Summary
Co-hosts Pam, Ben, Charles and James are joined by listener Pegah and Isaac Maze-Rothstein in part two of the InDERmediate Virtual Power Plant (VPP) hackathon. In this episode the team dives deeper on key VPP inputs like financing / business case then wrap up by grading the viability of our Coffee Inc. VPP and outlines key next steps and open questions.
Episode chapters:
(1:07): Selecting a location
(8:59): Financing options
(16:44): Key business case inputs
(20:45): VPP revenue streams
(35:03): Key market selection criteria
(42:15): Changes to increase success
(43:33): Coffee VPP Inc. feasibility
(50:45): Battery API’s
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Relevant links we found helpful
VPP insiders group and supporting #vpps slack channel within DERTF
Challenges and Opportunities for VPPs (what I know so far...) by Clint Amadeus Chan
https://www.purepower.com/blog/why-energy-storage-is-more-difficult-to-scale-than-solar-pv
https://developers.google.com/maps/documentation/solar/overview
From Pam
Get energy prices:
Music
Our incredible intro/outro music is the song Ticking, by artist TIN
You can stream the whole song and the rest of their catalog here:
Episode transcript
Welcome back to intermediate and to part two of our creating a VPP series if you missed part one
I'd highly recommend you go back and listen to that first because we pick up right where we left off without any recap
With that out of the way, enjoy the show
What are those things that we have now available that are renewable?
That can be worked in quite a different way into the economy of the United States
Which are concerned primarily with the design of nuclear power plants and this type of thing
We do not know what the magnitudes or the side effects will be.
Hi, I'm Pamela Wildstein.
I'm Wyatt McAdonski.
I'm Ben Hilborn.
I'm James Gordey.
You're listening to Intermediate.
Intermediate.
Intermediate.
To Intermediate.
Intermediate.
The place for people trying to get into or already working on distributed energy resources
and clean energy.
This is the podcast that makes it easy to learn how the grid actually works beyond the office.
Okay, so sufficient lack of density.
There is a time of use and or flexibility program that is conducive to us doing this.
Coolness factor.
So like, let me just, I think the density one is fair.
Like New York City, San Francisco, probably too dense.
But like, let me just test some things.
Like I would probably say that in many cases, Seattle is probably a little too dense too.
like it's a pretty pretty big densely populated place but like what about
the place i used to live portland oregon like do we think portland might have
like enough lack of density for that to make sense or is that also too big and
we want to go some smaller place i'm i'm happy with that i think somewhere
along the the western seaboard is um yeah we need like a market that's
gonna have some like time of use or like yeah you know flexibility goodness
Okay, so Portland has 368 coffee shops for a population of 656,000.
This is Portland proper.
So that's a good, decent density.
That's timely.
Hey, Ben.
I just want to call out Isaac from Leap, who is kind enough to pop in and be our phone-a-friend
quasi-expert in here and help us out a little bit.
Hi, Isaac.
Hey, Isaac.
Hey.
How's it going?
Thanks for having me.
Isaac.
So just to catch you up, Ben, if I could.
So what we have kind of gotten to is that we want to create a virtual power plant for
coffee houses with the rationale being that coffee houses mostly operate during the day.
And so we could either like shift them to a time of use rate so they'd save some money
like because they're operating mostly not during peak hours and or solar plus
storage on the coffee houses and they could kind of like use that excess kind
of like energy during the times when they could get compensated for it. These
can't be in like Manhattan because they don't really have rooftops probably for
the coffee houses and so we're trying to figure out like sufficient balance
between density and places where there's a good time of use tariff to tap into or a good
flexibility program to tap into.
So that's kind of where we're at, and you're pretty knowledgeable about this stuff, so
Ben is raising his hand, Ben Hilborn, but also I thought maybe we could shortcut the answer
a little bit and see if you have some ideas.
Yeah, we should let Isaac give some ideas.
Sorry to throw you in the fire, feel free to ask any qualifying questions.
So yeah, the question is, where would I go if I were trying to do a VPP of coffee shops?
Does it need to be, is there, with solar and storage, and you're thinking about generating
revenue for, or not generating revenue, your primary focus for the customer is bill savings
through changing time of use tariffs or generating revenue with this kind of like extra solar juice that we're getting.
If anyone else, feel free to chime in. I feel like this makes sense or made sense five minutes ago when we were thinking about it.
Yeah, the only thing I had I had my hand up for was, you know, maybe we can simplify this a little bit by just removing solar from the equation and just do batteries.
right in that there's a kind of overlapping need of coffee shops need a
you know a decent a decent electrical service much more so than say a you know
a clothing retailer that might be in the same space the coffee shop needs to run
commercial fridges they may have commercial ovens because they're doing
baking in-house they have all of the you know high draw boilers in there you know
14 espresso machines, all this kind of stuff. So they need a decent amount of service
and they're probably going to pay the utility a reasonable amount to have that service
at the building. And so there's an internal need to have a lot of power available at certain
kind of internally determined times. And at the same time, this business doesn't operate when the
grid needs, when the grid demand is highest.
So there's potentially an opportunity here
to have simply battery buffered service to the cafe
where we don't have to pay for an install of,
call it whatever, 400 amp service for your cafe.
Instead, when we build up, when the cafe gets built out
or if somebody's upgrading or whatever it may be,
instead our virtual power plant is going to provide a battery that helps this
cafe operate all of its internal internal load peaks are absorbed by the
battery and then in the evenings when the when the grid is going to pay for it
most and the cafe is closed this battery then just discharges back into the back
into the grid to make some extra money based on the business that we set up for
virtual power plant. Okay, helpful context. So you're going to need some other type of incentive
for a battery that isn't paired with solar. In general, batteries sold for small commercial
would probably be justified on a resilience basis. They aren't going to have a short enough
payback period for a business that isn't really deep in energy to want to do any type of financing
for a seven, 10-year payback for a battery,
which makes me think that you're probably
gonna go to California
with a self-generation incentive program.
Pat loves SGIP.
Isaac, if I could, I think we're open
to what makes sense for coffee houses.
We're just trying to figure it out
and appreciate your guidance,
given the different options and markets
and constructions of hardware we might use.
So, you're, yeah, I mean, you probably, I would probably start in California. There's also,
with the challenges around building gas plants, there's increasing prices for both energy, well,
capacity prices available, so you're likely going to be able to generate some meaningful revenue.
There's also a recent program that came out last year, demand-side grid support, DSGS,
that batteries are able to participate in where the battery is used as the source of truth
for valid for measurement and verification. So that is probably where I would go for these
coffee houses. I would probably pair it with solar because the primary solar will still provide the
of savings and those solar and storage assets will be under net energy meeting 3.0 so that
they'll be offsetting primarily really high peak usage. And I think to your point, coffeehouses do
often have a pretty big drop-off and so they would have some flexibility to use that battery to
to participate in demand response.
So that would be, for this example,
probably where I would go.
What kind of batteries would you guys wanna use?
Have you thought about?
That's a great question.
We haven't got there yet.
Let's dive into it.
What's, hit us with some options, Isaac.
Well, so there's,
so the battery landscape's really interesting
in terms of how do you access these batteries?
Do you work with a financier
who might have access to the terms of how those batteries
are being financed?
Do you work with an individual OEM
to integrate with their APIs and pay them an API fee?
Do you try to work with both of them?
Is there some general installer that you might work with
for a small commercial batteries?
And so those would be some of the people that you,
or folks in the ecosystem that you could engage with for how to access that battery,
for thinking about programs in California.
Let's call up Charles again, bring him back to the front here, because this is his ballpark.
So, I'm at Generate Capital. We love to finance batteries. That is a shameless plug for my day
job. Long story short, I mean, there are numerous ways we can kind of create financial structures
that allow for this. And just putting my infrastructure hat on, if you can get contracted relatively
certain revenues into the future, so if somebody is willing to commit to having that battery
and having a charge, we can finance against that. And what I've seen done in the past
is to offer performance guarantees.
So we can still guarantee that you will not be out of pocket
having that battery.
It'll still save you money, right?
So as long as we can use the batteries in the right way,
make you a saving or even revenue,
if they can export back to the grid through some program
and then obviously allied through the SG program
and other, maybe GSGS,
there are ways to make the numbers work.
So I think from a commercial side,
that is one perspective, we can dive into that more.
The next question is technical as well.
Just to make sure I understand it,
our options are we could buy,
like the customer could buy the devices out of pocket.
We could help get some financing for it.
Or like what are the general models
that typically get used?
Is that just for buying the battery
or is that for how they participate in a VPP?
Yeah, in the context of like people doing virtual power plans, there's having these
assets in general, like how are they typically like purchased or financed or however you
want to say that, just so people can understand the options.
Yep.
So in many instances, if you think about the folks generator doing, building this complex
financial model that is taking in different revenue streams, there are some instances
where a individual virtual power plant is included
as a specific revenue stream,
there's a clear line of sight
on a particular portion of that revenue.
There are other instances where the battery
might have already gone through, it's installed,
and then afterwards there might be an offering
for a virtual power plant that comes along
where they can make incremental revenue
by participating in that battery.
So it really depends on where in the point of sale
a customer will consider or a financier will consider
integrating into a given virtual power plant.
If we're doing a new system to install
on these various coffee shops,
I would expect that it would probably be included
in the initial financing package would be like,
is the ideal solution for an end customer.
Oftentimes that is complicated enough
because as Charles was referring to,
So you ideally want to be able to see what the prices would be for 5, 10, 25 years out. Many of these programs will, especially if you're participating in a wholesale market to start, you're relying on prices for the capacity market as well as energy prices,
those are much more merchant, much less reliable.
cycle. And then utility programs are often going to be updated on a recurring cycle anywhere
from three to five years, depending on the public utility commission cycle that they're
on. Charles, curious for your perspective on this on the financing side, but both of
those make virtual power plant programs with long-term stable revenues a little more complicated
for financiers to consider.
Well, yeah, for sure. And I think what made it work for us is a lot of the upfront and
center programs. So we are very invested in SGIP. Not to get too finance wonky on you all, but
a big metric that investors use is IRR or internal rate of return. Now, that shows that I get a
a return on my money, but there's like a discount component.
So money that comes in sooner is worth more, right?
I'd rather get $5 tomorrow than $5 in a year.
That $5 in a year is worth less to me
than if he gave it to me tomorrow.
So an incentive program that gives me the money up front
can be really positive to my IRR.
So for that reason, something like SGIP
that comes in early, there's a five-year performance-based component, or at least was when I was looking
at it, is really valuable.
So that's one element.
Programs that run over five to seven years can be viable and can be a good component
of the overall, what we call the revenue stack, so the different forms of revenue that we
can earn.
And we will look at volatility and certainty of those revenues, and then basically take
a best guess at the likelihood of capturing those revenues, and then we'll do what we
call discounting back.
So if those revenues are going to earn me $10, I'll say, well, you know, that's going
to be, I'll pay you $8 or $9, or I can build it for $8, right?
I'll give you $8 up front to build your battery.
So the amount that I can afford for the battery today
is gonna be some combination of future revenues,
but discounted back to a present value.
Yeah, that's helpful.
And so if I could repeat back what I think we've heard,
and then I wanna like maybe dive deeper
into some of these individual ones.
So there's some component of how does the hardware
get like purchased and be available?
And so, you know, maybe the coffee houses already have solar plus storage and that's great. We can use that and help them with that.
But if not, there's some like, you know, some calculus some process by which we kind of decide like how that's all going to get paid for and like if it makes sense on paper, the economics and so one portion is like the actual hardware costs.
Another portion is the virtual power plant revenue
from the different energy markets and compensation methods
and maybe some things around that
that can help with the financing include incentives
and things like that.
Absolutely.
So I think we're getting into a really interesting part
of the process where we've decided who our customer is,
what we want the solution to look like,
And now we're trying to figure out, okay, how do we make this work as a business?
And we've talked about, so we're going to go to, so CoffeeVPP Inc. is going to go to
Charles Capital LLC to finance our batteries.
And Charles Capital is going to want to see some good numbers on IRR and, you know, make
sure that he's actually going to get his money back out plus some.
And we need to look at, you know, how we're going to stack some value streams here to make sure that we don't have kind of this single point of financial failure.
And so that we can start to get a return on investment for everybody involved sooner rather than later.
And so we're going to have some tax equity, some IRA incentives,
some other pieces of the puzzle that we're going to layer on here
to make this make financial sense.
Charles, is there a quick question from James here
before I ask the question to Charles?
Yeah, and so I think in my mind what we're trying to do is like understand how we can
like make some kind of economic equation, you know, TBD if that actually makes sense
right in pencils, but I think what's helpful to people is to figure out like with enough
detail into it like what are the different like inputs of that formula and like how do
you like understand what those are to like even understand like what the economics are
And so to the extent you can speak to like enough detail
without like going way down the rabbit hole,
that would be super helpful, I think.
Yeah, what would you be,
Charles, what would you be looking for
when someone comes to you with a proposal like this?
So I think the first thing, just from a very high level,
no specifics, but universally applicable
is what are my revenues and how high can they go?
What are the different options?
And then what are the costs that I need to incur
to buy software as a service,
buy new battery technologies or EV charges or whatever
to power the microgrid?
And how can I get that cost as low as possible?
Because these are close run things.
We're trying to make energy as cheap
and accessible as possible to everybody.
And the incumbents are,
say what you like about your utilities,
but that's your benchmark, right?
you gotta beat that.
So your revenues are naturally gonna be capped
because then people are gonna say,
eh, well, you know, you're more expensive,
I'm gonna go with what I already have.
So you have to provide a compelling value proposition
and get those costs as low as possible,
and that's really hard.
So I'm gonna go and say, okay, what do we need to do?
And then what is the infrastructure that I need
in order to shift from what you do today
to what you're gonna do in the future
that will unlock all these new,
different grid services programs and load control
and SGF, of course. So as an investor, I take all that information, I plug it into a financial
model in order to try and determine what the IRR is on that. Now, you know, that is the
sort of the commercial prospect. What are your revenues? What are your costs? And then
how much money can I make from it? Obviously, your cost, a big component of the cost is
going to be the technical side. And I think I will hand it back because I don't want to
monopolize people's time.
But when I think about commercial
side, there's going to be a
technical input there.
So what do we use
to build this BPP?
What what are the the underlying
components?
Yeah, and would it make sense to
unpack those one by one, like
what are the costs, like literally
specifically, and then like what are
the revenues? I think the revenues
are the different markets
that we can participate in and what
we can do.
So maybe, Isaac, I don't know which
one makes more sense to go to. But like, if we could speak to
like, what the potential revenue streams are, in like, reasonable
amount of detail, but not too much, I think that would be
helpful for people to really understand, like the stuff
that's hard to figure out, without talking to people, you
know?
So yeah, in terms of revenue streams, when you're at your
action, while you're talking about VPPs, really, you're
asking about what are the revenue streams for a battery, in this
instance with VPPs being one of those inputs. Oftentimes the biggest savings will be bill
savings related to being able to basically get renewable energy from solar on the roof
and the arbitrage between that versus the price of electricity that they would have gotten from
the utility. And that is going to be the majority of those revenues. SCHIP is going to be another
great example that's gonna offset those costs. Sorry, what was it? The self-generation incentive
program. It's gonna, that's gonna be, I guess, I don't know, Charles, what you think of that as a
revenue or we think of that as just a... So it's a revenue, yeah, and that's an interesting point
to make is that revenue can come in different forms. Revenue could be like an incentive program,
which utilities want to do to kind of subsidize the cost, the upfront cost of putting something
they won't necessarily pay for the whole thing, except for maybe S-chip resiliency. But typically,
utilities don't want to pay for all the hardware. But they can significantly reduce the cost.
Now, if I can get reimbursed for all the hardware that I'm buying this much earlier,
the hardware becomes cheaper, and it means that I don't have to find that revenue elsewhere.
So, I can, the bill savings could be smaller, right? It directly leads into
lower revenue needs from other value propositions
and makes the business case easier.
So incentives can help drive new revenue opportunities,
say where the bill savings are not quite as high,
where they couldn't justify paying
for all the infrastructure
and the BPP orchestration software on their own.
So yeah, I think about them as revenue,
but two different types of revenue,
like one-off or incentive revenue,
upfront incentive revenue, and then recurring revenue.
Yep.
Helpful.
Helpful context framing.
From there, you then get into revenues
is what we think of as participating in a VPP.
And that could be a utility program.
That could be participating in a wholesale market.
That could be participating in some adjacent program
like DSGS, wholesale market adjacent, excuse me.
And then those revenues are often come in the form
of like a capacity type payment,
a dollar per kilowatt month,
and often an energy type payment.
And that's often in a dollar per kilowatt hour,
a dollar per megawatt hour depending on the specifics
of the program and mechanisms involved.
And so those are some of the common categories
that we see partners at Leap considering
for battery participation for a VPP.
So Isaac, where would you go to get some of those numbers
when you're trying to figure out the model for your VPP?
Where would I go?
So S-chip, I would go look at where we are
in the different tiers in terms of pricing
or the different saving tiers
that are available for S-chip in terms of federal tax credits.
Similarly, looking at guidance for the specifics
around batteries and where we are today
and the percent discount available.
For pricing on the VPP component of these different programs,
there are a bunch of different aggregators
that you would probably want to shop around, Leap being one of them, to see the pricing
that they could offer you based on different programs and the different capabilities you
have available for these batteries.
The other thing to consider is that sometimes the battery control software layer, someone
like a STEM or energy tool base might already be able to participate these batteries into
a bunch of different programs, and that's part of the stack that they're providing.
Those are two of the partners that Leap is working with to enable wholesale market participation.
So you might end up just going through one of these battery software providers.
Yeah, Pam?
Yeah, I was just going to ask in the wholesale market, how are you, how are, is the resource
like as like the resource as an aggregation, how is that being valued in the market?
So I guess if it's participating in the energy market, it would just be how much it's producing
I guess if you were to go to ancillary services,
it would be through, I guess, a demand response program,
but then not applicable to California,
but if you were in PJM, ISO, New England, MISO, or NISO,
what would you do in the capacity market?
Which I know they haven't complied
with order 2222 yet necessarily, but.
Yeah, okay, there's a few different layers there.
So it's going to vary by ISO and RTO,
but at a high level, there's oftentimes an annual bid or bilateral contracts of some
sort for capacity.
And so you're going to get a contract either through a open or closed process for a capacity
price in a dollar per kilowatt or megawatt month.
And then there are different ways of calculating how you've met that.
Some of it is just, what is the nomination that you put into the market?
What is the forecast of what you said you could do?
Some people will be judging you based on your actual performance for
very specific events.
That is, I think, the highest level of how, the core question that I heard is,
how are you evaluated for capacity payments?
That's the core, or the fundamental construct, and
it varies, some of the nuances vary by market.
Does that speak, was there a second question there, Pam?
No, I think that was it.
Okay.
I have a couple of follow-up questions too. We don't have to answer them all here, but
I at least want to get all the links so that we could go deeper and give people the ability
to go deeper if they want to. So self-generation incentive program, SGIP, I Googled it and
I found something on the California Public Utility Commission website. Is that like the
right place to start to learn about that?
Yeah, that would be a good initial source.
Okay.
These federal tax credits, we didn't get specific,
but like, where are people Googling
or going specifically to learn about that kind of stuff?
For batteries, and Charles,
you'll probably be more expert than me,
I believe it's ITC and PCC would be what you'd be Googling.
And specifically for, I believe it's either now for batteries
with some of the recent changes.
And so that would be some related to tax credits.
If you wanted to look for a specific market just to understand energy prices generally,
you could get a quick summary going to a given, let's say the Kaisa website or the ERCOT website
just to see prices for a given day or month.
That's going to give you a really summary view, and some of these markets have a fair
bit of nuance.
And then reaching out to some of the different aggregators who provide VPP offerings, whether
that's a LEAP, in the case of batteries, energy tool-based STEM, as some examples, on the
residential side, someone like a, you might see someone like a Synova, another partner
of ours or Sunrun, those types of partners.
having specific offerings in different markets,
different incentives for their customers
to participate in a VPP.
And just to make sure I understand that piece,
so are you saying that you could either go directly
to like one of the markets, be it the utility
or the, you know, Kaiso, the wholesale market operator
and like register to participate directly
Or you could go to someone who's already participating and have them like assist you and they would give you a price to do so
like per kilowatt
per month or per
kilowatt-hour
Yeah, depending on the specifics of the program and whether there was an energy component or it was just a capacity
Oh and or vice versa and similar if you want to go into ancillaries as well
and
With a battery you might want to consider ancillaries as well
just because you can respond relatively quickly.
I'm curious, like, do we want to do a quick,
like Isaac, you're at Leap, Leap does this.
What about a quick shameless plug for what Leap does
and how that works, right?
Because if I'm a customer and I have energy needs,
I don't necessarily know utilities,
I don't know grid interconnections,
I don't know all like the different ways
that I could potentially make revenue.
I come to you and say, what can Leap do to help me recognize, I run a coffee shop, right?
I'll get a battery, but it may or may not make sense.
I talked to Charles over here, he says he can pay for it, like, but there's still sort
of money on the table here.
Like, how am I going to make money from it?
What does that look like?
Yeah.
So just context on Leap, we are a platform that connects assets with markets and programs
is like the fundamental interaction we're playing
or connection point.
So oftentimes we will not communicate with an end customer.
We might work like if your company is a coffee shop
as well as has bought some battery,
the battery operator might be the one
who ultimately is going through LEAP.
And so those are some of the examples
that I've been citing before
around like an energy tool base, for example.
So you're like, we want someone to provide software
to our battery to make sure we're getting
the most value out of it.
Let's work with them.
But to be clear, like if we're the coffee VPP Inc provider,
we would work with Leap kind of like as in between Leap
and the coffee companies, right?
That's more your typical model.
Yes, yes. Did that speak to both questions? Or was there a fall in there?
Yeah, no, I think that's, that's good. So, like, I go to a coffee shop and I don't know
anything about energy. And so I go to like a Stem or a Synova and say, operate this battery
for me. And, you know, save me on, save me from my ludicrously high refrigeration and
coffee machine, electricity coffee, of course.
So yeah, I go to somebody who then,
and I guess the way to think about this is like,
they can run it, but they can't necessarily
put it into utility programs, right?
There's a universe of really wonky energy revenues
that exist in kind of a nebulous form
for me as a coffee shop owner,
or even like my buddy over here
who knows how to install batteries,
and they put one in the back and I'm good to go.
And they said, they'll run it for me.
They're then going to leap and you're gonna make sense
of all those different nebulous revenue streams
that exist at a much more,
both on a utility scale and the transmission scale.
I don't know if now is a great time,
but for 2222, if you wanna talk about those interplay,
I know that may be going down a rabbit hole
and I know James also has something to say, so.
I can start with, for Corona 2022, our general perspective, and I'm not on a regulatory team,
so just as the caveat there, is that it is going slowly.
There is movement incrementally towards DERs being able to participate more in wholesale
markets, and more and more stakeholders are seeing the need for this.
The DOE liftoff report is a really good example, and definitely including a link to that report
summarizing the fact that VPPs, there's a lot of flexible load that's about to
come on the grid with energy storage, EVs, and other smart devices. VPPs are
cheaper to operate than a traditional power plant as well as utility scale
storage, often because people are buying these assets regardless. So the coffee
shops sometimes might just be buying it because they've been through five power
prodigies with a given utility, for example.
I went on a little rant, but that was the initial context
on 2222, and then more broadly on why VPPs
are being considered, and there is movement
in that direction, and it's slower than we want.
Yeah, James.
Yeah, and Isaac, you helped us take a shortcut,
if I could call it that, in that we sort of figured out
like loosely the type of EPP machine we wanted to build.
And then you just said like, yeah, California,
like that's the one to go.
Could you help us understand like, or correct me,
like my assumption is that you're like given your knowledge
of this market and how this works working at Leap,
you basically like know in your head,
like, okay, like for these types of devices
and this type of like small CNI type customer,
I know that like California has really good compensation
Mechanisms given like time of use rates and also like all these other like demand response programs energy services things like that
And so you said that's the reason you chose, California. Am I correct? It has good compensation mechanisms. And if we wanted to look
For other options
We would be like
Looking market by market given our type of devices and trying to figure out like what makes sense based off the compensation
mechanisms, is that correct or
Yeah, so for me, there were two things at play.
Being able to, assuming that the batteries
were being installed up front,
being able to offset costs immediately with S-chip
was part of what pushed me.
If the batteries had already been installed,
I might consider suggesting doing something in New England
through Connected Solutions.
That is a relatively lucrative program
across many of the utilities in New England
for batteries in particular
to provide services during the summer,
often participating in a daily basis.
And because in many parts of New England,
there isn't a lot of advanced metering infrastructure
installed, the battery is the source of truth
for measurement and verification there,
making that in some ways simpler
if you have access to that kind of data.
So that was some of the background of why,
given the battery wasn't installed yet,
we're trying to figure out the cheapest place
where you might be able to install it.
The other thing to consider is that
because you had a battery,
while there might be more lucrative programs
like in Con Ed in New York City,
the fire codes are such that you wouldn't
be able to install a battery.
If you're doing something more with like thermal storage
or trying to manage,
like there are partners of ours that control thermal store,
like the coolers, for example,
or the refrigeration for this type of coffee shop.
That would be an example where I might be looking at another market or considering something
like an auto DR rebate in California to provide additional savings as you're installing these
different types of assets.
Now for-
It's a lot, but that was like, that's the background of why I said simply California.
For anybody listening who, maybe they have a novel idea for a type of VPP or they simply
want to get into the market and want to figure out what these kind of opportunities of interest
are.
Is there some location or some aggregator of information that shows, you know, here
are the kinds of, you know, pluses and minuses to VPPs in one jurisdiction over another?
Is there some sort of resource like that that you know of?
I would, so again, going back to the Department of Energy's VPP liftoff report, they do have
a few like a summary of where VPPs are located across the country. And you'll see that there's,
I think, five states that have more than 10 VPPs. Massachusetts, New York, California,
Texas, and I believe North Carolina is the fifth. I would need to double check that last one.
But that just gives you a sense of where VPPs have been concentrated to date. And often that's
reflecting some of the underlying grid changes we're
seeing around there being increasing EVs, more
renewables, and more difficulty installing new gas assets. And
so VPP stepping in to provide these services that Peeker
plans used to provide or provided to some degree. And so
DOE liftoff report is the long way short answer to that
longer.
Yeah, that's really cool. And Isaac, like, thanks for all
this, like, it might be a lot for people to parse,
like, listening through it once.
Like, our typical audience is, like, reasonably familiar,
but not quite an expert.
But, like, I think we're giving people the tools
and the threads to pull on themself
to, like, try and figure these things out on their own
and their details, and that's really
what we're trying to do here.
So, Ben, Pam, Pega, Charles,
I'm looking at, like, our loose outline
and also the fact that we have 19 minutes left.
I see at least one more question or bullet point
that we haven't, I don't think, touched on yet.
Do we wanna do that?
Which is kind of a deeper dive on specific requirements
and things that we're kind of like pointing towards now,
or is there another way we'd like to spend the time?
What are you thinking when you say specific requirements?
So, to summarize where I think we're at,
We are a company that is going to help coffee houses, you know, through whatever term you
want to say, flexibility, virtual power plants, primarily through, you know, helping them
with solar and storage so that they can save money with time of use.
They can, you know, tap into some incentives and credits to kind of like reduce the cost
of installing these devices if they don't already have them.
And then through some combination of utility demand
response programs, wholesale energy markets,
capacity markets, ancillary services markets,
within California is where we're going to start.
And so I think in order to flip from where we are now
to putting how we would actually build this,
I think the next step is to say, OK,
okay, we know what the aspects are
that we need to figure out, but it's more like
looking into the actual incentives
and the actual markets and the compensation mechanisms
and trying to build out maybe a spreadsheet
or maybe just a Google Doc with all the information
to try and make an informed decision
about how to piece together all those different
building blocks we need.
Yeah. I think it's going to be getting into the modeling. How do we make a business around
this work when there are so many ins and outs of capital over a long period of time?
So we maybe don't have enough time because that's a lot, but we can maybe create a next
steps that we would do given what we've learned so far the rest of the time, or we could just
stop recording and give people time back.
Happy to do whatever.
So I would just point out some nuances
of how you're thinking about the business
and ways that I would change it
to increase the likelihood of success.
A few things that stand out to me
is batteries are gonna be a 20 to 25 year asset,
maybe 15 to 25 years, let's say, depending on the battery.
Most commercial leases are gonna be 10 years.
So there's gonna be some added complexity
if you're installing the battery already, what I would think would be much easier would be to
market to coffee houses that already have installed solar in storage and enable them to
get incremental revenue or incremental savings by participating in a demand response program.
That if you were to change it to more of a software model where you're not you're not
needing to go out and get financing but you're simply going to different batteries like small
commercial battery customers and saying, hey, we can provide you incremental revenue to
participate, that would allow you to probably start generating revenue sooner and have a
wider base.
So just some things that I would consider from the way we've seen commercial, residential
and industrial VPPs participating.
Yeah, well, I think we've kind of got to the point where if we wanted to take this any
further, we would need to start doing some real number crunching around what's our density of customer within the locale that we want to launch this.
What does our model look like in terms of where are we finding incentives?
What does our revenue stream look like?
What kind of revenue streams are we unlocking for our customers?
To Isaac and Charles, I'd say the two people that probably see the most of these projects
being developed, what would you score us on a very simple 1-10 of, hey, would this work?
is there, you know, could you see somebody picking up this idea and starting, you know,
the VPP for coffee shops? Feel free to be honest, that's okay.
And do you want to jump in before or after?
I have a completely separate question. I was just saying, like, after.
I have a question after we're done.
So, from my perspective, I think one of the big hurdles is always scale, and as we talk
about this, yeah, I can help a friend out with one coffee shop, but where it starts
to really make sense is how many can you do, and there are a bunch of different aggregation
points here, right?
Like, I could go to, like, a solar installer in whatever town, and they know all the people
who want to get batteries and solar installations on their roofs and want to be part of the VPP.
And I think, so somebody who can go out and get a bunch of different projects is a really good tip
of the spear for an investor like Generate. Kind of, I'm sure Isaac will say something similar,
but we partner with the same kind of people from different perspectives. Somebody who can get that
critical mass, because for me, it's a lot easier to write a bigger check than a smaller check.
and it's a lot easier to kind of procure at scale a number of batteries rather
than just one here and there you know if you can do this yourself you can go talk
to an installer you could even go talk to some some vendors out there you could
probably buy a battery on Amazon really but then you wouldn't necessarily know
how to wire it into your your electrical system so you know I'm looking for that
kind of scale. Now, as we've discussed, there are a number of places in California that
have some real density of coffee shops. So if somebody could go and convince everybody
in that region to say yes, I think there's something here. But for me, it's that question
of scale. How do you bring them together?
I think Charles picked up a really good point around scale. You focused so far very much
on how to interact with the customer, you haven't focused as much on how to continue
to engage with the battery, and how you're going to be controlling that battery, and
what are the costs associated with controlling that battery?
Or do you want to create a layer of software that is controlling the battery, or do you
want to be a financing primarily institution?
Are you more of an infrastructure type organization that is building owning these assets and then farming out the controls, or do you want to be controlling these assets, if you want to be doing more of the control, then you want to be a much broader.
If you want to just focus on infrastructure with VPPs being one of the revenue sources among many,
then I think that there is probably a small business around installing batteries and solar in coffee shops and similar small CNI.
Just before, Pega, you've got an additional question here.
Could you just expand very quickly on a quick pros and cons of picking one path or the other, Isaac, from those two choices?
Yeah, there are really great businesses that are focused on being installers, being asset owners.
It's just a very different kind of business than a software company that has recurring
SAS fees, or some other similar model to control batteries.
And maybe a customer communications layer.
And so the depending on the skill set of the specific team founding team would be the question
of which of those paths you would want to go down is where my head goes.
And yeah, I also want to just chime in, it's like, I'm absolutely a hammer sitting a nail
here when it comes to financing and development.
I can kind of put myself in the project installers' shoes and I can put myself in the financier's
shoes.
But one element, and I think it's probably relevant to our loyal listeners, is the, is
the SaaS component, is the VPP, like the software, is like this all works together because some
sort of intelligent brain sits behind and says, turn this on, turn this off at these particular
times. So there is that angle to like, how does this operate and how do you monetize that? Is it
a share of the, the revenues that transact is it a sort of, so you get based, based on your
performance and the revenues you're able to generate using that asset portfolio, or is it
like pay me a recurring fee and I will make you a lot of money. And there's a lot of question
and marks in there as well, which we can unpack
because there's a couple layers.
There's like an energy layer.
So can you actually control a Tesla battery
versus like one of the other ones,
sunburnt battery or a Panasonic battery.
Those will have their different technical challenges.
Whereas Leap will kind of sit on top
and be the brain on top of the various different arms
that controls the switches at that granular level.
So there are, there are different types of SAS in here as well.
Right.
And Charles, this is an important nuance where actually we won't, we'll
never control the battery directly.
We'll be the integration with the market so that battery can commute, can
like interact with a given market or program and consider multiple markets
and programs there often is another entity that is truly controlling the
battery and incorporating insights
around the tariff considerations or other constraints
that the customer has.
I know there were a few other questions.
We call that a battery management system
and an energy management system, a BMS and an EMS.
So just to throw out even more three-letter acronyms here.
Gaga?
Sorry.
Yeah, there is an influx of information here.
And as you were just adding and talking more,
I now have 10 different questions.
So my last question was, for Leap,
is it safe to assume that if we are a software company
and we want to connect with the batteries,
if you're not controlling the batteries,
does it mean that you are not paying for the API access?
And so how does it work?
How are you getting the information necessary to connect
them to the markets?
And if you do need to have an access to those batteries,
because there are different manufacturers,
is the cost of getting all these API access,
is it feasible?
Like it's gonna be very expensive
because it's like $10,000 just to have access
with a limitation on average $10,000
for only one model of a battery.
How does it work at scale?
Yeah.
Now you're getting into the fun part of the business model, or one of the fun elements.
So many original equipment manufacturers will have an API.
Some of them charge, some of them don't.
The rates that they charge vary significantly.
Many of them are paying these rates on a dollar per system month or dollar per system year.
And so what I would say is, oftentimes those individual fees are low enough to be able to enable a VPP.
So long as they're participating appropriately in the most lucrative programs in those markets.
But there is a lot of nuance that folks like Leap will parse to make sure that you're getting the most revenue so that you can pay off those API fees and still have a meaningful margin for your core business, if you were to go that software route.
And so you have folks like Energy Hub, Resideo,
others that are DERMs that do are connected
with many of these asset types,
paying those different fees
with those different OEMs across batteries,
but also other types of asset classes.
Okay.
I have one last question
because it's been eating me up inside
since we talked about the capacity markets.
Why is it being valued as a kilowatt,
yeah, kilowatt month, like what's the logic behind that?
Because I'm trying to think of how to think through this.
Because we care about capacity in the moments
for a loss of load, probability is more than zero.
And that would just tell me the month
where there's a probability that will be more than zero,
not the specific hours, right?
So like, yeah, I know that it might be really useful
in the month of July,
but that doesn't mean it, because it's a variable resource, that it would be useful at 8 p.m.
on a specific, you know, on an 8 p.m.
There's two different layers there. So, again, capacity, the way that we'll explain it
to partners is, it's the ability to show up, like you said, in the case of an emergency,
or just be available. Just the ability, in the same way that it would cost a lot of money to
to build a power plant to connect to the grid,
and just that having that power plant around being useful,
that is how we think about,
or the way that we'll frame the value of capacity
being available for a given month.
What is the layer down that you're getting at
in terms of the variability by day
is when you are bidding into a given hour
of the energy market,
what is the connection between the energy markets
and capacity markets?
And that's going to vary a little bit by market before it is like the initial answer.
One of the things that as a good steward in virtual power plants, you want to be putting
in a nomination or a forecast of what you expect that load to be able to be decreased
that is reflective of a given site's actual abilities to do that.
And so that is how you're incorporating the very, so you're assuming that let's say in
California, there's generally a duck curve at the end of each day where there's an
immense amount of load towards that afternoon evening.
That's often the most lucrative time where you should be bidding in or
that's a requirement is getting a capacity payment.
And you're putting in a nomination that is reflective or a forecast that is
reflective of what you expect that load to be able to drop
during a very specific time of day.
Does that get at your question?
Yeah, I think so
Okay
Well with that, I think that kind of brings us to the the end of our brainstorming session
We now have a wireframe for coffee VPP
Launching across California to a coffee store near you
investors give us a call and we'll
Put batteries and solar across all of your favorite all of your favorite coffee shops
Isaac, thank you so much for being our Fona friend.
And Pega, thank you so much for joining us
for the brainstorming.
This has been a lot of fun.
And I think we really kind of turned over a lot of rocks
that showed just where all the nuances in this space are.
And hopefully we've left you the listeners
and especially those of you who are interested
in potentially starting a VPP company of your own,
some of the places you need to go to look
to answer some of these questions,
to build out a business model that makes sense,
and hopefully be one more brick in the wall
that's going to build the resilient grid of the future.
Pam, Charles, James, again,
The Intermediate team is always game to try fun things like this.
If you, the listeners, have any suggestions or questions or comments on the episode,
feel free to write in at intermediate at gmail.com or reach us on Twitter at Intermediate.
And we will be back next time with some more fascinating insight into the wild and wonderful
world of DERs.
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