Accelerating Data Center and Renewable Energy Siting with Paces
James McWalter is the CEO and co-founder of Paces, an AI-powered software platform that helps clean energy project developers identify and evaluate the best sites for new projects. Paces streamlines the process by integrating interconnection, environmental, zoning, and legal data on land parcels—key factors developers must navigate when selecting viable locations. MCJ is proud to be an investor in Paces through our venture funds.
In renewable project development, one of the biggest challenges is quickly pinpointing sites with the highest likelihood of reaching operation efficiently. As James explains, this process depends on multiple factors: the capacity of the local grid, whether upgrades are needed to connect a project, the feasibility of permitting, and more. And as we discuss, the recent AI-driven data center boom is intensifying the urgency and complexity of each of these considerations.
Paces’ platform is being used by both clean energy developers and data center developers who need to get projects built as quickly, cost-effectively, and cleanly as possible. A few months ago, Paces co-authored a white paper with Scale Microgrids and Stripe Climate titled Fast, Scalable, Clean, and Cheap Enough: How Off-Grid Solar Microgrids Can Power the AI Race—a report that sparked a lot of conversation. In it, they explore whether the forecasted energy demands of AI can be met with off-grid, behind-the-meter projects.
Oh, and James also hosts his own podcast, Build Repeat, where he interviews project developers and others actively building and deploying clean energy solutions.
With all that said, James and I dive into his background, the origins of Paces, and much more in this episode.
Episode recorded on Feb 19, 2025 (Published on March 6, 2025)
In this episode, we cover:
[2:48] Introduction to Paces and James’ background
[6:26] The origin story of Paces and how James met his co-founder, Charles
[9:24] Key challenges faced by clean energy project developers
[11:45] Permitting bottlenecks and delays
[14:57] The growing challenge of decreasing grid capacity
[16:01] How Paces’ software addresses site selection challenges
[19:11] The role of NIMBY opposition in the permitting process
[22:42] How developers leverage Paces' platform
[24:51] Paces’ customer segmentation and user types
[28:08] How Paces supports data center development
[30:16] Insights from Paces’ white paper on off-grid solutions for AI-driven data centers (available at offgridai.us)
[38:49] The feasibility of achieving 100% renewable energy for data centers
[46:10] Paces’ fundraising to date and the types of partners they’re looking for
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Cody Simms:
Today on Inevitable. Our guest is James McWalter, CEO and co-founder of Paces. Paces is an AI powered software platform that helps clean energy project developers to find and evaluate the best sites, helping them navigate interconnection, environmental zoning and data in land parcels. They are considering for new projects. MCJ is proud to be an investor in Paces via our venture funds. In the world of renewable project development, one of the largest challenges is in quickly identifying sites that have the highest likelihood of getting to power quickly. As James shares, this process is dependent on multiple factors from how much capacity the local grid has to whether upgrades are needed in order to connect a project to the grid, to the ability for a site to get permitted and much more. And as we discuss, the recent AI driven data center boom is increasing the urgency and challenges associated with each of these factors.
Paces' platform is being used both by clean energy developers and by data center developers who are trying to get projects built as quickly, cheaply and cleanly as possible. A few months ago, Paces co-authored a white paper with scale microgrids and Stripe climate titled fast, scalable, clean, and cheap enough how off-grid solar microgrids can power the AI race. And it generated quite a stir in the paper. They contemplate whether forecasted load increases driven by AI can be met with off grid behind the meter projects. Oh, and James also hosts his own podcast called Build Repeat, featuring conversations with project developers and others who are actively building and deploying clean energy projects. And with all that said, James and I discuss this, his background, the origins of the company, and much more in this episode. But before we start from MCJ, I'm Cody Sims and this is Inevitable. Climate change is inevitable. It's already here, but so are the solutions shaping our future. Join us every week to learn from experts and entrepreneurs about the transition of energy and industry. James, welcome to the show.
James McWalter:
Good to be here. Cody,
Cody Simms:
I'm looking forward to learning from you about the work you're doing really at the front end of the development process for clean energy projects, data centers, everything that a lot of people are talking about these days and trying to understand more about. So maybe take it from the top, what is Paces?
James McWalter:
First of all, really appreciate you taking the time with us today. Paces, we are a software platform to enable the sighting and due diligence of any sort of large scale power project, whether that's on the generation, like large scale solar battery storage and wind projects, or increasingly on the load side, big data centers and similar projects that have many tens or hundreds of megawatts of power requirements.
Cody Simms:
And how did you land on this project being the thing you wanted to focus on?
James McWalter:
We met when I was working on a previous project the first time we met a very long time ago, so I'm originally from Ireland. I grew up on a farm which is actually relevant for the pathway and then out of university, working across multiple industries from finance and then later into industries like market research, customer success, generally applying machine learning and data techniques to different business problems. Had a great old time, I was working at big companies, small companies, saw the startup life as an early employee or founder at a couple of failed companies. I started getting stressed about climate change in 2019. I was like, look, nobody I know who's working on climate, how dare they? Then I have the cognitive dissonance of how dare I, I'm not doing anything either. So started thinking through what would be a potential problem around climate that I could spend time solving.
Cody Simms:
Your background was classic, it looks like enterprise SaaS and a lot of basic tech. It looks like you worked in a couple of companies based in Mexico. What a fascinating experience.
James McWalter:
Yeah, yeah, so I lived in Mexico for nearly five years waiting on my green card. These are all US based companies, but I was down in Puerto Vallarta Mexico. It was not supposed to be nearly five years. It was supposed to be one year, but it was a great time. But honestly, a lot of the reason why I even thought that I could start something in climate was covid because all of a sudden you had this situation where I didn't feel as isolated from the different startup communities in Silicon Valley, et cetera. Everyone was on the other side of a Zoom call or a Slack community, and so all of a sudden I'm at the same amount of access to folks and obviously Covid very devastating and so on. But in terms of access to smart folks who were working on climate, it was transformative.
Cody Simms:
MCJ was very much born of the covid sort of Zoom pandemic world. It resonates with me for sure.
James McWalter:
So yeah, so I was like, okay, I want to work on something in climate and what did I know? I grew up from a farm. I saw firsthand what it was like to do different farming, but interestingly, my mother was actually head of organic standards in Ireland and so we convert to organic in 1997. Saw that transition and I was like, oh, agriculture has a massive carbon footprint. How could that be decarbonized? And this is also the period which even better than I do of everything was carbon markets, everything was carbon credits. This is the very, very hot topic. And so I was like, oh, let's get on that.
Cody Simms:
I feel like food and ag is the gateway drug to working in climate stuff. It's the thing people kind of gravitate to first, I think because it feels less wonky and scary than energy when in reality it actually is pretty wonky and scary too. It's hard.
James McWalter:
I jokingly said it's somewhat similar, but I would say everyone goes through a kelp phase where they're like, oh, the scale of the ocean or the scale of soil, whatever it might be, and at the time I thought energy was so boring. I was like, I don't think we just have to build a lot. Why don't we just do that? We don't have to invent anything funky and cool. Yeah, so I was like, all right, let's work on something on ag and was interested in basically how do you change farming practices? Start iterating on an idea there just on my own, I didn't have anybody with me at the time and then very rapidly realized or even remembered that songs of farmers is closer to B2C and B2B and so all that enterprise B2B sales skills were just very different where you're trying to sell generally on fairly emotion-based type selling for folks who are very all be protective of the family farm and all those kinds of things.
Cody Simms:
So then you did what was the sort of moment into moving into Paces?
James McWalter:
I think the other piece of this was I was also actively co-founder dating some folks and was really interested because I had always spent time selling very strong data and machine learning solutions to folks. I was like, oh, I wanted to work with folks who had a lot of that skillset. I met a few people, one of which became co-founder of Pases, Charles, who ended up with somebody more impressive, more wonderful to work with. And it was actually this funny group where I found out later that there was seven or eight of us all co-founder dating each other. It's like this poly situation of folks potentially trying to collaborate on climate related projects. And as part of that, I was working with this particular gentleman, he was really strong. He's now a founder of a company called Windscape Jason Yosinski. I was working with him on a couple of ideas and he was like, stop looking at all this carbon stuff.
We should look at the energy system. And he was at the time thinking more from a trading perspective, which I was less interested in, but it did drive us to start having some conversations with some project developers and that reminded me as we were talking to the product developers about some of the challenges they were having that back when I was trying to sell to these farmers, some of the farmers were complaining about solar developers, pinging them about land and this kind of thing. So I started to form this idea around, okay, this is very hard to build these projects. This industry is not using anything close to the cutting edge of different types of software and data solutions. There might be something there. And so I was like, okay, and this is exactly around the time that I met Charles. He was very, I think really interesting for the time that we're in right now.
He was literally working on optimizing models within Facebook and META'S data centers for lower power use. It's called sustainable AI. Very hot topic of course today with Deepseek and everything else that's happening, but he was trying to start that as a startup and he was like, oh, but nobody was interested in optimizing power use in data centers at the time. This is not that long ago, so 2021. Whereas I had a couple of renewable developers interested in struggling with particular set of problems and so we were like, look, if we can sign a couple of letters of intent, that's a good proof. We'd already started working on a few projects together just to make sure that we could work together and work well together and signed a couple of letters of intent and that was our signal to start fundraising and start building out Paces.
Cody Simms:
You guys did YC I think shortly thereafter?
James McWalter:
We did as well. Yeah, and this is one of the funny situations. So we applied to yc, didn't get an interview for that batch, then raised a pre-seed and then got into YC usually the other way around. So yeah, so we did YC summer of 2022, entered the batch zero customers, very basic MVP coded up, ended the batch with about $8 to $10K monthly recurring revenue and a product that was just about working, even though if somebody clicked a button on the product our co-founder Charles, he would literally get a text message. Then he had to go run the thing manually and then he would send it to me in an Excel spreadsheet and I would clean the data and then I'd send it back to the developer through an email address that looks like it was a notifications@Paces.com, but was actually just an email address that I would log into and send it. And it was literally the first two months of the product out was something that was string together.
Cody Simms:
I love it. The AI was actually Charles in the background.
James McWalter:
The AI comes way later. The AI, the AI was smart people trying to do manual things in the backend.
Cody Simms:
A long time as it should be, as it should be. You got to learn the problems before you just trust the computers to solve them. What did you learn early on that early these renewable project developers were struggling with?
James McWalter:
Just for the folks who are maybe less familiar if you're trying to build a solar farm, the basic workflow is I try to have a specific strategy. So I want to build a 10 megawatts solar farm in upstate New York. I then try to find sites that meet certain criteria, so they need to be able to be large enough, just enough land to put the solar panels down. Second, they need to be near the grid infrastructure that you can get your power on. And then most importantly, you need to be able to get enough capacity on the grid infrastructure to accept your power. You as a private developer, you are responsible for any upgrades in the grid to get your power onto the system. And the last thing is environmental review, permitting restrictions, all those kind of things. And so what was happening is developers were finding sites they would meet some set of criteria that looked reasonably good, but additional de-risking, which just super expensive. So they would start buying or leasing land and then going to own this development pathway with projects or potential projects. And at the end of a multi-year process, only one in five of these projects would actually get built. The other 80% failing primarily because of power interconnection and permitting. We say power and permitting is the big issues.
Cody Simms:
This is the famous interconnection queue in these long seven year cycles where a project may be ready to go and it just quite literally can't get plugged into the grid.
James McWalter:
Absolutely. So the way United States works is you literally a queue the utility cannot privilege one project above the other. Even if one project technically would be better, they just are not allowed. It's a regulated monopoly. So what happens is they're like, I want to build a solar farm on the substation or nearby, but if another developer got there ahead of you and tried to build a solar farm or battery storage project on that substation, they are privileged for that initial capacity because they're ahead of you from a time perspective. And so a lot of times folks are taking queue positions, developers and trying to, hopefully some of the projects might fall out and you all have this kind of situation where because utility has to take every single project as it comes a ton of months of analysis or occurring on projects that are actually low likelihood of ever getting built, and this drives a lot of conflict between the different stakeholders because utility is like, oh, these projects developers are bringing nonsense projects to bear. The developers are not, right. The developers want products to be built because if they don't get the projects built, they make zero money, but they also just don't have the same level of insight on a per project basis, even though it's their own project for what the likelihood of the project getting to the queue would be
Cody Simms:
What is causing these projects to not get through the queue. Does this go to the other problem you mentioned, which is permitting?
James McWalter:
It's probably about 60% interconnection. So the grid itself, just the upgrade cost is going to be too high to make the project pencil.
Cody Simms:
They penciled out the project, they think it looks good, but they've underestimated how much it's going to cost for them to run new interconnect to the substation that's 15 miles away or whatever.
James McWalter:
Exactly. So your transmission line, that's very expensive. Just to be specific, if you are having the build of new substation that's $25 million. So if the whole CapEx of the project is $40 million, $25 million, substation won't make sense. The CapEx of the project is $300 million, then maybe $25 million substation will pencil.
Cody Simms:
And it's because when they speced out this piece of land, they didn't realize that there's no right of way between here and some existing place they need to hook up to so they're going to have to tunnel around it or something like that. Are those the type of scenarios we're dealing with
James McWalter:
Those, but a lot of the time the utility themselves at the beginning of the process do not make available and often don't know it themselves what the constraints in the system are. Imagine you have a power line, you have a substation, you a transformer, so your solar farm power is going to have to run through all three of those systems. Let's say the transformer is really old, but it doesn't appear on any system diagram that it's really old and it needs to be replaced. If your system when they do the full impact study triggers a replacement of the transformer, it could break the whole thing.
Cody Simms:
It's like when you're installing an EV charger in your house and the electrician says, oh, your panel doesn't have enough slots, you got to spend another whatever five grand and upgrade your panel.
James McWalter:
Exactly. It might feel like an upsell even for the big renewable developers similar to the EV panel type scenario and all of the money spent on development costs trying to de-risk that project, that all just gets burned. There is no further way to monetize that project at that point.
Cody Simms:
Thank you. Super helpful context.
James McWalter:
And then just on the permitting side, just real quick, so that's the other 20-30% of projects failing because of permitting and one of the really, and this is moratoriums, you can't build solar because there's some sort of restriction. One of the things that folks have not realized that from we've discovered independently at Paces is that most of the queue where there's a high likelihood of the project actually moving forward because interconnection is going to be cheap enough, is actually in jurisdictions that have negative permitting outcomes for renewables. So there's basically wherever there's most capacity, so the places where you can most cheaply add electrons to the grid, build the solar farm, et cetera from a grid perspective has the worst permitting outcomes. And these are directly related. Basically what happens is a developer or set of developers are like, Hey, this substation has capacity. They'll do some analysis using Paces or otherwise they'll flood in to that community, try to capture that capacity.
Then they'll start the permitting process and a small agricultural community that had maybe never even dealt with a solar farm all of a sudden has five developers trying to build projects. The community often freaks out and it's like, okay, there's a moratorium here or some sort of restriction that makes it very hard to build. So there's this hidden time bomb in queues like PJM and a lot of the other queues we've done this analysis on where there's a lot of projects near to the end of interconnection, but we have done the analysis. This project literally is in a moratorium and will not be allowed to be built because it took so long to go through interconnection. The permitting regime has changed in a negative way for that development type.
Cody Simms:
I saw on a recent renewable energy trend report that you all put out that it said that you're forecasting that there's a 21.9% decrease in suitable sites from January to October, 2024. I guess it's not forecasting that's actually counting. Is that some of the reason why?
James McWalter:
So that's actually interesting. That is just capacity on the grid, that number. So we run the analysis how many sites have capacity from the grid from our analysis and have flat land nearby. That makes sense. That's just decreasing grid capacity. If you add in the permitting, it's way worse than that.
Cody Simms:
And why is grid capacity decreasing? That's a rapid rate.
James McWalter:
Grid capacity is a number that is an estimate until the utility basically tells you the exact number after they do a lot of complicated studies. So we can generally say, okay, based on this information utility, this much grid capacity, then developers are trying to grab that capacity As the queue increases, that capacity is being grabbed by other developers. So that's what we mean. It's like the queue is increased and it's consumed a lot of that capacity.
Cody Simms:
That number of 22% decreased capacity is really a reflection of just the number of new projects that are trying to get built. And so because this land grab is happening, there's just fewer sites that are likely to be available going forward.
James McWalter:
That and also you have as the utility is getting more of these projects, they start doing more studies and they realize, oh actually they had less capacity in the first place than they realized as well.
Cody Simms:
Really helpful context. So all of these challenges are out there and are real. Where does Paces come in? What does your software do to help with these problems?
James McWalter:
The big thing and the big insight that we try to bring on the market was you want to pull risk and understanding of risk as early as possible. So typically folks are not even doing permitting until after the interconnection is fairly well processed because it's so expensive to do permitting work. So it's very sequential, this development process. So we were like, look, if we could dramatically decrease the cost, like discovering other risks using software and insights and AI and all the good stuff, we could actually pull forward the risk discovery and the de-risking way early in the process. So developers first only start on projects that have the high likelihood of completion, second can fail faster and understand exactly what's most likely to derail a project. Pulling all that information forward became a key piece. So what we did was we built a search tool for sites where a developer can run a search and to put a list of sites, but most importantly we're scoring the sites based on the likelihood that the project will make it all the way to the end of this process. And that's true of building out some pretty unique data sets around power permitting and land and then once they have the site under site control, so basically they've been able to eliminate a lot of sites that they shouldn't waste time on. Then we have a series of tools to help them de-risk the project again from interconnection permitting perspective in a much more automated way.
Cody Simms:
So you're somehow absorbing the world of utility data and you're understanding where there is grid capacity or trying to understand where the utilities, even if they haven't accurately forecasted it, where you think there might be grid capacity. I'm guessing where there are smaller interconnect queues so there's a higher likelihood to get through the project and also where permitting requirements may be easier to navigate. I guess would those be the big factors you're having to think through?
James McWalter:
Those are the big ones. There's a few smaller ones around let's say where the load and generation, how those things are behind a meter growth, especially data centers that we can talk to in a moment.
Cody Simms:
We're going to spend a bunch of time on the data center thing. I know you guys have done some specific work there.
James McWalter:
Absolutely, but those are the main ones and the main reason why it was very difficult, a lot of this previously is permitting has 28,000 jurisdictions in the United States. There's 2000 utilities. Every US state has a different approach to doing certain things and so in Ireland we have 26 counties and we're a small little country and one utility things are much, much more straightforward. In the United States, you can be a world-class expert in the development of solar farms in PJM that are a hundred megawatts plus and you have nearly no ability to understand what a distribution community, solar farm development type is in another part of the country. Just because things differ so much, there's certain fundamentals, but things differ so much in terms of the data available.
Cody Simms:
Is most of the permitting challenge that these developers are running into on onsite permitting or does it have to do with whatever the transmission or interconnect is required to get the project live?
James McWalter:
Most of it is onsite. If you do have to build a transmission line, usually you'll have that. Most of these folks are trying to generally be pretty close to the infrastructure unless it's a very large project, people are typically within a couple miles and so you very, and people use Paces for this as well. You very early will eliminate sites that don't have a very nice clean right away basically.
Cody Simms:
Just help me understand, I know we hear about the permitting challenges all the time. If you're building a solar farm, which is a pretty known environmental footprint and you're building it on private land somewhere, why is it so hard to get permitted?
James McWalter:
It's behind a hedge and it's silent. It generates property tax income for many years. It is a remarkable thing how much folks hate solar. So there's a few things that come up. The first thing is that there is NIMBY-ism, right? Not in my backyard. There are some historical concerns around property values is the biggest one. The second concern is a lot of these are in agricultural communities and there's a concern about transitioning the agricultural nature of the community into something that is more industrial, commercial, et cetera.
Cody Simms:
So this is farmland that's been farmed for 80 years, a hundred years, and the plot is up for sale. It's call it a 200 acre plot, it's up for sale and the neighboring farmers are like, no, we don't want a power plant here. We want this to be farmland.
James McWalter:
Exactly. Now it's again a shocking thing for me not being American that America, the land of property rights is like, Hey, why do people get to tell you what to do what your property when again, it literally doesn't affect you in any way. Buying a hedge obviously does a bit of construction for the year, so it takes to build out the project, it's on a side road, it's not that big a deal. And so these jurisdictions, that's one big piece of it where you have community opposition.
Cody Simms:
In my mind, having grown up in the Midwest, one thing I could see is if that entire farming community is dependent on a co-op and dependent on pooling its overall produce in order to secure essentially offtake for the produce to find buyers for it, and now you've got a multi hundred acre plot of land that's being removed from that overall pool, you have less supply and therefore you maybe have less market leverage. I could see that use case, maybe I'm making this up, but potentially that's a thing.
James McWalter:
It's interesting, yeah, when we've talked to these communities, right, because we're also trying to understand, try to build every bit of solutions to respond to these set of problems. One of the things I've said to multiple folks is like, Hey, are you completely against renewables from a theoretical perspective? And most of 'em are like, no. And I'm like, look how much max do you want to build renewables on this particular county for example? And they'll be like quarter percent or half percent or 1% of the land and I'm like, great. The problem is where you have zoned for that quarter percent is not next to the power lines that actually can support that. So you have this mismatch. So even when the community is, oh, we're pretty open to it, it's going to be on a brownfield, it's going to be on a former landfill, that's great.
There's very few other alternative uses for that land, but if that landfill is 20 miles from the nearest transmission system, it's not going to pencil so the product doesn't make sense. So there's often like at this misunderstanding in terms of what the requirements are to build these projects are and what the community is willing to accept. A lot of these communities are just overwhelmed. You'll have a single person usually on the elderly side who is navigating all these inbound permits and so on, and they went from permitting a couple of single family homes a year to a 10 to a hundred million dollars CapEx project and they're like, oh, we don't know what to do with this and we don't have the support needed to actually execute on that project.
Cody Simms:
Helpful detour. Thanks for helping me understand the local permitting challenges, particularly onsite. I actually didn't think that's what you were going to say. I thought you were going to say it was all the transmission interconnect that was causing challenges.
James McWalter:
That's really hard as well, but for the individual project developer, that honestly affects more the utility when they're trying to build transmission, it's a lot easier to build gas in this country than transmission literally legally. So it's just very hard to build transmission lines, but that's more born by the utility.
Cody Simms:
So Paces is coming in, you've got a software platform, it allows a project developer to see available sites to score them based on their likelihood to get through permitting, their likelihood to get through interconnect and just their likelihood to pencil. They use you to do what.
James McWalter:
They have those sites and then they can then use us to identify who the landowner is, the contact details for those folks. They will then engage those landowners and buy or lease the land. So that piece where they are engaging landowner, negotiating the contracts, that is what we call humans doing human things. So it's like we always try to do machine, do machine things, what the machine is best for and then humans do the human thing. The humans are best for. The person who's going to call the farmer and talk farmer talk agricultural. It's a very key skill. I don't sound like an American farmer, so if I start calling farmers, they're not going to return my phone call. We'll say that even when I used to cold call farmers for some of these other ideas that I mentioned, whereas one of the best land teams of any customer that we have, they only hire folks from that community and those folks are just way stronger about getting those sites into site control. So that piece is off Paces, but everything else happens on Paces. So you find the sites, we have the contact details, they'll make the phone call, get the folks under lease option or under contract, and then once you have the site on Paces, you have a centralized place to track all the different things that might affect the project over time and increasingly the ability .for us to just complete specific tasks that are de-risking the project.
Yin Lu:
Hey everyone, I'm Yin a partner at MCJ here to take a quick minute to tell you about the MCJ collective membership. Globally startups are rewriting industries to be cleaner, more profitable and more secure. At MCJ, we recognize that a rapidly changing business landscape requires a workforce that can adapt. MCJ Collective is a vetted member network for tech and industry leaders who are building, working for or advising on solutions that can address the transition of energy and industry MCJ Collective connects members with one another with MCJ's portfolio and our broader network. We do this through a powerful member hub, timely introductions, curated events, and a unique talent matchmaking system and opportunities to learn from peers and podcast guests. We started in 2019 and have grown to thousands of members globally. If you want to learn more, head over to mcj.vc and click the membership tab at the top. Thanks and enjoy the rest of the show.?
Cody Simms:
What have you discovered in terms of the right customer type for you on the developer side? How many total sort of development shops are out there and is there a certain size shop that is the right kind of model for Paces that is helping you streamline your own sales and go to market?
James McWalter:
We started really tight segmentation, so we started community solar developers in upstate New York with fewer than 50 employees. That's what we started with and our first three customers were exactly that and because so much of the data is geographically constrained, focused on specific area, we just had a product for New York State for their first three or four months in business and then one of our first customers were like, Hey, I also need Illinois. And so we were like, all right, if you sign an agreement with us, we'll let you out of the agreement. We'll ship Illinois in two weeks and then we filled our heads down, do all the startup thing and got the Illinois.
Cody Simms:
This is all the data aggregation and the scoring and all the actually backend work you have to do?
James McWalter:
Exactly to make a state work. So we did that over time, built up to about 30 US states that people were asking for, and then we just finished off the last 20 that people don't ask for the Dakotas as much as you think, that kind of thing. So once we had all of those in place, so that's how we did it and we started just with distribution grid, DG, solar community, solar developers. Then we added in DG battery source developers. Then we added you don't really have DG wind. We're open to that if anybody's the thing. And then we had our first utility scale developer working on the big transmission level projects, a hundred megawatts plus I think there our ninth or 10th customer. They were also interestingly looking just at New York at that time. So we were able to again, build on the dataset.
We didn't have a lot on the transmission data side at the time, but we were able to build on that. So we've always been really purposeful that we don't want to just, Hey, there was a lot of opportunities thrown at us where it's like, hey, do this other thing, right? Green hydrogen, it's going to be super hot. You should do this thing over here. That's a different data set and a different market, but sighting is really important to them. We're like, no, we need to make sure that the geographic and data bets we're making compound in ways actually increase our potential set of markets that we can go after.
Cody Simms:
Grid intelligence, grid capacity, intelligence, permitting knowledge related to connecting to the grid. Land is the constant but land as it merges with these other two things.
James McWalter:
Exactly. I think the environmental factors related to that, the ability to generate risk from wetlands and things like that.
Cody Simms:
Which everything you say would be like, oh, couldn't Paces just be the same thing for oil and gas projects. And I guess the answer would be not really, because if it's not leveraging this underlying grid intelligence sort of data infrastructure you built out, it's not quite in scope for you.
James McWalter:
Exactly. First of all, we would not support oil and gas siting. We've had people ask for that, but the mission of the company is to enable clean transition. So we would not support that use case. We say it has to be over a megawatt. If it's smaller than a megawatt, we can probably still support it. We have a few [inaudible] customers, but generally over megawatt is when we're a really good fit on the generation or load side across the United States. Sorry, over megawatts of electrical power. So even when we support the behind and meter solution and where grid connection is less important, it's still an electrical system versus an oil and gas well or something like that.
Cody Simms:
So would you in theory support nuclear projects as they were trying to come online?
James McWalter:
We would love to support nuclear enhanced geothermal amazing. Some great stuff happening with different project types, we will support. We're even supporting some gas as part of a larger system for data centers, et cetera, where gas is a requirement, but still even in that case we're working hard to make sure that it's sequestered and things like that.
Cody Simms:
Let's go there on the data center side, so I think you're referring specifically to probably gas backups on a mostly solar powered data center project.
James McWalter:
Yes. We very rapidly in the history of Paces developed this theory about as more parts of the economy electrifies, you'll have different asset classes start to compete. What does a shopping mall and some other type on data center, what do they have in common? Very little from a real estate siting perspective, but as more and more parts of the economy is competing for the same constrained set of electrons, you can see different types of asset classes start to compete for the best sites. The massive ramp up in AI data centers that started 18 months ago, that pulled a lot of things we were expecting to happen maybe three years from now to now, and so we actually closed our first data center developer customer over a year ago. We weren't even expecting for that. They reached out to us. We started going through the process, can you use the current product?
We're like, we're not shipping anything new. This is exactly what it is. We closed them. They're still a customer today. We later closed folks like Rivian on the EV charging station side, et cetera as well. So we started being like, okay, we can actually start supporting load here and continue to build that out. Then last summer, a lot of folks were using Paces to find where's their load on the grid to build these projects and they were finding fewer and fewer opportunities for that or they would find that the load is not going to be available until 2032. So we were like, look, there's fewer and fewer places to build these data centers, and so then they started coming to us and I just want to build a 300 megawatt gas plant to support this data center behind the meter. That's not the business we want to be in.
They're like, Hey, can you help us build a 300 megawatt gas plant? And I was like, are you going to sequester the gas? Are you going to try to figure out where the salt cavern is to get the thing? They're like, well, we'll do something on the backend with some carbon credits, but we're not doing any of that. So we were honestly like, what should we do with these? Should we cut some of these customers loose? Should we think through exactly what to do? And that's when Nan from Stripe and Duncan from Scale icrogrids, they had been talking about this exact same problem and they reached out to us being like, Hey, what are you seeing in the market? We're trying to figure out a way to actually support large scale behind the meter projects that are not primarily fossil fueled, and that was what became this white paper that has driven a ton of activity and basically 80% of what I'm doing right now is either productionizing the white paper or porting that use case.
Cody Simms:
The white paper made quite a stir on social media for folks who haven't seen it. You can go to the Paces website and it's linked to from there I think. Yeah, or there's a specific URL for it too. Yeah,
James McWalter:
Yeah, offgridai.us. Yeah,
Cody Simms:
So when I think about the data center world, and when I reflect on all the challenges you mentioned at the start of this conversation related to just building new solar on the grid from interconnect to permitting to finding the right sites and all of that and just the grid capacity problem that we've talked about, it feels obvious to me that these big data centers shouldn't necessarily be trying to connect to the grid to pull power, but should be funding their own behind the meter solar or solar and storage capacity next door to the data center. Why has that not been the default case? What is causing people to think, oh, now oh, this is what we should maybe be doing?
James McWalter:
Basically we just were in an era of not much load growth, so if you needed a data center in two to three years, you can get the power for that. You build that in PJM, you're in the relationship with the grid operator, the utility iso, you get that project built, it might take a year longer than you expected. It's fine, right? Then all of a sudden because of this AI, it becomes existential, right? It's who's going to build the digital God first, right? You got to deploy so much CapEx so quickly and the behind the meter piece there just wasn't a need to do it because the biggest thing is redundancy. The data center itself needs what's called Five nine 3 redundancy, and so grid connection has the best redundancy because the grid itself is already inherently redundant. It's like a literal network of power lines and everything
Cody Simms:
Distributed redundancy. You don't have a single point of failure.
James McWalter:
Exactly, and even if you're grid connecting, ideally you're doing system analysis of that grid connection to make sure there are transmission lines that can get around if a line goes down, all that kind of thing. Interestingly enough, the first ever large scale off grid system is built in Ireland because Ireland, which is like 20% plus power consumption by data centers today, I think it's the highest in the world, started having a massive cultural backlash to so much power going to data centers and the cost that the ordinary person rate payer is paying in power. So there was a large data center that was mostly gas that was built just outside Dublin a couple of years ago. That was the first. So even the model of building a 300 megawatt gas powered behind the meters that was new, so even when people were breaking ground on that nine, 10 months ago even that was a new concept. I think that was also when we started thinking through, Hey, could we have a more renewables forward approach? It was like the market has appetite for newness, right? Because it's moving into this behind the meter model for the first time anyways. Can we prove out a way that's actually cleaner than the fully gas option.
Cody Simms:
From a cost perspective, is building an entirely new essentially power plant just for your data center? Does it pencil relative to entering into a power purchase agreement and buying power from the grid or does it not matter because there is no power to buy from the grid is I guess the point you've been making?
James McWalter:
Yeah, so there's three categories of important things, right? There's speed to deploy the data center and the power system associated with that. The second is cost of that power, and the third is the cleanliness of that power. So until 18 months ago, it went cost, cleanliness and speed were about the same. Now no one really cares about cleanliness unfortunately, and so we had to argue in the white paper that speed is at least as good if not better. Do you use a combination of renewables and gas than just going gas alone? Because you can go a little bit higher in cost. Cost is literally number two on that stack rank, but you can't go slower. Just to give you a sense of it, if you build a hundred megawatt data center, you will completely return the entire return on investment on that in months, not years. So if you can get the product built six months earlier or 12 months or 18 months earlier, there is literally tens of millions of hundreds of millions of dollars in additional money that you can generate.
Cody Simms:
Time to power becomes the primary metric that you're building against.
James McWalter:
Exactly. We also did this analysis of saying, okay, what are folks on the data center side paying from a levelized cost of energy perspective? I think people would be familiar with three Mile Island being rehiring. That is a pretty expensive but cost of energy. So we had that as our top line and then what a fully gas system would have as our bottom line, and then we did a lot of modeling on what a behind the meter power plant would look like and what percentage of renewables needs to be there or doesn't breach those two lines, right? So you can stay within the levelized cost of energy and you can get pretty high, you can get to 75 to 80% renewable system while still being within that range and being price competitive with a fully gas system.
Cody Simms:
Are you seeing a tipping point in new construction moving this direction yet or was this more a white paper that you're hoping generates more interest in moving this direction?
James McWalter:
I'm spending 70 hours a week talking about how to actually deploy this. We have over a dozen projects that we're actively involved in that folks are using this as a structure, so we did not expect this level of activity. We basically had to ship multiple things in Paces very rapidly in the month of January to support this use case and basically productionize the white paper. But yes, people still need the gas, right? They'll need some gas backup, but you also need gas backup for the three Mile Island refiring, right? They literally need gas backup for that as well. Of all the things that we've put our name to at Paces this white paper has had by far the most impact, not just from us as a company perspective, but from a climate perspective as well, because this has genuinely caught the eye of all the right players and people are deploying large dollars of siting and de-risking of projects that follow this model.
Cody Simms:
Obviously your co-author in the report Scale Mmicrogrids since you authored the report has been acquired, is there by EQT, is there specific technology that needs to exist to enable these type of off-grid microgrids to work effectively? What's the sort of the management technology here that needs to exist as opposed to just plugging something into an interconnect queue and shipping it off to the utility?
James McWalter:
You definitely need to have folks who are smart at building out these hybrid systems. What is the right component of the solar, the best, the battery, the gas, et cetera. That is an important component and also even fully behind the meter.
Cody Simms:
And operating them. If you are a data center developer, you aren't used to being a power plant operator.
James McWalter:
Absolutely. There's definitely that very specific skillset for how a developer would be able to get that project up. And then the asset owner, I will say though, probably the biggest constraint that still exists is actual access to the equipment needed to build this stuff. The procurement for gas turbines. GE has a two to three year wait list for anything at all. One of the first questions we ask when project developers who come to us and say, Hey, can you help us do these projects? And the first thing I always say to them is, okay, do you have any sort of line of sight to the equipment needed to build these projects? Because there's nobody just giving away the solar panels, the switch gear needed to build these projects. You actually need to have relationships, and most of developers do not have those relationships. So either you have a need to have a really big balance sheet so that you can have a specific amount of investment to get those relationships, or you already have to have these relationships preexisting to get the equipment. The equipment is, I would say after the generic set of problems that we've already talked about or the general set of problems we've already talked about the equipment is the number one thing that folks are not spending enough time and money on, and part of that is also just the capital. If you're going to put a big deposit on some of this equipment, it's tens of millions of dollars and where the capital sits in the capital stack is still sorting out. You have a lot of risks associated with some of that,
Cody Simms:
And it's a relatively short-term sort of capital gap need, right? It's call it 18 to 24 months to buy the equipment to getting it in the ground and deploying if you're off grid, if you're doing interconnect and all that, it may be multiple years, but for an off grid project, I think you're talking a couple years.
James McWalter:
Exactly. I was talking to a developer the other day who actually doesn't have the money to do these types of projects, but they're like, oh, I've got 40 million of captured equipment. Should I sell that onto somebody basically, because if we can get a dollar 10 cents on the dollar, then we just nearly flip it. So you're even starting to have nearly brokerage on the equipment side, which is fascinating.
Cody Simms:
Who are the experts in the procurement side here today? Where are these large project developers going for that particular need? Is that an area you see Paces growing into
James McWalter:
That is in-house generally? It is probably the main area we are unlikely to grow into because we do not think there's a very strong technology solution there. It's very relationship driven. We've looked at it. You can come up with a list of all the equipment where it's available, but it's similar to can you build a technology solution to get Nvidia chips? You could, but in the end, Jensen Wong has to tell you yes or no. And so it's down to relationship is the primary mover, and so in that case, maybe startup could out something better than what we can on the procurement side, but probably not a fit for us.
Cody Simms:
Now, the report that you published took some heat online in the climate Twitter world for basically advocating that these systems are not a hundred percent renewable. Unpack that for us a little bit.
James McWalter:
Yeah, absolutely. So some folks, I think it's completely understandable. Initial reaction were like, look, you guys are still trying to build gas. I think there was even Matthew Yglesias had this, oh, take off the mask like meme. This is really just like, it's not a solar and battery micro grid, it's like a gas micro grid basically. Basically we go in depth in the paper on this. The reason why we did this and even the reason why Stripe's Climate team did this and those folks and Nan would be the first to say this. They were basically our funding, a lot of Frontier carbon capture technologies, et cetera, and they were looking at the numbers and just the amount of gas that's being scheduled to build for data centers are going to wipe out all these gains from carbon emissions for all the other work that they're planning to do in the next couple of years. And so if there is not a way of having every single or as many of the electrons that will be generated by gas moving to a cleaner source, we're just going to overbuild a lot of gas. And once you build gas, like anything that's built, it's 30 year lifespan.
Cody Simms:
Gas is being provisioned and onsite carbon capture and sequestration of natural gas isn't really ready for prime time yet in full scope. So I guess a lot of these projects were assuming they would do some kind of director capture carbon removal, carbon credit thing that was unrelated to the site. They were building themselves.
James McWalter:
A lot of hand wavy stuff was happening basically. And so we were like, look, if we can basically decarbonize 1%, obviously we want to decarbonize way more of these systems on a persistent basis, but that is 1% that's dramatically saved and just also the speed and the scale. This is not stuff that, oh, we have three to four years to figure out a good technology mix. There's going to be what $200 billion CapEx spent on the low end this year by hyperscalers in the United States alone. So that is probably going to be right now 40% plus gas powered unless you start to bend the curve and add more renewables.
Cody Simms:
You're saying a lot of these projects come online might be 300, 500, 800 megawatt pure play gas plants. What mix are you generally recommending or advocating or starting to see in the market of renewables to gas in a hybrid off grid project?
James McWalter:
So the initial few projects that we've been involved in tend to be something like 60% gas, 40% renewables. We're starting to be able to get more projects in the reverse of that. The other piece that we are trying to actively show in the product, right, because again, you can't just say, Hey, do the cleaner one, right? You have to show with hard numbers is if you also have a line of sight to some great interconnection, even if it's three or four years away, you can not overbuild the gas piece and basically have a mix where maybe the total emissions over time are lower than you expect. But basically in general, a lot of these systems we're going from a hundred percent gas to 50 50 gas renewables and average
Cody Simms:
Putting in the mix of renewables I think would also primarily mean that you're talking about the US Southwest as your primary land footprint. And coming back to our original conversation, one of the things Paces is particularly strong at is identifying local sites. How much of everything we're talking about here is like a Texas, Arizona, Utah thing?
James McWalter:
A lot. I would say 80% of the folks who are actively working on large scale data center campuses are in those states plus Oklahoma, Louisiana, Missouri. Those are the states. And partly that's just because a lot of folks would love to build in PJM Live to build in Pennsylvania, Virginia, but you're very land constrained and for all my utility friends, I'm sure you won't feel too bad, but utilities in those jurisdictions are hard to work with in some cases. So generally people are like, look, you go to Texas, costs in Texas is the easiest place to build renewables as it is. You have a lot less restrictions around certain types of permitting. You can build a lot faster. Land is relatively cheap, so Texas is like 60% of it and then another 20-30% is spread between some neighboring states.
Cody Simms:
So does all this mean that a hundred percent renewables such as a hundred percent solar and storage is not a feasible scenario for behind the meter microgrid power for data centers?
James McWalter:
So yeah, I guess what would the a hundred percent renewables case look like? So we did do that analysis and it actually does produce a levelized cost of energy over a 10 year period that is actually manageable. In a lot of cases. You do see a spike once you get over 95% renewables. Basically, you are trying to overbuild batteries to a very, very high degree to handle the one day every two years in Texas on a February where the sun wasn't really shining too much and you basically need to overbuild batteries for that case, and that drives up some CapEx and that also drives up the LCOE. There's actually not a lot of difference in the levelizCed cost of energy between something around the 70% renewables all the way up to 80, 90%. So for developers who are interested in this model, you can actually get to a pretty high renewables percentage without breaking the bank.
And then especially because you can deploy renewables faster than gas, that deployment premium is really valuable. Another way to think about it is you could ramp up the power mix over time. So a lot of time with data centers, you're trying to get the first 50 megawatts built and then that's deployed in the data center, and then you're adding 50 megawatt increments over the course of every three to six months. So if you were able to deploy a renewable system fast and get those 50 megawatts built a year before the gas piece, you can actually do a hundred percent renewable system early and then start layering in some of the gas and some of the other aspects over time. So this hybrid timeline approach where you start with renewables a hundred percent, then you add in maybe a bit more gas behind the meter and then eventually, hopefully you might even have grid connection to build out the final piece of that power mix a few years down the line. I really do encourage people to go to the offgridai.us website. We actually added a handy calculator at the very top where people can play around with inputs to the model and it'll spit out exactly what the LCOE, the CapEx, et cetera will be around different versions of what percentage renewables folks are using.
Cody Simms:
As we think about this data center expansion, what are the current options? Guys been all this math, and basically you said, Hey, you can either expand the grid, which we know is hard and we've talked about a lot of the challenges there. You can restart big nuclear facilities like three Mile Island and all of that. There are only so many of those opportunities out there. You can build and co-locate data centers next to clean energy generation. You can build these off-grid sites and basically bring data centers to where you can build new power. Feels like those latter two solutions are most likely to be the things that grow here. But curious...
James McWalter:
We are always an all of the above type company from our perspective. We're not going to do all of the above, but we encourage all of those things to happen. But just from a time perspective, every single one of those CapEx dollars, it's most likely to be a combination of behind the meter or just one thing we didn't mention as much, but it's not just nuclear. If you have projects like a wind farm where the PPA is rolling off, there's also a possibility of siting there. So people are going very deep into current power mix, right? If you've got some West Texas renewables that are being curtailed, can you actually just bring your data center there and you immediate the powers available day one, and then you figure out build out of the rest of the behind the meter system and eventually grid connection. So a lot of what we're doing is building a fairly sophisticated way on a per site basis, showing the ideal power mix grid connected already co-located renewables, new co-located renewables, the gas piece all together, produce the proforma, produce all the calculations, and then make a strong suggestion and then rank the likelihood that this project will get to the later stages needed to actually build it out.
Cody Simms:
James, this has been an awesome conversation. We can keep going for another hour, I'm sure, but you guys raised a Series A middle of last year or so. Maybe talk a little bit about how you finance the business and what you see as the path forward.
James McWalter:
Yeah, absolutely. So closed our series A last summer led by Navitas, MCJ Collective. Amazing partners is part of that as well, and some other great folks. So yeah, so we have basically been really doubling down and automating as much a development workflow as possible. We're just taking every single aspect that a developer is spending a ton of time front of their computer automating that so they can spend their time at that local community building relationship with utility, doing deal making, with procurement processes, et cetera, and really focusing on this combined pathway of renewables plus data centers of renewable projects in of themselves, data centers in of themselves, but then also as we talked about this combined behind a meter opportunity. So our aim is to be able to point to many a hundred megawatts of deployed projects in the next 18 to 24 months. Paces was directly responsible for enabling, and we're here obviously to grow fast and be a startup, but if we can't point to those projects that are built because of our work, then we haven't done our jobs. So
Cody Simms:
Who do you want to hear from today?
James McWalter:
Yeah, so folks who are interested, who are developers who might potentially be interested in the solutions we provide, we'd love to talk to those folks, but also folks on the capital side for project development capital specifically. I love talking to VCs, but we're good for the time being. But folks who are actually looking to potentially provide development capital, we've actually started working with a lot of those folks and talking through how to underwrite these projects and what the risks to look out for. And so I think this whole approach, especially the large scale behind the meter, a lot of it's new and there's a lot of innovation that's needed on the capital side, and so folks want to reach out. I'm james@paces.com. You can always email me on that and always very happy to just talk to the industry as well.
Cody Simms:
James, anything else we should have touched on today?
James McWalter:
No, this is amazing. I can't say enough about how supportive folks at MCJ has been. I was listening to Jason Jacob's version of this podcast very long time ago and been a massive inspiration and can't say enough for the sport that you guys have had for the community.
Cody Simms:
Thanks for all the work you're doing. You're working at the intersection of some incredibly important developments right now, both as AI becomes our future and as need and access to clean power hopefully sets the future that we all want to have and see in the world. Thanks for your work and really honored to be a backer of Paces and glad you were able to join us today for this conversation.
James McWalter:
Amazing. Thank you so much, Cody.
Cody Simms:
Inevitable is an MCJ podcast. At MCJ, we back founders driving the transition of energy and industry and solving the inevitable impacts of climate change. If you'd like to learn more about mcj, visit us@mcj.vc and subscribe to our weekly newsletter at newsletter.mcj.vc. Thanks and see you next episode.
