How Base Power plans to use its fresh $1B

Latitude Media, covering the new frontiers of the energy transition. I'm Shail Khan, and this is Catalyst. If you look at a utility scale battery deployment, you have to buy or lease the land that the battery sits on. You have to pay for the interconnection to the grid. You then wait in the interconnection queue, which adds additional cost.

You then do what most firms consider project development, which is some level of construction to level the site and prepare it for the system. And so there's a bunch of kind of line items in the model that add to a cost that we think is higher than where we can get by vertically integrating. Coming up. Home Batteries and Retail Energy with Zach Dell.

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When utilities need flexible capacity they can count on they turn to energy hubs. Energy Hub works with more than 170 utilities, coordinating over 2.5 million devices to manage 3.4 gigawatts of flexibility built for the moments when utilities can't afford uncertainty.

Energy Hub builds and operates virtual power plants that utilities actually stake their grid planning on, coordinating EVs, batteries, thermostats, and more through a single platform built for utility scale, predictive, verifiable, and designed to perform when it counts. Learn more at energyhub.com. I'm Shale Khan. I invest in early stage companies at Energy Impact Partners. Welcome.

So base power is the talk of the town, or at least the talk of my town, which is comprised of a mix of venture capital investors, founders, and wonky energy people. Basin is a relatively young company, but they're moving very fast. And just yesterday actually announced possibly the largest Series C in history, certainly the largest in the energy space. They raised a billion dollars with a B at a four billion dollar post money valuation.

The basic model of the company, as you'll soon hear Zach Dell, the founder and CEO, describe, will actually be kind of familiar to people who've been around deregulated electricity markets for a while. Base acts as an energy retailer, as well as offering customers a cheap home battery that they can use as backup. You've probably heard various shades of that concept over the years from other companies, including Tesla. But base has been taking off of late.

And as I've dug in more and more and gotten to know Zach, I do think they're doing things differently in ways that are interesting and ways that tell us some lessons about the future of distributed energy resources or virtual power plants or whatever acronym you want to use. But basic story is also just interesting.

In the context of scaling a startup this quickly in the notoriously tricky energy world and everything that comes along with that. One of my normal rules on this pod is that I don't really like to talk to founders about their companies, at least not directly.

First of all, that's what I do all day long in my day job, but also I'd rather focus on the markets that they're in and the technologies they're unlocking and so on. But base is especially interesting, and I'm in the business of exceptions, so let's make one. Here's Zach Dell. Zach, welcome.

All right, let's start by having you do the the base power elevator pitch,'cause I know what you're up to. I suspect a lot of our listeners have heard about bass, but I'm interested in how you describe it when you describe it briefly. Yeah, I I think of us as an energy technology company. When I describe the product to consumers, what we talk about is

saving money on power bills, keeping your bills low and and your lights on, bringing reliability and resiliency to the homeowner. But literally what we are is an electricity provider. So we bec we are your power company. You buy electricity from us every month. we install a battery on your home that we own and operate. When the grid's up and running, we use that battery to support the power grid. And when the grid goes down, you get that battery to back up your home.

But to folks in the industry and and listeners of this podcast, I would think of us as a gen tailor. Right. So we own and operate battery storage on the grid and we sell retail power to homeowners. And so our business looks a lot like some of the gin tailors that folks are familiar with. Uh but our generation fleet doesn't include gas plants and and coal plants, but is made up entirely of battery storage.

Okay, that's a great segue to one of my first questions, which is okay, so I think of you as a gen tailor too, but obviously a uh, you know, historical traditional gen tailors, they're the generation side of the business, they're, you know, big fleets of Thermal generation or now increasingly batteries maybe too, but they're utility scale things. So as you think about like The pluses and minuses of your version of a Gen Taylor, wherein the asset, the physical asset base is all residential scale.

Like what is it about that that is better than the NRG version of being a gen tailor? And what is it that is more of a challenge? Yeah. Well there's the customer answer and then there's the system answer. And the customer answer is when you're when you're selling power to homeowners, all that matters is price and reliability. So

we are able to provide a level of resiliency to the home that the competition can't at a price that they can't compete with. Right. So when you sign up with base, you get a twenty five or fifty if you if you offer two kilowatt hour system on your home. That is all yours to use when the grid goes out for$19 a month for the$25 kilowatt hour system and$29 a month for the 50 kilowatt hour system. So in terms of home backup, it's the the most affordable option on the market.

At the system level though, why our Gen Taylor model I think is is more attractive than than others is strictly cost oriented, right? What matters is fully landed cost of the megawatt. And our view is that we can land a megawatt, gigawatt of

storage on the grid faster and more cost effectively than the centralized utility scale developers and for what it's worth faster and more cost effectively than a a gas plant or a coal plant. So We know we use this strategy that we define as compounding cost advantage to vertical integration or kind of vertically integrate vertical integration plus technology to land assets on the grid, starting with batteries and eventually we'll we'll do other stuff.

faster and more cost effectively than the alternatives. And and that's what matters. And I wanna really double underline this point. It's like everyone listening to this podcast knows that electricity is a commodity, right? And when you're competing in a commodity industry, you need a cost structure advantage if you want to win.

And so we've designed the business, the mission, the vision, the strategy around engineering, technology, and vertical integration to achieve a cost structure advantage so that we can sell the lowest price electron in the market. That's that's really what matters to our customers, and that's really what matters at the system level, is how fast and how cost-effectively can you land megawatts on the grid. And so that's really what the business is designed to do.

All right. So you said two things there that I wanna dive into a little bit deeper. The first one is just on the consumer value proposition. So you know, I think let's let's pause on this for a second. So part of your innovation here.

is you're deploying big batteries. You said 25 kilowatt hour, 50 kilowatt hour. So this is to bigger than your typical residential battery deployment. There are others who will like stack a few power walls and get to the same place, but it's not been common. And you know, I think folks can probably intuit that part of the the reason to do that for you

is that your soft cost, most of your soft costs scale with number of systems you're going to deploy. So if you could deploy a bigger system, that's just better for you overall from a a levelized cost perspective. But the mechanics of what you actually do with that battery, I think, are interesting. Cause you said the the pitch to the homeowner is you have 25 kilowatt hour, 50 kilowatt hour battery that's fully yours and available to use in the event of an outage.

But presumably you're operating that battery, you base are operating that battery all the time doing arbitrage or whatever else you're gonna do in the meantime. So are you guaranteeing some level of availability to the customer or how do you How do you square the circle between like you're going to be charging and discharging the battery every day, but you want there to be some reserve available to the customer when there's an outage?

So the short answer is yes. We guarantee twenty percent of the capacity of the battery to the customer no matter what. The reality is that the discharge window of the system is not very long. It's, you know, one to two hours a day. As you know and listeners of the pod know, power prices are are spiky and unpredictable, but like reasonably predictable in terms of kind of the the pattern throughout most of the days and it's different in the summers and the winters, et cetera. But

Um, the windows in which you are discharging, um, they're they're they're reasonably predictable and outages and high prices are are actually not as correlated as one might think. So Uh what I'm saying is that the likelihood that an outage happens at the bottom of the discharge window is statistically Not improbable, but but reasonably low probability given the fact that there are 24 hours in a day and only one or two of those 24 hours, the the battery is kind of low state of charge.

Um so most of the day the battery spends its time at a higher state of charge. It depends on where the battery is and what the optimization function is. Um, but the reality is it is very unlikely that an outage happens at the bottom of the discharge window. Even if that does happen, we do maintain twenty percent state of charge.

for that situation. And as a benefit of having really large systems, you know, our next generation product, which we can talk about, is a 40 kilowatt hour system that we also will install in parallel, getting you to 80 kilowatt hours. So twenty percent of an eighty kilowatt hour system is like a full power wall, right? So

Once you have there's a b bunch of benefits that come from having a really big battery on the house. Uh one of which is even if you have an outage at the bottom of the discharge window, you're still gonna have a lot of backup there for the home.

We really have two businesses here and and you know we started talking about the Gin Taylor business, but there's a second business, which is we are a technology provider to the utilities. And you know, two-thirds of the country, as you know, is uh a regulated market where there are incumbent utilities uh that have kind of service territories and monopolies and we are starting to partner with them to deploy fast, affordable, flexible capacity in their service territory. So this looks

different than the Gen Taylor model. It's the same technology and stack hardware, software et cetera, but we give them a fleet of storage that they they go deploy uh alongside us or we go deploy uh kind of alongside them, I should say, in their server territory. And then those customers, those, those homeowners are getting

Really affordable home backup, but they're still buying that electricity from the utility. So it's the same tech stack, different business model, and we could talk more about that. Yeah, yeah. I wanna come back to the what does this look like in regulated markets bit in a little bit later. But before we do sort of staying on the so you're starting in ERCOT, um, so staying on the what does it look like when it's the Gen Taylor model in a in a deregulated market.

The other thing I wanted to talk about from what you said before, which is I think is like a bold statement um in general, is that you think you will be able to get a landed megawatt of energy storage. at the residential scale that is cheaper on a capex basis, I presume you're saying, than a landed megawatt of utility scale battery. So that's like a very bold statement and certainly flies in the face of where costs have been historically on a relative basis.

For batteries, but also you could say the same thing for solar, right? Like it turns out that economies of scale for solar are huge and we get utility scale solar sub a dollar a watt and residential solar for four bucks a watt in the US, cheaper in Australia and other places. Um, but anyway, w give me the mechanics of like how do you get a a r just from a pure you have, you know, you have customer acquisition costs and you have

uh labor costs and truck rolls and smaller batteries and all of that. So like how do you overcome all of that to deliver a cheaper megawatt? Yeah, so this is kind of the heart of the issue here and I think the shortest version of the answer is that vertical integration is the magic. And we'll talk about what that actually means tactically. And I can kind of start by saying if you look at a utility scale battery deployment.

You have to buy or lease the land that the battery sits on. You have to pay for the interconnection to the grid. You then wait in the interconnection queue, which adds additional costs. You then do what most firms consider project development, which is some level of construction to level the site and prepare it for the system. You have a big EPC firm come in and plug in all the hardware that you buy from an OEM that adds a bunch of margin on top of the cells that are reasonably commoditized.

Um and so there's a bunch of kind of line items in the model that add to uh a a cost that we think is higher than where we can get by vertically integrating. So compared to our system, we do have CAC that they don't have. Um they have install cost. We have install cost too.

We'll come back to that when we talk about design. Uh but we don't buy or lease the land that the battery sits on. We don't pay for interconnection to the grid because it's already there. We don't wait in the interconnection queue obviously because this is behind the meter.

On the hardware side, we're designing and manufacturing our own batteries. We think there's actually a lot of margin to capture there. Everything above the cell, basically. The cells are are are commoditized. Everything above the cell, the power electronics, the module, uh, the the kind of you know, the design of the pack.

Um, we think there's there's there's a a bunch of margin to to go after there. And then in the install, the way that you actually design the system for install, if you own the installation, you design the battery in a very different way and you can take a bunch of cost out of the out of the install. And then, you know, the the CAC piece I think is really interesting. And this this, you know, we could go on a tangent here and we could talk about the last decade of home energy companies and why.

you know, all these companies in the space have positioned their products as premium products with this, you know, premium product valence and these products look like, you know, iPhones strapped to the wall and they're made of glass and they charge twenty thousand dollars for them.

We take a very different view here. Our view is that what matters to homeowners is cost and reliability. And we position our product as a kind of financial no-brainer. And as we bring our next version of the product to market. The vertical integration leads to higher return, you know, lower cost, higher returns at the asset level. And then we pass those returns on to the customer in the form of lower price.

So as you drop price, as you drop upfront price, monthly price, and then volumetric energy price, your cacks go down too. Right. So the idea here is that through vertically integrating, our cost to install come down, our cacks go down because we're able to drop price.

able to take cost out of the OEM part of the equation and the margin capturing and and everything above the cell. And then we don't have the the land and product development costs. And so on a on a fully landed basis, we can beat utility scale by a pretty significant margin.

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It strikes me that if I think about the total cost stack of utility scale battery, you know, land matters, interconnection matters, but they're de minimis compared to the cost of I guess the combination. I mean, certainly compared to The cost of the battery itself, the hardware, uh or battery process.

controls and and all that kind of stuff. Uh and also probably the labor EPC cost as well. So like what you have to do, it it you know, you you do have the benefit of you don't have the interconnection, you don't have the land and so on. But really what you need to do is make A dirt cheap battery, a dirt cheap residential battery. Like that's the core. Like if you could do that and you can get it somewhere close to the total.

cost from a hardware basis that a utility scale battery is, then you can sort of picture how that is possible. Uh but that seems like the challenge, right? Yes, but I will say it's not just cost, right? Reliability, safety, useful life. Like useful life matters, right? So if you model the asset to fifteen years and it only it only you know degrades in seven years, then your model breaks, right? So um it is

You you are correct. And we are going to land the lowest cost uh home home battery on the market. Uh and and you should hold and the industry should hold us to that. Um, but it will also be the most performant uh for the use case, right? So If you want to use the battery as a grid asset, it needs to be able to discharge effectively at h in high temperatures, low temperatures, high humidity, low humidity. That is not a trivial problem to solve, right? And

The home batteries on the market today, they're not designed to do that, right? The the engineers that are designing these products to be paired with, you know, home solar and sold at a upfront gross margin, they don't really care about, you know, participation in in capacity markets and energy markets, right? Like that's not what they're Designing around. And so it is a novel design requirement. And we look at the whole performance, both the landed cost, but also the useful life.

And it, you know, your ability to actually per perform grid services effectively. Uh you know, when when we start thinking about design requirements and and you know, we we plan to um bring to market the most performant battery. uh out there on on kind of those measures. Uh okay, so let's talk about design for a second then. Cause I guess as I think about okay, you said the sort of magic here is is vertical integration. I could think about

Two heuristics for vertical integration. One is just your margin stacking. So you don't need to earn as much margin any given step in the value chain. And, you know, I so I I think you know this. I spent a lot of time paying close attention to like the the first residential solar boom back in the day in the like late late two thousands. And so I was watching various versions of vertical integration play out and not play out.

uh over that period. And it's not exactly the same thing with batteries, but it's not entirely different either. And, you know, there were some, so there's lots of attempts at vertical integration in the sense that the same company that owns the customer relationship does the install, does the financing, does that whole thing, right? That was lots of companies did that.

I think really only Solar City at one point took the step to go vertically integrate upstream. They bought a company called Salevo and they were gonna start making their own modules, which is what you're doing. You're trying to make your own batteries. a degree upstream there. So the other heuristic for

Vertical integration is that it allows you to do something differently in addition to just margin stacking, which it seems like is what you're saying. So that must manifest in the design of the battery that you're gonna roll out. At the high level, you just talk me through like what Batteries seem pretty straightforward. What can one different what can one do differently if one is vertically integrated?

Yeah, I don't wanna give all the secret sauce away, but uh I'll s I'll certainly and I I definitely err on the side of of oversharing and my team will give me a hard time for that, but uh I think that a lot of this, you know, comes back to the vertical integration. And I'm not trying to sound like a broken record, but there's a real point here, which is like

Take for example the way that the battery is installed, right? So most basically all batteries on the market today are are wall mounted. Why? Because it it looks better, right? And this is a premium product and you want it to look nice. Mm most people don't actually feel strongly about should this be on the wall or on the ground. I mean your AC unit sits on the ground. This thing sits right next to your AC unit. We think it looks a lot better than an AC unit. And so people are pretty happy with

Ground mounted batteries. So when you decide to ground mount it versus wall mount it, that gives you a bunch more freedom. It relieves some constraints in the way that you actually design the pack. And then you think about the fact that we do the installation. So, you know, I won't name any names, but like other po um battery OEMs, you know, they they sell the product and then Bob's Electric or Sunrun or, you know, Freedom Solar or, you know, any of those great

Uh so in installers go and install the product and those guys charge time and materials and so they actually want the install to take as long as possible so they can make as much margin as you know, as much money as possible from it. And so the OEM doesn't really care all that much about how it's installed and how fast it's it's installed.

Well, if we're doing it ourselves, it really matters to us. And so again, I don't want to give everything away, but you can do some really creative things around how the battery is installed, when and by who. For example.

Most of installing a battery is actually like heavy lifting, racking, stacking, mounting. There's a little bit of electrical work that needs to be done by a licensed electrician, but that can be decoupled from the racking, stacking, and mounting. And so if you own the whole system, the logistics, the warehouse,

um, you know, the last mile, the installation, the design of the hardware. You can build the whole system to be more efficient. You can break apart the installation. You can have a truck driver show up, do the racking, stacking, and mounting.

uh mount a box to the wall where the hot work happens and then an electrician show and shows up the next day and does the hot work in, you know, thirty minutes. And then, you know, you can have that electrician hitting twenty homes in a day and you can have the truck driver hitting twenty homes in a day.

You don't have to couple these things into a six to eight hour install, now it takes an hour or two. And that's actually a massive, massive cost efficiency. So that's one example. And there's others I could give, but I think that's the most salient one.

Okay, so you're getting to the other thing that I think was the challenge that a lot of companies uh in solar as it was starting to skip residential solar, I should say, as it was starting to scale. were facing, which, you know, was not existential to anybody. Sunrun solved this problem, presumably as of today.

Uh, but that's like labor workforce optimization, right?'Cause you've got you're gonna have all these truck drivers and electricians on staff, right?'Cause back in the early days of solar, Sunrun did not do that, right? They were first a financing provider. Sungevity was this sort of like subcontracting model.

And Solar City was actually the only one that was like really truly fertile v vertically integrated and it it clearly has benefits, but it also clearly has costs or or maybe more risks if you have like a cyclical business where the sales cycle changes. For example, in in your context, I can imagine, you know, if you're selling an ERCOT, like after a hurricane and an outage, I imagine you have a spike in interest.

Right. And so like how do you marry a flat level consistent workforce who you are paying who's fixed opex for you with a uh demand cycle that might not be exactly suited to that? Yeah, it's a good old fashioned hard problem. Uh, I think there's a couple ways to answer the question. You know, one is that if you're a demand constrained business,

uh and demand is very spiky, then this hard problem is like really, really hard to solve. If you're a supply constrained business, like businesses are fundamentally constrained by something, right? And you know, supply, demand, and capital are really kind of the three core constraints. And if you're a supply-contrained business and you have more demand than you can serve, which is the position that we're in today, this problem is a lot easier to solve.

Right. Because you're just like installing these things as fast as you can make them and you know, your installers are running at, you know, near a hundred percent efficiency. Uh obviously it's never never quite that good, but um you you have this problem less so. I think we're in the phase of the company right now where we are deeply supply constrained. We have incredible amounts of demand because our product is really good and customers really like it. And so

We have had to solve this problem, kind of, but it it certainly will get more difficult and and more complicated as we scale. And I think the way to get ahead of this is Uh again, uh, you know, not to keep going back to this vertically integrated thing, but you know, our our North Star as a business is land a battery on the grid.

faster and cheaper than anyone and then widen that lead, right? And that will allow us to drop price, drop price, drop, drop price. Whether you're talking about our upfront fee, our monthly fee, our volumetric energy price.

to the point where it becomes an IQ test, right? If you're not signing up for base, it's like you can't do math because you're obviously going to save money. And that puts you in a position where you're not demand constrained for a very long time. I think the horror stories you hear about the solar coaster.

and, you know, the Sun Run and the the the the Tesla stuff and I've talked to all kinds of people who have worked there previously and now and whatever, like they faced these kind of um supply demand challenges.

because demand was very spiky and and oftentimes not there and they were kind of reaching for demand and then, you know, sprinting hard when they found it because the product is really hard to sell. It's very expensive. I mean, not a lot of people have twenty thousand dollars lying around to go buy a a solar ray and a power wall and and that kind of thing. So

I think if you're if you're not demand constrained, this problem gets easier, but it's it's just a good old fashioned hard problem. And there's, you know, things you can do that we're doing like build internal software, have really well trained crews. Uh to to make it better, but it's still hard. The last thing I'll say, and I apologize for rambling a little bit on this one, is that we really value the relationship with the homeowner.

Our installers are the front lines and they are incentivized to surprise and delight our homeowners. So they get there, they do their job, they're very respectful, they're very communicative, they clean up after themselves. Um, you know, they they are the first impression on a face-to-face basis of our brand in the field. And we really value that and we really invest in that. And I think to a degree that it's quite differentiated in in the space and our members seem to really love.

I guess specific to the URCT deregulated market thing, and then and then we can talk about the regulated market version of it. One of which is related to what you were just talking about in the relationship with the the homeowner. So the other thing that is notoriously a challenge for anyone who's a rep. in Texas in particular is churn, right? Like customers churn off of reps a lot. Now, I think there's good evidence and you probably know the details of this more than me.

uh historically that if you're installing something you know, others have done a version of what you're describing, installing something physical in the home in the hopes that that maintains a stronger, longer customer relationship. But What can what do you need to be true about customer churn in order for your model to work? So I I love this question. Um You know the best way to limit churn is to have a killer product, right? Like

Reps have high churn because the product is a commodity and it is really easy to compete with them. Um, and there are lots of players in the space who are willing to do uneconomic things with a short term time horizon. Um To capture arbitrage, for lack of a better word. Our product is really good. It's the most affordable home backup. ...on a planet.

And it is a reliable low electricity rate. And customers really love that. So I'm proud to say we I'm looking at a couple of dashboards in the office and we've got on the order of 5,000 of these batteries in the ground. Uh actually 5,000 homes. And so it's more batteries because a lot of them have two.

We have had in our direct business, we have had one customer churn ever. I I I remember her name. I remember the day it happened. I won't say it on the pod, but uh it is then that low because the product is is really good. So

Um, yes, we think we will have structurally low return because there's an upfront cost and because there's an asset on the home, but most importantly because we think we're bringing a ton of value to the homeowner and they really want the product. I mean, we've had a number of customers email us and say, hey, so

You you didn't ask this question, but I'll frame it up. So what happens when someone moves? Well, what happens when someone moves is if the new home buyer wants base, nothing happens. The home buyer just we become their power company and the battery's already on their home. And then the the customer

can sign up for base on their on their new home if if they want. We've had a number of customers email us and say, hey, I'm moving and I really want base on my new home. Like how do I make sure that base is there when I'm there? Like I just want to make sure that I don't lose Um and it's super easy to solve, right? We we set them up, you know, we we we get them all ready to go. We we make sure the new home buyer is is set up with us.

Um, but it's it's just a testament to the quality of the product. And I think that is the only way to limit churn at you know at the limit is to have a really killer product.

Okay, final deregulated market question. Um So you're you're making money in two ways in in ERCOT, right? You're you're trading the battery, you're charging and discharging the battery in the market. Actually maybe three ways, right?'Cause the the the homeowner's paying you a fixed monthly amount for the battery, then you're operating the battery in Urcot, making money on that. And then you're a retailer and you're making money as a as a retailer. Now the the interesting question in UrCot is

Uh, where is volatility headed, right? Or historically ERCOT had high volatility. It's been down a fair bit this year. People are talking about whether that is because we've installed so many batteries. The last couple of years, right. is that because we've got so many batteries and we're only gonna install more and so volatility goes down in general, you have to some degree a hedge there, right? Because volatility is good for your business on the battery side.

But bad for your business on the rep side and vice versa. Do you consider it a full hedge and you are totally agnostic to to volatility in ERCOD or do you like lean a direction? Generally, yes. I will again I won't give away all the secret sauce on how we think about risk management and asset optimization, but but generally speaking, yes.

Um, because we have this fleet of storage, said differently, because we have a long position, we can be more creative with our short position, with our with our load book, right? So There are things that most reps do uh to hedge their exposure uh that we don't have to do because of our our long position. And that becomes a profitable undertaking for us. Um, that said, like

The batteries are more profitable in high uh times of high volatility, full stop. Let's talk about volatility for a second. I don't have a crystal ball. I don't know what's gonna happen in ERCOD. Um but what I do know is that markets

uh generally work pretty well. And when volatility is high, people want to build a lot of batteries. And a lot of batteries presumably dampen volatility. And when volatility is low, people don't want to build a lot of batteries. Um and having, you know, as the march of new additions, solar, wind, you know, more more so solar probably i i going forward, um

increase intermittency on the grid and then you just have continued load growth. Uh and batteries, you know, let's say we have five more years of low volatility. Presumably the the rate of batteries, you know, coming online is going to

be lower than it would be if you had five years of high volatility. Well, load growth is likely to still march up, solar additions are likely to still march up. And so eventually the market snaps back, right? So What I would tell you, what I would tell our team and our investors, and and the way we talk about this and the way we think about it is that

There will be great years for batteries. There will be not great years for batteries. There will be great years for the retail book. There will be not great years for the retail book. Our job is to build the best technology in the world to scale grid infrastructure and put more capacity on the grid, maintain a really strong balance sheet, and make sure our risk posture is one that

will be here to stay, right? We are building a business for duration. We want to be able to absorb the bad years and take advantage of the good years. And so we think about it in this kind of balanced way. We don't try to predict where the market's going to go. Now I will say over time, I think our ability to um to see what's kind of happening based on the data that we have

coming off our our fleet of storage all across the grid as the as the volume of of kind of nodes in that network grows, I think that'll be a real advantage to us. But you know, we can talk more about that in the future when we're able actually able to flex that muscle.

All right. Let's switch over to regulated markets, which is your as you said before, is kind of the next the next big move. So it's a very different it's sort of a different value proposition there, right? You're no longer a retailer, you're not selling electricity to homeowners. What's the the basic contour of how that business model works for you? Yeah, so we

And the the the idea here is that we want to offer our technology as a utility asset. So our hardware, our software, and our deployment operations. Can be used to bring capacity online very fast and very cost effectively. And our view is that utilities across the country are.

now more than ever, looking for alternatives to get capacity. Whether that's because they're seeing massive load growth from, you know, data centers coming into their territory, or they're seeing the electrification of transportation or heavy industry or just population growth, whatever it might be.

If a utility is looking for megawatts, we can deliver them faster and cheaper than anyone. And we think we have proven in in Texas and and will hopefully prove across the country soon that our assets are just as capable and we can talk about what that means as a natural gas peaker plant or coal plant or some kind of traditional utility infrastructure that um the utilities are you know very used to.

underwriting and building and operating. Um, so you know, we want to bring to market the most attractive utility asset uh there is in the form of batteries and software and eventually some other products that we're not ready to talk about yet, but we will be soon. The consumer value proposition in that construct is a little different too though, right? So th so you go to the utility and you say, I I sell you capacity, you're gonna pay me in uh

in megawatt days or whatever, just like you'd pay for utility scale capacity. Now you go to the homeowner to go get that stuff installed. What is the value proposition of the homeowner look like? I think it depends. Um, I think in certain parts of the of the country, reliability is really a concern. And so we can say, Hey, we're the lowest cost home backup option out there, right? And

And that part will be similar to what you do in Texas. It's like a fixed monthly fee for the battery. It's just you remove the retail part. Exactly. Low monthly fee, you get home backup. Um, and that's really valuable to people, obviously. Um there are parts of the country where reliability is extremely high, but there's a s really strong capacity need from the utility. And so they're willing to pay us.

amount in a tolling agreement or whatever the structure is. And then we can turn around and we can just because we don't need to reserve maybe twenty percent of that battery for backup because they they have really no reliability concerns, we can turn around and we can actually

compensate the homeowner for allowing us to put a battery on their home. And whether that means lowering their bill through the utility or buying down, you know, their their bill ourselves or literally mailing them a check. Like those are the things we still have to go figure out. And it's really market to market.

But the concept here is we can create value with these assets and we can share that value with the homeowner if our cost structure is attractive enough, which is kind of back to this like vertically integrated compounding cost advantage. idea. Um so it'll it'll it'll vary market by market. In the low reliability markets, we think it's, you know, lean on the home backup value proposition. In the high reliability markets, it's lean on the cost savings.

Uh the mechanism by which we deliver that is still to be determined because it depends on the utility in the market.

As you've been starting to have those conversations with utilities where it's a capacity product, what are you learning about how they think about a fleet of distributed batteries as a capacity product as compared to centralized Storage. I'm I'm um cautiously optimistic. I think that utilities around the country are coming around to the idea that a fleet of distributed batteries.

is as capable in air quotes as a utility scale power plant, whatever you wanna, you know, whatever kind of technology you you you you wanna use as the example. I think that many of these utilities have kind of bad tastes in their mouth. From DR one point oh, whether it's smart thermostats or uh other kind of technologies that uh maybe you know promised a lot and and didn't deliver much, uh our asset is um reliable, uh responsive.

high uptime. Uh, you know, we we own the asset, we control it. There's no like, oh well turns out that the homeowner actually just shut off their AC or decided to override or, you know, their car was plugged in and it's no longer plugged in. Like This asset is owned by us, it's controlled by us. We have, you know, triple nines uptime and subsecond telemetry, knowing what's happening at the asset level. Uh and so we're I think we're starting to see.

the utilities wrap their heads around the idea that these are, you know, high quality assets and they can actually use them in their, you know, power supply planning. And that's that's really encouraging. Yeah. I guess final question for you on the regulated side. Um There's this existing universe of these utility derms programs and things like that. There's like there there's some existing programs and then there's and VPP programs that are kind of starting to emerge in a few places.

And then there's a separate thing you could do, which is just selling capacity, right? Like you just like bid into a capacity RFO or whatever. Um, is one of those more attractive to you than the others? Would you like to see this just like as a capacity product and not treat it as a separate whole universe? Short answer, yes, I I think so. Um I think that's the path to to large scale. The longer answer is that we will experiment with different

um versions of this in different parts of the country with different utilities that have different kinds of priorities. And obviously not all utilities are the same. And there's investor in utilities and munis and co-ops and they have different incentive structures. And so that'll guide some of this. But yes, we think that distributed storage.

Software-enabled distributed storage like what we build should be considered a grid resource in the same way that a gas peaker uh or coal plant is. Uh, and we think it can be just as performance significantly cheaper and orders of magnitude faster to deploy at scale, which is really what matters, right? Like we are deploying megawatts in Texas.

very quickly, uh like on the order of twenty megawatts a month. We think by this time next year we'll be deploying on the order of a hundred megawatts a month. Uh that you know, you you can't find that kind of deployment speed really anywhere in the country. And of course, you know, if we if you extrapolate that growth rate, you know, there will be a time in the not too distant future where we will hopefully be deploying gigawatts a month. Uh and in, you know, the

the situation we find ourselves in with the the demand that's coming in the electricity sector, uh, we need solutions to deploy capacity quickly and cost effectively. And that's where we are positioning ourselves. All right, I think that's as good a place as any to end it. Zach, thank you for doing this. This is a lot of fun. Thanks a lot, Shell. Really enjoyed it. Zach Dell is the co-founder and CEO of Base Power.

This show is a production of Latitude Media. You can head over to latitudemedia.com for links to today's topics. Latitude is supported by Prelude Ventures. This episode is produced by Daniel Waldorf. Mixing and theme song by Sean Marquand. Stephen Lacey is our executive editor. I'm Shale Kahn, and this is Catalyst.