211. The last Mile revolution: turning Distribution Networks into Flexibility Powerhouses - Jan26

[Music] With Laurent Segalan from London and Gerard Reid from Berlin, this is redefining energy. Today on Reef Energy, Jard, for our first really episode of the year after the crazy episode last week on predictions, we're going to talk about distribution networks and how to make them more intelligent. More intelligent, more efficient, and we do that through creating a market in that area for flexibility. But first the word from our partner. A bloco energy is Europe's premier leaser of 10-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 6 weeks and 6 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. Yes, Jard, because everybody talks about transmission networks, and there is about, according to your GPs, or you know, take all those statistics with the grain of salt, 7 million kilometers of transmission network, which are supposed to triple by 250, but distribution networks, which is described as about 50 kilo volts, that's medium voltage and 10 kilo volts, that's a low voltage. That's 110 million kilometers, which also gonna expand, not by as much, but will expand by another 30% by 250. And of course, they are facing aging infrastructure, climate stress, and they are the growth of demand response. So, gigantic subject that nobody talks about. Yeah, people don't like talking about grids, because they're complex. That's really, really clear. But without them, they don't have power. And if they don't have power, well, a modern world just cease to exist. As you said, innovations are happening, and we are fortunate to have one of those innovators on the show, and it's a jojo about. I've known her many years, and she really is at the forefront of a call optimization in around the last mile, the distribution grid. So, great, I have her come on the show. Our company has the greatest name of all. It's called Simply Electron, and it's a flexibility operating system for distribution networks, which means aggregating a lot of demand response program. It's going to be about EV charging. She's a very successful startup, already six rounds of financing. She has a team of 50 people who are doing software grids market design, so this is a great way to start the year. So, let's bring her on the show. Jojo, welcome to the show and Happy New Year. Well, thank you for having me. Happy New Year. Well, Jojo is great to have you. So, maybe let me just kick off. If I look at the future of our power system, the concern I have is in the distribution grid, because for me, it's all about optimizing energy flows through that system. Listen, I know you're in the midst of all of this area, but I just love to hear a big picture of what you see going on there, and just talk a little bit about that, that would be great. Well, the distribution grid is often quite forgotten in all this kind of government rhetoric of transition. This phrase you always hear, there's no transition without transmission, and I'm just like, hand distribution, most of the spending on this transition is on distribution. And in the US, it's wild, it's something like 50%, versus like 20% on transmission, 25% on generation. And we're in a position like a place of having to expand the grid really fast for new connections, mostly at distribution level, while we've got this really aging infrastructure around 40 years old, and we've got this kind of looming affordability crisis. So, a lot is happening on the distribution grid, but not as much as people want to happen on the flexibility space. UK, I guess, is a leader in the distribution flexibility market space. There was a very clear incentive in place about six years ago by government for utilities who could use flexibility instead of network upgrades to essentially share the savings customers get 50% back, utilities get 50% back, and that kicked off quite a big, very fast growing distribution level market in the UK, I think, last year about 300 million pounds was saved. About nine gigawatts were traded. That was one thing. It needs to get bigger though. Only use case they're trading against his network. Upgrade deferrals, and as you know, we need to build everything right now. We want faster connections and things like that to be included in. In Europe, there's been kind of clarity across your, from 2019, around flexibility is the right answer, and the medium to long term let's start it. But this hasn't been translated into really clear incentives on a country by country basis. And you're saying a lot of kind of intervention now to try and make that happen a little faster country by country. And in America, it's all just starting to take off. I love some of the code you've made. And you said we are building the operating system that turns a distribution grid from a dumb pipe into the world's largest virtual power plant. So that's what your company Electron, I mean, great name, Electron, well done. So can you elaborate a bit on that operating system? I get there's a bunch of different people building pieces of it as well, so where we sit in it. Electron's job is to help the utility on one side optimize on a kind of value basis what they're doing in the network, whether it's builds or flecks. So it's getting the data from the utility that they need to make that decision, and the data from the people who own and operate the distributed energy resources on the other side. So we're not. Oxfers, we're not dispatching and optimizing consumers' assets. They're traders on our platform in the UK. We're not. Autos, we're not aggregating. CNI customers, they could all be traders on the platform. But we're sort of trying to surface the information from those guys as to what they've got and what they could do. So I have to see information from the utility on the other side as to where they've got constraints, what the value is. And make the magic happen and try and create more and more opportunity to capture these efficiencies with distributed energy resources. Kind of marketplace model, but we can't do the NASDAQ model yet because people don't know what they're buying or what they're selling or how to price it. There's a lot of incremental data reveals. So by acting as an interconnect between the DSO or the DNO, maybe their system are relatively antiquated and the various pockets who start doing some DRVPP batteries or whatever aggregators. So somehow you bring clarity to a distribution network. Is it a good way to put it together? It's exactly that. If the network operator wants flexibility in one location and they know the provider, they don't need us. They can go straight there and they can buy that flexibility. But if you want to scale that market, you need to understand value better. We get in there, you need to find more volume. We bring all the different providers together. And you need to reduce friction. And we just make it very easy for everyone to see all the price signals in one place and to enact trades. So yes, exactly that. We're about scaling that use of distributed energy resources beyond that kind of bilateral relationship, which is where it all started. So Jojo, you just said that local flexibility is cheaper than grid reinforcement. And so you can avoid capex, which is unfortunately for a very long time. The distribution network, they work on a cost plus. The more I spend, the more I make. But of course, that start to become very expensive in everybody's invoices. So can you elaborate a bit on flexibility cheaper than grid reinforcement? And where do you see the limits of that? Firstly, where it's available, it's cheaper than grid reinforcement. It's not always available. So job one is should you use flexibility? Is there enough flexibility in this location? When there is, it's essentially necessary cheaper than grid reinforcement. Because I don't think people understand how little distribution grids are used in terms of kind of capacity, maybe like 5% in Germany, 7% in Spain. Even in like populace areas, like even around like London in the UK, it's probably only around 25%. And distribution grids, obviously even for the last mile, it's how power actually gets to people, but in like extreme weather events, going on and increasingly when there's a lot of renewables, they are getting too or close to capacity. So instead of rebuilding a grid for an extra like 20 hours a year, if you can use the people who are on that grid and pay them to shift, it's essentially necessarily cheaper and more efficient than building the grid. So distribution grid deferral is different to transmission grid deferral. You probably want to build as much transmission as people can use power. Because power creates societal and economic value. But it is always economically rational to use distribution grids more effectively. And the numbers that the utilities are paying for flexibility, wildly vary by location. But typically for every dollar you spend on flexibility, you'll save like 3 to 10 in reinforcement costs. Again, we need to be very careful because when flexibility first came about, it was all about deferring upgrades. Now in a world where everyone wants to build, build, build. It's really about using flexibility to discover where you should build next, where you'll get the highest value from building. And when you run a flexibility market, you discover relative value in different locations. Or grid deferral, so it helps you to make better decisions about what to build next and where they're going to create the most economic value. So it's a partner to grid expansion and not instead of these days. When you are dealing with utilities, we've seen that with a lot of great innovation, you have the value of death, which are pilots. You know, they just do pilots, pilots, pilots, pilots. words, nothing. So how have you been able to transform pilots, which are very nice, but you're just building everybody's money to, okay, now it's for real, and you can rely on this new innovation. So explain a bit the journey. We've spent a lot of time in pilot land. Elections almost 10 years old. The hardest thing about innovating in this space is there's a gap between the value that you can create for the system and the value you can capture under current regulatory regime. So the trick is to find a way where you can create loads of economic value that isn't unlocked yet, but also some current economic value that is unlocked where you can survive long enough for those rules to change around it. And that was really our part. When we first started, I was coming from the renewable investment side, battery investment, and the answer was so obvious to me it was time and location based price signals, and we were getting curtailed generation to pay local demand to turn up or down and get free energy. And that was exciting because it was really economically rational. The challenge is we couldn't scale it because as soon as you start trying to change flows in a big way through grids, got to feed this into the distribution network operator to check that you weren't going to turn the lights off. And there wasn't even an operational process for us to feed that data in. So we had to then go and win the right to run today's market, which is the procurement of longer term, moving to near a real-time capacity on the network. When we went about that, there was someone else at a hundred percent market share in that space and we really, really had to kind of redesign our product to take that market and have the right to essentially like provide these long-term tender constructs so that we could then reintroduce the near-a-real-time markets, the more dynamic trading, things like operational dispatch, which is where we started. So we were lucky to survive through that value. And I think learnings for others thinking about during the same as starts for something everyone's already doing. And so it's all about cost-benefit analysis. If you want to change the way someone's paid this, you have to show real data that they can get more value that way. So you do have to do the pilot. Like you can't skip the pilot. You just have to do the pilot while you're allowed to be paid for something that's currently economically rational. Jojo, can I just ask about one thing that was from last year, which was there was talking to the UK about changing the power markets, right? And moving to nodal pricing, I'd love to hear your thoughts in and around that. And what do we need to do going forward to sort of incentivize more and more flexibility? And I'm not just talking about the UK. Just you're doing this in different market. What would your lessons be that you, if you were speaking to a regulator tomorrow, what would you say to them to do? Professional pricing definitely benefits the system, makes the system cheaper. Should you pass it on to consumers as a regulatory discussion that can kind of happen apart from that? If you decide that you need to have some form of locational pricing to drop the cost of the whole system, which I think is really very important. And today, when the system costs is rising so quickly, we're having to expand the grid so fast. We decide you have to do you have two choices. You can do explicit where your flexibility markets are, where you're kind of pinging climate location-based pricing. And then you do implicit, which is where there's a kind of moving, zonal, nodal, regional price. We sort of said nodal is too difficult, so we're going to do zonal. But zonal only helps with transmission constraints, because the areas are so big, essentially. And so much of the challenge is more localized. So I think we haven't said it's no locational pricing. We've said that we're going to do locational pricing explicitly for a while instead of updating every system. And there's some sense in that. In the US, where we're also working with a number of different utilities, there already is LMP in a lot of these regions. And you're still needing to layer on these explicit locational pricing, that's because you're still getting these really constrained areas of kind of aging infrastructure and a lot of new connections coming through. So locational pricing is inevitable, especially when that price is getting this high, and the implicit debate is geek territory, and how that's passed on to consumers. Can I just maybe just follow on, and I can ask, if I look at it, what I can imagine, what we see in the markets is we see a lot of volatility in wholesale power prices. Obviously, you can go to flexible tariffs and stuff like this. But I can imagine if you flexublize the grid tariffs as well, then you really do have an incentive in place for customers to make changes. One thing that I was quite taken back by, as opposed to the end of last year was just the Australian government's decision to sort of go, okay, we're going to give away electricity for three hours a day to our customers. I mean, that's a quite a radical move, but it sort of goes back to, they're sort of saying, well, you know, if it's electricity for free, let's do something like that, you know, so how do you think about all of that? It massively depends, right? By region, Australia has huge amounts of solar and one solar panel can create about four times as much power as it can in Australia as it kind of know. The promise of the transition was like free zero marginal cost power some of the time in brackets. And it's really exciting to start, be able to pass that onto consumers, hey, some of the time, I wish governments would start being more honest on this transition piece and like, you know, we're not dropping the energy cost necessarily. We're dropping the energy cost really severely some of the time. If, you know, we then need to invest in the flexibility that actually makes that captureable and valuable to consumers. Okay. I understand those debates. You have academics who are running complex, we used to have a excel sheet, but now it's even better. We got AI models. So they're going to come with a 600 page report demonstrating that this should be done or that should be done. But then the governments, you see no way. There's a, you know what, flat prices. So in fact, government, because the subject has become politics, they start intervening and every time a government intervenes, generally is done on a more ideological than economic basis, they want to flush headlines. And a lot of positive signal, which could get from the market, they are brushed aside because you change the system. You have what they call the winner and loser, the winner, they just say, very nice. But the loser, they'll make so much noise that it will negate any economic value because of a political cost. So the question is what can be done under the radar? So we don't start having public debate of 600 newly minted would be expert. I like cost reflective pricing because that actually does incentivize to try driving down costs of whole system. And that is really important because if we do not transition in a cost effective way, we may well lose the mandate to transition. As to whether that gets passed on to the consumer or not is another matter. And that's where I wish the government intervention would happen. You can say, hey, suppliers, you take that risk and you guarantee your consumers a flat price and you work out what you can guarantee them based on how you can trade that, for example. So what consumers see and like how we price for a cost reflective system should be divorced. And that's why I was actually very pro the nodal system debate because nodal would have given us explicit pricing, explicit pricing is kind of like a free market because any new supplier can kind of start up without even joining each local flexibility market knows how to move their consumers. So I personally was a massive proponent of that basically, even though it would probably be less good for a business like a lecture on that is all about getting explicit pricing to consume because there's still a ton to be done below the nodal level and you see that in countries like the US where they already have zone on pricing. So yes, for the very reason you just said it's very difficult to work out roots to market and value in the energy space because you are navigating this regulatory and kind of fundamental value shift that just don't quite match yet. And for us, it's about finding a way in and then showing enough data kind of incrementally to show why something else should move around it. And we really have to kind of partner with the utilities to do that. There's a lot of people who think that utilities aren't buying flexibility because utilities are useless but like a lot of it's not true in most places because they're not incentivized to do so because they haven't been able to make their regulator understand the cost benefit analysis. For example, if they're being incentivized to do something this way, it's gross that way. Jojo, could we just maybe shift direction a little bit and just talk about some of the technologies and the flexibility is because what I would say is there's just a massive amount of flexibility being built, particularly behind the meter, particularly I'm thinking about batteries. You could also argue, well, we've got these movable batteries which are called EVs. And there's even more flexibility in them. So how do you see that? And related to that, then talk a little bit about new business models that come from that because a lot of what we've been talking today is about grid operators and utilities, but actually you could argue it's going to be on mobile manufacturers that are going to control this flexibility on new companies and new businesses. So basically, a lot of the aim on ours and kind of removing friction and increasing volume in these markets is about enabling anyone to participate in this market. The reason that these electric vehicles, for example, are such an exciting prospect for flexibility is just there's going to be so many of them. You know, let's say you get two kilowatt hours of facts from an EV half a million EVs is like a nuclear power plant is going to be, you know, many, many, many multiples of that. And also if the flexibility is coming from the bottom of the grid, it can solve problems at the bottom of the grid, the middle of the grid, the top of the grid. So it just gets more kind of opportunities to play and create value and it can also help balance supply and demand. A lot of the flexibility people don't think about though today is not just in batteries, but in commercial industrial processes that almost don't really exist today because power prices are being quite high or quite flat. If you actually get to a really spiky the cost-reflective market where you get really cheap power some of the times and really like a lot of money for flexibility other times, you're going to get, you're going to transform the unit economics of some energy intensive, flexible industry and get a lot more flexibility. The battery story is absolutely fascinating. There's all sorts of new business models of people who can use power flexibly on the actual consumption side. There's something that we're working on at the moment. It's essentially an imbalanced hedging product with a PPA platform, a bit like a capacity market contract that they can pay 25% of the value the battery needs to make per year to secure against 30, 100 hours a year where they're in imbalance. And that battery can then pay a lot of the cost to even build the battery. To pursue on Charles's question, so you have EVs, heat pump, own batteries, a flexible thermostat, commercial load, which of those categories do you think devour the most flexibility in the next 10 years and which one do you think is overlooked? People are still really overexcited about heat pumps and electric heating and that's coming through much slower than everyone wants and in less policy changes that's going to continue. So EVs for their scale get a lot very, very quickly but batteries obviously are the kind of ultimate flexibility enabler because they can guarantee that someone get something and you can build new business models behind it. So it's more than new business models behind the technologies that really excites me, that will move the adoption of things like batteries. I will cap your energy price here and put my battery behind your empan and give you some kind of resilience saving but then make all of the money and trading that battery. That's a really exciting proposition that haven't seen in a market before and it really gets possible when you can securitize that aspect. Yeah, it's what base power is trying to do in Texas? Yeah, in a Texas market is wild, right? Because you make all your money from 10, 30 hours a year. But again, you don't want to expose consumers to that necessarily like during storm uri. Jojo, the other thing that I would like to talk about is the generations. When the way I look at it is the more flexibility we put into the system, the less base load generation we need. And I'm just curious, have you done any modeling or do you have any thinking around what that future system could look like? And I'm saying this because you're looking at countries like Germany that are sort of saying, oh, yeah, we're going to put in a whole pile of firm CCTV capacity and I'm sort of wondering, is that really the right thing for them to be doing? You absolutely need diversity. Whether you need base load or not, you definitely need diversity. And base load is a very diverse profile against renewables. And the reason you need diversity is because if everyone's correlated, then you're really, really, really exposed to the swaky events. That means in my mind, based on it could easily be kind of 10, 15%. But I don't think the more flexibility you need, the less base load you need because flexibility is absolutely diversity. There was a report out five years ago that was looking at a world where you could be overbilled renewable capacity by like five X, then you have enough renewables 90% of the time. And if you overbilled it by like eight X, you have enough renewables by 25% of the time. I think it was around that. And everyone kind of poo-pooed it because everyone said it was like, oh, but only solar. But I don't think people understand the extent to which like you get more flexible industry and flexible types of kind of consumption. If you hurt really cheap power out there a lot of the time and really, really spiky flex signals, I don't think people have kind of understood that that new industry that could use power differently and a huge, huge amount of electricity almost doesn't exist yet because we don't have those kinds of electricity prices or flexibility prices. And Jojo, that's why I asked a question because I agree with you. And it's back to that Australian example of giving solar away for three hours a day. We have to see what impact that has. But if that does have a very big impact, then actually it does give you a part forward to what you're just talking about. We need diversity. Flexibility isn't diversity, but we don't have diversity yet because we don't have that thing. So yes, so we're building CGT and we're building like longer form nuclear and things like that. And how do you get to a world where you can rely on the diversity or flexibility? So, yeah, we'll be looking to Australia for good examples. But there's also some really interesting changes in the way, for example, like some of the newly consumers like data centers are looking at powering themselves to be flexible. I saw this kind of five categorization of data centers that the US was adopting on from kind of like completely inflexible to despatchable like a power plant. And they're getting connection agreements based on, okay, you can connect now if you're a five, but by next year you've got to be a three and in five years you've got to be a one of those kinds of connection agreements as well as the power price. If you can connect faster for being flexible, you will get a lot more flexible load and a lot more diversified loan. Diversity is really the thing that governments and networks need to start paying for because that gives you the stability. Jo, Jo, you are orchestrating your integrate device, your integrate aggregator, constraints, market settlement. And now you are active in half of UK, you know, and you start working in America. And part of all this orchestration, how much can you just replicate and how much has to be tell or made to the local circumstances? US circumstance is obviously different to the UK. And so we're working with five utilities in the US already and some of that's through acquisition. We acquired a US grid analytics company called Rhythmos on the US market entry journey because we found that we had to start almost like a little earlier in the journey. In the UK we could go, okay, you want to buy that, that product, you have that incentive, then you're going to pay this, let's go and find the people you can sell it. In the US we had to get involved a little earlier in the game. We had to say, okay, you want to know whether you should buy flexibility or not. And if there are enough assets out there to make this valuable and this company was doing kind of EV detection, DER detection telling them where the assets were on their network and where the constraints were. And that sort of helped us get involved a bit earlier and help create the business case for new flexibility markets. But then when you get there and when you say, okay, there's value in these locations and there are enough assets in these locations, then we can move on to the kind of Electron Connect activation type. I would say in the US the difference is in UK and Europe flexibility is the answer. The kind of medium and long term for renewables, the answer is obviously flexibility. Just go and create those markets because we'll need them. In the US there's a real like the kind of affordability crisis now as well. You need to show that like flexibility creates value right now. There's a kind of shorter timeframe or tolerance to that. So it's really about having a lot more grid data and certainty to create that CBA for doing something new and different when the incentives aren't as clear, just go and spawn these markets and this type of digesting. Jojo, we started this conversation talking about distribution grids. I'd really love to hear how you see them going forward and what you're thinking is in around what your business's role is going to be in that future. So there's two things that I see kind of being re-transplantive. One for the industry and one for the industrial run or route through it. For the industry we really need clearer incentive structures for network operators to use grid enhancing technologies to get more value from the network. They are still disincentivised from spending up X versus KFX and typically it's your operating expenditure. That YZ grid enhancing technologies. That has to change and it will change kind of as the weight of overwhelming data kind of crushes it but it's going to take a bit of time. That is the transformative piece for the industry. For Electron we've been absolutely in the trenches with the utilities right now working out CBAs, business cases and trying to grow their markets. In five years time we're sort of looking to make Electron more of a kind of data platform or destination that people can come to find information about what is needed, what the relative value of putting their assets in X, YZ places the network, maybe even securitise the assets to make them easier to kind of finance and build out against those kind of future revenues and against that kind of real historical data register. These kind of assets and this much in this location and be much more of a platform play and allow other people to sell services, interpret data and what have you on then and stop doing that kind of utility tender thing and start having something to offer people when they arrive from scratch. Well Joe, your passionate geeky and your very patient. That's what it takes to be successful dealing with utility and trying to provide flexibility or lubrication in a system that tends to naturally ossify itself. So thank you so much for coming on the show. Well it's great to see that beyond the flashy headlines, this is hard work being done at distribution level because we really need that. Thank you very much. Thank you, it was a pleasure. Thank you very much, Jan, I wish you all the best. Chad, this is one of the most critical part of our energy system and nobody's talking about it and I'm very glad we brought JoJo on our show. Yeah, in a totally weird, I mean this is what I take out of it is just like we've got this distribution grid that we don't use all the time, right? The capacity utilization factors are just so low and you sort of go this is mad. I mean we need to use it more and how to do it and all that and if we'd be really clear the way we manage the grid has not changed in a hundred years and it needs to change. It needs to change for lots of reasons. We need it to be more cost effective. We need it to be more secure from energy security point of view. In go on and on and on in terms of what needs to happen and for me it's not about building more cables but it's really using the ones you have and the infrastructure you have much more effectively, right? Yes and the big change is if you look 15 years ago only 10% of the generation was connected onto the distribution networks and now in the EU it's a third, okay? A bit less in the US, less in China but every time you put batteries, every time you put solar, every time you put any flexibility, it goes directly into the distribution network. So it used to be a bit of an inner plumbing system and now you need to put a brain and it's it's It's very difficult for the distribution operator to find a brain and it's great that you have companies like Electron and also a few years ago, we had Dana from Volters and of course all the work that Autopus is doing. So it's bringing local brains to supplement the big brain of the transmission network. Yeah, well, I just want to thank JoJo again for coming out of the show. It was great, very insightful and I wish her all the best in the coming years with the business. Yeah, absolutely. Good as ever talking to my friend, welcome forward to speaking to you next week. 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.