TALKING NEW ENERGY

[00:00:04.730] - Jon

Welcome to Talking New Energy, a podcast from Delta-EE the new energy experts. We'll be talking about how the energy transition is developing across Europe with guests who are working at the leading edge of this transition.

Hello, and welcome to the episode. Regular listeners will know we talk about heat pumps quite a lot in this podcast, but so far we've mainly focused podcasts on residential scale heat pumps. Today we're going to go up in size and talk about industrial scale heat pumps and heat pumps for district heating. Why? Well, industrial heat and large-scale heat is only slightly behind residential heat when it comes to overall demand for heat across Europe. So the challenge to decarbonize heating and even cooling in industry and district heating is as much a challenge as it is to decarbonise heat in households. So looking forward to talking about the opportunity for large scale heat pumps. And I've got three or four great guests to join the discussion today. So let's say hello to our guests. First, Jonas Hamann and Drew Turner from Danfoss. Jonas, let's say Hello to you first, how are you doing?

[00:01:26.650] - Jonas

Hey, Jon, thank you for having me.

[00:01:30.670] - Jon

Jonas, can you tell us a bit about the work you do with large heat pumps at Danfoss?

[00:01:36.130] - Jonas

Yeah. So I work in a team at Danfoss in the sector integration team where we are working with large heat pumps across different applications and me personally, I'm doing business development for large heat pumps, and I found the strategy across participating in the strategy across Europe, China and the US.

[00:02:02.080] - Jon

Great. Thanks, Jonas. And hello Drew.

[00:02:07.030] - Drew

Hello, Jon. I'm the global marketing manager for Danfoss Sector Integration. So working with Jonas as well as others on building key recovery heat pumps in the larger scale sizes.

[00:02:17.650] - Jon

Great. And thanks for joining us at a very early hour in the morning all the way from Colorado. Drew, appreciate it.

[00:02:23.250] - Drew

Absolutely.

[00:02:25.750] - Jon

My second guest is Dave Pearson from Star Refrigeration. Hello, Dave.

[00:02:31.510] - Dave

Good morning, Jon and others. Hello.

[00:02:33.030] - Jon

Dave. Likewise. Can you just give us a snapshot of your work with large heat pumps at Star?

[00:02:40.930] - Dave

Yeah. So 2008, we got interested as an industrial refrigeration contractor. We were asked to look at some heat pumps for a client in Norway, and we did that and really opened our eyes to a completely new sector. So we're a manufacturer of heat pumps, probably from about 500kw up to, we would undertake a project to tens and tens of megawatts of capacity. So we found quite an interesting market in that segment. Quite hidden, I have to say, we uncovered a lot of people that have been very active away back to the 1980s and earlier. So it's an interesting time that we've been involved in this over the last 10, 12 years or so.

[00:03:25.880] - Jon

Great. Can you give us an example, Dave, of a project you're really excited about? Maybe that Norwegian project, maybe another one, a large heat pump project?

[00:03:35.890] - Dave

Oh, well, it's very early in the morning to be talking about whisky, but we can get back to that later. But that's what I'm particularly interested in at the moment in terms of much higher temperature heat pumps. But the main thrust of the business at the moment is looking at providing heat at a temperature suitable for maybe more classical district heating, sort of certainly up to about 85 degrees C, but also in capacities that are sized to serve many buildings from a central resource. We've done a couple of really big projects. One I mentioned earlier, Norway 13 MW and the heat source is the Fjord. So a saltwater fjord, where the water is typically about 8 degrees C all year round at 40 metres deep. And for a long, long time we were promoting this as a solution in the UK with little success. But just last year or 2020 rather, we've done a project on the River Clyde and that's taking heat from the River Clyde to heat part of the city of Clydebank in Scotland. So we're seeing lots of water resource around as possibilities.

[00:04:51.280] - Jon

Great. Thanks, Dave, Jonas. From your side. Any particular project you'd like to highlight for our listeners that show off the potential for large scale heat pumps?

[00:05:01.300] - Jonas

Yeah. There's a project that we're working on at the moment, which is a windmill Park, where there's a storage system attached to it. And then the heat pump is operating when the electricity price is low and discharging the storage system, and then when the price for the heat is good, normally it's seasonal. The heat from the storage systems will then be discharged to the heating system. I think that's a very interesting way of optimising the heat pump.

[00:05:46.490] - Jon

Yeah, interesting. That integration with wind and the electricity sector. My last guest today is my Delta-EE colleague and heat pump expert Lindsay Sugden. Hello, Lindsay.

[00:05:59.920] - Lindsay

Hi, Jon.

[00:06:02.070] - Jon

Lindsay. Can I start with asking how widespread are large heat pumps, help our listeners understand? Are they everywhere? Are they just emerging? Is there a handful? Paint a picture for us?

[00:06:14.910] - Lindsay

Yeah. Good question. As we were saying, large heat pumps can be everything from hundreds of kilowatts to many megawatts. But if we talk about the megawatt scale, then really, it's less than ten a year in main markets, maybe up to low tens. It's not widespread. Obviously, the value is relatively high because there are large capacities, but it's still a fairly immature market. I think it's fair to say one exception or rather one market that's perhaps leading the way is Denmark. Can I'm sure add more to that? But there's been quite a strong increase in larger heat pumps and district heating in the last couple of years in Denmark, which is hopefully a sign for the future for other markets as well.

[00:07:13.710] - Jon

Great. And why are there not more? What are the main challenges that you see?

[00:07:18.750] - Lindsay

Yeah, I think there's probably three kind of main challenges or groups of challenges that I see. And the first one is around finding the right business models so that heat pumps can actually make commercial sense, even if they make technical sense. And in terms of efficiency and decarbonization, making the business case is still challenging. Finding business models which enable or incentivize the use of waste heat, for example, or ways to capture flexibility value streams, Jonas just mentioned interesting projects there. So that's one challenge is just how do you make the business case stack up? Challenges around policy which don't always put heat pumps on a level playing field with other technologies in that kind of scale and also linked to that the energy price signals, which again often make gas look much more, much more attractive. And then finally, there’s technical challenges, or rather a need for further innovation in the technology? How do you reach higher flow temperatures? How do you make these kinds of systems more modular, easier to install? There's work to do there.

[00:08:43.870] - Jon

Okay. On that last point, the technical challenges or the opportunity. Dave, Jonas, Drew, I'd like to ask you to illustrate the range of things that large scale heat pumps can do. If I think of household settings, there's a lot of discussion about the flow temperature that heat pumps can serve. So can they pump water around the house at 50 degrees, 60 degrees, 70 degrees, like a gas boiler, for example. So can you give us a little illustration of what technically heat pumps can do in district heating in industry? Can they give really high flow temperatures, some really interesting examples to help our listeners understand the breadth of applications, which one of you would like to start with that?

[00:09:37.420] - Jonas

So I think that's a very interesting question. I think what we see today is that there are very, a broad range of applications that are good for heat pumps, especially large heat pumps as well, especially when you talk about the symbiosis applications where you have both need for cooling and for heating. And you can use that heat recovery on the cooling side as a source for the heat, the forward temperature of the heat pump. And you mentioned the different temperature regimes. And there are, I think, good solutions out there today for up to about 80 degrees C. And that's both for district heating and industrial applications. And then there are some more obvious industrial applications for heat pumps. You have the dairy factories, you have breweries or something like that, where you both have that heating and cooling needs. And then on the waste heat recovery, I think one obvious one that's also mentioned a lot at the moment, is data centres.

[00:10:56.570] - Jon

Yeah. Okay. I like the industrial example of where we've got heating and cooling needs and you can shift that heat around. Basically, you can extract it, use the heat from the cooling to supply the heat for the heat for the process. Dave, how about yourself? Would you add any to that or frame it in a different way. In terms of what heat pumps can do at a large scale.

[00:11:24.360] - Dave

Heat pumps will do whatever you ask them to do. That's the short of it. The domestic market that we maybe start with 45-50 was fairly normal because it was largely extremely well insulated buildings in Scandinavia that drove the market initially and still do drive it. But as we move towards harder and harder challenges, the technology just evolves. We see better compressors. We see better configurations of compressor, perhaps two stage. We see perhaps better working fluids that are better at higher temperatures or give you the same efficiency you would expect, but at a higher temperature. So 60-70 degrees is really quite feasible if you try. Domestic heat pumps, and perhaps the mistake we've made in the domestic heat pump market is to say heat pumps are too expensive. We need to make them cheaper. The actual cost of the heat pump itself is a relatively small part of the deployment cost. But perhaps we should have been saying was, how do we make these heat pumps better by paying a little bit more, perhaps having two compressors in a cascade setup. However, that's just the intro to the wider piece. The work that we've done has delivered district heating at 90 degrees, 85 degrees is more common these days as a temperature limit, however, there have also been projects on a more industrial setting, delivering heat at 160 degrees.

[00:12:53.700] - Dave

So if you ask the equipment and design the equipment the right way with the right intentions, you can achieve all sorts of things. Does that mean that the heat pump works and that, I think, is the essential question? Technically, it works, but commercially we have to decide (a) how we're evaluating and (b) are we giving it a fair chance? Jonas mentioned wind turbines and that's the predominant emerging source of electricity in the world at the most, the cheapest form of electricity deployment. Accepting that we have to find a way of funding the intermittency of it because there are periods where it doesn't generate strongly. However, we're seeing cost of electricity something like €50 per megawatt hour, which is probably about one and a half times the cost of gas. However, when you buy that electricity back from the grid two kilometres, three kilometres down the road, by the time you have all the transmission charges and the way the electricity market sits probably paying three or four times. So to say that a heat pump doesn't work economically, but the electricity has been made four times as expensive as it actually costs to buy it. There's something wrong with the paperwork, not the technology.

[00:14:10.070] - Jon

Yeah. Okay. So heat pumps then can do a lot. They've got a wide range of applications. They'll struggle with many hundreds of degrees that you could get from some process heat, but well over 100 degrees.

[00:14:27.090] - Dave

And numbers we've run. We could deliver heat at 120 degrees with a coefficient performance of over four. But that's because the waste heat that was available was available at 60-70 degrees. So it's that delta between source temperature and flow temperature. But you've always got to factor in the significantly largest portion of the life cycle cost of a heat pump is the cost of the electricity.

[00:14:52.320] - Jon

Jonas. Coming back to, Lindsay mention Denmark, what's Denmark done that's seen the number of large heat pumps being installed go up significantly?

[00:15:07.050] - Jonas

Well, I think first, one of the things that Denmark has done for many years has been a focus on district energy for many years, there's been a high focus on district energy. And then more recently, there has been a move to fourth generation district energy systems. So with lower temperatures and that basically enabled already a few years ago, many years ago, heat pumps for district energy.

[00:15:36.100] - Jon

So what sort of temperatures are we talking about in this fourth generation?

[00:15:41.310] - Jonas

Yes. Then we are talking about 65-70 degrees, even lower than 60 deg. So quite low temperatures that was also mentioned before in residential heat pumps. So there's been a lot of work and there's still a lot of work ongoing to lower the temperatures because it improves the efficiency and the social economical calculations that they're doing when they're estimating the heat pump and what type of technologies that should be used for these kinds of applications?

[00:16:19.750] - Jon

What are heat pumps displacing? Are these heat pumps being installed in new district heating, or are they being installed in existing district heating and being used instead of natural gas cogeneration?

[00:16:31.290] - Jonas

They're being installed everywhere at the moment, there's a very high demand for heat pumps at the moment in Denmark, and it's for all kinds of systems, whether it's old or new. Typically, they replace the primary source and use the heat pump, at least for the smaller district energy systems and use the heat pump as the primary source. But they keep the gas or whatever that they might have biomass or something like that as backup, so that they have that for peak.

[00:17:08.730] - Jon

And how have they got over the economic challenge that Dave described because I think your electricity prices in Denmark are pretty high. So how do the economics stack up?

[00:17:22.650] - Jonas

Yeah. So again, with lowering the temperature on the district energy systems that lower the lift that you have to do with the heat pump that improves the COP and therefore the lifecycle cost of the heat pump. There have also been and still are some subsidy schemes that are very popular. And then there's a focus on also levelling the playing field between different energy sources, gas versus electricity, and so on. So there are a lot of things that are moving and maybe the last one is also that in Denmark also used to have a penalty for selling waste heat, and that's also been removed. So there are a lot of things at the moment that are encouraging large heat pumps.

[00:18:22.630] - Jon

Okay, so when a country like Denmark puts its mind to it and tries to align a number of the things that you've talked about together, then the experience there is well you've got a nice market because you've got lots of district teaching, but the experiences large scale heat pumps indeed, can do the job and do it economically.

[00:18:43.890] - Jonas

Yeah. Clearly, it's not only to say that this is happening in Denmark, if you take other places like the Netherlands, then you just have smaller district heating schemes quite often, and then those can be on a longer term connected into a larger district heating teams. And then the business model is a bit different in other countries and they can talk more to the UK also.

[00:19:13.650] - Jon

Well, I'd like to just talk briefly about industrial applications as well as we've talked a bit about district heating. Dave, you mentioned whiskey earlier and Drew, interested in maybe your thoughts on applications like data centres or other industrial applications. Dave, let's tell us a bit about whisky and how the role of heat pumps in the whisky or distillery sector.

[00:19:40.890] - Dave

Well, it ties nicely with Jonas’s earlier comments. The other thing that happened to Denmark principally was a realisation that burning stuff is not sustainable. It doesn't matter whether it was trash or whether it was oil or gas or even to a certain extent, biomass has significant sustainability challenges from air quality perspectives. And that was a major thing that happened to Denmark that they decided to burn less stuff. They also then decided to create more wind turbines that created that supply of electricity. So both those things pushed together to create this. Well, if we can't burn something, how are we going to get heat? And that's exactly what's happening in the whisky industry. They are massive consumers of burnables, whether it's biomass or whether it's oil or whether it's gas or anything else. And they've realised that they've got a significant carbon footprint challenge by 2030. They want to reduce by 80%.

[00:20:39.490] - Jon

So, Dave, you're going to make our listeners that like drinking whisky, start to feel a little guilty over their carbon footprint.

[00:20:45.400] - Dave

Not at all. I think a smoky flavour and whiskey is no bad thing. It's not everybody's taste, but it's fine. But essentially whisky process is very simple. You have a volume of low concentration alcohol at 4%, you heat it at the bottom, the alcohol boils to the neck of the stool, you then cool it, taking heat back out and you get 100% proof alcohol, which you for some bizarre reason because it doesn't seem a very Scottish psyche. You put it in a barrel for eight years and forget about it. I think the original aged whisky was probably hidden from somebody and then they found it many years later. But anyway, it's principally historically been a burning technique, and that's got to change. And finding something different to burn probably isn't going to be a satisfactory outcome. It's the classic heat recycle process. It's heat in and heat back out again. It's perfectly suited to heat pumps.

[00:21:45.210] - Jon

Yeah. Okay. Interesting. Drew, we've heard about whisky and district heating. Any other application you'd like to highlight to illustrate the range of opportunities for large heat pumps?

[00:21:58.930] - Drew

Well, you mentioned data centres earlier. Critical facility cooling systems and retrofit of critical facility cooling systems is one of the biggest opportunities that we see. And there's a number of reasons for that. Lindsay highlighted earlier a critical one of them, is that if you're going to install heat pumps on every single house, there are multiple problems that come into play. And two of those problems have to do with the space for that and then also the electrical power for that. If you go to a large scale district scale system, whether it's on a data centre or whatever application or a whisky facility or whatever it's on, what you do is you centralise that power load as well as that footprint of that mechanical equipment to a location where, first of all, you don't have to only add to the power system to service it because that data centre that you install it on is generally installed next to a very large transformer station.

[00:23:00.610] - Drew

And then, Secondly, your footprint of the heat pump is, of course, centralised to that same location. And all you have at the individual residences is a heat transfer station, which is roughly the same size as the condensing boiler that you're in general replacing. And so it solves a lot of those issues. But those critical facility cooling systems that we see, also because of the constant load on the cooling side that provides a constant heat on the heating side or relatively constant, and then the associated temperature of them as well, improving the efficiency.

[00:23:39.990] - Jon

Are you installing many heat pumps at data centres, or is that something you see future opportunity for?

[00:23:46.830] - Drew

We're working on several opportunities for installing heat pumps at data centres right now. Yes. In retrofit of both existing applications, as well as working on new applications where you design it from the beginning as a symbiosis system, benefiting from both the cooling and heating.

[00:24:08.010] - Jon

Okay, Lindsay, when you're talking with people in the heat pump sector, how much - we've heard both a little bit about some of the challenges, but also the opportunities. How excited is the sector about large heat pumps? The next big thing is it - oh, we've been trying. We've been battling with the sector for years. It's still really hard work. What sort of vibe are you picking up?

[00:24:35.490] - Lindsay

Yeah, that's a good question. As you said in the beginning, I think a lot of the focus has been on domestic heat pumps, heat pumps in homes. And although you can't say that market is done yet, that you build single family homes are doing pretty well with heat pumps. There's still a lot further to go with the retrofit sector, but generally, I think there's a lot of optimism that residential heat pumps have reached an inflection point and they're going up, they're kind of on the way to reach their potential. Large scale heat on the other hand, I think they come up as really the place where there's untapped potential for the heat pump market to really grow. And it's potentially a really valuable market, much more valuable, arguably, than the residential sector, when you look at the scale of the applications. So I think there's optimism, but also uncertainty about whether really the policy is going to drive the growth in the way that the technical potential is there, as we've heard, but it's still not difficult. Rather, it's still not easy to make the business case work out. So I think that's kind of cautious optimism that this could be the biggest untapped potential so far, untapped opportunity for heat pumps.

[00:26:11.730] - Jon

Well, I think what we should do now is bring up the talking new energy crystal ball and ask our guests where they think will be by, let's set the time this week to 2030 and see how optimistic everyone's feeling. So given where heat pumps, large heat pumps are at today and all of that potential that we've talked a bit about so far. Jonas or Drew, Dave, Lindsay, I'd like you ought to give a picture of where you think large heat pumps will be by 2030, and you can get that picture in any way you want – megawatts, numbers, a year, some kind of feeling for our listeners of where you think will be by 2030. Dave, let's start with you.

[00:27:01.050] - Dave

Well, it's a difficult one. There's several factors at play here. We are certainly going to see more deployment of renewable electricity, and it's principally going to be wind farms. The question, then, is what happens, either we'll be using the surplus electricity for making hydrogen, or we will be seeing a situation where there's dynamic balancing of the grid by using heat pumps or both or combination or both. One will see a situation where we're naturally happy to take the electricity pretty much all year round, but principally when it's colder and we'll be taking that electricity and making heat from it. But offloading whenever the grid is a little bit stressed because the wind strength is lower. Yeah, that gives us a very strong sort of rationale for building heat networks and heat pumps are the obvious way of doing that. I think there's a real confusion in the broader energy market at the moment of the best way of dealing with that. So I don't know where the politicians will have gotten to by 2030. But leave it absolutely stated clearly. This is all about politics and policy and bits of paper. It's not about technical capability of any of the things that we see in front of us.

[00:28:37.750] - Jon

And with a crystal ball. if you had to take a view as to whether that will move in the right direction and we'll start to see these heat networks grow and grow and heat pump supply and these heat networks. What would you say by 2030 - are you glass half full, glass half empty?

[00:28:53.070] - Dave

So two positive things to say then I think it's wrong to take any individual countries as an indicator because different countries are all pushing in the same direction. So very, very solid observations in Denmark and other countries of ‘don't burn stuff, use heat pumps, harness electricity, use it smartly, use it right time of day, right time of year’. That's a positive. In the UK, there are policies emerging around zoning in cities, and basically we only need two things to see the heat pump market really move and they're quite easy. The first is create a demand for buildings to do something better than just keep burning gas. So the demand side has to be clarified. The second is resolve the economics of it. We are, as I said earlier, making electricity for €50 per megawatt hour and people are being asked to buy at €200 per megawatt hour, even if they're doing heat pumps that have 80% lower carbon footprint. That does not stack up, but it's very easily fixed. So I hope that it gets fixed. It certainly could be fixed. If I was in charge, it would be fixed.

[00:30:05.670] - Jon

Let's take that as an optimistic hope, Dave.  Jonas, Drew which one of you would like to have a go at the crystal ball?

[00:30:15.490] - Jonas

I would say I'm also very optimistic. I read I think yesterday or just today that more than 1000 companies signed up to science based targets and we have countries, country after country that's also having

decarbonisation goals. And I think if we want to make that happen, we need to see an uptake of large heat pumps also, especially if you look at the socioeconomic cost of it. I think there's also maybe a behavioural thing that you need to be at least on a consumer level. You need to be ready to share the upfront cost for a heat network or district heating scheme or something like that. So there's also maybe a mindset that needs to be changed. But I think if this has to happen and I believe personally it has to, then I think we'll see a very big uptake of large heat pumps and that covers across countries like or regions like Europe and China and the US and in warmer parts of the world, it might be more combined where you would use the cold side in the summer.

[00:31:44.270] - Jon

Sure. Okay. Thanks. Jonas. Lindsay last, but not least, how optimistic are you feeling for 2030 and large heat pumps?

[00:31:53.510] - Lindsay

Yeah, I think I'm optimistic as well. I can see the kind of install capacity of large heat pumps probably increasing by 2, 3 or just a magnitude, perhaps by 2030. I think, I hope that the business case will be stronger. There's already energy price realignment is on the table. It's already underway in markets like the Netherlands, in Denmark, being discussed in the UK that will do something. And the value of flexibility will grow. And I expect to see more moving from kind of pilot projects looking at flexibility with large heat pumps to more commercial projects, more incentives for using waste heat and more growth of district heating. I think all of those things are potentially driving the large heat pump market. So yeah, I'm going to go with glass half full.

[00:32:58.310] - Jon

Excellent. It feels to me like this is a sector that needs to move fast if we're hit our carbon targets. But at the moment, maybe with the exception of Denmark, we're walking or jogging along and we need to be sprinting ahead to hit our 2030 carbon goals. So I think huge opportunity, but it sounds like a lot to do. Denmark, like in other things, is showing us what can be done, which is great. And I've got two images stuck in my head. One is of an image of a heat pump next door wind farm serving district heating, acting in symbiosis with the wind turbines. That's one image. The other image I've got is me in 2030, drinking my favourite whisky, which is Highland Park. And knowing that heat pumps have moved heat around in that distillery. So there's very little burning going on, and I can drink my Highland Park without any sense of guilt as to the carbon emissions associated with it.

[00:34:10.170] - Dave

I’d concur with that.

[00:34:12.690] - Jon

I was lucky enough to go around that distillery.

[00:34:15.450] - Dave

Can I make one final comment, Jon? Would that be okay?

[00:34:18.580] - Jon

Very quick.

[00:34:20.310] - Dave

Mark Carney, when he spoke at COP 26, talked about there being trillions of pent up investment, just waiting for somewhere to go. If we get the right policies, then that pent up investment will flow into the deployment of heat networks and heat pumps and so on. And what the governments will then realise is that they've got this massive influx of spending that creates job creation that creates income tax, people spending money because they've now got it that they then claim VAT on. If you spend a pound or a dollar or Euro on a heat pump that's come from a pension fund, the governments take a colossal slice of that money back into the economy and that's what I think will unlock all of this. It's always about the money. It's been like that since the beginning of time when we're counting rocks, but it's always been about the money.

[00:35:14.910] - Jon

And it's certainly a big wall of money looking for a home. So let's hope we get the policy framework, the regulations, the business models, the things we talked about in place so that we can see that potential for large heat pumps exploited. Let's leave it there. So thanks very much Drew, Jonas and Dave and Lindsay. Really interesting discussion. Hope listeners you've enjoyed it. It's opened your eyes to the world of large heat pumps and look forward to welcoming you back to the next episode. Thanks and goodbye.

If you're as passionate about the energy transition as we are, then please keep in touch. You can follow us and me on Twitter, LinkedIn or subscribe to the podcast on your chosen podcast platform. If you like the podcast and like sharing, then please do rate us and to listen to archived episodes. To read transcripts and to see the latest Delta-EE insights, then please visit www.delta-ee.com.

[00:00:07.550] - Jon

Hello and welcome to the episode. As heat pumps and distributed energy become a bigger part of our energy system, they'll bring additional demands on the grid. But smart control of these appliances can help to solve these demands, as well as also providing new ways to help balance the grid. So optimising millions of heat pumps and other appliances in our homes is definitely the future where we're heading to, but it will require new approaches. And today we'll be looking at one such approach in Germany involving Viessmann. A manufacturer of heat pumps and TenneT, one of the four transmission system operators in Germany and the equity crowd balancing platform.

[00:00:49.890] - Jon

So let's get into the conversation and hear more about this. I've got three guests with me today. First, Axel Kiessling from TenneT in Germany. Hello, Axel.

[00:01:01.420] - Axel

Hello. Nice to be here. And thanks for the invitation.

[00:01:04.870] - Jon

Thanks for joining, Axel. You lead Tennet’s work on flexibility. Can you describe in a nutshell what your job involves?

[00:01:14.550] - Axel

Yes. Together with my team, I'm managing a portfolio of flexibility projects in Germany and in the Netherlands. Against the background of the energy transition, we will see a phase out of big conventional power plants. But on the other hand, there will be also an increase of renewables. So that means, on the one hand, we have to build new lines that we can transport the energy from the place of production to the place of consumption. But on the other hand, we also have to unlock new flexibility services that we make the best and efficient use of our grid.

[00:01:56.520] - Axel

And on the other hand, also that we can balance our grid.

[00:02:02.170] - Jon

Axel, I imagine you're on a bit of a journey previously. If I went back ten years, you'd be using flexibility from large power plants. And you probably still are in a big way today. In the future, in 10, 20 years, you'll be using flexibility from lots of small assets like heat pumps, small generators. Whereabouts are you on that journey today? From the big power plants to the millions of small things and people's homes?

[00:02:30.160] - Axel

Yes, that what you said is fully correct. So we will see in the upcoming years the growth of heat pumps, but also electric cars and home batteries. For example, in Germany, there's a forecast of 15 million electric cars in 2030. And that is why we started already three years ago to talk to other industries. Sector coupling is a keyword, and we were in conversations to set up pilot projects that we are experiencing in new processes, but also in new IT technologies and also that we discussed what has to be changed in the regulatory framework.

[00:03:12.130] - Jon

Okay. Thanks Axel. We'll come back to you shortly. My second guest is Hans Schermeyer from Viessmann, one of your leading manufacturers of climate solutions. Hello, Hans.

[00:03:24.070] - Hans

Hi, Jon. Hi, everyone. Great to be here.

[00:03:27.790] - Jon

Great to have you here, Hans. You're leading Viessmann’s Energy Services team. And that team is a bit different from the part of Viessmann that's making and selling appliances. So can you tell us a bit more about what you do in the energy services team at Viessmann.

[00:03:45.910] - Hans

Yes, pleasure to do so. I own the end to end responsibility for all products that involve electricity tariffs. At Viessmann. We call that energy services, and it might be strange for the users or for the listeners to imagine Viessmann in such a business model. So I might dive a bit deeper in why we offer energy services to our users.

[00:04:13.580] - Jon

Yeah, that would be great.

[00:04:16.570] - Hans

So to do so, I would like the listeners and all of you guys as well to do two things. Firstly, please bear in mind that Viessmann has a strong focus in the residential sector. So when I'm talking about climate solutions in the next couple of minutes and talking about heat pumps, then imagine yourself in a household in a one or two family household. Nice, comfy and warm. That's the place where we are right now. Secondly, please drop your knowledge. All of us. Probably most of the listeners are experts in their fields in the energy economic field.

[00:04:58.850] - Hans

Please drop that knowledge and put yourself in the steps of a typical investor in a household back home. So it's quite complicated to invest into a heat pump, then to calculate how much energy will be taken, how much electricity, and when a photovoltaic unit and a battery storage comes into place, that's even more complex.

[00:05:21.610] - Jon

I don't have to imagine it because I've been there. I've got a heat pump and solar panels in my house. I'm exactly where you want me to be at the moment.

[00:06:17.410] - Hans

So how nice would it have been if you had a manufacturer that offers you a heat pump and a battery storage and a photovoltaic and tells you what your savings will be even before you invest in the system. That's exactly what we do in energy services. We offer electricity tariffs that offer these kinds of ‘easification’ makes it less complex. We always talk about seamless process to get renewables at home.

[00:06:51.370] - Jon

Okay. And when you're doing that, then when you make these seamless offers, I love that word ‘easification’. Presumably, what you're looking at is using the smart operation of those heat pumps to create some value for the customers. So the heat pumps can contribute to the balancing of the grid. And the customers get some of that reward. Where Axel described his journey from big power plants to lots of small devices for Viessmann’s journey or heat pumps just operating only when the home needs heat or cooling. Two heat pumps operating also when the grid wants them to.

[00:07:29.970] - Jon

Are you at the beginning of that journey? Where are you on that journey?

[00:07:33.810] - Hans

Yeah. So I think that what you mentioned is one part for our users to monetize flexibility or unused capacity. And on that journey, we are kind of in the beginning. That's exactly. I think the trigger for why Axel and me are in this podcast today. But we have come a long way already because before you start to use or to sell unused capacity, you have two steps. I like to think of it as two steps before the first one is increase your efficiency. Only an unused kilowatt hour is a good kilowatt hour.

[00:08:12.350] - Hans

So use the energy when it's really necessary to use. And secondly, optimise behind the energy meter. So once you have or if there's energy that you have to use, then use it wisely, for instance, to increase your self consumption. And for those two respects, we have come a long way already. The first important thing is to have devices that are connected that are connected. So in order to add those first steps of value, you need to have devices that can be intelligent. And we are leading the industry in Germany and in Europe with regards to connectivity.

[00:08:55.550] - Hans

And we can already base our user value propositions today on several hundred thousand of heating systems or energy systems in general, that we have connected already.

[00:10:51.410] - Hans

Okay. So given that level of connectivity and the intelligence we already have in many households across Europe, we also can base our activity on a broad experience with offering electricity tariffs to use us already so an existing tariff that we offer to heat pump operators in Germany, for instance, allows our users to sell flexibility to the distribution grid operator. It's kind of a let's say, simple system because it neither takes into account what's the heat pump actually willing or able to give the flexibility. The distribution operator just picks a time when those heat pumps are being shut down.

[00:11:47.200] - Jon

Yeah. It's more of a control approach, isn't it?

[00:11:50.200] - Hans

Exactly. And in most cases, the distribution grid operators use the same time every day, and it doesn't really look at real congestion. That's their electricity grid. But still, it's a way for thousands and thousands of our users to monetize their flexibility. I estimate that roughly a third of all heat pumps in Germany use such a tariff.

[00:12:19.860] - Jon

And they're getting a cheaper tariff in return for providing that flexibility or ability to be switched off at times.

[00:12:26.880] - Hans

Exactly.

[00:12:29.210] - Jon

Let's come back in a minute and look into exactly what you're doing with TenneT. My last guest today is my colleague and Delta-EE expert Lucy Murley. Hello, Lucy.

[00:12:39.420] - Lucy

Hi, Jon. Nice to meet you all.

[00:12:42.170] - Jon

Lucy, can you help otherwise, just contextualise what we're talking about in Germany today. If we look at residential flexibility across Europe, are there any places where this is starting to really happen and gather pace beyond the example Hans gave of simple switch off at certain times, or is this all future stuff that we're talking about?

[00:13:06.650] - Lucy

That's very good question, Jon. I think the positive side of me goes, yes, there is really positive development in flexibility and specifically residential flexibility. If you look across Europe broadly, the markets are opening and there are very limited barriers to enter. In Germany, Belgium, the Netherlands, GB market, which means that the value streams of residential assets would like to be flexible and they have the legal parameters to do so. The more pragmatic side of me goes, the next step is these business models that Hans was talking about.

[00:13:45.560] - Lucy

So you have the markets open on one side, and then the next step is to get these connected assets into the markets. And that's the bit we’re at at the moment. And this is where all these conversations are coming about how to enter the markets. What business model should we use? What incentives do you need? The markets are there, and the next step is to just get all these connected assets into the market.

[00:14:08.990] - Jon

Okay, so we're making progress, but there's still a lot to do in actually taking advantage of all of these opportunities.

[00:14:19.370] - Hans

That's interesting that you say the markets are there and we need the connected devices. I kind of look at it the other way around. That might be natural in either of our roles.

[00:14:38.190] - Lucy

To use a very British phrase. It's sort of a chicken and egg situation a little bit. There's a nice circle. To open the markets. You need the connected assets, but to monetize the market, they need to be open.

[00:14:50.140] - Axel

But we all have the same two at the end. All these small flexibility services need to be unlocked and need to be integrated into the system and into the market. And that is the same for Germany or Belgium or the Netherlands. That has to be done all over Europe.

[00:15:06.750] - Jon

Well, Axel. Let's hear about how it's working with you and Hans then. So can you tell us a bit about in this particular project, what Tennet’s getting from Viessmann’s, heat pumps and why you value that?

[00:15:21.270] - Axel

First of all, we are very happy that we have initiated this project with Viessmann and had many talks before and then we started this project and the first one we want to know and sector coupling always starts with talking to each other that we really better understand the technology of heat pumps. That's main aim for us. But then also that we have processes in place that we can unlock these flexibility from heat pumps for ancillary services and congestion management, and also that we can test new IT solutions.

[00:15:56.690] - Axel

And we started that we want to use heat pumps for congestion management. Congestion management. It's like we have a traffic jam on the road. So we have constraints on the grid, and that means that we have to design processes and to implement processes that we can shift the energy consumption from times where we have constraints in the grid to times where we don't have constraints in the grid. And that is what we are testing at the moment. And for sure, we are also looking to the regulatory framework because in Germany for redispatch, you have a cost based mechanism, but for the smaller flex.

[00:16:42.690] - Axel

There we are also looking for incentive based mechanism for a hybrid system, because at the end there must be a motivation for end consumers to participate and to provide this flexibility.

[00:16:59.530] - Jon

Axel when you said redispatch. Can you help others understand is this in seconds, minutes, hours? How long are you wanting them to turn down for? How much notice can you give for that?

[00:17:10.730] - Axel

Yeah. So that's also a very good question. And it was also the aim why we started with congestion management because the reaction time is not so fast. If you compare that to frequency product control, you can be slower in interaction time. You have to do the forecast the day before and then it's on a more minute basis or second, basis that you are activated. And so that's the first test. And for sure, we also have to see if we can make use of heat pumps for products.

[00:17:53.270] - Jon

So starting off with not so rapid response.

[00:17:56.300] - Axel

Yes, correct.

[00:17:57.830] - Jon

And holding for 15 minutes, 30 minutes hours?

[00:18:01.850] - Axel

So it depends on the events. And that's exactly why we want to better understand the technology, because if you stop the energy consumption and you shift it to another time frame, then let's say the congestion must be solved in the grid. So it makes no sense if you only postpone it and you still have the event ongoing, then you don't have solved the problem. You only have, let's say left the problem to another time.

[00:18:35.140] - Jon

You don't want to move the traffic jam from four o’clock to eight o’clock.

[00:18:36.990] - Axel

Yes, exactly.

[00:18:40.310] - Jon

Hans, from your perspective, how challenging is it to provide that flexibility? Or can you tell us a bit what's involved? A lot of listeners might have a heat pump that's not flexible. What's involved in making that flexible while still keeping the home warm, for example?

[00:18:58.390] - Hans

Yeah. It's always hard to get rid of a traffic jam, especially if you don't build a second road. You have to change the user's behaviour. Right? Or at least the users heat pump’s behaviour. Not necessarily. Or actually, in no case, we aim at that the user has to change anything.

[00:19:21.950] - Jon

They won't know anything's happening. The heat pump is doing this on an automated.

[00:19:23.460] - Hans

I believe they know that the heat pump is being used for such a scheme, and they know that the energy bill is being reduced by a bit, but it shouldn't be feasible in the home to do so. For German heat pump users. For instance, there is a tariff to use the flexibility, but it just gets all out of the potential that's in there. I mentioned that there's no one doing a forecast of when is heat demanded in the household.

[00:20:00.300] - Hans

When does this really have to operate? There's no one who does a prediction of the congestion of the grid. And that's really different in our project. We call it V Flex for this project. That's really different because now Viessmann becomes an aggregator. We do forecast every single heat pump. What's going to happen tomorrow in that household. When is the heat pump operating? We aggregate it on grid notes. So it's interesting for TenneT. And we also give the information, how can we change this predicted dispatch? And then it gets interesting because TenneT can look at do they need the flexibility, and then they call us upon this flexibility in the amount that TenneT needs, we get compensated for that.

[00:20:57.570] - Jon

Hans, why are you doing that on a geographical basis, which is really interesting, because then you can provide Axel with that information as to where you can respond. In terms of that analysis of how much flexibility you can offer. Is that done up in the cloud? Do you need more intelligence in the homes, or do you just need the connectivity to get that information to your cloud?

[00:21:24.030] - Hans

So we don't have any relevant intelligence in the field in the households, all the intelligence we have in the field we use for data acquisition as good as possible data acquisition and to send signals fast through. So every calculation we do is done on a centralised basis in our clouds.

[00:21:49.530] - Jon

Okay, now I want to meet that cloud there Axel with your requirements. So you're using a platform that the equity crowd balancing platform, which I mentioned at the beginning. It's quite a long name. EQUIGY crowd balancing platform can you describe it in a sentence or two for our listeners, what is this platform? And how can I help you with.

[00:22:18.490] - Axel

Thanks a lot for this question. EQUIGY is a joint venture of European TSO from APG, Swissgrid, Terna and TenneT, and this joint venture and EQUIGY is running the platform, the blockchain based platform. So that is very easy for aggregators to connect to that platform and that we can manage data flows. We have chosen a blockchain approach because that is very easy to connect. It's secure to connect and cheap to connect. And if you think we had in the past, we had one really big power plant and we replaced it with very small devices.

[00:23:14.490] - Axel

Then you have thousands and millions in the future in the long run, and then you cannot use any more simple IT technologies. Then you really have to prepare for the future. And so that is our cloud balancing platform. And these countries and TSOs are implementing use cases for ancillary services and congestion management. And what we are aiming for is that we can reuse from these use cases in the different countries as much as possible for another country, so that we are aiming a standardised solution across Europe.

[00:23:56.830] - Axel

That is our aim. So that is also for the aggregators, very easy to connect and also for the OMs and the manufacturers.

[00:24:06.990] - Jon

Is this the first time you're working with a platform on this particular project with Viessmann and Hans?

[00:24:12.690] - Axel

Yes. So we did many pilots and to explain a little bit more in Germany, for example, we do the congestion management with Viessmann, but it's only a pilot because we don't have the regulatory framework in place because it's cost based machine what I said before, but in the Netherlands, for example, you can provide secondary reserve via the platform and there it's a daily business.

[00:24:48.550] - Jon

Okay, Hans, how is it for your connecting to that platform? Axel said it's simple, but I'm sure doing something new. There's a lot of learning involved. So has it been a lot of learning? Is it a big IT project for you or give us a feel for what that's been like?

[00:25:08.450] - Hans

Well, I explicitly tried to ban the word pilot from this project, but interestingly or like this discussion with Lucy showed it's the point of view that decides if it's a pilot project or not. So we do use proven technology. We do use our connectivity that's already out there for a few hundred thousand devices in the field. And as Axel just said, we don't have a scalable addressable market where we can put this flexibility into.

[00:25:47.400] - Jon

Yeah, if the market comes and you can get the value, can you then scale this sort of thing up quite quickly?

[00:25:59.610] - Hans

Definitely. That's what I tried to say. But what makes it so interesting from this EQUIGY approach is the cross markets or the international approach. We are an international company. We provide solutions in many, many different European countries, and we focus on everything from the meter or from the cloud down into the household. We would like to share responsibility and would like to share processes up to the energy markets. And if we have to do that in every country with a different API with a different entity offering that market, it will be hard, but in the end, it's really easy.

[00:26:47.220] - Hans

It's shutting down a heat pump or turning it on. It's not more, just capacity that goes into the grid or doesn't. And we would like to monetize that flexibility and EQUIGY really gives that scalable option to do so across many European markets.

[00:27:06.810] - Jon

I think it's a really interesting point about scalable. And you're a European company. You're not a German company. You're in Germany. Germany is an important market, but you think like a European company.

[00:27:17.880] - Hans

Especially Italy, which is on the EQUIGY platform already. France, Belgium, which I think still have to be partners. But those markets are really relevant for either generating your own electricity or heating with electricity. Like France. And all of those markets are really interesting. There's lots of stuff going on for us.

[00:27:44.850] - Jon

Lucy, from your research. You've looked at platforms recently, a few platforms, loads of platforms, trying to do this sort of thing, doing different things. What do you see when you look across the platform world in terms of the number and the different types and functionality?

[00:28:05.490] - Lucy

We can safely say if you say that platforms is definitely the new buzzword. I feel that most things in the industry now is a form of platform or another. We are definitely seeing lots of different platforms with slightly different scopes from different operators. So, for example, you could have a DSO platform, a TSO platform that could coordinate to some extent, you could have an aggregated platform. You could have a trading platform and they all have their own skills and competencies and value in the market.

[00:28:39.640] - Jon

So they're all playing into maybe different potential users of that flexibility. The DSO, the wholesale energy market, the TSO.

[00:28:47.430] - Lucy

Yes, they almost all have their own different verticals. And the challenge we're now facing as an industry is to integrate these verticals and make them usable for both Viessmanns and the TSOs of the different markets that they operate in.

[00:29:04.630] - Jon

Yeah. Otherwise, I guess you end up with a bit of a spaghetti tangle of different platforms trying to do different jobs with the same heat pumps.

[00:29:14.330] - Lucy

From an analogy that we've already seen the market take aggregators. There are many in the markets at the moment, but 510 years ago, there are many, many more. And as they become more developed, come more specialists, we're seeing fewer aggregators in the market today. You can see parallels with what we're seeing with platforms landscapes. There are many at the moment, and as they specialise and become more skilled, it is likely will see less as we go into the future.

[00:29:45.810] - Jon

Hans and Axel, how do you see that in terms of the number of platforms. You're a TSO, you need flexibility. So Axel, you’re a TSO, Hans you mentioned TSOs needing flexibility, we’ve companies using flexibility in wholesale energy markets.

[00:30:00.630] - Hans

Yeah. I think it's a very interesting point that you and Lucy made. And the spaghetti analogy is also quite strong because do you really want to have so many players tangling with your heating system in the middle of the winter?

[00:30:15.280] - Jon

I'm sure you don't want that to happen.

[00:30:18.150] - Hans

Well, we know that is what happens if your heating system fails in the winter - things get really tough. And our current position is to make sure that it stays warm and comfortable at home. And we are willing to take that responsibility, which would mean that any aggregator or any platform has to go through our energy operating system such that we can guarantee that the comfort stays high as the user is used to.

[00:30:54.210] - Jon

Axel, how about from your perspective, all these different value, different people looking to use flexibility for different reasons.

[00:31:00.850] - Axel

So what you said the platform are for different purposes, and what we are aiming for is really to managing the data flows of many of devices. And it should be easy to connect. And that is why we are aiming for a standardised solution across Europe. And for sure, it should be possible that the aggregators with different platforms should be able to connect and aggregate us. Let's say, doing a market function, really doing the aggregation, doing the bits, and there are other functionalities of the platforms. And then it should be easy via interfaces to connect because our aim is that we have traffic on our platform, meaning that we really unlock these smaller flexibility sources.

[00:31:50.110] - Axel

And so we are more than happy. The more customers we have for our platform.

[00:31:56.370] - Jon

Maybe stretching the analogy a bit about traffic jams on the motorway. You are the motorway. As a TSO, the DSO is a smaller road. The wholesale energy markets are different. You need one traffic management system to avoid all of these traffic jams and not just shove them from one place to another place.

[00:32:14.380] - Hans

You forgot the heat pumps being the cars.

[00:32:16.890] - Axel

That's correct. No, that's correct. And that's also one reason why we have chosen that blockchain approach, because in that decentralised energy world, we have much more of stakeholders that need this relevant information in a consistent way. So that does not mean that all stakeholders have access to all data, but the data set should be consistent and should be the same. And to give you one example. So if you talk about smaller flexibilities, then on the one hand side, the customers want to know what happens with their device.

[00:32:59.970] - Axel

Is flexibility delivered? Yes or no. But also the manufacturers want to have information about what's happening with the device because they have to guarantee for the device. But on the other hand, they are. Also, let's say they feel responsible that the customers don't lose comfort. The heat pump is running. If it's cold or the electric car is charged if you want to drive. So there's a second reason for the manufacturers why the needs information and pursue the aggregator's needs information and also the distribution system operator.

[00:33:39.510] - Axel

So it's a whole ecosystem and all stakeholders needs information. And that is also the blockchain promises that this data will be delivered.

[00:33:53.050] - Jon

Everyone needs to play together.

[00:33:57.260] - Axel

It’s an ecosystem with all relevant stakeholders. It's very important that is really sector coupling new ecosystems and that you cannot compare with 20 years ago. That's another goal.

[00:34:07.710] - Jon

Yeah. Well, we've been quite rich on analogies in this episode. From spaghetti to traffic jams, heat pumps being cars and traffic jams helps to bring it to life a bit time now to bring up the talking new energy crystal ball. And I'm going to set the dial again this week to the shortest time setting of three years. So the end of 2024, I think the long term vision is quite clear here. I'm interested in pace, how quickly can we move? So I'd like to ask each of you and we're a little short of time.

[00:34:39.240] - Jon

So, Hans, where do you think you'll have got to with this activity by 2024?

[00:35:02.810] - Hans

Thank you, Jon. I love this category at the end of every show. Thanks for the opportunity. So I think I made clear that from my point of view, we have millions of these devices ready and speaking for Viessmann, we have hundreds of thousands of feet pumps ready in those markets and users willing to use them for the greater good for the stability of the electricity system. And I'm positive that in the next three years, we will overcome the biggest hurdle for putting those flexibility sources to use to put aside with that hurdle.

[00:35:49.180] - Hans

And that would be to address energy markets. It's quite complicated, quite hard to monetize or to be able to contribute to an energy market. If you don't install a very complicated meter, if you don't go through very complicated process and I would like us and I'm pretty positive we will be able to do that, to introduce some kind of qualification system, you only need to think about autonomous driving. It starts with assisted driving continues by a few steps and then you end up in full autonomous driving.

It could be the same for aggregators of flexibility. If you have only a couple of 10,000 units then you might not have to be as secure as an aggregator that's much, much larger. In 2024, we will have a few hundred thousand Viessmann heat pump operators that contribute to system stability in Europe.

[00:36:27.060] - Jon

Thanks very much Hans. Axel, how about you - three years time?

[00:36:32.540] - Axel

Yeah. So we have to be fast and we have to implement all technical requirements that we can manage these smaller flexibility sources and integrate in the market and in the system. And I have three main drivers for that. One is the e-mobility, and we see a really fast growth, and then we have millions of cars on the road. And that's one reason another reason. Also, that's a German specific thing. We have seen PV power plants on the roof more or less now 20 years ago. And you have a fixed in feed tariff in Germany for 20 years.

[00:37:16.510] - Axel

But that will then phase out. And so we had many of these devices 2005 2006, seven and eight installed. And then you don't get any more and fixed in feed tariff. But PV panels are still working and then the households, I would assume buy a home battery or electric car.

[00:37:40.970] - Jon

You really want to self consume that?

[00:37:42.910] - Axel

Yeah, but you need to do something with your PV panels. And on the third important thing is the renovation of the buildings that you will replace oil heating systems with heat pumps. Then you have these million of devices and also million of devices. Then you also see that on a TSO level and then you have to integrate it in the market and in the system. And so we need the technical requirements in the next year. We are happy to have new customers and new TSO ready for our EQUIGY solution and for sure also, the regulatory framework has to fit to the smaller flexibility sources.

[00:38:31.330] - Axel

And one example I gave you was incentive for smaller flexibilities for congestion management.

[00:38:38.390] - Jon

So Axel, do you think in three years time this will all be in place and you'll be ready to scale?

[00:38:56.470] - Axel

We will do our best. We will work on that. And then we will see what's happening.

[00:39:02.780] - Jon

Okay.

[00:39:03.220] - Axel

But I'm confident that we need a solution that we can integrate these more of it. To make the energy transition happen.

[00:39:14.830] - Jon

Lucy, looking across Europe, I'd say maybe your description at the beginning was we're at one or two out of ten at the moment today, where will we be in three years time? Do you think.

[00:39:28.510] - Lucy

I'm going to be optimistic, for the markets that can pair this business model and opening the markets -  five or six? Axel was dead on the money on the e-mobility and the installed base that's already there. That has great opportunity. I don't see a reason why that can't be monetized in the short term. If you're looking at slightly more emerging markets, then we probably maybe one or two by two or 2024.

[00:39:58.690] - Jon

Some markets moving quickly.

[00:40:01.750] - Axel

But what I also would like to say it's not about only about money, because I think you always talk about money if you talk about smaller flexibility. But what is also important that you don't lose comfort and that is also important so that you really can drive if you want to drive, that your car is charged, that your home battery is charged and that your heat pump is running - that needs a coordination. That's also an important factor. I have to say it's not only about money.

[00:40:38.080] - Jon

I agree. We haven't talked much about customers. We talked a bit about customers today, but if we don't put customers right at the middle of these new propositions, these new business models. I'm sure it won't work. So very good point to end with Axel. So we better leave it there now. Time has got the best of us. But thanks very much, Hans. Axel, Lucy, for joining today. It's been a fascinating conversation. Great to learn about your activities in Germany, wishing you all the best of luck to move forward at pace in the next years. Thanks as always to everyone for listening. Hope you enjoyed the episode.

[00:41:46.850] - Jon

And if you listen on a podcast platform, if you do get a chance to rate us, that would be very much appreciated. Look forward to welcoming you back to next week's episode. Thanks and goodbye.

[00:00:03.530] - Jon

Hello and welcome to the episode today, I'm talking with Lisa Lambert, who is Chief Technology and Innovation Officer at National Grid. Lisa is also founder and President of National Grid Partners, their Venture Capital and Innovation arm. In addition to this, she's founder and CEO of Upward, a nonprofit organisation with a mission to accelerate the careers of executive women. Now, I talk a lot in the podcast about the challenges and opportunities facing utilities, and I think National Grid is a great case study, and I'm really excited to speak with Lisa about this.

[00:00:37.460] - Jon

National Grid is present in North America, the UK, and across the whole value chain. And as well as her job today, Lisa brings a fascinating perspective to this with a career in the investment sector in Silicon Valley prior to joining National Grid nearly four years ago. So after that long introduction, Lisa, hello and welcome.

[00:00:57.270] - Lisa

Hello. Happy to be here. Thank you for the invitation.

[00:01:00.790] - Jon

Thank you for joining Lisa. Three areas I'd like to discuss with you. First, your perspective on the energy sector and the energy transition, given your background in a different industry. Second, your work in leading and driving innovation in national grid. And third, your work at Upward and what I and my listeners could or should be doing more to help bring the gender diversity we need to the energy sector. So let's get going. Then, first of all, then you're working in a different industry. You've come to energy, you've been in it four years.

[00:01:35.990] - Jon

So maybe you're fully immersed in it. But I'd like to just rewind to when you started an energy. And what were your impressions of the energy sector?

[00:01:45.650] - Lisa

Yeah, actually, I started in the energy sector even before National Grid. When I worked at Intel, we had cross industry responsibilities. So I ran the software and services practice and energy and transportation. Those were part of the vertical markets that I was responsible for. So I got my introduction to the energy sector at Intel Capital. I was there for 16 and a half years at Intel for 19 years. But when I left Intel Capital, I actually joined a private, clean tech venture capital firm called the Wesley Group.

[00:02:16.940] - Lisa

So I worked there for a couple of years before making my way over to National Grid and forming National Grid Partners. I've been in the industry for about eight to ten years, steeped in it, certainly for the last six years. And when I did leave Intel, I left it because I thought we were kind of on the cusp of a major energy transition. We had recovered from the cleantech 1.0 bubble. So many of the companies that were born during that era back in the mid 2000 timeframe, that kind of crossed the chasm, right?

[00:02:49.750] - Lisa

They were moving into clean tech 2.0, and the sector was looking strong, was looking much more resilient. I kind of thought there was a renaissance underway for the energy sector. Because as a sector that most people thought wasn't that innovative. And so it was a big part of why I left. And I think there are more detailed ones today accelerating this transformation  - policy, corporate purchases and capital formation are all happening right now.

[00:03:19.290] - Jon

And is that what you've found or at your time at National Grid, not specific to National Grid with the sector in general, have you seen that renaissance well under way. Is it moving at the speed you thought it would move at, are there are more challenges than you thought you'd see or more opportunities?

[00:03:41.050] - Lisa

I think it's the pace of it because it's the energy sector, and I work at a regulated utility. And so things don't move as quickly at regulated utilities as they do in the high tech sector, which is where I've spent most of my career. So there is a pace issue, but it's probably more in comparison to high tech, which is very fast. But I think the ambition is certainly there. I've seen it personally as I've stood up National Grid Partners in the midst of a lot of transformation going on within National Grid and the sector more broadly.

[00:04:13.120] - Lisa

I think what's most encouraging is that there were, as I said, a number of companies that made it out of the clean tech bubble version back in 2008 into this new era. And now there is policy, and there is capital formation, and corporations are beginning to purchase energy in a way that they haven't before. And so I'm very enthusiastic. I think one of the most encouraging things that I've seen of late is this infrastructure package. There's over $500 billion of new infrastructure building. It's the largest bill that we've seen in the sector for decades, and a lot of the capital is allocated to clean energy.

[00:04:49.130] - Lisa

So that is a tailwind for sure. You've got $7 billion going into EV charging and another 70 plus billion going into power infrastructure. That capital is enormous.

[00:05:01.390] - Jon

Will that drive the pace, because when I think of pace, it is a slow moving sector in comparison to some because of that regulation. But the pace we need to move out to hit our climate targets. I think sometimes there's a disconnect between the pace we need to move at and the pace the industry is moving at, those tailwinds from that infrastructure funding. Do you think they'll help to provide that pace, or what do you think will provide that pace that we really need?

[00:05:29.320] - Lisa

I think it'll help. I don't think it's enough by itself. I think you do still need capital formation in the private markets, which we're beginning to see. I think you need legislation. There are 400 pieces of legislation that have been written in the US, at least 37 US States in 2020 alone. So the regulation and the legislation is increasing all around reducing emissions. And you see corporations now buying energy. I looked up a statistic and it looks like in 2020, 10.6 gigawatts of renewable energy was procured by US corporations.

[00:06:05.120] - Lisa

That's enormous. I think the biggest catalyst right now and what we really need to see and that we didn't see in the clean tech 1.0 era is capital formation. And there is a group that is called the Institutional Investors Group on Climate Change, Europe based global fund focused on pension funds and investment managers. They've got 1200 members across 16 countries and they've got $40 trillion under management, all targeting global low carbon transition. And the data suggests that we need to be around $40 trillion in investment in this area over the next 20 years.

[00:06:48.620] - Lisa

And so this is a good start on that. And I think that's one of the most encouraging things I've seen.

[00:06:54.130] - Jon

Are there enough homes? Do you think for that wall of money? Because as you talk about clean tech in 2000, a lot of money hit the sector and there weren't really I don't think the homes at the time for that money. Do you see there are the investment opportunities that will give a pension fund that safe, steady, secure rate of return, particularly as markets are deregulated, opened up, more competitive. It maybe gets slightly harder to secure that iron clad long term investment.

[00:07:25.630] - Lisa

Yes, I think that's where the partnership with the venture capital world and with startups will really make a difference. The reason I joined National Grid was to build a capability that helped fund the startups. The start ups are really doing the innovation. So the policy is good. The capital formation is good. There are opportunities out there to invest, and we've invested in 35 companies ourselves across the three mega themes that we call decarbonisation, decentralisation and digitization. You need all three of those mega things to make the net zero world a reality.

[00:08:03.770] - Lisa

But I do think the technology there is there, and I do think consumers are incentive. They're motivated, they want to control their own power consumption, they want to have choice over what and how they consume their power. In some cases, they even want to sell their power and monetize it for themselves. I think the combination of consumer interests and wanting more control plus policy plus capital formation are all moving in the direction of this is going to happen now. Whether it happens by mid century time will tell, but there certainly is more of an intellectual will.

[00:08:42.600] - Lisa

And now a lot more of the component pieces are there. I think in the clean tech 1.0 bubble, the technology just wasn't there. And certainly the capital wasn't there from the venture capital and pension private equity world. But we're seeing that forming today. So I'm encouraged.

[00:08:56.490] - Jon

What about the business models? And I guess that's different in regulated markets, like many of the US states and Europe, which is less regulated. But I can see the tech. I can see the consumers. I can see the policies, the money. But the bit I see often that has to catch up is a business model to deploy that tech, particularly in liberalised markets.

[00:09:23.710] - Lisa

It depends on what part of ecosystem you're referring to. I think the physical infrastructure component. I view it as physical infrastructure, digital infrastructure and market infrastructure. I think the physical infrastructure piece. We know how the assets work. We've been dealing with these assets for many years, and so those business models are really unchanged. I think the digital infrastructure is emerging, and you do need digital to enable the renewable build up and the renewable integration onto the grid network. But I think those are pretty well-known models.

[00:09:59.260] - Lisa

I think the market infrastructure piece, meaning, how do you monetize the growth of this scaled up enterprise is TBD and there's still more work to be done there. But I do believe that the momentum is in its favour.

[00:10:16.170] - Jon

Yeah. Looking now at National Grid and you work at National Grid Lisa, my understanding is you've got a number of innovation functions – incubation, corporate venture capital, business development, culture acceleration. Can you talk a bit about where I'm sure they're all equally important. So it sounds fair to ask you which is most important, but which maybe do you see the biggest challenge for a company like National Grid?

[00:10:46.690] - Lisa

Well, I think all of these are a bit of a challenge because they're different and regulated businesses run like regulated businesses and so different is not always ideal. I've got the five functions – innovation, incubation, corporate venture capital, business development and venture accelerations, and we've had progress in all of them. I think the most visible have been the investments that we've made. As I mentioned, we had four startup investments, four limited partner investments, 35 startup investments in about three and a half years, which is pretty phenomenal. But we've also had nine new innovations developed in our Innovation Centre of Excellence.

[00:11:25.110] - Lisa

We've formed what we call the Next Grid Alliance, which is an alliance of utilities, 70 number utilities across the globe. Our goal there is to get all 150 utilities in collaboration, partnership with each other for this clean energy transformation. We've also deployed 70% of our investments within National Grid. So we're helping to train the company on what disruption means and what are technologies that can help improve our operational performance or efficiency? What are some of the best practises that you're going to get from working with startups?

[00:12:01.270] - Lisa

So we've had progress on each one. I think probably the most challenging one is always getting the business to consume the technology so we can make investments because we know how to do that. We can partner with other utilities. But these deployments has been a challenge because part of it is helping them understand why the technology is needed, why they should be working with the startup and then getting them comfortable with procuring that technology because utilities aren't used to procuring from startups and then getting proof of concepts and pilots completed.

[00:12:32.980] - Lisa

So you can deploy it. That's probably been the most difficult thing of all the things that we've tried to do here in the last four years.

[00:12:40.270] - Jon

What have you learned about that? When you look back, things that made the biggest difference or any tips, tricks or suggestions for other utilities who are trying to bring startups they've invested in into their business.

[00:12:57.550] - Lisa

I think the thing that helped the most was having some fellow travellers, identifying people who are likeminded, you're not going to get the entire organisation to move and lockstep and at pace with the startup world. But I was able to find people in the different operating businesses who had a like mind. They wanted to see real transformation. They realised that from a technology standpoint, we weren't on the leading edge. We really weren't improving in a material way, our operating efficiency using the incumbent technologies, they tend to not innovate in the same way that startups do.

[00:13:39.100] - Lisa

And so I found a half dozen or so of those fellow travellers, and that's where we did our proof of concepts. That's where we did our pilot. And then those half a dozen became a dozen, and those dozen became two dozen. Before long, the progress that we're making in the businesses that started first was so apparent that you got other interested parties taking a look and seeing how they could help transform their business in the same way. So that is a key. You definitely want to get people who are going to walk the journey with you and create some momentum.

[00:14:13.470] - Jon

And I would imagine, well, not only does that gather pace, as you described, but my experience of working with utilities is there are more and more individuals in utilities that really see that they're not only motivated by the money they're earning, they're motivated by making a difference, and they want to help their utilities. The companies they work with make that transformation to a low carbon economy. So are you seeing more of that within different parts of National Grid that you're working with?

[00:14:45.580] - Lisa

That is definitely a part of the culture. Many people come to the energy sector, and I think to utilities because they have a personal passion about clean energy and climate. That is apparent. And it's actually encouraging because even when they face obstacles and when things go slower than they expect and there's more regulation and more process than they would like, their heart keeps them in the game, if you will, right. It keeps them motivated and excited to continue to persevere. And so I think that cultural element at National Grid is probably true for all of our expert alliance members, all the utilities across the globe.

[00:15:23.610] - Lisa

They really do feel passionately about this. And they're concerned. They're concerned for their families, they're concerned for their futures. And so the combination of an opportunity because they've got a job that can actually have an impact. And this emotion that says we really do want to see change because we're really concerned about the future does make for a helpful environment, for sure.

[00:15:43.840] - Jon

Yeah. Your job is quite wide. Lisa, your Chief Technology Officer, Chief Innovation Officer and President of your venture capital arm. Do you think that helps to have that all joined together? Because if I look at other utilities that Delta-EE works with, often they're separated out. You'd have a technology officer, you'd have an innovation officer and a separate venture capital business. So do you think that that's important to join us together?

[00:16:13.040] - Lisa

Yeah, the integration is actually helpful, but we've got a view of what's happening in the external market, what external innovators are doing, what startups are doing. But we're also working very closely with the business and our innovation function. Our innovation function is about new business creation. So we're standing up our own startups, if you will, within national grid. But doing that in conjunction with the operating businesses. So we're working on the problems that they think are real, the use cases that they've identified and they're working in tandem with them.

[00:16:46.380] - Lisa

So being able to see that view and have that close relationship and bring that into the conversation that we're having with startups. And so we're much more informed, much more intelligent about the real business challenges. And then we can convey that to the startups. And we can use that as our lens for identifying companies that we can invest with and partner with is really helpful. And if those functions were separate, I think we'd have less symbiosis, less collaboration, less intuition about where we should be going.

[00:17:17.160] - Lisa

They really feed each other. They really depend upon each other. It's true for our incubation function, and it's true for our business development function. We even use it in venture accelerations, which is all about bringing the outside mindset in. How do we train National Grid employees who aren't used to working in competitive markets like startups are and being cash constrained like startups are and having a sense of urgency that startups are. We bring that mindset into National Grid, which also creates bedfellows fellow travellers, if you will, on the journey.

[00:17:49.840] - Lisa

So having all those functions together and having that chief level, that C level title really does make a difference. It gives me influence, gives me visibility. It gives me more credibility, and it has helped us get things done quickly. We've done a lot in the three and a half years that most of the team has been here. I've been here four years, but I've recruited the team and stood up the organisation. And I can say in four years that's a lot of work. And because I've had this position, no doubt.

[00:18:18.330] - Jon

What about in a regulated utility, I often think people that are rightly conservative, they're not incentivized to take risks. Electricity is such a critical part of our economy and society that you don't want to take too many risks. So how do you see that challenge you mentioned the travellers, those champions you've identified to help bring innovation into the business. Dichotomy I don’t know if it is the right word, but on one hand, they need to innovate and do things differently and change and evolve. On the other hand, not to take risks and to be quite rightly conservative with a small c in how you run a network.

[00:19:02.830] - Lisa

It's the biggest challenge. The cultural orientation for utilities is one of structure, safety, order. We're a regulated business, and that's how we run the business. And we need to do that because we deal with products that are very valuable but can be harmful if they're managed inappropriately. And so probably the biggest challenge we've had is around culture and for the organisation to give itself permission to experiment. Our world is all about experimentation. It's all about taking leaps and trying new ways of working, new ways of thinking, new solutions to old problems.

[00:19:46.630] - Lisa

There aren't any incentives for doing that in regulated businesses. There are very few incentives. The regulator is supposed to provide those incentives by setting out innovation capital. But in the end, a risk averse culture is more predominant. And so again, it's finding those fellow travellers. It's getting people on your side so that you can show that taking some risk and doing some experimentation actually does reap a reward, and it can do it without being destructive. But that mindset is a difficult one to overcome, no doubt.

[00:20:19.010] - Lisa

And it's justified the business that we're in. We better be safe, we better be reliable.

[00:20:25.130] - Jon

Yeah, it's a balance, I guess. Lisa, moving on to the third point. I want to talk to you about your work at Upward. Can you tell us a bit about who Upward is and what they do?

[00:20:40.570] - Lisa

Yeah. So I started Upward when I was at Intel back in 2013, and I worked, of course, in the venture capital and tech world, all of my career. And one of the things that's very apparent in venture capital, working with startups and high tech is that there are very few women and people of colour. And so after having worked in this business for many years, at that point, I thought now is a good time for me to try to affect change here. So I conceived of an idea to have a group of my colleagues - senior level.

[00:21:16.140] - Lisa

And my focus was always on the executive level women because there are lots of programmes for onboarding young women into business. But there is a ceiling and for the director level, VP level folks who are trying to get to that C level, it's really difficult. The numbers show it only 4% of the CEOs when I launched Upward in 2013, 4% of the employees CEOs were women, and only 13% of the executives were women when I launched this back in 2013. And so you can see, though we come in mass at the entry level, it's about 50/50 in the S&P 500, Fortune 500.

[00:21:55.500] - Lisa

About 50/50 women and men at the entry level. But as you go up, there's dissipation. So there's a leaky pipeline. So I took on that challenge, had an event at my home with some senior level executives, female executives to talk about the problem, and that's kind of when Upwards was born. We didn't name it and brand it for a couple of years after that. But that was the beginning.

[00:22:17.290] - Jon

And how's it addressing that challenge or how's it making a difference.

[00:22:22.230] - Lisa

Yeah. So in the venture capital world, only 5% of the general partners are women. In the startup world. Only 8% of the founders are women. So the numbers are bleak. One of the things I did when I was at Intel was launched the Intel Capital Diversity Fund. And I discovered with that - this is the year after I had launched Upward. I discovered with that once you dedicate capital made $125,000,000 fund that there are people that are in those classes, female and minorities who actually want capital, who actually have their own ideas about their startups.

[00:22:59.610] - Lisa

We launched the diversity fund, and we got 600 business plans for the first two months.

[00:23:04.200] - Jon

Wow.

[00:23:06.250] - Lisa

Yeah. It's amazing, right. This mythology that women and minorities don't have any ambitions to be entrepreneurs is really a mythology. They don't have access to capital.

[00:23:16.810] - Jon

Were those business plans not finding their way to other VC funds, or were they getting ignored?

[00:23:26.150] - Lisa

They were finding their way. But they weren't getting the capital. And so if you look at the numbers, as I mentioned, beyond said, only 5% are women. So 95% of the GPs that are looking at these startups are men. And what do you think they're going to be interested in?

[00:23:43.800] - Jon

Yes. Whether it's a known bias or an unknown bias, I guess it's a bias.

[00:23:49.490] - Lisa

It is definitely a bias. And it is a problem in our industry. And that was one of the things that I was hoping to resolve with my work. And we did. We focused on building a community, a community of executive women. We went from a few hundred members in that first year to over 6000 members today, part of our mandate was focusing on building communities so that women could rely on each other for encouragement, for support, for leads, if they were running their own companies for referrals, if they were looking for a new job.

[00:24:31.090] - Lisa

I always say that the life of a person's career is their network, and women tend to underdevelop their network. A lot of that is there just aren't that many senior women for them to access, but some of it's just we're not investing the time. And so we spent a lot of time building that community, that network and creating some dependence and interdependence on each other to help accelerate our careers. That worked really well. And that was the predominant business model. For the first five or six years.

[00:25:01.500] - Lisa

We've since expanded the business model to include an offering what we call Upward Academy, which is member training programmes around leadership development and running a PNL. A profit and loss centre, strategic decision making, becoming an entrepreneur. These are member training programmes that help them advance their stature and their skill set. And then we have corporate programmes which are essentially programmes that we sell into corporations to help remove the barriers for them to advance. One of the things we heard from our members is that we're learning a lot, we're developing our skill set, but then we're going back to the same companies and they have the same obstacles.

[00:25:42.810] - Lisa

And so why don't you have some programmes that help corporations remove those barriers to advancement? That's really our focus right now, developing our members and making sure the companies have the right policies to recruit and retain and promote the females that they have in there.

[00:26:01.970] - Jon

You partly answered my next question which is, what do you think I and our listeners should be doing about that? And I guess there's the corporate, company level. There's actions that we can take, but yeah, what would you like? What would your advice be to people listening who are passionate about gender equality, more gender diversity, both for it being the right thing and for the energy transition to be successful. I think we need that diversity. So any particular points you'd like to make to our listeners?

[00:26:36.380] - Lisa

Yeah. I think be proactive. One of the corporate programmes that we have is a programme that we call Allies in Action. And it was born out of Upward Men, which was an initiative that I launched back in 2019 to complement Upward Women. And Upward Men is all about men coming alongside, the help coming alongside to be allies and supporters of the women in their sphere, their sphere of influence. So that would be the first thing I'd say is if you're a male and you have some influence, get involved, mentor some women sponsor some women, help develop some women.

[00:27:14.550] - Lisa

I always say that we have mothers if you're a man and many of them have wives and sisters and aunts and nieces. And so there are women in their lives and they should care about their future in the same way that we care about the future of the planet. We should care about the future of our women and get involved. And so get off the sidelines, get yourself involved. And you will be amazed. We've launched programmes like our University Partnership programme with large corporations, and it's all about helping large corporations recruit up and coming women from universities, student women engineers, women that are harder to get a hold of because there are fewer in numbers.

[00:27:57.640] - Lisa

And so having a loyalty programme where you train and you mentor and you sponsor and then you bring them on once they graduate is huge. That's all about building rapport, building relationship, building credibility as an employer that cares, there are things that individuals can do. And there are things that corporations can do to really make themselves stand out in a world where women aren't always valued and they certainly aren't attended to in the way that their male counterparts are.

[00:28:25.570] - Jon

And I guess that's a challenge in the energy sector as much as it is in the tech and VC world as well.

[00:28:34.790] - Lisa

It certainly is in the tech and VC world. I think in the energy sector, the demographics are a bit better. I haven't looked at those broadly, but you do see more women. In fact, at our company, we have a large number of women on the group executive staff, so I think women are more drawn to it because again, they have this passion around climate and we're nurturers. We care for the children and we care for our families, and we want to care for the planet. So you do see more women there, and there are opportunities.

[00:29:03.650] - Lisa

National Grid is ranked as one of the better employers for women and minorities. And I think the energy sector is better in its performance overall, but we can all step up. We can all move to another level. And so that would be my encouragement. Do look at it, do spend time on it, don't give lip service to it, but actually act. And there are a lot of really practical things that you can do to help improve the situation if you'll make the effort.

[00:29:28.280] - Jon

Thanks Lisa. Now we're getting to the end of the podcast, so time to bring out the talking new energy crystal ball. And I'll set the dial this week to 2030. And I'd like to ask you two questions. Lisa, looking back from 2030, how will you know you have succeeded in your role at National Grid in 2030 and with regard to your work Upward, can you give me something that you'd like to, you hope we see in 2030 with regard to diversity and equality?

[00:30:06.510] - Lisa

Yeah, for sure. I think starting with the energy sector, we've done quite a lot in four years that I've been here. As I've mentioned, I think if I dial forward by 2030, I certainly would hope that we will have modernised our assets and our operations. And for me, that means we've kind of perfected how to integrate renewables into the grid, reliably and at scale. And maybe we're even using virtual power plant technologies or DERMS to add to our renewable capacity on our networks. That would be a major win, because we're moving in that direction, having assets that are more efficient, enabling technologies like digital twins and artificial intelligence.

[00:30:49.860] - Lisa

A number of our startups use those capabilities to help improve the efficiency of decision making and operational function. So there's evidence of those technologies being deployed in the business, better capital planning, better project management. All those things help keep the cost down. And our enterprise, which is very asset heavy enterprise with very high costs if they're not managed and deliver high quality service. And then I hope that we're really moving toward the utility of the future, kind of the net zero world that we've all been talking about.

[00:31:25.390] - Lisa

And so we have this mindset on renewing our very large natural gas business, green natural gas, renewable natural gas that we're thinking about, options on how to get hydrogen into our networks and our distribution and transmission, and that we're electrifying more of our assets. We just at National Grid, just electrified our entire UK business through an acquisition. So we're very serious about doing that in the UK. And if we step up in a similar way in the US, I think we can have an enormous impact.

[00:31:59.030] - Lisa

National Grid is already known for being one of the leaders of the clean tech movement, and we made some real practical financial decisions around that. So I think seeing more of that would be great and probably last, but not least, I think customers, it's been a big focus for us in our investment strategy to identify solutions that help improve customer experience and help improve customer engagement. So becoming more digital so that we're smarter, more efficient, having best in class cyber solutions. As we add more assets to the networks, we need to secure those assets.

[00:32:37.370] - Lisa

So those are some of the things that I would hope to see by 2030. And we certainly have invested in enough technologies in those areas that we should be demonstrating those capabilities at scale. But that would be my hope.

[00:32:50.240] - Jon

Yeah. Okay. You need those travellers to be taking those technologies into your business and Upward, I guess, get the percentages much higher that you mentioned earlier. And any one thing to mention with Upward by 2030?

[00:33:07.650] - Lisa

Well, I hope that we have chapters all over the globe. So we have a chapter model. And that was the community was built on a chapter model and on the strength of our volunteer network. So we've got 17 chapters across the globe. I would love to have 100 chapters across the globe, even 1000 chapters across the globe. And these are the local communities where we do our best work. And so that would be a huge win, because I think where you have community, you have opportunity for women to get support.

[00:33:37.550] - Lisa

And the biggest issue that women face is the lack of support. There just aren't enough women in the companies that we work at at senior levels to provide the mentoring, the sponsoring, just the best practises, how to do career advancement in an effective way. So the more communities we have across the globe, the better. I would like our memberships to be maybe 100,000 or 200,000 members. We're at 6000 right now. So that would be another positive. And then I think real evidence that women are in these operating roles, they're in senior level positions, they're in those executive level and C level roles.

[00:34:14.200] - Lisa

That was original ambition, breaking those barriers, removing the ceilings, creating a path for them to get to their highest ambition, to achieve their dream and to have an impact. So those would be a few things that I would hope to see by 2030.

[00:34:29.210] - Jon

So you and your team have got a lot to do in the next nine years. And, Lisa, but heading in the right direction.

[00:34:35.430] - Lisa

Indeed.

[00:34:36.470] - Jon

Well, Lisa, thanks very much for your time. It's been a fascinating discussion. Really appreciate it. And I hope everyone listening has enjoyed that. And thanks, as always, for joining the podcast and listening to it and look forward to welcoming you back to the next episode next week. Thanks and goodbye.

[00:00:04.010] - Jon

Hello and welcome to the episode. We see a lot more electric heating in the energy transition, and we talk about it regularly on this podcast. Much of this will come from heat pumps, air to water, ground to water, air to air and more. But if we look at the electric heating landscape across Europe today, direct electric heating makes up the vast majority of the landscape. Direct electric heating's one to one electricity to heat ratio is no match for heat pumps ratio of 2.5 to one, three to one, four to one.

[00:00:39.790] - Jon

But electric heating does come at lower cost and with greater simplicity. Today we're talking with two companies active in the direct electric heating space with their roots in that area, but both with recent developments and innovative twists to standard direct electric heating - together, as always with one of my colleagues from Delta-EE. So let's say Hello first, Mario Tronto from Tesy, one of Europe's leading producers of electric heaters and also heat up water heaters. Hello, Mario. Mario -  my guess is some of our listeners might have heard of Tesy.

[00:01:18.130] - Jon

So can you give a quick introduction, a few facts and figures about who you are?

[00:01:24.370] - Mario

Yes, for sure. Tesy is a company that has been established in 1993 by two brothers, Kyurkchiev, and the company is located in Bulgaria. The headquarters are in Sofia and the four production factories and the R&D team is in Shuman close to the Black Sea. Main products are electrical water heaters, panel convectors, indirectly heated water tanks and heat pumps.

[00:01:55.810] - Jon

Mario, are the heat pumps quite a new addition with the roots in direct electric heating? And have you added heat pumps or have you had heat pumps for a long time?

[00:02:05.330] - Mario

No. Actually, I joined the company three years ago and my task is to bring this range of products inside Tesy. The owner has a clear idea that the heat pump represents, let's say, the future product for Tesy because sooner or later the electrical water heaters will decrease the presence in the Europe in terms of numbers and they will be gradually replaced by heat pump water heaters, both for water, domestic water and for heating space. This is a clear deadline of the company to introduce in their product portfolio the heat pump.

[00:02:48.140] - Mario

And let's say I'm leading this change inside Tesy.

[00:02:53.170] - Jon

Okay, well, that's nice. In a way to be part of the future. Well, part of today and the future. Mario, you said you're based in Bulgaria, but how widespread are Tesy active? Where are your main markets or how many markets are you covering?

[00:03:10.790] - Mario

Well, at the moment we are selling. We are present in 55 different markets as in sales and in four continents. We are a sister company owned by Tesy in Russia, in Bangladesh, in Spain, in Greece, in former Yugoslavia and Ukraine. And we are also thinking to establish other companies in other countries. Let's say the 85% of the turnover of Tesy is made out of Bulgaria.

[00:03:46.970] - Jon

Okay. Thanks, Mario. We'll come back to you shortly. My second guest is Raphael Meyer, CEO and co founder at Lancey Energy Storage. Hello, Raphael.

[00:03:59.910]

Hello.

[00:04:00.260] - Raphael

Good morning.

[00:04:03.170] - Jon

Thanks for joining Raphael. Listeners in France may know of Lancey, but outside of France, maybe not so. Likewise, can you give us an elevator pitch for Lancey, please?

[00:04:13.520] - Raphael

Yes, sure. So we're a young SME based in Grenoble in France. We want to promote the direct team in the different configurations that would be useful for the building of the future, which is in self-consumption with the help of PV panels, solar PV panel installed on the rooftop or in the neighbourhood. And our core product is an electric heater with a battery storage inside and a micro inverter. The idea is to replace the old generation direct heater by your new generation one with more sensors, with more intelligence for the pilot team and with this storage capacity that can be useful at the house level in self-consumption to do a peak / off peak time of use certification, but also at the scale of the grid with the so called smart grid and development of flexibility that can both help new business models and bring additional services to the energy suppliers, but also to the resilient energy communities.

[00:05:20.210] - Raphael

That can be one way of going forward to the carbon neutral transition.

[00:05:25.130] - Jon

Okay. You said Lancey is a relatively young company. How young? And can you give a listener's idea? Are you on the market? How many units are you selling? What stage and your growth are you at?

[00:05:38.690] - Raphael

We had our fifth birthday this summer, so we're still relatively young. We're active mainly in France. Right now.

[00:05:46.530] - Raphael

We have sold about 2000 units with different generations of radiators, but we are actually very interested in collaboration with large manufacturers like Tesy. We do have already one partnership in Canada with the leader in Canada for electric heater, which is Telfer Design, we have been developing, under licence, a completely developed product to fulfil the needs of the local market and to be produced by the manufacturer itself. We have plenty of ambitious and we have ambitions. Sorry, as we consider. Indeed, as you said, Jon, during your preliminary talk that the direct heater is clearly one part of the carbon neutral heating system of the future.

[00:06:43.230] - Jon

Okay. Thanks, Rafael. I'll come back to you shortly and last, but not least, my Delta-EE colleague, Catrin Cooper. Hello, Catrin.

[00:06:51.690] - Catrin

Hi, Jon.

[00:06:53.310] - Jon

Catrin. I mentioned in the beginning that direct electric is a big part of the European landscape. But can you just unpack that a little bit more if we look across Europe for all electric heating today? What does that look like in broad terms?

[00:07:08.970] - Catrin

Yeah. So I’ll maybe talk about installed base, how many are installed? And I'll talk about a few product categories. One is electric water heaters. So that's got the largest installed base across Europe. Around 80 million homes have an electric water heater. And when I'm talking about Europe, I'm talking geographically, including Russia and Ukraine in there as well. Next is direct electric heating that's got about 60 million homes across Europe and then finally a lower installed base, but with real growth potential as heat pumps. So air to air heat pumps used for heating that's about 40 million homes across Europe have those installed and then air to water heat pumps, about 6 million.

[00:07:56.970] - Jon

Okay. And geography wise people, our listeners may know countries like France where electric heating is quite big and established, but are those numbers clumped in particular countries or quite widely distributed, any particular patterns or trends to pick up there?

[00:08:15.100] - Catrin

Yeah. That's a really interesting question. Eastern Europe, I think, is definitely a region of note as regards electric heating. So they have a really high share of electric water heaters, mainly because there's a high share of homes with wood stoves, coal boilers. And they have the electric water heaters alongside, but also district heating alongside district heating network, whether they may use district heating only for space heating or it's an ageing network. And then they have the electric water heaters alongside. So that's an important market. I think the second one is Scandinavia.

[00:08:57.480] - Catrin

So Norway has a really high share of direct electric heating. And then Sweden actually has one of the highest penetrations of heat pumps, air to water heat pumps in Europe. Around 20% of their heating is heat pumps.

[00:09:11.730] - Jon

I always think it's fascinating how you've got two countries right next door to each other. You'd think they'd be quite similar Norway and Sweden, but very different in how they heat their homes. Fascinating, isn't it? The differences across Europe?

[00:09:24.530] - Catrin

Yeah, definitely.

[00:09:28.290] - Jon

Okay. Most of the attention when we talk about electric heating is on heat pumps. And Mario, that's an area you're in charge in an up and coming area. But those figures, I think, really bring home that that installed base and maybe a lot of that will become heat pumps, but some will stay direct electric. It's still a big market in terms of trends. How quickly is it changing? Catrin, when you look across Europe, are we inching forward or well, that's a bit Imperial measurements, maybe for our metric listeners centimetring forward, or are we racing forward and really transforming that new store base?

[00:10:08.620] - Catrin

Yeah. And I think it depends when you look across the product categories. So for products such as heat pumps, I think we are expecting really quite significant and fast growth over the coming decade. The air to air heat pumps, they've already got quite a significant installed base in certain markets. It's already quite fast growing in France, Spain, Italy. And we expect that as the heating capabilities of air to air heat pumps become better known and cooling demand increases that this will further increase air to water heat pumps. I think it's going to be a combination of new build regulations, tighter restrictions on gas, in retrofit, that will really help to bolster heat pump growth over the next decade. So those are the areas I think we need to keep a close eye on. In terms of other product categories - electric water heaters. There's already a really sizable install space at the moment, and I think there is opportunity for that to change slightly, but I think more or less the sales will remain stable over the next decade.

[00:11:22.450] - Catrin

There might be more room for domestic hot water heat pumps, more modern products, but more or less to stay the same.

[00:11:32.010] - Jon

Okay, well, we can unpick that a bit as we go. Thanks for that scene setting, Catrin. Mario and Raphael, I'd like to ask you a bit about innovation. The heating sector has been quite a conservative sector. Mario, from your perspective, you're being brought into Tesy to try and drive the growth of a new type of product quite different to Tesy's existing products. Raphael, your whole company is innovating in terms of your product and where that innovation culture comes from. So maybe first start with Mario. It was interesting looking at Tesy's website when I was preparing for this podcast.

[00:12:37.880] - Jon

Innovation is one of the three core values of Tesy. And can you just talk a little bit about how that manifests itself? So in what ways does Tesy innovate and how does it create this innovation culture that is talked about?

[00:12:59.130] - Mario

Yeah. Let's say it is not easy to be innovative in a product like panel convector because it's such a simple product. But we're the first company to sell Europe a panel convector controlled by WiFi so you can decide coming home to increase the temperature over your room and enter, let's say a very warm house. But this year, due to the Covid situation, we also modify one of our best product controlled by WiFi with implementing a UV lamp to kill bacteria and fungi and viruses. So we call AirSafe FinEco clouds.

[00:13:48.390] - Mario

This is panel convector that can also reduce dramatically the percentage of virus and bacterias in the heated ambient. It is a simple combination by UV and temperature. And let's say it's a very simple solution also for end users, because this panel convertor can be easily fitted into a room for heating the room and also for hygiene in the room. We think that there is a simple solution that can have his future.

[00:14:21.730] - Jon

Mary, how does Tesy create the environment for these kind of ideas? Manufacturing companies are quite a large manufacturing company. It's essence is keeping things simple, producing them in high volume. The innovation culture of that can be quite difficult. So how do you create that culture, or are there any observations as to how Tesy moves quite quickly with these sorts of products?

[00:14:49.390] - Mario

I think this is due to the owner, Zhechko Kyurkchiev, because this is one the points of the company to be innovative, because it is very easy to make a kind of mistake when you produce in a country like Bulgaria with very low cost labour market and to produce only for cost. But this is not the idea of the owner, because we must be innovative. We must offer to the market the best technology, the best solution in terms of functionality, in terms of efficiency and design, to compete to the big company already present in the market before Tesy because if we play only, let's say on the cheap products, this is not the future, because if you are innovative, you will survive in the coming years in which the general situation of Bulgaria will change, it will be the same as the other countries in Europe.

[00:15:47.370] - Mario

So innovative is something that is in the name of Tesy we are pushed, of course, to get idea. We believe in the strong cooperation with our partner. I mean, partner like suppliers first, but also customers and also our team. We have a company that employs people from, I think, eleven or twelve different countries. So when we meet each other, we bring the idea from Spain, from Russia, not from UK at the moment, but also from Bangladesh. And they are quite completely different because when you talk with these colleagues, they say, but my market is special.

[00:16:29.280] - Mario

Of course, every market is special. This is no doubt about it, but it's important to discuss about it and to get ideas from this discussion and we got it. But I think that the main source is made by our suppliers.

[00:16:47.810] - Jon

Interesting. I'd like to come back to heat pumps, the innovation when it comes to heat pump water, heaters. But Raphael, if I like to ask you first with Lancey, you're a small company, very innovative idea of electric heating with a small battery and micro inverters where did that come from? Was that a brainwave? Was it an idea that came to you? Did you tell us a bit about where the inspiration came from and also how did you validate that? Because there are lots of good ideas that don't go anywhere but very interested to hear where the idea came from.

[00:17:25.770] - Raphael

So as Mario told, it's really a mixture of culture of scientific backgrounds that generated this idea. Personally speaking, I did my PhD in photovoltaics. I was really into the field of photovoltaics and especially on the development of solutions at the house level and of course, in self consumption. So that brings directly to the question of storage. So at this stage, nothing really new. So why the heating?

[00:18:20.130] - Raphael

It's just the fact that the battery storage, actually by itself loses a part of its energy and a form of heat. And that can go to 30%, 40% even more. If you take lead acid batteries, the yield is not that good. And of course, it can reduce the time of return on investment, the efficiency, and even how useful it is to use storage if you lose 30% to 40% of the stored electricity. Of course, is it really meaningful for the energy transition? So the idea was simply to try to recover these losses.

[00:19:07.720] - Raphael

And how can you valorise the losses of the battery? Well, just associating the battery with a system that needs heating that needs the generation of heat. And of course, thinking that way, this contradictory association storage plus battery comes naturally. So the idea at the beginning was just an engineering solution to a simple engineering solution to a massive problem, which is the yield of the batteries. And the good thing is that can be hope inspiring for any innovators. It's really keeping the exploration of all the aspects of an idea because you never know how wide can be an idea, even if it seems very simple at the beginning.

[00:20:01.870] - Jon

What surprised you on your journey, then if you're encouraging people to keep their perspectives open, have you taken different directions? Have you changed course? Did you come across things that you implemented this in a different way from how you thought you would?

[00:20:19.750] - Raphael

Well, the initial idea and the first patent that we have deposited, actually, it's quite robust. Still, right now, the intuitions were good in terms of technology then, of course, what we didn't know really was the complexity of the market, how segmented it is. It can be a relatively conservative market with a lot of restrictions, regulations and many aspects, of course, which are relatively complicated for a young company. Then, of course, we had some intuitions that are still valid today, but a bit more complex to deploy, for instance, the valorization of the grid services, the demand response mechanisms, for instance, we believe that it could be faster to be implemented at a very small scale.

[00:21:25.070] - Raphael

But we still believe that it will be part of our business model in the coming years, but we thought it would have been faster. So that's one example. And then we do have the roadmap of products for the next generation. And of course, we carefully follow all the evolution of building certification, all the certification around the building and the criteria that a new building has to fulfil to be constructed because we consider that it can be a very good driver of innovation. Actually, constraint is a good driver to innovation.

[00:22:06.300] - Jon

Yeah. I'd like to ask both of you about getting your products into market. Maybe, Mario, first you with your heat pump water heater. It's a new product for Tesy. Could you use the same channels as you had for your direct electric products? Did you have to create different channels? How did that experience turn out?

[00:22:32.190] - Mario

Well, let's say that the present channels we use for the standard product can be used also for heat pump. But for sure, there are new channels that we are not normally in contact with because they are not our traditional customers. And also there are new companies that can be our customers that are brand new company. For instance, in Italy, the subsidies are 110% has generated a lot of new companies that offer to the customers a complete service. I mean, they offer all the paperwork, authorization, installation and payback.

[00:23:12.590] - Mario

And this kind of companies are relatively new on the market. And I target this one. And my view in the company is also to teach my colleague, the head of regions, to look for this kind of opportunities out of the traditional channels because this company is not. So let's say traditional oriented for the standard product, for the standard brand. They look for efficient products, they look for good service and they look for, let's say, the product itself not the brand.

[00:23:47.880] - Jon

So you've got to be quite reactive then to these new channels emerging. Do you think that trend will carry on? Do you think over the next years you will see lots more of these new types of companies, new channels in different markets?

[00:24:04.650] - Mario

Right now. This company was born because of the subsidies mainly. But I think this is a winning idea. I mean, you want to build your house, your new house or refurbish your flat, and about heating or about installing renewable appliances. You can refer to one company only because what happened some years ago, you go to the plumber, to the electrician, they offer you the PV, somebody offer you the heat pump, somebody offer you something. But to have a company that is focused on renewable appliances, starting from the PV, the batteries, the heat pump, all these kinds, and they can offer you the full support.

[00:24:52.610] - Mario

I mean, the paperwork, the authorization and also the loan, because actually, now in Italy, if you refurbish your house and you can improve the efficiency class of your house of two steps, you get back with a certain limit, but it's very high 110% of your investment.

[00:25:12.940] - Jon

That's amazing, isn't it?

[00:25:14.410] - Mario

Yeah. Actually, you can change windows, install PV, install heatpump for a total value of around 250,000 Euro. And you can maybe pay some 10,000 or €5000, nothing compared to the value of the house, because people now must be convinced about this solution and of course, with constraint, but also with subsidies, you can push it. And then my idea is that this innovation must be leader by example. When you see your neighbour doing this, you become curious and you are really touching the solution.

[00:25:52.840] - Mario

And your neighbour can tell you, hey, guys, I'm spending less than €800 per year in my house for heating the house, water and electricity and so on. And you're spending three or four times more. So it's something that I think could really make the difference in the future.

[00:26:14.790] - Jon

Yeah. And you've got to be quite reactive and dynamic in terms of your customers, as you describe. So looking at new channels, Rafael, you've not had any channels.

[00:26:29.830] - Raphael

Of course, as a startup, we have to start by new channels and let's say the more complicated ones like the do it yourself shop with different layers of intermediates of distributors. Et cetera. Can be very complex in terms of market penetration. So we have began with direct sales, mainly B2B, with a relatively limited number of players like social landlords or public authorities. And right now what we really believe in and it goes in the same direction. What Mario says is package offers that can be proposed by both energy suppliers and much more are going into that.

[00:27:28.120] - Raphael

The idea is simple, just producing and selling the electron is not that profitable if it's not profitable at all. Right now, especially in a country like France. If as an energy supplier, you want to be profitable, you have to bring additional services to the end user. And of course, what makes the energy consumption can be a good service and retrofit operations, et cetera. With why not the financial services to get the loan for the installation, et cetera. That's one part and the other part is also working on, let's say, as a service offer, the idea being if we avoid independently from the incentives.

[00:28:16.650] - Raphael

But if we can avoid the investment threshold by a monthly fee, which pays for the installation but monthly fee, which is below that the economy, that the proven economy of energy. Well, everyone is willing. So we really believe that that kind of offers which are complex to provide, you have to be very perfectly organised in terms of value chain for the installation, for the initial diagnosis, to get all the economy of energy certificate. So you have to get a perfect process. A couple of companies in Europe right now are emerging with that kind of business model, and we consider that we can help as we have a solution that for retrofit, is very simple to install, but I can bring additional services.

[00:29:07.520] - Raphael

We consider that we can grow at this cornerstone, and we believe that it can be a way of avoiding what we could call the yellow jacket effect. That is clearly an enemy of the energy transition is people getting trapped into an old energy equipment very costly on a monthly basis. And that avoids any kind of investment possibility into a new system. Then if the incentive system is not there, you're trapped. And of course, people will be against any increasing of energy prices of carbon taxes, et cetera, et cetera. And the carbon neutral society will be hard to reach.

[00:29:48.420] - Jon

You’ve both given really interesting examples of a similar business model - that as a service business model. Mario in Italy, with companies taking care of the installation, the paperwork, everything slightly different twist on it. But making things simpler and easier for the final customer. Often they depend on the right policies being in place. Catrin, you mentioned at the beginning that a lot of direct electric heatings in Eastern Europe. How quickly do you see policies there pushing to maybe heat pumps rather than direct electric, or replacing really inefficient heating systems with more efficient systems?

[00:30:34.640] - Catrin

Yeah. It's a really interesting question. And as always, it's looking at what's happening in retrofit and then what's happening in new build and in new build there are some instances where we're seeing more incentives the heat pump installation because the new build regulations have been tightened and they're restricting gas boiler only installs. For example, Poland is a really good example of that. And then on the retrofit side, most of the markets do have subsidies in place for heat pumps. They're reducing the cost of an upfront install heat pump a little bit like what Mario is saying.

[00:31:16.970] - Catrin

Certainly not big enough - as big as in Italy. And there is still something for the consumer to pay. So they're only really going in in small amounts.

[00:31:30.210] - Catrin

It kind of fits into a wider story for Eastern Europe, which is that Eastern Europe is undergoing an energy transition, but it's not towards electric, as in parts of Western Europe. It's more moving away from coal and onto cheaper and cleaner gas, other fuels.

[00:31:51.070] - Jon

Yeah. Okay. So different dimensions that change from maybe very old energy to gas. And then in some cases from gas to electric. Rafael and Mario, time is getting the better of us. So very briefly, what are the next two or three markets you've got your eyes on for your products, Rafael. Starting with you give us an example of two or three countries where you'd like to take Lancey's product to in Europe next.

[00:32:24.970] - Raphael

Well, thank you. Of course. UK is a very interesting market with the eco programme mechanisms for a new technology that can be tremendously accelerated in terms of market penetration. So that's interesting for that. UK market is also quite attractive for innovation in general. It's a market which is relatively tolerant for innovation, less conservative than other markets. And also there is a legacy part of direct heater and accumulation heater relatively important and also different kind of houses. Initially, they were in feeding tariffs in terms of PV, and that could be retrofitted to self-consumption.

[00:33:17.020] - Raphael

So that brings different clues way that UK could be very promising for us. And we are following different kind of programmes, especially with energy suppliers to get developed there. And we are also analysing countries more in south of Europe and especially a country like Italy where you have an enlightment, which is very high. So PV production potential, which is very high as well, and also a high cost of electricity almost as expensive as Germany. So that could be, of course, a very promising market as well.

[00:34:03.080] - Jon

Okay.

[00:34:03.750] - Raphael

We will be sooner or later in Germany, we want to be in Germany. We know that it can be a complex country in terms of market penetration, but starting by not anymore niche markets. Fortunately, like a PV installation market, but still relatively specialised compared to the whole heating spectrum. We consider that we can establish a position and be useful to the overall ecosystem of installers.

[00:34:37.030] - Jon

UK, Italy, Germany plenty of you to go out there. Some big markets. Mario, in terms of your particular heat pump water heaters. What are the next markets you've got your eyes on?

[00:34:56.050] - Mario

Speaking about the heat pump for domestic hot water. We already selling all around Europe with low quantity in France, but in France is, let's say, a protective market. You need to apply for additional approval. If you want to sell the subsidies, and if you do not produce in France, you have to pay royalties to enter or you have the chance to sell big quantities. Otherwise you cannot compete with the local tradition. But anyway, we are present all around Europe. But the most important step we want to do is to start to add to our portfolio the residential multifunctional heat pump.

[00:35:35.290] - Mario

I mean the heat pump for heating and cooling the ambient and also to produce the domestic of water. Okay, and for sure we will start in our domestic market. That is Bulgaria, because Tesy is a synonymous of quality and availability. And in Romania because it's close to. At the moment we are in the phase in which we are selecting the true potential supplier for this product, and also we are working for establish a cooperation with another, let's say potential partner for making this product by ourselves.

[00:36:13.480] - Jon

Okay.

[00:36:14.000] - Mario

And I'm sure that the real point is to select and to offer the right product because we are talking about continental area in which the heat pump is requested to work properly till -15 or -10 with a good performance and not only paper performances. When you buy something on paper, everything is good. When you install it, you can face some trouble. In fact, out of my window, I just install a heat pump one of we want to promote and I'm performing the field test by myself.

[00:36:58.750] - Jon

You told me it's minus eight outside, so that's a good test for it.

[00:37:01.960] - Mario

Minus eight is okay. I expect -15 for January. So I'm really curious to see the behaviour of the heat. But what I mean is, first of all, we need to select and to offer the right product to the customer and the right service, because another point of the future will not only the product itself but the service. People want to have no troubles. People want to sleep without headache, so they prefer to pay something more, but to pay also the service for five years, ten years and to have no problem.

[00:37:33.980] - Mario

This is really a key point. The other point.

[00:37:40.150] - Jon

So I've got to move on to the crystal ball. Now, time is getting the better of us. Apologies for that. This week. I'd like to set the talking new energy crystal ball to 2026 and ask each of you to limit your answers to 20 seconds, please. They're very short and sharp, but in 2026, I'd like you to describe one way you'll be innovating on top of what you're already doing today. So in five years, can you give our listeners an example of how you think you'll be innovating on top of the ways you are doing so already today, Rafael, let's start with you and keeping it brief please.

[00:38:22.750] - Raphael

So by 2026, we hope we are working to implement for the first time in a domestic appliance batteries of electric bikes in second life, electric storage capacity in order to reduce the pressure on raw materials associated with energy storage. We have already a partnership with a big partner in Paris area to study this. And we would like to industrialise this approach, which is very complex in terms of regulation and supply chain. But we do hope that we can do this by 2026.

[00:39:07.340] - Jon

That would be very exciting to see. Looking forward to watching that and Mario, for you in 20 seconds. One way you'll be innovating on top of the way you are now.

[00:39:17.820] - Mario

Okay. From technology point of view, I let the engineer working at this point, but my idea is to develop the business by example. I mean that innovation must be contagious, but apart this, I have a dream. I would like in five years to be able to supply to offer to my customers that can be easily connected to the net and control by itself. I mean, the companies must offer something that in spite of any kind of fixed protocol, can use and manage the energy produced by the PV or supply by the net in a clever way.

[00:40:01.370] - Mario

And in the house must have a brain that tells two appliances to the washing machine, to the dishwasher, to the heat pump. Now you can do it. Please do it. And you have to wait a kind of real domestic, but not based on a standard protocol that every company made his own, something that must be free for everybody and easy because it must be easy. Otherwise it doesn't work.

[00:40:29.490] - Jon

Advanced home energy management with open protocols. That would be fantastic in five years.

[00:40:39.580] - Jon

Yeah, well, I think we'll get there. I hope we get there. We need to get there. And Catrin, from you one biggest area of innovation with electric heating in the next five years.

[00:40:50.610] - Catrin

Yeah, it's a big question. I think. Generally speaking, we're going to see connected electric HVAC becoming the norm in five years, time or so we're going to see more availability of time of use tariffs and then more penetration of electric heating products that have some sort of storage capability so that customers can reduce their running costs along used alongside time of use tariffs.

[00:41:17.280] - Jon

Well, that ties all together very neatly, I think, because we've got from Raphael an electric heating wood storage, we've got heat pumps from Mario with this vision of an advanced home energy management system and Catrin from you, that corresponding to time of use tariffs and everything's connected and connectable. I'm very excited. I think there's a lot of change happening in the electric heating markets. A lot of innovation. Things will look different in five years. We won't be there at the destination of five years. But there'll be a lot of change that we'll see in the next five years.

[00:41:56.620] - Jon

And thanks to all three of you, Catrin, Mario, Rafael, for sharing your time. And Raphael, Mario, good luck with your innovation activities. The sector needs things to be changing and pushing forward. So wishing you the best of success. Thanks as always, to everyone listening. We hope you enjoyed that episode and look forward to welcoming you back next week. Thanks and goodbye.

[00:42:22.170] - Mario

Bye bye.

[00:42:22.860] - Raphael

Thank you very much. Thank you very much, Jon. Thanks.

[00:00:04.730] - Jon

Welcome to Talking New Energy, a podcast from Delta-EE, the new energy experts. We'll be talking about how the energy transition is developing across Europe with guests who are working at the leading edge of this transition.

[00:00:03.950] - Jon

Hello and welcome to the episode. After last week's episode with my colleague Nigel Timperley, looking at the world of finance today, we're continuing the theme, looking at how the downstream energy transition will be financed. And to do that, I've got three guests, Nigel again, and two other guests who are actively involved in financing energy efficiency in different countries, in different forms, in different ways. And my guests will bring to life some of their activity, some of their challenges, and some of the opportunity for finance to play a role in the energy transition.

[00:00:44.790] - Jon

So if you haven't listened to last week's episode, my chat with Nigel helped frame the world of finance. You might like to listen to that first, but today we'll be bringing it to life with some practical hands on examples. Let's welcome our guests. So first, Sebastian Carneiro from Solas Capital. Hello, Sebastian.

[00:01:07.590] - Sebastian

Hi, Jon. Glad to be here.

[00:01:09.540] - Jon

Thanks for joining us. Sebastian, can you tell us a bit about Solas Capital and what do you do?

[00:01:16.230] - Sebastian

Yes. Happy to do. So. Solas Capital is an investment advisor specialised in the field of energy efficiency. We partner with energy service companies, project developers, the public sector and manufacturers to make their projects and business models bankable while providing financing solutions. To achieve this, we partner with institutional investors, giving them access to this fast growing green asset. And we have teamed up with the European Investment Bank, and we'll launch a new fund dedicated to energy efficiency in Q1 next year.

[00:01:58.410] - Jon

Okay. So this may be the wrong way to think about it, but you're a bit like a broker. I'm sure that's the wrong word, but you're connecting investors and energy efficiency projects that need finance. Is that a fair way to think about it?

[00:02:15.840] - Sebastian

Yeah, I would say broker is a bit too simple. I would rather see myself as a facilitator because a lot of our work is actually on the ground working with our project partners to help them make their projects bankable. And then knowing the restrictions and expectations from investors to get those business models bankable and financeable.

[00:02:42.030] - Jon

Okay. And to bring it to life, can you give an example of a typical project? I'm sure there's no such thing as a typical project, but a project. What might that energy efficiency project or the energy service company be doing with customers that needs financed?

[00:02:59.550] - Sebastian

Yeah, sure. So typical energy efficiency projects are relatively small in size, and essentially energy efficiency is about exchanging old equipment into new smart equipment and a very good example for energy efficiency projects is in the field of lighting. So the exchange of lighting, retrofit of lighting in commercial buildings. So there you would have typically project sizes, maybe for €300,000. However, you have also the public sector side of things where you also see bigger projects. So those are typical. We are operating in this field of very small projects, but let's say also bigger projects on the public sector side.

[00:03:51.870] - Sebastian

And then you would also see, for example, in the public sector, you would see retrofit of buildings under energy performance contracts. So those, for example, full retrofit, including heating, ventilation, air conditioning, but also deep retrofit, where you would exchange windows, for example, of a public building like a University, for example.

[00:04:19.160] - Jon

Okay, great. Thanks Sebastian, we'll come back to you shortly. My second guest is Davide Cannarozzi from GNE Finance. Hello, Davide.

[00:04:28.140] - Davide

Good morning, Jon. And thank you very much for inviting me.

[00:04:31.140] - Jon

Thanks for joining. Likewise. Can you give us a quick introduction to GNE Finance and your role in financing the downstream energy transition?

[00:04:43.590] - Davide

Sure. Look at GNE Finance was launched five years ago as the founder, which is myself and another colleague. We come from the energy services companies. We have a technical background, and we have been financing projects with third parties capital providers in the last ten years. And so we decided to create GNE Finance as an advisory and capital provider company focused on the energy transition in the built environment, which is basically projects on homes and buildings both in the residential and the commercial sector.

[00:05:30.050] - Jon

Okay, so again, you're connecting the projects, the energy service company projects that need financing with people who are willing and able to finance them.

[00:05:42.210] - Davide

Yeah, I would say rather than connecting, we partner with the companies that are originators of these projects and then we advise them on how their portfolio projects can be structured in financing vehicles or financing instruments that can then attract either our capital or capital from third parties.

[00:06:19.370] - Jon

Okay, so there's a phrase that's used you're making these projects bankable. You're enabling them to be investment ready.

[00:06:27.330] - Davide

That would be a goal rather than I would say the activity as it is of today. It is a challenge today still configurates portfolios of investments in order to make them bankable.

[00:06:46.650] - Jon

Yeah. Okay. Thanks, Davide. And thirdly. Welcome back, Nigel. Hello, Nigel.

[00:06:54.330] - Nigel

Hi, Jon. Great to be back.

[00:07:02.750] - Jon

Nigel. We won't do the normal framing because we did that in last week's episode. So look forward to your contribution to the discussion, your questions. I'd like to start, Sebastian. I think with you and the fund that you've raised. So can you talk a bit about how important it is to have a fund that can connect investors and opportunities? You could do that on a project by project basis. What advantage does having a fund give you?

[00:07:43.030] - Sebastian

Well, the advantage for the market is that within the fund you can concentrate very specialised knowledge around energy efficiency and be able to aggregate over various business models through various partners. Enough projects so you can actually attract institutional capital. It's easy in the market if you have 100 million in your project to find capital on an individual project basis. But if on a project level, your single project is €300,000, institutional capital is not interested in financing those. And we are fulfilling this rule. Bridging this gap.

[00:08:29.580] - Jon

When you say institutional capital for our listeners aren't familiar with that, what sort of investors or types of investors would you class as institutional capital?

[00:08:43.550] - Sebastian

We're very proud that we've partnered with the European Investment Bank. So this is public money. Otherwise, the fund is a fund for institutional investors, and it's mainly insurance and pension funds who are looking at this.

[00:09:00.590] - Jon

Okay. Was it challenging to - Nigel, you talked about a wall of money in the last episode. So there's been a lot of capital looking for a home at the moment. Has it been challenging to raise that fund, Sebastian, or is the topic of energy efficiency really attractive? Or there are some difficult questions that your institutional investors have been asking you?

[00:09:28.070] - Sebastian

Yeah. Everything what's new, I would say has always to face a challenge to convince someone to invest in something what is new and that's not particularly to energy efficiency. But obviously energy efficiency got a great boost because of the developments of the last years towards the green economy and net zero. Obviously, also the taxonomy, the EU regulation of institutional investors played a key role. So the demand for this kind of projects is very good.

[00:10:07.530] - Jon

Nigel, any views from your side on that type of institutional investor, the risk return for those investors, what they're looking for?

[00:10:18.930] - Nigel

Yeah. I think the mention of net zero is quite interesting because there's clearly a shift going on with pension funds in particular looking to invest more ethically or to get involved in the space. It's the other side of the coin from divestments. So that just as take perhaps local authority funds, they're aiming at net zero and aiming to divest their employee pension funds from perhaps big oil or fossil type investors. What we're seeing is an interest when we talk to those local authorities, ESG style investments. Are you seeing that, Sebastian, from your side?

[00:11:11.930] - Sebastian

Yes, definitely. But it's really the move towards real assets, which is more driven by, I would say, the low interest rate environment, right?

[00:11:24.320] - Nigel

Yeah.

[00:11:24.670] - Sebastian

So obviously you also see a switch into ESG investments, but there you could have a switch within, let's say, bonds or equities, but it's really more the driver towards real assets. And there as well into green real assets.

[00:12:09.680] - Nigel

Just picking up your point about real assets. Sebastian, are you drawing a distinction between very visible assets, like huge PV projects and say energy efficiency, which is less visible because it's often project based it's out of sight. It's perhaps less glamorous. Is that what you mean by real assets? The big renewables get to attract the money more easily than energy efficiency?

[00:12:56.210] - Sebastian

Well, in this context of how investors would classify this as opposed to, I would say, classical liquid markets like stocks and bonds or private equity where you would buy shares in a company. You have this other market infrastructure market or real asset market where the cash flow investors are looking for to generate are coming from specified assets. And we are in this bucket, so to say, of real assets. And in the case of energy efficiency, the actual asset is very small. It's not a big offshore wind farm.

[00:13:34.830] - Sebastian

It's a lighting retrofit. But the key for investors is that you have an identifiable project where you can separate risks and cash flows and make a very predictable where you can make a very predictable forecast of those cash flows.

[00:14:24.030] - Jon

So, Sebastian, how much money have you raised? And has it been hard raising that money, or do you see, actually, if you prove out the model or as you gather momentum, actually, there's no shortage of money looking to invest in this area.

[00:14:42.010] - Sebastian

The fund is a 200 million Euro fund, and fundraising for a first time strategy is always not a piece of cake. Once you've proven that the strategy works, fundraising should be a lot easier because you can work with the same investors and have a name in the market. It's obviously that much easier. And this is why I'm very glad that we could team up with the European Investment Bank because essentially, they are a catalyst for fundraising.

[00:15:18.590] - Jon

What about on the opportunity side, have you got a big pipeline of opportunities or are the projects hard? There's lots of projects, but they're hard to structure in the right way. So with that side of the equation, will that be hard, or are you not short of projects that you can finance?

[00:15:40.370] - Sebastian

Well, we're not short of project partners and projects and pipeline. We have a very strong pipeline across various markets because energy efficiency in particular energy efficiency service business models or energy as a service business models are growing strongly across Europe. This is the niche area we focus on with our specialised knowledge. For example, a market which is very much booming, is solar self consumption project. So solar behind the meter for commercial and industrial users, which we also would classify as energy efficiency projects.

[00:16:31.590] - Jon

Nigel, that sort of fits the trend. You've seen ‘as a service becoming more prevalent and particularly maybe in the B2B sector where you can get a bit of scale.

[00:16:43.050] - Nigel

Yeah, I think it's B2B as a service - they're made for each other because this stuff is so balance sheet friendly, I guess, from the investors point of view, from the project's point of view. In that case, though, who owns the assets? Sebastian, if you're putting in an energy efficiency project or a solar self consumption type project, who actually owns that solar array in those energy as a service installations?

[00:17:23.050] - Sebastian

Well, you can structure it in three ways. Usually the project developer, the energy service company. We change the title over the assets, and the fund has security over those assets. But you also see structures where the assets are packaged in a special purpose vehicle, which could be owned by the investors. But you also see projects where the assets are owned by the end customers. So you have different ways to structure it.

[00:17:58.450] - Nigel

Okay.

[00:18:04.670] - Jon

Davide, I'd like to turn to you now. So one of the areas you're active in is housing and I'm interested - the energy efficiency opportunities are huge in both the industrial and commercial sector that Sebastian has been talking about, but also in the residential sector. But in the residential sector, each asset is even smaller. If we're talking about insulating one home or boiler or efficient heating system in one home, so can you tell us about how you can make that work from a financing perspective, individual houses, is it groups of houses?

[00:18:45.210] - Jon

Tell us a bit more.

[00:18:50.390] - Davide

Sure. The way we approach this type of market is that because of the experience that we have accumulated in the last decade is to select the right partners, which can be engineering companies, installers, construction companies, different type of promoters that are the ones that are able to generate the pipeline of projects. And so we work with these companies in order to structure their product offering, which includes financing in a way that they can work well with us and with our investors. And also we design with these partners. Let's say, a roadmap to scale up and be able to grow because of being a new sector with new services and new formulas.

[00:20:04.640] - Davide

What happens is that quite often our partners initially needs capital in order to be able to increase their offering and their reach to customers. And then the more they grow, the more you can leverage or make more sophisticated the type of financing that they can offer to their clients.

[00:20:36.730] - Jon

Do you work with installers, for example, who will do this on a house by house basis? Or is it more like large retrofit projects of 100 houses at one time or both?

[00:20:52.230] - Davide

I would say that it goes really depends by the partner and also it depends by the country. So in the case of Spain, for example, we have been working both with private companies and public administration. In the case of public administration, we have been partnering in two renovation programmes, one in the Basque country region north of Spain. The programme is called Opengela, and it is led by the local government which offer building retrofit for residential building retrofit in vulnerable neighbourhoods of the cities that they operate. And so far this programme is present in four cities, and we provide the financing for these building retrofits.

[00:22:03.270] - Jon

Is that for their own buildings or is it private buildings?

[00:22:10.810] - Davide

Well, I would say both. There's both social housing buildings and private buildings.

[00:22:17.360] - Jon

Okay. Interesting.

[00:22:19.100] - Davide

Yeah. And so we worked with the local government to design the de risking of this portfolio in a way that can be financed even though it is in neighbourhoods that may have some limited access to finance.

[00:22:44.750] - Nigel

I'm intrigued by how you secure, if I understand it right, is largely debt finance. What do you take as collateral on those projects? Or do you take collateral because it could be spread over. You've got lots and lots of houses. You could have a small amount of the original investment goes into lots and lots of different units. How do you collateralize that? What's your approach?

[00:23:20.410] - Davide

Well, there are a few solutions that we incorporate in this type of financing. One is that the financing is linked to the subsidies and grants that are issued by the local government in this programme, in case there is a default on the financing can be executed. Let's say the foreclosure against the total amount of financing plus subsidy. So there's kind of strong incentive to avoid that. Then the local government also provided some equity that is injected in the programme, in the financing programme, so that equity works as a first loss branch.

[00:24:27.250] - Davide

And so that makes more attractive than for the capital that is provided for the programme. And another important element is that because this is promoted by the local government and the buildings retrofit are in neighbourhoods where the local government opens small shops, small one stop shops. Therefore, there's a local dimension where people that works in the one stop shops know - they're well known in the neighbourhood. So in case of potential defaults or delays in payments, there are lots of elements that can be triggered in order to avoid the full default or to work with the local community so that they can serve that portion of the debt.

[00:25:37.410] - Davide

And to the previous question, Jon, this is only for a community of homeowners, so it is for entire buildings, the right to fit of entire buildings. And the financing can go anywhere from, let's say, €50,000 or small amounts to larger amounts per building, like in the net worth of 1 million.

[00:26:05.510] - Jon

Nigel, you're well known for your incisive questions. And I think your questions to Sebastian and Davide have really shown some of the complexity and challenges or different ways that you can approach this sector. Sebastian, Davide, I'm interested to hear whether you think of yourselves as pioneers, to some degree, there's a huge amount needs done in financing, energy efficiency. And we've shone a little light on some of the complexity that's involved. So do you consider yourself pioneers, or is this a sector that's ready for lots of other people to come in with well known, understood approaches?

[00:26:52.010] - Jon

Sebastian, you first maybe.

[00:26:55.310] - Sebastian

Well, I wouldn't consider myself as a pioneer despite the fact that the market is young. Yes, but we're using tools which are widely be available from that sense. So we're using knowledge and experience from other markets and applying this for energy efficiency. So this is why, yes, we are at the early stage. We are first movers, but I wouldn't consider ourselves as a pioneer, especially around those ‘as a service’ business models. You see very, very big multinational companies pursuing those strategies. So the likes of Signify, for example, or ENGIE, it's part of their core strategies.

[00:27:46.370] - Jon

Davide, how about you? Are you a pioneer?

[00:27:50.390] - Davide

Well, I like the idea of portraying myself as a pioneer, but at the end of the day, I agree with Sebastian that we might have elements of innovation, of course, in our sector, but we are coming from a long way. If we talk about energy services companies and energy efficiency financing, now, there are decades of innovations or developments going on. The clear sign that is becoming mainstream is that now there are more and more banks that are entering in this space with green loans and also green mortgages.

[00:28:50.650] - Davide

So definitely the market is gearing up for these two to become mainstream market, and also in terms for the green bonds. We've been observing that the issues of green bonds is being increasing probably kind of exponential growth. So this is happening now when it comes to companies like GNE Finance, our space is in being able to have a deep understanding of what the market is about, what type of technologies are applied and what type of business models are applied and to find the best financing solutions to serve these markets.

[00:29:48.990] - Davide

That's how I see our work.

[00:29:52.590] - Jon

Thanks, Davide. Nigel, Sebastian and Davide maybe didn't quite like the word pioneer, but I understand the responses. What word would you use or how do you see the sorts of activity from Sebastian, Davide, and other companies? Is it pioneering, or is it just taking known tools, known ways and applying it, de-risking how you apply that to the energy efficiency sector?

[00:30:23.130] - Nigel

Well, I was very pleased to hear what Sebastian and Davide had to say, because that correlates very closely with our research. The word I would use is tipping point. I think we're seeing a lift off. We're seeing, as Sebastian said, there's a lot of tools there. There's a lot of proven techniques that he pointed out that some of this stuff has been going on for decades. But what we're seeing is a move to scale now where these proven models are now being scaled up and normalised and brought into the mainstream.

[00:30:59.190] - Nigel

So if you think of a classic adoption curve, we might be entering the early majority phase. If you like, the beginning of the growth of the bell curve of investment, I would expect to see an acceleration of investment in this space precisely because it's starting to be a trusted space, and it's being seen as an exciting opportunity for nice, predictable yields. And the scale of the opportunity is recognised now as enormous. So that's another reason its attracting investors.

[00:31:34.170] - Jon

Okay, thanks, Nigel. Times schedule the better of us. So we better bring out the talking new energy crystal ball. Nigel, it would be unfair to inflict the crystal ball on you two weeks in a row. You're excused after last week. But Sebastian and Davide, I'd like to like to set the dial this week to 2030 and ask each of you briefly in about 20 to 30 seconds just to describe what you will have achieved over the next decade or when you look back from 2030, what will you look back on?

[00:32:13.470] - Jon

Sebastian, do you want to go first?

[00:32:17.130] - Sebastian

Sure. I wish I had that crystal ball, but if you ask for me, an ideal outcome would be that we have partnered with many reliable partners in the energy as a service, energy efficiency space and being a facilitator to grow their business models with that function, helping to deploy energy efficiency technology in as much as many projects as possible. Because what really motivates me and my colleagues is that with energy efficiency, you have such a high impact on creating jobs, carbon reductions, quality of living. And you do that with a sustainable business case.

[00:33:16.660] - Sebastian

There are no subsidies needed, so that's very much drives us. And we are here to help and facilitate the growth of that market. And I would be very pleased if in ten years from now we have a multitude of partners and help them grow and be recognised as a leader in this field.

[00:33:39.610] - Jon

Okay. And then in just a few words. Your single biggest challenge.

[00:33:47.510] - Sebastian

Single biggest challenge. I think that's really around finding the right people to work with human resources side because energy efficiency in our approach is a bit different to the typical investment bank. You do really need to have, on the one hand, motivation, skill and people who are not there only for the money, but for the mission.

[00:34:23.790] - Jon

Okay, thanks, Sebastian. Davide, how about you, 2030? Where would you like to be? What would you like to be looking back on in terms of what you achieved in this decade?

[00:34:37.430] - Davide

Look, I don't want to be boring and repeating Sebastian words, but I share the type of ambition that by 2030 we would like that GNE Finance could be recognised as industry leader and in the space of managing and originating financing instruments dedicated to the energy transition with a strong focus on the debt markets, both in terms of bond issuance and securitization. I believe that lots of the product and the project the portfolio project that we work with could be perfect for securitizations. And so I would like that by 2030 we could have moved from the actual stage, which is more, let me say, artisanal local scale to the word industry, which means standardisation, means automation, means size, capacity to really aggregate on a European scale, which is what we are missing today.

[00:36:07.080] - Davide

There's policy at the European level, but then each country, from a financing perspective, is a complete different market with its own regulations and that is affecting the capacity effectively today to scale up.

[00:36:27.920] - Jon

So, yeah, I guess that ties in Nigel with your scale up point and with the standardisation point. So I'll take that as a challenge. Davide, for reaching your 2030 vision, is that standardisation and scaling. Okay, we better draw to a close there. Fascinating discussion and really critical part of the energy transition. So delighted. Sebastian, Davide and Nigel, you could join me today. Thanks very much for your time. Thanks as always, to everyone listening and look forward to welcoming you back to next week's episode. Thanks and goodbye.

[00:37:06.550] - Nigel

Thanks.

[00:37:07.140] - Davide

Thank you. Goodbye.

[00:37:08.600] - Sebastian

Thank you. Bye.

[00:37:12.670] - Jon

If you're as passionate about the energy transition as we are. Then please keep in touch. You can follow us and me on Twitter, LinkedIn or subscribe to the podcasts on your chosen podcast platform. If you like the podcast and like sharing, then please do rate us and to listen to archived episodes to read transcripts and to see the latest Delta-EE insights. Then please visit www.delta-ee.com.

[00:00:04.730] - Jon

Welcome to Talking New Energy, a podcast from Delta-EE, the new energy experts. We'll be talking about how the energy transition is developing across Europe with guests who are working at the leading edge of this transition.

[00:00:21.550] - Jon

Hello, and welcome to the episode. One of the key differences between old energy and new energy is where capital investments are taking place. In old energy, capital investments were focused really on power plants, networks, in big assets, nearly all on the utility side of the meter. However, in new energy, a significant part of these capital investments will be focused on the customer side of the meter, in distributed assets, heat pumps, batteries, PV panels, big energy efficiency refurbishments. So I think of it that the energy system is being recapitalized, in part in assets in customer's homes, businesses and industrial sites.

[00:01:10.030] - Jon

And today I'm talking with my Delta-EE colleague and expert in this area, Nigel Timperley, to explore how capital investment is starting to flow into these types of assets. Is it flowing? Will it flow? In what ways will the finance be there to finance a downstream energy transition? So hello, Nigel. Welcome to the episode.

[00:01:35.230] - Nigel

Hello, Jon. It's a pleasure to be here. Thanks very much.

[00:01:40.270] - Jon

Nigel. You've been looking at this area and for our listeners, if you had to identify a single takeaway or how you feel about it in terms of financing distributed energy, new energy, the downstream energy transition, what would be your one takeaway?

[00:02:00.250] - Nigel

My one takeaway would probably be that. First of all, it's a growing area. This is a huge growth area for investors of all types - large-scale corporate investment and the small scale investor as well, the private investor with retail money. I would say that there are several types of investment vehicle are emerging to suit different risk appetites and to suit different project types as well. Certain types of investment would be more suited to a very large project and some to very small. So we've got these different vehicles appearing, though in all cases, there's only a few examples of those vehicles.

[00:02:51.630] - Nigel

So the vehicles are maturing. What we haven't got is lots of examples of each of those vehicles, if you see what I mean.

[00:02:59.670] - Jon

Yeah. Okay. My impression, then, is that there's probably more money looking to find a home than there are homes at the moment. So it's a bit of a cliche. But I think of this wall of money and then the different vehicles that you just talked about, they're ways for that money to find a home. But my sense is there's more money than homes at the moment. I don't know if you agree with that.

[00:03:27.950] - Nigel

Yeah. That was definitely borne out by our research across all vehicle types. There's a lot of money looking to get in, and it's partly helped, of course, by the fact we're living in a low yield world so that there's a lot of money, that's parked who wants to park the money at the bank earning negative interest. In real terms.

[00:03:56.070] - Jon

There's a lot of money looking for a home in general, in the whole finance sector. But a lot of that is now pointed towards your energy transition in this downstream world.

[00:04:07.530] - Nigel

Absolutely. And there's an awful lot of reasons for that. One of the big macro trends that's driving this is the rise of ESG investing enormous numbers of funds. We're talking about a four figure number of investment funds in the last couple of years. Rebranding themselves as ESG, environmental, social and governance factors are now taken into account what ESG stands for now. It's very easy to be jaded and say, how many of those rebrands are just greenwash. So it's really the same fund underneath. But the mere fact that those companies are doing that rebrand suggests that their customers are demanding a broader set of investment factors are taken into account, including environmental funds.

[00:05:02.010] - Jon

Well, let's bring it to life a bit.

[00:05:05.190] - Nigel

Well, I was just going to say we're also seeing quite a lot of funds that are attracting money where the retail price of those funds is in excess of the underlying value of the assets. There's a premium there. People are paying a premium to get into these funds, which is objective evidence that they're for the wall of money thesis.

[00:05:28.050] - Jon

Yeah. Okay. So good to get into some of these funds early, then I guess? Let's bring life a bit. Do you want to pick out an example or two for our listeners of a vehicle that's enabling this wall of money to flow into the customer side of the meter or downstream energy transition?

[00:05:54.030] - Nigel

Well, we've identified a number of different vehicles, both from traditional finance, such as bank debt and bond schemes, right up to some more adventurous venture capital schemes. And as I said, there are different horses for different courses. But if we pick out one example, perhaps of a lower risk model, traditional tends to be a synonym for lower risk. If you look at something like Urban Vault who are an Irish company, their whole model is essentially a finance model. So what these guys do is they go into their B2B customers.

[00:06:37.350] - Nigel

They replace their lighting with energy efficient Led lighting, which give very predictable energy efficiency savings. And then they also talk to them about whether they can plaster the roof of the factory or the warehouse with solar panels, and then typically agree a PPA, a power purchase agreement with the client, which gives them where the client typically just buys the power and signs up to a power deal, maybe 20 years that they'll sign on to that power. So it's effectively a bilateral deal between Urban Vault and that company to provide supply power.

[00:07:20.330] - Nigel

That power may be even at a lower cost than grid power. So from the client's point of view, it's a complete no brainer. From Urban Vault's point of view. It means they've got a guaranteed return and they can go to their investors and pay secure funds against that and then pay a return on that investment. So essentially, it looks like a bond. If you put it into traditional finance terms, the investor there is typically something like an investment bank or finance institution would lend a lot of money to Urban Vault, and then in return, they would get a coupon, which is an interest on that lent money.

[00:08:05.730] - Nigel

And that yield might be quite modest, but it would typically be more than is available in the traditional bond marketplace, where yields are currently extremely low. When I talked to Urban Vault’s Chief executive, he actually said the most important thing for them was not the technology. It was actually the financial back end. It was nailing down that secure source of bond funding - that was more important than all of their installation expertise or anything. That was a real key part of what made them very good at what they do.

[00:08:44.370] - Jon

The LED is quite straightforward. No technical risk, the solar panels relatively straightforward, no technical risk. I don't want to use words financial engineering, necessarily, because that has some negative connotations among certain people. But enabling the customer to get some of the benefit of that without any capital cost and then enabling the capital providers to get what they want, which is a steady, safe return.

[00:09:14.650] - Nigel

Yes, but already in that, you start to see an interesting idea, which is that that's not just about the money. It's about the predictability of the returns. It's a low risk investment. So that isn't going to work for some breakthrough fuel cell project, a moonshot or a type technology. It only works for certain types of very proven technology that give very steady, predictable returns. And so we start to see how the space is evolving. Different vehicles work for different types of project.

[00:09:54.070] - Jon

And I guess that project, the steadiness of those returns depends on whether that customer, the factory, the office building, whatever it is, is going to be there for another ten years. The risk around that host site and that customer, these factors will all come into an assessment of how safe those returns are.

[00:10:15.130] - Nigel

Yes, but that doesn't mean a riskier play cannot work at all at any price. With a bond style scheme, it just means that the source of the funds will probably want a higher return if they're taking on a bit more risk. So it will go slightly up the food chains. If you look at example, like Bundles in the Netherlands, they've issued what are essentially bonds over a term of say, I think their laundry one - basically essentially what you do is you're lending money to provide laundry services where the customer pays as they go for a laundry service.

[00:10:54.100] - Nigel

They don't pay for the washing machine. They paid for washing, not the machine itself, but somebody's got to pay for that washing machine on the floor, right. So their bond funds that. But of course, that's riskier. Okay. You've got an appliance sitting in somebody's home. Goodness knows what could happen to that. But it's out of customer sight. Therefore, those bonds typically pay 5.5% over, I think they're five years rather than the kind of returns that Urban Vault are paying, which I don't know exactly what they are, but they're less than that.

[00:11:32.570] - Nigel

So, again, typical bond model, you would expect a higher return, the more risk you take on as a lender.

[00:11:42.070] - Jon

And when you talk to companies like not speaking specifics. But companies like Urban Vault like Bundles with these sorts of models, do they have trouble raising money, or do they have trouble structuring deals that are attractive to investors? Or is that not a challenge to them?

[00:12:02.350] - Nigel

I think it depends who they're raising the money from. So it can be difficult. Urban Vault is run by three ex investment bankers, so they're very well connected individuals. And I think it's three. I'm saying that off the top my head. But these guys are essentially from a finance background, not from a technical new energy background. So that gives them those connections, which is easier. But even then, they had to work very hard to make that work. Bundles - their audience is the retail investor. Many of the same people who are paying for their laundry service will be the same people who are actually buying, who are investing because that tends to be very small amounts of money.

[00:12:50.030] - Nigel

Yes, it's quite a virtuous circle. They're buying into a concept of a circular economy, and they're becoming part of that circular economy, and you start to move there into a separate vehicle, which we're also interested in, which is crowdfunding. Okay. So crowdfunding tends to come with slightly different drivers, whereas something like Urban Vaults model, essentially, it's a banking driven model, if you like. So it's pure finance play with some CSR value. The Bundles model is very much appealing to people who believe in the new energy future.

[00:13:33.500] - Nigel

And in the circular economy, they want to be part of a whole new world. So there's an emotional benefit there to the investor in addition to the financial benefit.

[00:13:53.290] - Jon

We’ve seen some examples of that in crowdfunding in energy communities and topics like that where people are clubbing together to build a local wind turbine or to build solar panels in their community and to benefit from that. And they're investing that as well, I guess.

[00:14:09.110] - Nigel

Yeah. These things tended to start off. That's right. Community scale works really well for crowdfunding. It works well for quite modest sized projects in terms of investment, maybe up to a few million Euros. But you're starting to see as well some companies people start to realise. Well, actually, we can copy and paste that model. So you've got people like an Energie Partagee, which is a French social enterprise that goes around France, effectively seeding these community projects across the country. So rather than just being a one off in one particularly energetic community and then it doesn't go anywhere else.

[00:14:47.170] - Nigel

Energie Partagee are saying, OK, we've learned how to do this in Community A. Let's copy and paste that model to community B. So each one has their own local character, their own local terms and conditions and so on. But it starts to be a bit more scalable because of the way they approached it. I'm not aware of anybody other than Energie Partagee taking that sort of copy and paste approach. It's quite an innovative idea, and I think it could work in other European countries, so its one to take a closer look at.

[00:15:18.170] - Jon

So we talked about that first route is maybe traditional investment bank finance or people with large, managing large amounts of capital looking for a steady return. The crowdfunding model. My guess is some of our listers may be thinking crowdfunding. Yeah, quite cute, quite nice. But is that really scalable? If we look at the energy transition, we're going to need trillions invested on the customer side of the meter. Can crowdfunding make a dent into that level of investment that we need? What's your thoughts on that?

[00:15:59.730] - Nigel

As I said, there are sites. There are companies that will allow you to crowdfund one PV project after another at community scale. But you're right. There are clearly limits and it's very much part of our analysis. Our findings, are there are different fund types, work for different kinds of projects, so there are certain characteristics to crowdfunding. It tends to be quite conservative with a small c. Community projects are great. If I'm very invested in my community, I mean emotionally as well as financially. I care about having a PV array at my local primary school, but it's probably not the right source of funds for some innovative technology project.

[00:16:47.790] - Nigel

Say, in the hydrogen space that may happen or may not. And some of the more adventurous projects, as the adjectives suggest, are attracting venture capital. And venture capital has definitely discovered new energy after a slow start. And that's where I see the really big numbers. That's where we see the really big numbers coming in. Because venture capital isn't interested in putting PV on your local primary school. It's interested in a massive exit from €100 million type projects potentially not always od that size. Some of them go to low millions, but they're looking for the very big numbers.

[00:17:28.530] - Nigel

So we'd see different players entering that space. I think that's what we are seeing. In fact.

[00:17:35.070] - Jon

Another category is investment trusts. So there's been quite a few investment trusts being established around financing clean energy efficiency on the customer side of the metre. Can you help our listeners understand how these investments trusts are structured and what you're seeing in this space?

[00:17:57.750] - Nigel

These are particularly popular in the UK. Also, we see them in Japan, essentially what they are a pot of money set up as a company which in effect any investor can invest in you buy a share in the investment trust and that investment trust then invests in underlying companies. So from the investors point of view, there's an element of risk management because my investment dollar is spread maybe across 20, 30, 40 different investments, and the investment manager in the trust will then typically invest in a specific type of investment.

[00:18:44.610] - Nigel

For instance, we're seeing a lot of energy efficiency investment trusts, so they will take that they'll raise funds and have a big pot of cash, and then they will set off looking for energy efficiency projects that they can invest in, and that will generate a yield. And a lot of these are B2B style projects, again, with fairly predictable returns, though not always. And they often also include some renewables as well. So those two. But we're also seeing some really interesting ones. People starting to invest in projects that essentially are forms of flexibility type trading using batteries, perhaps so that private investors can gain access to some of the returns that TSOs and DSOs may pay for flexibility services.

[00:19:49.150] - Nigel

That's quite an interesting way for the retail investor. The energy transition has tended to mean the very visible stuff like big wind and renewables and so on, very green projects. But now we're starting to see these more technical new energy innovations, which are absolutely vital to the transition. And these trusts give investors that way in. Now, they are definitely higher risk than bond schemes and bank debt, which is just about as low risk as you can get, really. But these tend to involve investing in companies that do certain things or investing in specific projects.

[00:20:31.450] - Nigel

But the portfolio elements de-risks them quite significantly. And there are variants. You've got companies as well, like in the States. If you look at, say, Hannon Armstrong, which is a huge American company trust, it positions itself as a renewable energy efficiency investor. If this is perfected this model, actually, there isn't really an equivalent to Hannon Armstrong in Europe. It fascinates me that nobody's attempting to copy their model, but essentially they issue all sorts of bonds and all sorts of schemes to raise money and then invest in cash generative new energy projects that yield significantly more than you're going to get at the bank.

[00:21:20.710] - Nigel

And then we'll pay that back over time to the customer. Hannon Armstrong, if you look them up on the Dow, I've had a very good run, but there's just such a number of these projects around at the moment that it's possible for investors like that to cherry pick quite attractive projects.

[00:21:44.190] - Jon

I was going to say the fundamental principle is that the projects must have good underlying economics. So the LEDs, we talked about the solar panels on roofs, the energy efficiency projects. They've all got to be underpinned by attractive fundamental economics. That's maybe not the case. The exception would be venture capital where you're taking a risk. So there is riskier money on things that aren't yet profitable but will be profitable in the future. So would you agree that most of the time you've got to have good fundamental economics, or are there other models that are more speculative about investing in things like venture capital that will be profitable in the future?

[00:22:31.870] - Nigel

Yeah. Venture capital is the obvious one that comes to mind. Even more speculative are SPACs, which I cannot remember but - a special purpose acquisition company, and it has a particularly US field, but in fact, it can be done in Europe as well. But essentially what it is is a company without portfolio, if you like. So somebody establishes a company that has no operational business, lists that company on the stock market and then looks for a private, unlisted company that has enormous growth potential and acquires it.

[00:23:14.540] - Nigel

So for that company that's acquired, in effect, it's a very quick way of floating that company because all of the floating going live in the stock market has already been done by the SPAC in advance. It's become very fashionable in the US, but it's very risky a lot depends when you invest in this. You're investing in a business that has no business, right. And you're depending on them making a good choice.

[00:23:58.190] - Jon

You’re almost giving it a mandate to invest your money? Are any of these SPACs in the downstream energy space?

[00:24:01.250] - Nigel

Yeah. We are specifically in EVs. That's really where they've made it, electric vehicles have become a glamour - SPACs very much go with glamour sectors, both in energy and well beyond. But in our new energy space, it's really about it's predominantly EVs, not all. And we are starting to see one or two other ones. But that can be both the EV companies themselves and all the infrastructure around EVs, seen as a huge growth area. So in the US charging networks, absolutely. They become a way of super charging rollouts, because if you've got €100 million sitting in your coffer, you can go and make a landgrab for all the best CPO, all the best charge point locations before somebody else does.

[00:24:53.930] - Nigel

So SPACs have fuelled or certainly one of the things that can fuel that kind of landgrab, if you like, for growing businesses and the numbers involved the whole point of the SPAC is it's a high risk, high reward game. So all the vehicles we've talked about, it's definitely the riskiest, but equally, it's the one that could give you the biggest payback. And it's very much for moonshot projects, as I would say. So, anything that sounds a long shot that could make you very, very wealthy indeed, a SPAC would look at and just to give you an idea, the US SPACs have replace IPOs, the traditional way of floating this year more money made by SPACs than by IPOs in terms of the scale of those floats.

[00:25:50.950] - Jon

Nigel, we've gone through a lot of different vehicles or ways for finance to flow into the downstream energy transition. It's all sounding quite exciting, but it's by no means going to be smooth. Is it or has been smooth. We haven't focused much on the challenges. But if I ask you, how much will this be plain sailing and how much is it going to be a really bumpy road as lessons learned by these different types of vehicles and there'll be mistakes. And I don't know, dotcom bubble type crash.

[00:26:28.930] - Jon

What's your view?

[00:26:32.690] - Nigel

I think all those risks do exist without shadow of a doubt, this greens portfolio. Okay, anybody getting into this has to think broadly. This isn't investment advice. Delta-EE doesn't do investment advice. I think we should say that. But having said that and that is the case. If you look at our new energy business model service, we've been picking companies that we think are interesting new energy companies. We interview them, we write case studies about them. We drill down into what makes their business models exciting. We had a look the other day, something like 40% of the ones on our we've got a very large database getting on for 500 analysed companies, something like 40% of them have attracted investment over the last three or four years, either by total acquisition or by partial investment.

[00:27:28.790] - Nigel

This has become a very attractive area for investors. VCs are excited about it now, with any exciting new space, you always get a bit of overheating and there is a risk of a bubble forming potentially. But I would suggest the sheer scale of the transition. We're a long, long way from bubble territory.

[00:27:50.730] - Jon

Yeah. When we were chatting early in preparation of this, just back of the envelope calculation about just take residential heat pumps across Europe. There's close to around a million of those being installed a year. Compare the premium on a heat pump to a gas or oil boiler that's in the region of £10,000, €10,000 might be five. Might be twelve. Let's call it a ten for around number. So you've got a million times $10,000 a year just for heat pumps in homes in Europe. And that market is going to grow and grow and grow and be a lot bigger than a million.

[00:28:37.850] - Jon

So trillions is a big number and people go, yeah, are you sure? But I think it will require trillions over the next years if we're to get anywhere close to our 2030 targets.

[00:28:55.970] - Nigel

Yes, I'd agree with that. And I think the key is that to attract that kind of number, there have to be returns for the investor. That means, in a way, new energy is about engaging with customers. That's almost in a sense, what new energy is - engaging customers about the transition. Part of that engagement is to help those customers participate in the financial returns as well of new energy. As we saw I mentioned with Bundles, that's one tiny example. But crowd schemes are another one. People are getting emotional benefits from investing in their community, but they're also getting financial returns.

[00:29:36.770] - Nigel

They can see they're greening their community, but it's also paying them a yield. So it's quite a nice democratisation story. Energy in the past has had this fat cat image of a small number of companies getting, doing very well and the rest of us just paying the bills. That's not what new energy looks like in the future. We need to share those benefits with the community as a whole. The community of investors, because that community of investors will very largely be the community of customers, too.

[00:30:11.150] - Jon

So thinking about those heat pumps, some customers will pay up front for their heat pumps. An increasing proportion will pay for the service, and it will be a service provider, an investor that will pay for those heat pumps. Those investors could be, in some people's mind, the fat cats, capitalist financiers. But sitting behind that is often pension funds, where all our money is and sitting behind that could be retail investors who are financing this themselves and make contributing to the energy transition through investors.

[00:30:46.070] - Nigel

Yes, that's right. That's how I see the predominant vehicle for private investors. A lot of these investment funds will be attractive because of these yields. They'll be attractive to pension funds. What a lovely virtuous story, right. Pension funds are about the future. And that's what new energy is all about. People being a yield from investing in their own future and the future of the community. So it's a very positive story. But what I would say is it's one that's not talked about enough. And that's why we're doing this today.

[00:31:19.610] - Nigel

When you say trillions. My back of a packet calculation is low trillions? Yes. So I think that is a valid observation.

[00:31:30.470] - Jon

Well, on that positive note, let's bring out the talking new energy crystal Ball and set the dial to 2026. So coming back to the question at the beginning, there's a wall of money looking for a home in the downstream energy transition. There are some emerging well, more than emerging. There are a number of ways vehicles, investment opportunities connecting this wall of money to the downstream energy transition. But at the moment, there's not enough of those vehicles always existing for all of that money to flow to the opportunities.

[00:32:11.090] - Jon

So by 2026, five years time, will there be enough ways to match that supply of opportunities with that demand from that wall of money looking to invest the money in the downstream energy transition? So what do you think?

[00:32:31.770] - Nigel

Yeah, it's a difficult one that, Jon. No, it seems a bit fuzzy this particular one. My immediate response is we are seeing lots more of these funds appearing a lot more. People are starting to say, hey, there is demand for this. Let's set up a fund. A lot of those funds are oversubscribed when they float and when they are then traded, they often trade at a premium to the underlying value of their assets. So again, that suggests very strongly there's a lot of demand.

[00:33:11.190] - Nigel

The rise in ESG investing also corroborates that story. So I think we're going to see a huge growth in demand. We will see in response to that growth in the number of vehicles. So I think both will go up, but actually, within five years, I still think demand will probably be ahead of the number of vehicles because I think demand will grow immensely ahead of the market's ability to respond. If you said ten to 15 years out, my response might be rather different, but there's so much to do that we are not going to soak up all that demand and all those projects in five years would be my short answer.

[00:33:47.210] - Jon

Yeah. Okay. My take on it is we probably need more people connecting the two worlds of finance and downstream energy. And I love the example of Urban Vault being set up by investment bankers, not by LED specialists or solar specialists. I do see more and more people connecting the two worlds together. I like debate and disagreement sometimes, Nigel, but I think I broadly agree with you that the demand for investment opportunities will probably continue to outstrip the supply. But in a way, that's a good thing for the energy transition, because if the business model is developed that enable the two to come together, then we'll see a lot more distributed energy.

[00:34:42.620] - Jon

We'll see the downstream energy transition accelerated. We'll leave it there. I hope for everyone listening. That was an interesting glimpse into the world of finance and maybe seeded a few ideas about how your work in the energy transition can be connected with the investment, the investors who are looking to get a return for investing in the downstream energy transition. Thanks for listening. We'll explore this topic further in the next week with some other guests. Thanks again, Nigel, and look forward to welcoming you back to the next episode next week.

[00:35:25.570] - Jon

Thanks and goodbye.

[00:35:28.670] - Jon

If you're as passionate about the energy transition as we are. Then please keep in touch. You can follow us and me on Twitter, LinkedIn or subscribe to the podcasts on your chosen podcast platform. If you like the podcast and like sharing, then please do rate us and to listen to archived episodes to read transcripts and to see the latest Delta-EE insights. Then please visit www.delta-ee.com.

[00:00:04.730] - Jon

Welcome to Talking New Energy, a podcast from Delta-EE, the new energy experts. We'll be talking about how the energy transition is developing across Europe with guests who are working at the leading edge of this transition.

[00:00:21.610] - Jon

Hello, and welcome to the episode. Hot water is something that's important to every single one of us. Most of you, I guess will have a hot water tank somewhere in your home. And in some ways, a hot water tank is a very straightforward bit of equipment, a well-insulated metal cylinder with some pipes connected to it and maybe a direct electric heating element inside of it as well. But a number of companies are looking at bringing hot water storage into the modern age. And as heating is increasingly electrified, integrating hot water tanks with our electricity system.

[00:00:58.510] - Jon

So to explore this, I'm joined by three guests, a Delta-EE expert, to tell us a bit more about the area, a manufacturer of a new type of hot water tank and an energy company looking to integrate hot water tanks into the energy system. So let's get on and say Hello. First of all, Martin Allman, chief commercial officer at Mixergy. Hello, Martin.

[00:01:19.600] - Martin

Hi, Jon. Thank you.

[00:01:21.620] - Jon

Thanks for joining, Martin. Not all of our listeners will know of Mixergy. I'm sure you want to change that, but in the meantime, can you give our listeners an elevator pitch for Mixergy, please?

[00:01:34.320] - Martin

Yeah, sure. We're best known really for developing smart and connected hot water tanks. And this is all about enabling homeowners to households to live better, to save money on their bills and also to reduce their impact on the environment. There are two key ways that we do this. One is through the technology that we have in the tank itself, and we use thermal stratification, where we heat the tank from the top down to just heat the hot water that you need.

[00:02:06.550] - Jon

Martin, I think of that as charging the tank like a battery. Is that a good analogy, or is that not quite right?

[00:02:13.990] - Martin

Well, yes, I think that is using a hot water tank as a battery is a good analogy. I think the specific point about thermal stratification. If you think about most hot water tanks like a kettle, you put your water and you switch it on and it heats everything, and then you pour the water you need for your cup of tea and all of the heat energy that's left inside the kettle is wasted. Now, a fundamental part of the Mixergy tank is this idea of just heating the water that you need, and you can regulate that by having this smart sensor arrangement so that's the key so that you're not wasting energy or wasting money every time you heat water, you don't need that's a key part of it that gives those efficiencies.

[00:02:59.420] - Martin

It's also about optimising the use of renewables be that solar PV, solar thermal, heat pumps. And then it's the smart connected element to it through the Mixergy platform, which could be about giving greater control to users. And we can see the consumers that demand to have a bit more control about their clients that they have in the house and then do some smart things with machine learning, to use dynamic tariffs to get cheaper electricity off peak periods, and then finally to connect our assets onto the grid, to provide flexibility services to the grid from where we work with Centrica.

[00:03:36.980] - Jon

Great. Thanks, Martin, to give a list as a feel for your size. When were you formed? And what sort of numbers are you selling a year today? Tens hundreds thousands. Tens of thousands?

[00:03:49.640] - Martin

Yeah. So we started training in 2017, so we're still pretty new business. I think we're at that stage where we're really scaling up as a base. We've got 31 people working for mixed here at the moment, and we've got just over two and a half thousand tanks installed pretty much all in the UK currently and growth wise, we're looking for three times growth in tanks sales over this year. That's the sort of trajectory that we're on getting out of the UK as well into some international markets.

[00:04:29.130] - Jon

Great. Thanks, Martin. Coming back to you shortly. My second guest is Stavros Sachinis, vice President of IoT Internet of Things applications at Centrica. Hello, Stavros.

[00:04:41.310] - Stavros

Hello, Jon. Firstly, thanks for having me on the podcast today, especially alongside Martin, who represents a really good partner of ours and fantastic business and product at Mixergy. I head up the demand response and smart energy business and capability under Centrica's Consumer division. For the past kind of three years, we've been adapting our industrial commercial demand response and virtual power plant capability to work with pools of residential devices and smaller devices. And we're now kind of in the process of really scaling this business so effectively. What we do is we connect and we intelligently steer devices such as electric heating, battery storage, charging, et cetera.

[00:05:20.460] - Stavros

We aggregate these devices into large pools and we monetize them through virtual power plants through the providing services to the system operator or through reducing some of the costs in the energy bill for customers. We effectively go to market in two ways. One is we work with partners such as Mixergy, so we integrate with manufacturers, so we provide a technology service and a trading service. And the second way is through our own customer propositions at Centrica. So we're working on some propositions that will be launching through our Hive brand in 2022.

[00:05:55.220] - Stavros

So these two business are quite kind of complementary as well. Both really good opportunities.

[00:06:00.890] - Jon

Okay. Is your activity UK focused or international at the moment?

[00:06:07.430] - Stavros

International actually, we're working with around a dozen partners currently in the UK and Ireland, Belgium and Netherlands. But we also operate virtual power plants in North America and Japan. So we've got quite an international focus. Our Centrica consumer businesses are UK and Ireland. So really the UK and Europe are quite a good market to kind of get this off the ground. And that's our focus at the moment.

[00:06:33.690] - Jon

Okay. And I don't need to ask you when Centrica was formed because you're a much older company than Mixergy. But in terms of scale, similar question, Martin, can you give our listeners a feel for the scale of your residential demand response?

[00:06:47.090] - Stavros

So we've got about a dozen partners. We're in the scale up mode at the moment. Mixergy were actually our very first partner. We went live in 2019 with a pool of Mixergy and tanks in National Grid's dynamic firm frequency response market. We've scaled up. We've got over 1000 tanks on the platform now over 1000 tanks participating. And I thought I'd dropped some nice news to Martin today that we've just hit the three megawatt milestone, which is kind of really nice. I remember the first tank. I remember the first megawatt and I turned around.

[00:07:20.070] - Stavros

We had two and then today we have three. So the snowballs kind of started. We're also launching, as we speak in Belgium with our battery and electric heating partners. So kind of watch this space. We've been working a lot in the background, but we're starting to grow site to scale. So some really nice progress.

[00:07:39.090] - Jon

And I know when we've looked at the capacity of if you could get all hot water tanks connected and use the electric heating element and then you're talking many, many gigawatts. So the potential is vast. And it's great to hear that progress that you're making.

[00:07:55.510] - Stavros

Yeah. I think grid operators are suggesting that in the UK, 23 million homes by 2050 will install low carbon heating. If a quarter of those had a Mixergy tank, you're talking as much as 15 gigawatt of flexible capacity, right. That's equivalent to the offshore wind capacity in the UK. So there is huge potential in this space. We've been working a while to kind of get this off the ground, but I think the time is now this market is starting to take shape.

[00:08:26.070] - Jon

Okay. Thanks, Stavros. So my third guest is Klara Ottosson, my Delta-EE colleague, an expert in this area. Hello, Klara.

[00:08:33.690] - Klara

Hi, Jon.

[00:08:35.130] - Jon

So, Klara, can you help our listeners contextualise what we're hearing from Martin and Stavros in terms of the overall space focus today on Mixergy’s product. But is that the only product or is there lots of activity in this space?

[00:08:52.110] - Klara

Right. So smart hot water tanks is quite a small but emerging market, but we are seeing other products as well as Mixergy’s emerging. So, for example, retrofitting smart controls to regular water cylinders to make them smart, which is something that Eneco are doing in the Netherlands and Climote is doing in the UK and Ireland, for example.

[00:09:16.530] - Jon

Are they providing that balance of direct benefits to customers or benefits to the electricity system or both?

[00:09:24.390] - Klara

So it's actually both Eneco, for example, adjust when hot water is electrically heated for the benefit of its trading position in the wholesale market, and then balancing this with heating up the right amount of water at the right time for the customers. But Climote are enabling the customer to easily see how much hot water they have in their tank and can cover that electric emergency heater with sorry time of use tariffs.

[00:09:53.550] - Jon

Okay. And beyond hot water tanks themselves, other interesting things in this area of hot water or thermal storage.

[00:10:02.860] - Klara

So I mean, there are obviously electric storage heaters night storage heaters that charge up overnight and then discharge the heat during the day. And there are also more modern products with that giving better controls and better experiences to the household.

[00:10:17.850] - Jon

Okay. So that's not so much new that's an existing small but significant market storage users.

[00:10:22.810] - Klara

Yeah. Exactly. But then we're also seeing other types of thermal storage products coming to market, including heat batteries that use phase-change materials and thermal storage boilers. And the characteristics that they share is enabling that time the time of heat production to be shifted from the time that heat is needed and thereby reducing the peak loads on the electricity system. But then there's also obviously using the thermal inertia of buildings and other non household forms of thermal storage.

[00:10:55.630] - Jon

Okay. So it's quite a wide area, and I think an emerging area, as we've heard so far from Martin and Stavros. Thanks, Klara. That's really great context. Let's get back to Mixergy and Stavros what you're doing from Centrica’s perspective. So I think of topics like this as I'm not sure it's the right phrase, but a two sided business model. So on one hand, there's direct benefit to customers, like knowing how much water you've got in the tank or heating my hot water when my electricity tariff is cheap.

[00:11:34.010] - Jon

If I'm on a dynamic tariff on the other side, then is the services to the electricity system and the value of that, of course, can be shared from customers as well. Martin, can I ask you to just tell us a bit about how you're going to market and how you communicate those benefits to customers from your product.

[00:11:55.060] - Martin

Yeah, sure. I think one of our biggest challenges is how is that there's a number of market segments that we can go after, and as a small business we're hungry for that business. We're hungry for growth. We've got to try and keep a focus at the same time to make sure that we're not spreading ourselves too thinly. But we sell to British Gas, which is really important. And Mixergy tanks are being installed for homeowners who are typically when having a new boiler installation, and they can include a Mixergy tank with that a really fast growing area at the moment is with new build housing.

[00:12:34.220] - Martin

And this is the new build housing providers with clean technology, renewable technology. It's often about compliance with building regulations and lowest cost compliance, and there's a really good opportunity there because we are recognised in SAP, which is the UK Building regulations to listed under Appendix Q. The benefits that we bring in lowering carbon and lowering running costs when you combine a Mixergy tank and solar PV. So because of that, we provide this solution now, having gone through quite a bit of testing with the building research establishment, BRE and the UK to provide this easier and cost effective way for house builders to get compliance.

[00:13:24.710] - Jon

That's a channel to the housing developers. The British Gas one, I guess, is a channel direct customers through British Gas. Most customers won't know anything about their hot water tank other than they've got one, I guess so. Do you have to rely on, do you think when you look at selling to households like mine, you need to rely on installers to specify your product, or can you communicate the benefit, or can someone communicate that benefit directly to households, to people like me?

[00:13:57.070] - Martin

Yeah. I think the installers are really important part of this. And I think that's the same across the heating industry and the role that they play in specifying products. We've got a network of aside from British Gas, we've got a network of it's about 180 installers at the moment who are spread across the country in different shapes and sizes, who are operating, selling and selling Mixergy products to homeowners. And often they're the ones who are pushing it. Those proactive installers, perhaps those guys and girls who are installing heat pumps and other renewable technologies who are promoting Mixergy.

[00:14:35.230] - Martin

And then you've got the homeowners themselves. And we also sell directly to homeowners who come to Mixergy. Maybe they've seen us on sites like Fully Charged or they're just aware of what we're doing in the market and they're really excited about the technology and it's typically those early adopters. They're on this journey where maybe they've got the PV, they've got the electric vehicle, maybe they're going to get a heat pump and the Mixergy tank is another part of that journey that they're on to that nirvana of net zero.

[00:15:08.150] - Jon

I see what you mean about the different routes and different options and the challenge of focusing. What do you think in the next years, what routes do you think will be most important to you out of the house builder, the installer, the direct customer?

[00:15:26.570] - Martin

Yeah. I think it's really important as a small business, we can be really disruptive in a market that's really traditional because most of the hot water tanks are sold through merchants. And that's the way that they've always been sold because we're small, we're flexible, we don't have any sort of baggage, really. In terms of trading partners, we can be a bit more disruptive than the approach that we have. And we like that. But at the same time, we've got to scale. We've got to grow up as a business and it is about making sure that we can get our product to market in the most effective way.

[00:16:02.250] - Martin

So as we grow our installers, we need to make sure we've got a supply chain that can support that. And that's where you get the value from those players in the market, whether they be house builders who are buying or maybe social housing contractors who are part of a funded retrofit scheme or installers who are installing for private homeowners. It's evolving all the time.

[00:16:24.830] - Jon

What's the sort of price comparison or premium on a hot standard hot water tank?

[00:16:32.850] - Martin

A rubbish answer, but it really depends because you can get a really cheap, cheerful dumb hot water tank for a few hundred pounds, and then you can go up to a premium tank like a Mixergy or others, which might cost £1500. But it depends on the heat source. It depends how you're using it and the functionality, whether it's unvented, vented, direct or indirect, and how it's heated. But there is a premium with a Mixergy tank for sure, because it's smart and connected because it has a computer that sits on it and a whole bunch of other technology that adds that value that gives the return.

[00:17:13.400] - Jon

Yeah. Okay. Thanks, Martin. Stavros. Let's look a little bit more then at how you Centrica work with all these tanks, and there's 3 MW of capacity that you've got connected up. Talk our listeners through what, actually, what you do with that? How do you network them? Where do you use that flexibility? How do you monetize that?

[00:17:35.780] - Stavros

Yeah, it's interesting. You made the point on a two sided business model. You probably heard from Martin. Now it's a bit more complex than that. From a demand response point of view, it can be more complex and you've got multiple value sources and stakeholders. So you've got the device, you've got the customer, you've got the energy market, you've got the grid operator. There's a number of parties. So from a business model perspective, we kind of think of it a bit more like a hub and spoke. You've got the customer and the device at the centre.

[00:18:07.040] - Stavros

The device ultimately has to do its day job. It can't be doing flexibility all the time. We can't disrupt the customer's lifestyle. We try and optimise these devices with minimal to negligible impact on the device's day job. So that's really the focus for us is making sure you protect the customer and the device and you do this in a way that the customer can trust you. And then from a spoke perspective, you've got all these value pools. Now we've always designed our technology and capability to be quite agnostic to value pools.

[00:18:35.570] - Stavros

So to participate in whatever services that are open to that particular device with the particular specifications on the services to the grid operator. But we had always developed with an eye to the energy bill and being an energy supplier with British Gas  at Centrica. If we have automation and optimization of these devices, we can actually reduce bills for customers as well, so we always designed to be quite holistic in the value optimization, and that's the end goal is really to optimise the home, the device and the bills for customers to really maximise the value of the device for the customer who owns it, the energy system as well.

[00:19:19.320] - Jon

So using that example of the tariff, you're networking the hot water tank, the Mixergy water tanks. Let's say you're selling that to the system operator and generating some revenue, then that revenue could be shared back with the customer through the tariff in some way.

[00:19:38.050] - Stavros

Indeed, as I said at the beginning, we've got two business models. One is through our partners, such as Mixergy, where we provide a technology integration and we generate some revenue from the grid operator. And we share that with our partner. And it's really our partner that fronts that benefit to the customer just on that one.

[00:19:56.480] - Jon

Then, Martin, how would you at Mixergy provide that benefit to the customer? It's an area that I'm sure will become very big, but it's new business models, new revenue flows. So how do you think, Martin, about that flow of money back to the customer from that flexibility value?

[00:20:18.120] - Martin

Yeah. I think it's really exciting. And I agree there's massive potential there, as it stands at the moment, the involvement, the impact on the customers is minimal, the way it works. Essentially, Centrica pay Mixergy for what we provide. And because of the size of 3 MW, which is tremendous great news today that's still small. And so the return that we get from that is really not significant at this stage. And that's where we need it to scale. And that's where it becomes more significant. And as it does develop and as it does scale, then we can really see some exciting business opportunities.

[00:21:06.730] - Martin

We can offer something back to the customers. So it becomes more than just supplying, selling someone a tank and providing them smart connected services. There's other business models that we can develop alongside organisations like Centrica.

[00:21:24.470] - Jon

Yeah. Okay. It sounds like that will take a bit of time. You don't need to have all of those business models in place today with 3 MW. But over time, as you grow, those amounts of money will become more significant and you can evolve and experiment and explore different ways.

[00:21:40.470] - Martin

Yeah. I think it's an emerging story. Not least for us, we're growing a network of tanks that are deployed, but also the value of the energy service revenue streams is a moving story. And it will be interesting to see where we can fit into that and where Mixergy tanks deployed in different markets. Again, where there's different opportunities there. It'll be interesting to see how that develops and what business models that will spin out of it again in a market by market approach.

[00:22:14.010] - Jon

Stavros I interrupted you there with you. Let's get back to the second one.

[00:22:21.730] - Stavros

As I said, we always designed this to be able to stack as much different sources of value on top, which ultimately benefits the end customer. We just kind of talked about from the grid operator. But obviously now, with smart meters having been deployed out throughout the UK and the ability to deploy smarter tariffs, really, and to design smarter tariffs. And when you combine that kind of smart tariff with device automation, you can actually reduce the costs in the background to supply the customer. Ultimately, it's a virtual power plant.

[00:22:53.370] - Stavros

You can get it to behave as a traditional bricks and mortar power plant and access the same values. So I think that's where this space is going to become really exciting when you start combining the smart tariffs with the smart device with a great consumer proposition, a great customer experience. And you can start really returning that value to the customer and reducing bills. Really, I mean, there's some negative things you can do with value. You can discount appliances, you can give rewards, you can give cashback.

[00:23:20.410] - Stavros

There's all that great stuff. But ultimately, we are helping the energy system. We're reducing the cost of the energy system, we're reducing the cost of supply and really getting all that to the customer in a number of benefits is where this is going to get exciting and innovative.

[00:23:35.710] - Jon

How quickly do you think that happens Stavros, you alluded to a tariff next year. But I sense and share your enthusiasm at the way in which these values can be shared with customers. There's going to be a journey that Martin describes for Mixergy as well. But how quickly do you think that will happen?

[00:23:56.020] - Stavros

Well, I think this has been a journey for a number of years. There's a lot of experience. I've been working on this for ten years now, and I think the technology has caught up with some of the business models. And as you can see with the example of Mixergy, we are delivering a real service to the energy system. We're participating in a service that was traditionally the space of traditional power plants. So the technology is proven. The business model is proven. It's about scale now, and we are actively working at Centrica through our Hive business now and expanding our kind of traditional smart home and thermostat business into energy management for low carbon devices.

[00:24:32.950] - Stavros

So we are focused on that. We're working on it Centrica. And as I said next year we have plans to launch propositions. So we're at the tipping point now. I think where you can launch innovative propositions, they work technically and you can release real value to the customer.

[00:24:48.130] - Jon

Yeah. Okay. And the challenges in the years ahead, Martin and Stavros, if you reach out to pinpoint what you think this will scale, what's the biggest challenge in scaling it in the next year?

[00:25:06.990] - Martin

Do you want me to go first Stavros?

[00:25:08.760] - Stavros

Yeah, go for it.

[00:25:12.730] - Martin

I think that the challenge for Mixergy within this is what the different markets are doing. What the opportunities for us to develop our business models in particular markets. So what might work and be relevant in the UK market could be completely different in France or Germany. I think that's the challenge because it makes it very difficult to plan for. And it's exactly the same with the application of our tanks as we're looking at new markets to go into, to sell our products and to demonstrate the applicability of Mixergy in homes in different countries.

[00:25:51.010] - Martin

The reasons for doing it are different. And I think that's exactly the same for the energy services models. Those revenue streams are going to be going to be different. The opportunities are going to be different. The business models will be different. I know it's something that Delta-EE covered a lot in good markets for flexibility, bad markets. And I think that's the biggest challenge from my point of view. Where do we go for on this?

[00:26:16.290] - Jon

Yeah. Okay. So you can't develop a product and then put it into every European market. It's got to be a market by market approach, which makes it harder to scale.

[00:26:28.600] - Martin

That's right. It's not a one size fits all.

[00:26:33.290] - Jon

Stavros, how about from your perspective?

[00:26:34.610] - Stavros

Yeah. The challenge for me, we've kind of alluded to it earlier. Although this is a super exciting space. It's a good business model and it's good for the energy system and net zero and low carbon. Ultimately, it is a cherry on top business model. You don't buy a Mixergy tank to participate in national grid flexibility markets. Nobody does. It's a cherry on top business model for the manufacturers, the grid operators, the energy system, and ultimately, the consumer, its not the thing that you wake up and think about every day.

[00:27:06.650] - Stavros

The challenge is going to be for companies like ours and companies like Mixergy to gain the trust of consumers to automate their device, help them reduce their energy bills, but also to create really customer centric propositions, reasons that customers want to participate in this because it is a cherry on top business model. Nobody's going to wake up and buy demand response not going to happen.

[00:27:32.030] - Jon

The core reason for buying that hot water tank, I guess Martin, Mixergy will stay laser focused on creating a product that just works beautifully for customers. You can never lose sight of that.

[00:27:47.230] - Martin

Yeah. And I think the simplest thing, the thing that really resonates with the simplest thing, this idea of heating what you need, that's the thing that customers get. It's obvious. It's obviously you should only heat what you need. Very simple. And so for all of the other stuff about the platform, about connectivity, about being smart. Yeah, that's great. But at the simplest level, that's incredibly powerful, having something that works well for you and gives you a better experience.

[00:28:18.110] - Jon

Klara, that's I guess what we see with some of these other products. It's about heating what you need or a smaller hot water tank. There's different benefits from different types of products in this area.

[00:28:31.250] - Klara

Yeah, exactly. It's about reducing the space that it takes up while also reducing the running costs for the consumer, which is obviously big pain point for a lot of consumers is how much my heating should cost.

[00:28:44.210] - Jon

Yeah. So yeah, I sometimes get too excited about the electricity system aspect of this one, but it's a nice reminder that it's got to be right for customers. And Martin, I guess it's going to be easy for installers to work with if they're an important channel for you.

[00:29:03.830] - Martin

That's right. I guess it's the sizzle of the connectivity piece and the energy service. Is that's really exciting? The revenue streams and the potential and how you can support the broader energy transition is really exciting when it comes down to the guy who's going to fit something in an airing cupboard. And how easy is it? What's his experience in doing it? What's the user's experience? We can't do any of the big stuff unless we get thousands of tanks or other assets out there to provide that capacity.

[00:29:38.630] - Jon

Okay, well, keeping our time. Let's bring out the talking new energy Crystal ball. And I'll set the dial today to 2026 five years time, and I'm going to cheat a little bit and tailor the questions slightly to each of you. So, Martin, I'll ask you first obvious question, where will Mixergy be in five years time, and you can choose whatever metric you want to choose to answer that question.

[00:30:08.490] - Martin

Yeah. So I think we're in a really good lucky place. I think we're in a fortunate place because the decarbonisation of heat that's happened over the next decade is absolutely going to happen. And the opportunity for us is to ride that wave as best we can. So where do we see ourselves by 2026? Well, we're certainly pushing internationally, and we would certainly expect by then, we've got a substantial presence in core markets that already we feel we know some of them and we're making those steps to get involved in those markets in the EU and also in North America.

[00:30:57.150] - Martin

I think as well part of that is about how we can licence our products. And that's a key part. It enables us to work with other massive players in the heating industry to achieve volumes with our technology out there. And I think as well as that possibility that expansion into other products and services. So already we've got an EV charger offer and thinking about how we can complement the way that a hot water tank is working with an EV charger in someone's home to get a new build.

[00:31:30.540] - Martin

Where we just found out this week, the government saying every new house has got to have an EV charger. There's other areas of space heating, other services where we can provide some value to help get customers in control of their journey to net zero over the next 5 - 10 years.

[00:31:48.610] - Jon

Okay. Interesting. So potentially moving from optimising a single appliance into more of a home energy management approach.

[00:31:55.310] - Martin

Yeah, it's going to be more than just a hot water tank for sure.

[00:32:00.510] - Jon

Thanks. Martin. Stavros, five years time you're at 3 MW today. I don't know if you're going to answer this question directly, but how many megawatts will you have in five years time of hot water tanks?

[00:32:13.350] - Stavros

Yeah, I will answer the question in five years time. Firstly, I hope Mixergy meet all of their objectives because they're a partner of ours and what benefits them benefits us. And they're a great partner. I'd love to see our first million customers on the platform. I think that is more than doable within that time scale, but I think this industry is notoriously bad at using the crystal ball, and it's been quite a long journey and a tough journey to get where is this is going to rely on a partnership ecosystem.

[00:32:45.490] - Stavros

So working with great companies like Mixergy, but I think a million customers is certainly possible far higher than that is. But that's personally where I set my targets on. And I think I said earlier I remember the first Mixergy tank being connected. It was a huge deal when we had the first megawatt woke up this morning and it's three. So the snowballs started and I think that's really fantastic to see real flexibility from residential devices and really displacing what was traditionally done by fossil fuel and centralised generation.

[00:33:19.920] - Stavros

So lets be ambitious.

[00:33:22.110] - Jon

Your ten years of investment in this area is starting to pay off. Thanks. So, Klara, last, but not least looking five years ahead, how much thermal storage will we see in household? That's beyond what I'd call the traditional storage users and the standard hot water tanks. So how much advanced thermal storage will we see?

[00:33:46.270] - Klara

Yeah, that's the burning question, isn’t it? It's not something I'm afraid I can answer right now. I don't have any numbers. It's something that we're exploring right now in our heat research. So hopefully I'll have some kind of outlook and forecast for you in a few months. What I can say is that since most low carbon heating systems need some kind of thermal storage, there will be a huge opportunity for these products in the future, and especially the smart ones who can provide more thermal storage capacity than a standard hot water tank and have that controllability and flexibility.

[00:34:21.430] - Klara

I also think that most heat pump manufacturers will like to include smart storage of some kind in their portfolio as the value of demand side flexibility opens up in more and more countries. We also expect these opportunities to capture value from flexible electric heating directly and through aggregators and that this will increase the value proposition of the thermal storage products.

[00:34:49.990] - Jon

Okay.

[00:34:53.410] - Jon

Yeah. So how quickly that goes? It's not if, but it's how quick.

[00:35:00.250] - Klara

Yeah, exactly.

[00:35:02.890] - Martin

I think for us as we look at the metrics, the hot water tanks installed in the UK every year is around about 400 - 450,000 new cylinders installed per year. And as we look over this decade, how that might grow. And certainly our view is if Boris's pledge to install 600,000 heat pumps by 2028 gets near every single one of those heat pump installations is going to need a hot water tank. We're shifting away from fossil fuels. We're shifting away from combies, so a hot water tank is going to be an added present in homes.

[00:35:44.050] - Martin

And so that current 400 and 450. But by the end of this decade, we would certainly expect that to have doubled and maybe get closer to that million tanks per year just for the UK. And of course, this is relevant to all other European markets and other markets, too.

[00:36:02.350] - Jon

Well, I just love the thought of the hot water tank, which most householders think of this boring steel thing in their cupboard or in their attic or in their basement somewhere, being a really important part of our energy system and enabling customers to have the right amount of hot water at the cheapest cost. So yeah, thanks. We'll draw it to a close there. Thanks, Martin. Thanks, Stavros. Thanks, Klara. It's been great hearing your thoughts today. Thank you all very much.

[00:36:35.930] - Stavros

Thanks, Jon. Thanks very much.

[00:36:37.000] - Klara

Thanks, Jon.

[00:36:38.050] - Jon

And as always, thanks to everyone for listening. We hope you enjoyed the episode. Maybe you're going to take a look at the hot water tank that's in your house or flat somewhere, or if you don't have one, think about maybe what you will have in the future. Thanks for listening and look forward to welcoming you back to the episode next week. Thanks and goodbye.

[00:36:58.490] - Jon

If you're as passionate about the energy transition as we are, then please keep in touch. You can follow us and me on Twitter LinkedIn or subscribe to the podcasts on your chosen podcast platform. If you like the podcast and like sharing, then please do rate us and to listen to archived episodes to read transcripts and to see the latest Delta-EE insights, then please visit www.delta-ee.com.

[00:00:04.730] - Jon

Welcome to Talking New Energy, a podcast from Delta EE, the new energy experts. We'll be talking about how the energy transition is developing across Europe with guests who are working at the leading edge of this transition.

[00:00:21.490] - Jon

Hello. And welcome to the episode. Traditional energy retailers are having to evolve fast to drive the energy transition. And a big part of this evolution is launching new and innovative services and propositions around new energy, very different from selling kilowatt hours to customers. And it's a hard journey for them. How do energy retailers improve the chances of success when launching a new proposition? Because, to be frank, a lot of new propositions don't take off like retailers would hope. Today we're looking at this topic, talking with an energy retailer from Estonia and looking at their experience of developing new propositions and business models, specifically in the heating market, which is an area we think is ripe for change and disruption.

[00:01:21.670] - Jon

So let's say hello to my guests. First Evert Eero, who is product development manager at Estonia Energy or Eesti Energia in Estonian I guess Evert? Hello. Welcome to the podcast.

[00:01:38.230] - Evert

Hey, Jon. How are you?

[00:01:39.870] - Jon

Good. Thanks. Excited to explore your experience in developing new products and services in Estonia. So, yeah. Can you give us a very quick introduction to Estonia Energy? I'll go with a safe English pronunciation rather than attempt the Estonian one. Who you are, what you do?

[00:02:02.890] - Evert

Sure. So first of all, thank you for having me. I have been an active listener of Delta-EE and you're providing lots of valuable insights. Estonia Energy is basically an international customer centric utility. We operate in five countries from Finland all the way to Poland. And our number one ambition is actually to provide useful and convenient energy solutions to our customers. So basically, I have been working in a product development field for different customer centric services and from solar panels, insurance, lighting as a service, smart home heating, data desegregation from all different fields.

[00:02:49.310] - Evert

So, yeah, it's been a cool ride.

[00:02:52.120] - Jon

Great. I don't know how many listeners we have in Estonia beyond obviously you Evert. But I don't know how many of our listeners outside of Estonia know about Estonia. Obviously, it's famous for being the home of Skype many years ago. But can you give us a quick, a few cool facts or points that will help our listeners get to know Estonia a bit more?

[00:03:22.570] - Evert

Yeah, sure. It's always good to hear what someone is saying that you have such a cool, innovative country. We have 1.3 million people. And as you said, Skype was our first successful tech company today, we already have seven successful unicorns. You might know some companies called Wise who is doing money transfers internationally or Pipedrive. So there's many different companies out there already. And what we are seeing at the moment is that the speed is accelerating. We are getting more knowledge how to build those products and services.

[00:03:58.600] - Evert

And people are more eager to learn and since we have those investments and understanding how to build companies, it's getting even better next year.

[00:04:07.210] - Jon

Okay. So it's almost like a snowball rolling downhill where it's getting bigger. The ecosystem, the people involved in Skype are now doing different things.

[00:04:17.310] - Evert

Exactly.

[00:04:20.290] - Jon

Well, I haven't visited Estonia, I'd love to visit it one day. Let's say Hello to my second guest today colleague, Lindsay Sugden. Hello, Lindsay.

[00:04:31.330] - Lindsay

Hi, Jon.

[00:04:32.450] - Jon

Thanks for joining the podcast again. So, Lindsay, you've been on the podcast before talking about heat. The theme of this podcast is new propositions and business models. Why is that so important? It's important in many aspects of the energy transition. But why do you think it's so important specifically with regard to heat?

[00:04:57.610] - Lindsay

Well, I think it's becoming clearer and clearer that decarbonizing heat in existing buildings is a critical part of the energy transition puzzle. It's critical to meeting government targets on decarbonisation, et cetera. But it's notoriously difficult to make that transition happen in the heating market. Customers are really attached to their traditional heating systems. Often gas boilers and low carbon heating systems are generally more expensive. Customers are a bit unsure about them and don't always trust them, even when they're like heat pumps and mature technology.

[00:05:46.860] - Jon

It’s different and new. People don’t understand, and they're not familiar with it.

[00:05:48.340] - Lindsay

Yeah, exactly. So there's a real need for innovative propositions that can take some of that risk away from the customer, take some of the uncertainty away and also tackle the upfront cost issue as well.

[00:06:05.050] - Jon

So heat as a service as an example of that or elements of heat as a service.

[00:06:10.630] - Lindsay

There's a whole range of different, heat of the service, like at one end of the spectrum. But there's a whole range in between of different ways that you can tackle some of these challenges. They've been trying to decarbonize heat in existing buildings for years, and the progress is so slow it can't continue kind of incrementally. Something a bit more dramatic needs to happen. I think an innovative business model, this is one important element.

[00:06:39.480] - Jon

I think we're recording this in the last days of COP26.

[00:06:43.580] - Lindsay

Yeah.

[00:06:46.310] - Jon

I think coming up, COP26 is the need to accelerate dramatically what we're doing. And that is more true for heat, I would say, than anything else.

[00:06:57.080] - Lindsay

Yeah. It's time for a paradigm shift, not just continuation.

[00:07:03.110] - Jon

So Evert. Let's talk about heat in a minute. But first of all, I'd like to understand your approach to innovation and developing new propositions and business models for customers. Because I said in my introduction, the energy sector has not been very good at that. It's a bit of a generalisation, but I stand by that. You've already mentioned customer centric once, which was in your introduction. Great to hear, but tell us a bit about how your company approaches this topic.

[00:07:39.770] - Evert

It's a great question, actually, because without my six years of experience working in energy field, I have seen both failure and success, more failure. To be honest. And if you look at the statistics, then 80% of new products and services will fail on the market anyway. So it's Neilson research have done it. And it's just a fact. And you can even have, like, a super team, super competitive researchers, developers. You might have the money to do it. But what happens is that once you launch a business, you probably will see that it will fail.

[00:08:17.300] - Evert

So what we found out is that the only way how you can succeed in a way like Amazon or Facebook or Netflix are doing is that you need to test as many ideas as possible, because if you're putting out as much information or as many tests as possible, then you're increasing the probability of being successful to find out those golden nuggets.

[00:08:39.390] - Jon

So those tests. Are you talking about theoretical things, research or the more minimum viable product and actually getting an offer in the market? What do you mean by test?

[00:08:50.210] - Evert

Yeah. So what we have in Estonia, we have in house accelerator. It's called Idea Hop, where we are, first of all, gathering all those different ideas. We are also working together with universities and investors to work through those ideas. But when we talk about testing, then there are so many different principles and solutions out there. How you can test and what I personally found out that has worked the best is methodology that came from ex Google employee. It's called Alberto Savoia, and he calls it prototyping. So what it means is that you're basically building a first level of the service or solution that you have and you show it to your customers right away.

[00:09:37.280] - Evert

And then you're measuring the data. What customers do, not what they say. So it's not just that doing research, it's more showing the end product for a customer as fast as quickly as possible and then measuring the results.

[00:09:50.690] - Jon

Okay. What's your journey being like in terms of reaching the point where you're at now? Have you been using this methodology for years? Have you had lots of failures and that's causing you to scratch your heads and work out. How can we do this better? Give us a feeling of that.

[00:10:09.060] - Evert

Yeah. It's a good question, because at first my biggest failure was probably related with the smart home topics. And I know lots of utilities have been struggling with a smart home in this field. And the biggest challenge in the beginning was definitely how to convince your marketing team and your other team members to show something for the customers that is not even ready yet. So because you have a friend, you don't want to just show something and then not deliver it. But how we have overcome the idea is that basically, if customers don't want to buy your service or solution, they don't even care if you have it or if you don't have it, because if you're showing something that they are super interested in then they are willing to wait as well.

[00:10:54.780] - Evert

So I remember I was recently doing a test for heat pump as a rent service, and we did the same approach. And basically what customers were saying when I called them just to understand that, why did you sign up? They were like, yeah, I saw it was test because we were showing at the end of the test that it was just a test. Apologies for that. But you will get 20% discount once you order it. And customers like, yeah, I saw it. But when can I have it?

[00:11:21.860] - Evert

So it's actually not worse. So you shouldn't be afraid that it's not ready yet. It's more like getting really good data. Otherwise you would just save money. You will spend too much time, too much money, resources to build something that customers don't ever buy.

[00:11:35.900] - Jon

And was it hard to convince your colleagues internally? You mentioned that earlier. So how much resistance has ever been to that methodology? Now we've got to have it already. We can't just say it's a trial at the end. If someone signs up, we've got to be able to do it straight away. Is that hard? Or people really embrace that?

[00:11:55.670] - Evert

Of course, it was hard in the beginning, but there are different tricks and hacks. What you can do. One example could be that, for example, if you have a huge customer base, you don't have to send it to everyone right away. Mathematically, if you're sending out emails to, for example, 100 customers, it's more than enough to have a relevant data to get it. Or if you're doing social media campaigns to drive customers to your fake website, it's more than enough. So it's hard in the beginning.

[00:12:23.050] - Evert

But you're saving so much time, money and effort. And people actually, later on, if they see that it really works, they're more willing to work with you and bring those solutions to the market. So it's a super approach in that sense.

[00:12:36.380] - Jon

Now I want to know what this customer said about the heat pump rental. So why did they sign up for heat pump rental? Or do you think heat pump, the idea of renting a heat pump, is that something that tested well, or what have you learned from that test?

[00:12:51.290] - Evert

Yeah. So when we're talking about heat pump rental, then usually people who haven't purchased any heat pump before they are completely lost, they don't know what it is. How is the installation? What is the maintenance? So what happens after two years, if I have any problems? And there are so many questions people have. And while we were doing the testing, we found out basically different ideas, what people need and how to approach it? For example, one thing was that on our side, we wanted to reduce our risk.

[00:13:23.600] - Evert

So we wanted to ask installation costs before having this monthly subscription for a heat bump. The customers were saying that, no, I don't want to pay, for example, €400 to have the heat pump with monthly fee with €50. We would like to have it if it's included in the price.

[00:13:37.640] - Jon

So they want that €400 included in the monthly subscription with no upfront cost.

[00:13:45.600] - Evert

Exactly. So we included it in the price. And we were saying for the customers that if you opt out from our deal before some experience, then you will pay the installation so it's equal on both sides. So it worked really well in that sense.

[00:14:02.090] - Jon

And are you doing that? Is that now an offering you've rolled out to your whole customer base, or is that still in development?

[00:14:09.890] - Evert

Yeah, it's up there. We launched it in the summer and first we were predicting to get approximately 5% conversion. So from the total sale, I remember from Delta-EE materials as well that you were predicting approximately 5% of customers will be interested. But what we have seen is that it's already over 20% of customers who are signing up for the rent service. And in that case, it has been super successful. And we're having more thoughts and ideas how to even extend it to other products as well.

[00:14:45.960] - Jon

That's good to hear, Lindsay from looking across Europe if we stick on heat pumps at the moment. And heat pump rental or heating as a service, these sorts of offerings, how would you characterise in general, what the market is doing, is what Evert’s talked about quite unique, ae there others that are already getting a similar sort of success with this offering?

[00:15:14.990] - Lindsay

Yeah. There's more and more examples of companies offering these kind of customer propositions around heat pumps. But I would say if you look at the whole heating market, the majority of players who are testing heat aa a service type models, they're doing it with gas boilers to begin with. So the number of gas boilers that are installed on these kind of contracts is, in order of magnitude higher than the numbers with heat pumps. But we're seeing that a lot of the companies who are starting off on the boiler side.

[00:15:52.390] - Lindsay

So for Thermondo, for example, Vaillant in Germany, they're starting to go into heat pumps as well. But it's like once or the key point is that once you've got the customer on board with some kind of contract where they have to pay some monthly fee, be it to rent the heat pump or full kind of heat as a service. Once you've got them on a monthly fee, then you can change the heating system from a gas boiler to heat pump. You can kind of decouple that relationship between the end user and what the heating system actually is.

[00:16:34.700] - Lindsay

And it becomes a relationship between the customer and the heat. It doesn't matter where it comes from. So we are starting to see that transition from some companies. And then the best example of where heat pumps themselves have become more rolled out in this way is in Denmark, where there's been a focus on testing innovative propositions of different kinds of business models, going back to five years or so, starting with government demonstration projects and so on. But now most of the big energy companies are doing this, it’s quite normal. It's advertised everywhere.

[00:17:17.170] - Jon

It's funny when I talk to people in the market about these type of rental offerings or heat as a service offerings, I always get two questions and Evert I'm going to ask you how you handle these questions. One question is, yeah, but it will have to be a ten or 15 year contract, and no one wants to sign up to a contract that long. And then second the risk - if it's our heat pump and we're putting it in someone's home, what happens if they stop paying? We can't have our asset in people's homes in this kind of way where it's not easy to remove or manage that risk.

[00:17:59.810] - Jon

So how have you got around those two challenges or what's your thinking on them?

[00:18:05.950] - Evert

Great question. There's basically different ways how you can handle it. When we talk about the first question that you had like for having a long term contract. So, for example, if we are selling solar panels with the PPA models, then we are having given contracts up to 25 years. So this hasn't been a big issue for us. When we talk about heat pumps, then we have a policy in our contract for customers that they can opt out with one months notice. And financially, we have calculated to have a small fee so that they have to pay for us.

[00:18:46.040] - Evert

And we know that we can use the same heat pump and install it in some other locations. So you have to do a little bit of a financial calculating to understand how do you price it and how do you do it? And it also comes hand in hand with the other question that you had is that how do you make sure that those devices are there and there are no issues and problems? One way how we have handled it is that we're doing yearly maintenance, definitely for the devices, and we have also an insurance policy behind it.

[00:19:18.120] - Evert

So we made a deal with insurance company who is covering up those devices. And this monthly fee is quite small in that case, because we are planning to sell them as much as possible.

[00:19:29.750] - Evert

So of course, there are risks. This is true. But at the same time, why I really like the information that I have found from Delta-EE as well is that if we are sharing this knowledge between different utilities and different companies who are providing such service, then we start getting more data. How does devices operate? What are the customer segments? What are the biggest faults or problems? And if you're willing to take the risk as a utility or as a service provider, then the payback is much better. Because if you look at the profits for those devices that you're offering there are two to three times even higher than if you would sell them as a turnkey solution.

[00:20:05.860] - Evert

So the return is higher. Of course, there's a little bit of risk, but it's definitely worth doing it.

[00:20:11.000] - Jon

Can I ask you about risk? Because if I characterise the energy sector very simply from old energy to new energy, old energy companies were used to de-risking everything they didn't want to take risk. Their company shares were seen as low risk, steady return companies. In new energy, what you've talked about is not knowing everything, putting something quickly in the market, even when you get that reaction, you don't know how many customers will say, hey, I'm going to cancel after six months. How does your company think about risk?

[00:20:51.400] - Jon

Or has that been a hard journey you've seen within your company to take the risk?

[00:20:56.830] - Evert

Yeah. Well, we are a big corporation and we have a risk policies and everything, and we have to be sure that we minimise the risks. What I have found out, what works best is that data beats opinion. So there are so many smart people out there saying that you have this risk, another risk, and third risk, even if you're building a new service or solution. But you can minimise the risk or even sell your idea once you have a data to back it up. So then we come back to that validating and offering the service for customers.

[00:21:30.110] - Evert

For example, if you're doing those preliminary tests and what we also do, we have an XYZ hypothesis in those tests. So we are saying that, for example, 5% of middle aged men will buy the heat pump service with €50 a month, and we have really specific set numbers there. Those come from those financial models. And if we exceed those results from those tests that we have set before doing the test, then we have a solid data to show first to those decision makers, for example, on the C level, there's a big interest.

[00:22:02.860] - Evert

We also calculate what are those costs and risks. And if they see both sides the benefits and risks, then it's possible to do it.

[00:22:11.060] - Jon

Okay. Some of those risks, like the risk of people cancelling. You'll only get that data. How many people cancel within three years? You only get that in three years so you can get a certain amount of data. But I like what you just said about that balance of the reward, the benefit and the risk is almost accepting. You're not going to know everything for some years. But if you believe enough in the opportunity, but not opinion, but there is also some belief in there, isn't it?

[00:22:44.740] - Evert

Yeah, of course. And also for the product managers, for them to pitch the idea in a way that it should work. Yeah. And one thing I didn't mention is that we also have a customer's data how well they have behaved while buying electricity, for example, or gas from us. So we know this historical data that they didn't have any debts, for example, for a few years, or if they're buying some other services from us, for example, EV Chargers or solar panels, they know as well that their financial background is good enough to do the rent.

[00:23:13.390] - Evert

Yeah.

[00:23:13.660] - Jon

Okay. And there's third party data also that we get as well to blend together. Lindsay, how do you see the heating sector thinking about these risks? Was I a bit unfair in characterising it, but there's so many risks. It's so too hard to do. We want to lock in all the returns, or do you think actually the heating sector is now starting to experiment and develop in the way Evert described?

[00:23:41.270] - Lindsay

Yeah. I think it's very different, depending on the type of company and the scale of the company. Some of the big energy companies, the biggest ones in Europe, they're quite slow moving. Sometimes the challenge with launching some of these kinds of models has been that they can't prove their success fast enough. They don't get enough time to test before a decision is made from the top, well you're not making enough money fast enough so we can't go ahead with that. I think what's changed in the last few years is that there's been new kind of startups and other companies coming from other backgrounds who are coming in and competing in the same space, and that's forcing those larger slower moving companies to actually think, hey, we got to do something differently.

[00:24:32.220] - Lindsay

Otherwise we're going to lose out now. And that's the real difference from, like, five years ago. And it's companies coming from outside of energy altogether. Or it's heating companies, manufacturers, for example, becoming service providers, like a company like Viessmann probably is a good example. You can buy gas from them now and then you've got startups or companies like Thermondo is kind of disruptive one. Or there's a lot of different examples of new small companies who are gathering a lot of investment, have a really innovative and really customer focused approach, and they're taking more risk.

[00:25:16.710] - Lindsay

They don't always succeed, but they're paving the way. And I think it's forcing change.

[00:25:24.570] - Evert

So exactly what you said, what we should see in the future, or at least, I hope, is that once utilities and startups start working together so startups can be super fast. But utilities have the customer base. So if you could combine them in a smartest way, then you can see lots of good things happening.

[00:25:45.270] - Jon

Evert, last question before we bring out the talking new energy crystal ball. So you're applying this innovation to heat pumps. But to many things you mentioned, EV charges solar panels lots more. What's your biggest challenge or the hardest thing in your job to really transform the way that you provide customers with services?

[00:26:10.890] - Evert

Yeah, it's a great question. Anyone who has worked as a product manager probably knows that they have to work together with IT, from marketing teams, process operations, customer support, and others. So the hard thing is that you have to think in a strategic level and what you will do in five years time. But at the same time daily, you have to solve customer problems if they have any issues with their heat pump or whatsoever. So I think the hardest thing is definitely if you're developing a new services to have this data on the table.

[00:26:50.730] - Evert

So once you're making decisions or presenting it, you have packed it up in a way that is convincing for the others. And I guess the best way to do it is to do it with your own data and also back it up without other data. And then you can succeed as well.

[00:27:07.330] - Jon

Yeah. Okay. I like that. I think taking away that, use as much data as you can. There's always some belief there, but try and take as much of the opinion out of it.

[00:27:20.450] - Evert

Exactly. And also there's two parts. Actually, one is your own data and one is data from the others. So, for example, I love Delta-EE reports, and there's also valuable data, but at the same time, I have to be sure that in our markets work the same way. So with every utility, they should test it out as well. How it works in their own country.

[00:27:42.510] - Jon

Very interesting, well your passion and excitement for what you do come through very clearly, Evert.

[00:27:48.750] - Evert

Yeah, I love it.

[00:27:51.810] - Jon

Let's bring out the talking new energy crystal ball now. And I'm going to set the dial this week to 2026 five years time, and the question will be let's make it specific to heat as that's what we've been talking about. Evert, what do you think? The question to you - What do you think you'll be most proud of in five years time? If you're looking back on the next five years, just so to speak, with regard to your heat pump or heating offers and question for Lindsay, I guess more of an industry perspective on that.

[00:28:29.270] - Jon

So what do you think the industry will look back on in terms of selling heating in more of a service type approach in the way Evert’s described for Estonia. So Evert, what will you be most proud of? What would you like to be most proud of in five years time?

[00:28:47.250] - Evert

Yeah. I remember five years ago we were just having PowerPoints and slides showing that in the future, we have all those cool, fancy services. Today, we are in a position of having all those services. So the next thing I believe, at least in five years should be that we will start bundling those different services together. So, for example, if you're building a house, you could get all those services from one energy utility. For example, you could get the heat pump, you could get the solar panels, EV charger, and you have a home energy management solution that is combining together all the services that you have and that helps you to make those decisions so you could save energy.

[00:29:27.210] - Evert

And in five years time, it looks like a long period, but in utility wise, actually, it's quite short. But if you think about the customer centric products, there's lots of things that you can do. So I hope that we have tested as many ideas as possible. And with those testing, we have figured out what are those products and services that bring as much value to the customers as possible and having this value? I hope we have basically saved lots of energy and also CO2 in that sense.

[00:29:56.460] - Evert

So you could just save, I guess, tens of thousands of CO2 from atmosphere of having those services. So definitely it's hard. It's a culture change a little bit for the customers as well. But if we provide them services, our products that we already have out there, it's technically everything is already doable. But now it's the question of having this mindset and culture for those customers to start using those services that will work in the background. But at the same time, they see some sort of statistics or reports that shows that they have saved energy.

[00:30:31.410] - Jon

I guess the key to that will be creating the right bundles for the right customers. And we've seen in different industries like telecoms, that bundling be quite effective of telecoms, broadband, mobile TV.

[00:30:46.530] - Evert

Exactly.

[00:30:47.510] - Jon

But in the energy sector, I think we're just at the very beginning of that learning curve on how you bundle different energy services or products together.

[00:30:56.770] - Evert

Exactly. Yeah.

[00:30:59.250] - Jon

Lindsay, from an industry point of view, in the evolution from a pure product sale industry, which is what the heating industry largely is to an industry that also has a big service element service proposition to it as well. What will we see in five years time or what we look back on, do you think?

[00:31:21.270] - Lindsay

Yeah. I think in five years time, there'll be a realisation that the concept of just selling products upfront heating products, for example, only having the option of buying them up front. I think this will be a dead concept. Of course, people will still want to buy things up front, but I think everyone will realise that they need to have a range of different ways of buying heating products all the way from buying up front to renting, to leasing, to heat as a service, to comfort as a service to bundling.

[00:32:00.570] - Lindsay

I think there will be a shift in customer centric thinking so that the propositions are based around the customer rather than around the product. I think that's the change that people are starting to realise now, maybe we need to test some new models, but I think in five years time, or maybe I hope that people will look back and say, Actually, we have to do this in order to make money. It's not just testing new services, but it's actually a way to find new revenue streams.

[00:32:36.150] - Lindsay

It will be something that will start to make commercial sense like it's the only way to go.

[00:32:42.820] - Jon

Well, I really believe in that vision you've described, Lindsey, and what you're doing Evert. It's not a solution for every single customer. As you said, someone want to keep buying products. But if we're to decarbonize heat, decarbonize energy, a lot of the technology will be in customers homes. A lot of the products will been customers homes, and we urgently need to find those new ways to package that up in an attractive way so companies can make money. But so we can reduce carbon emissions and be on the path to hopefully 1.5 degrees maximum warming in the future.

[00:33:18.880] - Lindsay

Yeah. Exactly.

[00:33:23.290] - Jon

Well, time has got the better of us, so we'll call it a day there. Thanks very much Evert for joining and fascinating to hear about your work in Estonia and surrounding countries. Thank you.

[00:33:34.390] - Evert

All right. Thank you so much. And definitely keep innovating. And if you get stuck, hit me up in Linkedin somewhere, I can help you out.

[00:33:42.190] - Jon

Great. And, Lindsay, thanks for joining again. Sharing your views.

[00:33:46.280] - Lindsay

Yeah. Thanks, Jon.

[00:33:48.190] - Jon

And thanks as always to everyone for listening. We hope you enjoyed the episode and look forward to welcoming you back to episode two of the new series next week. Thanks and goodbye.

[00:34:00.190] - Jon

If you're as passionate about the energy transition as we are, then please keep in touch. You can follow us and me on Twitter, LinkedIn or subscribe to the podcast on your chosen podcast platform. If you like the podcast and like sharing, then please do rate us and to listen to archived episodes to read transcripts and to see the latest Delta-EE insights, then please visit www.delta-ee.com.