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

With the run Segle end from London and Gerard read from Berlin. This is redefining energy today. On Redefining Energy JA, we're going to talk about the behind the mitter. Revolution, absolutely and in particular we're going to look at the residential area right.

But first the world from my partner. A b Loco Energy is Europe's premier leaser of ten foot container mobile batteries built in Europe with COTL best LFP cells. A Bloco Energy serves fourteen 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 Blocko 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 a, you're putting and batteries, 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 gonna 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 listen, what we're doing is bringing on a German entrepreneur, Philip Shorter.

It's been really active. Is founded a business called einskomerfon one coma five also formerly with sonon battery manufacturer Tesla and a really really passionate maker of the future. I would say, you know, oh yeah, a company now as close to one billion euro of annual of news three thousand employees. So it's one of the most active and successful entrepreneurs in the behind the metal revolution.

And it's great have them on the show. So why don't we bring them on? Philip, Welcome to the show. Thank you for having me.

Philip. 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 present is look after the beginning of this second energy crisis 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, You're actually doing it, So yeah, I'd love to hear your view. I would say high level. The 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 abundant 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 is 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 fossils, 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 meta 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 grid 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 crist in the seventies. In the seventies we really didn't have the technological solution, so there was one which was called nuclear, and everyone jumped on that. We either started drilling in the North Sea or we went and built nuclear, and in some respects what France did it was absolutely inco credible in the years in the nineteen eighties.

But today, if I look, I go, We've got so many technical solutions in the electrical space, whether it's solar, it's batteries, it's evs that 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 fifty years ago. One hundred percent. I mean, the good news already is that we get a lot of validation for them.

And the realm 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 heatpump is working. It's great technology, it's much more efficient, it's much cleaner, it's cheaper singles for EV's singles for solar, and it's getting only better.

I'm with you, but I think the great challenge is if you have sixty percent of overall energy costs being grid cost, because you are not capable of absorbing overproduction 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 sixty percent of the cost.

Right, and electrification is always about competitive. If we have more usage by nature, then the grid fees will go down, 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 it's particular in Europe. A grid layer and all the flexibility steering behind the meter is something that is not solved 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 kilar, what 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 a very highrid cost, already today the solutions are super powerful. But at the same time we see the capacity market in Germany, gas power fireplant are being built or should be built.

Billions are going in there, so there is also some countermeasures that I'm more sensitive towards. Philip. I'm interested by everything you say because it's not like academic paper or lobby's paper. It's the experiense of someone a great entrepreneur.

In my opinion, you're one of the greatest entrepreneur in Germany and probably in Europe, and you've built a one billion euro company three thousand employees, and what you do is very difficult compared to software. It's because you are integrating hardware and software from the sellar panel to the heat pumps, the client acquisition. Got that's difficult because it's almost flat by flathouse by a house, and managing to coalesce all those decentralized pointing to dig your load being able to tread 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 investors. 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 seemingless solution for everyone, blah blah blah.

But if you describe the solution is very simple. You need to be capable of trading each metering 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 meta 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 errors. 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 all tank out heating and put in in electrical heating. The electrical heating needs to be integrated in the trading algorithm in the entire software suit you have for decades. This is why we have a software revenue from our customers, because people are paying us to optimize. They don't pay for electricity.

They pay us to be the last energy supplier they'll ever need because they know they we will always optimize the metering point for them against all markets. The next point you need is a smart meter. Obviously in Germany is a huge pain point, and you need full integration of all the energy market layers. And what we like about one comer five so much about heartbeat.

That's the name of the VPP is. Those layers have never been automated. These layers are individual layers that are one hundred years old, and we've 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 monatility 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 do 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 back end in 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, in US, in Germany. So literally, the only reason why we made it so far is because we have learned through our experience every little vertical from energy trading VPP to the residential behind the meta 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 end 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 quisition 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 want to ask the question from the outside looking in. You know we see your name, but you know we see other companies, So would you describe them as competitors or they have a different business model? So I can name motopers, I can name in Texas, base Power, in Germany you've got empal Tarmondo, and that there are certainly others. So how would you position income affum versus the names are 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 of the tzation 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 capability, so if you cannot really help the customer with actually acquiring the system in the first place, installing the battery, installing the heat bump, then you cannot scale. This is Base. I love Based, It's a great startup. It's good to have them.

If we look at Octopus, I would say Cargan is the shooting star. Cargan Flex is probably a contender in what we do. But Carten in itself is something like a CRM, right, so we would not say that Cartan in its core when it comes to the CRM, like power Cloud or Salesforce, is a true competitors. Is 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 hutbeat and we are opening up to our manufacturers, opening up to all energy suppliers, and we want to have the one stop shop service at the home because otherwise, we believe you're not going to get the customer satisfaction. This is our bed.

It's great to have all of them in the game because they attract investor and attention. Each of them has an individual strategy that's a bit different, Philip. Can I go back to that? Maybe i'd 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 done electricity. But at that point it's sort of too late. 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 But it's coming from and do what they're doing, or how do you see it? In other words, that how do you really persuade all those customers to go with you?

The only way to persuade all of them is if they don't even think about it. You know, 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, as customers understand it increasingly and they make a lot of advertising for us, they understand that it gets cheaper if I have lower electricity costs obviously to acquire a heat pump and my return on a vest counts earlier. Then 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 updron 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 me on 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 and then we talked earlier on about and I'd agree on a macro level, if you want to electrify, what we need to do is deal with a quid cosse. 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 media solutions and to allow someone like you to go and you know, manage it in an intelligent way. Film I would disagree. In the end, you have all those lobbies who simply want to invest in CAPEX, so they either want to b build batteries or they want to build power generation or they want to build the wind part.

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 lows 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's 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 right.

If you now look at the PPA market and wind farms in Germany, you have a redispatch. So we are actually turning off windmills. Tell a what 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 try to arbitrash for our customer good, but the system itself is built to become the operational layer to harmonize a renewal production with consumption. That's really core for us because if you build something that is just an arbitrass 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 overproduction or underproduction 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 higher 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 them as 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 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'd call it home electrification building electrification. So the solution part is like you need craftsmen. You need to be capable of fulfilling with the customer, because if you can't do that, it's very difficult to enter the game. That was the first step we did.

This is when people labeled 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 Heartbeat GmbH this separate entity and HARBRED 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 the central operating layer that enables whoever to take their assets and leverage them against the volatility in the system.

And we did a. Studying on this, like, if you just apply Happydai to a couple of millions of consumers in Europe, you could save up to two hundred and fifty five billion euros each year system cost. I'm not talking for them alone, but system costs because you very simple. You transport more electricity through the same copper and that makes a lot of sense, brings down cost for everyone.

Now, Philip, I'm going to ask a tricky question, because I'm the tricky question guy. Go, I hear you, But I would say the incubans will try everything in the book to prevent you to eat their own cakes. Now, what if you are acquie or you get the keys the management of a distribution company, how would you restructure that old 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're changing it from the outside. I'm a big private equity fund. Here are the keys to the distribution company of Padochtenberg. What would you do?

I would deny the keys of the dso, yeah, I would not take the obligation I think the source of all I agree with your assessment. You have to fix the problem from within. What we are now doing is we're handing the keys to Heartbeat two 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 and then they want to transport it back from Italy or from France to northern Germany. Why because it's their business and it's a money printing machine. Because they have a fixed price for every cured hour that they are transporting.

So why would they have an interest in using the surplus electricity on site in 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. And one way is already possible is that they have regional grid fees.

Every of the six hundred DSOs in Germany can actually come up with their own grid fee, flexible grid fee, so they can say in the afternoon cost is higher and in the night it is lower. So 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. And what we can help them with is to have a system where they can actually design those germanys 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 ye know how it will really work out. We can help them to do that.

We can help them to make money on flexible teriffs and 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, there are so many heat pumps and they're stupid and they just go on all at the same time. And ah, there's so many e these 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 got to be the worst time. We can control those, We can control every single modules. 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 Lippen are 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 plans. Right now, the turbines are sold out. There are no turbines available until twenty thirty. 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 fifteen 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 twenty fifty. So in the next thirty 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 that 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 immediate and now we need to find a way that the grid operators actually make money.

If you are a meeting with miss Reischer ten minutes one on one, what would you tell her. I had the meeting with missus Reiser, 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 low 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 twenty gigabat in already paid battery systems that are there. They are all there, we could steer them all that you use one hundred gigabot of EV capacity that's available. But she and also 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 rolot's going to be fast enough, and we don't believe that there's going to be a 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 notice is a strange thought that's coming into my head there. I was thinking to myself, if Werner von Siemens was able to come back from death for half a day.

He come back down onto the planet. He showed my mobile phone and he go, what the hell is that? I want? How to use that?

Oh my god, it's crazy. But if you show them the power system, he go, God, Christ, nothing changed in one hundred and fifty years. I suppose that's what comes into my mind. And I suppose I think myself and Roman 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 she is, how do you bring them with you? Because you don't want them against you either. Totally 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 decentral power plant, and we need the last missing pieces.

Without internet, you cannot operate at 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 that's not meta, 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 we thank you so much for coming on the show and bringing us hope success with what I would call the behind the metter revolution.

Thank you guys for having me great pleasure. Thank you, Philip, and I really wish you were all the best in revolutionizing the electricity space across Europe. Lauren, what do you think? Well, I love it so much.

He 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 is you know, he's starting to be attacking the incuban, So I really hope it'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, Laurent. That's the reality of us.

Don't don't don't total Anyway, we thank Philip for coming on the show. Good and Laura, I look forward to seeing you next week. Cheers by Thank you for listening to Redefining Energy. Don't forget to rate the show and subscribe on Apple, Podcast, Spotify, or the platform of your choice.