228. Decentralizing Power: The Rise of Behind-the-Meter Energy - May26

[Music] With the launch Segalen from London and Gerard Reed from Berlin, this is redefining energy. Today on the really thinning energy, Ger, we're going to talk about the behind-the-meter revolution. Absolutely. And in particular, we're going to look at the residential area, right? But first of all, from our partner. A bloco energy is Europe's premier leaser of ten-foot container mobile batteries. Built in Europe with CATL, best LFP cells. A bloco energy serves 14 European countries including France, Germany and the UK. A bloco's batteries can be leased for any duration between six weeks and six years. And they are monitored by the Dutch award-winning platform school. A bloco energy, make your life easier, make your business more flexible. Back to the show. And what do we mean by that? It means basically you're going into people's homes with an energy solution. You're putting in solar, you're putting in batteries, you might be putting in heat pumps. And you're doing it sort of as an energy as a service type agreement. Yes, but it's much more than that because you need to then connect all those systems and run energy management, which is going to literally merge all those decentralized sources and talk directly to the grid. And that's what our guest is doing and very successfully. Yeah, so this is what we're doing with bringing on a German entrepreneur, Philip Schroeder. It's been really active. He founded a business called INESCOMAFONF, 1.5. Also, formerly with Sonnen, battery manufacturer, Tesla, and a really, really passionate maker of the future, I would say. Oh yeah, a company now has close to 1 billion euro of annual revenues, 3000 employees. So it's one of the most active and successful entrepreneurs in the behind-the-matter revolution. And it's great to have them on the show. So why don't we bring them on? Philip, welcome to the show. Thank you for having me. I'm really excited about this conversation because at the end of the day, you've been an entrepreneur and an innovator in this energy space for years at this point in time. My own view of President is look, after the beginning of the second energy crisis of five years at this point in time, I think things are really going to change. I'd love to hear your thoughts. I'm obviously strategist more than anything else and you're actually operating and actually doing it. So yeah, I'd love to hear your view. I would say high level of view I have is that in particular in Europe, the latest energy crisis is somehow the final battle between either a fully electrified clean energy abandoned Europe or a high cost fossil fuel, high grid prices, energy future for Europe. The good news is yes, the energy crisis now is helping the scenario of full electrification and renewables totally because everybody can see now how resilient it makes us, but at the same time, we also see sustained pushback on all levels, regulatory level, policy level, capital market level. Really years in my view, a very decisive time on all of these levels at the same time and I'm excited about it because I think it's possible to really turn this in the right direction. So I share your view that there's a lot of opportunity right now. At the same time, we need to win some strategic battles now and they need to be one on multiple fronts. What can I maybe ask, what are those strategic challenges you see? The main issue for renewables and the entire discussion about renewables against fossil is that we have an energy system that simply has the grid as a non intelligent huge machine, which either is transporting peak demand or peak production. And if you continue to use that huge copper machine that we have in Europe, the way we are doing it, the energy transition will become a trap. The most significant change in my view is that we need to look at behind the meter of flexibility as a very low cost possibility to optimize capacity usage of grids in all of Europe. And we need to find a way how grid operators actually can benefit and operate in a flexible grid, meaning that they have flexible grids fees so that you change the paradigm from a peak demand peak production towards following the rhythm of sun and wind energy production right. So this is the main topic I see and I think we don't really have an issue on the production capacity side, but on the transport side and the grid side, there's a major battle going on how to operate the grids and how to build them. By the way, I think it's very interesting you say this because if I want to compare the energy crisis we're in now to the second energy crisis in the 70s. In the 70s, we really didn't have the technological solution so there was one which was called nuclear and everyone jumped on us. We started drilling in the North Sea or we went and built nuclear and some respects what France did it was absolutely incredible in the years in the 1980s. But today if I look I go because so many technical solutions in the electrical space whether it's solar, it's batteries, it's EVs, they make economic sense. That's the really difference between that's why I'm positive is because of the fact that we do have the solutions which we didn't have 50 years ago. 100% I mean the good news already is that we get a lot of validation for them and the ram of politics is super difficult because everybody's living in social media echo chambers. This makes it really difficult to appreciate the fact that we have so many technologies at the same time and all of them are working which I love right he pump is working it's great technology is much more efficient. It's much cleaner, it's cheaper, it's same goes for EVs, it's same goes for solar and it's getting only better and with you but I think the great challenge is if you have 60% of overall energy cost being grid cost because you are not capable of absorbing over production in a smart way with existing capacities. That we have just literally switching them on when there is wind and when there is sun instead of just switching them always on when there is neither if we don't overcome that problem the advantage of renewables the advantage of electrifications are not fully leveraged because they're muted by a very static grid layer which has become super expensive and which is also making up 60% of the cost right and electrification is always about competitive if we have more usage by nature than the grid fees will go up. But we need to have a very smart capacity management so yes the technology is there everywhere and we are in seven markets so we see the same trends everywhere but this particular in Europe grid layer and all the flexibility steering behind the meter is something that is not so to really unleash the full potential. Let me give you one example if we take our VPP right now and even with high grid fees which is like a fixed fee that you have to pay per kilowatt hour we are capable of delivering to a metering point in average just a third of the electricity cost if you would allow the grid to also be flexible that would go even further down so even though we are muted and the options and potentials are muted by very high grid cost already today the solutions are super powerful. But at the same time we see the capacity market in Germany gas power fire plant are being built or should be built billions are going in there so there is also some counter measures that I'm more sensitive towards. Philippe I'm interested by everything you say because it's not like academic paper or lobbyist paper it's the experience of someone a great entrepreneur in my opinion you want one of the greatest entrepreneur in Germany and probably in Europe. And you've built a one billion euro company 3000 employees and what you do is very difficult compared to software because you are integrating hardware and software from the solar panel to the heat pumps the client acquisition got that's difficult because it's almost flat by flat house by house and managing to coalesce all those decentralized point into bigger load being able to treat it on the market so. Explain that scale because there are hundreds of startups if not thousands but you know managing to scale and be profitable and raise money with great investor so how does the scaling part works. I can absolutely relate to that in the end the secret source of what we do has been teams that are in the industry for a while because you're totally right you need to do a couple of things at the same time right otherwise it won't work and you spoke about it everybody always talks about the seeming list solution for everyone blah blah blah but if you describe the solution is very simple you need to be capable of trading each meetering point individually to get the best result for the consumer that's something new that's something that has. Not been done before and the second thing is on top of that you steer the assets behind the meter directly to basically protect the positions that you're opening in the energy market so if you are optimizing an individual meter of a customer against all available markets and you actually have full steering capability of all electrical assets behind the meter you have a back to back mechanism to actually take the risk out that you usually have from forecasting and prognosis in arrows so if you do this. So if you do this best by definition you will deliver to that metering point the lowest cost of electricity and we are doing exactly that but in order to deliver that you need to have electrified hardware so you need to get the oil tank out heating and put in an electrical heating the electrical heating needs to be integrated in the trading algorithm and the entire software's we do have for decades this is why we have a software revenue from our customers because people are paying us to opt for. They don't pay for electricity they pay us to be the last energy supplier they ever need because they know they will. we will always optimize the metering part for them against all markets. The next point you need is a smart meter obviously in Germany's the huge pain point, and you need full integration of all the energy market layers. And what we like about 1.5 so much and about how it's the name of the VPP is those layers have never been automated. These layers are individual layers that are under the as old. And we found a way, which was a very hard, painful way to automate those layers. So in the end, we have an end to end optimization. We open a position in an energy market and we can do real time optimization of the metering point and the assets. And thereby, we can take advantage of the disadvantages of the system right now. So for example, lots of volatility prices go down because there's too much wind power. But also we are, for example, pre-qualified for grid stability services in Sweden. So we can actually use these assets and optimize them against all available markets. And this is what we do. And in order to deliver this, you need all of it. You need to acquire a customer for the hardware. The hardware stack needs to be already providing the preconditions for the service. And you need to build a backend and software system that can actually operate for decades and not just for a one-time revenue. And that's what we've done. And I think the backstory to it is we have been as teams in all these markets before in one silo. So some of us have been part of Tesla trying to scale EV when everybody was laughing about it. And people said Tesla's going to be bankrupt soon. We tried to scale batteries in homes when nobody knew that this product was even available. And we did this in Australia and US and Germany. So literally, the only reason why we made it so far is because we have learned through our experience every little vertical in from energy trading VPP to the residential behind the meter assets. That's how we actually achieved it. And once you are stable, so once you've reached a position where the product kind of works and to end and it does now, it gets nice. Because what happens is customers refer customers. You have a better customer experience. And also our customer acquisition cost, you ask that question is super low. It's probably the lowest in the industry in Europe. And that's the key. Otherwise, you will never scale because it's simply too expensive. I'm going to ask a question. And if you don't want to answer, that's fine. But I still don't want to ask a question. From the outside looking in, we see your name, but we see other companies. So would you describe them as competitors or they have a different business model? So I can name autoppers. I can name in Texas based power in Germany. You've got empath, Armando. And there are certainly others. So how would you position, I'm comma, fum versus the names, I just put forward? No issues of running them down and just giving you my two cents to each of them. Base power is in the end distributed batteries. They are being used as a single product optimization against flexibility, which is a product that we also have. So base is basically delivering in one vertical that we also provide towards. But I would say the difference is very simple. I mean, first of all, we are not in the US, unfortunately. But we do not only single products, we do full product. So we basically have all products when it comes to electrification on the suite. And we believe that you need to not just have one asset. We believe in multi-market multi-product. And also, if you do not have the home service capabilities, so if you cannot really help the customer with actually acquiring the system in the first place, installing the battery, installing the pump, then you cannot scale. This is base. I love base. It's a great startup. It's good to have them. If we look at octopus, I would say Karken is the shooting star. Karken Flex is probably a contender in what we do. But Karken in itself is something like a CRM. So we would not say that Karken in its core, when it comes to the CRM like Power Cloud or Salesforce, is it true competitors? It's what they do is they want to have many utilities using their system in order to operate their customers. We want to have an end-to-end optimization of the entire value chain per customer. So that's a bit different. However, the VPP part is available now to third parties as well. Termondo, great company, but I would say they focus on heat pumps and end-part historically has been really about financing. All of them are relevant because none of us knows what the real sweet spot will be to break open. Everyone is having bets. Our bet is we want to become the operating system of decentralized energy with Harpheat. And we are opening up to our manufacturers, opening up to all energy suppliers. And we want to have the one-stock shop service at the home. Because otherwise, we believe you're not going to get the customer satisfaction. This is our bet. It's great to have all of them in the game because they attract investor attention. Each of them has an individual strategy that's a bit different. Philip, can I go back to the maybe I say, what I think is the greatest challenge to your business and the other businesses you just mentioned. And that is the fact that most people just don't understand energy in any way. They don't understand that until you go to the petrol station and there's no petrol or you can't have none electricity. But at that point, it's sort of two days. In other words, what I'm saying is that the customer is not educated enough to be able to sort of go, okay, I should really go with it. It's come up from and do what they're doing. Or how do you see it? In other words, how do you really persuade all those the un-customers to go with you? The only way to persuade all of them is if they don't even think about it. There are many companies and we are one of them that invest into market education. But the best that can happen to you is if you don't need to do that because you just have a much more compelling and cheaper offer. We still struggle to get all the capacity that we would need to actually scale a million buildings a year. For us, the bottleneck is not customer acquisition right now. Our bottleneck is to get it really through the books and to have the infrastructure set up ready. From a demand perspective, we even went to court with this. We have the lowest electricity cost for these assets. You would have to have an end-to-end optimization on each metering device, totally integrated, full stack in order to compete with us. So from a perspective of what we like most, this customer's understand it increasingly and they make a lot of advertising for us, they understand that it gets cheaper if I have lower electricity cost, obviously, to acquire a heap pump. And my return on the West counts earlier than if I don't have that. And they see that the assets that they are acquiring are probably, it's not so much about an upfront cost anymore. It's about total cost of ownership. And what we can prove to our customers is that we will be capable of keeping their cost at the lowest possible point when it comes to electricity for a very long period of time and that works. So I wouldn't even say that once we have smart meters everywhere in Germany, we can take the customers from Aeon who have relevant assets. For us, it's always important that you have an asset that we can actually optimize. If you do not have assets to optimize, you're not interesting to us. And can I go back to it? And then we talked earlier on about an I'd agree on a macro level, if you want to electrify what we need to do with the grid costs. But I could argue that for your business model, you actually prefer to have higher energy prices because the higher they are, the more likely they are to put in behind the meter solutions. And to allow someone like you to go and manage it in an intelligent way for them. I would disagree. In the end, you have all those lobbies who simply want to invest in CapEx. So they either want to build batteries or they want to build power generation or they want to build windpipe. And the real issue for us is we are interested in allowing the system to function at its best capacity and efficiency level. The software that we are building is always going to optimize the system for everyone. Let me give you an example. In Sweden, you have flexible grid fees. Meaning if there's too much electricity in the grid, grid prices are high. If there is no usage, so there's lots of capacity grid prices are low. So this helps to actually make it more attractive to switch loads from a high price zone into a low price zone. We actually just facilitate that because the algorithm and the solution that we have is switching the loads of our customers from the high price zone into the low price zone. For us, it's really important to have those flexibility spreads. Obviously, if there is no spread value anymore, then how can you optimize? But it's not like old solar would like to have high electricity cost and high grid cost because then people buy lots of solar systems. New energy, what we do, we want to use the systems and leverage them not only on site, but also, for example, against wind farms in simple PPAs. If you now look at the PPA market and wind farms, in Germany, you have a redispatch. So we are actually turning off windmills, terawatt hours of production capacity that is lost forever. It can never be retained. There are penalties paid for that. Obviously, we could swallow that and use it. Yes, we tried to arbitrage for our customer good, but the system itself is built to become the operational layer to harmonize a renewable production with consumption. That's really core for us because if you build something that is just an arbitrage model, to be honest, it wouldn't be worth my time. You need to build something that solves the largest energy problem we have in Europe, which is harmonizing over production or under production on the electricity side with the consumption layer through the grid. That's the operating system that we're building. So yes, there are some benefits from us from high electricity prices, but it's much more important for us to have the flexibility. And don't underestimate if the electricity price is high. Nobody buys EVs. If the electricity price is high, nobody wants to have heat pumps. Yeah, so can I ask just building on what I'm listening to you there? If I take your vision, does it mean that you need to take a step beyond the customer? In other words, you actually, actually end up with some of these utilities and distribution companies almost as your customers. The plan has always been very simple. We understood that it's very difficult to not have a home solution on the electrification part. We call it home electrification, building electrification. So the solution part is like you need Croft's man, you need to be capable of fulfilling with the customer because if you can't do that, it's very difficult to end the game. There was the first step we did. This is when people labelled us as solar companies. The second step then was to prove in an end to end environment that we can actually beat the electricity price of everyone else so that we really show the end to end optimization. Now we've just taken Harpy GmbH with the separate entity and Harpy is now open to all energy utilities and much more important manufacturers to use it as an operating layer. Because in the end we want to be the decentralized operating layer that enables whoever to take their assets and leverage them against the volatility in the system. We did a study on this. If you just apply Harpy AI to a couple of millions of consumers in Europe, you could save up to 255 billion euros each year system cost. I'm not talking for them alone, but system cost because you very simply you transport more electricity through the same copper and that makes a lot of sense, brings down cost for everyone. Now Philippe, I'm going to ask a tricky question because I'm the tricky question guy. Go. I hear you, but I would say the incubants will try everything in the book to prevent you to eat their own cakes. Now what if you acquire or you get the keys, the management of a distribution company? How would you restructure that all distribution company? Because at the end, the goal is not to fight the system, is to enter the system and change the system from the inside. Right now you are changing it from the outside. I'm a big private equity fund. Here are the keys to the distribution company of Badjortenberg. What would you do? I would deny the keys of the DSO. I would not take the obligation. I think the first of all I agree with your assessment, you have to fix the problem from within. What we are now doing is we are handing the keys to half-beat to grid operators to enable them. I give you an example. The problem of a grid operator right now is very difficult for them to earn money with flexibility. They actually want to transport over capacity down to Italy. Then they want to transport it back from Italy or from France to Northern Germany. Why? Because it's their business. It's a money printing machine because they have a fixed price for every keyword that they are transporting. Why would they have an interest in using the surplus electricity on the side of Northern Germany, for example in EVs, instead of sending it through the grid and then getting it back, they don't have this incentive right now. The regulator, also the DSOs, they have to find ways how they can actually make money with that. One way is already possible is that they have regional grid fees. Every of the 600 DSOs in Germany can actually come up with their own grid fee, flexible grid fee. They can say in the afternoon, cost is higher and in the night is lower. They cannot come up with all ways of designing the flexible grid fees. The problem is they lack the data points so that they can be sure that they make the same amount of money or even more. What we can help them with is to have a system where they can actually design those in Germany's called module three. It's already part of the regulation. Every DSO could do that, but they don't know how. So why would they switch from a fixed system where they print money and take any risk of going to a flexible, but they don't know how it will really work out. We can help them to do that. We can help them to make money on flexible tariffs when it comes to the grid fees and give them more control. The units that we have are right now the enemy of the DSO. They say like, oh, there are so many heat pumps and they are stupid and they just go on all at the same time. And oh, there are so many ease and they do exactly the same. They all go on when there's no solar when there's no wind and nobody knows when they will come on, but there's always going to be the worst time. We can control those. We can control every single module. We can group our assets in a street. We can group them in an area code. We can group them in a DSO area. So we are making it possible to have the automated infrastructure for grid operators and energy companies and also the manufacturers to actually leverage us. And that's where I'm in agreement with you. I would not at all go into a managing director position or be co-owner of a DSO right now, because it's simply not the most interesting part to be there. But why do I believe that this will happen? The cost pressure is too high. It's too high. Even if the nationalistic parties depend after in Germany, if they come to power, they can't change physics. And the physics are we have those huge production from wind and solar. And we have to actually curtail them because we're too stupid to transport it. We lose electricity in power. And on the other hand, look at gas powered plants right now. The turbines are sold out. There are no turbines available until 2030. They are very expensive because the American AI companies are buying all of them. Gas is too expensive right now. It doesn't have sufficient operational hours. Nuclear is not going to be available for the next, even if you start building it for the next 15 years, even if you want to do it. And if you talk about fusion, even the Chinese are not seeing relevant base load prior to 2050. So in the next 30 years, you need to solve that problem. And it's a pure capacity problem. You need to harmonize production and consumption. The good news also is we see it happen. Denmark, Sweden, Netherlands, and Germany is also going in the direction. And it simply makes sense. So no, I don't want to be a DSO managing director. But I definitely want to make sure that politicians understand that an efficient capacity management of the grid will lower the cost for everyone immediately. And now we need to find a way to that the grid operators actually make money. If you add a meeting with Miss Reicher, 10 minutes, one on one, what would you tell her? I had the meeting with Mrs. Reicher. And I did tell her what I'd like to do. And what I told her is that only if you use existing assets to streamline production and consumption, you can significantly and without subsidies immediately lower up electricity prices. She actually understands that, but she is driven very much by her legacy position within a grid operator. They don't actually believe that they're going to be fast enough in the smart meter rollout that they can actually steer all of these assets. She totally gets the point. You need to be really stupid if you don't get the point that it makes sense to use 20 gigawatt in already paid battery systems that are there. They are all there. You could steer them all that you use 100 gigawatt of EV capacity that's available for free, but she and also, let's say, the lobbyists that are educating her are basically denying that that's possible. They're simply saying, we don't believe that the smart meter rollout is going to be fast enough and we don't believe that there's going to be provider who can steer all of these assets. They are not at all saying that they would not follow that strategy. So, you know, Philip, I know this is a strange thought that's coming into my head, and here, I was thinking to myself, if Werner von Siemens was able to come back from death for half a day, he'd come back down onto the planet, he'd show him a mobile phone, and he'd go, what the hell is that? I wonder how to use that. Oh my god, it's crazy. But if he showed him the power system, he'd go, "God Christ, this is changing 150 years." That's what comes into my mind. And I suppose I think myself and Ron would agree with you, but there's a mentality and a culture that needs to be changed, and that's really, really not easy. So, I suppose I'm trying to ask the question to you, how do you bring them with you? Because you don't want them against you either. Totally. I think some of them are against us without even really knowing what we do. In general, there's a lot of things that we have in common with great operators when it comes to the understanding of the challenges. You need solutions where it's not about where you don't need to change a culture, where you simply don't need to do it. Like, nobody needed to change a culture to get the smartphone rolled out. Once the smart meters are there, and all of those great products we talked about that are functioning, by the way, also are conditioning, right? I mean, just cooling, electrical heating, electrical charging, but also battery flexibilities that are available. Once they are all there, and the smart meter is available, which is the central corner piece. And there is regulation that actually equalizes them in terms of that they're equal to every centralized power plant. That's the only thing we need. Then it will scale and it will not need their support. And that's where we need to get towards, right? I mean, we just need technological equality between a central power plant and a decentralized power plant. And we need the last missing pieces without internet. You cannot operate Netflix. And without a smart meter, you cannot start applying new energy to buildings, right? So this is the main point we need. Other than that, I would not say that we are so negative, it could be much better and much faster. But if the smart meter all that happens, I see that every asset owner who has a relevant asset that has a value in the flexibility market will switch to such a service. It will happen regardless of cultural changes or attitude. Well, if you did, thank you so much for coming on the show and bringing us hope, success with what I would call the behind the middle revolution. Thank you guys for having me. Great pleasure. Thank you, Philip. I really wish you all the best in revolutionizing the electricity space across Europe. Laurent, what do you think? Well, I love it. Normally on the show, we rant and we complain and those guys are idiots and those guys don't understand. But here, I've got nothing to say, but just admiration. about his drive and changing everything, but now with his size, you know, he's starting to be attacking the incubator, so I really hope he's going to win. But I'm always afraid that the system is going to fight back. I really wish him the best. Exactly. The dark side always fights back, but that's the reality of us. Anyway, we thank Philippe for coming on the show. Good. And we're on a look forward to seeing you next week. Cheers, bye. Thank you for listening to redefining energy. Don't forget to rate the show and subscribe on Apple Podcasts, Spotify, or the platform of your choice.