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A Delta-EE podcast
We're a group of new energy experts, talking about the energy transition in Europe and how it will affect the customer.
Delta-EE Director Jon Slowe hosts a selection of guests from across the new energy industry.
Looking at how the energy transition is developing across Europe.
Discussing the hottest topics across New Energy, and how they all fit together.
Big oil is engaging with the energy transition in a number of ways – from building large scale renewables to rolling out electric vehicle charge points and many more. Quite how major oil companies pivot their businesses towards the energy transition is a fascinating topic.
Today we’re looking into one of the ways that BP in engaged in the energy transition, through a subsidiary of Lightsource BP, a developer of large-scale solar projects that is 50% owned by BP. The subsidiary, Lightsource Labs, is focusing on the ‘grid edge’, and bringing products to market for residential customers.
Host Jon Slowe is joined by Ann Davies, COO of Lightsource BP; Charlie Vey, Head of International Development at Lightsource Labs and Delta-EE expert Charmaine Coutinho.
Welcome to Talking to Energy, a podcast from Delta-EE, the new energy experts. We will 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.
Big Oil is engaging with the energy transition in a number of ways, from building large scale renewables to rolling out electric vehicle charge points and many more. Quite exactly, though, how major oil companies pivot their businesses away from oil and towards the energy transition, or maybe not away from, but as well as oil towards the energy transition is a fascinating topic.
And today we're looking at one of the ways in which one of the oil majors, BP, is engaging in the energy transition through a subsidiary of Lightsource BP. Lightsource BP itself is a developer of large scale solar projects that's 50 percent owned by BP. And its subsidiary, Lightsource Labs is focussing on the grid edge and bringing products to market for residential customers. So, let's say hello to my guests and learn a bit more first. Ann Davies, COO of Lightsource BP.
Hello, Jon, and thank you for the invite today. It's really great to be here.
Thanks for joining, Ann I rattled off a few names in my introduction of BP, which everyone will know, Lightsource BP, which some people might not know and Lightsource Labs. Can you just give us a quick elevator pitch, not of BP but of Lightsource BP and Lightsource Labs.
Absolutely with pleasure, Jon. So, yes, a Lightsource, BP, as you mentioned, is a joint venture between Lightsource, which is a company that's around 10 years old. It was a Start-Up and grew a solar business in the U.K. and the energy giant BP, it's we are independent in the sense that we have our own executive team and our own strategy. But we have the 50 percent support from BP.
So Lightsource BP is a large scale utility solar company. We developed solar power around the world. We're currently in 50 countries and have some really bold, exciting plans of growing 60 gigawatts of pipeline or plus that we hope. And, you know, we believe in the energy transition and playing our part in providing green energy. And now we're Lightsource BP our core business, is focussed on the generation side of the energy system. Lightsource Labs is more focussed on the demand side of energy management.
So we have technology which allows consumers, whether they're residential, commercial, industrial, to be able to not only monitor but optimise their energy consumption or their storage and giving that control back to the customer. It's really exciting because not only is Lightsource Labs complementary with our core Lightsource BP business, you know, as we deploy more and more renewable energy into the grid, we need to have to be able to flex that energy consumption and storage to maximise use of green power.
Well, you know, reducing hopefully solar and wind curtailments. But also Labs has synergies with BP's new reimagining energy, you know, as BP becomes more focussed on customers and it's how synergies with other technologies that BP are deploying. So we're really excited about labs as a business and we're even more excited about the synergies with the larger Lightsource business and potentially the BP business as well.
Thanks Ann, do the labs part, was that a deliberate, carefully planned strategy or did that organically emerge from something or a bit of both?
Yeah, I'd say it's a little bit of both. And, you know, Charlie, my colleagues with me today and you can chip in as needed. But I think Lightsource, as a company before it joined BP used to play in the residential solar space. So it was quite natural for the company at the time to think about how new technology can integrate with solar panels on your roof or the batteries in your home. In addition to how the home and energy consumption plays in the larger energy mix when more renewables enter the grid.
So it has grown organically within Lightsource and it's grown to where it is today. I mean, labs, it's a relatively small team globally it's about 30 people. But we are we have eight different nationalities and we have bases in five countries here in the U.K. but we're also in Australia, Spain, Greece and Ireland. And we're commercially active in U.K., Australia and Spain. So it's grown from a small seed as a complementary to residential solar.
To now a global business hoping to partake in the net-zero transition.
Thanks, Ann. Yeah, I can see very much a bit of both. Lightsource BP may have pivoted a bit away from residential solar into utility-scale solar. You've got that really nice compliment, that you described of the generation side on the demand side.
Thanks. Ann, we'll come back to you shortly. My second guest is Charlie Vey, Head of International Development at Lightsource Labs. Hello, Charlie.
Hi, Jon. Thanks very much for having me.
And welcome to the podcast, Charlie. Can Ann has given us sort of that picture of Lightsource Labs, but can you tell us a bit more about the products that Lightsource Labs is bringing to market?
Yeah, sure. So we develop, first and foremost energy management technology that helps energy consumers ranging from residential customers to commercial and industrial customers, monitor and optimise the way they're generating electricity. If you've got PV on the roof storing electricity if they've got stationary battery systems or maybe electric cars parked outside and consuming electricity to reduce their energy costs. So we've developed an end to end technology stack, ranging from the hardware that's installed behind the metre to the software platform and cloud platform above it that integrates with a wide range of assets within the building.
So again you know your, solar PV system, your EV charging points, your air conditioning system, and electric heating systems and coordinates and optimises the schedules of each of these assets to ensure that they're consuming electricity at the cheapest and greenest periods of the day. Excitingly, recently we just launched our optimisation technology, so we developed machine learning algorithms that predict and forecast the generation of customers assets and takes into account whether information so weather forecast data, price signals light tariffs to ensure that automatically these assets are being scheduled to take advantage of those low cost, cheap and green periods of the day.
And then lastly, I was just going to say that our technology is not only designed to optimise within the building, it's also designed to optimise outside the building for partners, including network operators, the system operator like the National Grid in the UK via an aggregated fleet of assets into what we call a virtual power plant that can deliver flexibility services, ancillary services to help balance the network and relieve constraints during peak times.
OK, so you've got that in a way two-sided business model, one side optimising for the customer on the other side, optimising for the energy system and just going back to sort of the I guess the solar or PV roots of Lightsource you talked about a number of different technologies, about PV, about batteries, electric vehicle charge points, heat pumps. How central is PV to what you're looking to do, or do you see that as just one of a number of assets in the home that could be optimised?
So the benefit of having PV installed is obviously it generates zero cost green electricity throughout the day. So, you know, by having solar installed on the building, you're able to take advantage of that solar energy. And the technology that we've developed is designed to maximise use of that free solar energy during the day. But you need to have solar installed. You can if you're on a dynamic tariff. I know that for the largest C&I customers for examples, they might be flexible tariffs, the bearing cost throughout the day.
And we're starting to see dynamic tariffs coming into the residential market as well. And we anticipate that that will become more ubiquitous in the markets over the coming years. So, you know, if there is a price signal that you can optimise against having our technology installed will really take advantage of that.
Yeah, OK, well, our listeners to the podcast will know I've got a hybrid heat pump so I've got an electric heat pump with a gas boiler. I've got PV panels, I've now got an electric car in the driveway. I've yet to get my charge point installed, but very soon I'll have a charge point, not got a battery yet. So I guess I'm exactly the sort of customer that you want to help me optimise all this all together, take advantage of dynamic tariffs and flexibility.
One thing I get excited by this is that today the customer has choice.
You have choices as to which tariff you might use. You have choice whether you put solar panels in your home or a heat pump for a battery. But there's less choice when it comes to when, when you use your energy. And I think this is what this technology really unlocks is the technology that Charlie and the team are developing. It puts that control back in the hands of the customers to when that energy gets used. You want to be using your most energy when you're generating the most power from your solar panels if that's what you have.
Or it could be you want to be using your most energy when you're getting your cheapest tariff if that's what you want. But giving more control to the customer is something that certainly I and the team get really, really excited about. Sorry, Charlie, go ahead.
Well, actually Ann, on that, I was driving with my daughter this morning in our electric car and it shows you the efficiency. So how many miles because we're in the UK not kilometres, but miles per kilowatt-hour I'm using and we're chatting about. Ah, now it's not sunny today. So this wouldn't be charged from our solar panels. Ah no but when I plug it in and go back and plug it in, can we charge up from our solar panels or can we charge it from green electricity.
And it was something my daughter found it so easy to understand and engage with and to her it's so obvious. Yeah. Why don't we do that? Um, so yeah, like you Ann I'm excited. I really believe there's a market for this. Even if it's [inaudible 00:11:23] environment today. I will come to my third guest now so regular podcast listeners will know if my colleague Charmaine Coutinho. Hello, Charmaine.
Hi, Jon. Hi, everyone.
Charmaine, in terms of energy management in the home, I guess we've talked about the different assets. We've talked about PV but when you look, there are a lot of companies trying to get into this area of optimising assets in the home. How many Charmaine do you see coming in from the or are they generally coming from the PV and angle and self-consuming PV or are there different angles that companies like Lightsource Labs are coming at this from?
So if you'd asked me this question, maybe like 45 minutes ago Jon, I would have said to so the PV side and the storage side, that's a big one and all the reasons Ann said it's very obvious you can see. So I used to work in solar specifically about ten years ago. And you can see when you put in solar, particularly in residential homes, actually, the next step is to look at how you optimise that obviously for the time of day it produces.
So that makes sense, especially with storage. And actually really useful and very engaging for consumers because they used to be a phrase that people used to use, at least in the UK around solar and calling it roof bling. And the idea that it would just be a superficial thing that you put on your house. But actually what you can do with it to kind of really green your energy supply, and kind of reduce your carbon emissions is quite exciting.
So there's that piece I think we've seen a lot of in our research people coming into home, energy management from the heating side so looking at smart thermostats and smart controls. And really kind of way back when Nest were doing fun things with thermostats that weren't a little white box on your wall to now where people are doing well, similar, but not quite the same, just intelligent management of your heating systems. So I think those are the two main pieces.
But the third one I was thinking about is actually just maybe from an energy retailer, just looking at your consumption, irrespective of whether you have a PV system or a battery system. But just from your grid-connected electricity supply, when you want to optimise that for time of use tariffs or for green power. And I think in the last year or two, we've seen a lot of conversations around the time of use tariffs, but more so about people trying to look at it from a well, when can I use this?
So that choice that we talked about before and when is it green is for me to use it. There was interesting radio programme on the other day where they had a consumer saying, if I don't choose a green tariff at a time of day am I actively being negative towards the environment, which I've never heard people talk about, so I think the awareness around the greenness and the time of when the grid is greener is rising, really. And so a lot of different directions.
But I think those are the three big ones for us.
Charlie and Ann any thoughts on that, on those different angles always in into home energy management and optimising assets in the home.
Charmaine something you said that it really resonated with me is people really starting to think about when they use their energy. And, you know, I've read articles about people getting up in the middle of the night to go and charge their EV or put their washing machine on because that could be the cheapest time or the greenest time.
So, you know, I do think, you know, we need to automate this. And I think the technology that labs brings and there may be others as well, that you know, enable this to happen. And, you know, I have this vision in the future where you wake up in the morning and your EV has already been charged at the most optimal time overnight. The app is already scheduled when you need to put your washing machine on based on the solar generation in the day or the tariff prices during the day.
You may have already programmed your battery system and IV to trade electricity with a grid. And when it's under stress, you know, maybe even generating a new source of income for the customers. So I can just imagine this world where all this worry and angst about when and how I use my energy is taken care of for you through the use of technology. And I do think these trends, we're starting to see the shoots of these trends coming through and it will only increase with time.
And so having the right technology is important, but also having access to the customers. And I'm not going to say that, Lightsource Labs has everything that's needed. I think Lightsource Labs is open to partnering with others to help reach as many customers as possible. But we are really excited about where this is going.
Charlie, on that, what parts of this would you say Lightsource Labs is really focussing on? Are you a tech company? Do you think of yourself as a tech company? Do you want to be customer-facing? Do you want to get your technology into channels? Can you tell us a bit about where in this you play?
Yeah, sure. So first and foremost, we're a technology company, so we want to sell our technology to partners in a variety of channels around the world. Our core channels are the utility channel, the housing developer social landlord channel, the solar installers, solar distributor channel as well. And then we've also recently partnered with network operators here in the UK. We've recently won contracts to deliver flexibility to UK Power Networks and Western Power Distribution, 1.8 megawatts of flexibility from the end of this year onwards.
So we're looking to work with a range of different partners. But I think the core channel for us is selling through utilities. So energy suppliers who are, you know, day to day buying and selling electricity to their customers, the benefits of utilities is that not only do they have access in some cases to millions of households or businesses, but they also buy and sell electricity from the wholesale market. And so they can use our technology when it's aggregated together into a virtual power plant and use that inherent capacity and flexibility in all of those assets to optimise their trading portfolio and also access and unlock revenues from the balancing markets and the flexibility markets and the ancillary service market.
So we see the utility partnerships being a really key channel for us. And unfortunately, we're unable to announce today one such partnership but I think soon after this podcast is published, we will be announcing one very exciting partnership here in the UK with a very exciting energy retailer based on that kind of proposition.
OK, so watch this space. What are you learning Charlie about the challenges of getting into these channels? Because it's something I see a lot to build a consumer brand, to be customer-facing is really hard. So lots of people want to get themselves into the sorts of channels you're talking about. And there are I'm constantly surprised at the number of number of companies entering the space. You know, there's so much passion, I think, to do work in this area.
So, you're clearly having successes, but what are you learning about it? Is it taking longer than you thought or any particular reflections on getting into these channels?
Yeah, sure. I think we've got a whole host of different challenges. I think, you know, technically from a product perspective, we need to develop products that have impeccable user experience, user interfaces they're super simple to use, that are easy to integrate within the smart building they need to be for us know one of our key USPs is its compatibility with third-party assets. So you know third party electric vehicle charges, solar and battery systems, air conditioning systems.
We need to expand that list of integrations that we have today, because obviously the bigger that list, the wiser our addressable market, you know that everyone has a whole host of different brands products in their home. So I think compatibility is a challenge that we're working on. We also need to demonstrate performance of our product, you know we need to know that we need to demonstrate that our products deliver value to customers. They reduce our customers energy bills. They reduce our customers carbon footprint.
So I think we're at the very early stages of commercialisation and we're yet to kind of prove that robustly.
You're working internationally. You mentioned the UK if you had to pick one, two or three other countries that you see are really promising what would you pick?
Yeah, well, I think just briefly on the UK is quite forward-thinking, believe it or not, in its rollout of and trailing and testing smart grid technologies. We've got very forward-thinking district network operators. We got some very innovative energy suppliers. I would say that if you're looking at a kind of solar market perspective, Australia is obviously a market with very, very high penetration of renewable generation, rooftop generation. I think a third of homes in Australia have PV on the roof now.
So there's a big market there. Germany likewise. I think that's the highest density of PV installed in one country in Germany. And then the US obviously is again, very forward-thinking. There have been lots of instances over the past year where energy management technology could have really helped situations the issues that the Texans saw, the blackouts that have been seen in California, etc. There's obviously a huge opportunity there to manage electricity and provide flexibility when needed.
Ann, you mentioned the global footprint of well the global make-up of Lightsource Labs. What's your sort of aspiration? Is it very much global? You want to see Lightsource Labs being a global tech company, or how would you describe your aspirations for Lightsource Labs.
So, yes, I would you know, I do imagine this as global. I think, you know, I think we want to grow with the growing markets, whether that's, you know, growth in PV installation and batteries and growth in EV's, which is happening globally. You know, we also need to focus on where we could be successful. And, you know, Charlie listed some of those countries where we think we can be successful because we think these countries are riding that wave now and others will come in the future.
But ultimately, our aspiration is to have, you know, thousands, if not millions of customers who are taking advantage of this technology, the granularity this technology provides and having that control in their hands. And, you know, and with that number of customers, you know, we're able to provide significant flexibility services. So ultimately, that will be our aspiration. And all of this, if we can manage demand and also green up supply, then all of this helps us on the path the planet's on to net zero.
But we don't believe it's only through greening up supply. We also think the demand needs to be addressed and this type of technology can play a pivotal role in that.
I think it has to be addressed. I think you're right, if you can't have one without the other change in greening of supply the nature of that will mean we need more flexibility in demand. Charmaine, you've worked for energy retailers. You've worked with energy retailers. I'd like to ask you a question about your perspective of getting this into the market and to describe it well for want of a different way of describing it tech push against customer pull.
And it's all very well for people like me. You know, I'm a tech guy. I've got all this stuff in my house. I'll definitely be an early adopter maybe of the Lightsource Labs product or one of those type of products. But what do you see about the balance between tech pushing customer pull in the market at the moment?
So I think and we've probably said this on the podcast, maybe like once every three podcast episodes, but the energy industries, particularly utilities, have been historically kind of quite bad at pushing things on to consumers rather than being driven by consumer needs. And I think consumer needs and I do think that is changing a lot. So both Ann and Charlie mentioned about optimisation and I think talking to a couple of colleagues and some other people, when people consumers say, I just want this to be easy, there's so many things for me to think about.
I just want it to be easy. And part of that is someone optimising it on my behalf, whatever it is, and making it convenient and easy for people. And part of it is knowing enough about it. So they have a kind of a peace of mind around it. But I think the changes that are going on separately to what we're talking about, so people being more aware of net-zero and about green living, for want of a better phrase, rising further up the agenda, it translates into lots of different things.
So people have cleverer technologies. And so the more technology they have in the home, the more they want those all to work together. So that touches on the interoperability that Charlie mentioned. And actually, that's a really good route to getting people on this journey, which is it's kind of a little bit of tech push, but actually it's a consumer saying, well, I've got all these things now. I want services around my home and my energy to make use of all these things I've got.
So they're quite closely linked, I think, these days. But I do think services generally around the home and the home energy system are quite tricky because they cost service providers to provide but very few customers actually want to pay for services around that. So, anyone who's entering the market from a service provider perspective so they'll be quite clever about how they put a proposition together if they're going to make any money and make it profitable, really. So a bit of both, but I think it's definitely moved since it was all tech push.
So, Charlie, I guess ultimately that's a job for your channel partners, but you, as Charmaine said, you need to make sure that your product, your technology is provides that seamless, easy customer experience.
Yeah, no, I think that's exactly right. And I think, you know, one of the challenges we have now is to develop propositions that actually answer real needs the customers want. And so customers actually want to buy it. You know, we don't want to be pushing water uphill. We need to actually be supplying technology solutions and products that people need and want to buy. And I think that kind of links with the fact that we need these pricings, these tariffs to incentivise people to consume electricity at certain times of the day and avoid consuming electricity at other parts of the day.
And I think this is one of the challenges that we as kind of flexibility technology providers like Lightsource Labs are contending with. You know, the market actually does need to evolve. We need to have policy and regulation in place. We need, as everyone in the industry knows, market wide half hourly settlement. We need the smart metre programme to be rolled out and be complete to enable us to incentivise customers to flex their consumption according to what's happening at grid level and locally as well.
Because I think that's going to be key for us because our technology can then come in and optimise and automate everything on their behalf to not only reduce their energy costs, but also support the grid when it's under stress.
Thanks, Charlie. Now, before I bring out the Talking New Energy crystal ball, Ann there's one question I'd like to ask you, stepping back a bit from the details of home energy management you have worked in a traditional part of BP, I understand originally. And you're now in the new energy part. I'm interested what has that change been like for you in terms of your role Lightsource BP and Lightsource Labs from, I guess, old energy into new energy?
What does that feel like? What's it been like? How does it contrast?
Thank you for the question. And, you know, BP's a company that's been around a long time. I mean, well over 100 years. And it's part of the tapestry of the history of energy and you know, how it's been sourced and consumed around the world. But then I look back at solar and we think about solar as a new energy. But I think the you know, the first patent for solar was, you know, 1907.
So, you know, and solar energy has being used, you know, historically probably before what we kind of think of traditional energies. And it's just an interesting story and interesting history. And one thing I would say is, you know, I'm always someone who's embraced change. And even through my career at BP, you know, I've worked in engineering and operations in finance. I've worked across six countries. You know, I've worked in oil, but also, you know, gas and, you know, providing gas to Europe from the Caspian and huge projects and building infrastructure that can, you know, change countries and landscapes and, you know, and be part of that energy history.
And so this move was quite natural to me, I think. And I think we do absolutely need to green up energy supply. I think we need to make drastic changes to how much of the energy we use is green. And we need to scale up the verticals of solar and also the other energies like wind and and then we need to integrate all this together into an integrated energy offering so the move to to Lightsource for me felt completely natural as someone who enjoys change and leading into change.
And then on the labs side, I'm someone who's also embraced digital, no matter which part of the industry I've worked in, I'm always the one looking for the latest digital solution and also looking at the bigger picture. In this case, it's not just supply, it's also demand. So it's a ticking on the labs business definitely leaned into my natural interest, my own awareness around energy consumption, but also the maybe a little bit of the geek in me that enjoys the digital side.
And so I'm certainly finding that rewarding. And I believe in this technology for all the reasons we've mentioned on this podcast today.
So for you, I guess, a natural evolution in the same way. Well, your evolution is a path that companies like BP and others will follow that same sort of evolution. Well, let's bring out the Talking New Energy crystal ball now. So, my question, and this is specific to Lightsource Labs. So to you, Charlie, and to you Ann, setting the dial to 2030, how would you describe success for Lightsource Labs in 2030?
If you could fast forward now to 2030 or would you think? Yes, we've really done what we set out to achieve. Charlie, you want to go first and then Ann.
Thanks, Jon. I think assessing the damage to 2030, what I would like to see is Lightsource Labs as being an integral part to a fully distributed, flexible energy system where we are incentivising customers in as close to real time as possible to consume green, cheap, low cost electricity and to minimise our reliance on fossil fuels. I think that at the end of the day is what we would like to be a part of. More specifically, I think for Lifeforce labs, we would like to be, you know, have hundreds of thousands, if not millions of customers in markets across the world using our technology that's integrated with any size of distributed energy asset, whether that's one EV charger connected to someone's home through to a large kind of solar and battery system on a large factory, using our technology to optimise how that asset is used to not only deliver energy savings to them as the customer, but also to support the grid when there's stress on the network, whether it's, you know, peaks in demand or the intermittent piece and supply as well, when when there's too much supply in the system and frequency for example goes up.
So I would like to see us, you know, around the world with a variety of different customers across markets.
Thanks, Charlie. Ann how about yourself? Anything to build on that?
Yeah, I mean that's a great answer from Charlie and I think, I would like to see this become a normal part of how we how we behave in society a bit like I don't think about it now when I take my reusable bag to the supermarket, I don't think about it when I buy an energy efficient light bulb and I don't think about it when I recycle. It is something that we do.
It's habits. And I would really like to see that kind of habits ingrained in how we operate as a society. And with this type of technology, hopefully will help us get there. And Lightsource Labs being at the heart of that would be would be fantastic. So, yeah, I just hope that, you know, more control in the hands of the customer and then the customer has developed a change and more consciousness to how we consume energy and when and they feel more in charge with the help of our technology.
So it becomes, well, a social norm is probably the wrong way to describe it, but I like your analogy with taking reusable bags to the supermarket.
It's just what you do. But 10 years ago, it wouldn't have been the case.
Yeah, well, I very much hope that that future does evolve both for the industry in general, for our need to reduce carbon emissions. And for both of you at Lightsource BP and Lightsource Labs. So thanks to all three of you for your time. Thanks, Charmaine, as always. Thanks, Ann and thanks, Charlie. Fascinating to hear about your work in this area. I wish you the best of luck. Look forward to that announcement, Charlie, that you trialled in the near term.
Thanks very much for listening. Hope you enjoyed the episode. And look forward to welcoming you back, soon. Thanks and goodbye.
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In this episode, we’re looking at sustainability in the water sector, and seeing what we in the energy sector can learn from that. Host Jon Slowe is joined by Frantz Beznik, Global Head of Sustainable Innovation and Senior R&D Director at Procter and Gamble, the global consumer goods corporation behind brands such as Head and Shoulders, Fairy and Gillette. Frantz is leading an initiative called the “50 litre home”, reducing our daily water consumption from 100s of litres a day down to 50 litres. What can we in the energy sector learn from this? And what can we learn from a company like Procter and Gamble that has a laser-like focus on customers, something that the energy sector is still working towards.
Today, we're looking at sustainability in the water sector and seeing what we in the energy sector can learn from that. My guest today is Frantz Beznik from Procter & Gamble, the Global Consumer Goods Corporation, behind brands such as Head and Shoulders, Fairy and Gillette and many more. Frantz is leading an initiative called the 50 Litre Home in his job as Global Head of Sustainable Innovation and Senior R&D Director. The 50 Litre Home Project is about reducing our daily water consumption from hundreds of litres a day down to just 50 litres.
What can we in the energy sector learn from this? And what can we learn from a company like Procter and Gamble that has a laser like focussed on customers, something the energy sector is still working towards. So hello, Frantz, welcome to the podcast.
Hi, Jon. Thanks so much for having me here today.
You're welcome. Frantz, can you start by telling us a little bit more about the 50-litre home initiative?
Sure Jon, 50 litre home is both an inspiration and an ambition. The inspiration came from Cape Town that two years ago about face the droughts and looming risk of a day zero, the day where there's been zero water off the top. And to circumvent that drought, the city decided to cut down the water. You know, usage down to 50 litre per day per person, and that caused a lot of sacrifice. Now, when you look at the outside of Cape Town, in the urban world, people use between 150 to 500 litre of water per day.
So, here is the ambition. What about we make homes of tomorrow that run at 50 litre per day per person yet feel like 500 litres.
Yeah, OK, that's a great challenge. I remember a couple of colleagues at Delta-EE are South African, well three colleagues in South Africa and some of them have family in Cape Town. And they were telling me a bit about what that was like, both the worry and angst that they might run out of water, but also living on 50 litres a day. And it seems like a huge challenge, if you don't mind me saying, to go from what we're used to, to 50 litres.
So, is it a huge challenge and is it technology or behaviour or both?
Yeah, it is a huge challenge. And this is a big ambition. And but it's going to have to be rooted with, you know, consumer benefits at the core. My job at P&G is all about make sustainable irresistible. That's my motto. That's my drive. That's my obsession. How do we make sustainable irresistible? What are at the core of the pain points that consumers feel today in their homes? And that can be solved by projects like 50 homes.
It's got to be absolutely drawn from the consumer at the core and at the benefit. And actually, the ambition lies already you know, the consumer into it. How to make 50 litre feel like 500 litres. So, it's not about how do we create sacrifice and even more sacrifice, how actually we can make 50 equals 500, how we can enable new or bigger benefits, you know, how we can clean better homes by actually reusing water, for example.
So, that's the type of thinking that we need to put in our heads.
Okay so try and change that mindset almost from a challenge to an opportunity. Is that fair to say?
Absolutely. And I want to give you two examples, Jon. Very concrete examples in laundry. People want to actually look for performance and speed. That's what people want to have fast washing with high performance. Well, actually, we want to create detergents that actually enable them to go into speedier cycle with the highest level of performance. And actually, guess what? When you go into speedy cycles, quick cycles, you actually, by default, get into a lower wash cycles and lower temperature cycles.
Now, that's the sustainability part. And the irresistibility is giving me a laundry detergent that makes me go very fast with a high level of performance. This is how you, you know, overlap sustainability and irresistibility.
Yeah. OK, so you create a win win scenario of I've got a faster wash and I've used less water and my clothes are fantastically clean.
Exactly. But when I'm talking to consumers about, it's something that they care about, which is fast wash with the highest level of results and performance I'm not talking about, please do cold cleaning because it's actually better for the environment.
Yeah, OK. In terms of challenges, you mentioned washing machines, which everyone can relate to. Well, everyone can relate to all aspects of water in the home, I guess. Where are the biggest challenges in going from hundreds down to fifty.
Well, I guess you said it. There's really three ways you can cut down that water at the end of the one is to reduce the water consumption, say, you know, going into, as I said, for the laundry for speedier, you know, low water cycles, low, you know, energy cycles. So, you're going to be reducing your hot water. A second strategy is you actually going to remove water. So, what about you sell dry shampoo?
But to be honest, being on the ground in Cape Town, with real people. I spent a week there. People like dry shampoo a couple of times but they love to get back to the showers. People want showers, people want water, this is so important. And so that's what's triggering the innovation pillar number three, which is about reusing water. How do you make water reusable? You know, when I take a shower, I actually take an 8-minute shower.
Do you really think that I need to shower for 8 minutes? The last 6 minutes I'm not cleaning myself. I'm indulging myself and that water that is clean goes right through the drain and transforms into switches in seconds. What if that water could be reused, purified, recycled?
Same question on the laundry, water, for example, how we can make water reusable in a way that actually is going to create some new benefits or enhanced benefits that the consumer that will, you know, will fall in love with.
So, tell me a bit more Frantz about, putting the consumer in the middle of this and creating that irresistible sustainability that you talked about obviously sounds like you learnt a lot from Cape Town, that forced experiment, I guess, in Cape Town. How else do you make sure that what else do you do with consumers or with consumer research to get that irresistible part of what you talked about?
Well, as I said, you know, my motivation and my drive are to make this irresistible. And it all starts with understanding really the true consumer pain points. In fact, at P&G we pride ourselves as a company to put the priority first on consumers. We say at P&G consumer is boss, and that really means getting in the homes of consumers, just like what I have been doing in Cape Town. And I do that routinely, 20 percent, 30 percent of my time.
Jon is about spending time in the homes of consumers to really understand what's happening, what is actually not working for them and what's not working enough. Some are articulated needs some are, totally unarticulated. What's important is we're going to focus on pain points that are true pain points. For example, another good example is the dish example. Um, you know, dishes actually hand dishes are a chore and people have a lot of confusion in their mind that an [inaudible 00:08:02] dish is actually less sustainable than a hand dish.
And that creates a lot of frustration and a lot of, you know, barriers about using, you know, [inaudible 00:08:10]. So how do we understand those pain points? How do we make people understand and switch in a way that actually is irresistible? And frankly, getting people to order dish is utterly irresistible because we want to actually go for the shore of the hand dish. But we need to understand deep dive what's happening in the minds of consumers, what's actually a barrier, what refrains them, what's actually going to help them so that we can really help them get to that level of irresistibility was, you know, offering sustainability behind if that makes sense to you?
Yeah, it does. And I. Fascinated by you spending that amount of time in consumers’ homes, is that common? Obviously, there are lots of different job roles within a company like Procter and Gamble. But does that is it just you or is that common throughout product development, product managers common throughout the company?
It's a great question, Jon. It's actually a function in P&G we've decided we actually it's going to be one of the functions of R&D. You've got very technical functions in R&D that do product design, process design, packaging design, analytical. And so, we've got a lot of disciplines that are very technology focussed. And that is one which is really around products we call that products research for the lack of a better term. And it's all about getting to really understand the consumer and translating those consumer needs articulated and unarticulated into innovation and working with the business to create that innovation in there.
And of course, that job that I'm doing is representative of that function is really the interfacial job between the consumer at the roots, the technology groups that I need to, you know, work out the innovations for and the business so that we can really create a business model behind that is actually going to scale. So that really on the whole, we have a we have a good viable innovation that makes life better for consumers and make it can scale to a business for P&G.
I find that fascinating coming from the energy sector Frantz and maybe I'll come back to this a bit later on, but the closest I've got to an energy company doing that is the CEO of an energy retailer answering customers questions by email. So, some will spend time every day answering customer questions or complaints. But the head of a boiler manufacturer, the head of an energy solutions company, going into homes, watching how people use controls, use energy, a bit of that goes on, but is only a tiny bit so.
That's definitely 20 to 30 percent of my job and depending on phases of project, could even be 50 percent like a couple of you would have interviewed me a year ago before Covid, I was actually 50 percent of the time in the homes of the consumer. And I spent a week in Cape Town, you know, immersing, you know, to understand what's life at 50 feet per day per person when there's no innovation as an example.
Yeah, well, I'd like to ask you about the wider coalition, because it's not just Procter & Gamble. It's a wider group. But before that, just let's finish on Cape Town. What are the key things you learnt from that week in Cape Town? You mentioned dry shampoo. But what else did you learn about living with 50 later today in that particular situation?
Well, a couple of things. We met with beautiful long-haired woman that would rather cut their hair and wash their hair, because when you have only one minute to shower with 10 litres, you can't wash your hair. We've seen people that would carry water from the front of their showers down to the washing machine to wash their loads with that water. Then they would actually get that water not twice contaminated off of the washing machine, would put into a bucket wash surfaces wash the floor.
People would actually then put that water on the garden, you know, on the pavements and to water the plants around the garden. Some would actually recover one last bucket, all of that water into that last bucket and they used it to flush the toilets, multiple reuse each time, you know, more and more contaminated water. So really, that's really created the idea about how are we going to create secularity of water within the homes that, you know, at the point of use so that we can, you know, purify the water.
You can actually make it reusable, so you don't have to actually make it so painful and so hazardous because, you know, besides the sacrifice, really the question was hygiene of so much reuse without any treatment of water. So that's been really a key aha moment, you know, about how can we decentralise, how we can make water secular in the homes at the of use and make it irresistible.
And that's I guess what you just described there is a low-tech solution to reusing water. But in terms of the 50-litre home initiative and the coalition, I imagine you're working with a range of companies that can you're one part of the jigsaw, but there are other parts of the jigsaw to make this happen as well.
Absolutely. And that's why we formed the coalition called the 50-litre home coalition, just been launched last October 2020. So, it's very fresh. And it's really, you know, when you look at the life of Cape Town, and people at 50 litres, they value innovation, they do hardship, they do buckets remember, Jon, we want to make that irresistible. We want to make 50 litre feel like 500 litres irresistibly. So, it's about how we can create systems, change over the entire evolution of water and energy so that we can actually make it accessible, modular retrofittable [inaudible 00:13:39]
And so, the idea of that coalition is really to create a system since transformation. So, we've got companies, a bunch of private companies like Suez and Engie for the water and energy. We've got [inaudible 00:13:51] as one of the biggest bathroom manufacturers in the world, electronics for dish and laundry appliances together with us so that we can really cover the entire value chain of water from the outside all the way to the inside of the homes. And then we also link to the World Economic Forum and the World Bank and other resource groups, as well as the World Business Council for Sustainable Development, so we can ultimately create a public, private, multi stakeholders’ group to create the challenge of the 50-litre home.
OK, and a lot of this would evolve. Well, I can see for new buildings how you can design things like this in much more readily than you can apply to existing buildings. So, how much of it is for new buildings? How much of it could be for existing buildings?
Another great question, Jon. We're target both we've got to have solutions for existing buildings. We've got to because the world is having as much, you know, retrofit to do the new buildings. And, of course, a lot of the Asia part of the world will be more disproportionally on new buildings. A lot of the old world, so to speak, will be more on retrofit. So, our solutions need to address both needs, the new built.
And of course, granted, it's going to be probably easier when you can design it in from the start. But that's what I'm talking about, how we create appliances, how devices, solutions, systems, solutions that you can easily, you know, retrofit into the home and do it yourself. When, you know, idea is myself, I can do it without having a plumber initially installing things. So, I think, you know, I think the source of inspiration from us is of plans.
When I buy a dishwasher, I don't need a plumber to actually install it. Like and how about we think when I replace my shower, I don't need a plumber. So how we think about solutions that are retrofittable as Do-It-Yourself solutions for anyone of the comments of the people around this planet.
And that's a challenge. It doesn't make it easier, but that's the challenge.
I was thinking of a phrase that a big, hairy, audacious goal or a big elephant of a goal. It's certainly that. But I think big goals are fantastic for inspiration. And then you've got to start breaking them down and working out how to get them interested in the unpicking the energy angle a bit more. And one of your partners is Engie the energy company. I guess what you're talking about would substantially reduce the demand for hot water in homes.
You got it Jon, you know, I said earlier that the world's use is between 150, all the way up to 500 litres per day per person. We want to go to 50. So, it's at least 3x even maybe, you know, 10x. But I would say on the median, if you assume that the world is on about 150 to 200, we're talking about 3x down on hot water. And so, yes, indeed, that's going to be so much down as per the ambition on the hot water.
Yeah, that has a I guess we're seeing heat demand falling. Well, yeah. Heat demand falling in homes as homes are becoming more efficient. Hot water demands some degree as white goods. You know, you don't get white goods with hot water feeds anymore and your cold-water feeds. But hot water demand has been harder to reduce, I think, over the last decade or two than say heating demand. So, if we can reduce hot water demand in the ways you're talking about, that would be fantastic.
It would be a win win situation.
Absolutely, Jon. And this is as much as for me, it's built into the scope of this project as much as the water scarcity. So, I really see 50 litre home, as you know, addressing both of the problems, one, the water scarcity issue. But the second is the greenhouse gas aspects. In fact, the second source of greenhouse gas emissions in our homes, in urban worlds homes is water heating for showers, for hand washing, very [inaudible 00:17:50].
These days, of course, we've covered crises for conditioning, for laundering. This is actually the second source of greenhouse gas emissions in our homes right after space heating, first heating the homes, second, heating the water of the homes of all the needs. So, as we cut it down, slash it down 3x, we want to cut down the emissions and actually even beyond. Once I slash down the level of water down to 50 litres per day per person, I actually want to electrify that water heating and I want to decarbonise it.
Yeah. Yeah. Are you working with any appliance manufacturers from the water heating side in the coalition?
We're not right now. And that's actually the value of this podcast is actually to socialise the 50-litre home to a broader network of potential players and partners. In fact, the coalition is not a closed club. We don't have locked doors. In fact, the reason I'm here is indeed to socialise and get probably to tap on that ecosystem, which we're not used to certainly at P&G and so, yes, the short answer to your question is no, not yet maybe.
Yeah. Yeah. OK, well, I think that a company like that sounds like it would be a great addition to the coalition.
And in terms of timescales Frantz, what you've outlined will come to it in a bit more detail with the crystal ball question at the end. But how do you see the next years? What would you like to achieve in three years or five years?
Again, great question, Jon. What we'd like to set to achieve is within five years, we'd like to have a couple of pilots really bringing the concept of 50 litre home into real life in an apartment or two, maybe for the first pilot, maybe more apartments for the second pilot in a city, a real lived in place where we have real people and we can demonstrate that we can do maybe first pilot would be 100 litres and the second pilot could be 80 and the third could be 50.
So, the idea is how we can intercept apartments in real life cities, multi-unit buildings, multifamily units, so that we can continue to scale and learn at the highest scale that we actually can deliver 50 litres that feel like 500 litres, and we can at the same time decarbonise water heating. So, you know, I would say, two or three pilots in urban environments within the next five years would be a great goal to achieve.
And off of that, we'd like that will give us the learning to see to inform the path to scale, because obviously this is not just about a few apartments in a few cities. This is about how we can actually scale globally.
And those pilots or reaching those pilots. If you had to pick out one biggest challenge to doing that, what would it be?
Well, I guess right now it's turned into [inaudible 00:20:39] innovations because, you know, we don't want to go to a pilot to just relearn what we already know. So, we really want to come with especially technologies that will be able to reuse water to make water reusable in an irresistible way. I think there's a couple of challenges really around the project beyond the pilot and the pilot would be a way to learn. And I think beyond innovation, I think the regulation arena is probably as important as innovation.
You know how we need to change the building codes, plumbing codes, wastewater reuse, you know, policies or regulations. So, I think the pilot is really you know, the way where we can actually the bottleneck and decrease some of these items and learn on innovation as well as on regulation. I guess the last but not least is, of course, right now we're busy looking for city partners. So, we don't you know, we're in the process of looking for that.
And again, hopefully that podcast is going to socialise that further. But of course, we want to partner with cities. This is not, you know, a little club trying to do to cook something on there end. The idea is how we can, you know, learn with a city and how we can learn to scale.
Where if you're able to say, are there any parts of the world where you are getting more interest or that you think those pilots might be, would it be Europe, Asia, the Americas, Southern Africa?
There are actually four regions that we've put in terms of water. And these are North America. And not surprisingly, the West Coast is actually pretty much and this city as a very contemporary issue, as you probably have heard, massive drought issues down on the West Coast. California is one of the states would like to learn on, and we've got inroads there to hopefully create that possibility. China water security is big in China, Latin America, the usual suspects and India, another one.
Now, when I look at the greenhouse gas aspect of the project, I think Europe is very high on my map, especially knowing how much the heat decarbonisation is, a high agenda item in that continent. So hopefully it gives you a little bit of a glimpse as to where we're looking at.
Yeah, yeah. Thanks. Frantz. I'd like to now come back to the energy sector, and I'm really interested. From you've been to the consumer goods sector, you're now getting involved in the energy sector. What observations and you've highlighted the challenges that we have to decarbonise our energy system as well as using less water. So, what observations do you have about the energy sector in terms of the energy sectors understanding of heating, hot water and space heating and homes, how they engage with customers, how they're approaching decarbonisation, I'm really curious to hear what observations you might have.
It's probably a little bit of a risky question. But anyway, let me let me give it a try. Well, first off, I would tell you first as a disclaimer that I'm not an expert in the energy sector. So, I would certainly not adventure myself to make a judgement. But I would say from my observations, a couple of things as a consumer myself of my energy supplier, I certainly, you know, I'm not experienced as much of an intense relationship between myself as a consumer and my energy supplier, as much as our brands like Pampers of Olay or Gillette create a bonding with consumers.
So, I think you said it, but just by the nature of the brands and the intimacy they entered in the life of the consumers, we are absolutely tightly and intimately, bonded to our consumers. And I don't feel the same sort of bonding relationship with my energy supplier. So, you know, my pretty, you know, high level observation is that intimacy with, you know, consumer or call it customer is actually much more diffuse at the energy sector.
It feels like rather than, you know, for companies like P&G. And frankly, it's only because it's not necessarily been a foundational asset that the sector had to build in to thrive. I guess it's changing. I'm seeing interesting new companies in that sector. I think the entry of the digital the smart metering is a way to create more of a bonding and a relationship. And it feels like the sector is evolving quickly. So, I'm pretty curious to see how that is going to land into.
The last point I would say is that's exactly why the coalition makes sense. We can build on everyone's strength, you know, to actually create the system we need. So Engie is with us, and we probably will help on the consumer bonding and the kind of obviously will help on the on the energy sector and all of its strength.
I'm really curious about what you said about intimacy. And I agree with you. The energy sector doesn't have that intimacy with customers. Can it have that intimacy, is it, by definition, just not interesting? It's not a razor like Gillette, it's not Fairy like you wash up with. So, do you think it by definition can't have that intimacy or it can have that intimacy that you have in the fast-moving consumer goods sector?
I guess that's the question they're going to have to ask themselves in terms of, you know, do they, or don't they? So, I would certainly not put a judgement that they should or should not. I would say that I don't really feel it's got to be reserved to a case of companies. And again, the digital and smart homes is probably a space, an interesting space where you can create more intimacy. But I would say, again, that's exactly why the coalition we're creating is going to be the playground to understand, you know, how we want to play in each and every strength.
And maybe instead of really having Engie, figuring out the intimacy with consumers and P&G trying to figure out the energy side, we're going to we're going to partner together to actually create the intimacy through a partnership as opposed to trying everybody to create that intimacy, because at the end of the day, we need to make it simple for the consumer at the very end. So, you know, whatever we come up with, it's going to have to be ultra-seamless, ultra-lean and ultra-simple.
So, you know, that's probably the way we've decided, and I've decided for the coalition to work that question.
Well, I think the best innovation often comes when you fuse different sectors or different types of companies together in the world.
Exactly. At least that's the answer we're betting on right now. And we learn and, you know, nobody would make progress if one doesn't learn. So, I would be happy to talk with you maybe in a few months from now and see what we have learned from the experiment in terms of that question.
Yeah, that would be great. Last question before we bring out the Talking New Energy crystal ball. Stepping back a bit and thinking of the sustainability challenges we face as a society. How optimistic are you, how pessimistic are you from being right in the middle of this?
Well, I guess the climate challenge is overwhelmingly massive and a little frightening. So, I would not deny that. But at the same time, I'm absolutely and rested and obsessional optimism, an innovator and an I'm actually with projects like 50 litre home I'm actually a huge believer that we can help solve. I mean, I talk to you about the second source of greenhouse gas emissions, you know, that we can solve for so we can right there from you know, for both problems.
Biggest problems can find solutions in the homes. And I've talked to you about retrofitting and I talk to you about new buildings. So, we want to you know, we really want to go and solve all the world. And I really believe that we can create skills when we've got this coalition. So, you know, I'm you know, I have to say as an innovator, I think it's doable. And Covid times has taught us that once we're unified and that's a really important point.
You can beat times and you can actually beat the unbeatable challenges. And that's the big point of the coalition again, we will not succeed in isolation. Nobody no one company as big as P&G could be serving five billion consumers day in day out all over the world. We will not solve that challenge without the coalition. We need unification and we need two things. We need one, unification, and we need a consumer focussed, absolutely consumer obsession.
If we not if we're about technology push, if not about resolving consumer problems in their daily lives. And I really am talking about daily lives and daily problems. And I've met many consumers around the world, and they don't talk to me about sustainability they talk to me about kids, they talk to me about grandmothers dying they talk to me about the can't pay their bills, they talk to me about, you know, their husband is actually out of a job now.
That's the problems of the people and that's the pain points they're going through. So, you unified and focussed on the people.
And I think not only do you need to do that for to make something compelling, but you need to do that for the show the regulators show politicians that this can be done in a way that really is irresistible for people, and then it makes it easy for the regulator and politicians to do the things that they need to do.
Couldn't say it better Jon.
Frantz let's bring out the Talking New Energy crystal ball now, I asked you earlier to look, maybe two or three years forward, I'm going to set the dial now to 2030. And can you tell me what you'd like, what we'll see in 2030 when it comes to the 50-litre home?
Well, let's try that in 2030. I want to have, you know, multi, you know, family units around the world running on 50 that feels like 500 litres and zero carbon ultimately. So, I talk to you about a few pilots. I think at that time in 2030, we would want to have moved from pilots to already first, you know, executions at scale of some of these homes. Think about, you know, the countries I've talked earlier.
Think about a district, a tall district of a city or several districts around the world in a few more places. So that's number one. Number two, we've proven that we are not only meeting the needs for new buildings, but we are actually scaling up solutions that are rich, affordable, and that people buy and rebuy. So, we've got you know, it's not a lab anymore. It's not a pilot. It's actually we've got, you know, proven business models on a few of those equipment's that people are buying and rebuying all of the worlds.
And the last but not least is we've actually proven that we can help dramatically decarbonise water heating. So, we really are, you know, having an impact on the greenhouse gas as much as on the water in that I think, you know, I'd love to see by 2030, 50 litre is a proven solution that shows that it's both an aspirational solution. So, the world wants to live on 50 litre home it’s actually a desirable place to be at and everybody wants to be involved 50 litre homes.
And it's at the same time a new standard of living where it's part of the plumbing codes, the building codes and the policies and regulations. So, I think that would be a great, you know, level of achievements, you know, by 2030. That's my crystal ball.
Well, that would be transformational for Frantz by well, it would transform some parts of the world by 2030, and it would see the route for the rest of the world to follow and be transformational for water and for energy.
That's exactly the goal.
Yeah, I listened to a politician, I won't say who, but make a speech a while back and they divided the world into can do people and can't do people. And you meet a lot of people when it comes to the sustainability challenges, we face that can’t do people, but there are plenty of can-do people around and you're certainly one of them. But to have those aspirational challenges that you described I think are critical to achieving what we need to achieve a society.
I appreciate that, Jon.
Frantz, it's been great talking with you today, I really appreciate your time and sharing the 50-litre home initiative and hopefully you got some of our listeners thinking on their brains wiring about what it means to them and maybe even how they can get involved.
It would be a pleasure, thank you so much Jon. It would be a pleasure to actually exchange further and thanks for giving a chance again today.
OK, well thanks Frantz and thanks as always to everyone for listening, I hope you enjoyed the episode and look forward to welcoming you back next week. Thanks, and goodbye.
In this episode, we’re delving into smart grids, and the integration of distributed assets into both distribution networks and other parts of the energy system. It’s amazing how electricity networks have changed in some parts of the world in the last twenty years. Huge amounts of distributed generation have been connected to networks at a scale that some people would not have thought possible at the turn of the century. But having said that, we’re only part-way through the transformation that’s taking place in electricity networks. To explore this area, host Jon Slowe is joined by Sotiris Georgiopoulos, Head of Smart Grid Development at UK Power Networks; Graham Ault, Executive VP at Smarter Grid Solutions; and Delta-EE expert Jon Ferris.
Welcome to Talking to Energy, a podcast from Delta-EE, the new energy experts. We will 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. Today, we're delving into smart grids and the integration of distributed assets into both distribution networks and also other parts of the energy system. It's amazing and I don't think amazing is too strong a word how electricity networks have changed in some parts of the world in the last 20 years.
Huge amounts of distributed generation have been connected to networks at a scale that many people thought wasn't possible at the turn of the century. So a huge amount of progress has been made. But having said that, I think we're only partway through the transformation that's taking place in electricity networks, and I'd even argue that we're well, less than halfway through that transformation. So, to explore this area, I've got three great guests. Let's say hello.
First, Sotiris Georgiopoulos, Head of Smart Grid Development at UK Power Networks, one of the six distribution network businesses in the UK serving London and the southeast of England.
Sotiris, your job is clear, Head of Smart Grid Development, but how do you describe your job to your friends? Or in other words, can you give me a non-technical description of your job?
Sure. As you said, electricity networks are undergoing the biggest change they have seen in the last 150 years. My job is to look at our electricity grid in the southeast of England and understand how we can keep the lights on, deliver excellent service, keep costs down, but at the same time accommodate renewables, electric vehicles, heat pumps and all of these new devices that are coming onto the network. So, I'm involved with the strategy, the forward-looking strategy, but those initiatives that are looking at new technologies, new commercial propositions such as flexibility and of course, the organisational change process and people changes that are required to get all of these changes through the line.
Wow, so a big job, but it must be a challenging but fascinating job as well.
It's a hugely exciting and very, very interesting job. But I've been very lucky to have had for many years.
Well, you've been at UK Power Networks for 12 years. If we look at part of your job, which is the integration of renewable generation into networks, how has that changed? I guess what I'm saying is 12 years ago, where you were at the beginning of that, halfway through that, what are the big changes you've seen in the 12 years and how you integrate renewables into your network?
The decade of 2010 to 2020 was all about building out of renewable generation, distributed generation connected on the network. So back in 2010, we were the beginning of the solar boom.
Over the course of 2010 to 2015, we connected about four gigawatts of solar generation to the southeast of England. We currently have nine and a half gigawatts of generation on the network, eight gigawatts of larger generators and one and a half gigawatt of smaller under one-megawatt generators, including about 150 thousand residential or domestic solar panels.
So, that was the first main change it was the cycle of the solar boom and bust 2010 to 2015. And then in 2015, we saw the batteries coming online. There were no batteries. There was nothing about there was a trial we had in Leighton Buzzard with we built the first but in 2012, but there were no commercially installed batteries on the networks until 2015. So, since 2015, we now have about 150 megawatts of operational capacity in our networks and about a gigawatt across the UK.
So, again, huge change over the last five years the in-battery front.
Yeah, OK, that's a really clear picture thanks Sotiris we will come back to you shortly and look at how you've accommodated or some of the techniques used to accommodate all of that. Let's go now to my second guest, Graham Ault, Executive VP at Smarter Grid Solutions. Hello Graham.
Graham, can you give our listeners an elevator pitch for Smarter Grid Solutions, please?
Yes, absolutely. And first of all, thanks for inviting me on the podcast and an opportunity to discuss various aspects of smart grids in action and especially decentralised, flexible grids. That's the dominant parts of my career. So I'm really pleased to join for that. So Smarter Grid Solutions is a leading enterprise energy management software company. And we operate across a number of countries, but from bases in Glasgow, UK and in New York, in the US and our distributed energy resource management systems, or thereabouts, our software products that are used by distribution utilities, energy service companies, aggregators and microgrid operators primarily to manage grid capacity and resilience issues and to seamlessly integrate the energy assets to the grid in the marketplace as our software becomes the platform that delivers lots of different business models for those customers.
And just be a couple of numbers on that. Our software already manages over four hundred megawatts of distributed energy resources, about a third of that with Sotiris's company, UK Power Networks, and on the distribution side of our distribution utilities side our business that we've already saved our customers over three hundred million dollars and avoided grids upgrade costs us one of our use cases which we'll come onto talk about, I'm sure. We're primarily a software company, but we do have a set of services from front end consulting and innovation through a project delivering into support, as well so we provide a kind of end-to-end full lifecycle implementation of DER management capabilities.
OK, so one of the jobs you're doing then is helping people like Sotiris at distribution network companies to accommodate all of that distributed generation that's coming online using a software to do that in a smart way?
Yeah, that's right. So, we have since 2008 and we might say a bit more about this later. And we've delivered these flexible connections use case for distributed generation. And that's evolved tremendously with the Sotiris and some of his colleagues and other distribution utilities here in the UK and elsewhere too.
Yeah, OK, let's come back to that very shortly, but before we go too far, my third guest is my Delta-EE colleague, Jon Ferris. Hello, Jon.
Good morning, Jon.
Jon, we've talked a bit so far about how networks have accommodated all this distributed generation, Sotiris gave a really nice picture from UK power networks. And in my introduction, I said that distribution networks are only partway through their transformation. So, if we take the part as a lot of distributed generation, renewables being connected grids, what's the other part that's still to come? Can you tell us briefly a little bit about the future challenges?
Certainly, although I think you can make the case to say that what's to come is actually the continuation of a trend that started before renewables with the growth of distributed generation for industrial consumers requiring backup power and heat for their process load. So we started to see distributed power generation on the distribution networks that was participating in providing flexibility in ancillary services to the transmission system operator now that's a trend that is continuing and is likely to grow at a smaller and more local level, that we see more electric vehicles, heat pumps and batteries on the distribution grid that are capable of responding to signals to increase or decrease generation or demand and also response to price signals.
I think these price signals could come from the DSO. They're also increasingly coming from retailers with dynamic tariffs, influencing the behaviour of consumer assets on the distribution grid. So, the DSOs having to cope not just with more assets, but also other parties looking to control assets on their grids, managing increasingly complex flows and looking to new tools in which to manage the participation of assets and influence the behaviour of assets on the networks.
And I guess that's the whole energy system thinking that a lot of people talk about. So, these all these new heat pumps, electric vehicles, batteries being used, not only do they have to be accommodated into the distribution network Sotiris, that's your job, but they have to operate for the whole energy system as well. OK, let's come on to that in the second half of the discussion. Let's go back now to accommodating renewables and Graham. Can we come back to what you said about flexible connections?
Can you give us an example of for our listeners, it may not be familiar with this, what that means in terms of a renewable generation wanting to connect to the grid?
Yes, that's right. So, the flexible connection really had its genesis way back. And it's part of the millennium, as Jon mentioned there the UK sector was trying to grapple with the expected growth. And from today's perspective, that was very modest growth. But they were trying to grapple with the expected growth of distributed generation and that caused a certain network of distribution grid problems. And mostly that was about export constraints. And so, there was a need to look at alternative solutions than just kind of inserting an awful lot of time or investment cost or cost to customers to get those generators connected to the grid.
And so, this idea of the flexible connection came around then as a mechanism or a set of solutions to try and tackle that.
So, for example, I've got a one-megawatt wind turbine or I'm trying to connect to the grid. The connection can't take all the export all of the time. Some of the time it can. Some of the time it can't. Then I can have a flexible connection that allow me to export when I can but means I can't export when the grid can't take it.
Yes, that's right. Exactly. And there's different qualities of flexible connection. You know clearly, if you expect a certain season of the year to create a grid constraint problem, you could just issue an instruction or make it part of the connection agreement that the generator must not export or must exports to a limit that time. That's clearly quite a blunt instrument. And so, the nearer to delivery time in the more real-time you can measure and monitor the conditions in the grids.
You can maximise the amount of access to grid capacity for customers and then reduce the amount of money that might be interrupted as well. And of course, that's advantageous.
And that's where the software comes in to work out exactly what the grid can take and what it can't take and optimise the generation according to that.
That's right. And so, we would put ourselves at the more sophisticated end of the software systems that do that. So, we are monitoring and managing you in a second-by-second basis. And so, if there's a generator that's behind the constraint on Sotiris's network. And then we're monitoring all the points and the grids that there could be a congestion or a constraint problem and then issuing a set of instructions, not just one, but several generators. And that number is growing in the way that they are managed and aggregated is growing as well.
So, the sophistication of the techniques to monitor, manage in real-time then provide a really good outcome for customers is really paramount.
Sotiris, how challenging has it been to implement these sorts of solutions? I guess it starts in trials and ends up towards business as usual. What's that journey been like for you?
Yeah, so we started the trials back in 2012. And you have to appreciate that is a fundamentally different way of thinking and planning the network because traditionally we would plan the network for peak capacity so we would build peak capacity to accommodate renewables. We didn't have huge amounts of experience in terms of the diversity, the combination, what it means if you combine solar and wind in an area and what capacity you might really need. So, it's first of all, challenged our planning of the network and our very traditional ways of working.
Then you overlay some clever software and then a quite complex systems integration with what it is well established in many cases, legacy distribution, network systems. Then you have the customer-aspect to it because we are interfacing directly with wind farms and solar farms and anaerobic digesters. So, there's a journey of bringing the customers along into this. And then, of course, there is a real-time operation because it's one thing building the installation and another thing how it will behave in real-time and how you will manage in the control centre so there are different pieces of this puzzle, it's quite a complex end to end both process control system, but also has implications for network planning.
So, we did a trial in 2012 to 2015. We connected about 100 megawatts actually soon after the trial finished because obviously, we depended on the times for the renewable generators to come online. So, we connected the customers in 2016. And then my department was founded in 2016. And the business case was that looking at things like flexible connections and flexibility and the complexities is very difficult to do the transition from a demonstration to a wider scale rollout without a dedicated focus on people and skills and the processes that are required.
Did it start that in an innovation team as an innovation project?
how to get back into business, as are
Absolutely so at UK Power Network. Since then,2016, we have the innovation team that is focussed on R&D and demonstration, and you have my team that are more focussed on how you then do this as a more wider scale rollout.
In the five years, since that is it now BAU? How long did it take to get it to BAU?
Yeah. So, what we started doing in 2016, we started the targeted phased rollout across our network area. And the feedback we're getting from customers was, you know, this is actually giving us cost effective, grid capacity. Can you accelerate? So, we pressed the button in 2019 and we said it's now available to all areas. And you can imagine that London in terms of that type of generation, but certainly the east of England, the southeast of England.
And we have seen unprecedented demand since then. So, we are in the midst of a second solar boom as we speak, which is also it's obvious, you know, solar is coming back to the market and there's interest and people can make their business case stack up. So that's one thing. But the fact that through flexible connexions we've made with re-open capacity that in the past was considered closed because it was too expensive, we reopened it. It has fuelled the second if you like, a boom of renewables on our network.
And that's fantastic for the energy transition because otherwise, as you say, you'd have to either turn those solar developers away or, quote, connection costs, that would mean they could go ahead.
Absolutely. Absolutely. And that's the key benefit of flexible connections is that it's enabling generation that would not have been otherwise being able to connect, so bring in megawatts that wouldn't have been able to connect, at least in our part of the network.
So, that's quite some journey you've described, I guess, in terms of time from 2012-2019, it's available everywhere. Graham, what's been your experience, I guess as a software provider, you'd like that to go as fast as possible in terms of your work with other network companies. Is that typical? Is it fast? What's your experience been?
Yes, good question. And there's a bit of diversity across the distribution network operators in the UK and then with our customers overseas, a different picture again. So, first of all, in the UK as Sotiris is describing the UK power networks journey. And that was fast new from innovation and innovation project starting in 2012. And it should probably point out that that captured and explored a number of areas to do with the flexible connection, not all of which have made it through to business as usual yet.
So, what information does a customer get at planning a connection stage? What, how does the trade off work between getting out quicker, cheaper connection and the cost of curtailment through life for the generator? What options are provided to a generator to mitigate that? Those things were studied and, but they were only coming back now because there's such a pressing need now to make the most of the grid capacity, we've got greater flexibility in the generation side is going to be an enormous part of that if we want to avoid the incredibly high costs of just building lots more assets.
And so those questions of what are the options for customer? What information does that customer need? Can mitigate some of the curtailments? These questions are coming back quite significantly.
I remember a case study from another network company, not yours Sotiris of a farmer, wanting to put up a wind turbine being, absolutely furious at the cost. He was quoted from the network company for connecting because the network did need reinforcement to accommodate it, but then with a flexible connection, finding a way forward, a very low connection cost. And then he was delighted at the end.
Absolutely, and I think Jon, the overall principle of, you know, connecting and managing instead of building network, big network holds irrespective who bears the cost. So even if the charging regime changes and the connection costs are borne by the DNO in the future, the type of technology that we have developed gives you that ability to dynamically run the network to enable effective, constrained management. Because at the end of the day, you know, just building peak network to accommodate the capacity of generation is not going to be cost effective.
So, one way or the other, we have to modernise the network using these flexible approaches.
Yeah, and it takes time as well to build out of the network.
Sorry Sotiris, if I step back in then, picking up that story and it picks up what Sotiris has just said, that regulatory and commercial side and they'd imperative to have an efficient system and an efficient distribution network that connects as many customers as possible, that's being dealt with in a number of different ways and has been that from those early innovation projects through to business as usual, has been through one regulatory price control in the United Kingdom, with another one just about to come as well.
And the trade-off between who pays for what and how those costs are allocated and how operational efficiency of a flexible connection is incentivised. All these things are coming back and that's been part of that 2010-12 journey onwards, of yes committing to offering a flexible connection whenever possible. Yes. Putting in the systems that underpin that including what we do, but yes, now looking at all the planning, the commercial, the regulatory aspects and now market aspects, I'm sure we'll get onto markets as well.
That's a good point, it's not just a technology, it's having the right regulatory framework to incentivise us as well. And I'd like to look forward a bit now. So, we've talked about flexible generation connections. And at the challenges, that Jon, you outlined earlier on in the podcast, Graham, in terms of Smarter Grid Solutions. I guess you've got one we've talked about one thing you've done that you've got a broader focus. Can you bring that to life a bit and just give our listeners an idea of what else, what other roles you might be playing in the energy transition or beyond helping generators to connect?
What are the things? Problems that you're trying to solve for your customers.
Yes, a good question, Jon. Thanks for bringing that up, because our work with the distribution network companies is some of our most important work, its core of what we do. It's the is part of the genesis of the company and the software that developed the technology that we deliver. And but that's not the end of the story. New onto the top of what we've been describing so far. We require integration from distribution until systems to marketplaces to information systems to customer systems to aggregator systems, because flexibility wouldn't just be about the flexible generation connection in front of the metre.
It'll be about flexibility in terms of load and generation turn up/turn down under different market mechanisms we've been adding quite a lot of capability to our products that that can do that. And then beyond that, that same technology of monitoring and managing and optimising and integrating to markets, that's been incredibly valuable for other sorts of customers to. So, energy service companies or aggregators need that same underpinning technology to manage increasingly diverse fleets and portfolios of distributed energy assets.
And you either deliver some on site value streams or deliver some services to distribution grids or deliver services into wholesale or ancillary service markets so optimising, stacking, coordinating all of that flexibility is exactly what our products do. And it can do that for other customer types to.
So, what we've talked about before was optimising renewable generation for the distribution network, but you can optimise assets not only or you will need to optimise assets not only for the distribution network, but for other parts of the energy system.
Yes, that's right, so one of our big customers is on energy services company, they have they own their own distributed energy assets, but they also manage and trade a distributed energy assets for their customers. Our platform that's deployed with them is then providing them the capability to aggregate the control of all of those different customer assets and then provide services from those as well as a whole after the distribution company or to the wholesale market. And that's actually quite similar.
So, although it's for a different customer type, it's quite similar to what we're doing with the UK power networks and some other companies where you're aggregating by providing an access point for aggregators to offer services and provide flexibility services that's something else that we're doing also.
Sotiris how does that fit with your world, because I guess you've got to integrate more and more assets into your network, renewable generators, electric vehicles, heat pumps. But those assets, as Graham said and Jon said at the beginning, won't just be used for your network, they'll be used for other things. So how does that overlay onto your challenges in the next years?
Yeah, so I think for us, looking over the next decade, yes, we'll have to continue working on distributed and renewable generation because there's more to come and grid-scale storage. But really, electric vehicles and the low voltage network are the areas that we need to make most progress, given the significant take up we might see over the next few years. So, there's a couple of things. First of all, is visibility of the low voltage network and understanding with a combination of analytics and monitoring what is actually going on there and how the assets are behaving and what does it mean for the capacity of the network.
Because previously, you haven't had sensors on that part of the network. You have on higher voltages, but not down at the very low voltages.
Correct Jon, because we didn't need to it was a fairly passive, passive system. So, from a cost efficiency point of view, you didn't need to monitor it because you could know what's going to happen. You could predict this predictable behaviour. Not anymore.
Yeah, and then the second one is, again, around flexibility we just announced last week, the results of a flexibility tender round and we managed to procure about 250 megawatts of forward-looking capacity with EV companies of the aggregators smart charging companies. So, again, going back to Jon's point is, we are making our strides in securing flexibility, which is the first step, which is very positive, hugely exciting news.
And then the question is, how can that flexibility be delivered in a coordinated manner with the rest of the markets?
Jon, what's the answer to that question? Is there an answer or is this all a work in progress at the moment?
I think both Graham and Sotiris have described a number of ways that that flexibility can be accessed. And I think one of the big questions for network operators at the moment is that balance between giving price signals for procurement of flexibility and the ability of an aggregator, whether that's a third party or the network, to control assets, that if the network can decide that you can't charge your car at particular times, then that's likely to have a big impact on the confidence in people to take on EVs and roll out the low carbon devices so these trends all have to move together in lockstep, where the network needs to balance the requirements for control with the ability to influence behaviour in a way that isn't as heavy-handed as the networks might have used in the past.
And one important thing to add to that, I think, is that control compliments markets so what we're seeing one way to mitigate the downside of curtailment of generation, as we were discussing earlier, is to tighten up demand in the local area. And new marketplaces can bring those who can flex their generation and flex demand in that way together and but to keep a grid and an overall energy system safe and secure their needs of to be a control authority. If you want to use that terminology, where orchestrating the market possibilities with the direct control opportunities and requirements, making the right decisions at the right moment.
That will provide efficiency through the market. Lots of customer participation, plenty of flexibility, but also an overall secure and stable grid.
Yeah, you can think of our flexibility tenders as incentives, so we are incentivising consumers to not charge, for example, between six and nine, which is the flexibility tender, but we don't necessarily exercise control over the customer's behaviour. We rely on the companies, the providers that in offering the service to the customers to essentially put forward a proposition that takes into account these incentives, but essentially drives that behavioural change and benefits the customer. So, the customer gets what they want, which is a charge card in the morning when they need it.
At the same time, the grid or the system operator can also get what they need in terms of managing the network.
What's that balance Sotiris do you think, between the incentives or the price signals and then control? I guess the more incentives and the less control, the better. But some control will be needed?
I think you need to consider control. And again, I will not advocate that this control is the direct control from the DNO you know, there are many different ways you can do it. But, you know, you might consider control for extreme events. But certainly, I think in the first instance, we should try to drive through price signals and incentives that consumer behaviour.
So, there's a sort of hierarchy that you'd like to go with.
And that works in time as well as you get up to the last minute or second as an event or an urgent need is required, you tend to need to move to control. One thing that we've been delivering more and more for customers is one hour ahead, 24 hours ahead, one week ahead. So, with the market outcomes, scheduling and optimising what is required against the forecasts, but knowing that you've got the back stop and the last minutes, in the last seconds to make sure that any kind of urgent last action can be taken in a secure way as well.
And in actual fact, that's the way transmission systems, in the wholesale markets work for a long time, this long lead in time, for months, weeks, hours ahead. But then you've also got the in the real time control, which is often the required backstop.
Yeah, that's a good way of thinking, I guess, as you say, wholesale energy markets have worked with contracts a year ahead through to gate closure and then balancing with in gate closure. So, the same thing coming to distribution networks. Jon, do you think all of this ultimately will result in more localisation and how our energy system in general or networks in particular are managed? Will that have to work on a more local basis than we're used to in the past?
It's certainly a change to the distribution network where demand was the driver of investment in the networks and the DNO was looking to build that network and to control the flow of power into their networks. Now, you've seen much more localisation where at the same time, you could have demand congestion in one area and generation, congestion in another. So, you can't have a global solution that satisfies both of those situations. So, you have to have local solutions and local influences as well ultimately about local control to try to manage the grid.
Well, it sounds like Sotiris, there'll be lots to keep you busy in the next year and Graham lots of solutions that you can help your customers within the next year. Let's finish, as always, with the bring out the Talking New Energy crystal ball and set the dial this week to 2030. So, nine years ahead. And I'd like to ask you each quite a broad question, but for the sake of time, if you can answer in around 30 seconds or so.
So, the question is this. How if we look at 2030, what would it look like for distribution networks in how they are integrating and working with renewable generation EV charging, electric heating, demand side flexibility? All those things we've talked about so I appreciate you could write a PhD thesis and some people are writing a PhD thesis on this question, but if you fast forward to 2030, if you could each give a view about what distribution network, how they'll be coordinating all these assets and working with these assets, let's go Sotiris you first and then Graham and then Jon.
Sure. So, I think flexibility will be everywhere, will be able to harness it and use it consumers would need to be engaged or too involved in it, but we should be able to use it for the purposes of managing the distribution network. And also, within that, we also have realised that we need to think about the system as a bottom-up system rather than a centralised top-down system.
OK, great answer and bang on time, thanks Sotiris, Graham, how about yourself?
Yeah, so I think we've talked about the scale of decentralised energy and markets and flexibility. So, if the overall system is going to have those new markets, lots of different market access points, lots of different participants, lots of new data sources from planning to operations to markets, new customer propositions, new participants, more local solutions, more flexibility. If all that stuff is going to happen then we need systems that can seamlessly join those things together, coordinate them and make them work efficiently and make them work for customers as we need to make sure that information is in the right place, that the actions are the right.
The actions taken are the right ones, whether economic or technical or customer doing something or for carbon reasons. And then that's all settled from financial terms but also, carbon and energy flow terms. We are excited about all of that challenge and the need to integrate seamlessly that's definitely what we're all about.
So, a lot, a lot to do. A lot of many, many different parts of that that need to come together. And last but not least, Jon.
All of it adds to Sotiris and Graham, is that bottom-up planning that there's going to be much more participation of communities and local authorities in that local, energy area planning to determine what's the right mix of assets, what's feasible in their areas, and much more engagement with the local network operator to determine the investments and operation and the flexibility that they can provide.
Thanks very much so, yeah, I think a very joined up perspective on 2030 lots and lots of challenges, as I said, lots to keep many people busy and lots that need to happen to get us to the low carbon future with all these distributed resources that we'll need by 2030. So, thanks very much Sotiris, thanks for joining.
Thank you, thanks for the invite Jon.
It's a pleasure. Thanks Graham.
Yes, thank you very much. Great conversation.
Thank you, Jon.
Thanks as always to you for listening. Hope you enjoyed the episode of having spotlight on distribution networks and smart grids a topic we will be coming back to in future podcasts, I'm sure, and look forward to welcoming you back to next week's episode. Thanks, and goodbye.
In this episode, we talk with two energy retailers about how they are helping customers how to get started with their first electric vehicle – how to find the best tariff, how to get a wallbox and more. They also discuss their plans for their role in the coming collision between energy and mobility. Host Jon Slowe is joined by Goncalo Castelo Branco, Director of Smart Mobility at Portuguese energy retailer EDP; Tom Hart, Head of Portfolio for Energy Management and EVs at British Gas, part of Centrica, in the UK; and Delta-EE expert John Murray.
Welcome to Talking to Energy, a podcast from Delta-EE, the new energy experts. We will 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. Many of you listening will own an electric vehicle, and I bet many of you who don't own an electric vehicle are looking to get one soon. And if you're in that camp, then you'll probably be thinking about a tariff for your charging your electric vehicle, and you'll probably need a wall box if you've got off-street parking to charge your electric vehicle.
And I wonder if you're looking at your energy supplier to help you with those two things. Well, today I'm talking with two energy retailers about how they're helping customers such as myself and many of you listening and their plans for their road in the coming collision between energy and mobility. So let's get into the discussion and say hello to my guests. First, Goncalo Castelo Branco, director of Smart Mobility at Portuguese energy retailer EDP. Hello, Goncalo.
Hello. My pleasure.
Goncalo , if I lived in Portugal, what could EDP offer me, as I think about buying an electric car?
Well, we tend to think on the customer journey of the electric mobility, so EDP in Portugal, actually we have around 75 percent of residential market, which totals about four million clients, and these clients are converting into easy users. And so we want to be their partner and their enabler in that transition. So typically, looking to the customer journey, we are present when they buy the car, helping them with the solution, the charging solution they will need.
So we a charger for their home with a special tariff plan for their [inaudible 00:02:02], so with green energy, when you're buying an EV and a solution with us, and then also designing solutions for companies, of course, to corporate businesses and for public chargers, because that covers the whole electric mobility perspective from our clients. And that's where we are developing our products and services.
Sure. OK, so a charger tariff with green energy. You've mentioned when they buy the car, you want to be present when they buy the car. So are you trying to get yourself into the point of sale of the vehicle or trying to advise customers?
On which electric car to buy.
Absolutely. So, I think that's a very important point because we understand that's when you buy the vehicle is when typically you understand that you don't know anything about charging. And so we see that on clients and the questions are just too many and have people have no idea. They have no relation which kilowatt, what's the power they have available to them? So, we need to be there. And so we are partnering with the financing lease companies as [inaudible 00:03:12].
Also with OEM here in Portugal, Hyundai [inaudible 00:03:15] Volvo. So these are great. We are together with the retail and reviving the partnership so that we can help the client at that moment of purchase.
OK, thanks, Goncalo. We'll come back to you shortly. My second guest is Tom Hart, Head of Portfolio for Energy Management and Electric Vehicles at British Gas, which is part of energy company, Centrica in the UK. Hello, Tom.
Tom. Same question for you. What? I actually live in your territory, not EDP's territory. So what could you offer me if I'm thinking of buying an electric car?
So, the first thing obviously is home charging. And that's a big part of what we're doing today and trying to make that journey really simple and easy and straightforward for consumers. So home charging is definitely the first part. I'd always say with home charging, definitely start your journey early because, you know, depending what the situation is in your particular home, what's going on with your district network operator, start that journey early and kind of get going in advance of buying that vehicle.
To check what you need to do with that home.
I'm learning about the lead time of a wall box isn't quite as short as I thought it might be Tom.
Absolutely. So I think, you know, my own journey was quite a long one when I got my charge point installed, mainly because of some additional work needed to be done to change the main view. So there are all kinds of things you need to do as a consumer so start early on the home charging and we can support that. And we'll surely talk more about that later in terms of our solution there. You've got home energy EV tariffs, as we said, and very similar in time of use tariffs [inaudible 00:04:54] tariffs, green energy that can be applied to any and you can combine those two together, you can take them separately, and that's completely up to you.
And in terms of we also do quite a lot in the fleet space, which I'm sure we'll talk about later, maybe less applicable for your personal situation and then public charging as well and our approach to public charging. We'll talk a little bit about later, I'm sure. But, you know, we are not a you know, we're not an operator of charge points per se, but we've got a solution that maybe would help consumers actually in that space.
And similar actually to Goncalo. We've partnered with a number of people and organisations OEMs, leasing companies to provide those solutions, at point of sale. So, you know, some of which are in the public domain we can talk about, some which we can't Ford is obviously one of the main ones. We're working with Honda, Vauxhall, Lotus and Toyota Lexus as well, as well as some other brands of charge points. So, ABB is another good example of a charge point manufacturer working with them.
So, yeah, so we can kind of do the whole lot for you and hopefully make sure it's a really simple and straightforward journey and take that pain and that hassle away for you.
Thanks, Tom, so quite similar actually both of you in terms of how you are helping customers. Goncalo, just come back briefly to you. Tom mentioned a time of use tariffs with cheaper charging at certain times. Is that something EDP is offering as well?
That's exactly what our plan consists of. So, our standard tariff for someone adopting a charging solution, a wall box for their homes. We offer a 20 per cent discount during the night period. And this applies for the whole consumption of the house, actually. So and it's always a green tariff, which is not the standard tariff for EDP, but it is for EVs and for EV users because it's a very important factor for them because you electrify, you are driving if in reality, you are charging your car with energy, that is generated from renewable sources.
That's an interesting point there in terms of the comparisons, I guess, between the territories, because in the UK, the differential between that night rate and day rate is even greater. So, it's more of a 3-1 ratio, I guess, in terms of the price between the two. So it's interesting to see those differences.
Yeah, sure. Before we get sucked into the discussion, because I have another question on the tip of my tongue, but let's introduce my third guest, John Murray, my colleague and Delta-EE and EV, expert. Hello, John.
Now, John, one of the things on my mind, as I've alluded to already, is a wall box. I need to get a wall box for my driveway. And Tom I'm very sorry.
I haven't yet looked to the British Gas website to think about getting my wall box from British Gas. But, John, from the customer research that you're carrying out, what are you finding about where people like me are thinking of buying their wall box from? Are there particular patterns coming out, people buying it directly from the energy retailer, from the car manufacturer, what are you seeing?
Yeah, so that's right. We have just completed the results of the latest round of customer research where we've been surveying existing EV owners, over 1000 drivers across Europe, including France, the UK, Spain, Germany, and to truly understand more about their charging behaviour and the products and services that they are using. And one of the things that that research is enabling us to do is understand how many EV drivers, first of all, have actually installed a wall box at their home because not all can.
But if they have where have they sourced that wall box from? And like you've alluded to, that there are different sales channels that we've looked at. So including the wall box that is bundled with the purchase of the vehicle, for example, at the car dealership, buying the wall box from an energy supplier like British Gas or EDP buying a wall box online from Amazon or the Mobility House in Germany or even buying directly from the charging manufacturer. And what we found is that the market share, sales channel are actually quite different from country to country.
And that route where the wall box is bundled with the EV is a really interesting one because it's already alluded to that that is normally the first opportunity to offer a wall box to an EV customer because most customers will choose the make or model of the EV they want to buy before considering what brand of wall box they might want to use to charge their vehicle at home. In Germany that sales channel where the vehicle and wall box are bundled together today accounts for about one-third of all wall boxes.
Yeah, so quite large. But actually, in France, it's two thirds [inaudible 00:09:53]
People are buying their wall box with their car whereas in Germany some are but less than France.
Goncalo and Tom, how do you see that because you've both mentioned that buying an EV and wall box is quite complex. It's complex. There's a lot for the customer to do. You both want to position yourself right at the beginning of that customer journey. Are you managing to do that? Are our customers thinking of British Gas or EDP as their partners or are they looking to other places?
Is it a struggle to get into that customer journey at the beginning?
I think it's so, it is a real challenge. I think a lot of it's about education in terms of we found from some of the research we've done, the customers, you know, don't just make a decision to buy a car overnight. It's a process they go through. And the more we can do to kind of support customers upfront with education about the process, the you know, the better. And that's a real focus of us.
And certainly, you'll see a lot more come out in the coming months of us trying to support education, as well as working with partners to help educate customers as well. So that might be the car OEMs, it might be of a closing automotive market. And it could also be the DNOs, or district network operators as well and potentials what we can do with them to educate customers. And our approach very much is to make sure we're touching base as many points as possible.
So, whether it's when they're in the branch of the, you know, buying that car, we support the OEMs with education in that space with some of our solutions, whether it's on our website or whether it's conversations in the contact centre, it's just making sure that customers have got all the support there so they can have those informed conversations. So, yeah.
How hard is that?
Tom, I can see you can offer all of that and you can try and offer those solutions to customers but how broadly, how successful are you at them using you rather than other sources? You know, John mentioned Germany 2/3 buy the wall box from the OEM or I'm looking online, for example. So, is it a bit of a battle to position yourself as their partner? Or are you finding particular ways to succeed in that, or have you learned lessons about trying to position yourself as their partner?
Yeah, so I think I'll put leasing to one side for a second, actually, maybe come back to that. But outside of that market, it's a real mix. So and I think we're seeing in the market where customers do want to kind of come direct sometimes, but actually, also they really want to just to get it all done at once and done in the dealership potentially the relationship we've got with Vauxhall. So the deal we do with Vauxhall, where you get a free charger and 30,000 free miles and a wall box and tariff altogether as one.
You know, that's quite successful because customers just it's simple and straightforward. So yeah, I think just providing customer choice is the key, I guess on all occasions.
I guess customer choice and that all in one simple, attractive package. What you've just described there with Vauxhall, you know the miles, the free wall box that makes it reduces all the hassle, it is very attractive package.
Goncalo. How about you? Is it a challenge to get yourself as the customer's partner, to position yourself where you want to be?
I think, everything that Tom was describing, so you see the client when he buys the car, typically focus on the car a lot and leaves the charging solution to a later stage when he realises it's probably so it's good to be there. When he buys and decides for the car to inform him about the decision, he has to think about how he's going to charge the car, because then there's typically a restriction on the power that he has contracted for his home.
So, we just maybe charging on a plug and then the plug is not you shouldn't be using a normal plug of your home to be charging your car, even if it's a slow plug. So, you need to advise the client on that. And then they see they have a constraint on power. And for us in Portugal, we have actually a specific case that turns this even more difficult if you live in a condominium.
So typically in condominiums, even if you have a charging place, a place for yourself and there's a plug there, or you can actually charge you can put a wall box there you are using energy that's paid by everyone, OK, because it's one of the three areas of the condominium, the same as the stairs and the elevators. So, the authorisations you need to do that. And so we developed products specifically for that. When you use our app.
So, you're charging with our app and you have an inbuilt wallet and you're paying immediately to the condominium the amount of energy you just used to charge your car. So, we are helping the clients because we saw that in this case it was not being solved by the market. And so we entered to do that. And again, as I said, so I think being together with OEM, so the dealerships and the leasing companies and integrate the offer on behalf of the client is very important.
So, we see this as an ecosystem and it's very important to be there because the more we can integrate ourselves in anticipation of the client, the more the client will have what he needs to be integrated into a single offer. And that's exactly what the [inaudible 00:15:21] was designed.
Just building on that, I think around leasing companies they're really nice example of simplification in many respects, whether it be company cars, salary sacrifice or just, you know, private leasing, it makes it really simple because you're paying a monthly fee of £300. The charge points built into that price and you almost don't need to think about it. It just gets it all happens and it's really straightforward. So it's quite a nice model in terms of how they're approaching that in the leasing market we're partnered with two large leasing companies that are doing that and it's working quite well.
OK, so, Tom, is that one learning from your site about simplicity? Are you seeing these bundles where everything's included, the miles, the wall box, do you think that's going to be the direction the market goes in these bundles and simplicity? Or do you think that's too simplistic? Actually, there'll be many different parts of the market that want many different things.
Yeah, I definitely think the bundled approach will take hold, particularly the charge point and the vehicle, I think is a very nice bundle, energy is an interesting one because obviously as Goncalo said there your energy for your EV is a big part of your consumption, which people don't always realise there is a big change, but it's only one part. So, it's quite an emotional decision to change your energy supplier to and to bundle that all in together might be almost too big a decision.
And I think the other element of that is what we've seen from the research we've done is that people tend to only think about the tariff afterwards. So, it almost goes car, charger, then tariff. So, actually trying to bundle those all together almost might be a step too far for some customers where they just can't make that decision all at once. But the charger and the car maybe is that initial step, which bundles together quite, quite nicely as well.
So so, yeah, there's definitely going to be bundling, I think, definitely.
But still bundling up with the one by one offers as well for different parts.
Yeah. Yeah, absolutely.
Goncalo, how do you see that. Do you see more and more bundles?
Yeah, I was going back to the ecosystem I was referring to. I think what we've seen, in mobility is such a difference and kind of disruption in the tariffing that existed. This is breaking boundaries amongst players in markets. So what was established before it is not going to be the valuables that will be on and available for players in the future. So and you see the players are positioning themselves.
So you see [inaudible 00:17:57] entering into the as the service cars or connected car or shared car and even providing energy. So you see, this is where we are and who we are competing against is very different from even for the energy company as we were and are at EDP for energy and gas. So, in mobility, we are the player that competes with any start-up from around the world for a solution in a condominium instance, and that pushes hard for us.
And so but in the end, we have the clients, the clients, again, typically we know from the client likes to buy energy services from their energy provider to from who then. So it's actually an obligation is something we have to do is talk to these partners, talk with companies. Because we've changed so much. If you used to have your own combustion car and you go to the gas station, you knew that. And now suddenly you're charging your car at home and at work, sometimes in public spacing much less than what people think of because people tend to think there's not enough public space and they cannot have any of it.
So in the end, it will be 20 percent so and it will be on the supermarket. And so that's so different from the experience they had before. So that's what we learn from that is that we have to be partnering with all these companies. That's what we doing for public charging, we have more than 1000 public.
Goncalo, I just want to pick up on what you said about car manufacturers becoming energy suppliers or they might offer energy supply. Do you see that? And, John, I'd like to ask you about how do you see Volkswagen and LE in a minute, do you see that as a threat to EDP? You've said EDP has to develop these solutions, do you see it as a threat that other people might move onto your territory.
I think it's just another variable we have to take into account because smart mobility and news on stream in general, so the energy transition brings new markets to EDP so we can enter also adjacent markets where we were before. So that's what we're looking to. And I think actually EVs are actually have a pivotal role because entering a condominium and then you have the distributed generation solar, self-contained local energy community, new businesses like vehicles, degrees, even the sharing mobility.
So, there are many areas and value areas that are available that we have to compete with. What we have to know is that as incumbents, we don't have an advantage, a competitive advantage just. So we have to do our own way. And that that's what EDP's doing with all this ecosystem that we are also trying to gather.
Yes, so you have to earn your share of these new markets, and compete.
What we know is that I think what we know is that no one will be able to be vertically integrated across all of this. And if you try to do that, you'll probably lose. So in our view, the one that will be able to do the most effective partnerships now is the one that will be ready and able to win in the future.
Yeah, yeah. So, John, just for our listeners, benefits do you to contrast, and just outline what Volkswagen is doing beyond making nice electric vehicles.
Yeah, sure. So Volkswagen clearly one of the conventional auto AM's that we're all familiar with. They're probably the most advanced in terms of their transition towards or move towards the energy sector. I think there's an acceptance that the auto AM's are moving in that direction and the energy companies as we've talked about are sort of moving toward providing mobility, but Volkswagen they launched a few years ago now their Elli company, which is essentially their energy company that's providing services beyond the electric vehicle.
So, they are offering to their customers in some markets, not all over Europe, but in some markets, EV tariffs, wall boxes and things like that. And so they are probably the best example today of an auto AM providing energy services, but even they are having to rely on partnerships to enable that. So they are moving forward to vertical integration, but are still having to rely on partnerships with many other companies across the value chain.
And we've, just building on that. It's a really interesting question. And it may vary from territory to territory, actually, but certainly in the UK, from what we've seen, energy is quite challenging to deliver and quite challenging to and complex lots of regulation, etc. So, it's not impossible, but it's quite a big leap to do that, especially when obviously the car AM's are their prime goal is trying to sell cars and to and to drive value from that.
And our approach is very always been and we work really closely with a lot of the OEMs, including Elli, actually, and certainly, in the UK, our approach is how can we work together with the OEMs to create solutions and actually bring the two together, similar to what Goncalo said? If you're going to, if you want to own everything from mobility to the home and be a single company, there's every single element to that, that is extremely difficult to do, even for some of the biggest companies in the world.
I completely agree with that. And especially when you start to talk about topics such as smart charging and try to provide services to the grid, the electricity grid, that opens up a whole different box of questions around the regulations and the value streams and the business models to enable you to to develop value from providing those services to the grid.
Yeah, Tom and Goncalo do those discussions with OEM's, for example. Do they ever get difficult in terms of, oh, we'd like to do a bit of that now, we'd like to do that part. And if not, do you anticipate they might get difficult in the future or is it all very straightforward?
Well, I think for the moment, not at all. It's a complementary offer that they need. So they have that need to fulfil something that their client also needs, because, in the end, their client will be our client because there's a great chance and probability that in the end, the client, they are selling a car to at home, they will be an EDP client or as the company. So if they can get with through a special customer experience that we can design for their clients, it makes it easier for them to understand for that specific car model, what is the best, the charging wallbox solution that is able to that model.
And we can help on that and bring a special discount on a tariff and also give them a special tariff to be charging on public charge. And so this is the kind of deals we are doing today. If you ask me 10 years from now, that would be probably a different answer. So we don't we probably don't know how the market will be then. I think for today, it just makes sense. It makes sense for them.
It makes sense for us because the client needs it.
And you each have enough to do there's enough for them to focus on the vehicles, enough to focus on the energy side.
And don't forget, there is an element of you can have our expertise. You can play around with branding, for example, and you white label things. So there are lots of different approaches you can kind of take. That doesn't mean you've got one company doing everything. It could be a two or three companies, but it's how you bring that together to a single solution for the customer and be clever with your branding to get almost the sum of the parts is greater.
And that's the ambition for those partnerships.
Yeah, interesting. So you're open Tom to some of it might be British Gas branded, some of it could be white label branded and on the other way round as well.
Absolutely. Yeah. Whatever works I think.
I just like to give another angle on this. So we are EDP, so we are a supplier of energy. We don't have location, and although we have 1,000 charging points contracted on public charging. So we do this with two partnerships, so all the all the charging stations that we own and operate, they are either in a hotel, hospital or hotel chain, a restaurant chain or so this is all partnerships we've made and that we've closed just recently with McDonald's in Portugal to say one.
So, we're going to do all the restaurants. So, these partnerships go way beyond just the [inaudible 00:26:57] and then the charging at home or companies, but also in public charging are quite important.
Yeah, there are so many aspects, I guess, to the customer experiences, to providing a good customer experience that as everyone has been saying no one company could do all of that.
I would agree with that.
Looking forward, Goncalo, you, said things might change a bit in the future, so it's already got to that time of the podcast when we need to bring out the Talking New Energy crystal ball. And I'd like to set the dial this week to 2030. So, let's assume the take-up of electric vehicles has been a huge success in the 2020s. How might you as EDP and British Gas and John, if you want to think about the energy retail sector in general, how might energy companies be working with customers in the area of eMobility?
So, what might your ambitions be? Or can you sketch out one possible future for the role that an energy retailer might be playing in 2030?
Goncalo, do you want to go first?
Well, OK, so I think the crystal ball exercises as you said, but I will agree with you, I think the take-off of EVs will be actually quite more expressive than what we are anticipating today. That's why we're seeing the last few years. We are always anticipating the targets. And that, I think, is going to happen faster than we think. And so I think the challenge is for us we are now an energy retail company. Energy will be turning into a commodity and a scarce resource of the future will be power.
So I think, as John was mentioning, I think we can keep the journey of offering energy home services connected to energy, but we will look beyond that. I think the fact that power is a scarce resource, looking to a smart charging and to vehicle to grid technologies increased by 90 or 95 percent of the time. So it creates the opportunity to move to new services, to the system that can be brought in. These are new businesses that are there to be explored.
So and in the end, I think it just being an energy company, I think the one advantage that we have is that we know those assets well. So we can deal well with the power that's available in the building so we can control and offer these services. And so and go beyond this is looking into creating market structures that enhance and allow integration of distributed resources. I think so. The distributed resources will be the future also. So you'll be able to generate your own energy at your home with solar or whatever.
And so we have to accommodate that. So in the intimacy of the renewables bundle with storage and being part of the car as the battery part of that system, I think it's probably where we'll be in a few years time.
OK, so that's quite a change from being an energy retailer, primarily an energy retailer today and the beginning of that journey to that future you described, Tom. [crosstalk 00:30:15]
Not forgetting to say this is all this is a huge digital challenge for us. So it's not just asset management, but all of this business will be very digital-centric. And that's also the step we have to move for.
Yeah, I'm building on some of that. Really, I guess what's going to be interesting, not just in the EV space and we very much look, you know, as I said, energy management is part of my role as well. So we're very much looking at EV in the home at least as one device of many devices, and that we're going to have to be consuming large amounts of energy, whether it be heat pumps potentially and other devices.
So, one of the interesting things that's going to be is a, how does the home change in terms of consuming energy? And that could be about, you know, self-consumption, more solar, potentially battery storage. But most importantly, I think, is about how we can use the ability to flexibility. So demand response, residential demand response and optimisation both within the home, but also how that reacts and links into the grid. And actually, one of the great things that we have in Centrica is that residential demand response, you know, we're doing that on or about to launch that later this year on EVs will also do it with heat pumps where we're shifting load around within the home to help manage constraints at a national grid level.
But particularly as we move forward, that's going to become a DNO/DSO challenge as well. So providing flexibility services as a residential customer to the grid will be hugely important as we move forward. And that brings in, you know, a vehicle to vehicle to home, as well as a number of other technologies. And that's going to be required if we're going to make this, you know, electrify heating, but also electric mobility all at the same time and not lead to lots of money spent on the grid reinforcement.
So, that optimisation piece of energy in the residential space, I think is massive for the future. So, yeah, that's probably quite home-focused, but that's probably where I see it kind of playing out quite, quite significantly.
Well, I think it's very clear for both of you about the future for your companies being, well, it will still involve energy retail a lot around energy optimisation, energy management, distributed generation and how all of those come together.
John, from your perspective?
Well, yeah, I just wanted to come back and Goncalo's point actually, that you made around the transition to electric vehicles happening more quickly than anyone anticipated. And actually, we, I think and I particularly wholeheartedly agree with that sentiment. We've just published a white paper that talks about our updated EV forecast to 2030 across all of Europe, and we're forecasting the number of EVs on the road in Europe today would grow from 3-million around about 3-million today to 84-million by 2030, which is much more than anyone predicted, including ourselves even just 12 months ago.
So, this transition to electric vehicles is the market moving more quickly than anyone could have thought I think.
Yeah, it certainly is. I think it will go when change happens. Change can go incredibly fast when you reach that hockey stick point in the curve. I'm actually before buying my electric vehicle, I've got to I'm going to subscribe to an electric vehicle for a few months on a monthly subscription model. One of our previous guests on the podcast, as a company that I'm turning to for that.
And that includes, well, not home energy, but all my public charging and a nice bundle keeping it really simple for me. So, I think we'll see lots of new value pools as you, Goncalo, lots of optimisation, Tom as you've said, and this will go very fast. So people will need to be quite nimble, but amazingly customer focussed on making that journey, which is still a little bit complex today for customers, much simpler in the future.
And we've run out of time. So I'm sure we could carry on for twice again on this topic. But let's leave it there for now. Thanks, Goncalo very much for joining.
Thank you very much for the invitation was a pleasure.
Thank you very much it was a pleasure.
And thanks, John.
Thank you very much for having me.
As always, thanks to everyone for listening. We hope you enjoyed the podcast. Whether you got an electric vehicle thinking about an electric vehicle in the future or a long way away from buying an electric vehicle. I look forward to welcoming back to the podcast next week. 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 podcasts on your chosen podcast platform. If you'd like the podcast and like sharing, then please to 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
Large energy customers are increasingly walking the walk and buying their energy from green sources – not just through green tariffs, but with linkages directly to the generator through a multi-year deal. On the other side of the fence, renewable energy generators like the guarantee of a long term agreement to sell their energy. And in the middle of this often sit energy companies – facilitating and enabling these transactions. In this episode we talk with energy company Alpiq and renewable energy asset owner Aquila about the rise and rise of PPAs, with a focus on the Spanish market. Host Jon Slowe is joined by Jesus Reyes, Head of Sales & Origination at Alpiq; Marcos Dominguez, Director of Power Markets, Aquila Capital; and Delta-EE expert, Dina Darshini.
Welcome to Talking to Energy, a podcast from Delta-EE, the new energy experts. We will 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. Energy customers are increasingly walking the walk to buy their energy from green sources, not just for green tariffs, but more and more linkages directly to generators through a multi-year deal. On the other side of the fence, renewable energy generators like the guarantee of a long-term agreement to sell their energy.
And between the consumer and the generator in the middle often sits energy companies facilitating and enabling these transactions. Today, we're talking with energy company Alpiq and renewable energy asset owner Aquila about the rise of PPA's or power purchase agreements with a particular focus on the Spanish market and as usual, with a one of my Delta-EE colleagues and experts to help us navigate this area. So, without further ado, let's introduce my guests. First up is Jesus Reyes from Alpiq.
Hello, good afternoon.
Thanks for joining us on the podcast. Now, not all of our listeners may know of or have heard of Alpiq. So, could you give us a few facts and figures about Alpiq to start with?
Yeah, well, Alpiq is a Swiss energy company with a pan-European presence and local offices all across Europe, from Spain to most Eastern European countries, including the largest European markets like France, Italy, Germany, the Nordics, we have a large generation portfolio with a big relevance of the Swiss hydro assets as a legacy for my company. And more specifically about Spain, and we have our own generation activity, and we also manage a large portfolio of third-party assets, and we are currently supplying energy, both the gas and power to industrial customers for around 6 [inaudible 00:02:29] hours per year, combining both.
And we have concluded in the past couple of years ago half a dozen PPA's around 350-megawatts of installed capacity just basically to cover our corporate customer’s needs.
OK, thanks, that paints a nice picture, and your job title is Head of Sales and Origination. In the part of the value chain, you sit in, that's probably well understood, but some of our listeners won't be familiar with what a Head of Sales and origination does. So, could you describe your role in a more tangible way than the dry job title?
Yeah, absolutely, when we talk about origination, we like to see ourselves as facilitators or as solution partners for our customers challenges. So basically, what we are requested is to be able to implement in concrete the contractor proposals those high-level ideas that we are discussing, both with producers and with consumers. We need to make them real and to make them happen and make sure that every aspect is covered from credit to regulatory reporting. We need to be the translators internally with our traders and externally and to make sure that the customer's requests are taken for consideration.
That would be our task.
Yeah, OK, so very you're driven by what your customers want, by what they're asking you, and you make that happen by working with your colleagues internally. OK, thanks, Jesus. We'll come back to you shortly. My second guest is Marcos Domingo's from Aquila Capital, Hello Marcos.
Hi. Good afternoon. Glad to be here with you.
And thanks for joining us. Marcos, likewise, could you give us a very brief introduction to Aquila Capital, who is Aquila and what do you do?
Sure, Aquila group is a leading investment manager in Real Assets Solutions. It's sustainable investment strategy, focus on investments in renewable energy and energy efficiency and infrastructure, residential real estate, green logistics and all the things like timber and agriculture. It was founded in 2001. So, we're not super old company, but we are already managing above 12.5 billion as of 31st of December of last year.
So, through sustainable investments, Aquila group is committed to contributing to the European energy transition. We try to create value for our investors, so we employ fully integrated investment and asset management approach. We have 14 offices in 12 different countries. We are continuously looking to expand and looking with these things, try to draw on the sector networks and experience to screen, develop, finance, manage and operate investments along the entire value chain.
A part of those investments is renewable generation.
Yeah, most of it is as renewable.
And particular type solar, wind, gas, bit of everything.
Well, it's only pure renewables. So, we have as normal investors. So, there is a big wave now of renewable investments, mainly PV and wind. But we are also quite unique in having quite a wide hydro portfolio that we manage. For example, just in Norway, we have both. I think the figure I don't know the figure by heart, but I think it's over 111 small hydro plans in Norway.
Okay. So quite a variation then by type and geography size.
And your role is Director of Power Markets in Spain. So, are you in that role, are you developing new assets? Are you managing existing assets? So, you're doing a bit of everything?
Yes. Well, I belong to a department called the Merchant Market Desk. We focus on power markets, and we try to provide assets with means for hedging their output, using PPA's amongst other structures. We don't limit ourselves to PPA's. We always say that there are there is life beyond PPA's. And what we do is try to. Yeah, but the main characteristic of the job would be to try to enable the assets with a hedge solution for their output.
Yeah. OK, so getting the right balance, some risk but not too much risk, enough certainty, the right blend between those two will look for the structure. We measure the possible risk. We try to balance it with a structure, with a PPA or with an alternative structure, and we go into the market and try to source it for the assets providing the best risk return profile to our investors and according to the needs, of course.
OK, thanks very much, Marcus. Last but not least, my colleague and Delta-EE expert, Dina Darshini. Hello, Dina.
Hi, hi Jon.
We've used the acronym; I've described it with our purchase agreement. Both Marcus and Jesus have talked a bit about it. But for a listener, that have never heard of the term PPA before. How could you simplify that and describe it in a nutshell?
Yeah, yeah, so PPA or power purchase agreement is a contractual agreement between an electricity buyer and an electricity seller. So, the agreement is to purchase an amount of energy at an agreed price for a certain length of time, say 10 years, and in advance of producing that energy. So that's the agreement. But just before I go any further on the contracts, I just want to take just one step back. And, you know, if you put yourself in a renewable energy developer's shoes, so you imagine you're building a 10-megawatt solar PV plant, which is high capital costs, involved in some operating costs going forward.
You can take this on yourself or in most cases will often need third party funding. So, a bank or credit provider or some other source. Now, in a world where are generous government subsidies and feed in tariffs, which typically have, let's say, 10-to-20-year contracts, now, they can be more financial security to invest in a renewable asset.
But guaranteed revenue stream as long as the asset produces electricity.
Exactly, now but without the certainty of those subsidies. So, this is where the PPA well, it's one of the options. BP can prove that this solar PV plant, this developer is aiming to build has already found a long-term buyer at a fixed price. And hence, both developer and financier feel more confident that the proceeds from the electricity sales will, of course, cover this investment costs. So that's, I guess in a nutshell, you can think of it that way, a PPA and it's uses.
And then within the world of PPA.
There's a lot of variation. We won't necessarily go to them all now because otherwise the podcast will turn into a teaching on PPA's. But I saw recently an example of some Dutch companies, Heineken and Phillips, that have a PPA with some wind farms in Finland that would be developed. So, it's unlikely the power flows. That's a virtual PPA, I guess, so if the power doesn't flow necessarily from those wind farms to the facilities in the Netherlands. But we have everything for those virtual PPA's to on site PPA's.
It is a broad spectrum, isn't it?
Yeah, like you said, within that sort of conceptual boundary, there'll be different types of PPA's you know different lengths of contracts, the specific contractual agreements, all this there are there's quite a range. And like I said, there's physical PPA's, there's virtual PPA's. And then within the physical PPA's you have on site PPA where the plant is at the site of the consumer or at least, you know, very close proximity, then you have offsite where it's not sort of physically there.
And in contrast to the onsite PPA, the producer will deliver the electricity to the consumer through a grid, public grid usually. But this would require an additional settlement via the balancing groups of the electricity generating plant and the consumer. And then you have another one within the physical PPA, which is called sleeved PPA, and which is simply kind of like an offsite PPA. But there's, let's say, an energy service provider, which takes on various processes and acts and acts as an intermediary between the producer and consumer.
So, it could take on services like balancing group management. We could aggregate various electricity producers in its portfolio and could supply residual quantities of electricity or of these surplus quantities, sell it on, forecast. There'll be a range of things that could market green certificates and that would be in the sleeve PPA, broadly I think that covers most of the PPA's.
Very quick lesson on PPA's, thanks Dina. Jesus, I'd like to just briefly ask from Alpiq's perspective in Spain, what functional of those different variations Dina talked about.
What does Alpiq do, are you sitting between the generator and the customer typically, or what's the typical role that you're playing?
Yeah, well, basically, our role is trying to accommodate all the customers demand from us, and it covers every kind of scheme. So, we're talking specifically about corporate PPA's. So, the schemes mentioned by Dina and for some customers the most relevant thing is to focus on the sustainability that this deal is going to offer to them and how to communicate that to their stakeholders. And that typically includes sometimes physical supply. But there are some other players that are more focussed on just purely achieving the lowest price possible.
And in that case, it's typically a pure financial contract. That can also be a possibility. There are even combinations. So, I mean, somehow, we can offer the full lot. We are just trying to identify what is the critical point on the corporate and just trying to present something with it is the most suitable product. And, we need to have, and we need to accommodate also the producer's interest. And this is somehow the game that we have.
We are making sure that everything is feasible and somehow, we see ourselves in the middle.
And I gave that example of Heineken and Philips, I think in the Dutch market. Now, some of our listeners may be thinking, well, why do customers just buy a green tariff? That's lots of green tariffs on offer. Are you seeing more and more customers want to make that link between their consumption and an actual generation plant? Rather than just buy a green tariff and have no idea where their electricity is coming from, as long as it's green.
Absolutely. I mean, the green tariff is a possibility for them. They need to think about what is really operating. And we are starting to hear about the. At a higher level of requirements coming from the corporate side that initially were only requesting and that sustainability is confirmed, but now they're starting to talk about additionality on top of it. So, requirements on the let's say, the green quality of the assets behind their supply is rising day by day, I guess, because simply the market is increasing and the requirements that they want to insist as their partners [inaudible 00:15:57].
And that additionality, it could, for example, be OK, we want to know that our demand for green energy is coming from a new renewable site, from a new solar farm, for example. And can we link our consumption with construction of that solar farm?
That's absolutely correct. It comes exactly from that fact. And on top of it, there are even some changes in the regulation, particularly in Spain, and also a posture that these types of contracts are signed with the newly built plants out of any kind of subsidy. And this is what we're talking about. And it's the market is trying to find a way to facilitate the installation of these new plants that are at the energy transition.
OK, and Marcos, from your perspective, I guess, a time ago and maybe still in some markets that were guaranteed feed in tariffs, like Dina described, when you're looking at a new PV farm, for example, that you're building or taking up on the management of. Do you have access in Spain to that guaranteed income and to what degree do you want what you talked about, that balance of market risk and long-term contract? So how attractive is it for you to tie your output directly to a particular energy consumer, for example?
Is that something you're doing more and more of? Is it something that you sometimes do, but only sometimes do?
So, for us at Aquila once subsidies are gone, the way we view PPA's are as one of the building blocks in the energy transition. Of course, in this respect, what would be like ideal is what you're suggesting about tying in the asset and the consumption. What happens is that, well, to get that consumption tied up for a price for a long period of time is something that as of now in Iberia, we're still going through it. We're seeing more and more corporate PPA's.
But it is still a growing market. We do believe that this is a trend. And the more and more people, Jesus was mentioning, additionality initiatives like our E 100 are something that should prop up this willingness to acquire green energy for a long period of time. As of now, we are not seeing that much. Perhaps people are more used to the one-year, two-year contract and this is moving away from the business as usual.
But given good regulation, we have the electro intensive royal decree and late last year, that would be something that would, in our opinion, that would help prop up the interest for corporate PPA's.
And in your view, the longer the contract, the better. Or I guess it depends on what's in the contract.
That depends. I was mentioning that we see this as a building block. The PPA can have several functions. It can enable the financing or give you financing at better terms. And it can also give you and this is part of the reason for being able to enable finances is the fact that it ensures the stability of cash flows into the future. But at the same time, and given how the forward curve is in Spain, if you enter into much into a too long PPA, it can hurt the yields you construct from it, from serving the PPA, from serving the debt.
You might be too tied up in order to have a lot of free cash flow to serve to your investors. For us, I was mentioning one of the key things that we do at the [illegible] is structuring, and it is seeing how the different prices of different tenants and the different structures for this PPA's. What suits each investor? Depending on the investor type, you might have more appetite for one type of PPA's or another.
Yeah, OK, so one investor may be open to more risk and although not one may have trouble financing it, the other may not.
Yeah, sorry. Some of the structures we have that are some of our investors are mainly focussing to yield for those obviously we need to work with more flexible structures than just a plain vanilla 10 years pay as produced PPA.
Jesus, from your customers perspectives, what trends or patterns do you see about the length of people that they're interested in? Are they interested in, because the longer it is, maybe they lock in prices, but they have certainty. So, what factors you see affecting the length and what patterns you see from your customers in the length of PPA's they want to sign up to?
Yeah, there's certainly pros and cons. What we have tried to, I was going to say advice, not really advice, but just highlight to our customers is that they need first need to be very clear on their side the reasons that for what they really need, or they want to sign a PPA. For example, if the customer wants it for sustainability reasons and even pushing for additionality, then it makes no sense that they go for a short term PPA because it's of little use for a plant to go for a five-year contract.
But sometimes you receive this type of contradictory requests and then this is our task to identify, on the other hand, what we also try to explain to them, especially on the corporate side. I think that the producers are more trained because they are in constant contact with the lenders, and they need, and they have a very clear view of what they really need to get to know to optimise the financing structure. On the corporate side, some of them approach the market.
Just trying to the strike, the best price. And PPA's are not about just getting the lowest price in class. It's just a decision you take on a corporate level to go for it. And then once you have taken it, if it is for the right reasons, you have to conduct a process a competitive process, have to make sure that you do it in competitive conditions. But it's not a matter of deciding exactly what is the lowest moment or the tunnel that is going to make you to the lowest price.
And from all this sector, this is probably and not what we would recommend, because especially in long term contracts, it's going to be very difficult to anticipate absolutely every circumstance. So, you need to make sure that your stakeholders understand the main reasons are pushing you to take this decision.
So, it sounds like there is quite an education process there or working with your customers. So, they're really clear about their objectives and they understand the trade-offs.
This is precisely one of the biggest changes that we have seen in the past couple of years. So, where this teaching process was very long at the beginning and now has reduced quite dramatically because every customer is well trained. And when they go out in the market and they know much better what they want, this is somehow helping also to shorten negotiation periods that were the beginning where really taking the long term.
So, there was a lot of market creation in a way, at the beginning. Would you say you're through all of that or is that still you've got quite some customers that are still learning at the beginning that you need to take through or that education process?
But there's still a little bit of everything, but I mean, for this type of contracts, everybody tries to seek also their own advisers. And these advisers have also gone now through a number of negotiations. [inaudible 00:24:52]
I'd like also to highlight that it is not only customers, I think education needs to come always and not saying always in time. But, you know, for old players in this world, I think education needs to come from all fronts. So, for Jesus it would be his customers asking for the lowest price. For me, it would be my investors asking for the highest price. It is not that it is a matter of a striking in our case, it is a bit more risk reward, but that is something.
And the education, the continuous education of our stakeholders is something that requires and takes a good chunk of every day.
Yeah, I can see that. You've got to really align interests and objectives across all parties. Dina, in terms of globally, we're talking about Spain today, but can you just give us a very quick bit of context where other parts of the world, or parts of Europe where PPA's have really taken off first, are there countries ahead? Or are most markets, as we've been hearing about in Spain today at that stage?
Yeah, no it definitely varies by region, per country, but the good news is globally, I mean, the PPA market is growing and especially corporate PPA’s, which are only at the start of the year, I would say market journey. I mean, if you look at the trends globally between 2014 and 2017, I think anywhere between, so this is global, anywhere between two to six point something gigawatt of corporate PPA's was signed annually. And then in 2018 and 2019, these were record years, I think over 10 or to 19 gigawatts of corporate PPA's signed annually. Of course.
OK, 2020 and I suspect this will continue in 2021 due to COVID related impacts, these were hit. But I believe again this will pick up again from2022 onwards and the majority of this market currently is corporate PPA's based in the USA. But there is lots of activities in the Nordics and a bit in Latin America. We look at Europe, Spain, Italy, UK, Germany is picking up here and Europe. India is doing well in Asia through the captive model.
And the world's largest corporate PPA is in Taiwan, I think. And there's a 900-megawatt wind power plant in this contract between Ørsted and Taiwan Semiconductor Manufacturing Company. So, yeah, it's definitely I think globally there is a lot of activity there. Of course, little pockets which are a little bit more advance in Europe, for example, there are still some barriers, for example, in countries like France and, you know, low wholesale energy prices.
The French state still has some feed in tariffs, support the scaling it back other regulatory barriers. So, yeah, it varies.
Quite country specific in many ways, but I can also see if you've got companies like Microsoft, Google, Apple, Amazon, they're global companies got operations around the world. And as I become more familiar with PPA's, they're going to take advantages of countries where they can where PPA's can be done. Jesus, are you seeing that in Spain? Are U.S. multinationals or local companies or mixture of both or any patterns across those types of customers?
We see absolutely every pattern. So, for different reasons. Some of them, probably the multinationals are trying to, so they have a well-defined sustainability target and then they simply need this type of tools. And other smaller corporates are just basically seeking the advantage that they can now take from lower price if they commit to long term growth. So, for different reasons, but we see different people approaching and even the type of contracts that you mentioned from multinationals that have some presence in Spain, but that's from probably bigger in Europe.
But they are seeking for Spanish [inaudible 00:29:29] PPA's because it's at present one of the lowest possible prices to be achieved.
OK, interesting, so it looks like it's a trend we'll see growing dependent on country regulations, but quite a wide variety of customers showing interest in activity from a generator perspective. As you describe, Marcos, it's going to be a good fit. I'd like now to bring up the Talking New Energy crystal ball and look forward a bit. So, if we set the dial this week to 2025, I'd like to ask each of you, what developments you think we'll see in the PPA market between now and 2025.
So, keeping it brief, one or two developments each. But what would you highlight that you'd expect to see between now and 2025? Jesus let's start with you and then Marcos and then Dina.
OK, I mean, from my side, I'm very anxious to get there, to jump in that tunnel of time because we've got a number of uncertainties at present that we are all trying to implement into our models and talking specifically about Spain. So, how the story strategy, it can really be implemented and how efficiently it can really materialise. It's going to be crucial. And by then, I think we will have probably a clearer view.
And at present, this uncertainty is also leading to some risk premium in the contracts. And that's when we start seeing more real and future energy environment. It will be a little bit easier probably to forecast this type of effect and also the regulatory side. We are also eager to see and some uncertainty as we move as possible to make it easier for the discussion.
So, removing some regulatory uncertainty and managing the uncertainty of the very real output of renewables and I guess both of those, if you overcome both of those, you will see a lot more activity with PPA's in Spain.
Marcos, from your perspective, one or two developments that you expect to see between now and 2025.
I think the main development that will happen is cooperate PPA's, instead of being a rare species, will still being mainstream. I mean, everyone will want to have a PPA in their balance sheet. I think also that we will stop talking about PV or wind or hydro and more hybridisation into those so that could be there. And of course. But I think structures will become we will move away from the plain vanilla 10 years pay as produced into more flexible structures, shorter tenures, longer tenures of fixes and floors and caps, collars, all those structures in order to accommodate and to leave that rigidity away from those.
Yeah, OK. Some maturing of the market, more of those risk management tools collars, caps, blending different assets. Yeah. OK, and last but not least, Dina, your thoughts about key developments, Spain or global or wherever between now and 2025?
Yeah, I mean, just to echo what Marcos and Jesus have said. I mean, in general, I think, yeah, we there is a general acceptance of renewables. And, you know, there were government subsidies before. But, you know, as each of these countries shift from subsidised projects to open markets, I think PPA will be, you know, one of those alternative options taken by renewable investors. And, you know, I think it was Marcos who mentioned more corporations are signing up to [illegible] or are aiming to green up the operations and brand.
So, again, this is all in the right direction and they'll be probably more flexibility in contracts. And with that, of course, potential customers will deem PPA's possibly as complex in their structure and pricing. And you know will need help to adequately understand and negotiate these contractual clauses, which can, of course, impact the overall revenue of a PPA. So, in the future, you know, there very well may be a lot more service providers or consultancies out there that help customers understand energy risk valuation in negotiation issues.
And also, I think the finance sector is becoming very comfortable with financing these sorts of projects or more comfortable, at least. So as the market develops further, not only are the customers being more educated, there are people out there to help. The finance sector is also moving up this curve. So, I think the market will move in the right direction. And yeah, so I think it will rise and rise in the next five years.
Well, I think that is a great example of markets moving away from subsidies incentives feed-in tariffs to more market-based mechanisms and customers driving that demand. Because what we've heard about today is customers wanting to link their demand to additionality, wanting to be linked to particular assets. That's only a good thing because that will drive that will make projects more financeable as Marcos has been saying and see more development of renewables. So really, really interesting discussion times got the better of us, so we better leave it there.
But thanks very much. Jesus, Marcos. Dina, it's been great having you on the podcast. Thanks very much for your contributions. Thanks, as always to listeners. We hope you've learnt more about the world of PPA's through a Spanish look lens and we look forward to welcoming you back to the episode next week. Thanks, and goodbye.
In this episode we head to Texas, to explore what we can learn from the February power crisis. The crisis left over 4.5 million homes and businesses without power, some for many days, and some estimate the economic damage at a staggering $195 billion. Lots has been written about the causes, with much of the attention on the supply side of the market. There’s been less focus on what we saw happen with customers – or the demand side. And while these crises have had terrible impacts, they also provide an opportunity to step back and see how markets could be reformed.
Host Jon Slowe is joined by Lynne Kiesling, an economist and Visiting Professor at Carnegie Mellon University; Sid Sachdeva, Founder and CEO at Innowatts, a SaaS platform that leverages insights from more than 40 million meters, many of which were in the region affected by the crisis; and Delta-EE expert Jon Ferris, one of our experts on how the demand side can participate more in electricity markets.
Today, we're crossing the Atlantic and heading to Texas to explore what we can learn from the February power crisis. The crisis left over 4.5 million homes and businesses without power, some for many days. And by some estimates, the economic damage is a staggering, 195 billion dollars lots has been written about the causes, with much of the attention, understandably, on the supply side with the generating problem frozen wind turbines or frozen gas power plants or both.
But there's been less focus on what we saw happen with customers. Less focus on the demand side. And while the crisis has had terrible impacts for sure, these sorts of crisis also provide an opportunity to step back, look at how markets could be reformed and look and what could be better in the future. Could, for example, demand response, play a bigger role in the situation if it was to happen again. So, to explore these questions, I've got three great guests joining me today.
Let's say hello, first then Lynne Kiesling, who is an economist, a visiting professor at Carnegie Mellon University in the US. Hello, Lynne.
I'll introduce all of the guests straight up and then we'll get into the discussion, so second is Sid Sachdeva, founder and CEO at Innowatts a SaaS platform that leverages insights from more than 40 million meters across several countries. And many of those metres were in Texas, where I think you're based Sid, so hello Sid, welcome to the podcast.
Hey, Jon, thanks for having me.
And the third guest is my colleague and Delta-EE expert, John Ferris, one of our experts, on how the demand side can play a much greater role in electricity markets. Hello Jon.
Right, Lynne let's start with you, and I'm going to ask you what sounds like a simple question, how would you summarise the key causes of the crisis? Complex I know, but if you had to summarise it for all listeners, us aren't that familiar with it. What would you say?
You're exactly right. It is a very complex process. And I'll try to give an overview and then Sid can add from his hands-on experience on the ground in Texas. I think the event itself was a combination of an unprecedented and unexpected depth of cold weather and duration of cold weather. There were subsequent winter storms and Texas gets a bad winter storm at least every year. This one in particular was one of the worst since at least 1989.
There was another bad storm in 2011 that wasn't nearly this long or this cold, but this one started with a bad storm on February 11th, which involved a lot of ice and snow and very low temperatures into single digits and then subsequent storms, particularly in the 40s and 50s, which were surprisingly large in terms of the coverage covering almost the entire state. And Texas is a very large state. So, this is a very large storm system. And the duration of the single-digit temperatures throughout the whole week meant that the municipalities had run out of their storm, their sand and salt that they use to clear the roads so crews couldn't get to facilities to defrost them.
And so, the magnitude of the weather event was large. What this meant in terms of the set of interconnected infrastructures was really profound. And typically, we think about the electric system, but there are really three interdependent infrastructure systems that were in play here. One was obviously the electric system and there were but there were power plants that were sitting and ready to generate. But the upstream natural gas supply system was having a lot of problems. Natural gas, when it's extracted in Texas, is very wet.
It comes out with quite a bit of water. And so, there was a lot of freezing and freezing of hydraulic systems as well at the wellhead. So, then that meant that it was difficult for natural gas power plants to get their gas supply. And what limited gas supply there was, was going to be more to home heating that got prioritised. And then downstream from the electric is the water supply. And so, as the freeze continued, there was a lot of difficulty with the water system and places having to be on boil water alerts so that they could have potable water.
So, Lynne, obviously demand spiked the cold weather, a fair bit of electric heating. So, demand spiked generation. What in theory was there enough generation, if at all, been working, able to work and working properly? Or was there a fundamental mismatch between the spike in demand and how much a generation should be available?
It was an unprecedented spike in demand because of the very low single-digit Fahrenheit, I should say, temperatures. And that meant that the demand for electric heating was higher and then before and higher than typical. You have these combined demands for electricity and combined demands for natural gas, both for heating and for power generation.
Yeah, OK, so a mixture of very high demand generation capacity, not being able to work as it had hoped and therefore not enough generation to meet that demand Sid, from your perspective, you've got a lot of metre data coming through your platform, what did you see happen in customers’ homes? Can you paint a bit more of a picture, apart from the obvious that it got colder, and demand went up?
Yeah, so, the demand went up across the board in Texas, just so your listeners have the context. Homes, 60 percent of the homes use electric or use gas for heating, and about 40 percent of the homes use electricity for heating. The number of electric heating homes are increasing every year. So, one would imagine at least the non-electric heating customers or gas heating customers would not have much of a spike. But what we saw was almost across the board in Texas as coastal belt, too.
So, it backs up to the Gulf Coast of Mexico. So, what we observed was that one cities that were in the north, like Dallas Fort Worth. They saw a jump and that part of the state experiences cold weather almost every year, so they are pretty well versed with it. Even in that part of the state. We saw about 53 percent jump in energy consumption or power consumption for electric heating customers against a normal winter day and the non-electric heating.
Customers saw their power jump by about 70 percent,
So, what was going on there? Are people plugging in portable electric heaters?
That as well as just in Texas. We also have pools. So a lot of homes have swimming pools, and what you don't want is you don't want the pipes to freeze. So they have pumps running almost 24/7. So there are a lot of things that were running 24/7. Then if you come closer to the coast or actually on the coast of Texas, what we predicted was and we saw the actual scheme in line. The energy consumption, power consumption actually increased by about 140 to 160 percent across both electric and non-electric heating customers.
And the reason is that homes along the coast really don't get this kind of a cold snap and they're not used to and they can bare up to a certain extent. But when you have temperatures going down in single digits, the power consumption really shoots up. So that's the kind of granularity and visibility that I think was missing from the whole not just the discussion, but it's missing from our regular planning exercise as well. On a day-to-day basis.
Then you mentioned, maybe the worst storms since 1989, so that's a 1 in 31 year or 1 in 30-year storm, I guess. Was that not planned for did people, not understand what would happen when the next 1 in 30 storms came along or was not understanding there, but the generation side failed, and people didn't anticipate that.
I think in general, there are multiple levels at which we could talk about that. One is the kind of individual homeowner what as or resident, I should say, because renter, owner I don't think as a residential energy consumer, I don't think you think much about such infrequent weather events, especially in Texas. If you do think about weather events, you think about heat, you think about hurricanes. And so winter weather events are something that are so unusual.
And now if we go up, say, a planning layer to say either, the wires companies, the transmission and distribution utilities that plan the infrastructure or even or ERCOT, ERCOT is the Electricity Reliability Council of Texas. And they're responsible for the operations of the wires network, the reliability of service and the operations of the wholesale power markets. And so, in ERCOT's planning horizon, my understanding is that they use 10 years of data and so in 10 years of data.
It's hard to capture a one in 20 or a one in 30 event. And so, I think one of the retrospectives, how can we do better next time? Analysis that will be done is how can ERCOT improve its planning horizon and its planning methodology to adapt to the fact that with climate change, weather patterns are likely to be more variable and harder to predict.
Yeah, I guess that coupled with a more electrified future, more electric comes, as you said Sid, more electric vehicles. The yeah, it's happening both ways. More extreme weather events and more electrification as well.
I mean, if I may jump in, there are just the whole planning. And it's not just specific to Texas. It's almost everywhere in the world. You bundle residential power consumers as electric heat or non-electric heat. And you take an average of those consumers and that's what you use for planning and you're looking back to predict the future, and every time we will continue to if we continue with that same trend, we will continue to have these podcasts that will focus on what happened before and what can we do in the future instead of creating or modifying our planning exercise to include these scenarios, what could happen in future?
I mean, I don't know. Ten years down the road, Texas could see, God forbid, but a windstorm. So, you may have poles and wires go down. How would that change, what impact it would have on the consumer? So, we need to take these things into consideration. We are not learning from other markets. London had a beast from the east storm in 2017/2018.
And like Houston and many of the Texas cities.
And by the way, this is the only common thing between Houston and London. London does not have the sand and salt to remove snow from the streets or winter precipitation. So, the learning's the from a demand perspective how the demand changes when folks stay at home. Not many businesses are running when you have a winter precipitation. Houston and other parts of Texas could have learnt from that market. And being able to predict, at least in a I won't say a year before, but at least a week before the winter storm was supposed to hit Texas.
Yeah, OK, so one big lesson then is planning and maybe a different way of looking at the future, both the time horizons and probabilities rather than a deterministic way. And what can you learn from elsewhere? Jon, I'd like to look at the demand side of it now, and in Europe, we're seeing more and more activity with dynamic time of use pricing, so bigger industrial and commercial customers are used to this to some degree already.
But increasingly, residential customers could be on tariffs where the price changes every half hour, or every hour linked to the wholesale market. And it's quite a nice concept. People are attracted to the idea of negative prices or very low prices. Could I get paid for charging my electric vehicle, for example? But on the flip side, you could find yourself with very high prices. And in the Texas crisis, the price shot through the roof. Can you tell us a bit about a start-up called Griddy and what happened with them in the Texas crisis?
Yes, so Griddy was an electricity retailer, and what that means is that they don't own any of the networks and unlike some other retailers, they don't necessarily own any generation. So, what Griddy was responsible for was buying power for its customers on the wholesale market and recovering the costs of energy, use of the network, any taxes and levies through the tariffs that they charge customers. And most retailers historically have bought energy in advance and manage that market risk on behalf of consumers, giving them the certainty of a fixed rate for energy.
As you mentioned, Jon, there's a trend towards new innovative retailers, including the Barry energy in France, Octopus energy and Tiba, but are offering customers tariffs where the rates vary from day to day and under different times, reflecting the actual grid conditions. In the long run, this will tend to work out cheaper for the consumer. But in the short term, they're much more volatile, so higher during the evening peaks and lower, perhaps even negative on windy nights.
As a consumer, if you can take advantage of this volatility by charging your EV or running your washing machine when prices are low. Not only are you rewarded for helping to balance the grid, you're also consuming more when renewable generation is high. So, making the grid.
So that's a nice side of it. [inaudible 00:17:30]
That was what Griddy offered in the Texas market. So, consumers in Texas were able to have retail choice and decide whether to go to a traditional retailer or to move to Griddy who'd launched in 2016 and signed up about 30,000 customers on real time tariffs. So Griddy didn't purchase any energy in advance when the spot prices in Texas reached the cap of $9,000 a megawatt hour, compared to a typical range of around 40 or 50 dollars. When consumers ended up receiving bills in the tens of thousands of dollars for the week of the storm.
It was and Griddy wasn't the only country that offers such a tariff, Octopus Energy had actually launched in the U.S. that very week. So, having made an acquisition a few years ago, they rebranded the week before the storm and being part of a larger group, they were able to take the decision to cap the rates for their customers. So, not exposing to the full price of the imbalance markets. Griddy wasn't able to do this and ended up going into bankruptcy, owing the system operator over 25 million dollars.
Wow and customers still owing well do customers have, are they still liable for that amount of money, their customers.
I think that's an ongoing discussion within Texas as to whether customers should be charged, both rates and also whether the retailers should be charged, what they owe to ERCOT for their imbalance. It wasn't just the new retailers, but some of the more traditional entities where their own generation was unable to get the gas to meet their customer’s needs, find themselves with bills in the hundreds of millions, and I'll give one example, over two billion dollars owing to ERCOT.
Yeah, OK, so everyone was stung in some way through this huge jumps in the wholesale price. Sometimes it passed onto customers, sometimes it didn't.
And I think it's also important to note that, as Jon said, they had Griddy, had only about 29,000 customers and this is in a market of 1.2 million or so customers. So, the Griddy wholesale price passed through contract was very much a niche product, but it was very much in keeping with their business model, but they passed through that wholesale price. And unlike, as you said, unlike Octopus energy, which could use its internal hedging to kind of modify slight differences in the business model, but both offering real time prices.
Yeah, I guess we've got to be careful not to tar all real time price business models with well, with that brush, with that negative experience of Griddy, because there are lots of different variations to real time pricing and amounts of risk that you can pass through to customers and ways you can do that. But I'm interested in whether the degree to which flexible demand could have helped in this crisis. So, can we imagine Lynne, can you imagine a situation where it might have been cold, but rather than have some people or millions of people without power, could everyone have coped with a bit of cold for the sake of reducing demand and keeping the lights on everyone?
Yeah, and I think there's there are two aspects of that. One is the existing flexible demand and demand response portfolio in Texas. And there are quite a few industrial and commercial customers who are on demand response contracts. And again, like much of the Texas system, those contracts are geared towards summer heat and not necessarily towards February winter storms. But so, for especially industrial customers, it may not have been as easy for them to adjust their activities in February, given that they're sort of geared towards being able to adjust them in the summer.
But so, there is some demand response in the system. And there was commercial and industrial response I'd been interested in Sid's observation of this data. But compared to the magnitude of the demand for electricity, it just wasn't sufficient. The other the other part, I think, is the residential question and the extent to which there are untapped resources in homes that we can use. And Sid mentioned the pool pumps, but if, for example, more consumers were on real time prices, but that it was a transactive system.
So, you had digital sensors and you could automate responses to those price signals that people could have lowered their thermostat or people's thermostats could have been programmed to lower automatically and having your house, say, at 60 degrees. But being able to keep the system on is preferable to being blacked out for two days, using automation to and price signals to cycle pool pumps and to cycle refrigerator, fridge-freezer condensers, those kinds of things that would have provided some more demand-side flexibility in a highly distributed way that could have added up to enough to at least attenuate some of what was experienced.
That automation, I think, would have been really important in this situation where the blackouts actually started at about one o'clock in the morning on Monday. So, even the most dedicated of consumers that are looking for right demand response are unlikely to be monitoring the markets for that point in time.
Yeah, and with we're seeing more automation, some of those companies you mentioned in Europe, Jon, I know Lynne and Sid in the U.S., you've got smart thermostat programmes which have automation in them as well, where the customer might [inaudible 00:24:29]. Within that, you can have some automated response.
I think we also need to look at this from a structural angle. This is not the first time we are having a demand response discussion when around an event like this. But if I can take draw some analogy, a couple of analogies. One from the mortgage industry where whoever has taken a mortgage, home mortgage loan knows that the interest rate will be specific to that consumer because the factors are different. My risk profile is different. Same thing in the energy space.
Why do we have the same rate for every customer when the demand profile is different? So, if you look at Texas, the cost distribution actually across all consumers is about a 107 percent. It's way too white, right? So, if I am a retailer who has higher costs to serve customers and I'm giving them a lower rate or the average rate. I am running the risk of losing those customers versus I have a lower cost to serve customers and I'm giving them a higher or, giving them a higher rate than I have.
The other problem. So, the point I'm making is the more personalised pricing the industry can come up with, the more consumers can start making structural improvements within their homes or businesses to respond to either of these kind of events in an isolated way or more on an ongoing basis. So, if I can charge 20 cents a kilowatt hour versus 10 cents, which is the average rate, at least I will take notice and say, OK, something is wrong.
I need to either fill up my pool with sand, not use it, or make some other changes. So, I don't think we can to Jon's point, we can expect, folks, when you are going through all this or this unprecedented event to think about, oh, I need to turn off my light bulb or I need to turn off this. So, the industry needs to look at it on a more structural way rather than in a transactional.
And to what extent, Sid and Lynne do you see discussions starting to happen around or people really looking at that seriously, at personalisation Sid or Lynne in terms of more sophisticated demand-side programmes or demand response?
Deep sigh, because it's I do fear that this event is going to be a bit of a black eye for the idea of more personalised pricing and more dynamic pricing, even though the folks who did choose the wholesale, perhaps through price and did have high bills, were a very small share of the entire market. And so, I think Sid's exactly right. We have to have a larger conversation about both the transactional and economic and market aspects, but also the more kind of structural, regulatory and business model aspects of what do these increasingly heterogeneous and technologies with different capabilities that are going to be scattered throughout the distribution grid.
Now, what does that mean in terms of our ability to curate and customise electric services for different people who have different demand profiles and different preferences? And even more so because some of those resources are going to be things like electric vehicles and battery storage. Those small customers can even provide grid services, things like voltage regulation and local support of the grid and could be compensated accordingly, for example, in a local energy market for grid services.
There's a model of stopping prices that reflect the demand profile that is common and familiar to commercial and industrial customers, where you've got larger volumes that the history of having smart metre data is much longer and we're yet to see that in the consumer space. But that does lead to differentiated pricing. That doesn't necessarily lead the consumer open to the volatility of short-term pricing. So, I think that sets a baseline that reflects the shape of the consumer and from there you can look at deriving demand flexibility by giving access to markets.
One thing that didn't happen in Texas, apart from Griddy, was retailers offering customers $9,000 a megawatt hour or even anywhere close to that in order to reduce demand. And those that weren't cut off were more than able to continue consuming, paying 10, 12 cents an hour, regardless of the impact on the rest of the state.
Yeah, so you had this big mismatch between demand and generation, I guess you want to be careful how much you expose the customers to the volatility that Griddy customers were exposed to.
And this mismatch, will always stay if we are not extending or sharing the demand intelligence with the upstream supply traders and the grid operators.
If the grid operator and the supply generators would have known that along the coast, this is how the load will spike by more than 100 hundred percent when weather goes down. I'm sure at least the power plants supporting that part of the grid would have done weatherization or ERCOT would have forced them to have some weatherization in place.
So, the lack of intelligence about our customers. Is really, the way we see it is impacting the whole value chain. Every industry we talk about being customer centric, what is the simple definition of being customer centric in the utility space? Knowing my customers demand profile. Ask any utility 75 percent of them will have no idea of what demand profile is of their customers.
Then you can add layers onto that, they'd know the demand profile know the typical demand profile, how flexible that demand profile is.
Know what happened to that demand profile in super cold or super-hot weather.
Absolutely, and it's not rocket science we do that when you buy auto insurance today. I have a red car. My neighbour has the same red car, but our insurance premiums are different. Why?
They know about you. Yeah, yeah.
I think the comparison to insurance is extremely apt that when we buy a vehicle and we buy the gasoline to drive the vehicle, we know that we are taking on certain risks of accidents and injury. But we have insurance policies. And at least in the US we're required to have insurance policies, I wouldn't necessarily go that far for like the Griddy's of the market. But one thing that I've been thinking about since February is whether it would be useful to have Griddy, you know have the kinds of, say, travel insurance policies that airlines offer where you can choose if you buy a non-refundable ticket, you can choose whether or not to buy travel insurance in case something unexpectedly means you have to cancel your trip.
You could do something similar for if you're going to be on a real time price contract as a small residential customer, you could choose to buy an insurance contract with. If the price goes above a certain amount, then my rate will be capped at that amount. And I pay for that insurance policy so that those kind of market-based approaches to enabling self-insurance might be a good approach that I think draws on a lot of our auto and travel insurance expertise.
Sounds very logical when you describe it like that Lynne.
To Sid's point, that's asking a lot of the consumer when I think in February, we did the retailers that had the responsibility and should be experts not taking that principle of covering there risk. And I think to the point of providing data, actually being able to give not just the retailer, but consumers a better understanding of their consumption, better understanding of the risks that they're taking or the risk that they may be taking on.
I think it's an essential counterpoint if they are also going to be taking on the decision of whether to buy insurance or not.
Yeah, without the data, you can't evaluate the risk and therefore you couldn't ensure it in that case.
Just to add, some of the large retailers who have sophisticated risk management practises in place, they were covered up to 75 percent of the risk. It's the smaller ones and the ones like Griddy that made the whole industry expose the whole industry to the risk. And again, it's a very common-sense thing, demand should be equal to supply, and if my demand if my supply cost this much, I should be able to charge that from the demand.
So, if I'm serving my high-cost customers with 20 dollars per megawatt hour or two cents per kilowatt hour of energy, that is not the correct price. It may be just because there are government incentives for wind power in the night and they are bringing down the price, but there are ancillaries and other things that are sitting in the back providing insurance. So, we're not taking those cost components into consideration. So, most of the large ones, I would say, were up to seventy five percent covered, maybe not a hundred percent, but the smaller ones were the ones that really created more problems.
One other thing that is important in this specific event and in Texas in particular, that I it makes the data transparency question that much more complicated. Is that the real this is not a resource adequacy problem, as we discussed already the power supply infrastructure was ready that I think the real failure is upstream in the gas supply and that system is not very transparent. And in Texas, there's not a lot of data on reliability of the system just because they're so used to being able to extract it and supply it.
There's not a whole lot of storage on site. And I would argue that the regulatory relationship between the Railroad Commission and the industry is definitely the Railroad Commission's mission is basically to protect the health of the natural gas industry. And so, there are some very perverse incentives in the upstream gas supply system that make it very opaque. And so, it makes that data that Sid's talking about, that much more difficult to have deliver reliability and resilience.
Well, certainly, I know there's report after report looking at what can be learnt from this crisis, we've touched parts of that today, let's finish by bringing out the Talking New Energy crystal ball and set the dial to 2030. And imagine another Texas like crisis. So, yeah, I'd like to ask each of you if you can answer very briefly in the interest of time, what might be different in 2030 or so, the same winter storm comes along, a headline from each of you on what might be different in nine years’ time, let’s go Lynne, Sid and then Jon.
Oh, I think I will. If we implement some of the lessons we've learnt from this, we will have more data across the integrated interdependent systems from natural gas to electric to water, and will do some of the smart engineering things like re redesigning the distribution circuits so that they're smaller and you can actually roll the blackouts and we'll have automation to automate the rolling blackouts if they're needed, but more importantly, automation to send price signals and communicate them to consumers and their devices in ways that those devices can change their settings autonomously and hopefully alleviate the need to even have the rolling blackouts.
Thanks Lynne, Sid how about you?
I think. And I'm a big proponent of it that consumers should be their own risk managers at the end of the day, not the utilities. So having, unique price for every customer based on their demand profile. High or low should be should motivate customers to or encourage them to have their own distributed energy resource system or a more or higher depending on what every consumer they give more priority to reliability they will have, let's say, a battery or a fuel cell.
If they give more priority to carbon footprint, they may have solar or other renewable generation and be able to control those at their end or at the service point or at the grid edge, along in conjunction with a unique price for every customer.
Personalisation of passing the risk of the incentives to the customers for them to act on that?
Yeah, I mean, if I am buying a red Ferrari, I should be open to paying more insurance premium.
Yeah, I don't know if you've given away the brand of your car Sid or not.
But, uh, Jon, how about you, what would be different in 2030?
I would like to think that there is more whole system thinking in the regulator to provide resilience across the utilities. But from what I'm seeing from the state legislature I'm not overly hopeful. I think consumers are likely to take things into their own hands. We will see more EVs, more batteries and other assets that can provide individual resilience to a lot more properties across Texas, hopefully combined with better access to markets and price signals that can influence behaviour, those assets can then be used and can be incentivised for system benefit and provide a benefit to everyone.
So, flexible demand can get the full rewards for their actions and hopefully there will be enough demand response to avoid rolling blackouts in the future.
OK, well, I hope all of your visions for 2030 are proved right. It would make for a much better, smarter and more intelligent system. So thanks very much to Jon, Sid and Lynne that was a great discussion. We hope that shed more light on the Texas crisis for you and look forward to welcoming you back to the next episode next week. Thanks and goodbye.
Schneider Electric is a global giant in the energy sector – not in terms of producing energy, but in terms of how we distribute, use and manage energy. Its products and services are found in electricity grids, in industries, and in buildings around the world. Like many, Schneider is embracing the energy transition and embracing digitalisation – what it calls the fourth industrial revolution. In this episode, host Jon Slowe is in conversation with Jai Thampi from Schneider Electric. Jai is Senior Vice President for Strategy and Innovation in the Home and Distribution part of Schneider’s energy management business. We’ll be talking about how Jai sees the future of energy in homes, what he thinks Schneider’s role is in this, and how to drive this forward in a large, global company.
Welcome to Talking to Energy, a podcast from Delta-EE, the new energy experts. We will 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. Schneider Electric is a global giant in the energy sector, not in terms of producing energy, but in terms of how we distribute, use and manage energy. And today, I'm speaking with Jai Thampi from Schneider.
Jai is Senior Vice President for Strategy and Innovation in the home and distribution part of Schneider's energy management business.
Many of you will have heard of Schneider for those that haven't or aren't quite sure what Schneider does, its products and services are found in grids, industries, buildings in over 115 countries around the world, and it employs a mammoth 135,000 people. So, without doubt, Schneider's products and services can play a big role in helping to decarbonise our energy system. So, let's say hello now to Jai.
Hello Jai. How are you doing?
Hey, Jon, thank you for having me on this podcast. Doing very well. How about yourself?
Yeah, I'm good. It's a lovely, sunny spring morning here in Glasgow, and you're joining us, well it's evening where you are, isn't it?
Yes, indeed. It's evening in Singapore and we do get sun and rain, which is pretty much the two climates that you have at this part of the world.
Well, very different climates from Glasgow to Singapore. I think I prefer a bit more, of your one to be honest, Jai, I described your official job title. Official job titles are always a bit dry. So, can you give me the unofficial version? How would you describe your job at Schneider?
Yeah, not really well said, Jon. I mean, titles don't really mean much. So let me break this down this way. So, as you said, at Schneider we globally provide solutions for energy management and automation. So, energy management business is where we address many different segments. One of the big ones, the key ones being homes or residential, and that's the division that I represent. So, we are the primary focus on residential segments. But not only that, and within this division, I'm responsible for the global strategy and long-term innovation.
So, I'd say figuring out, together with my colleagues and my team, how to transform and how to shape the future of this industry.
OK, so can you give us a feel for your listeners what Schneider products, might they have in their homes today, for example?
So, I normally tend to explain you know, when I explained it the first time to somebody that we make products across the home all the way from the products that keep you safe and give you peace of mind when you sleep at home. So, the circuit breakers, the electrical panel that's behind the wood, and then all of those products that actually you touch and interface with on a daily basis, the light switches, the sockets, the smart plugs, etc.
And then, of course, the next level, which is where we go into the energy space, which is the smart home automation space. So, things like your smart thermostat, your EV charging system, etc. So, we do have a play also in the new electric landscape. So, we're addressing multiple parts of the home and I'm pretty certain that our audience would have experienced at least a few of our products along the way.
Yeah. OK, thanks, Jai. Now, most of our listeners are in Europe, although the podcast does have a global footprint. You've got a global role now; homes vary massively from one part of the world to another. So, can you give us an example of the contrast you're seeing in different regions or what's particularly important for Europe, maybe contrasting Europe with another region?
It's a great question, Jon. I think, as we always say in Schneider, that we have a multi local approach or business is local, but we play globally. So, the diversity for us goes actually beyond types and sizes of homes, but also in products. So, if you take, for instance, countries like Singapore where I am or in China or some of the even Nordic countries, we would have a higher share of multi-dwelling homes, high rise residential mixed use buildings, for example.
Whereas if you look in the UK, Australia or even the US, you would see a higher share of single dwelling landed homes. So, from a product standpoint, the electrical distribution standards and regulations are different across geographies. So that's the other approach which sort of plugs and sockets are different. So therefore, our business is about delivering these local solutions with local competencies, understanding the local regulatory requirements and code compliance while leveraging the strength of Schneider as a global engine, including global technology platforms, global partnership, etc.
Yeah, OK. And you've got that global perspective. So, can you make that real? So, what might a global partnership or global, I guess, core part of your technology looks like that you can then localise and apply around the world?
Absolutely. I'll probably take one example, each one from partnership and one from technology, for instance. So, Schneider is one of the key players in the Connectivity Ecosystem Alliance, which is a partnership between Schneider Electric, ASSA ABLOY, Somfy and Danfoss. And what we do, we bring our products together, especially to homebuilders and end consumers products that would work together in a simple way seamlessly. So that's a global partnership because these are all global giants and they are all, let's say, leaders in their own right.
And that sort of partnership we can leverage across different parts of the world. So, when we win new customer projects, from a technology standpoint, if I take our smart home, home energy management system, we call it Wiser. That's the brand name we use internally. So, Wiser platform is a global approach, but we have tailored that leveraging technologies available locally for Europe, Asia and North America. So, those would be two very close and hard examples of how we are playing globally, but still being able to deliver locally.
Yeah, OK, I get that. And how reflective are they? So, looking at the big global trends and looking at where you see your markets overall heading, you gave two examples there. One, interoperability of connectivity between different manufacturers products and a second home energy management and your Wiser platform.
Are they two of the big global trends or the biggest? Or if you step back a bit and look at what the global trends affecting your business are, how would you describe them?
So, I think that's a very interesting evolution right now, as we you know, even in Delta-EE, you're absolutely on top of that is the energy transitions that are around us. So, the energy transitions are impacting homes as well. And but when you look at it from a consumer perspective in a home, we would probably see the first step of digitisation in the home, which is mostly around smartphone.
So, where we come in is actually taking a view of how the smartphone of the future or the home of the future will evolve beyond what we today call a smartphone. So, if I take a specific example, North America today would be maybe 25 to 30 percent smartphone penetration. France would probably be about 15 percent. Germany just about 20 percent. So, we could argue that smart home in itself has a long way to go in terms of market penetration. However, when we see the real shift that is happening today in homes, that's actually also the evolution of where homes are becoming more sustainable.
Homes have, let's say, solar batteries, etc, coming into the home. So, the energy side is also evolving. And this is where Schneider is taking a very clear approach to say that the smart home of the future cannot be just smart. It has to be smart and sustainable. So, that would be one of the big shifts that we're seeing in the market right now.
So, integrating that smart part and the energy part together is that fair?
Absolutely, and we call that strategy grid to plug, so the grid representing the energy side of things and the plug sort of representing every load or device or appliance in your home. And when you bring that grid to plug view a home energy management system, which is, of course, bringing the elements of the energy management as well as the whole motivation and which is at the end of the day, where homes of the future are going.
What about the speed of those two trains? So, sometimes I get very excited about smart homes and home energy management.
Other times I'm a bit frustrated about the speed of adoption of these technologies, these approaches. And I think back to when Google acquired Nest several years ago and the huge excitement in the industry. Wow.
Smart homes are really going to take off you gave them percentages. You know that they're in the market, but they're still the minority of the market, so.
In a way, it's a today market, but how quickly do you see those numbers growing? Still most homes, apart from places like Germany, don't have you don't have large numbers of homes with PV and batteries if you take out Germany, Australia and certain other markets. So, yeah, how does a company like Schneider manage the speed?
You don't be too far ahead, but you want to drive it, but you can't afford to be too late either.
We have a view on that.
And let me put it this way. So, any technology adoption will come when the customer truly recognises a value from it. So, if I take a smart home, take voice assistance or any of those expediencies once, the initial fun experience fades over, we have seen a lot of customers coming back and saying, I hardly use the same with kitchen appliances, my kitchen appliance. So, we don't believe in Schneider that a bunch of glorified remote controls is going to serve the real purpose of home automation.
So, I go back to that only a question about the differences between the localised differences in homes around the world. So, what is really changing is this evolution of electric and digital is coming together and there are different phases. So smart home, of course, starts at a bit early, but you can see that there is rapid adoption of solar and storage happening for various reasons. Now, Australia kickstarted that, particularly because of, you know, that the major blackout that happened in South Australia a few years ago.
Since then, Australia became the forefront of residential solar rooftop. Likewise in the US and look at even the recent expediencies in Texas, etc. So, I think there will be a defining moment where people will find a reason to bring a certain technological capability in the home. And what I'm basically saying is that the interplay between that energy and home automation, that needs to happen because if you keep them separate, customers will never be able to find true value from the two.
Because, you know, you would wake up thinking of, like, what's the best time to charge EV? How do I manage the different loads with my battery back? How do I know which room in my home is being inefficient or efficient with my heating during winter? And think of your country, for instance, right. So, there is so much happening there or even take the solar example we just talked about, how do I maximise my rooftop solar system against all my energy guzzling appliances that get used at different times of the day?
So, these are the pertinent questions that customers are going to be living with. And if we can deliver a simple, efficient solution for that by linking the two, I think we have really the future of smart home of tomorrow.
Yeah, OK. Where would you say you are on that journey of linking the two?
I think we have a very good advantage with where we are today in terms of the grid to plug approach. So, we have announced, and we are actually launching our energy centre, which is our connected electrical panel, really the next generation, a smart panel in the US and France this year, actually very soon in the US the first units have already started shipping and combining that with our smart home products inside the home is going to deliver that true end-end experience.
So, we are there in the market with that experience ready and available today. And I think this is going to be, let's say, across different markets is going to be appearing in other markets as well. So, we do have an advantage. We have the capabilities. We have the presence in these markets. We have go to market available, for instance, whether it's through homebuilders, real estate developers or electricians. So, we have all of the pieces available today to really but I'm not saying that call us victorious, but we certainly have at the moment, you know, all of those pieces figured, especially from a grid to plug point of view.
OK, so where there are particular coming back to what you said about making customers lives easier, making customer lives better, that will change a lot country to country, market to market. The Australia example, parts of France where you have a lot of automated shutters or blinds, for example, that you don't have in the UK. So, they'll be very specific use cases in different countries.
And you're advantages is in you're already in the home, you're already in distribution. You've already got those products, those electrical panels.
Do you think you'll always push them through distribution, or do you think your what's the balance between going through distribution and going direct to customers, the B2C route?
Well, it's something that we are looking at the moment. I think we still have a big part to play in helping our existing customer base, for example, homebuilders and also our electrician community, because homebuilders, and particularly take the UK, for example, California, for example, they're already experiencing the new target, net zero targets, regulations, etc, coming their way.
And these are customers who actually want a one stop solution. It's not, let's say, in their best advantage. If they have to actually put these pieces together and figure it out, they do need the flexibility, the scalability, the customised ability. And also, they do want to work with someone who understands, particularly the regulatory part of this equation, because energy is still the centre of it. So, this is where we have an advantage. So, we do have a big part to play in helping our existing customers.
But at the same time, we're also looking at what would it mean to go directly to consumers, because this is not a product like a smart voice system that you could buy and hook up by yourself.
It's not a gadget.
It's not a gadget, it is not a new toy that you can just take home from the shop and plug in.
So, I think that is something that we still have to approach. And the other thing, of course, is utility are also playing a big part. If you look at the demand response programmes today facilitated through utility. So, this I would say that this landscape still needs to be explored and looked at, but we still have quite some challenges in front that we can address easily with our existing customer base.
Yeah, OK. Come back to the Wiser home energy management platform.
Tell us a bit more about what this platform can do.
So, a few things. And so, first of all, we position Wiser as addressing four key values in the home, so number one is the resilience element, which is about the safety of the home as well as the uninterrupted power availability. The second value that we provide is the efficiency. So, it is very important, especially as you put more electric appliances and more energy guzzling appliances and devices etc in your home.
The third value that we deliver is personalisation, which is being human centric because smart homes are successful wherever they are, because they are actually very easy to use as well as very personalised. So, we do need to bring that as well, particularly in the context of linking energy and smart home automation. And then the fourth value, which is the most crucial value and would be also almost like a by-product of these three.
But, you know, taking a lot more centre stage nowadays is sustainability because governments are going to work towards that. Builders and other, let's say, different players in the industry are going to be looking at new regulations and requirements, and we need to be playing a big part in that. And so, these are the four values that Wiser is delivering. So, what can we do if I were to translate that into concrete elements at the energy side, we have the possibility with our energy centre to almost act like a Fitbit of the home.
So, it's constantly checking on what's going on in the home. It'll keep your home safe; it will proactively tell you if something is going to go wrong. It'll give you circuit level access and monitoring, managing capability to your different loads in the home. Now, at a technology level, that all sounds like, why do I need to do that? But we have worked on a software system and an application that would simplify it. And it's a mobile app that would make it super simple for the consumer.
What are the elements of that then Jai? You've got the consumer app that you just mentioned that user interface. You've got intelligence, the software, which I guess is partly in the cloud, partly in the home?
So, there's part of the [inaudible 00:18:13] and then part is, of course, in cloud. And then the rest of the pieces, Jon, would be the hardware. So, it could be is that energy centre or it could just be something as simple as what we call a power tag. Which is a very small device that could sit in any electrical panel. It's connected so it could actually tell you what's going on for that particular circuit. It could be just the smart devices inside the home.
So, we have a smart thermostat, for instance, and you probably have the Drayton branded smart thermostats. So, depending on the application that the customer wants, we can actually allow the journey to start. Right. So, this is, I think, very core, because today we don't prescribe that the customer should have everything. The customer journey could start from the IoT or the smart home world. It can start from the energy side, could even start from the EV side because these systems are going to coincide and coexist in the homes of the future.
Or the electrical panel, as you said, that everyone's got in the home.
So, that will be another starting point.
In terms of your job, so you're looking globally, you've talked about the local focus of Schneider, how hard is it for you to make sure that your got a right global approach, but you're interfacing with the different countries as well?
You are getting or regions, are you getting pulled in different directions. Country X says, hey, we need that country. Y says, hey, we want that. And then it's really hard for you globally to look at how do we get a common approach that can then be localised, or do you find the countries are all telling you the same things?
Yeah, I think that is a very good question.
And I'm guessing that many of my peers who are listening to this would probably acknowledge this as well. This is a common challenge, right, in any large multinational. So, you have to look outwards, and you have to also look inwards. So, what I mean by looking outwards is the macro trends and the micro trends in the market are very specific. So, Australia, being the largest solar residential market, has a different need than maybe UK or perhaps India, for example.
Even within these four values that I talked about, sustainability and efficiency probably takes the centre stage in Europe, whereas in India, resiliency just to have uninterrupted power would be an important factor. So, that is one element that allows us to prioritise. The other part is where are we strong? So, we are strong in various markets around the world. Schneider always takes pride in the fact that we have an almost equal presence around the world, depending on all the geographies so are strong in the US with our local brand.
We're strong in Europe with multiple brands in different countries. So, in each of these countries we have a certain strength. We have a certain channel access, and we have certain customer base. So, these would be, in my view, coming together, allowing us to prioritise which markets do we go for and how do we cascade the different technologies? Like I mentioned, global platforms, global technologies, but localising for the needs of that market. And that's therefore eventually becomes a strategy.
Can you be fast enough because sometimes these markets are slow. We talked about that at the beginning, some of the frustration with the speed of development. Other times they can go very fast. So, when they go fast, a local Start-Up, for example, can move really, really quickly. Can Schneider move quickly enough or is that a challenge for you?
Well, I think this is an excellent question. I mean, we start with recognising that for any industry that is in a transition or disruption, the winning formula is not size. It's really speed and size. And I wouldn't say it's only size I think it's a good combination. So, we acknowledge that we don't have all the answers. We are looking for a win win win partnerships, as we say. So, you know, it has to be successful for the partner, for us, and therefore for our customers.
So, there have been strong historically innovating at the core. And now we have an organisation within Schneider Innovation at the Edge. So, we're constantly looking out for start-ups in different parts of the world. What kind of capabilities, competencies do they bring that can dovetail with our own expertise? And I think the UK is a great example. Last year I think it was the tail end of last year, we announced that we are working with geo green energy options. It's a great partnership allowing us to bring our Wiser eating solution together with their smart metre analytics capability.
And now we are piloting that in a few hundred homes and they're discovering great insights about efficiencies room by room, translating the heating down to dollar value or pounds and pence rather than just a kilowatt hour. So, this is how we work. This is how we learn. So, we have to leverage partnerships. Like I talked about the connectivity ecosystem. It's not just start-ups, it's even other leading companies in that ecosystem. So, we are a big believer that open platforms, open technologies and speed of execution will be key.
I think it's really interesting that innovation at the edge of that example with geo green energy options, big companies are often very good at doing things from within, as you say, or acquiring and integrating, which takes time. Is that a relatively new approach to innovation at the edge?
Are you finding software in lots of it? Was that culturally difficult for Schneider to do?
Now, we have been doing this, as a matter of fact, as a company, Schneider has been always admired for this sort of openness and willingness to partner and work with start-ups, etc. I think innovation at the Edge is basically just structuring that because you would have the start-ups, we would have adventurers’ team within which would focus on which are some of those start-ups that we would want to probably invest at some point in time. And then, of course, we also have the incubation teams, which are also within this bigger cohort that are looking at how can we quickly incubate certain activities or certain initiatives within certain countries just to get the agility.
So, it's an overarching structure, but it's not necessarily a new approach for Schneider.
Yeah, it's just, as you say, structuring it. Jai, before we bring out the Talking New Energy crystal ball, I'd like to ask you about well, you've worked in other sectors besides energy. You've worked similar roles in other consumer facing businesses. When since you've been working at Schneider, how have you seen the energy in the smart home sector compared to some of the other industries you've worked, and what do you think are the specific challenges or what really stands out to you when you think back to the other industries and then energy in smart homes?
I think it's very, very good point, Jon, because I came from working in the smart home space for a really long time, I worked in smart home technology. I worked on networking technology, even in home appliances space. But one of the things that all of those in all of those [inaudible 00:25:03] we couldn't do is to really get the true efficiency of these devices and gadgets and appliances until they are connected. Whereas what we can do today in Schneider is that even if your kitchen appliances not connected or your pool pump or your sun pump is not connected because it is on electrical infrastructure, we can actually manage that, particularly those appliances which are big energy guzzlers.
So, this is something which is really unique and allows us and therefore to evolve into this grid to plug system. Now what is what is really possible in this smart home world is that you would probably have a product or a device or an appliance. You can go specifically into applications pertinent to that device, which is what the smart home companies can do. But this is where we have really taken a clear departure. Now, the challenge that you asked about the challenge really is that this is a very fragmented approach.
Smart home is a more universal approach. I would say that. I mean, smart lights and voice assistance, etc, are pretty much working on a common domain. But when it comes to energy, as you can see, it is regulated. It will be a different pace, different countries, the way even the technologies are different. If your panel is different, your you know, your [inaudible 00:26:20] is levels are different. So, this is going to be an interesting space.
And I think it gives also gives us a competitive advantage because it is not something that consumers would wake up thinking about when it comes to smart home. And that also gives us an opportunity to really create that space grid to plug and give the peace of mind at the benefits to the customers around the four values that I talked about.
Yeah, okay and I think that point about it being very country specific is really, really important, actually, because if you look at, you know, people talk quite loosely sometimes. Oh, yeah. Amazon or Google will enter the energy market. But they yeah, they have to localise their product and solutions to each market, but they like doing as little localisation as they can and energy.
You need huge amounts of localisation. As you say the regulation, the market structures, the way people use the way homes are set up there is so much.
So, I see that as a really big challenge, actually. How do you get, and Schneider is in a nice position. You've got that global and local approach, but how do you get the scalable solutions, but then working in very, very different countries, even if those two countries are right next to each other?
Absolutely. And this is exactly what we are figuring right now with Wiser. And if I look at how that has been evolving over the let's say, particularly in the last year since we announced our recruitable strategy with our energy centre, and if I look at the two markets that we have taken to launch North America, so the US and France, one on the US standard, the other one being the IC standard. And we have used two different technologies so for North America.
We use the technology from a company that we partner with called [inaudible 00:28:08], whereas in Europe we use our own technology, which we have developed over many years. And then on top of that, we're bringing our smart home capability, which is our own technology and the software and the user experience, etc. And we have tried it in both markets and both markets and products hitting the market right now. And we are ready to scale it to the next level.
So, I think there's great learning. And again, like I mentioned at the beginning, it's not calling it a victory yet, but I think we have seen from two huge markets very important for Schneider, totally contrasting in terms of the market landscape, etc. But being able to do that and the learnings coming from that, he's putting us in a very, very good position to be able to scale.
Did you deliberately pick two very different markets?
Like, I guess it makes sense to do that?
Yes, actually, we did. And again, for the reasons that we talked about earlier, because these are two important markets, you know, and again, they from in terms of, let's say, the new energy landscape adoption, for example, California is very forward leaning when it comes to that. So, it was a no brainer for us to pick that we are market leader in that space in the US anyway with Square D brand. So, you know, customers are already knocking at our doors asking how could we do this?
So, that was a easy one for us. France, obviously, you know, I mean, it's a big market for us. Again, great growth opportunities and we're seeing other markets in next to it. Think of Australia, think of some of the other European markets where we are, you know, historically strong in Australia, for instance, with Clipsal. So, we have markets where this could just scale to the next level. And leveraging the global capabilities and platform etc, but indeed, yes, we picked those two markets where the first bring the product into, let's say this year, and we're seeing some really positive results there.
Yeah, OK, well, let's look forward now, as you just sort of, ended in your comments then and bring out the Talking New Energy crystal ball and set the dial to 2025, so just four years away, can you give me three things that you'd love to see Schneider achieve in this area by 2025?
Well, you know, I mean, first of all, I'm really hopeful that the strategy is really going in the right direction with all the continued successes, for sure. But if you're to really ask me three things, I probably put it this way. So, first of all, I'd love to see homes becoming more resilient and efficient, a significant number of them. You know, we're still seeing billions of euros spent on electrical fault related fires, etc, in homes, one would probably think is particularly in Europe.
We would think that, you know, high quality electricity, everything is secure, etc. But that's not the reality. There is so much going on. So, this would be one that I would really like to accomplish. And it's also one of the values that we are delivering with Wiser. The second one is that if we do the smart home of the of the future, right with Wiser grid to plug homes could become the edge of the autonomous grid of tomorrow because the grid is going away from just being smart to becoming more sentient or autonomous.
And homes have to become better because home is a big CO2 greenhouse gas emitter in the bigger scheme of things. And we recognise it. And that is why our business is particularly important. And the third one is, if we would do all of these right, we would really see homes becoming more sustainable and supporting the net zero and the other initiatives and the climate change initiatives that are going around in all the countries around. So, those will be my really three wishes if I had that crystal ball, really the rest coming together or really becoming the edge of the grid and therefore delivering sustainability in the true sense of it, because we are the number one most sustainable company in the world now.
And we take that as a responsibility and not just as a place on the podium, but it's also a big responsibility on our shoulders to make sure that we make this happen in every segment that we touch and hoping that we really have it because.
Yeah, well, if we're going to succeed in the energy transition, then companies like Schneider will need to be driving it forward and playing a very big part in that. So, it sounds like you've got a busy few years ahead of you, Jai.
Well, absolutely. As long as we can help our customers, as I said, as well as us, it's a win win that's going to be fabulous.
Well, Jai, thanks so much for your time. It was great hearing both about the company's perspective, how Schneider approaches this area and your experiences and your views. And I think that the passion and excitement that came across in the podcast today. So, yeah, we're wishing Schneider the best of luck with what you're doing hope the next years go well and maybe we'll come back and talk again. Well, if not before, definitely in 2025 and see how we're doing on those three things.
Yeah, and thank you again,
For having me on this podcast it is a great topic for us and very important for us, for the company as well as for the planet, for the industry. You know, and we are, as you rightly said, in the middle of this energy transition. So really happy to have this opportunity to share some of these thoughts here with you.
Thanks, Jai. Well, that brings us to the end of this episode. So, thanks, everyone, for listening. We hope you enjoyed that window on the world of Schneider Electric and what they're doing in the Smart Homes and home energy management space. Look forward to welcoming back next week. Thanks, and goodbye.
We are hearing more and more about hydrogen – and the role it can play in a decarbonising world that will be increasingly electrified. In this episode we’ll be talking with one of the world’s leading manufacturers of electrolysers, Norwegian company Nel Hydrogen, exploring what life is like for them given the rapidly rising interest in hydrogen, and their plans and views on the future. Host Jon Slowe is joined by Raluca Leordeanu, VP of Business Development at Nel Hydrogen.
If you're working in the energy transition, you'll be hearing more and more about hydrogen and the role it can play in decarbonising a world that will be increasingly electrified. As you may know, most hydrogen today is produced from natural gas with carbon dioxide being emitted into the atmosphere.
And this type of hydrogen is commonly used in refineries and for ammonia production.
So, that's dirty hydrogen, which is mainly used today, clean hydrogen, on the other hand, has two main varieties, blue, which is produced from natural gas. But with the carbon emissions being captured and stored underground or green, which is produced from electrolysis of water powered by renewable electricity. And today we'll be talking with one of the world's leading manufacturers of electrolysers which helped to produce green hydrogen, Norwegian company, Nel Hydrogen. We'll be exploring what life is like for a company like Nel, given the rapidly rising interest in hydrogen and their activities, plans and views of the future.
So, let's say hello to my guest, Raluca Leordeanu, Vice President of Business Development at Nel hydrogen. Hello, Raluca.
Hi, and thank you for having me here.
Thanks for joining us. Raluca, while some of our listeners may be immersed in the world of hydrogen. Many of our listeners won't be that close to the world of hydrogen and might not have heard of Nel, so could you give us an elevator pitch for Nel Hydrogen?
Nel actually stands for Norsk electrolyse, which means Norwegian electrolysis. And it was started more than 19 years ago in 1927 as part of Norsk Hydro, now we are a standalone company, pure-play hydrogen company listed on the stock exchange. We have manufacturing facilities in Norway, Denmark and the US, but we sell throughout the globe and we are the leading electrolyser company and hydrogen refuelling stations manufacturer.
In fact, the largest
Can you give us an idea of scale Raluca, roughly how many employees or turnover or something that will help our listeners understand how big or small Nel is.
We're, I don't know the exact number now. I think there are about 400 employees with a plan to add another 100 employees this year and growing rapidly. I mean, the whole space is rather small. I could think of green hydrogen and refuelling stations, but it is deemed to grow very fast.
Yeah, OK, I think it's fascinating that you've been hydrogen to some people's eyes, is new, but you've been around, the company has been around for 90 years.
Tell us a bit about what, you know, one or two highlights of what Nel has done in those 90 years, the flagship project or. Yeah, a bit about your heritage.
Yes. So, if you think in the past, actually green hydrogen was used for ammonia in the past and it was, I think in the 50s that the gas took over as the main source of producing hydrogen.
So, if you think of large projects that we have done, the latest was decommissioned in the 90s and that was 135-megawatt installation in Norway. More recent installations are much smaller. However, we do have also bigger ones from about 8 years ago, we installed a 25-megawatt plant in Malaysia.
OK, so, yeah, I think that's fascinating. This sector is new, but it's not new, it's coming again.
It had a time before natural gas it then shrank a little bit as natural gas, took over in producing hydrogen or the dominant source. And now it's rising again. So, where in the hydrogen value changes does Nel play and where does Nel not play, give us a feel of where you focus your activities?
We are a technology manufacturer, so that's our focus. We typically do not own and operate. We do not invest in the projects. Also, we do not do civil works. So, we offer turnkey solutions. And we are the manufacturing provider.
Yeah, OK, so you're providing the equipment you mentioned earlier, hydrogen refuelling stations, so I guess you're doing more than just the electrolyser, you're providing a bit more of a complete solution for your clients.
Yes. If you think we have installed, I think, more than 3,500 electrolyser plants throughout the globe in more than 80 countries. And we have installed more than 50 hydrogen refuelling stations in about 13 countries.
OK, presumably you're doing a lot of R&D or give us a feel for whether the technologies there, it's mature, you have to do only very incremental R&D and it's just a case of manufacturing or scaling up, or is there still a big slice of R&D within Nel?
We still do a lot of R&D and I think that's going to continue. And we have different technologies in our portfolio at different stages. I would say alkaline is much more mature.
So, there we're just scaling up, PEM [inaudible 00:06:14] R&D to increase the size of the cell stack, but also scaling up, which will come very soon on refuelling stations. We're going into heavy-duty segments and there is more R&D to come. So, there is still plenty of R&D to take place, which will increase the efficiency or reduce the cost.
But a lot of the technology is there. The building blocks are there. So, we are ready to scale up.
Yeah, OK, so scaling up and further improving the technology.
Now, let's talk a bit about the market and the huge buzz there is about hydrogen at the moment, what's the balance that you see in the market between talk? There's lots of talk about hydrogen and action. So, is that translating into loads of projects or is it a bit too much talk and not enough action?
I think there is a balance and I see more and more things happening just in the short three years that I've been with Nel. The whole industry is growing very fast and it's a really great industry to be in that's good for the planet and is growing very fast and it's going to help the economy. So that's positive. However, the electrolyser industry is much smaller than you would imagine, given all the talk. So, around half the percent to one percent of the hydrogen market is produced through electrolysis today.
And just as an order of magnitude, I think in 2019, the estimated installed capacity was around 100-megawatts globally or even less than that. If you compare that wind, which was around 60 gigawatts, solar 115 gigawatts. So more than a thousand times larger because the electrolysis is about 10, 20 years behind the solar and wind.
Yeah, OK, so it's small both in terms of the hydrogen market, most of that hydrogen coming from or the vast majority of that hydrogen coming from natural gas and small in terms of the power market or the energy market but growing fast.
So, the hydrogen council forecast that the whole hydrogen market will grow 7-8 times in the next 30 years until 2050. And there are different forecasts that say electrolysis is going to go from less than one percent to 20, 30 percent of the market. So, if you make the calculations, electrolysis industry is going to grow 150 to 300 times in the next 30 years, which is huge.
And how much.
Yeah, OK. Are you seeing that growth already? If you look at your order book, your pipeline, what is that? Without going into details, what does that look like is an exponential curve? Is it taking time for that interest to translate into orders at the moment?
Our pipeline is growing very fast. Year by year, we see projects are larger and larger. The average size of the project is increasing. We have more projects that are over 100 megawatts in the pipeline, and we see more and more companies entering the industry on the customer side.
Yes, there are some companies that don't really understand the space yet. You can call them dreamers. But in general, there are a lot of serious players that have clear plans and put down the money to invest.
And how do you manage that to the dreamers, as you call it, take a lot of time, or do you have to filter out the dreamers quite early on in your business development activities?
Yeah, we do our best to understand who's serious and who's not and dedicate the time to the right projects, but it's always a balancing act.
Sometimes the dreamers actually do get the perfect storm.
And then looking at sort of patterns and trends you see in your customer base, I like to think of the well, the existing hydrogen market, ammonia production, refineries and then the new applications and ability applications, the power to gas applications. So, what patterns do you see between those old worlds and those new worlds or the existing applications and the new applications?
We see a change in the type of customers, of course, because in the past, many of the electrolysis installations were in places where the gas network couldn't reach.
And now there is a vision of power flex with having off-grid installations directly connected to renewables - today most installations are grid-connected.
So, there is a shift from what drives these installations and what's the need for them. There are also new customers, like you mentioned, with mobility, which would have different scope requirements. In the past, the traditional industrial customers did part of the installations themselves in many cases. Now we're seeing more and more customers asking for turnkey solutions.
OK, hence you being in the world of hydrogen refuelling stations because that gives you the ability to provide that turnkey or at least from the equipment side, all of the equipment packaged up a mobility customer would need.
And the mobility applications will be a bit smaller and capacity, you mentioned you even getting 100 megawatts projects and above.
Are you seeing the same interest across those smaller electrolyser, larger electrolyser do you expect it to go more to the large ones by capacity? If not, by number?
From there, the segment is coming faster. But is indeed smaller. And today the hydrogen refuelling stations have a rather low utilisation and they're rather small.
Yeah, they are increasing and if you think of heavy-duty the stations will be much larger, one or two tonnes a day or even higher and there's also this concept of valleys where there's the use of the electrolyser across different industries. [inaudible 00:13:16] transport, but also traditional users and also new users for ammonia refinery for green hydrogen.
What's one of the best examples of one of these hydrogen valleys or clusters where you get a mix of all these applications together?
I think most are in the making there's not so many that are up and running already.
And what about locations or regions, you said at the beginning you're active globally, and you've got customers around the world, you've got manufacturing in the US and in Europe. Most of our listeners are in Europe but not all in Europe. So, where geographically stands out to you in terms of interest, or is it hard to pick one region? Are you getting really strong interest from lots of regions?
We see a lot of interest from Europe, to be honest, and especially with the green deal on the plan for the 40 gigawatts of electrolysis in Europe, the IPCEI projects for funding these large projects. You see more and more happening in Europe, of course, there are things happening in other parts of the world. Be it the US, Australia, Asia. But I think the strongest pull is in Europe.
Do you think it will stay that way or do you think other regions over the next years will catch up or will it take more time to think?
I think I mean if you think of solar and wind when you see what China has done there. I think we should expect something similar at some point. So, there's going to be some change. And China is one of the biggest users of hydrogen today, mainly based on coal. But we don't see that right now.
Yeah, I guess it's as you say, looking at what they've done with solar, looking what they're doing with electric vehicles, um, yeah, they achieve scale to a degree that was difficult to achieve in other countries.
So, I guess that's both an opportunity for you, but also a potential more competition for now.
In terms of energy company and so many of our listeners work for or work with utilities or oil and gas companies. So, you mentioned before about your customers traditionally having been industrial customers, now mobility customers. Are you seeing utilities and I guess the new energy part of oil and gas companies, are you seeing them dipping their toes in the water, jumping into the water, knocking on your door lots, or just starting to understand more about this market?
More and more is happening in that direction, yes and you see, especially the utilities that are strong with renewables, they have an interest to integrate with hydrogen. [inaudible 00:16:36] You get new uses for old renewables or you have the ability to install in places where you wouldn't have because it was very, expensive to transport electricity from there. So, hydrogen opens up a lot of opportunities for renewables, which utilities are jumping on. And also, oil and gas companies, they are especially the ones that have refineries or are in downstream in refuelling stations, are, of course, very invested in this.
And you mentioned earlier the off-grid projects directly coupled to renewables. So, where you've got a renewable installation and you have an electrolyser next to that and you're producing hydrogen directly from that renewable installation, is that and you seeing that translate to actual projects, have you done projects like that or would you see that as something that's coming in the next year or more?
We have done some projects like that, but they were rather small, and we seen more and more happening in that direction now.
And I think you can't envision a world where electrolysis is 20 to 30 percent of the hydrogen production and its all grid connected. I just can't agree to that vision.
Yeah. So, you think you get more and more electrolysis directly co-located with renewables?
Transporting the energy by pipes rather than wires. In terms of we talked a bit about customers and the dreamers and the different types of customers that you're working with. If you think about the questions or concerns you get from customers, one, I guess is always money and they're trying to make the business casework. Tell us a bit about what the questions you're hearing or the concerns or the barriers stopping projects going ahead.
Is it just money or is there confidence issues or technical assurances that are needed? What do you hear from customers?
I think in order for customers to install new projects, they need a good business case, so, I agree, money is a concern. So, they would need some sort of funding, be it grants, be it CO2 prices, there's a lot of talk but not so much happening in that direction or even avoidance of grid fees, because a large share of the cost of producing hydrogen is electricity.
So, if you are grid connected but you don't pay the grid fees, that would greatly benefit the business case. And another thing that is stopping the development is the immature infrastructure. There's not much hydrogen pipelines in the world, however, at least in Europe, there is a plan to develop that. There's a report that came out which focuses on that and says that they would want to have 6,800 km [of hydrogen pipelines by 2030 and 23,000 km by 2040. That would bring the hydrogen market closer to what the gas market is, and then if you combine with storage in the salt caverns, so that you can trade it.
Work with the seasonality and so on, I think it would make the markets much more dynamic.
Yeah, it would open up a huge part of the market, that I guess isn't open today. On the business case that you mentioned are most of your projects still grant funded in some way, as you said, theCO2 prices aren't really there at the moment? The market mechanisms aren't there.
There's lots of government programmes announcing stimulus money support grants. So, are the projects tending to all be grant funded or are you seeing some going ahead without any of that type of funding?
The large majority are funded, and all the very large projects need to be funded.
Compare it to the customers that get the funding.
It's not us, we're just the technology provider.
Yeah. And on that topic of cost.
So, if you look at producing hydrogen from electrolysers today, it is quite a bit more expensive than producing it from natural gas.
It's potentially more expensive than producing it with natural gas and carbon capture and storage, but you've talked about scaling up. So, as you scale up, the costs come down as well. The cost of renewables is falling. So, you've got to cost drivers really.
Going in the right direction for you, let's look first at the production cost, so, can you give us a feel for what your production capacity is at the moment, how quickly you're trying to increase that and what that might do for cost?
Yes, if you talk about electrolyser, we have production facilities in Norway and the US, both Norway and the US facility are in the range of 40, 50-megawatt production capacity today, we're expanding now the Norway plant to 500 megawatts and eventually two gigawatts. We expect cost reduction of about 40 percent from this expansion. We also see a lot more growth coming up afterwards. We have announced some aggressive targets to get to 1.5 dollars per kilo in 2025, which would basically means reaching parity with gas-based hydrogen.
Okay, so let's just start with those production numbers of 50 megawatts and 40 megawatts today for your two technologies. And you've mentioned at the beginning of the podcast the 25-megawatt project in Malaysia 8 years ago. So, a big project today can take up a big chunk of your annual capacity in terms of that scaling up to 500 megawatts and then 2 gigawatts. Well, I'm going to ask a simple question. How hard is that? And I'm sure you'll tell me there's a lot to do, but yeah.
How much is that? Just building bigger blocks that you're working with at the moment. How much that involves new things that really take a lot of time and effort and development. How quickly could you get to those sorts of numbers do you think?
We can get to that quite quickly. The technology is there, so we are ready to scale up. It's not R&D based. We have the building blocks, as I said, and we can scale up. We can improve the manufacturing process and cut cost due to scale.
Yeah, OK, so getting to scale quickly, that will get you a big chunk of cost reduction, the 1.5 dollars per kilogram target cost to 2025. How does that compare roughly to where you're at today in terms of dollars per kilogram of hydrogen?
It varies by every project in the cost of producing hydrogen. It's a smaller share of the CapEx, which, of course will go further down as CapEx decreasing. It is decreasing, but the biggest share is the electricity price and also how much you utilise the installation. So, it has utilization of 40 percent or 98/99 percent it will be very different. In this case, we're assuming a low electricity price, so 20 dollars per megawatt hour.
And we are assuming a higher utilization, so it will depend on every installation. But what we want to say, is that this is doable. Let's just do it.
Yeah, OK, and as the market develops, if you think of refuelling stations in the mobility sector, the more vehicles you have, the more fleets you have with hydrogen vehicles, the higher the utilisation. Or if you think of those off grid applications, so the electrolyser directly coupled with a renewable electricity site, then you've potentially got this very low cost of electricity driving the hydrogen production.
OK, so scaling can happen relatively quickly. It can't happen overnight, but it sounds like you're working hard. What are you recruiting people from other industries?
That have scaled. What sort of skills do you need for that?
Yes, we are recruiting people from other industries. We're attracting people from I mean; we have a lot of people from solar actually already in the company it's more by coincidence, I think people from wind, from oil and gas, from different end use segments. This is an industry that is growing very fast. So, it's very exciting and a lot of talent is interested to join which is very positive.
Yeah, okay and the biggest challenges then, um, you've worked in other industries you've worked with, McKinsey's looking at lots of other sectors.
What level of challenge and uncertainty do you see in scaling up hydrogen? Or when you look at it, do you see particular risks or do you think this is absolutely straightforward, there's a clear path it's going to happen. What's your observations when you step back and look at this?
I'm surprised that people are still wondering, can this be done? I think we're way beyond that stage to ask that, yes, the technology is there.
It was done in the past - we had large electrolyzer installations in the past. It was done in other industries for solar, for wind, for mobile telephones. So why doubt it.
Yeah, and I guess the fact that you've got no fundamental new technology that you're trying to develop. The technology is there, it's proven it works, yeah, you can improve it, you've got that R&D programme you talked about to make incremental improvements, the technology is there.
It looks likes the markets certainly from the government stimulus programmes. And the customers, as you said, both dreamers and non-dreamers.
There's a lot of serious customers working on building the knowledge now and I think we'll move very fast in the next years and also a lot of very competent manufacturers beside us, which are scaling up and making things happen. So, I think that's very possible.
Yeah, I guess that helps as well. It would be in a way nice for Nel if you were the only manufacturer, but there are others out there and that gives customers confidence that there's a good supply chain out there.
Yes, we can do it, we can do 40 gigawatts in Europe, we can do several gigawatts in other parts of the world. I think everybody is ready to do it. We just need toget the projects rolling.
Yeah. OK, well, it's a good Segway into getting the Talking New Energy crystal ball out, so this week I want to set that up to 2030.
We've talked a bit about green hydrogen being in early stages today, it's not new, but it is still in the early stages in terms of scale.
If you look forward to 2030, imagine where 2030, can you give us a pen portrait of what you think the green hydrogen sector will look like in 2030?
And also, Raluca the two or three biggest challenges that Nel in particular will have to overcome to get there?
I think the biggest challenge that we need to overcome and everybody in this industry needs to overcome is the cost reduction. So, of course, when we scale, we cut costs, we need to deliver on that. As soon as we break even from reliance on subsidies, and reach parity with SMR, so gas-based hydrogen, we will be in the same place where renewables are today, where you have record low prices and no need for subsidies when the market is much more dynamic and moving faster.
I would say that in 10 years, we should have several electrolyser manufacturers with gigawatt production facilities, we should have several hundred megawatts plus or even gigawatts scale projects in operation. And everybody should have hydrogen as part of their plans. When they, every country that kind of reassesses, the energy infrastructure or the energy plants will more and more see hydrogen as an integral part of that.
So, you gave some metrics earlier on comparing green hydrogen or electrolyser market today to the wind market and the solar market, wind around 60 gigawatts, solar over 100 gigawatts by 2030, hydrogen in the single digits of gigawatt.
Or I guess, in the tens of gigawatts would be your vision for 2030?
Yeah, so not yet at the wind and solar level, because they've had a big head start on hydrogen, but getting close to the scale that we see today for those technologies or certainly getting closer to those scales.
Yes, and that's why I said that even though we say we're 10 years behind solar and wind. When I looked at the numbers actually it's probably more than 10 years, 15, 20 years, to be honest. So, who knows, green hydrogen might surprise everyone.
Well, that's what makes the energy transition so fascinating. It's got so many parts to it and it's, uh, you can see the general direction, but the specifics will play out over the next years/the next decade.
Raluca, that's been a fascinating conversation. It sounds like there's no shortage of activity for a company like Nel today, no shortage of things to do and scale to build over the next years. So, thanks for sharing your perspectives, your experiences and good luck over the next years as you scale up and make a bigger and bigger impact in the energy transition. Thanks very much.
Thank you. It was nice talking to you. It's always exciting to talk about hydrogen and energy.
I kind of fell in love with energy, I think about 14 years ago, the first time I figured out how energy is transported, electricity kind of stuck with me.
Well, you're in the right job then, but thanks again, thanks to everyone for listening. We hope you found that an interesting episode and we look forward to welcoming you back next week. 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 podcasts on your chosen podcast platform.
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