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InDERmediate

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by InDERmediate

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The show to easily get the knowledge you need to work in clean energy, beyond the obvious. <a href="https://www.indermediate.com?utm_medium=podcast">www.indermediate.com</a>

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Recent Episodes

January 29, 2025

#5.3: Virtual Power Plant (VPP) Hackathon

SummaryIn this final installment of the 3-part series, <a target="_blank" href="http://linkedin.com/in/benjaminhilborn">Ben</a>, <a target="_blank" href="https://www.linkedin.com/in/jkerbymiller/">Jack</a>, and <a target="_blank" href="https://www.linkedin.com/in/cjurczynski/">Charles</a> wrap up their exploration of virtual power plants (VPPs) with a deep dive into development strategies. They bring their coffee shop-focused VPP concept to life, tackling questions like: How do you stack revenue streams? How do policy incentives like the IRA shape the economics? And how do you overcome the challenges of site control, permitting, and community buy-in? Turns out, the answer sometimes lies within a bite of mincemeat.Episode chapters:* (1:07): Intro to guests* (3:55): VPP hackathon catchup* (5:12): Policy influences on project feasibility* (16:38): De-risking projects* (23:49): People are key* (30:23): Project finance* (41:25): Making money on projects* (59:10): Resources to go deeperHelp us out!* Subscribe, share and rate the show wherever you’re finding this podcast!* <a target="_blank" href="https://bit.ly/inDERmediateApple">Apple podcasts</a>* <a target="_blank" href="https://bit.ly/inDERmediateSpotify">Spotify</a>* Give us feedback: We’d love to hear from you via email, <a target="_blank" href="mailto:inDERmediate@gmail.com">inDERmediate@gmail.com</a>* Follow us on social media* <a target="_blank" href="https://twitter.com/indermediate">inDERmediate on Twitter / X</a>* <a target="_blank" href="https://twitter.com/james_gordey">James Gordey</a>* <a target="_blank" href="https://twitter.com/BenjaminHilborn">Ben Hillborn</a>* <a target="_blank" href="https://twitter.com/wyatt_yy">Wyatt Makedonski</a>* <a target="_blank" href="https://www.linkedin.com/in/cjurczynski/overlay/about-this-profile/">Charles Jurczynski</a>MusicOur incredible intro/outro music is the song Ticking, by artist TINYou can stream the whole song and the rest of their catalog here:Episode transcriptWell welcome back everybody to this next episode of the intermediate podcast. today we're talking about project development and all the, all the ins and outs of it. we're going to do our best to frame this as a bit of a follow on to our, coffee shop that we, that we talked about in the, in the previous two episodes. but if we stream, of course, we'll still try to make it, fun and entertaining. And, today we have with us, my co-host, Charles Shensky and our guest, Jack Kirby Miller. Jack, I have to say, do you want to say a quick hello? Hi, everybody. yeah. Excited to be on. And, I get to spend a lot of time with Ben and excited to spend some time with Charles as well. Yeah, likewise. Thanks, for coordinating. It's been good to be here with you and and with Jack. And I'll just, like, super brief background. I think a lot of people know generate, as an investor, operator and owner, distributed generation assets, we do so much more than that. And, a big part of my day to day role is in what we refer to as delivery, encompassing development and construction of assets. so any portfolio that generate buys from a developer, where there's still leftover construction or development work to do comes through our team. So hopefully I have a little bit of experience in that space that I can I can speak to. Amazing. And, Jack, you've got, you've got a good amount of background in the space as well. Do you want to give a quick primer on yourself? Yeah. So I spent my early career working in the built environment, developing energy efficiency projects. decided that looking at first cost and the decisions that are made around it, we need a better financial tools and, spend some time in finance, all in, early stage clean technologies and, managed, spend some time, at Swell Energy, the distributed energy storage developer, which, you know, operating across the US, and their structured finance team. And that's really sort of informed my opinion on, what it takes to get lots of little assets out there, really quickly. And I think hopefully I can bring a bit of a different perspective if you're thinking about development from, you know, the the extremely distributed versus, you know, 1 to 5, ten, 20 megawatt scale. so, yeah, I work, Ben and I work together at Pearl Street, and, I wish I had been at your VP. VP coffee shop because, I work a lot with our, VP programs. so. Yeah, happy to happy to be here and excited to dig in. Amazing, amazing. Well, a quick recap. So in our, in our VP episodes, we, we kind of dove into, finding a niche in the, in building a BPP. And we came up with the idea of a, a virtual power plant, specifically designing a program for coffee shops. And the, the outcome of that was that we wanted to deploy solar and batteries to coffee shops, around, around certain metros in the US that aligned with, you know, a high solar generation potential, you know, high density of coffee shops and, and, you know, friendly, friendly environments for, for actually deploying VPCs. And so now that now that our motley crew has decided that this is our niche, this is where we're going to go now, we have to figure out how are we actually going to build this thing, where's where's the money going to come from? How do we structure projects? and how do we go from this idea of a virtual power plant to a physical operating virtual power plant? and we we do talk a lot about policy, here on intermediate. And that's possibly one of the, probably a good place to start. And I'm wondering if either of you guys want to, want to talk about a little bit about what you've seen around policy that influences the feasibility of, of putting together a project like a, like distributed assets in a BPP. I'd like to give people a framework first for when we talk about development and demystifying. I think sometimes this is even lost in project finance, community and people who are quite adjacent. Really, development is everything that comes before you start construction, and that's a lot. There's a lot, a lot of paperwork that you have to do, and you're really dealing with people and you're dealing with communities and neighborhoods. And so where we start is land. You want to get site control. You want to know where are you going to put your project. And we have the right to to rent that land out or own it. You want your permitting to make sure that you are allowed to put it there. According to the local zoning and bylaws and things, and there's a lot of work that goes into that. And then you want your interconnections. So you want to know that if you're building a power project or if you have a connection to the grid that you're able to to give electricity or take electricity back, assuming it's a power project. The fourth one, and this is where I just wanted to jump into this, into what Ben was talking about is your revenue. And this is going to be really key when you want to go get financing someone to give you millions and millions of dollars for your coffee, VP, coffee shop, PPV, revenue is going to be different for every project. It could be a PPA, which is perhaps the simplest approach. I'm. I'm looking at you. this could, but it could be multiple different layers. Right. And one of the big layers in this, particularly if you're using newer technologies that can sometimes be a bit more expensive, for example, batteries or EV chargers, if you're incorporating them into your VPP. There is so much incentive money to defray the upfront costs of the equipment, and that is a big part of what makes the economics of this project pencil. And it'll be different at different places. To bring this full circle back to Ben's point, is getting there, is that a lot of this is policy and regulatory driven? Well, policy driven, regulatory, not so much. it is the I.R.A., the Inflation Reduction Act of 2022. It is the IJA, the infrastructure, infrastructure investment and jobs Act of 2021. And together, these account for over $1.5 trillion into infrastructure in the US built environment. And probably more because a big chunk of these, these policies were to extend tax credits, which are a financing mechanism that form the basis of building these projects as well. And it's a real expansion that people say could go much further beyond the I think its budget is $369,000,000,000 billion. the industry expects it to generate a lot more than just 369 billion. And these are, our tax credits. So we can go into that later on. But there is a lot of policy that drives the revenue for, these projects. And I skipped over it a little bit, but on the local level, you've got municipal considerations. So there is policy at the state and local level that can drive where we might choose to site of VPI as well. I actually yeah, I would definitely put a lot of emphasis on that local level. development is almost always except for the of skills where I have worked. Right? Development is almost always a ground game. Right? for those like if you're building, VPI, you need to concentrate enough distributed assets in a concentrated geographic area to be able to provide meaningful load to utility that's working in a much higher level. And so paying attention to the friendliness of that local geography, the utility service area, that's really important. A lot of the work that we do right is identifying where you can, pull different. Right. You're obviously going to be using, you know. Yeah, there's there's some flavors to this as well. Right? A lot of VPNs, specifically are not owned assets. Right. So you have a contract with an asset that was already installed. So, to operate it and provide energy services to the grid. if you're looking at trying to bridge the gap to close the financing, where you can have a VPI that's owning its batteries is a, third party that provides services, you're going to need to be able to stack a number of those different revenue streams, right? Obviously, the, tax benefits, state level incentives and then hopefully incentives, or, revenue streams from the utility service service area you're inside of. so there's this idea of like, you know, multiple overlapping geographies that that are going to have an impact on what, what policy environment you're in. And I just want to tie this back as well to the, the coffee shop VP is that you'll think of maybe the coffee shop or the coffee shop owner. The person who owns the building is being your host, who you're renting land from. Effectively, you're putting all your equipment onto their site. but then they're also you're kind of like your base customer. You're trying to do something that gives them value. You're trying to lower the cost of, running air conditioning or covering their Wi-Fi electricity bill or whatever. You're trying to bring down their energy bills to make it cheaper. And a big part of serving that customer with cheaper energy bills, because at the end of the day, they're going to make this decision based on that. Well, hey, is it cool? But also, hey, does it send me money? And so in order to drive that down while, you know, imposing a very big cost upfront to get all of this various different equipment and to, to retrofit and get electricians in there kind of twiddling with wires in order to reduce that cost. You're defraying that with these incentives, with these, these cash flows that have been created by the regulatory structures. So that makes it at the end of the cheapest for your core customer. Would that that person. I'd actually so in this specific instance and I think it's representative. So throw a hand up if I'm diving in too deep into these details. But in, in many like one of the biggest values of distributed resources is resilience. so coffee shop is actually a good example, but I've seen this with, universities with, you know, any, any, any, any business that that relies on refrigeration, business interruption is a massive cost. and it's a huge risk. And so if I were looking at developing this coffee shop, coffee shops, you know, they're distributed throughout a community, when our power goes out and we no longer have wireless internet throughout it. You know, for folks that work from home, like coffee shops, become a center where people go to gather, and so, like, you know, that actually could be some really high revenue days that you're missing out on because, you know, your your, your power is down with the rat, with the remainders. That's actually a pretty good way to look at, sort of a baseline justification of, of getting some assets and some services provided. so it isn't policy dependent. It's interesting where there's a similar concept on both sides of the equation here, where on the customer side we're stacking reasons for, but we're stacking values for why you want this. there's, there's resiliency, there's lower energy, there's the cool factor, so on and so forth. And on the product development side, we're also stacking revenue streams to, to make the, make the project make sense. you know, stacking in an incentive with your PPA, with, you know, other, other pieces. and it's kind of interesting that there is there's commonality between both sides of, that both the seller and. The customer here. So we've said we've set the policy drives revenue. And, Charles, one of the things. That partly and customer demand drives revenue, right? So you're more on hand, you've got all this kind of you got incentives, you got tax equity, you've got, local, you've got utility programs all kind of policy driven on the, the wholesale or the like the, the energy market level. But at the end of the day, if we're talking about distributed like that, coffee shop has to have a reason to make that decision. Somebody has to make a business decision to say that I want to retrofit my coffee shop with all this equipment in a way that is going to lower my costs, be kind of cool, because I can show all the energy. Maybe it's going to be green and sustainable and renewable, and I'm also going to be resilient and the like. It'll be a decision from the business owner to say, I want to do that. And that that underpins whether or not the vfi goes ahead, and then it is up to a developer to make the business case or to make the numbers stack up in order to deliver that service to that customer. Right. And a big part of the numbers stacking up is the policy back end is the can we find enough money elsewhere to justify this massive upfront cost? So I just want to be clear, like customer comes first, but policy is a key driver of the total revenue. That's good framing. yeah. I think when you think about the, when you when you think about the development game, it's pipeline, pipeline, pipeline, right? Companies are valued at approximately, you know, yeah, the public companies are valued based on their pipeline in that space. and, you know, there may be some exceptions to that, but that's the general rule. and so it really does come to, you know, how do you a bring a bunch of like, how do you go out and sell to a bunch of distributed, business owners or residences or, real estate portfolios? And then how do you bring those, those that wealth of, you know, many different sites through the pipeline, to the point where they are, you've kind of. And I think maybe it'd be worth talking about what de-risking is, but where you do the rest of the project and that's ready, to either, you know, take onto your balance sheet and, perform construction or sell off and have someone else, perform that construction. So, yeah, I think. I think, yeah, I was gonna say there's, there's a couple of buzzwords here that I think, I don't know if we want to get into a, a developer's glossary, but de-risking is just one of those words that I think people really throw around when you're in project finance and project development. so I'd love to hear a definition from you. thinking about development generally, it's filling the pipeline and then everything else mostly is de-risk, de-risking the project. the kind of stodgy textbook definition is, transferring risk away from the project to the parties that are most capable of assessing and mitigating that risk through contracts. so, for example, big thing that, folks talk about for, like mid and larger size projects is yeah. And maybe it would be better to, to, to talk through that sequentially. Right. But you know, getting there's a bunch of data you need to understand about your, your, your site. So, what is interconnection going to look like from the outset? Are there any environmental concerns that need to be remediated that might result in costs? what is the cost of building on that site going to look like? and basically you can do a high level assessment of those and then move through towards land control, which means you have the rights to, develop that property. and then as you move through the later stages, you're kind of trying to, you know, set up and, set up, insurance, around, like long term performance insurance against hail, other hazards, and ultimately get to a place where you're able to get a, what you call like a turnkey construction contract, where as the project developer or eventually the project owner. you are not on the hook for delays in construction or cost overruns and construction. and you've passed that off to typically a third party firm that is going to be, procuring all the equipment and bringing it onto the site and installing it. And then, basically, applying to make sure that that can all go through and, and that you can, commission those projects and keep them running. To wildly oversimplify. yeah. I don't I don't want my lawyers building a solar project, but equally, I don't want my contractors trying to negotiate the, negotiate the finer points of a of a tax equity structure. So, I mean, obviously, I'm overexaggerating, but at every stage of the project, there are so many different skills, just like and I that example really illustrates the breadth. And you've got accountants and you've got bankers and you've got lawyers and you've got contractors and you've got, environmental consultants and insurance consultants, insurance advisors. And it's just what a developer does is coordination. It is making sure that all these work streams need to get done and allocating the roles and responsibilities to the person who needs to get it done right. And I really like to think about, responsible and accountable. I am trying to hold I use financial contracts to hold the responsible parties for delivering these workstreams accountable. And that means how much I'm going to pay you to do that job. But what happens if you don't do that job right? Like you're also on the hook. And so ultimately, I'm sitting here in front of my financial model, prima, I said at 2:00 in the morning trying to figure out how are we going to spend the money responsibly, but also what happens if somebody fails to perform their job and thinking through all the different, downside cases, as we call it? Like if there's something goes wrong, what, what what then has to happen. And so I'm trying to put myself in the shoes of different people. I can't do any of this stuff. You know, that's just that's the crazy truth is that I'm not I'm not an engineer. I'm not out there turning wrenches in the field. I'm not a lawyer. I'm not sitting in, like Manhattan high Manhattan office, like turning pages on a contract. Although I'm pretending to be every single one of those things at any given time. I am sitting across the table and say, that sounds about right. Right. And like, I'm learning this and I'm learning what I need to, what I need to know. And I am moonlighting as any one of these. But ultimately, I'm also working with a lot of people who are acting on my behalf. And you're kind of like the general, I guess you're trying to marshal all the different troops and make sure that they can go out there and fight a battle where you ultimately win a project, right? Like you get it done. For us, victory is well, the victory is a couple for victory is what we call NP or notice proceed. That is when you've agreed with the local town that you've got all the permits and you've agreed with your contractor, but we sometimes refer to it as EPC, which is engineering, procurement and construction. so the contractor who you've signed a contract, they're ready to go out, build, they've got all the permits they need. And then you say, okay, you go, you have I will give you a notice to proceed with construction, and they'll go out into the field. And so that's victory number one. I think in some ways that is the key victory for a developer. But victory number two is when you go to the utility and say, I have built a project and now I will start exporting electricity. And they take a look at all the electrical. It's like a teacher marking your homework. They're going to go and look and make sure you've done it the way that they want to see it done. And there's a whole bunch of rules and regulations around connecting your project to the grid. And then the utility comes back and says, yeah, you can start exporting electricity or importing, or you can start operating your project in conjunction with our grid. And at that point, that's when you can start making money right away. So if you're working from a spreadsheet, you're trying to figure out how to make this into something that makes financial sense, right? Like, I would love to say we are greening the grid. We are making this coffee so cool. And but but at the end of the day, there is this financial consideration and it costs an awful lot to build this thing. And you want to be pretty certain that you're going to get that cash back. And so once this is operational and running, you've reached that point, you're going to start to see some of the cash flow back because you're like, you're really in the hole here, right? You've given somebody given a lot of people a lot of cash. And you're like, I'm kind of flat broke right now. I got to start making money from this. We should probably touch on where did all that cash come from. And let's talk about project finance showing. Let's talk a little bit. Oh can we I. Love to talk about project finance. I just want to touch on one thing that Charles said that's like kind of important around the skill set of a developer. And I think to some extent you're the general, to some extent you're a project manager. You hopefully have a pretty robust financial model that you're stressing about in the background. but in my experience, like the number one critical skill of a project developer is like relationship and people management. you have a ton of these circumstances where, yes, you have a contract or you're working on getting a contract, but you are working with people from across the political aisle. You're working from with people who have explicitly different, motives and incentives around the project. And like, the most valuable thing you can be doing with your time most of the time is helping make sure those relationships run smoothly. so I just, I think it's easy to get buried in the contracts and easy to get buried in whether this project to get a pencil or not. But, you know, if you go to, if you go to some, if you don't know until you go up for approval that, you know, there have been entrenched entities that were like against the project and weren't, weren't listened to. you've put a lot of effort into this, without, pulling it back. I want to get the pants question. Yeah, yeah, but to that point, one of the words of wisdom I, I live by here is a contract is only as good as the lawyer who's paid to unpick it. Like at the end of the day, it's a paper document that governs the relationship. But the underlying relationship is what matters. It's there to protect you. If you get into a dispute or if you fight somebody. But you can't just say and you can just say it's in the contract. But at the end of the day, that contract is it's a commercial negotiation that you said that says, I'm going to give you something, a VP and microgrid, whatever, and you're going to give me something, the permission to build it, for example, or, you know, the the construction labor. but it is the relationship that underpins that contract. First, the contract is only meant to describe how the relationship is supposed to work. In an ideal circumstance. That's a really good clarification. and figuring out like, it's like a pie with a bunch of different flavored slices and you want to give the pumpkin to, you know, The person who really likes pumpkin pie. Yeah. My brother. Yeah. And I want this slice of apple. and there's going to be like, the mincemeat slice at the end that nobody wants. and hopefully it's pretty small. But you're going to pay someone a lot of money to eat the mincemeat pie. Yeah. You're going to pay an insurance company, probably. Or or, you know, the equity is going to take on that risk. And, they get the second pie. So this is, I've got, this actually is a funny segue into a real life development story. It's not buy it. But it's a good friend of mine was, developing, I want to say it was it was either solar or wind, but developing it for a big utility scale project in Wisconsin. And the locals were not having it. They're like, no, you're a big city coming into our little town, and you're going to force wind down our throat. We don't want it. And and she's like, no, no, no. I'm like, you know, I just I work for I think it's, I think it's next year. It's like I work for a big company. Sure. But, like, I'm just a Chicago girl. I drove up here like, you know, I came by and I wanted to say hi and and literally to the to Jack's point about relationships. She went to a town hall where nobody wanted this project and said, nobody's consulted us and just talk to people. It was like, yeah, this is the plan. You know, these are all the community benefits. Usually there's like, there's tax revenue for the local community. You pay taxes that school taxes like this is helpful for your community. And this is not a takeover. There's no sort of deep state worries behind here. And everyone started to warm up to her and thinking, okay, like this isn't so bad. And they said, well, you know, we're going to go post-meeting. We're going to go to the, you know, community hall, and we're going to have a little get together. And, and she walks in there and they've, they've laid on a spread and it is white hamburger buns, uncooked onions and uncooked mincemeat. And they're just throwing these things on together into a hamburger, like an uncooked hamburger. It's a bun. It's raw onions and raw minced meat, and everyone's just eating and they're like, well, aren't you going to join us? And she's like, oh, I guess I'm the one eating the minced meat slice. I like. And you're just like, yeah, you do, because this is what everyone else is doing. You're part of the community now. You're representing your company, but you're also trying to show them that you are your relationship building. And that relationship building can come in so many different ways. And that's just one example. Yeah. You eat a raw, you eat a raw hamburger, because sometimes that's what you've got to do in order to get this project done. Yeah. And I wouldn't under emphasize like being there and listening to concerns is like especially at community scale and larger like that's so important because your project will have a big impact on the community. And like you need to become, have at least to some extent become part of it. So, and yeah, we've seen this in the distributed side as well. especially when, working with low income communities, it is absolutely paramount that you work with folks who have existing relationships there. Like there's, there's been a lot of mistrust built up over the years with, for like really good reason around things like upside down solar, people's, where, like, the pricing is set up to escalate, yeah. And, you know, there's not really a substitute for working with with folks who know that community and have trust there. yeah. Anyways. Very good point. Very good point. okay. So the point that we, just bounced off of and we should probably come back to is where does the money come from to, to deploy these, you know, these pairs of, batteries and solar panels to coffee shops across, across the western seaboard? Oh, it all comes from generate capital. Oh, perfect. Easy answer. That's good. Jack is Chuckling. Yeah yeah I mean sure. Also you know I think thinking about as basically. Fundamentally capital has different expectations for risk in return. And the more risk it's taking on the higher it expects the return to be. and so as a project moves through the pipeline, different types of capital will become available to it. So, you know, high level early stages, you're looking at something that looks like development equity typically, you know, there's a few folks out there. This is perhaps one of the most underserved, areas of the capital market. I know. seg sustainable infrastructure, is doing a lot of really great work in that space. not to namedrop too many non generate names. and then as you move towards, completion, you're, might have the long term project owner start to take a stake as early as, you know, it might be pre NTPC or it might, it's depending on the asset class. It's often starts at NP and then you'll often get varying types of debt coming in with that. typically the earliest step will come in is during construction. And that'll be like a short term construction loan. and then you'll have long term debt once the project is quite, you know, verbal air quotes, de-risked, and operating, and then sometimes you'll get really low cost capital from, sort of the biggest investors think your, sovereign wealth and, pension funds, after a couple of years of operating history, especially with new, asset classes or new new portfolios, which is $0.02, yeah. Charles, I think you have. Yeah. I just wanted to jump in here with a quick explainer, which is when we think about a project, it's just it's moving things from left to right along a timeline, and we find ways of segmenting that. So I think there's probably is actually a relatively recent concept that I'm still playing with. But maybe for segments we want to talk about we talk about development. And that's like that's just paperwork. That's that's moving paper. It's getting all your planning and permits and your leases and a lot of the sort of call it the white collar work of building the project. and that ends at entropy. To give you a bright line, just a little bit fuzzy area around that. But development leads, leads up to notice, to proceed. And then you notice to proceed. And that's when the blue collar work starts. That's when you get your contractors on on site turning wrenches and building the infrastructure. and that will go from NP to code completion development. We also have a couple of other things in power. We refer to permission to operate. We call it placed in service. there's completion of code, completion of development, a couple of different, names there. But let's you code, you go forward and then after code, you really kind of have you have operations. But I said for I'd split operations into this kind of wrap operations where typically for the first two years you have some teething issues, things break down. they take a little bit of time. Each of these projects can be their own special beast. and you sort of figure out, where things are breaking and you fix them. And that's the sort of wrap period. And then after about roughly two years, give or take, depending on the complexity of the project and how well it was built in the first place, you'll get to a sort of steady state operations, and that will kind of go for on a go forward basis. And that's, that's sort of where the pension funds are interested, particularly at the bigger pork belly of utility scale projects. But we're talking distributed here. So let's put them to one side for now. Each of these call it we'll call it three for now. development construction operation stages is going to match quite well with a different pool of capital. And we talk about risk. It's this really nebulous concept which is basically, almost like, percentage likelihood of the project to die for one reason or other, maybe your grid constraint. And the utility says, look, you built it, but I can't take the electricity anymore. I can't, like you just can't connect it. And I'm. Putting the electricity that I'm putting into the ground because I can't like there like the utility can export it from my site and I'm not getting paid for it. Maybe it's the townspeople saying, we don't want this here. Thank you. But no, like this isn't good. Or maybe it's, you put some, equipment into a coffee shop that went bankrupt, and the guy is like, look, it doesn't make sense for me anymore. I'm walking away or I'm retiring. And then, you know, you've got electrical equipment on a coffee shop, and nobody's paying for it, right? So there's like, that's those are examples of risk where things could happen and you want to understand whether or not they will or won't happen. It's a lot harder when you sort of rocked up and you said, I'm going to build a solar project here. and then somebody turns around, says, over, my dead body is going to be, you know, that's that's quite high risk, right? But once you've once you've got all your paperwork and said that you're allowed to do this, you know, there's definitely construction risk. And I also want to say that development doesn't cost a huge amount of money. We're not talking crazy big sums, but it is very high risk. So this you'll have, investors who play in this space. You mentioned Segway. We can just go it, let's be fair about this nexus as a development capital solution. You've got lacuna. You've got, ley line that's doing this green backer. I think those are probably the 4 or 5 when you're talking about, like, distributed energy. but then also a lot of developers who've recently got private equity money are doing this with their own balance sheet. So there's a whole universe of different funding providers at development stage. And then you get into construction, and that's when you have to start, like buying equipment and equipment's expensive, so there's less risk, but there's a much bigger need for a lot more money. So all of a sudden that's a whole new, group of investors who feel like, hey, this I'm I'm ready to dip my toe in the water here, and I'm willing to take less. Less, risk on than than the, development funders. But I'm also willing to deploy a lot more capital. And so they come in, they help you buy your solar panels or EV charging equipment or your, your thermostats and meters and things to help you manage load or maybe your refrigeration units, and then they'll take it through to operations, and then you've got a whole new universe of investors who are going to think of this more like, an investment product. They the way that solar really got to scale was that they discovered that a lot of pension funds who had a lot of underfunded liabilities, could see solar in a similar way to, say, Treasury bills. So when interest rates on treasuries plunged, they were like, well, a solar project, kind of, if you squint a little bit, looks a little bit like a a Treasury bond, but with a higher rate of return. So we're just going to put our money in that and it matches the pension funds liabilities. And, and they don't really need a huge return on their capital. So that's a whole new universe of people who could potentially invest in your project at that point. But each of these investors is going to have a whole list of concerns that they want met. And that's when we talk about de-risking it. You want to make sure that those concerns that you're getting out of those concerns as a developer, and you're able to answer them before you even go out to talk to those people, because they will come back and they'll say, but what about this? But what about that? But what about the other? And you say, don't worry about it. We've thought about it. We've taken care of it. That's not a problem anymore. And then they give you their money. It's just that simple. This is something that said, oh yeah, this is this isn't like that. that Jack is all too familiar with. I, I can hear a chuckling away in the background. It's like the time and the time to make sure you. Can answer all the investor's questions is before you talk to the investors. That is 100%. So like when you're when you're at the negotiating table, when you're going out to find someone to fund your project, it's really not the time to be improving the quality of your project. You should have you want to do that ahead of time. other just like notes on, risks that are helpful is a lot of your risks. They're they're greater and they're often binary. Meaning, is this project going to go forward or is this project not going to go forward until you reach NP once notice to proceed, right when you've got, when you can actually start construction? once construction starts, it's actually quite rare for the project to stop. and so your, your, you know, your return might change, you might have some cost overruns, but. Yeah, I see, like, that grimace. Yeah. The, that there are such thing as stop work orders. so sometimes going back to the policy question, sometimes policies change, sometimes communities issue moratoriums and they're like, we don't want any solar in our town anymore. that has been known to happen. Or you become non-compliant with the permit that has been previously issued. So it can, but it is much less likely at the construction stage that that is binary. And to Jack's point, it'll be cost overruns, which could be a problem. Right? Like you don't want to be spending more on your project than you'd initially budgeted for, because now you've got to make more money somehow, and people don't want to pay more, because once you start building it, they're like, so you're going to do it for the price you said you're going to do it for. And so it's very hard to make more money. So you want to make sure that you're not spending more money. So worth worth noting here. If you find yourself on the don't build side of the develop don't develop divide, slowing a project down, for a significant period of time is like actually a reasonable way to make sure that that project doesn't happen. Amazing. So we have, we structural projects. We have a solid pipeline of projects of, of all of these coffee shops. We have, we've done some de-risking on these projects. We have signed agreements with, with EPCs. We have signed agreements with capital providers. We have, signed agreements with, with our off takers. So like the coffee shops that, that want these, that want to participate in this virtual power plant and, but let's talk very quickly about, about how do we actually make money off of this. And this comes back to, one of Pam's questions from the from the very beginning, what is a PPA or more broadly, how do you monetize these assets and make sure that everybody that has taken a gamble on you and developing this pipeline of projects is able to get payback yourself included? Who wants to take that? I want to start with that, but but let's start. Could you you. Rephrase the question for me? what is, yeah. What is what is what is contracted revenues. Sure. yeah. And I don't let's start with contracted. But there are two ways you can get paid contracted revenues and contracted revenues. Yeah. And, investors, project finance investors love contracted revenues and VCs. BP's live on contract is. Oh. Well, is. That why is VP. Is broadly. Right like. BP's would love. Contracted. Revenues. If they were typically enough to cover the cost of the capital and they were in the business model of owning the assets. if you're building a VP with other folks assets, then it makes a ton of sense. You can have a more aggressive risk profile. So, yeah, talking about, contracted and, contracted revenues. You know, one of the biggest. and honestly, one of the early stage things you will do when you're developing a project is securing what's called an offtake contract. And, it, it can look a few different ways. The kind of, the, the, the standard, in kind of the solar space is, PPA or power purchase agreement. And it's basically, an agreement between the asset owner and someone who needs power. So that could be a utility or a commercial entity or even a homeowner to pay a certain price per unit of energy produced and delivered to that, so, well, unit of electricity specifically, these tend to be long term documents or long term contracts. So, they should cover a good chunk of the useful life of the equipment. Typically they will cover at least the, period of time over which you are financing the equipment. lenders in particular. Right. Lower risk capital really like to see a solid revenue contract set up. but you could also have an agreement that is, structured differently. So you could have, contracted revenues through a lease where, you are giving the use of equipment regardless of the specific, kilowatt hour production to a particular off taker. yeah. And there's other things as well, like tolling agreements, and things like that for energy storage. more capacity payments would be another, although those tend to be relatively short term contracts, at least in the, the, areas where I've worked. but yeah, so that's, that's on the contracted revenue side. part of the logic of the, of those contracted revenues is, the, the off taker right to the customer, so to speak. is getting a what is projected to be a better deal on the energy that they're purchasing, by locking it in for a long period of time. And that allows you to finance the, the equipment, with. Well, specifically with that on the other side, you have, uncontacted revenues. So this could be, you know, basically based off of retail electricity rates, or, and like, you know, something that is, that is unfixed or floating, and that can give you much higher upside. but it's harder to get, debt to support that. So that's something that's, as, Charles was just saying that's, that's really helpful for, or is really interesting to folks that have a greater risk tolerance, in the equity and venture space. And also know where at time. We are. Meeting apart this. But I am loving it's, it's, looking forward to part two. I think we're pretty close. I don't know if there's a whole lot more we need to cover here. I think one. Thing I would love to highlight is just thinking about, like, we've talked a lot of it'd be good to clarify the difference between, like, one off project development and project development, where you have a portfolio of assets and pre rent financing. because like specifically for Dars, like. It's usually portfolio. Yeah. Well it yeah, it should be for portfolio leases. That's my position. Which I can take two more minutes if you want to, if you want to dive into that. Let's I think that would be good. yeah. And it shouldn't take ten minutes. So, So what's the Segway from where we were to here? So we're talking about people's contracted, contracted revenue and different kinds of contracted. I think. So things are on the spectrum. These revenue contracts can go all the way from, I think when you think about a very to kind of clean basic PPA would be, the sort of agreement you might have signed if you'd, put solar on your rooftop, right on a residential solar PPA. So pretty, pretty standard. but then the bigger the system is that the bigger the counterparty, the more they might want to negotiate it. So. So you can get into quite negotiated elements here for contracted revenue, though there aren't too many different types of contracting structures, PPA leases are the typical pathway to structuring a power uptake. To be clear, leases you can actually probably use in different cases, even for batteries and for, EV charging. I've done a lot of distributed battery leases. for example, which is something that generate was very happy to finance and is very happy to finance. and I think we can do you can do leases for, for busses. So we have a portfolio of electric busses where we get paid X number of dollars, flat rate every single month by our counterparty to use those busses. And then, you know, they get the benefit of the busses. There's no utilization risk. There's no like, pay by the mile or anything like that. But that's a good example of where, like UN contracted revenues are, right, where we could in fact, some of our early battery projects, we split the we did a shared savings model where whatever dollar we saved you, we would get, you know, 80% of that and you get 20% of that. Now we'd get 80% because we cleared. We were clearing the, the costs that we paid. So we need to finance those batteries. But you're getting that 20% savings free and clear. And so that's reducing your overhead bill. But, you know, I don't know how much I'm going to save you in any given month. I can make an educated guess. I can use some really fancy venture capital backed software to determine what that number might be, but I can't hang my hat that I'm going to get that every single month. And then what happens if you, you have an outage or you close your shop and go on holiday for a month and you're like, I'm not. You know, I'm turning everything off for a month, then I'm the one who has to ride with that. I don't get anything from that because I know you're not using power. so generally, project finance doesn't like that because there's a lot of uncertainty. Right? The whole goal from the project financiers perspective or the lender that the bank lender's perspective is, I want as much certainty as possible. If I'm going to give you a home mortgage, I want to know that you're going to pay that mortgage, which is why I do credit checks. And, a lender would do credit checks on you and, and want to understand your, your financial position and your income. It's a pretty similar process obviously with a lot of differences, but it's a pretty similar process for investing in a, in a renewable project. You know, it's a big outlay of cash upfront. I'm giving you a lot of money. I want to make sure that you're going to be responsible with the money that I give you, and I'm going to give you a score and determine how likely it is that you are to repay that. So if you're going to go and say, well, I'm going to take that money and I'm going to go to the casino and start spinning, spinning balls and like, don't worry, it's very likely that I'm going to get red every single time. Like the balls are pretty weighted to in that favor. You're like, I don't know how you know you're going to hit red every single time, but maybe you found a way to beat the house, right? Like maybe you have an angle on this. Maybe you have a a technology that is just more sophisticated and, and actually you've seen something in the market that says, if I go and invest in, AVP, there's going to be ways that I can operate it to really capture something, some pricing that that isn't otherwise there that I or I can. I think about those as bilateral contracts, for example, where. Like it could be it could be market access. So like getting or taking a portfolio of smaller assets and then bidding them into transmission, double ancillary services, contracts. Right. That wasn't like maybe that's just a more lucrative, lucrative market to, to, offer my energy services to right at the core, I am offering handheld. we'll get to bilateral contacts in a second. But at its core, I am providing, a unit of power or a savings on that power on the on the power you would have otherwise use. and then also, I'm kind of moving it around, so you might pay one, one price at one time of the day. You might pay a different price at a different time of the day, or I'm reducing your total demand, or I'm providing electricity to, to reduce your demand or to reduce the amount that you're taking from the grid. And, and it's some triangulation of these. But in each I may I'm probably over complicating things now. But basically whatever I use the hardware to do, I'm looking for a way to be compensated. I can either get compensated through a contract or I can get compensated by bidding into a market, or bidding it into a certain time of day, or splitting the revenues with you. And there may be there may be savings. There may not be. So it's a really a question of certainty. And the savings could be huge, right? yeah. And especially the newer the technology, the newer the market, the less track record you have around that. the higher the bar for like getting financing on the back of a variable, variable outputs. Right? Yeah. For sure. Kind of across the, across the spectrum from like market risk to, you know, performance risk. and yeah. Okay. So quickly bilateral contract is two people getting together and saying, coming up with paperwork in an agreement to say I give you this in return for that and really in energy, it will I will give you a kilowatt in return for a price. A pay is a bilateral contract. It's not negotiated through a market. It's not wholesale. it's not kind of a public document. It is you and me getting into a room and negotiating paperwork that says you can. I will give you this service for that price. Yeah. And I think of these a lot in terms of, providing like capacity or other services to like relatively tight geographic areas or tight markets, where, you know, for like to put a bit of a point on it where a utility has a problem, they've got transmission lines that are no longer, that are no longer serving load well enough, like, non-EU, whereas alternatives contracts are kind of my favorite there. But it's basically a contract between those two parties where one is the service provider and the other is the utility. And in the cases that then I spent time thinking about at least. yeah, absolutely. And so just to zoom back out, like where we're really in that revenue spot, like if you're going to go back to the four things that are valid for really cares about revenue side control, permitting and interconnection revenue, revenue, revenue, we are sort of touched on, incentives. And so tax equity is global. A lot of, subsidies or rebates or incentive payments will be quite local, often at the state level, and will vary by technology, of course. and then you've got your customer revenue. And so when you talk about the customer revenue component of that, you're stacking all these different revenue types. You've got the customer revenue. And that could be where it's either contracted or about, it'll be a bilateral contract or a wholesale contract. So you're kind of stacking all these different revenue streams on top of one another. And here we are talking about one subset. So I just wanted to situate ourselves in the context of this, this monster of a project that where all these different work streams that you've got going on. Amazing. Jack, did you get to to cover what you were hoping to. No, no, but. There's always more. yeah, I think the the highlight is just that, the, the framework for project development is, is mostly focused on moving one asset through a pipeline. and it looks a little bit different if you're at asset costs like $30,000, then ten, $10 million. specifically like, the financiers tend to have, minimum thresholds where they're interested in giving you time. And so, like, you know, five seconds on, well, give me 15 seconds on the process. So, like, in order to set up, like, you know, a bunch of, residential batteries, for example, you're going to prove that you can access the homeowners and make those sales, you're going to set up contracts, you're going to work with financiers to basically set up a fund like entity that has sort of, prearranged thresholds for financing. So you might have, you know, $10 million that's going to get deployed into a bunch of, residential, assets. And then, basically, you will start placing those, bringing those assets through. Each subset will go through these known set of, milestones in order to get, a certain amount of allocation of funding. And then it goes in and then you get to play with what are the good assets, what are the bad assets? How do we well, what are the less good assets and how do we mix those up so that, the overall requirements of the financing we secured previously, are met and it's just, for each asset, the process tends to be much simpler. But the overall financial operations and development operations around that are often much more complex. because the level of effort does not scale with the dollar or megawatt value, it turns out. To wrap this up, I think that we've, today we've learned that, this is a big multi-variable problem, to solve. And while there are some overarching commonalities, you're going to find, a huge amount of differences depending on where developing these projects, what kind of size of projects are developing, what kind of financing your, you're using for this or what kind of customers you have? and so, you know, part of the reason that we pulled this episode together, with Charles and, and Jack is because both of you guys actually work on, on this complex problem in, in a couple different ways. And so just as we close on this episode, I think one of the, one of the best things we can do for, for people is help them understand who is out there in the industry that knows this stuff. And is actually there to help. In case somebody who's listen to this episode is honestly seriously thinking about going and developing projects like this, Charles and Jack, why don't you guys each give kind of a quick breakdown around, just for, I guess, a recap of what you do and how you help developers. Oh, good Lord, that's a big question. so, look, there's a universe of developers out there, and they come in sizes great and small and left and right that some just do pure development and do a little development. Epic like this is a skill set that for all the developers we have out there, we need more. We need better, always more. I think the development is the bottleneck. People who can get projects across the line are worth their weight in gold in this industry, and that is very what keeps the ball moving forward. So now my plea is anybody who's listening to this who's considering a career in development, absolutely do it. And come talk to me. I want to give people resources. I want to empower them. I want to encourage them. so me first. But, if there are, you know, if there's any subset, if you're interested in project finance, I'm happy to put you in the right direction. There is an absolute universe galaxy of different investors who are willing to take different slices of the pie, as it were. and they like their different flavors. So again, if you want to dive in, if there are certain areas that you think you have a good skill set in and you're kind of like, ooh, that development sounds really cool, or you know what? I just I'm just going to sit back until, you know, generate traditionally. And typically we'll look at Npx do the construction where the big capital that comes in and then and then hold for the lifetime or, or one of the first people to really see these is evergreen projects where we could hold for the life, and we're structured as a balance sheet entity. So we don't have a, a fund that we have to sell out. And, and like send money back to the investors. At some point. We can hold on to these to a long term. so that was a bit of a novel concept when we started. So, you know, that's a different flavor on the same thing. So I know that's a roundabout way of saying it really depends. So align your interests. Come talk to me. I will point you in a subset of the people who I was talking to. And maybe we can put something in the show notes. Oh quick shout out to KVK to kind of take VC folks. They are doing a really good job in trying to corral all the different, you know, what they call the climate capital stack. So the venture capitalists, the developers or the development finance entities are really thinking about it from a finance perspective. But if you want to know who an investor is, who takes on different types of risk, then, they're doing a lot of good work. And maybe we can put that the show notes. Amazing. Yeah, we'll do that and check. Yeah. I mean, I've been in I work at Pearl Street. and if we were talking about always needing more and better developers, we help developers focus on adding value to their projects. Right. So, Pearl Street is a financial operations platform. we help manage all of the chaos, financial models across, you know, tens, hundreds of projects as they move through the development pipeline, help keep an eye on cash flows and help make a developer's job a lot easier with regards to finance and financial operations. So they can, you know, as we said earlier, focus on the things that really matter. You know, coordinating those contracts, helping, make sure that people feel heard and that, you know, that their projects are moving forward. Amazing. Well, I think, I think with that, we've kind of come to the, comes the end of our developing a, virtual power plant series of episodes. Thanks again to Jack and Charles. If you have any questions or comments, please make sure to check us out at www.indermediate.com This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit <a href="https://www.indermediate.com?utm_medium=podcast&utm_campaign=CTA_1">www.indermediate.com</a>

May 6, 2024

#5.2: Virtual Power Plant (VPP) Hackathon

SummaryCo-hosts Pam, Ben, Charles and James are joined by listener <a target="_blank" href="https://www.linkedin.com/in/pegah-zarei/">Pegah</a> and <a target="_blank" href="https://www.linkedin.com/in/isaacmazerothstein/">Isaac Maze-Rothstein</a> 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’sHelp us out!* Subscribe, share and rate the show wherever you’re finding this podcast!* <a target="_blank" href="https://bit.ly/inDERmediateApple">Apple podcasts</a>* <a target="_blank" href="https://bit.ly/inDERmediateSpotify">Spotify</a>* Give us feedback: We’d love to hear from you via email, <a target="_blank" href="mailto:inDERmediate@gmail.com">inDERmediate@gmail.com</a>* Follow us on social media* <a target="_blank" href="https://twitter.com/indermediate">inDERmediate on Twitter / X</a>* <a target="_blank" href="https://twitter.com/james_gordey">James Gordey</a>* <a target="_blank" href="https://twitter.com/BenjaminHilborn">Ben Hillborn</a>* <a target="_blank" href="https://twitter.com/wyatt_yy">Wyatt Makedonski</a>* <a target="_blank" href="https://www.linkedin.com/in/cjurczynski/overlay/about-this-profile/">Charles Jurczynski</a>Relevant links we found helpful* <a target="_blank" href="https://www.vppdata.com">VPP Data substack including spreadsheet of all US VPP’s</a>* <a target="_blank" href="https://liftoff.energy.gov/vpp/">Department of Energy Virtual Power Plants Liftoff Report</a>* <a target="_blank" href="https://miro.com/app/board/uXjVNd1IcnU=/">DER/VPP Reading List</a>* <a target="_blank" href="https://lu.ma/vpps">VPP insiders group</a> and supporting #vpps slack channel within <a target="_blank" href="https://www.dertaskforce.com/">DERTF</a>* <a target="_blank" href="https://www.linkedin.com/pulse/challenges-opportunities-vpps-what-i-know-so-far-clint-amadeus-chan%3FtrackingId=U3vSVnaY8F0ucYx85Pj1hw%253D%253D/?trackingId=U3vSVnaY8F0ucYx85Pj1hw%3D%3D">Challenges and Opportunities for VPPs (what I know so far...) by Clint Amadeus Chan</a>* <a target="_blank" href="https://www.purepower.com/blog/why-energy-storage-is-more-difficult-to-scale-than-solar-pv">https://www.purepower.com/blog/why-energy-storage-is-more-difficult-to-scale-than-solar-pv</a>* <a target="_blank" href="https://developers.google.com/maps/documentation/solar/overview">https://developers.google.com/maps/documentation/solar/overview</a>* From Pam* ResStock: <a target="_blank" href="https://www.nrel.gov/buildings/resstock.html">https://www.nrel.gov/buildings/resstock.html</a>* ComStock: <a target="_blank" href="https://www.nrel.gov/buildings/comstock.html">https://www.nrel.gov/buildings/comstock.html</a>* FERC 2009 (not 2008!) report: <a target="_blank" href="https://www.ferc.gov/electric/industry-activities/demand-response/national-assessment-action-plan-demand-response-2009-national-assessment">https://www.ferc.gov/electric/industry-activities/demand-response/national-assessment-action-plan-demand-response-2009-national-assessment</a>* <a target="_blank" href="https://gridintegration.lbl.gov/der-cam">https://gridintegration.lbl.gov/der-cam</a>* <a target="_blank" href="https://zomasleep.com/blog/most-awake-city">https://zomasleep.com/blog/most-awake-city</a>* <a target="_blank" href="https://www.cpuc.ca.gov/industries-and-topics/electrical-energy/demand-side-management/self-generation-incentive-program">California Self-Generation Incentive Program</a> (SGIP)* <a target="_blank" href="https://www.energy.ca.gov/programs-and-topics/programs/demand-side-grid-support-program">California Demand Side Grid Support Program</a> (DSGS)* <a target="_blank" href="https://www.energy.gov/eere/solar/federal-tax-credits-solar-manufacturers">Federal tax credits for batteries</a>* Get energy prices:* Directly at the wholesale market’s website (<a target="_blank" href="https://www.caiso.com/TodaysOutlook/Pages/prices.html">CAISO</a>, <a target="_blank" href="https://www.ercot.com/mktinfo/prices">ERCOT</a>)* Through aggregators in different markets (<a target="_blank" href="https://www.leap.energy/">Leap</a>, <a target="_blank" href="https://www.energytoolbase.com/">Energytoolbase</a>, <a target="_blank" href="https://www.notion.so/b84d830ac18945a6b18ba245f49097de?pvs=21">Stem</a>, <a target="_blank" href="https://www.sunnova.com/">Sunnova</a>, <a target="_blank" href="https://www.sunrun.com/">Sunrun</a> etc)* <a target="_blank" href="https://www.nationalgridus.com/connectedsolutions">New England ConnectedSolutions Program</a>* <a target="_blank" href="https://www.sce.com/business/demand-response/ADR-customized-control-incentives#:~:text=Auto%2DDR%20Customized%20Control%20Incentives&text=We'll%20pay%20whichever%20is,verified%20(M%26V)%20load%20reduction.">AutoDR Rebates in California</a>MusicOur incredible intro/outro music is the song Ticking, by artist TINYou can stream the whole song and the rest of their catalog here: Episode transcriptWelcome back to intermediate and to part two of our creating a VPP series if you missed part oneI'd highly recommend you go back and listen to that first because we pick up right where we left off without any recapWith that out of the way, enjoy the showWhat 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 StatesWhich are concerned primarily with the design of nuclear power plants and this type of thingWe 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 resourcesand 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 aboutthe place i used to live portland oregon like do we think portland might havelike enough lack of density for that to make sense or is that also too big andwe want to go some smaller place i'm i'm happy with that i think somewherealong the the western seaboard is um yeah we need like a market that'sgonna have some like time of use or like yeah you know flexibility goodnessOkay, 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-friendquasi-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 forcoffee 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 moneylike because they're operating mostly not during peak hours and or solar plusstorage on the coffee houses and they could kind of like use that excess kindof like energy during the times when they could get compensated for it. Thesecan't be in like Manhattan because they don't really have rooftops probably forthe coffee houses and so we're trying to figure out like sufficient balancebetween density and places where there's a good time of use tariff to tap into or a goodflexibility program to tap into.So that's kind of where we're at, and you're pretty knowledgeable about this stuff, soBen is raising his hand, Ben Hilborn, but also I thought maybe we could shortcut the answera 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 generatingrevenue for, or not generating revenue, your primary focus for the customer is bill savingsthrough 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 ayou know a decent a decent electrical service much more so than say a you knowa clothing retailer that might be in the same space the coffee shop needs to runcommercial fridges they may have commercial ovens because they're doingbaking in-house they have all of the you know high draw boilers in there you know14 espresso machines, all this kind of stuff. So they need a decent amount of serviceand they're probably going to pay the utility a reasonable amount to have that serviceat the building. And so there's an internal need to have a lot of power available at certainkind of internally determined times. And at the same time, this business doesn't operate when thegrid needs, when the grid demand is highest.So there's potentially an opportunity hereto have simply battery buffered service to the cafewhere 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 outor if somebody's upgrading or whatever it may be,instead our virtual power plant is going to provide a battery that helps thiscafe operate all of its internal internal load peaks are absorbed by thebattery and then in the evenings when the when the grid is going to pay for itmost and the cafe is closed this battery then just discharges back into the backinto the grid to make some extra money based on the business that we set up forvirtual power plant. Okay, helpful context. So you're going to need some other type of incentivefor a battery that isn't paired with solar. In general, batteries sold for small commercialwould probably be justified on a resilience basis. They aren't going to have a short enoughpayback period for a business that isn't really deep in energy to want to do any type of financingfor a seven, 10-year payback for a battery,which makes me think that you're probablygonna go to Californiawith a self-generation incentive program.Pat loves SGIP.Isaac, if I could, I think we're opento what makes sense for coffee houses.We're just trying to figure it outand appreciate your guidance,given the different options and marketsand 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 truthfor valid for measurement and verification. So that is probably where I would go for thesecoffee houses. I would probably pair it with solar because the primary solar will still provide theof savings and those solar and storage assets will be under net energy meeting 3.0 so thatthey'll be offsetting primarily really high peak usage. And I think to your point, coffeehouses dooften have a pretty big drop-off and so they would have some flexibility to use that battery toto 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 interestingin terms of how do you access these batteries?Do you work with a financierwho might have access to the terms of how those batteriesare being financed?Do you work with an individual OEMto 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 withfor 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 dayjob. Long story short, I mean, there are numerous ways we can kind of create financial structuresthat allow for this. And just putting my infrastructure hat on, if you can get contracted relativelycertain revenues into the future, so if somebody is willing to commit to having that batteryand having a charge, we can finance against that. And what I've seen done in the pastis to offer performance guarantees.So we can still guarantee that you will not be out of pockethaving 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 programand then obviously allied through the SG programand 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 modelsthat typically get used?Is that just for buying the batteryor is that for how they participate in a VPP?Yeah, in the context of like people doing virtual power plans, there's having theseassets in general, like how are they typically like purchased or financed or however youwant 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 complexfinancial model that is taking in different revenue streams, there are some instanceswhere a individual virtual power plant is includedas a specific revenue stream,there's a clear line of sighton a particular portion of that revenue.There are other instances where the batterymight have already gone through, it's installed,and then afterwards there might be an offeringfor a virtual power plant that comes alongwhere they can make incremental revenueby participating in that battery.So it really depends on where in the point of salea customer will consider or a financier will considerintegrating into a given virtual power plant.If we're doing a new system to installon these various coffee shops,I would expect that it would probably be includedin the initial financing package would be like,is the ideal solution for an end customer.Oftentimes that is complicated enoughbecause 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 anywherefrom three to five years, depending on the public utility commission cycle that they'reon. Charles, curious for your perspective on this on the financing side, but both ofthose make virtual power plant programs with long-term stable revenues a little more complicatedfor financiers to consider.Well, yeah, for sure. And I think what made it work for us is a lot of the upfront andcenter programs. So we are very invested in SGIP. Not to get too finance wonky on you all, buta big metric that investors use is IRR or internal rate of return. Now, that shows that I get aa 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 methan if he gave it to me tomorrow.So an incentive program that gives me the money up frontcan be really positive to my IRR.So for that reason, something like SGIPthat comes in early, there's a five-year performance-based component, or at least was when I was lookingat 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 componentof the overall, what we call the revenue stack, so the different forms of revenue that wecan earn.And we will look at volatility and certainty of those revenues, and then basically takea best guess at the likelihood of capturing those revenues, and then we'll do what wecall discounting back.So if those revenues are going to earn me $10, I'll say, well, you know, that's goingto 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 todayis 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 deeperinto some of these individual ones.So there's some component of how does the hardwareget 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 revenuefrom the different energy markets and compensation methodsand maybe some things around thatthat can help with the financing include incentivesand things like that.Absolutely.So I think we're getting into a really interesting partof 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 toCharles Capital LLC to finance our batteries.And Charles Capital is going to want to see some good numbers on IRR and, you know, makesure 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 hereto make this make financial sense.Charles, is there a quick question from James herebefore 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 canlike make some kind of economic equation, you know, TBD if that actually makes senseright in pencils, but I think what's helpful to people is to figure out like with enoughdetail into it like what are the different like inputs of that formula and like how doyou like understand what those are to like even understand like what the economics areAnd so to the extent you can speak to like enough detailwithout 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 forwhen 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 applicableis 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 incurto buy software as a service,buy new battery technologies or EV charges or whateverto 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 cheapand 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 cappedbecause 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 propositionand 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 needin order to shift from what you do todayto what you're gonna do in the futurethat will unlock all these new,different grid services programs and load controland SGF, of course. So as an investor, I take all that information, I plug it into a financialmodel in order to try and determine what the IRR is on that. Now, you know, that is thesort of the commercial prospect. What are your revenues? What are your costs? And thenhow much money can I make from it? Obviously, your cost, a big component of the cost isgoing to be the technical side. And I think I will hand it back because I don't want tomonopolize people's time.But when I think about commercialside, there's going to be atechnical input there.So what do we useto build this BPP?What what are the the underlyingcomponents?Yeah, and would it make sense tounpack those one by one, likewhat are the costs, like literallyspecifically, and then like what arethe revenues? I think the revenuesare the different marketsthat we can participate in and whatwe can do.So maybe, Isaac, I don't know whichone makes more sense to go to. But like, if we could speak tolike, what the potential revenue streams are, in like, reasonableamount of detail, but not too much, I think that would behelpful for people to really understand, like the stuffthat's hard to figure out, without talking to people, youknow?So yeah, in terms of revenue streams, when you're at youraction, while you're talking about VPPs, really, you'reasking about what are the revenue streams for a battery, in thisinstance with VPPs being one of those inputs. Oftentimes the biggest savings will be billsavings related to being able to basically get renewable energy from solar on the roofand the arbitrage between that versus the price of electricity that they would have gotten fromthe utility. And that is going to be the majority of those revenues. SCHIP is going to be anothergreat example that's gonna offset those costs. Sorry, what was it? The self-generation incentiveprogram. It's gonna, that's gonna be, I guess, I don't know, Charles, what you think of that as arevenue or we think of that as just a... So it's a revenue, yeah, and that's an interesting pointto 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 somethingthey 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 intolower revenue needs from other value propositionsand 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 payingfor all the infrastructureand 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 revenuesis 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 programlike DSGS, wholesale market adjacent, excuse me.And then those revenues are often come in the formof 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 specificsof the program and mechanisms involved.And so those are some of the common categoriesthat we see partners at Leap consideringfor battery participation for a VPP.So Isaac, where would you go to get some of those numberswhen 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 arein the different tiers in terms of pricingor the different saving tiersthat are available for S-chip in terms of federal tax credits.Similarly, looking at guidance for the specificsaround batteries and where we are todayand the percent discount available.For pricing on the VPP component of these different programs,there are a bunch of different aggregatorsthat you would probably want to shop around, Leap being one of them, to see the pricingthat they could offer you based on different programs and the different capabilities youhave available for these batteries.The other thing to consider is that sometimes the battery control software layer, someonelike a STEM or energy tool base might already be able to participate these batteries intoa 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 resourcelike 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 producingI 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 compliedwith 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 somesort for capacity.And so you're going to get a contract either through a open or closed process for a capacityprice 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 forvery 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, andit 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, butI at least want to get all the links so that we could go deeper and give people the abilityto go deeper if they want to. So self-generation incentive program, SGIP, I Googled it andI found something on the California Public Utility Commission website. Is that like theright 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 Googlingor 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 batterieswith 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 websitejust 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 fairbit of nuance.And then reaching out to some of the different aggregators who provide VPP offerings, whetherthat's a LEAP, in the case of batteries, energy tool-based STEM, as some examples, on theresidential side, someone like a, you might see someone like a Synova, another partnerof ours or Sunrun, those types of partners.having specific offerings in different markets,different incentives for their customersto participate in a VPP.And just to make sure I understand that piece,so are you saying that you could either go directlyto like one of the markets, be it the utilityor the, you know, Kaiso, the wholesale market operatorand like register to participate directlyOr you could go to someone who's already participating and have them like assist you and they would give you a price to do solike per kilowattper month or perkilowatt-hourYeah, depending on the specifics of the program and whether there was an energy component or it was just a capacityOh and or vice versa and similar if you want to go into ancillaries as wellandWith a battery you might want to consider ancillaries as welljust 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 doesand 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 waysthat 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 sortof 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 programsis like the fundamental interaction we're playingor connection point.So oftentimes we will not communicate with an end customer.We might work like if your company is a coffee shopas well as has bought some battery,the battery operator might be the onewho ultimately is going through LEAP.And so those are some of the examplesthat I've been citing beforearound like an energy tool base, for example.So you're like, we want someone to provide softwareto our battery to make sure we're gettingthe 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 Leapand 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 knowanything about energy. And so I go to like a Stem or a Synova and say, operate this batteryfor me. And, you know, save me on, save me from my ludicrously high refrigeration andcoffee 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 necessarilyput it into utility programs, right?There's a universe of really wonky energy revenuesthat exist in kind of a nebulous formfor me as a coffee shop owner,or even like my buddy over herewho 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 senseof all those different nebulous revenue streamsthat 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 holeand 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 wholesalemarkets, 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 reportsummarizing the fact that VPPs, there's a lot of flexible load that's about tocome on the grid with energy storage, EVs, and other smart devices. VPPs arecheaper to operate than a traditional power plant as well as utility scalestorage, often because people are buying these assets regardless. So the coffeeshops sometimes might just be buying it because they've been through five powerprodigies with a given utility, for example.I went on a little rant, but that was the initial contexton 2222, and then more broadly on why VPPsare being considered, and there is movementin 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 outlike 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 knowledgeof this market and how this works working at Leap,you basically like know in your head,like, okay, like for these types of devicesand this type of like small CNI type customer,I know that like California has really good compensationMechanisms given like time of use rates and also like all these other like demand response programs energy services things like thatAnd so you said that's the reason you chose, California. Am I correct? It has good compensation mechanisms. And if we wanted to lookFor other optionsWe would be likeLooking market by market given our type of devices and trying to figure out like what makes sense based off the compensationmechanisms, is that correct orYeah, so for me, there were two things at play.Being able to, assuming that the batterieswere being installed up front,being able to offset costs immediately with S-chipwas part of what pushed me.If the batteries had already been installed,I might consider suggesting doing something in New Englandthrough Connected Solutions.That is a relatively lucrative programacross many of the utilities in New Englandfor batteries in particularto 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 infrastructureinstalled, the battery is the source of truthfor measurement and verification there,making that in some ways simplerif 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 placewhere you might be able to install it.The other thing to consider is thatbecause you had a battery,while there might be more lucrative programslike in Con Ed in New York City,the fire codes are such that you wouldn'tbe able to install a battery.If you're doing something more with like thermal storageor 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 somethinglike an auto DR rebate in California to provide additional savings as you're installing thesedifferent 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 simplywant to get into the market and want to figure out what these kind of opportunities of interestare.Is there some location or some aggregator of information that shows, you know, hereare 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 havea 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'sreflecting some of the underlying grid changes we'reseeing around there being increasing EVs, morerenewables, and more difficulty installing new gas assets. Andso VPP stepping in to provide these services that Peekerplans used to provide or provided to some degree. And soDOE liftoff report is the long way short answer to thatlonger.Yeah, that's really cool. And Isaac, like, thanks for allthis, 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 toolsand the threads to pull on themselfto, like, try and figure these things out on their ownand their details, and that's reallywhat we're trying to do here.So, Ben, Pam, Pega, Charles,I'm looking at, like, our loose outlineand also the fact that we have 19 minutes left.I see at least one more question or bullet pointthat we haven't, I don't think, touched on yet.Do we wanna do that?Which is kind of a deeper dive on specific requirementsand 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 youwant to say, flexibility, virtual power plants, primarily through, you know, helping themwith 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 costof installing these devices if they don't already have them.And then through some combination of utility demandresponse 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 nowto putting how we would actually build this,I think the next step is to say, OK,okay, we know what the aspects arethat we need to figure out, but it's more likelooking into the actual incentivesand the actual markets and the compensation mechanismsand trying to build out maybe a spreadsheetor maybe just a Google Doc with all the informationto try and make an informed decisionabout how to piece together all those differentbuilding blocks we need.Yeah. I think it's going to be getting into the modeling. How do we make a business aroundthis 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 nextsteps that we would do given what we've learned so far the rest of the time, or we could juststop recording and give people time back.Happy to do whatever.So I would just point out some nuancesof how you're thinking about the businessand ways that I would change itto increase the likelihood of success.A few things that stand out to meis 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 complexityif you're installing the battery already, what I would think would be much easier would be tomarket to coffee houses that already have installed solar in storage and enable them toget 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 notneeding to go out and get financing but you're simply going to different batteries like smallcommercial battery customers and saying, hey, we can provide you incremental revenue toparticipate, that would allow you to probably start generating revenue sooner and have awider base.So just some things that I would consider from the way we've seen commercial, residentialand industrial VPPs participating.Yeah, well, I think we've kind of got to the point where if we wanted to take this anyfurther, 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 projectsbeing 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 talkabout this, yeah, I can help a friend out with one coffee shop, but where it startsto really make sense is how many can you do, and there are a bunch of different aggregationpoints here, right?Like, I could go to, like, a solar installer in whatever town, and they know all the peoplewho 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 tipof 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 thatcritical 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 ratherthan just one here and there you know if you can do this yourself you can go talkto an installer you could even go talk to some some vendors out there you couldprobably buy a battery on Amazon really but then you wouldn't necessarily knowhow to wire it into your your electrical system so you know I'm looking for thatkind of scale. Now, as we've discussed, there are a number of places in California thathave some real density of coffee shops. So if somebody could go and convince everybodyin that region to say yes, I think there's something here. But for me, it's that questionof scale. How do you bring them together?I think Charles picked up a really good point around scale. You focused so far very muchon how to interact with the customer, you haven't focused as much on how to continueto engage with the battery, and how you're going to be controlling that battery, andwhat 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 youwant 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 recurringSAS 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 questionof 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 nailhere 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'sshoes.But one element, and I think it's probably relevant to our loyal listeners, is the, isthe SaaS component, is the VPP, like the software, is like this all works together because somesort of intelligent brain sits behind and says, turn this on, turn this off at these particulartimes. So there is that angle to like, how does this operate and how do you monetize that? Is ita share of the, the revenues that transact is it a sort of, so you get based, based on yourperformance and the revenues you're able to generate using that asset portfolio, or is itlike pay me a recurring fee and I will make you a lot of money. And there's a lot of questionand marks in there as well, which we can unpackbecause there's a couple layers.There's like an energy layer.So can you actually control a Tesla batteryversus 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 topand be the brain on top of the various different armsthat 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'llnever control the battery directly.We'll be the integration with the market so that battery can commute, canlike interact with a given market or program and consider multiple marketsand programs there often is another entity that is truly controlling thebattery and incorporating insightsaround the tariff considerations or other constraintsthat the customer has.I know there were a few other questions.We call that a battery management systemand 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 companyand 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 connectthem 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 expensivebecause it's like $10,000 just to have accesswith a limitation on average $10,000for 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 connectedwith many of these asset types,paying those different feeswith those different OEMs across batteries,but also other types of asset classes.Okay.I have one last questionbecause it's been eating me up insidesince 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 momentsfor a loss of load, probability is more than zero.And that would just tell me the monthwhere 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 usefulin 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 itto 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 toto 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 capacitybeing available for a given month.What is the layer down that you're getting atin terms of the variability by dayis when you are bidding into a given hourof the energy market,what is the connection between the energy marketsand 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 puttingin a nomination or a forecast of what you expect that load to be able to be decreasedthat 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 inCalifornia, there's generally a duck curve at the end of each day where there's animmense amount of load towards that afternoon evening.That's often the most lucrative time where you should be bidding in orthat's a requirement is getting a capacity payment.And you're putting in a nomination that is reflective or a forecast that isreflective of what you expect that load to be able to dropduring a very specific time of day.Does that get at your question?Yeah, I think soOkayWell with that, I think that kind of brings us to the the end of our brainstorming sessionWe now have a wireframe for coffee VPPLaunching across California to a coffee store near youinvestors give us a call and we'llPut batteries and solar across all of your favorite all of your favorite coffee shopsIsaac, thank you so much for being our Fona friend.And Pega, thank you so much for joining usfor the brainstorming.This has been a lot of fun.And I think we really kind of turned over a lot of rocksthat showed just where all the nuances in this space are.And hopefully we've left you the listenersand especially those of you who are interestedin potentially starting a VPP company of your own,some of the places you need to go to lookto answer some of these questions,to build out a business model that makes sense,and hopefully be one more brick in the wallthat'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 wonderfulworld of DERs. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit <a href="https://www.indermediate.com?utm_medium=podcast&utm_campaign=CTA_1">www.indermediate.com</a>

March 11, 2024

#5.1: Virtual Power Plant (VPP) Hackathon

SummaryCo-hosts Pam, Ben, Charles and James are joined by listener Pegah in part one of the InDERmediate Virtual Power Plant (VPP) hackathon. In this episode the team embarks on their journey to roll up their sleeves and build a VPP within two hours live on the podcast. After the obligatory attempt to define the nebulous term “Virtual Power Plant”, the team begins to answer the key questions required to build a Virtual Power Plant. These questions are:* What type of customers to serve - Residential or Commercial and Industrial?* What type of devices will the focus? ie. Solar and Batteries* What location to operate in? ie. California* What markets to operate in - Utility markets via time of use and demand response or wholesale marketsEpisode chapters:* (0:00): Introduction* (3:30): VPP outline in 2 hours* (4:38): What’s a VPP?* (8:20): Key questions* (9:39): Resi or C&I?* (16:40): What devices?* (36:56): Location criteriaHelp us out!* Subscribe, share and rate the show wherever you’re finding this podcast!* <a target="_blank" href="https://bit.ly/inDERmediateApple">Apple podcasts</a>* <a target="_blank" href="https://bit.ly/inDERmediateSpotify">Spotify</a>* Give us feedback: We’d love to hear from you via email, <a target="_blank" href="mailto:inDERmediate@gmail.com">inDERmediate@gmail.com</a>* Follow us on social media* <a target="_blank" href="https://twitter.com/indermediate">inDERmediate on Twitter / X</a>* <a target="_blank" href="https://twitter.com/james_gordey">James Gordey</a>* <a target="_blank" href="https://twitter.com/BenjaminHilborn">Ben Hillborn</a>* <a target="_blank" href="https://twitter.com/wyatt_yy">Wyatt Makedonski</a>* <a target="_blank" href="https://www.linkedin.com/in/cjurczynski/overlay/about-this-profile/">Charles Jurczynski</a>Relevant links we found helpful* <a target="_blank" href="https://www.vppdata.com">VPP Data substack including spreadsheet of all US VPP’s</a>* <a target="_blank" href="https://liftoff.energy.gov/vpp/">Department of Energy Virtual Power Plants Liftoff Report</a>* <a target="_blank" href="https://miro.com/app/board/uXjVNd1IcnU=/">DER/VPP Reading List</a>* <a target="_blank" href="https://lu.ma/vpps">VPP insiders group</a> and supporting #vpps slack channel within <a target="_blank" href="https://www.dertaskforce.com/">DERTF</a>* <a target="_blank" href="https://www.linkedin.com/pulse/challenges-opportunities-vpps-what-i-know-so-far-clint-amadeus-chan%3FtrackingId=U3vSVnaY8F0ucYx85Pj1hw%253D%253D/?trackingId=U3vSVnaY8F0ucYx85Pj1hw%3D%3D">Challenges and Opportunities for VPPs (what I know so far...) by Clint Amadeus Chan</a>* <a target="_blank" href="https://www.purepower.com/blog/why-energy-storage-is-more-difficult-to-scale-than-solar-pv">https://www.purepower.com/blog/why-energy-storage-is-more-difficult-to-scale-than-solar-pv</a>* <a target="_blank" href="https://developers.google.com/maps/documentation/solar/overview">https://developers.google.com/maps/documentation/solar/overview</a>* From Pam* ResStock: <a target="_blank" href="https://www.nrel.gov/buildings/resstock.html">https://www.nrel.gov/buildings/resstock.html</a>* ComStock: <a target="_blank" href="https://www.nrel.gov/buildings/comstock.html">https://www.nrel.gov/buildings/comstock.html</a>* FERC 2009 (not 2008!) report: <a target="_blank" href="https://www.ferc.gov/electric/industry-activities/demand-response/national-assessment-action-plan-demand-response-2009-national-assessment">https://www.ferc.gov/electric/industry-activities/demand-response/national-assessment-action-plan-demand-response-2009-national-assessment</a>* <a target="_blank" href="https://gridintegration.lbl.gov/der-cam">https://gridintegration.lbl.gov/der-cam</a>* <a target="_blank" href="https://zomasleep.com/blog/most-awake-city">https://zomasleep.com/blog/most-awake-city</a>MusicOur incredible intro/outro music is the song Ticking, by artist TINYou can stream the whole song and the rest of their catalog here: Episode transcriptI think Pam's audio is unbelievably loud.Yes, Pam, you're too excited.The game thing?Yeah, yeah.You need less game.We fixed it, though.Pam's just really excited.She's just really excited.I think that's just her indoor voice.What are those things that we have now available that can be worked in quite a different wayinto 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 magnitude of the side effects will be.Hi, I'm Pamela Wildstein.I'm Wyatt Makaronsky.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 resourcesand clean energy.This is the podcast that makes it easy to learn how the grid actually works beyond theoffice.Okay.We are live.As live as we're going to get.Welcome to what will 100% be the messiest intermediate episode to date.Let's go around the table very quickly and just say who's on the mic, say a quick hello,and then we can dive into trying to build,trying to figure out what it takes to build a VPPin two hours or less.Who are you?I'm Ben, I work in energy financeas well as on Durham's systemsand yeah, love hanging out with you guysevery time we do this.James, who are you?Hey, it's James Gordey, your co-host.Excited for this.Excellent.Pam?I'm Pam Wildstein.I'm a PhD student at the University of Michigan.And also excited for this, particularly to have toasters in this VPP in some way, wehave to get toasters in.Yes.I think toasters is like a thing here.I'm Charles, Charles Orchinski.I am currently working in energy finance at Generate Capital, and I'm also very interestedin project development.So, I am keen to figure out if we can make a VPP make money.Amazing.And last but not least?My name is Pega.I have a few years of experience working in a lab at university that was about clean energy,and that's where I was exposed to VPP and DERs.But then my professional background is mostly MLand product development.I'm very excited to learn more about VPPs in this sessionand contribute in building one.Well, thanks, Pega, and welcome to the show.Yeah, and I just want to say shout out to Pega.So we put this out in the DER Task Force Slack channeland just asked for helpbecause we're literally just doing thisand hit record and trying to do the best we can.And Pega just reached out and said,That sounds really cool.How do I join?And here they are.Easy.Amazing.So what are we trying to do?What does it mean to build a VPP in two hours?What, how are we gonna put a little,nice little box around thisand what do we want to have at the end of this?Well, it won't be real because we have no money.Oh, yeah.Minor details.And since you want the electros from the Power Grid game, I have a lot of those.So to address Ben's question, I think we were going through in the lead up to the show tryingto figure out what to do.Do we structure like a normal education episode?And I think one thing we highlighted was just, there's a lot of material and a lot of buzzfor sure.A lot of buzz around VPPs, but we said, I think we could cut through the buzz and tryand figure out what's real and help people learnhow to engage more with actually building in this spaceif we just tried to build one,at least understand how to build one ourselves.And so I think what we're trying to dois either we're going to be successful or notin the next two hours, but we're going to tryand build a VPP or know how to build one.And we're going to share the Google Doc,which outlines what we did.And we're going to share this recordingand hopefully this helps to get more peoplebuilding in this space.Absolutely.Absolutely.Do you guys want to start with the definition of a VPP?Oh, yeah.What's a VPP?Just keep using acronyms.Yeah.What's a VPP, Pam?Oh, I didn't say I was going to do it.I'm going to set a timer because I don't want this to take two hours.We could absolutely spend two hours.What's a VPP and what's a DERMS?NDE aggregation.Oh, my goodness.Charles.Charles or Pega, why don't one of you guys take it away?Okay. A VPP stands for virtual power plant. All right, children, I'm going to tell youthat this is a bedtime story. A VPP is a virtual power plant. It is an aggregation of a numberof distributed energy resources in intermediate DERs, and it is when you get them workingall together from a technical and commercial perspective so that power canbe produced in one place and sold in another place either physically orsynthetically using market mechanisms that allow everybody to keep the lightson and socialize their power use with their neighbors, people in theircommunity, or more broadly on the technical side it also has usefulapplications for utilities as grid support and regionalize energy support for utilitiesand grids.So it also facilitates much broader electrical stability, which is critical as we get moreand more renewables on our power grids.So VPPs can do it all.Is that right, Pega?Do you want to take it on?Did I miss anything?That was a great description of VVPP and my understanding of VPPs or virtual power plantsis working around DERs which are these flexible assets that either produce electricity energyor they can store electricity so they are flexible and that you can because the prices of electricitythey're volatile, you can take advantage of those and buying cheap and selling highat a higher price. And a VPP's job is to orchestrate these flexible assets and get a revenue andthen distribute it to the DER asset owners and everyone wins just an extra source ofincome for something that it's made like its main job isn't to produce revenue in that waybut it's a nice extra cash that you can get. I think that's a really key component isyou know what's going to incentivize people to join a VPP is the cash you get out of it.One of the things that I saw from this recent cold snap is you know too manyutilities asking people nicely,hey, can you please curtail demand?A VPP is a way to just encode thatand here is the business relationship we're going to have.If you curtail demand, here's what you get.And so that's a big part of what we're going tofigure out today is based on the hardwarethat's gonna be the backbone of our VPPand the amount of load we can shift and when.How much how much can we offer to our consumers?To incentivize participation. I wanted to like zoom out a bitGet my game face on hereso what we're trying to do isIdentify what type of virtual power plant we want to build and when we ask people who know about this stuffThey said there's several kind of key questionswhich will narrow down like the type of thing you could do and so one key question is residential oror what's called commercial and industrial.That's generally how electricity customers are bucketedin the electricity world, for better or worse.Geographic location is another kind of key questionto answer for us.What types of devices, be it a toaster or something else,might you want to manage and bundleinto our virtual power plant?And then once you have all those questions answered,Another kind of key question is, as I understand it, there's two broad types of programs and markets you can participate in.There's a utility program and a wholesale market program.And so what we're trying to do is think about what type of virtual power plant we want to build and kind of go through those questions and arrive at some answer so that we can actually roll up our sleeves and really see a couple options and start to put some meat on the bones.So, let's jump into some kind of really, really high-level splits, like where do we want towork?Do we want to be in Resi, which is, you know, there's a few different players in this space.Do we want to look at CNI?What do you guys think?Where is an opportunity that potentially hasn't been explored enough?Resi.Resi it is.I know you're all shocked. I want Resi.Because it involves toasters, right? I mean, how many C&I toasters are there?Very few. They're only in the commercial buildings.More importantly, I think in 2008, the federal, I think it was 2008,the Federal Energy Regulatory Commission released a report on untapped demand response potential,and the majority of it, or not the majority,I don't remember if it was the majority or not,but compared to commercial and industrial,there was significantly more untapped demand responsepotential in residential.Perfect.Yeah, I just wanna ask a question though on the solar,or on the, sorry, are we jumping into devices now, or?No, go ahead.Yeah, so what I've been told is resi is easier,and so I do think we're trying to get reasonably farin the process.And so in general, we're probably gonna make thingsthat are easier to our decision.And we got some like input on that.My question on toasters, is that even reasonableto like make a toaster virtual power plant?Like, I guess we can get into this,but there's like, it's not a huge load, right?And so I don't even know if it's like big enough to matter.I have two.But I, sorry, go ahead, go for it.Yeah, I want to, I think for residentials,you know, the number of residentials is much higher.So that might, it's more complicatedto work with a large number of DRsthat are small in scale.It might become a more complicated one.But most VPPs nowadays, from what I know, are focused on C&I, so that might make sensebecause the residentials are kind of left out.My second comment is, what about small businesses?Because from talking to them, it sounds like the extra cash that they can get, it reallymakes a difference to their business.And so are they even an option that we can think about?Somewhere in between the two.So I just want to jump in here.There's technical and commercial issues.And I wouldn't worry too much about the size.It all contributes.I actually once heard of a companythat was offering to install an app on cell phones.And because if they could get this into hundreds of thousandsand cell phones that formed,and they could turn off the charging simultaneouslyand that on a large enough scalewith enough phones signed upcould meaningfully impact the grid.You can think about everybody-I believe Apple has that baked in at the OS level.They do have on an operating to optimize their charging,but that is more around battery life preservationthan it is about I can turn on and off a loadthrough an app in order to manage the grid.So that was, I don't know if that company ever went anywhere, I just heard that and it was quite a while ago now, so they clearly didn't break through.So toasters are not necessarily, I mean, they may not be the optimal unit of electricity, but they make for a fun one.But at a large enough scale, aggregated more broadly, in the same way as one home doesn't really make a big impact on the grid at large.But when you have thousands, and particularly like we're talking about concentration, right, so you can have thousands of homes across the country and that's not going to make an impact.Whereas if you have 1000 homes in Sacramento, right, like in a subdivision that's going to really impact that, that local grid and you're working with SMUD or maybe PG&E if you're further out.So, geographic density matters.And I think in some ways you can then tip that overto look at CNI, where one CNI providercan be a much larger demand consumer,especially if you're looking at bigger.And I also wanna be clear.It was bigger, you made a good point.There are different sectors within CNI.And this is really interesting.I did work on a fairly substantial portfoliodeploying and financing.behind the meter batteries to be used as micro grids.So we orchestrated the whole portfolioand every different customer had a different load profileand some were pretty predictable.Something like a cinema,like you know when they're gonna turn on their projectorsand you know when showtimes are gonna be.Maybe slightly more predictableversus like a hair salon or whatever,or like a grocery store may not be as predictable,but it's much more flexible.So for example, with grocery stores,they have freezer aisles,which are the big demand consumers, the big demand loads.So those freezers can be really deep cooledand then you can reduce the energy demandby moving that load around.So they're much more shiftable.And I think what's, well, so from a commercial sidewhere that's really important,is just to this point, one more from a commercial side where that gets really important is you,you then have to sort of shape your, your hardware to fit that and to manage that.And, you know, they are sort of bigger loads. Generally, commercial will be more micro gridor tech heavy, like hardware heavy, because it's all about the physical, like the site,You're trying to manage their energy, whereas residential tech is important,but it's going to form a smaller component.It's much more about the software pay.It's about the orchestration.So if we want to go down commercially, you're thinking much more about how dowe make all the hardware on site pay nicely together so that we can meet thedemand or the load curve of the onsite resource.Residential is going to be much more about how can we use loads that already exist?Right?Like there are retrofits, but it's, they're smaller, they're harder.it's less about what hard work can I get into there, like obviously there are people who aredoing home energy efficiency retrofits like electric water heaters, but it'll be much moreabout how can we use people who have already made the decision. I think based on what we'vesaid so far there's a lot of opportunity in Resi and especially you know there's a ton of differentoptions for devices and now if we think about the kind of devices as well I think we should put aon that. And as much as we love toasters, toasters themselves do not necessarilyhave the ability to shift. When you want toast, you move the plunger downand it draws power from the grid and then it's done. Unless we'regoing to go about retrofitting thousands of homes with smart toasters andbattery backup. So this is one of the filters that maybe we think about.okay, within a home, what's an opportunity for a devicethat has a load that is theoretically shiftablewithout ruining the customer's experienceand is something that people already have.So let's take the approach that we wanna builda lean VPP company.We don't wanna have to deal with hardware.We're just gonna use what you already have.How does that sound?Does that make sense to me, Pam?Yeah, I would just add with the geography component too, that's especially importantwhen combined with the technology, because your load needs to be, your load and the waythat you shift it needs to make sense for the location and any reliability issues theymight be experiencing.So that's why, for example, your direct load control programs in California are mostlyalways being dispatched during the summer with air conditioning.You could run a direct load control program, which just turns off the technology that it'stargeting for toasters in California instead of the air conditioning unit, but that doesn'treally make sense because that's not where most of the load is coming from and reallyit's not probably being run in significant amounts during peak electricity usage hours.You know, people aren't running their toasters in some way for three hours at a time at sevenor 8 or 9 p.m., which is when those programs tend to get dispatched.So for example, you could run a direct load control program up in the ISO New Englandarea, for example, in the middle of the winter for air conditioning units, but that wouldbe very silly.Okay.Pam, I think that's a good grounding input.We're trying to balance what actually makes sense and is feasible, what is cool and fun,and kind of based off of that.And so I don't know how we want to take this.So we could just say, like, batteriesare the most common thing, and let's just do residentialand pick a geography.And that's just very, like, I don't know.There's not a lot of whimsy and fun to that approach,but maybe it's the most broadly applicable to the audience.Or we could try and say, like, could wetake some of those inputs, right?The load flexibility needs to make sense,and we want to use load that's already there to come upwith something really cool.I'm not saying this is the answer,but one idea that popped in my head was I'm a big fan of local restaurants and grocerystores and businesses and things like that. I know that's light commercial, not quite residential,but I think it'd be really cool if you could come up with some VPP way to enable your favoritelocal coffee houses or your favorite restaurants or something to create a virtual power plant andcome up with some side cash to help them stay more economically viable. That's something Iliterally made up and I don't know how feasible it is, but that's where my brain is going.Could you go to all the local brunch places and say, or maybe not brunch, maybe it's someother place, and say back to the toasters, I know normally you serve avocado toast,but if there's going to be a grid event, no avocado toast on the menu, change the menuup and then you will reduce your toaster load. Again, I made that up, but thrown it out therefor inspiration.Amazing.And yeah, James, I think on top of that, you know, there are gyms, there are dentist clinics,and the prices that these businesses charge their customers can be varied based on a potentialBPP that is really giving them significant cash, and it'll be fun.And I think the customers, most of them also care about a restaurant participating in thisprogram.And then they also are taking part in this, and it would add something dynamic to it.I think it would be fun, at least at the beginning, you know, maybe a few years from now, everybodyis doing it, and it's not fun anymore.But for now, that's another branding message that these small businesses can have to attractnew customers even.I say let's try that.The idea of a VPP for coffee shops sounds super novel to me and fun.I really like the idea of doing coffee shops and I guess that moves us squarely from resito commercial, because you cannot model a coffee shop in ResStock, which is NREL's modelingtool, but you can model a coffee shop to a certain extent in ComStock, which is the commercialbuilding modeling tool.Yeah, Pam, question on this, right?So we would need to find a place where it makes sense for a coffeehouse to change theirelectricity usage with, and aligned with,a grid of reliability event, right?Is that feasible or practical?I'm asking.Well, it would be multiple coffee shops.Yeah, yeah, many.Because, yeah, so you would find.What I'm thinking about, I'm thinking about peak,like around, you know, like when it's cold,when it's kind of like peak hours,like four to nine or whatever it is,when coffee houses are like mostly closed.And so like maybe they're not traditionally usingelectricity during that time,but maybe there's some other reliability event that would make it make sense.Like we put a bunch of batteries in coffee houses and they charge it with cheapsolar and then they dispatch it later.I don't know.Like you tell me.What if you targeted the belly of the duck instead of the bill?So as opposed to shedding, shedding load during high demand, we absorbavailable energy during the cheap periods.Yeah.Yeah.So they get,And then they could sell it back during the build of the docking.Okay, so okay. A quick distinction that I want to makeis I think if you were to look at the kind of proper definition of avirtual power plant, this is where we're talking aboutsomething that is technology-enabled, remotelycontrollable, andAnd kind of gives the utility some control over the functionality of the power plant.And the reason that I bring this up is because, oh, you know, it'd be cool.We could make a coffee shop where, you know, we do a ton of baking in the middle of theday when, you know, when solar is at max potential and there's a ton of cheap energy on the grid.And then as you go on into the evening when power is getting more expensive, well, weWe actually, we really kind of shut off most thingsand we just sell, we're not selling hot foodin the bill of the duck, right in the evening.But that is, that's more business designthan it is virtual PowerPoint design in my mind.What do you guys think?Ben, I don't know, like where my brain is like lighting upis like cool intersections of VPP designand like business design that already makes sensefor these things.like, you know, could you have a bar that's normally, you know, has lights, do a discoor do a candlelight thing, like, during grid reliability events, or is there something withthe coffee house where they charge during the day and they sell it at night, or youturn the coffee, like, in the office, right, they did cafe disco, where, like, people dancein the little room. Could you have, like, a coffee house that normally doesn't run atbut turns into a bar at night or maybe that's the opposite of being grid reliable, so I don't know.This is me pointing my fingers in a very rave-like fashion, but what I think is key hereis to understand the underlying consumer behavior, right? What does this coffee shop do,right? Is it typically running at four to six? Probably not, because that's not when people areordering a whole bunch of espressos and steam milk. So you think about theunderlying business case and then you create a hardware layer to best, well sookay, you create an optimal load profile or a grid profile and then you add thehardware to get you from the base case to the optimal load profile and it couldbe a combination actually of hardware and business model or like energy useSo sometimes you can just say, hey, have a rule that people don't run the espresso machinesfrom four to six to help with load curve or to shed load.And then you use hardware to make up the difference, right?So you kind of want a predictable use case where the same thing is happening, the samebehavior is happening on a day-to-day basis, because that minimizes the cost of the hardwarethat you need to get to simulatingan optimal load profile.And so typically, you think about thisas being something you can either attach to hardwarethat automatically shuts it down.Things like HVAC are the low-hanging fruitwhere a lot of VPPs got started, a lot of the VPP softwaresystems.You think about EVs, especially if youhave some sort of leak component, which probablynot in the case of coffee shops.Or you have energy source.So I'll try and keep my points tight.Take the low profile.Adjust it to what your optimal profile would be.And then identify what you can doto match the existing low profile to the optimal profile.That will be hardware.And then you will add a software layer on top of the hardwareso that you can affect those low profile changes.Okay, so if I'm thinking of our cafe, right,we have, a cafe is highly, they're busy in the mornings.There's also a peak in demand in the mornings,not as high as in the evenings,but it is there in the morning.So if we think about, okay, a cafe has espresso machines,it has refrigerators, it has ovens.Um, I'm drawn to refrigerators because they are, I'll be it inefficient.They are a thermal battery.And let's say that in across our, you know, our cafe VPP, uh, we have, youknow, a thousand commercial refrigerators potentially under management.And we could say, all right, we are going to lower your set point in thehours preceding your morning open.And as grid demand rises in the morning, as people are getting up, going, you know, gettingready, but nobody has really made it to out the door and going to the cafe yet.In that hour, two-hour window, that's when we're going to raise the set point of theserefrigerators, let them just kind of idle, let the temperature slowly rise while stillbeing food-safe.James, what do you think?So, I just have a quick question, I just want to sanity check the coffee house idea.I like, I love coffee houses, I'm drinking a nice latte as we do this.Are coffee houses viable even though most of their operations happen during the day andwhen most of the grid reliability issues happen later in the day, like, are they still viable?I'm just asking, like, maybe Charles and Pam are more familiar with this.It could be a coffee house in the morning and a bar in the afternoon.But it doesn't even need to be it doesn't even need to be open at nightIt just needs if anything a coffee house is really great because they're using all their powerIn the beginning in the middle of the day, which is what we want and then at night they're just sitting there dormantSo if they can discharge anything from their solar plush storage system back into the gridThen they're perfectThis comes to geography though because it depends on what the policies and regulations are around discharge. So are we talking about aa building that can go both directions, like absorb and export power, or are we just talkingabout a load control facility? Because that will depend on the utility and what utilityprograms you can bid into.Yeah, but my comment is related to this. My question was, are we considering a distinctionbetween a demand response program and a VPP? Because what I'm hearing from your guys'those opinions and ideas mostly reminds meof a demand response, you know, shifting lowrather than having actual DR assetslike storage or a PV system.And also, are the utilities chargingtheir invoice structure?Is it considering the time of use?because when I look at my bill from PG&E, sometimes it gives me some additional cash orsome sort of a reduction in my bill because I usually start, I usually use my dishwashing machineor you know most of my electronic devices during the day and I think that's how I get thoserewards. And because most of residential, they have smart meters and every 15 minutes mypower consumption is, the data is going to the utility. So if I own a cafe, I am alreadyincentivized to turn on my ovens and bake all the muffins at noon and how does aVPP help have a like an additional offer me an additional value or additionalcash on top of what utility is giving me? I think I think that again is ageography question because you said you're PG&E in California right? PG&E II think around, it was either 2020 or 2021,they started moving and then eventually movedtheir whole residential stock at least over,or sorry, all of their residential customer baseonto a time of use rate.But that's not the majority of the casefor most of the country.They're just a very specific situation of that happening.So that's why you're seeing those reductions,especially relative to the past.So if our coffee shops are all in San Francisco,then yeah, they're already seeing that incentive.But if our VPP is in, you know, Ann Arbor,then they might not be on a time of use rateand they might need some company to step,they might need some other entity to step in or some way.How about the demand response question?Are we now designing a demand response programor are we still focused on VPP, or is it not even a difference between the two?That's a question we've come back to many, many times.And I want to avoid getting into the minutiae of the differences between demand response and VPP,if we can. But I think for the sake of this episode, let's just say any controllableAnd I will add one thing about that and then I'll hand it over to James, but I will justsay, I would say we should operate under the Federal Energy Regulatory Commission's definitionof a distributed energy resource aggregation, which does include demand response.And also I'm biased because I studied demand response.So I want to talk about demand response, specifically residential demand response, because it maymakes me happy.So good to have you here, Pam.You do such a good, eloquent, and official wayof describing all the stuff that we're trying to say.Yeah, and so what I just wanted to try and doto stitch all this together, and Ido think we probably need to decide and then cutinto actually trying to spec out what we're going to build here.But I do think it's an important discussion.So to repeat back what I think I've heard,So, a coffee house normally is not using electricity during a peak time, but if we were to addsolar and storage to it, that's one way where we could basically have them suck in a bunchof electricity when it's cheap and bid it out during peak hours and they don't needthat electricity. So it's like basically completely free to useas Charles analogy. Or two, if the coffeehouse is in a placewhere time of use rates are not pervasive across coffeehouses,you could have coffeehouses switch to a time of use, andthey'd probably save a lot of money, like both of those wayswould help coffeehouses save monies. Yes or no, I guess tothe to the team, it feels appropriate to answer.I second.Yep.That feels, that feels good.Okay.So then, given that, I think we can decide, right, like going back to our key questions,which of those do we want to pursue?Like the solar plus storage is like a cool, like, you know, you know, juice up your coffeehouse or however you want to say that.Like there's a lot of good stuff to do there.And that's like a very like mainstream relevant exampleto lots of people who probably want to includesolar and storage in their virtual power plants.And so given that,what like, do we like the solar plus storage?It's like, that's what we're gonna do.We're gonna like help coffee houses installsolar plus storage and then make moneyfrom this flexibility.Yes or no.And then if we do that, where geographically does that make sense, basically?Well, I think that I think you guys have laid out some fantastic reasons why solar storage make a ton of sense for a coffee shop, especially because they can self, they can consume their own generation throughout the middle of the day.And then feedback to the grid, any excess they have stored up, or any kind of shoulder amounts that they're still producing, as you know, they're winding down, you know, three, four o'clock.And that's as demand is starting to rise, but you know, the sun probably isn't setting until 7pm, so it innately works.And, James, for location, I'm going to suggest your corner of the world, you know, the birthplaceof Starbucks, Seattle.I would love that.I also know that we have, so when we polled some people before, they said, yeah, Ben,your voice sounds spectacular with your potential strep throat today, so I just want to applaudyou for that.Thank you so much.Applauded.So people said do Pacific Gas and Electric and the utility program, because that's theeasiest to implement in two hours, I guess.Do we want to, like, do that, or do we want to try something else, like, Seattle, right,and see, like, if there's a program out there that makes sense.I know with Seattle City Light, we maybe don't have, like, the most, like, that many, like,complicated tariffs, but maybe that's better in C9, we could unpack it.I'm open.Well, a quick Google says that San Francisco is America's most awake city, with the highestratio of coffee shops to people, with 528 dedicated coffee outlets serving a populationof 866,000.I disagree.Find a college town.If you want many people consuming aggressive amounts of coffee, you want a college town.Okay, so let's try and come up with some criteria here, then.I have one argument against doing California, when I think of California utilities and Californiaprograms and also CAISO on top of it, the California independent system operator, ifwe look at wholesale, we can look at wholesale, they are, they're not necessarily representative,they're just a little bit further ahead in some ways, like the, everyone in the residential,all the residential class for being defaultedinto time abuse rates, for example.So if we wanna look at maybe what the future isfor everywhere, then maybe California,and then they clearly have very extreme reliability issues,so maybe that's a reason to go there too.And they have the duck curve, they're very distinct.But if we wanna look at more what the status quo isfor the rest of the country,then maybe Seattle might be a better caseor somewhere that's just not California.I also think that if you want to consider solar for coffee shops,it doesn't make sense in San Francisco.It's always cloudy here.And also, there are tall buildings, so.Density.Density is definitely very relevant.OK.The density point is very fair.I just want to, on the cloudiness,there's something, feel free to correct me,Charles or whoever's pretty familiar with solar, but there's umSomething called like sun hours. I forget the term but like even in seattle solar is just viable and it's certainly much more cloudy thanuhsan franciscoumSo I just wanted to kind of like say that out loud, I thinkYeah, likewise with with victoria. It is so much cloudier than um, you know much of uh,Much of north america, but it's solar still viable. It's just like a slightly longer payback periodOkay, and so I think we're trying to tease apart like criteria here to select oneSo density Pega, I think that was a really good input. Like if we're in Manhattan, that's not really a viable like coffeeCoffee house approach, you knowAnd so we need a place thatThe coffee probably has like a roof, you know, or it's at least like in most cases. It's gonna have a roofMaybe where solar plus storage makes sense question mark andYeah, I don't know, wherever else we think is fun, I think that's like my three criteriaright now.And on that note, we're going to take a break here.Join us next time on Intermediate to hear us dive deep into the details of buildingthe Coffee Shop VPP.I'm your co-host Ben Hillborn, and I can't wait for you to hear part two. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit <a href="https://www.indermediate.com?utm_medium=podcast&utm_campaign=CTA_1">www.indermediate.com</a>

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