The rise of permissionless DERs

Latitude Media covering the new. The energy transition. I'm Shale Khan, and this is Catalyst.

For the first time, maybe our industry can really focus on affordability being the the the be all and end-all in DERs and not resilience because I think over the last decade it's been a lot of resilience because it's a premium product, but permissionless speaks to no, these are super cheap, they're easy, and it's all about cost savings. Coming up, it's plug and play, or plug-in store, I guess.

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So distributed batteries are starting to have a moment. There are lots of examples of this. The biggest recently probably being base power. You may remember I had Zach Dell, the founder of Base, on the pod a few months ago, just right in the wake of their

billion dollar fundraise to go deploy residential batteries throughout the country. If you're talking residential batteries, base is kind of at one end of a spectrum. Their whole play is oversizing the battery to use it for market participation. But there's another end to the spectrum. Which falls into the category of so-called permissionless DERs or plug-in.

It's a broader category that includes things like balcony solar, which is really popular in Germany, but I would say the main thrust of the category, at least in the US, are very small batteries that you can usually plug into a standard 120 volt outlet. And you can use them to provide backup for a large appliance, but also maybe to reduce peak charges on the bill, maybe to participate in demand response programs, maybe even to aggregate enough to become a virtual power plant.

By the way, they're not just for residential consumers, as you'll soon hear. Small businesses also can take advantage of them. It's an interesting area with a somewhat unsettled policy and regulatory landscape. But there are some things about it that are extraordinarily attractive, largely the potential for speed and low cost installation.

I've been spending some time trying to make sense of this category. And the person who really understands it best, I think, is the one who's actually deploying these systems. And that is James McGuinness, who's our guest today. James is the founder and CEO of David Energy. Uh, they are deploying these plug-in systems today. You'll hear a little bit about doing it at small businesses in New York, and they believe there's a real business there. So let's hear why. Here's James. James, welcome.

Thanks, Shell. Thanks for having me. I'm super, super pumped to be here.

Excited to finally have you on and to talk about permissionless DERs. Um, start by telling me what what are permissionless DERs. It's funny because I think we coined I think Duncan coined the term permissionless on our podcast a couple of years ago and I've actually started using a different term. Strategically probably smart to change the name.

Yeah. I mean, but I I think permissionless is for the wonks and what I've been using as plug in is for customers and for sort of consumers. It's more intuitive. But I do think there's also an important distinction between what those two terms mean. So permissionless to me is a very broad category of technologies across segments and verticals and customer sizes. Um that really refers to not needing interconnection agreements. Um, although I admit that when we came up with it.

It was it was sort of just even something that required less of an interconnection was was part of the the concept. So really anything that helps you get interconnected to the grid faster and puts less burden on the interconnection process. Um falls into this bucket of permissionless of things that that I'm personally excited about. So I think some particular examples of that was It's everything from like impulse labs having a battery in a cooktop that's plug in to

At the time we were thinking a lot about electric era doing battery enabled DC fast charging where you wouldn't need an interconnection upgrade. You may still even need like a permit or permits in that case to CNI off-grid where you may still need permits of some sort, but you don't need an interconnection. Like I think there's companies like Critical Loop out there like now doing doing stuff like this.

Um, th then that's not to mention there's plenty of permits that aren't even interconnection related that you do actually need to be thinking about a rules and regs. And so I think permissionless though in the end of the day speaks to the concept of being able to do things without heavy red tape or regulation and particularly when it comes to interconnection. You're not asking for you're not submitting an interconnection request, but there is an interconnect there still.

I mean I think that's sort of one of the most powerful concepts in this whole thing actually is that the reason it can be cheaper and easier to do and it's so exciting is that the hundred and twenty volt or the two hundred and forty volt outlet is a pre existing bi directional interconnection point on the grid that you can actually push power into and it's safe to do so at the circuit level. And so

When you look at traditional installs, we're basically doing an open heart surgery on the panel. You have to, you know. do all this work with an electrician to actually tap into the system, but there's already a point sitting there for you that that interconnects in into the home and the and the broader grid through that outlet.

I was trying to think what the extension of that analogy would be if you're if if normal interconnection is open heart surgery on the panel are you like you're like sticking a lollipop in your mouth or something like that. It's like, well, I haven't even thought of that actually yet. But it's um I don't know. You're just like putting on a t shirt more like it. Like you're just like you're using the you're just you're just it's a function that you have available to you, you know? Um, so yeah.

Okay, so there there's some stuff that's like not so relevant in the US currently, but like balcony solar, this thing that is pretty big in Germany, not so much here. could be considered into this category as well. But I think mostly, correct me if I'm wrong, like mostly what we want to talk about is batteries. And what and and you mentioned a few different

I guess form factors, right? Like there's the electric era battery integrated into an EV charger, or there's the battery that's displacing a interconnection for a load or something like that. But I mean the category that I know you're spending a lot of time in that I find interesting and want to understand better is the just take a battery and plug it in. Behind the meter, maybe connected to an appliance inside a load, inside a home or a business or whatever it might be, like a very small.

home battery. And so in that category, there are products available today, right? Like you can anybody can go buy a bunch of different batteries. So it seems to have emerged as a category I don't know, it's been around because stuff like Ecoflow, I think, has been around for a while, but like there's a there's a little bit of a mini explosion here, right?

A hundred percent. And yeah, I think, you know, us wonks love our our ever multiplying uh acronyms and definitions and stuff. I think of what you I think of what you just described as plug-in. Because specifically it's very intuitive. You think about plugging a DER or something with a battery or solar. I actually think balcony solar is part of this and is very relevant in the US today that that is plug in.

solar or plug-in batteries. Uh I just think that makes a lot more sense intuitively and that it's a subcategory of a broader permissionless space that when we think of permissionless, we think of really big stuff too. That that's that's how I think about it. Um but yeah, so for today, like I actually think plug-in is the right idea to think about.

Right. Okay. So let's talk about plug-in. But before we get off of the idea of permissionless, the question of permission and of interconnection is actually like a core question as to the value proposition of plugin. So what is the state of affairs? If I wanna if I wanna plug one of these little batteries in in my house. Uh, maybe I'm using it as backup for my fridge or whatever it might be.

What is the lay of the land in terms of what requirements it needs to meet? What permissions I do need? Is it murky? Is it defined? Like where are we there? It is murky. I think what really matters is the thing we focus on a lot is

Safety. So there are plenty of UL certified products that uh that adhere to the NEC uh saying you can plug this in in the following manner and it's safe uh to do so. And so there may be jurisdictional like AHAs or DOBs or fire departments that have an opinion on what should go in a given location, how big of a battery or something like that. But at the sort of electrical code level, these are this is already allowed under the current guidance.

And there are many products that support that. So from that lens, you could say in most places you can go out and buy these things and and plug them in in whatever state you're in. Um, a lot of the attention that's happened recently around regulations is specifically there's bills now introduced in I think it's up to thirty state or sorry, twenty four states with maybe uh thirty soon. Um introducing bills where you can actually export to the grid through these devices. And so

We think of that as an extremely important distinction where a lot of that regulation that's being passed is focused on really what is an interconnection agreement? What permission do I need from there for the utility? Whereas I understand the utility's concern is hey, if you just start exporting and the grid goes down and our line workers out there, they don't actually know a line is uh is energized and and we don't like people just exporting without us knowing what's going on or

uh how um how much power that may be. And so a lot of these rules that are that are being introduced in past are focusing on anything up to typically 1.2 kilowatts is You can export that amount from a meter from a home. And it's really even narrowly focused on consumer applications.

Um That actually does tie back to the NEC in some ways because it gets into, okay, if we're gonna make these commercially available and you're allowed to export them, how big of a system do we want to be creating and and and allowed under Or or being you all certified because it gets into what actually at the circuit level, like a 20 amp circuit, what can that handle? And so there's actually

somewhat of an alignment between those two concepts happening, but we view them as actually very clearly distinct. You could be, um have 20 kilowatts of behind the meter capacity and your peak load is 50 kilowatts and you're never exporting. And then that's an interesting question. Do you need an interconnection agreement for that? And it's all happening via the plug with UL certified product.

uh that the NEC stands on how you're you're deploying it based on like panel and circuit sizing and stuff. So I just think about it that like when people say backfeeding, they typically mean into the grid. But I think under current NEC and UL, you could actually

go buy some of these systems today and and use them at at h at home. And that's a that's that's a interesting sort of debate going on right now because some utility people even say even if it's not exporting, there should be a permit and uh, you know, or permission. Um and that that is still you are still interconnecting into the system by doing that.

Right. Okay. So it's it is murky as you said, but seems like in some cases there's stuff you can do now. In other cases there's stuff that might be coming that you can do, like exporting to the grid under certain conditions if some of these bills passed.

Let's talk about why, like what's interesting about How much of the value proposition for putting a battery in a home or a business that's, you know, very small, if it's say it's sub 1.2 kilowatts? Um, is the value proposition resiliency? Like are you plugging it into a load and saying this is backup for this particular appliance? Or are you thinking of it as like this is savings on your electric bill or is it some combination of the two?

I think what's really excited about permissionless and plug-in is that it is about affordability. That's what we saw sort of why it got adopted so quickly in Germany. It's not about resilience. That said, I do think in these early applications and this actually gets back to what's allowed.

What certainly does seem to be allowed no matter what is if you just plug a battery into a wall and then a device into that battery, you're not pushing power back into the circuit at all. You're just removing loads from the grid. That doesn't seem to need an interconnection agreement or is allowed, you know, as long as that product is certified. So I do think a big focus right now is on the appliance level.

And given that, there's a resilience angle to it. So some of the companies out there are talking about resilience and self-reliance and it's that's important. You can put a battery uh connected to your fridge at home and it'll back that up. However, I think the big story and the really exciting one is what this really does to what we think about.

install and the costs of the cost and accessibility of these systems. It's going to drive them much, much lower than we've seen in the past. And that means that For the first time, maybe our industry can really focus on affordability being the the be all and end all in DERs and not resilience. Because I think over the last decade it's been a lot of resilience because it's a premium product, but Permissionless speaks to no, these are super cheap, they're easy, and it's all about cost savings.

And they're super cheap and easy because in part you don't need there's no design, there's no engineer, there's no electrician, there's no and so It presumably you can get, but it is smaller. So you get less economies of scale. Like how much cheaper do you think it can be relative to a power wall or something like that? Like a larger home battery? Yeah so

I mean, an easy rule of thumb is that soft costs are typically fifty percent or more of a residential install. Permissionless can effectively put that to zero. Um because two of the big components there or three of the big components are permitting labor and CAC.

And so think about a buy online motion where a consumer is just going to Amazon and buying one of these and plugging them in themselves. That totally removes CAC and soft costs. Uh, and then also, uh, based on all the the regulation that's being worked on now is the permitting side of things uh, you know, can go away as well. So half of the cost in a residential install you could think of as basically being gone. Uh so obviously there they're smaller systems, you could say

Maybe there's marginally more expensive uh just the size of the unit. Maybe there's some efficiencies, say in like a power wall or how you set up the inverter there versus like an all in one system. Um, but I think the what's what matters there is that's that's a marginal difference and The real plummeting costs are still in ha the hardware side of things. So solar and storage continue to get cheaper.

if that were to continue to be the case, these soft costs aren't going anywhere in traditional installs. And so if you're gonna remove that, it basically means that in permissionless, your floor your your floor is like all the way down to just the the the hardware costs. And that I th I find that incredibly exciting. Are you tired of overpaying for big name PR firms but not really knowing what they're delivering? Is your comms team wasting time reviewing lengthy messaging briefs and decks?

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Yeah, it is super interesting. The limitation is scale. Unless the regulations turn out to be you can do as much of it as you want to do. You know, let's just say you're capped at 1.2 kilowatts per house, there's only so much Saving. So so okay. The the point that you're making, maybe just stepping back for a second, is that um, and I think people don't always appreciate this folks who are buying home batteries now.

Right. They're generally doing it for one of two reasons. One reason is if they're in like California and you have a net meter, if you have solar and you have net metering rules that make it like super uneconomic to have solar unless you can discharge it into the house or discharge it into the grid at different times of day when when solar's not generating. And so it's economically beneficial to you to have storage in addition to solar.

But the other reason outside of that specific context, say you don't have solar, you're not in a California type net metering thing, it's basically entirely a resiliency value proposition because the economics, if you're just trying to save money on your bill of having a battery Aren't uh a residential scale are not that great.

You don't save that much on a demand charge, right? But is that true with the permissionless ones? Because yes, you get a cheaper battery, but you can only shave a tiny bit of the peak because the battery is small, right? Well, what's interesting though is that this gets into the market opportunities that it's opening up.

And small is relative to the load you're placing on when you when you say it like that. One point two kilowatts and a and a kilowatt battery may be a decent amount of the load in a if you're a single single bedroom apartment renter. Like this is the balcony solar stuff, right? Right. And for for them, it's extremely economical and really is that's just opening up a TAM that no one's really I know people do multifamily

installs, but like the idea of just a tenant buying one of these and having access now is is totally is like I think just like radically new and people are still underappreciating this point. And this is where looking to Germany is is very interesting because This was, you know, COVID, Ukraine war stuff going on. Energy prices were going through the roof in Germany, which led to a lot of the acceleration in these systems because people were putting their hands up and saying

I'm paying forty, fifty cents a kilowatt hour. I'm just gonna go buy my own solar, plug it in. And all that's doing is offsetting the forty cents they would have had to pay, right? And so you don't even need complicated Yeah, you know, you know, ve Veter or even net metering. Like a lot of this, again, people are thinking about this.

from an exporting to the grid. But there's a lot of damage these things can do to your bill in a good way behind the meter that you don't even need to be compensated that much for for the exports. And and that's the action that we saw in Germany. And really remarkable there is in the last four years or so, um, they've seen four million of these systems adopted. So four million in homes or apartments or whatever you think about it. Whereas that's about the same size as the traditional um

uh single family installs, which did see a lot of growth in the last year, but those have been around for for decades, right? And so I think that comparison is really remarkable, but just the idea that in a f a handful of years, people just started buying these systems and it's uh over a gigawatt now and basically installed capacity and F deploying that in four years through these systems is remarkable. So

I want to make sure that we're clear on that. That's basically all about that's the balcony solar stuff, right? That's solar, not storage. That's balcony solar. Some of those are starting to come with storage, right? Right. Whereas what we're talking about here, you made the point, maybe it does include the balcony solar concept as well, but I think just as often it's just the battery here.

Right. And so yeah, that does get into to your point on demand charges or demand response programs. Um But to that end, you know, some of the work we've seen in New York City, you know, it's about fifty dollars per month per kilowatt shaved, which to a uh small business actually can mean a lot, especially if they own ten locations or so. And if you're doing a couple kilowatts, then that can be pretty meaningful. Or you look at um

Some other work like Standard Potential has done this with HVAC units uh in apartments, uh just sort of disintermediating the window unit. Um, that you can enroll those in demand response programs even without demand charge management. And so we in a commercial application are stacking the full value that everyone usually thinks of of like delivery charges. Um

Demand response, energy values, et cetera. But in in commercial, you're exposed to demand charges, for example, whereas you're not in an apartment, basically. Are these typically multi-hour duration systems? Are they like one hour? Like does it matter? If it's 1.2 kilowatts, how many kilowatt hours is it?

They're often sized like basically one to one, but that doesn't mean you're using the full one point two kilowatt, especially if you're plugging into an appliance. Like the appliance may be four hundred watts or something. So that's basically a three hour battery. Um, but the other thing I'd say is like in Texas, for example, demand charters are volumetric.

And a lot of people add batteries to their solar systems in the traditional way to avoid consumption because they're getting billed for delivery. And so if you do have solar and storage together, you can avoid delivery charges. So storage alone isn't gonna do that, but there are things you can get out of storage alone, even in residential and even more so in commercial.

I'm just doing rough unit economic math in my head on the New York example that you gave and It actually sounds really good, right? Because you're saying fifty bucks a month in savings. So that's six hundred bucks a year in savings to the customer. And these are let's say it's a one kilowatt hour

you know, install cost of a of a residential battery, a normal typical residential battery might be what's eight hundred bucks a kilowatt hour or something like that today. People think they can get it down below that, but say it was half that. That'd be four hundred bucks a kilowatt hour. So you're paying four hundred dollars for the thing pays itself back in less than a year. That's basically on just that like that rough math. That's yeah, that's actually pretty compelling.

And what we've seen is in the commercial application installed costs of like less than ten percent of system costs. Um and it's closer to zero because all those those soft costs are gone. But yeah, so I I I think whether it's a sta it's a battery, it's solar plus storage, it's it's solar alone in these plug-in applications, that it is about affordability. And if we can learn from Germany, the more that we see bills go up

in the US, regardless of what the rules out there are, people are gonna go on Amazon, they're gonna start buying the stuff, they're gonna start plugging it in. And so I think this is coming one way or another. And Uh it's really exciting because it is like a bottoms up economically driven motion that I think we'll see. How do you solve for CAC? Because it strikes me that um, I mean, one of, as you said, one of the big components of the cost of a traditional system is customer acquisition cost.

you don't get to spread that customer acquisition cost uh across as large a system. So you so the only way it feels to me to make this work is if customer acquisition cost is effectively zero. So like if there's a

Yes, the customer proactively goes online and buys the thing sales motion, then that does mean customer acquisition cost is effectively zero. But you are offering a somewhat complicated value proposition with energy bill savings and all that kind of stuff. So like How how do you how do you sell this without blowing out the costs because of the because of that soft cost?

Right. Well, I that's definitely right. Obviously there is dig there's a online, you know, digital channel CAC and stuff like that. Um I do think it's very different for say a third party wanting to offer this to customers and use it for as a VPP or stuff like that, versus say an OEM that's just like listing it on a website that is maybe much more actively bought by the consumer. So I think more about the the latter case where yeah, if someone's just going and buying, you know, it's it's just

Think about that compared to door knocking, right? Which is still like a big a big yeah. A big uh it it's m it's exponentially cheaper. And so if not zero, I still think it's gonna be um you know, a very small part of the overall costs for the for the customer. You mentioned demand response participation. That one's interesting because I think generally for demand response programs, correct me if I'm wrong, you need like minimum.

scale to participate. And so like a one can a one kilowatt load reduction participate on its own in a demand response program? Is that an economic thing to do? Or do you need to amass a sufficient density? and capacity to be able to then bid into the program. It can be both, where like an aggregator needs a s uh minimum threshold. say of like a hundred kilowatts, but then at the device level, like per meter enrolled, it's a minimum of a hundred watts or ten watts or something like that.

Um, it's different based on every jurisdiction. Like what I just mentioned is more I think how Con Ed thinks about it. In NISO, there may be like a 10 kilowatt per uh meter per device rule. Um other places like Massachusetts will have it by actually just the device itself you enroll directly. It's not even done through the meter. Um and so they they all differ, but

From a technical lens, you can go as small as you want, right? It's it's not hard to validate that these things are actually doing what we think they're doing. So really the block any blocker there would just be sort of how the rules and regs are set up for a given program and all of those vary. But what what we've seen is like there's plenty where yes, things this small can participate um in in in this stuff.

I know you're doing this at businesses too, right? So it's not just a consumer thing, which and you made the point of like fifty dollars a month savings at a business is is relevant. So this is sort of small commercial also. is relevant here as well. Um, at the micro level. At the macro level, the question is can you get because these things are small, can you get enough of them?

Deployed that it starts to matter. Can we get to hundreds of megawatts, gigawatts of this stuff? And like what does that have to look like? Yes, a hundred percent. And yeah, I heard you um the is is the time now for D E R's uh episode with Andy, I think recently I I listened to. Um, and you made this great point where you're like it's all about removing friction, basically, right? And if you think about affordability and scale.

It ties back to friction. How much friction is there in the buying motion, the deployment, the installs, et cetera? And again, if you look to Germany like doing a gigawatt and a handful of years in what is a much smaller, you know, country than than ours, it wouldn't shock me to see tens of gigawatts deployed in the next five to ten years in the US, um, where that's actually making a meaningful dent, not just in the whole DER space, but in

the the sort of gap the the capacity shortfall that we're seeing with with load growth in the US. And so um when I think of how these things act in the aggregate, I think in the in tens of gigawatts would not shock me in in the near future. Well, y I mean, just as the thought exercise, it's like an interesting question, right? So the e the everybody in DR world right now is like chasing this.

Uh, data center needs to come online. Utility needs more capacity in order to bring the data center online. Can you construct this kind of third, three-party deal wherein somebody deploys a bunch of DERs? in one construct or another, there are various versions of this and it counts as sufficient aggregated capacity to to accelerate the interconnect, right? Like that's the

Everybody's chasing some version of that thing. To do that here, right? Like the the scale, minimum scale from a data center perspective is probably 100 megawatts or something like that. So you would have to deploy that at a hundred thousand Premise. Right. to get enough capacity or or probably more because you're not going to get full ELCC credit or whatever. So hundreds of thousands. Which sounds crazy.

But at the same time, I don't know, if you're in New York and you can do it in every every unit and apartment building or something like that, like it starts to add up. So it's interesting to think about. Yeah, and I I mean, I think that example is interesting. You know, my hope would be also the data center is building a lot of on site capacity as well. Um, and it's not fully burdened by, say, residential systems.

Um, but yeah, you just think about a lot of the big grids out there. We're talking thirty to seventy, eighty, ninety gigawatt peaks. Um, maybe more if you're in in PJM and um Yeah, either either way you're getting into like double digit percentages of of capacity uh potential.

you know, from from these resources off of what the like the current the current peaks that we're we're seeing. It's not like it's just to say it's not some afterthought where it's like point zero zero one percent of the total peak load on that grid. I th I think we could see like ten percent or more, which is

wild to think about in these small systems. Um the other thing I would say is like in in the commercial application, um we see paths to do power wall size or multiple power walls, right? And So when you just narrow this to to apartments and, you know, these smaller residential applications. It's a it's a little narrowing compared to what plug in can do in general. Like you could see five, ten, twenty KW systems just deployed through uh through through outlets to some degree.

Um and again, like a lot of that is based on regulations, et cetera. But um I I don't think the story of them is only like these hyper, hyper small in apartment applications.

From a product perspective, are these just like pretty commoditized, like it's just a small battery. Is there much to it? Is there any magic? Are there improvements that could or should be made apart from just like driving down cell costs? 100%. I think we're just seeing the early beginnings of form factors. I think there's gonna be a lot of innovation in form factors around batteries. You can think of that as a battery in a cooktop or you can think of that as

the battery, how it actually is designed for a plug in application, which is actually extremely nascent as well. Actually a lot of the early plug in stuff was using uh what is normally for like camping setup. for for a consumer application because that was what was available though as like a fully mobile plug-based battery. Um you look at some of the work happening now, it gets into like

120 volt outlets versus two hundred and forty volt. Uh what is the right actual like shape of these? Are you trying to place them on a fridge? Are you hanging them on a wall? Are you tucking them in a corner? Um, how big should that battery be for a home or a or a Um a business, also just the idea of it being an infrastructure grade asset. So I think one of the interesting things, for example, Pila, which I'm sure you know about, is focused on is like

We're not gonna build some camping battery that doesn't have the greatest API or reliability. Like we're gonna build these things to be networked at scale where you may be running a hundreds of megawatts or gigawatt size VPP with just all these little plug-in batteries everywhere. And so so pretty much aside from the camping battery stuff.

a lot of the companies I've mentioned have all been started in the last five years. And so I think we're it's a incredibly nascent from a product standpoint. And there's already some early interesting um form factors being developed, but I think there's the the list of things that could happen is is endless. Like if I think there's even a company doing like a battery and a heat pump or something up there. Yeah. So like I just I mean it's the the biggest like.

That's right. That's right. Yeah, it is. Yeah. Um so yeah, I I just think the there's there's gonna be a lot of innovation in in form factors over time and what we're seeing is already pretty interesting. Yeah. All right.

That was all the time we had now. Super interesting to watch how this is gonna play out. I think it's like an underappreciated category, at least in the US. You've made repeatedly the point that it is well appreciated in Germany. Um, but appreciate your time. Thanks for helping me walk through it.

James McGuinness is the founder and CEO of David Energy. 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 was produced by Max Savage Levinson. Mixing and theme song by Sean Marquand. Stephen Lacy is our executive editor. I'm Shail Khan, and this is