudden upped demand for electricity by 20 percent. We’re literally seeing today all these utilities putting in rate hikes for consumers because it is literally a supply-demand question. If you can’t build new supply, it's going to be consumers paying for it, and even if you could build a new natural gas plant – at minimum that will happen four-to-six years from now. So over the next four years, we’ll see costs go up.
We’re building projects today that we invested in two years ago. That policy landscape we invested in two years ago hasn’t changed from what we invested into. But the policy landscape then changed dramatically.
If you wipe out half of what was coming in, there’s nothing backfilling that.