With Laurent's segle end from London and Gerard read from Berlin. This is redefining energy.
Today on Reef Energy JOT for our first real episode of the year after the crazy episode last week on Predictions. We're going to talk about distribution networks and how to make them more intelligent.
More intelligent, more efficient, and we do that true creating a market in that area of for flexibility.
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Back to the show, Yes Jah, because everybody talks about transmission networks and there is about according to judgipts or you know, take all those statistic with a grain of salt, seven million kilometers of transmission network which are supposed to triple by two of fifty, but distribution networks, which is described as about fifty killer volts that's medium voltage and
ten kilovolts that's low voltage. That's one hundred and ten million kilometers, which also going to expand not by as much, but will expand by another thirty percent by two or fifty. And of course they are facing aging infrastructure, climate stress, and they are the growth of demand response, so gigantic subject that nobody talks about.
Yeah, people don't like talking about grids because they're complex, that's be really really clear. But without them, they don't have power. If we don't have power, well, madam well just ceased to exist.
As you said, innovations are happening, and we are fortunate to have one of those innovators on the show, and it's Jojo About.
I've known her many years and she really is at the forefront of a color optimization and around the last mile that distribution grade. So it's great to have her command show.
Our company has the greatest name of all. It's called simply Electron, and it's a flexibility operating system for distribution networks, which means aggregating a lot of demand response program it's going to be about Evy Charging. She's a very successful startup, probably six rounds of financing. She has a team of fifty person who aile doing software grades market designs. So this is a great way to start the year.
So let's bring on the show.
Yojo, welcome to the show, and happy new Year.
Well, thank you for having me.
Happy New Year by Joyo.
It's great to have you. So maybe let me just kick off. If I look at the sort of the future of our power system, the concern I have is in the distribution grid, because for me, it's all about optimizing energy flows through that system. Listen, I know you're in the midst of all of this area, but I just love to hear a big picture what you see going on there and just talk a little bit about that. That'll be great.
Well, the distribution grid is often quite forgotten and all this kind of government rhetoric of transition, you know, so this phrase you always here, there's no transition without transmission, And I'm just like and distribution. Most of the spending on this transition is on distribution. In the US's wild it's something like fifty percent. This is like twenty percent
on transmission, twenty five percent of generation. So there's an and we're in a position like a place of having to expand the grid really fast for new connections, mostly at distribution level, while we've got this really aging infrastructure it's around forty years old, and we've got this kind of looming affordability crisis. So a lot is happening on the distribution grid, but not as much as people want to happen on the flexibility space. UK, I guess is
a leader in the distribution flexibility market space. There was a very clear incentive in place about six years ago by government for utilities who could use flexibility instead of network upgrades to essentially share the savings. Customers get fifty percent back, utilities get fifty percent back, and that kicked off quite a big, very fast growing distribution level market in the UK. I think last year about three hundred million pounds was saved that nine gigawats were traded. That
is one thing it needs to get bigger. Though only use case they're trading against is network upgrade deferrals, and as you know, we need to build everything right now. We want faster connections and things like that to be
included in. In Europe there's been kind of clarity across here from twenty nineteen around flexibility is the right answer in the medium to long term started, but this hasn't been translated into really clear incentives on a country by country basis, and you're seeing a lot of kind of intervention now to try and make that happen a little faster country by country, and in America, it's all just starting to take off.
I love some of the quote you've made, and you said, we are building the operating system that turns a distribution grid from a dumb pipe into the world largest virtual power plan. So that's what your company, Electron. I mean, great name, Electron, well done. So can you elaborate a bit on that operating system.
I guess there's a bunch of different people building pieces of it as well. So where we sit in it, electrons job is to help the utility on one side optimize on a kind of value basis what they're doing in the network, whether it's bills or flax. So it's getting the data of netility that they need to make that decision, and the data from the people who own and operate the distributed energy resources on the other side. So we're not octopose, we're not dispatching and optimizing consumers assets.
They're traders on our platform. In the UK, we're not alters, we're not aggregating C and I customers. They could all
be traders on the platform. But with wizard of trying to surface the information from those guys as to what they've got and what they could do, surface the information from the utility on the other side as to where they've got constraints, what the value is, and make the magic happen, and try and create more and more opportunity to capture these efficiencies with distributed energy resources kind of
marketplace model. But we can't do the Nasdaq model yet because people don't know what they're buying or what they're selling or how to price it. There's a lot of incremental data reveals.
So by acting as an interconnect between the DSO or the d and O, maybe their system are relatively antiquated and the various pockets who start doing some dr VPP batteries whatever, aggregatails. Somehow you bring clarity to a distribution network. Is it a good way to put it together?
It's exactly that. If the network operator wants flexibility in one location and they know the provider, They don't need us. They can go straight there and they can buy that flexibility. But if you want to scale that market, you need to understand value better. We get in that. You need to find more volume. We bring all the different providers together, and you need to reduce friction, and we just make it very easy for everyone to see all the price
signals in one place and to enact rates. So yes, exactly that we're about scaling that use of energy resources beyond that kind of bilateral relationship, which is where it all started.
So Jojo, you just said that local flexibility is cheaper than greed reinforcement, and so you know you can avoid gapex, which is unfortunately for very long time description network. They work on a cost plus. The more I spend, the more I make, But of course that starts to become very expensive in everybody's invoices. So can you laborate to bit on flexibility is cheaper than grid reinforcement? And where do you see the limits of that?
Firstly, where it's available, it's cheaper than grid reinforcement. It's not always available. So so job one is should you use flexibility? Is there enough flexibility? In this location when there is, it's essentially necessarily cheaper than grid reinforcement, because I don't think people understand how little distribution grids are used in terms of kind of capacity, maybe like five percent in Germany, seven percent in Spain. Even in like populous areas like even around like London in the UK,
it's probably only around twenty five percent. And distribution grids obviously for the last mile it's how power actually gets to people. But in like extreme weather events going on and increasingly when there's a lot of renewable they are getting too or close to capacity. So instead of rebuilding a grid for an extra like twenty hours a year, if you can use the people who are on that grid and pay them to shift, it's essentially necessarily cheaper
and more efficient than building the grid. So distribution grid to ferral is different to transmission grid to ferral. You probably want to build as much transmision and as people can use power because power creates society and economic value. But it is always economically rational to use distribution grids more effectively, And the numbers that the utilities are paying for flexibility wildly vary by location, but typically for every dollar you span on flexibility, they'll save like three to
ten in reinforcement costs. Again, we'd be very careful because when flexibility first came about, it was all about deferring upgrades. Now, in a world where everyone wants to build, build, it's really about using flexibility to discover where you should build next, where you'll get the highest value from building. And when you run a flexibility market, you discover relative value in
different locations of grid deferral. So it helps the utility make better decisions about what to build next and where they're going to create the most economic value. So it's a partner to your grid expansion and not instead of these days when you.
Are dealing with utilities, we've seen that with a lot of great innovation, you have the value of death, which are pilots. You know, they just do pilots, pilots by nothing. So how have you been able to transform pilots which are very nice but you're just building everybody's money. Two? Okay, now it's for real and you can rely on this new innovation. So explain a bit of the journey.
We spend a lot of time in pilot land because elections almost ten years old, the hardest thing about innovating in this space is there's a gap between the value that you can create for the system and the value you can capture under current regulatory regime. So the trick is to find a way where you can create loads of economic value that isn't unlocked yet, but also some current economic value that is unlock where you can survive long enough for those rules to change around it. And
that was really our path. But when we first started, I was coming from the renewable investment side battery investment, and the answer is so obvious to me. It was time and location based price signals, and we were getting curtailed generation to pay local demands to turn up or down and get free energy, and that was exciting because
it was really economically rational. The challenges we couldn't scale it because as soon as you start trying to change flows in a big way through grids, got to feed this into the distribution netwik operator to check that you weren't going to turn the lights off, and there wasn't even an operational process for us to feed that data in. So we had to then go and win the right to run today's market, which is the procurement of longer term moving to near a real time capacity on the network.
When we went about that, there was someone else at one hundred percent market share in that space, and we really really had to kind of redesign our product to take that market and have the right to essentially like provide these long term tender constructs so that we could then reintroduce the near real time markets, the more dynamic trading things like operational dispatch, which is where we started.
So we were lucky to survive through that value and I think, yeah, learnings for others thinking about during the same as starts for something everyone's already doing. And so it's all about cost benefit analysis. I do you want to change the way someone's pay this, you have to show real data that they can get more balue that way. So you do have to do the pilot, Like you
can't skip the pilot. You just have to do the pilot while you were allowed to be paid for something that's currently economically rational.
Jojo, can I just ask about one thing that was from last year, which was there was talk in the UK about changing the power markets right and moving to nodal pricing. I'd love to hear your thoughts in and around that and what we need to do going forward to sort of incentivize more and more flexibility. And I'm not just talking about the UK, just you're doing this in different market. What would your lessons be that if you were speaking to a regulator tomorrow, what would you say to them?
To do locational pricing definitely benefits a system, makes the system cheap. That should you part it onto consumers as a regulatory discussion that can kind of happen. Apart from that, if you decide that you need to have some form of locational pricing to drop the cost of the whole system, which I think is really very important. And today when the system costs is rising so quickly and we're having to expand the grid so fast, deside you had to do.
You have two choices. You can do explicit where your flexibility markets like ours, where you're kind of pinging crime and location based pricing now, and then you do implicit, which is where there's a kind of moving zonal lodal regional price. We sort of said nod all too difficult, so we're going to do zonal. But zone not only helps with transmission constraints because their areas are so big, essentially, and so much of the challenge is more localized. So
I think we haven't said it's no locational pricing. We've said that we're going to do locational pricing explicitly for a while instead of updating every system. And there's some sense in that in the US, where we're also working with a number of different utilities, there already is LMP in a lot of these regions, and you're still needing to layer on these explicit locational pricing because you're still getting these really constrained areas of kind of aging infrastructure
and a lot of new connections coming through. So locational pricing is inevitable, especially when network prices are getting this high, and the implicit explicit debate is peak terror and how that has passed on to consumers.
Can I just maybe just following on that, can ask if I look at it, what I can imagine what we see in the markets is we see a lot of volatility and wholesale power prices. Obviously you can go to flexible tariffs and stuff like this, but I can imagine if you flexibilize the grid tariffs as well, then you really do have an incentive in place for customers to make change is one thing that I was quite
taken back by. I suppose the end of last year was just the Australian government's decision to sort of go, okay, we're going to give away electricity for three hours a day to our customers. I mean that's quite a radical move. But it sort of goes back to there sort of saying well, you know, if it's electricity for free, let's do something like that. You know, so how do you think about all of that?
It massively depends right by Regina. Australia has huge, huge amounts of sola and one so of panel can create about four times as much power as it can in Australia. And as a kind of know, then you're the promise of the transition was like free is there a much no cost power some of the time in brackets and it's really exciting to be able to pass it on
to consumers. Hey, some of the time I wish governments would start being more honest on this transition piece and like, you know, we're not dropping the energy costs necessarily, we're dropping the energy costs really severely some of the time. If you know, we then need to invest in the flexibility that actually makes that capturable and valuable to consumers.
Okay, I understand those debates. You have academics who are running complex where we used to have a Excel sheet, but now it's even better. We get AI models. So they're going to come with a six hundred page report demonstrating that this should be done or that should be done. But then the governments, you see, no way, they say, you know what flat prices. So in fact, government, because
the subject has become politics, they start intervening. And every time a government interven's journey is done on more ideological than economic basis. They want the flush headlines and a lot of positive signal which could get from the market that they are brushed aside because you change the system, you have what they call the wiener and loser. The wianer this is very nice, but the loser they'll make so much noise that it will negate any economic value
because of a political cost. So the question is what can be done under the radar, so we don't start having public debate of yeah, six hundred newly minted would be expert.
I like cost reflective pricing because that actually does incentivize to driving down costs of whole system. And that is really important because if we do not transition in a cost effective way, we may well lose the mandate to transition. As to whether that gets passed on to the consumer or not is another matter, and that's where I wish
the government intervention would happen. You can say, hey, supplier is you take that risk and you guarantee your consumer's a flat price, and you work out what you can guarantee them based on how you can trade that for example, so what consumers see and like how we price for a cost to reflect a system should be divorced. And that's why I was actually very pro the nodal system debate because NODO would have given us so explicit pricing.
Explicit pricing is can like a free market because any new supply I can kind of start up without even joining. Each local flexibility market knows how to move their consumers. So I personally was a massive proponent of that basic even though it would probably be less good for a business like Electron. That is all about getting explicit pricing to consumer because there's still a ton to be done
below the nodal level. And you see that in countries like the US where they already have zone on pricing. So yes, for the very reason you just said, Laura, it's very difficult to work out roots to market and value in the energy space because you are navigating this regulatory and kind of fundamental value shift that just don't
quite match yet. And for us, it's about finding a way in and then showing enough data kind of incrementally to show why something else should move around it, and we really have to kind of partner with utilities to
do that. There's a lot of people who think that utilities aren't buying flexibilit because utilities are useless, but like a lot of it's not true in most places because they're not incentivized to do so, because they haven't been able to make their regulator understand the cost benefit analysis for example, of them being incentivized to do something this way is gross that way.
Jojo, can we just maybe ship direction a little bit and just talk about some of the technologies and the flexibility is because what I would say is there's just a massive amount of flexibility being built, particularly behind the meter, particularly I'm thinking about batteries. You could also argue, well, we've got these movable batteries which are called evs, and there's even more flexibility in them. So how do you
see that? And related to that, then talk a little bit about new business models that come from that, because a lot of what we've been talking today is about grid operators and utilities, but actually you could eye you what's going to be on mobile manufacturers that can control this flexibility, or new companies and new businesses. So how do you see that?
So basically a lot of the aim monoles and kind of removing friction and increasing volume in these markets is about enabling anyone to participate in this marketing. The reason that these electric vehicles, for example, are such an exciting prospect for flexibility is just there's going to be so many of them. Yeah, let's say you get two kilo hours of flex from an EV half a million ev us is like a nuclear power plant. It's going to
be you know, many, many, many multiples of that. And also, if the flexibility is coming from the bottom of the grid, it can solve problems at the bottom of the grid, in the middle of the grid, the top of the grid. So it just get some more kind of opportunities to play and create value and it can also help balance supply and demand. A lot of the flexibility people don't think about though today is not just in batteries, but
in commercial industrial processes. That almost doesn't really exist today because power prices have been quite high or quite flat. If you actually get to a really spiky cost reflective market where you get really cheap power some of the times and really like a lot of money for flexibility other times, you're going to get to transform the unit economics of some energy intensive, flexible industry and get a
lot more flexibility. The battery story is absolutely fascinating. There's all sorts of new business models of people who can use power flexibly. On the actual consumption side. There's something
that we're working on at the moment. It's essentially a imbalanced hedging product with a PPA platform, a bit like a capacity market contract that they can pay twenty five percent of the value the battery needs to make per year to secure against thirty eight hundred hours a year where they're inn imbalance, and that battery can then pay a lot of the cost to even build the battery.
To pursue on Chile's question, So you have EV's heat pump on batteries flexible to almost start commercial load. Which of those category do you think give up the most flexibility in the next ten years, and which one do you think is overlooked.
People are still really over excited about heat pumps and electric heating, and that's coming through much slower than everyone wants, and unless policy changes, that's going to continue. So evs, for their scale, gets a lot very very quickly. But batteries obviously the kind of ultimate flexibility enabler because they can guarantee that someone gets something and you can build new business models behind it. So it's more than new
business models behind the technologies that really excites me. That will move the adoption of things like batteries. I will cap your energy price here and put my battery behind your endpan and give you some kind of resilience a saving, but then make all of the money in the kind of trading that battery. I think that's a really exciting proposition that haven't seen in the market before. And it really gets possible when you can securitize that asset.
It's what base power is trying to do in Texas.
Yeah, and the Texas market's wild, right because you make all your money from ten thirty hours a year, but again, you don't want to expose consumers to that necessarily, like during storm ury Jojia.
The other thing that I'd like to talk about generations when the way I look at it is the more flexibility or we put into the system, the less baseload generation we need. And I'm just curious, have you done any modeling or do you have any thinking around what
that future system could look like. And I'm saying this because you're looking at countries like Germany that are sort of saying, oh, yeah, we're going to put in, you know, a whole pile of firm CCTT capacity, and I'm sort of wondering is that really the right thing for them to be doing.
You absolutely need diversity, whether you need baseload or not, you definitely need diversity, and baseload is a very diverse profile against renewables. The only reason you need diversities is because if everyone's correlated, then you're really, really really exposed to the swikey events. That means, in my mind, based out could easily be kind of ten to fifteen percent. But I don't think the more flexibility you need, the less base load you need, because flexibility is absolutely diversity.
There was a report out five years ago that I was looking at a world where you could over build renew book pacity by like five x, then you have enough renewables ninety percent of the time, and if you overbuild it by like eight x, you have enough renewables ninety piercent the time. I think it was around that and everyone kind of poo pooed it because everyone was
that it was like about only solar. But I don't think people understand the extent to which you get more flexible industry and flexible types of kind of consumption if you put really cheap power out there a lot of
the time and really really spiky flex signals. I don't think people have kind of understood that that new industry that could use power differently and it needs a huge, huge amount of electricity almost doesn't exist yet because we don't have those kinds of electricity prices or flexibility prices and Georgia.
That's why I asked the question because I agree with Jane it's back to that Australian example of giving solo away for three hours a day. We have to see what impact that has. But if that does have a very big impact. Then actually it does give you a path forward to what what you're just talking about.
We need diversity, flexibility is and diversity, but we don't have diversity yet because we don't have that thing. So yeah, so we're building CDT and we're building like longer form nuclear and things like that, And now how do you get to a world where you can rely on the diversity of flexibilities? So yeah, we'll be looking to Australia for good examples that. There's also some really interesting changes
in the way. For example, like some of the new big consumers like data centers, are looking at powering themselves to be flexible. I saw this kind of five categorization of data centers that the US was adopting on from kind of like completely inflexible to dispatchable like a power plant. And they're getting connection agreements based on Okay, you can connect now if you're a five, but by next year you've got to be a three, and in five years you've got to be a one. Those kinds of connection
agreements as well as the power prices. If you can connect faster for being flexible, you will get a lot more flexible load and a lot more diversified load. Diversity is really the thing that governments and networks need to start paying for because that gives you the stability geojo.
You're orchestrating, you integrate device, you integrate aggregator constraints, market settlement, and now you are active in half of fu kid, you know, and you start working in America and part of all this orchestration, how much can you just replicate and how much as to be tail or made to the local circumstances.
US circumstances albs different to the UK. And so we're working with five utilities in the US already and some of that's through acquisition. We acquired a US grid analytics company called Rhythmos on the US market entry journey because we found that we had to start almost like a little earlier in the journey. In the UK, we could go, Okay, you want to buy that product, you had that incentive and you're going to pay this. Let's go and find the people who can sell it. In the US, we
had to get involved earlier in the game. We'd to say, okay, you want to know whether you should buy flexibility or not, and if there are enough assets out there to make this valuable. And this company was doing kind of EV detection DR detection telling them where the assets were on their network and where the constraints were, and that sort of helped us get involved a bit earlier and help
create the business case for new flexibility markets. But then when you get there and when you say, okay, there's value in these locations, there are enough assets in these locations, then we can move on to the kind of electron connect activation type. I would say in the US, the difference is in UK and Europe, flexibility is the answer. The kind of medium and long term for renewables, The answer is obviously flexibility. Just go and create those markets
because we'll need them. In the US, there's a real like the kind of affordability crisis now as well. You need to show that like flexibility creates value right now, there's a kind of shorter time frame or tolerance to that. So it's really about having a lot more grid data uncertainty to create that CBA for doing something new and different when the incentives aren't is clear to just go and spawn these markets and this type of diversity.
Jojo, we started this conversation talking about distribution grids I'd really love to hear how you see them going forward and what you're thinking is in around what your business's role is going to be in that future.
So there's two things that I see kind of being retransformative, one for the industry and one for kind of Electron or our route through it. For the industry, we really need clearer incentive structures for network operators to use grid enhancing technologies to get more value from the network. They are still disincentivized from spending op X versus CAPEX, and typically it's your operating expenditure that buses good enhancing technologies.
That has to change, and it will change as the weight of overwhelming data kind of crushes it, but it can take a bit of time. That is the transformative piece for the industry. For Electron, we've been absolutely in the trenches with the utilities right now working out cbas business cases and trying to sort of grow their markets
in five years time. We're sort of looking to make Electron more of a kind of data platform or destination that people can come to find information about what is needed, what the relative value of putting their assets in XYZ place to the network, maybe even securitize the assets to make them easier to kind of finance and build out against those kind of future revenues and against that kind of real historical data to these kind of assets this much in this location, and be much more of a
platform play and allow other people to sell services in tepre data and I won't have you on then, and stop doing that kind of utility tender thing and start having something to offer people when they arrived from scratch.
Well, Yojo, you're passionate, geeky, and you're very patient. That's what it takes to be successful dealing with utility and trying to provide flexibility or lubrication in a system that tends to naturally ossify itself. So thank you so much for coming on the show. But it's great to see that beyond the flash headline is hard. We're being done at distribution level because we really need that. Thank you very much.
Thank you, it's a pleasure.
Thank you very much. Yeah, I wish you all the best job.
This is one of the most critical parts of our energy system and nobody's talking about it, and I'm very glad we brought Jojo on our show.
Yeah, totally wish I mean, this is what I take out of it is just like we've got this distribution grid that we don't use all the time. Right, the capacity and utilization factors are just so low, and you sort of go, this is mad. I mean, we need to use it more and how to do it and all that, And if we be really clear, the way we manage the grid has not changed in one hundred years, and it needs to change. It needs to change for
lots of reasons. We need to be more cost effective, we need to be more secure from energy security point of view. It can go on and on and on in terms of what needs to happen, and for me, it's not about building more cables, but it's really using the ones you have and the infrastructure you have much more effectively.
Right, Yes, And the big change is if you look fifteen years ago, only ten percent of the generation was connected on to the distribution networks, and now in the EU it's a third, Okay, a bit less in the US, less in China. But every time you put batteries, every time you put solar, every time you put any flexibility,
it goes directly in the distribution network. So it used to be a bit of an enough plumbing system and now you need to put a brain, and it's it's very difficult for the distribution operator to find a brain. And it's great that you have companies like Electron and also a few years ago we had Dana from Voters and of course all the work that Autopus is doing, so it's bringing local brains to supplement the big brain of the transmission network. Yeah.
Well, I just want to thank Jojo again for coming on the show. It was great, very insightful, and I wish her all the best in the coming years with the business.
Absolutely good as ever.
Talking to you, my friend, looking forward to speaking to you next week. Thank you for listening to Redefining Energy. Don't forget to rate the show and subscribe on Apple Podcast, Spotify, or the platform of your choice.