The future of PPAs and 24/7 power, with Juan Pablo Cerda (Renewabl)

How will companies buy power in the future? Today we're talking about PPAs or power purchasing agreements, which for the uninitiated are effectively just direct contracts between a power producer and someone who wants to use their power. With surging demand from tech companies and volatile energy prices, at the same time that government are procuring more energy directly, what is the role of these kinds of agreements going forward? Welcome to the Energy Revolution podcast, where we discuss the big stories that are shaping our energy transition with some of the brightest minds in energy. If you're new here, I'm your host, Salaman Elias Jarrett. I've spent the last five to six years in senior government roles, both in the Department of Energy Security and NetZero, and as an advisor at Number 10 Downing Street, and I'm also a fellow at the University of Cambridge with an interest in all things energy. Today I'm joined by JP Serder, serial entrepreneur and most recently founder of Renewable. That's spent without any on the end. A company that uses data in tech to improve how PPAs are done. I hope you enjoy the episode. Thank you very much for joining us today JP. We're going to be talking about PPAs, the future of private purchasing of power in the UK and beyond. I guess to start with, we've just had this record CFD auction. A lot of power is effectively being procured by government. Is there a future for purchasing power agreements in the future of the UK market? Yes, well, first of all, thank you so much for having me. It's great to be here. Yes, so the role of PPAs, I think, will continue to be super important. Your absolute correct to CFDs are taking quite a lot of volume, but I think CFDs and PPAs can work alongside each other. I think they are completely different mechanisms. The CFD is assigned primarily to support volume, increase the volume of renewables, which is exactly what they do and is exactly what it's doing. PPAs on the other side are more focused towards corporate decolonization, measuring, providing the corporates with price visibility, volume visibility in the future. So they play two completely different roles and I think we need them both for sure. It's probably a slightly provocative question to start with. I agree. There's a good question. There's no role for both. There's a question I often get asked, like, what was the point of PPAs with CFDs buying everything anyway? But I guess to follow up on that, what are the kinds of things that PPAs can do that either buying on the wholesale market in the spot market or people just relying on the wholesale price that they're seeing because things are procured through CFDs can't do? That's a really good question. The focus and what PPA is a really good at is providing corporates with three different things. One is price visibility, as I mentioned before. So it's super important for corporates to understand the pricing for the next five, ten, fifteen years. It gives them volume security as well. So corporates can rely on the volume produced by a specific acid that corresponds to that specific corporate. As you can see with corporate sustainability practices, corporates are under more and more pressure in terms of legislation to comply with initiatives, regulations, accounts and sea treatment. So basically, PPAs provide a very, very strong way for corporates to do their claims. And if you're a corporate under a lot of legislative pressure, you can rely on PPAs to show how committed you are to sustainability in general. So it plays a different role completely to CFDs. And what you think the waiting is between those reasons and as it changed a tool, that it used to be that people were doing it because of the kind of corporate social responsibility. And now they're doing it more for kind of pure economic reasons or vice versa or has always been a mix. It's always been a mix. From our perspective, it has shifted a little bit. So additionality was a big thing five years ago. So a lot of corporate signing PPAs were strongly focused on the additionality element. They wanted a new bill that they can basically finance and make sure that it has their name on it. So they can basically use that as corporate social responsibility, like a social corporate responsibility push. Now it's more about claims. So basically if you're a corporate worried about greenwashing and about basically making sure that the energy that you're using comes from renewable sources. So it has shifted a little bit. Corporates are still committed to additionality for sure, but they want to understand where the energy comes from. So they can basically do that claim. Right. So basically if the asset is operational as long as it's traceable to a specific asset and the asset does exist and is window solar, then the corporate is more and more corporate so satisfied with that so they can produce a claim that is, that can be very viable. But yeah, I mean, there's different types of corporates and always the ones that are at the forefront of sustainability that always interested in in every single aspect of the PPA, making sure that every party is treated fairly and there's additionality and et cetera, et cetera. So yeah, there has been a small shift, but also the constant is price, volatility, avoiding price, volatility, volume security, all of that continues to be the constant when signing a PPA. Yeah. And again, has that side of the thinking changed as well? Because I remember during the 22 energy crisis when prices in the wholesale market shot up dramatically, suddenly there was this intense interest in PPAs because people were aware of the fact that, oh, there is volatility that exists from buying in the spot market. Have you seen that that's left a lasting legacy and how people think about recurring their power? Yeah, I think that has evolved and basically more as PPAs evolve more and more, there has been a very strong evolution in the requirements of the buyers and a strong evolution in the requirements of the sellers. So I think PPAs are becoming, and rightly so, quite excited about this, they're becoming less strict, less black and white before it was like, do you have a PPA or you don't have a PPA? Now I think the structure is evolving and I'm talking about pricing. The pricing structure of PPAs is becoming more tailored to the requirements of the buyer, how the power is produced and bought, like you can buy shapes, you can buy pay-as-produced, pay-as-consumed, however, these structures are evolving. The size of the PPAs are evolving, so basically, as there's more assets, in the grid, there's a lot more flexibility in terms of tenure and size as well. So it's really exciting to see this evolution because corporates that didn't have an opportunity to sign a PPA 10 years ago, now they do. Yeah, and you mentioned things like the shape of the PPA, the terms of the PPA. Could you maybe tell our listeners a bit more about those various configurations of PPA and why different corporates might prefer one over the other? Yeah, absolutely. So, back in the day, there was, in terms of terms, it was a lot more strict because financing mechanisms were not as evolved for developers. So basically, if you were a developer, you needed certainty of a couple of things. So one is time, so basically, you know, PPAs, the longer the tenure, the better for you to go to the bank and get that bank ability that you need for the asset, volume. So typically, PPAs used to be quite chunky in terms of volume, we're talking about 200 KWI was plus and credit. So basically, there was very stringent requirements in terms of like credit requirements for the buyer of the PPA, right? So how this started is basically that the big tech companies had that advantage because they had the volume, they had the price hedge, they could commit for long term and they have great credit rating. So in that respect, they had the upper hand, now is trickled down to smaller ambitious, and when I say smaller, I'm talking about quite large corporations as well. But you know, the sales side has realized that there's quite a lot of appetite for PPAs because they provide hedge, they provide price certainty and volume certainty that they can be a little bit more flexible with the structure. And these has evolved from the corporate side as well because for example, maybe you don't need a base load, right? You can just pay as the asset produces a power because maybe you have different balancing mechanisms or you can do it in house. Or if you have a very specific shape in mind, you can basically request that shape from the sellers and that will be priced and basically you have a specific shape for the PPA. Now, that evolution comes with challenges as well because imagine before it was very black and white as I mentioned, right? So you sign a PPA, you pay for the power, you pay for the certificates, maybe you're the bundled, unbundled, whatever, and you pay for that certainty along like a long term. Now, we need to use technology because we're moving, we're shifting away from a PPA being a static contract and what technology can do is actually help PPAs become a live asset, right? So you can monitor the performance of the PPA, you can understand when the PPA produces power, or the asset produces power, how can you match it to your consumption profile, and I know we're going to get into our really matching in a minute, but that's the kind of evolution of PPAs, right? It's not just a base load contract that you sign a long term, but it's a live asset that you own. That's really interesting. And you know, when you talk about the deciding what shape you need and then going to the market for that shape, what are the kinds of examples? Could it be, for example, I don't know, like there's a chemical plant, for example, that runs 9 to 9 a.m. to 4 p.m. and they have an intense peak at 3 p.m. generally in the day, and so they want their power to match that, and they don't need it at night. Is that the kind of thing you're imagining? Yeah, so you can buy a solar shape or you can buy a base load, right? It really depends on, and something interesting about that is that corporates are under a little bit more pressure now to understand their consumption profile and buy the energy that matches that consumption profile. And this is where our really matching comes into play. It's basically understanding how energy is produced or what times of the day, what hours the energy is being produced, what hours of the day you are consuming that power, and what's basically like the overlay for them. So basically ensuring that if you're in office and you're open 9 to 5, then you likely need a solar shape. You don't really need energy in the middle of the night. Same thing the other way around. So if you're an industrial company that consumes energy 24/7, then you don't really need a solar shape. You need more kind of like a wind shape or a base load because if you buy a solar ppa just for the sake of price or availability, you're actually consuming fossil fuels in the middle of the night, right? When you're still consuming energy. So that's part of a corporate shift that comes with 24/7 hour early matching. Yeah. And you mentioned as well, pay as produce, I think you said, what does that mean and what does that look like in the PPA agreement? So PS produces is simply a mechanism where you pay, there's a reconciliation and you pay whatever the asset produces at specific time. Right. And I guess is that different from basically you're buying the capacity upfront? Correct. Got you. So you're adjusting what you pay based on the real production of the asset. Correct. So it sort of sounds like it's somewhere in between contracting out ahead of time and buying in the wholesale market. Correct. Correct. It's like a hybrid model. Interesting. And I could see why that would be really attractive as an off-taker if you're a factory you don't want to be paying for a generation where it's not necessarily there, you kind of want it as and when. What's the attractiveness to the producers of that kind of model? Well, they don't have any problems or challenges producing base load. Yeah. They can basically just have the asset produce the energy and get paid for the energy that they produced. And that basically comes with simplicity. It makes it very very simple. It's less stressful. Less stressful. Yeah. Less fancy optimisation. Yeah. Yeah. One less stress to worry about. Yeah. And obviously we were talking a little bit before we started recording about your journey into PPAs and the fact that you know when you started renewables were 5, 6% of generation in the UK and now it's significantly more. Yeah. I'd be interested to hear I guess the how it is that you decided that actually PPAs are the part of renewables that I want to be working on. And then also how the role for PPAs has changed over that time and how you've tried to kind of address those challenges through the various companies that you've started and ran and some of them sold off, some of them continue to run. Yeah. Absolutely. So my focus has always been to create impact. Like previous to building companies I used to work in commodities in commodity trading and commodity operations and I wanted to create impact. And one of the things that attracted me to PPAs initially which sounds very sad that I was very focused on PPAs from an early point. But something that really attracted me to PPAs is the mechanism itself. So basically allowing generators to create more assets and basically increase that percentage of renewal from a country level by convincing corporates to sign these long term agreements that it's beneficial for them. Right? Because they give them you know visibility is a hedge and basically they give volume certainty. Now at the time again there was a lot of complexities and now there's still a lot of complexities but that journey has evolved quite quickly and part of that evolution has been a corporate social responsibility which is super important for corporates and be that need to like secure power in the future at a today's price. Right? And that basically that was my focus from the beginning to simplify the way that that contract gets signed and structured and finding ways that corporates and developers, generators, as owners, power producers can work together to agree on the terms that typically are alien for the corporate sector on how these assets going to be built, how these assets going to be operated, priced etc etc. Right? Because there's quite a lot of risks within the PPA and it's a very long term agreement but it can basically be beneficial for the corporate side as well. Yeah and I think the point around the complexity and simplifying the process is really important because for people that maybe haven't worked with paid PPAs or around PPAs, it might be surprised to learn just how analog a lot of it still is like I'll be at conferences and people will literally be walking around chatting to people and be like hey you've got any power plants to sell. I think sometimes it feels very like I don't know like 19th century you go to the market and you cry out here you here you yeah exactly that's it to say exactly it's like so I was building PPA marketplaces which sounds a bit weird because it's like I don't know you you can't go into a platform see a PPA and then just do the checkout and just I don't know like you do with any other thing like there's quite a lot of complex negotiation in between like first thing is to see if an asset fits your requirements and now it's like volumetric requirements and pricing requirements and term requirements and then you can start the negotiation process. Now that is something that I've been trying to simplify through my career and that is still very manual. Yeah like basically the the the points where you sign the term sheet and agree like high level terms to negotiating the the contract it can take months you know like or years probably not years but a year yeah and and and he's very challenging because that's not the core business of the corporate right core business corporate is what it is to do whatever you whatever they do and for them to understand some conceptual stuff around risk is it's challenging. Yeah and how do you strike that balance I guess between the that need for I guess simplification and standardization as much as possible you want people people to be able to you know go online to a marketplace or which I know is what you are looking at a lot with your second company and say I want this amount of power roughly you know click ad to basket check out Amazon Prime to live a next day with the fact that you know a lot of these corporates will have quite specific needs and so presumably you want some tailoring as well what's the right level of balance between those two things. So the the right level that never happened that was the idea by the way in my second company to do a to add it to the cart and to a checkout but that never happened unfortunately but yeah it's it's basically striking the the right balance between what customers want what customers need what sellers want and what sellers need right because again time is of the essence imagine if you have like you're you're building an asset and you need the financing to build the right so you need the contract signed by a corporate that is in theory buying the power that comes from a a winner's holo firm that doesn't really exist yet so it's it's basically like structuring the deal one one of the big points is is price always because price evolves moves sometimes these are actually linked with the market and how the market is priced sometimes it doesn't have anything to do with the market it's basically like how a developer will price it in terms of how much it costs to build how much it costs to operate how much it costs to maintain which is completely different to, like, there's no link to the market. But sometimes, in one of the big challenges is a negotiating process. And the availability of information, the availability of data, and conceptual requirements. Right? From my experience, where it falls, or the negotiation or the other process falls, most of the time is the validity of the price. Because a contract takes so much time to negotiate. And then at the end, the corporate comes back and says, "Right, we got it. We're happy with the terms. We're happy with the risk allocation. Let's sign this." Sometimes the set of comes back and goes, "Well, the price is not valid anymore." Like, we need to start negotiating. It's to scan up. And then the corporate goes, "Well, you know, that was a budget. Now we can't sign this." And then we did so much time with that negotiation. And part of what I've been trying to build is close that gap. To, you know, firm up the price earlier in the negotiation, make sure that every single aspect of price volume, tenure is defined within the tender and to give the corporate much better visibility on what they're buying. Right. And how much time do you think you can cut from this process? Like, from, you know, what it is, I guess, in the standard. Someone meets someone at a conference, sells them a PPA, to this, the optimized version that I guess you're trying to build with, renewable. Oh my god, that's a really good question. So the quickest PPA that I've not signed myself, but basically got two parties to sign was six months, which was considerably shorter than the two-year average, like, 10 years ago. But I think it can be done quicker. With a better data visibility, better tools, I'm talking about digital tools because I'm very biased, but like, if you build the right tools to understand more about the net present value of the PPA, how the price is structured, what's the long term forecast for volume and price, how better tools to predict those, the volumetric exposure, and the price exposure, and give the corporate a better visibility on what they're signing for. I think it can be done much quicker. Because you're right, that's a huge improvement from sort of average two years to six months. Yes. It's still quite a long time, I guess, in terms of a lot can happen in the market. Yeah, yeah. Particularly at the moment, when I feel like every podcast we're talking about, we're in unprecedented times. Yeah, I'm receiving signs. Yeah, it's always unprecedented times. I yearn for preceding two times again. And yeah, again, to go back to the 2022 energy crisis, this was a big thing that we were seeing is that the market was changing so quickly that there was an appetite to sign PPAs. But actually, a lot of producers were saying, "I don't know if I want to lock this price in yet." Like, the market is still going up and up. Maybe I will chance it in a few months' time. I'll be able to get even more out of the spot market. Yeah. I mean, something that we're not very good at in the industry is forecasting. Yeah. We're not very good at that. Like, price prediction. We're not very good. Like, I remember in my first company, we were advising a very large telecoms company to sign a PPA, right? And they had literally everything agreed. Like, at board level, everything was kind of agreed done. Price was the only thing left to agree. And they basically look at this price forecast from one of the big players in the market. At the time, the price was the price that they wanted to secure was about 40 pounds per megawatt. And this forecasting model, like, everything other model was saying, "Praise are going to go up in 10 years." But this particular one from a very rupteable company was saying, "No, enterprise are going to continue to come down." And the call was said, "Okay, I'm not going to sign a PPA because maybe it's going to come down to 20." Or 10, I mean, crazy. And that never happened. Yeah. So, like, if they would have signed a PPA back then, they would have been perfect, right? But that didn't happen because we're not very good at doing that price prediction. And that modeling for what's going to happen in the future, because the prices change so quickly. And there's so many fundamentals that influence a price like COVID and wars and whatever. So that's really difficult to predict. Yeah. And I guess as corporates as well, they're probably even more reliant on these kind of independent price projections, which obviously, there's some great models that are out there, but all models are wrong. Some models are useful. Yeah, I know. I know. Yeah, exactly. At least, I guess, you and I, we work in the energy sector, we can look at a model and see a price that's being spit out and kind of understand some of the assumptions that they're making and make our own judgment call us to, "Okay, they're saying this, but probably if we think that, you know, for example, renewable rollout is quicker or slower than we expect this will happen, if we think the EV rollout is faster than we think, and therefore there'll be more demand to that world-press prices. Yeah, yeah, yeah. Sorry, yeah, increased prices. Yeah. And actually, like, the renewable energy industry is quite new. Yeah. You know, in comparison to other industries, where we don't have enough data to see what happens with the fundamental, if the fundamentals change, we've, I don't know, you've seen that in some parts of Europe there's negative pricing because the penetration of solar is, it's like, larger than expected. We get it here occasionally, too. Yeah, we get it here occasionally. I don't think not quite as much as in, say, Germany, but we still do get it. Yeah, yeah, yeah. Yeah, yeah. So, again, that is really difficult to predict, because as I said before, when I start looking into VPAs, the fuel makes for renewals in its specific country was about two, three, maybe 10%. Now that, I don't know, a couple of months ago, the UK was running on 51% renewables. So now it's been taken more seriously. Legislation is catching up with physics. There's more evolution in terms of basically capacity, the capacity market, curtailment, all that kind of stuff. Like, it's been taken more seriously. Now that the government is going, "Oh, okay, so we can increase that fuel makes to 75%, but we need more capacity, we need more batteries, we need to produce renewable energy power at specific hours when demand needs it." So yeah, that's all part of the evolution. Yeah, and most corporates don't have time to think about all these things. Exactly. So this week, actually, where there was one part, two organisations there that came to me about their various PPAs. One of them was a paper manufacturer. The other one, they kind of do paint. And obviously, they don't understand the intricacies of the energy market. They'll have people in house that kind of do some PPA work and engagement on that. But it will be a very small team and then they'll go to their board and say, "This is what we think the price could be." Yeah, it's really difficult to engage. And I guess on the point of price being variable, one of the things that I guess good to touch on because it's something that I would get asked a lot when I was working in government, and particularly on the contracts for different scheme, is the fact that a lot of PPAs are increasingly also being influenced by whatever the CFD auction clears out totally in that that becomes that, you know, if you're a producer, you're looking at your Roots to Market, you say, "I can go down the contracts for different fruit," for those that don't know, bid into this auction, a price has arrived out effectively. It's a contract with a government owned institution, or I can go sort of private, find myself a private buyer through the PPA market. And if CFD prices are high, one round, do you think, you know, this is looking quite good, maybe I'll go that route. And so sometimes if you have a CFD round where prices are quite high, like for example, the allocation round, six for solar specifically, I think overall AR6 was a great round. I think for solar, probably the dynamics of the round meant that the price was slightly higher than it could have been because of the way that it interacted in the portfolio. Yeah, yeah, yeah, I think that. So that meant that if you're someone that's trying to buy a PPA, you're competing effectively with the CFD auction. How are you seeing that dynamic play into the PPA market more directly? Totally. I mean, especially in the UK, it's quite beneficial for sellers, for sure, for generators and as owners, but it has affected the corporate PPA market because there's less assets up for sale. The price was quite good for $6.27 and the ten year is really good 20 years. So yeah, I mean, if I was a seller, I would be happy with that because it's really, really easy to obtain to the CFD market. But I think the appetite for PPA is from the corporate sector is going to continue to grow simply because legislation is catching up. And we're talking about greenhouse gas protocols, CO2 update. We're talking about the SBTI version 2. We're talking about R-E100 creating the 24/7 coalition. And there's more and more regulatory pressure on corporates to basically showcase how green they are, where the energy comes from, and basically make sure that they are complying with these initiatives. Now, the the best way to do that is via corporate PPAs. So corporate demand should basically increase with these regulatory changes. And maybe it's going to, like that demand is going to outsell the price of the CFD shift from the CFD scheme into more of a relatively expensive corporate PPA market, but it's all driven by demand. Yeah, and you probably get, as you say, it becomes a balance of the two. It becomes a balance. And both are needed. You can't just stop the CFD scheme and just rely on corporate PPAs. I think it needs to be a balance. Yeah, completely. And AR6, actually, they're contracts for 15 years, but there'll be 20 years for AR7. But yeah, the point I would always make back is that, as you say, that obviously PPAs are fantastic and there are some corporates, which are really well positioned to do it. And I think what PPAs can do that, for example, the CFD scheme can't do is those specialized terms for a particular producer or a particular off-taker that needs a particular thing, and therefore there's some value add to it. But the volume of large credit worthy off-takers that are able to take the capacity doesn't exist if you just roll out on PPA market, so that you need kind of a combination of the two. When you were in government, what was the, what was the government strategy and the view to it basically like cover these auctions? So the auctions are you mean specifically for PPAs? For PPAs, yeah. It's a good question. And I've got to be careful, I say, obviously, I can't say anything, this is not public knowledge, but there's a view now. Yeah, there's scripts as term. But I can say, because during the review of electricity market arrangements, there were some public things that were put out in the consultations around like what should be the role of PPAs in the future of the market. And actually, there is a PPA consultation, which is just on live, kind of since me leaving government. I think it's always a nuanced view that government took, because it's so that there was a benefit, basically, of kind of outsourcing some of the financing away from the public purse and towards basically private sexual organisations taking on more of that counterparty risk. Fantastic. But at the same time, there's, there's a limit of what government can or should do to facilitate private transactions. And so it was often seen as a, this is, this is a good thing. We want to get out of the way to make sure that we're not stopping it from happening, but at least through the review of electricity market arrangements, it was kind of generally decided, okay, we don't want to be super active in this. Interestingly, since leaving government, this consultation has come out, which is looking, I think, a little bit more proactive involvement, partly modeled on this, something they do, for example, in France, where they have this kind of like PPA, which is backed by a certain level of government underwriting of the risk. Yeah, they've got in Spain as well. Yeah, for large and do you consume this? Exactly. Yeah. And there are some models as well with the government plays kind of like a convening role. And so it looks like they're looking out and saying, you know, is there anything that we could or should be learning to make it just a bit easier for people to sign PPAs? But I think my view is that, you know, government shouldn't get too involved. And particularly in the UK, where we do have a good private sector, I mean, we'll come a bit more to kind of some of the great work that, for example, renewables doing in terms of trying to kind of leverage data to make this happen. And we do have a relatively developed PPA market here that I don't think there's as much of a need for government to get involved, whereas actually doing some work with some Southeast Asian governments at the moment, who the works not yet public, so I wouldn't say which ones. Where they're kind of looking at the balance between PPA CFDs, probably going to say it needs something of a mix, but probably need CFDs if you want volume. But they're the PPA market is much newer and there we're saying that actually there could be a real role for government as convener as kind of saying actually, whether it's underwriting or literally physically getting people into the same place and providing some of that kind of, I guess, arbitrage from 100%. Yeah. So yeah, that's, I guess I've been very non-committal. You can tell I used to be a civil servant. That was some of the things that went on. That's where I see, I think, the role for government, probably less so in the UK, but we'll see what people say in the consultation, but I think particularly in newer markets, I think there's more of a role for government to kind of foster those early connections. Yeah. Yeah. It's interesting to see how undeveloped the PPA market is in other countries. Yeah. And basically like the UK takes it for granted, but the UK is actually quite advanced in terms of PPA structuring asset development, battery storage compared to other countries. So there's quite a lot of work to do to basically reduce global emissions for sure. Completely. This seems like a good opportunity for a very quick break. And then when we come back, I'd love to ask you more about the data 24/7 matching, etc. And yet understand some of the intricacies of how you get to the next level of kind of like future PPAs. Absolutely. So you touched on data before or something, which is really important for enabling the next generation of PPAs. Could you talk to me a little bit more about that, where are we and what needs to change? Where to start. So I think I'm really looking into how well you're matching right now and helping companies understand the concept, enabling them to basically visualise the data. And I think the next shift, so first shift in the commonization and PPAs was actually conceptual, right, was contractual, right? It's basically PPAs is a big contract, chunky contract between two parties that, you know, then the developer takes to the bank and get then a very finance to be able to asset. The next stage of evolution of that is very, very technology driven from my perspective, because those assets produce power every hour, right? Or all the time, but basically needs to be logged every hour or even sub-hour to the 50 minute interval. And basically corporates need to visualise or have an understanding on those profiles and how those assets produce power. And that is done via a solid smart-metering infrastructure. Same thing on the corporate side, you need to understand how you consume energy, right? What's your demand profile? How your demand shifts over time? What's the evolution of that demand? What hours you consume the most? What hours, like, for example, if you're a large complex corporate that have some offices and some manufacturing facilities and some distribution, whatever, it can get really complex, right, to understand and visualise the energy consumption of that. And let's not talk about scope three, but because you get even more complex. But basically the whole point of this is to understand consumption and production and then overlay it into a visualisation. So you can see, I don't know, if I bought a PPA, maybe this PPA overperforms certain hours and underperforms certain hours, maybe I have some excess, maybe I have some shortfalls. And then that will give me the visibility I need to go out to market and feel those gaps and get a better common free energy school hourly school. That's really important. And I think for a lot of people, they assume probably people that are more kind of in-depth in the energy industry will know this, but for those that aren't, they'll assume that, okay, this says it comes from renewable power. That's because they've got a contract with renewable power. All of the power is completely renewable. In actual fact, you and I know that for like a generic PPA, that's kind of an average of capacity, basically. And actually often, you know, it will mean that yes, they're using an excess of solar and day, but they are still using fossil fuels and I. Yep. Yep. And so I completely agree that this switched to a more 24/7 matching approach feels critical if you really genuinely want an accurate view of the carbon score of various off-takers. 100%. And the fact that the regulations are changing and becoming more defined and stringent is not a bad thing because again, it's an evolution. And before you do it annually, right? So basically, like I'm a corporate in my, like my spreadsheet says that my energy consumption is 100, you hours per annum. So I just need to, I don't know, cover 40% of that with a PPA and then I buy the remaining 60% out in the market, green tariffs or whatever. And then you just keep doing that every year, every year, every year, you claim that you're 100% renewable. And then that's the end of it, right? Like corporate social responsibility tick. Now it's not as easy as that. Right? And you know that it gets a little bit more complex because renewable energy is intermittent, you know, the sun doesn't shine all the time and the wind doesn't blow all the time. And basically we as a human race are becoming more power hungry. So the, like basically, I don't know, the international energy agency. I think it was the international energy agency was saying that by 2050 demand is going to increase by 50%. So that's quite a lot of demand. And if we want to cover that demand, we need to have a little bit more visibility on power production. power consumption and try to stabilize it as much as possible. Yeah, interesting. And what are some of the, I guess, technical challenges of actually doing this? Like, are you at a point where you feel that you can actually do pretty good, accurate 24, 7 hour matching for certain assets and certain off-takers, or are there kind of technical, or even kind of regulatory challenges that are preventing you from getting to that level of granularity? I think, yes and no. Yes, because the current status quo is no hourly, and quite a lot of the contracts that are being signed and were signed don't have hourly profiles, and that's not something that was top of my anthropocopriot. And yes, because the underlying need for more granularity and more hourly matching infrastructure is evolving. So now I would say it's been taken more into consideration and it's been taken more seriously, but it's an evolution. Right. Because, like, for example, even the greenhouse gas produced CO2 update has a grandfathering clause, where obviously they're going to take into consideration. If you sign a PPA, they're not going to invalidate that. They're going to take into consideration because obviously, like, all corporates were signing PPAs with great intentions. So that needs to be taken into consideration. So I don't think it's going to be something that changes tomorrow. It's going to be an evolution, but yeah, it's going to require quite a lot of technology to be able to visualize, like, the gaps, the needs, the balancing system, the carbon intensity, per hour, and all that data needs to exist somewhere, and needs to be visualized somehow. Right. And actually, yeah, to get a bit technical into, I guess, the balancing question and how that interacts with market design, is it even possible to do complete 24/7 matching when, for example, in the UK, I'm imagining a lot of these assets are not co-located that you're kind of having, you know, renewable generator somewhere, a factory somewhere else, there is some network and some wires in between. Even if you buy that power for that particular hour, because there isn't a locational signal in the UK market, it could be that power that generator plans to generate during that hour, but actually what happened is the needs say, the national energy system operator, basically if they don't have the capacity or for a variety of other reasons, could turn that generator down and say, "Actually, we don't want you to run, and we're going to turn a gas generator up in their area instead, because the grid at this particular time cannot take that renewable load." Does that make it impossible, effectively, to have complete certainty, because that locational aspect is outside of the control of the off-taker? Yes, and no, again, basically the fundamentals of hourly matching is time-based and location-based for sure, and that needs to be taken into consideration for sure. But basically, the evolution, as I mentioned, is, and as a first step, is to match an hour of production, and we know when the power was produced at what specific hour, and match it with the hour of consumption at the same time. Not taking into consideration transmission distribution, whatever, but conceptually matching the hour of generation. And to be able to get into a proper hourly system that balances out supply and demand real-time, we're still quite far out, because just a given example, again, the issuing body system is changing, but not all of them, and not at the same time. So, for example, here in the UK, of Jim produces one certificate per megawatt, and not per hour. And that infrastructure, that system, that basis, needs to evolve into hourly certificates to truly, basically, do matching. At the moment, the matching is done virtually, because we can't match certificate number of ones three or five, that is now really certificate for that specific hour to this hour of consumption, because hourly certificates do not exist yet. So, the system needs to evolve how corporates do the accounting for the emissions needs to evolve, how generators account for the volume that they produce needs to evolve. So, it's not. And you were saying the distribution, transmission, network, operators need to evolve as well. So, it's. We're not there yet. But conceptually, the cool thing is that it's being taken seriously, and it's evolving, and it makes so much sense. Yeah, and so it sounds like you're kind of as renewable almost building your own architecture on top of the existing legislation, because it's not as granular as you need, correct. And ideally, hopefully the regulation then kind of comes to me where you are in its class, the hourle is done, and then you can move on to that, okay? I guess the ideal is that you're doing both location and time, but at the moment we're not even doing time. So, let's get timed out. Let's get timed out. Then you can move on to that. And then you can move on to that. And look at C-Bam, look at greenhouse gas protocols, go up to your object. The legislation is moving, it's getting there. And it's something that needs to happen. It's kind of like the next stage, right? So, hourly matching is probably the next stage of evolution of the core procurement system. Yeah. And we know that we need to get there, and we know that there's critical infrastructure, digital changes, and it to happen. And companies like Renewable, that's exactly what we're doing. We're basically helping companies understand their baseline, giving them visibility on what counts as hourly, what doesn't count as hourly, giving them visibility on annual school, annual matching, because that's what they're used to. And then going, like double clicking on each month and going, you know, this month you're not actually that well matched, because this doesn't count. And a lot of it is about education. So, for example, if the UK is 55 or 45 or whatever percent renewable, that doesn't count towards your sustainability targets. So, you can't claim to be as a base load, 45 percent. Got you, because everyone is. That's nothing to do with you. Yeah. Because those PPAs were not signed by you. Yeah. So, yeah, it's basically like, you know, measuring the carbon content properly, emissionality properly, cover a emissionality, cover hourly matching, cover every angle, and give as much data, as much information as possible to not even make. Inform decisions to understand your base position better. Yeah. And, you know, this, you might not have an answer to this, because it's probably forcing you to think five, 10 years into the future. But now that a decision has been made on locational marginal pricing to not go ahead with it, is there a path forward where even with a national price, you could kind of solve this locational channel? Because, you know, if we went to locational marginal pricing, that hopefully most people listening to a vaguely aware of it, it's basically the idea that you would have different pricing zones. Or I should say, zone or pricing rather than locational marginal, because there are different ways you can do it. But you have different zones in the country. And I guess if you were in that kind of model, what you would do to 24/7 hour matches, okay, we're buying generation in the same zone as you in the same hour that you're there. That obviously won't be possible in quite the same way without having that zone or approach. Can you see a way to, in the future, build an architecture on top of the regulation as it stands in a similar way that you've done with time in order to kind of somehow build that location element into the matching? 100% 100% so, I mean, that was quite controversial, wasn't it? Yeah, very much so. Because basically, like some argue that Scotland was going to have really cheap energy in London was, whichever node London was included in, it was going to be super expensive. But yeah, that's not happening, but yeah, I think probably the next evolution after that is going to be like location based. Because I think there is a very strong argument to push corporates to find the closest renewable energy assets to their operations. And yeah, deal with the network complexities and I don't know for for for for generate defined space and substations and that kind of stuff in by the local energy, like the most local energy as possible. So I think yeah, that's going to be the next step for impactful procurement evolution. But yeah, I mean, that makes so much sense. Yeah, that does make sense. And hopefully that's going to also help generators build assets where demand, like demand driven or be better informed to where build the assets were, were close to the demand rather than up north. Yeah, and I guess that brings this full circle back to the additionality again, basically, correct, like cool in the in the you know. a distant future, if you really want to be able to say, we are completely renewable. Everything that we use comes from renewable generator and we can say that it was in the right time and the right place and therefore 100% renewable. You'll have to do some extra work like that won't be the baseline in the system. But if you can do it, which as you say, corporates should be able to actually make those decisions, deal with them in the locality to kind of get generators built nearby, then you should be rewarded for it with this kind of premium. Yeah, yeah, yeah, absolutely. And you'll be amazed on the number of corporates that we work with that are so impact-driven. Like, for example, when they run a tender for PPAs, they look at every single aspect of that PPA from, you know, was a land acquired fairly. Is there any sustainability benefits from building a wind farm or a solar farm in this community? Is there any community benefits and that kind of stuff? So I'm pretty sure that that is going to evolve and corporate social responsibility is going to become much more about impact rather than box-ticking. And we're going to look more into that. I mean, we'll have to because AI is going to take over everything else, right? Yeah, so we'll have loads of time to look into to do all these other things. Oh, absolutely. Yeah, absolutely. Wonderful. And I guess just as a final question to wrap up this really fascinating conversation about PPAs, what are you most excited about in the kind of future of the PPA market and how it's evolving? I'm really excited about what I was saying impact. So it's less about tick boxing and more like basically hourly matching, missionality, all these stuff is making the corporate sector, which is the sector that I'm most involved in. Take a step back and think, huh? Okay, let's think a little bit more about this as an impact-driven solution rather than a tick boxing exercise and just say, we've got 100 G-warrows. It's just a PPA for 40-year hours, right? And it's making that the whole thing much more impactful. It's driving renewables beyond fossil fuels, which is something that it needs to happen because it's the best source of energy. I mean, I'm biased, but it's the best source of energy that exists right now. So how we can look at the benefits and how we can use technology to make better informed decisions, measure the carbon content every hour, look at imports and exports of energy and emissions, and that all is enabled by technology. So I'm really excited about how technology is going to evolve to give us better data and better informed decisions that are more impactful. Wonderful. Well, thank you so much for coming into your journey. Thank you for having me. Yeah, it's always a chat with you. Thank you. And thanks everyone at home for listening. Thank you so much for listening to the Energy Revolution podcast. If you've enjoyed today's episode, do subscribe for more episodes weekly, just like it, where we'll continue to tackle some of the most fascinating questions in the world of energy. You can also follow us on LinkedIn, Blue Sky and Twitter for updates as the podcast progresses and consider sharing it with somebody else that you think would enjoy the show. A friend, a colleague, energy zealot, so someone that's just a little bit energy curious. Word of mouth is one of the best ways to grow a podcast, so we always appreciate you sharing the love. In the meantime, all the best, and look forward to the next episode next week.