how can global businesses adapt to the growing challenges and opportunities in energy?

shon hiatt might just have the answer.

hiatt is an associate professor of business administration at the university of southern california (usc), as well as the director of the zage business of energy initiative. the project serves as a talent incubator for students at usc who will go on to leadership roles in energy and business. by bringing together experts, faculty, and students, the program aims for participants to gain experience in balancing energy security, safety, affordability, reliability, and cleanliness.

a usc faculty member since 2014, hiatt’s research focuses on strategy, entrepreneurship, and the ever-evolving world of energy. prior to joining usc, hiatt was a faculty member at harvard business school.

in this interview, hiatt discusses the importance of energy education, the increasing need for energy leadership, and his advice for students wanting to make a difference in the energy space.

this interview has been edited for length and clarity. 

maximilian garibay-deasy: last school year, i was studying in milan, italy when the iberian peninsula blackout occurred (affecting portugal and spain) and had friends that were affected by it. this was a massive blackout that last 10 hours and devastated basic services. what happened?

shon hiatt: essentially one solar farm went out. but the problem is when that went out, it shouldn’t have take a whole system out. but the thing to understand with wind and solar is that they don’t actually create what’s called ‘inertia.’ and we also call this ‘momentum.’ the physics of momentum is just mass times velocity. inertia is this aspect of rotating momentum. we use rotating momentum to create hertz and alternating electricity. and wind and solar on their own – because there are no moving parts – don’t produce any inertia.

the iberian peninsula had very little inertia. they had a little bit of hydro running, but it wasn’t sufficient enough. and that’s why the whole system went down because there are important circuit breakers that go off if you can’t maintain a particular hertz. if not, you will damage electronics. and so that led them to have to do what’s called a ‘black start.’

a black start is when you have to start an energy system from scratch. and guess what? to do that, you need energy. like starting a car engine again, right? you need energy. they had to get a bunch of diesel generators to basically start with some dams to open the valves and to get those spinning again to generate this inertia.

and once they had some inertia and frequency running, they were able to bring the wind and solar assets back on. so, yeah, all this stuff, it’s super interesting if you understand these energy systems.

that’s what my class goes over. we’ve got to understand these trade-offs. and for every one of these energy factors there’s a trade-off to it. some provide the low-cost option. some provide great reliability and energy security, right? some address the cleanliness issue, right to varying degrees. everything has varying degrees. and then we also understand how the returns are made and the business investments of why they’d invest in one versus the other, considering all these five factors.

mgd: tell us more about the zage business of energy initiative. what role does it play in educating the next generation of energy leaders?

sh: so the zage business of energy initiative was founded just a little over two and a half years ago to do two things. one is to produce cutting-edge research that informs business practices as well as policy. the initiative also educates the next generation of leaders in energy companies, giving the skills and knowledge that are necessary for them to take jobs in energy companies or also in financial firms that service the industry.

and so that’s basically the mission. so if we want to focus on the education aspect, we’ve launched an elective called the business of energy in the 21st century. it’s oversubscribed. it’s a great class because it gives a foundational knowledge of energy. the course starts almost chronologically, from coal to petroleum refinery pipelines to metals and mining, all this extraction. and then we move to electric markets and all the different types of power generation, and in all these, right, understanding like, well, how do you get a return when you make this investment? and of course, what are all the different trade-offs associated with every energy source?

mgd: what has been the industry’s response to the zage business of energy initiative?

sh: i mean, we’re getting just tremendous amount of support from the ceos that are coming here. they love it. they absolutely love it because it’s focused on the business of energy. and in fact, there are a few universities out there, but they don’t do what we do. they’re not focused on the business of energy.

so i’d have to say that we’re the premier business of energy initiative focusing on this. and you can see the ceos that are willing to come to discuss different themes. this year we had a phenomenal panel on mining and metals, finance, minerals, and there was also an energy storage one. i particularly was really excited about our advanced nuclear panel. so we got three leaders from their companies that are doing the new, you know, micro and small modular reactors.

mgd: climate and sustainability is not something you would expect to be discussed at a business school. yet your work does exactly that. what role does sustainability have in business education?

sh: well, right now, in the united states, we’ve had basically flat energy demand. but now due to the ai arms race, these data centers that are being built require massive amounts of power. and i’m talking massive amounts. so 500 megawatts, 800 megawatts, 300 megawatts. i mean, just to give you an idea, we’ve always had data centers, but these new data centers use up to eight to 10 times more energy than the cpu and gpu data centers, and that’s due to ai. so this has now led to a renewed interest in energy.

this is where consulting companies and finance companies are now saying, “we need to hire people who have knowledge about energy.” because this is where all the capital is going.

what was once a topic that wasn’t very exciting is now becoming very exciting. and the companies themselves are requesting trained students in this area.

mgd: and vice-versa, what role does higher education play in business sustainability? why is it so important to prepare the next generation of energy leaders in the way that you do? 

sh: i just did a q&a on this, too, because we did an analysis of the top 50 universities with the national center for energy analytics. and they wanted to know about these energy classes (at universities). are they providing a good foundation of understanding of the economics and the basic understanding of technology, how do these energy systems work?

these financial companies and consulting companies, they’re essentially going to stop recruiting at schools that don’t provide this education. and they’re going to go to universities that do, because that’s where they’re going to get the talent that they need. because there’s a difference between sustainability knowledge and energy knowledge. there’s a big difference. even though there’s an overlap, there are externalities that affect sustainability.

but that’s exactly what this study was about. we were looking at how many of these classes that said they were “energy classes” were actually energy classes, versus some sort of sustainability class. and the bulk of them were just sustainability or climate change classes that did not provide the type of knowledge that these financial firms are looking for. because they need somebody to come in there and say, “okay, do the levelized cost of energy of this product right now. and then figure out what i need to charge for these electrons over a 20-year period. what’s my power purchase agreement?”

mgd: what is one thing you hope to see in the energy sector here in the united states over the next five years? 

sh: i’d like to see greater focus on both the affordability and the reliability aspect. and right now, this is our problem, especially with these ai data centers coming in. we’re going to consume so much energy and we don’t have enough for them. what this means is that the electric reserve margins – which is how many surplus electrons we have on the grid – these reserve margins are shrinking. and it’s getting so low that there’s a real possibility of blackouts coming to this country in the next two years. definitely by 2030, but literally it could start happening within the next two years.

now we’ve got a problem because there’s a massive demand for power and energy and we’re not ready for it. and these data centers can pay 50% to even double of what anyone else can pay.

what does that mean? that means prices are going to continue to go up because you’ve got someone out there who’s willing to pay more. we haven’t even seen the impact of the data centers yet. that’s one of our research projects and we’ve identified that just over the next two and a half years there’s going to be another 54 gigawatts of drawn power from these data centers.

and this is where we’re going to be seeing continued pressure on electric rates. even if they bring the power, right, is that going to be sufficient? this is the question. a lot of states are saying, “you have to bring your own power, we don’t have enough.” oh, yeah, they bring it, but is it going to be enough is the question. if they bring their own? i don’t know. again, this all has to be part of the discussion.