Catalyst with Shayle Kann - Could VPPs save rooftop solar?

Episode Date: May 23, 2024

The U.S. rooftop solar market has tanked. Residential applications in California, the largest market in the country, plunged 82% from May through November 2023 compared to the same period in 2022. Contractors are going bankrupt. The big culprits are high interest rates and California’s subsidy cuts. But there are some bright spots. Battery attachment rates in California have surged. So what will it take to revive the U.S. rooftop solar market? In this episode, Shayle talks to Jigar Shah, director of the Loans Programs Office at the U.S. Department of Energy. Jigar argues that the rooftop solar industry should reinvent itself, relying on batteries and virtual power plants (VPPs). He also argues that regulations should focus on system-level dispatchability.  Shayle and Jigar cover topics like: The pros and cons of California’s latest regulations, new energy metering or NEM 3.0 Learning from the mistakes of California’s Self-Generation Incentive Program (S-GIP) The role of VPPs and rooftop solar in meeting accelerating load growth Incentivizing system-level dispatchability  How VPPs complicate the sales pitch for rooftop solar How VPPs could help utilities increase the utilization of infrastructure How to make VPPs more reliable Recommended Resources: U.S. Department of Energy: Virtual Power Plants Commercial Liftoff Latitude Media: Defining the rules of DER aggregation Latitude Media: Unpacking the software layer of VPP deployment CalMatters: What’s happened since California cut home solar payments? Demand has plunged 80%  The Wall Street Journal: The Home-Solar Boom Gets a ‘Gut Punch’ Catalyst is supported by Origami Solar. Join Latitude Media’s Stephen Lacey and Origami’s CEO Gregg Patterson for a live Frontier Forum on May 30th at 1 pm Eastern to discuss Origami’s new research on how recycled steel can help reinvigorate the U.S. solar industry. Register for free on Latitude’s events page.

Latitude Media, podcast at the frontier of climate technology. I'm Shail Khan, and this is Catalyst. The game of just putting dumb solar in people's houses, you know, providing them alone, that game has a short shelf life, right? And you've heard both Sun Run, Sonova, but also others, announced that they are now VPP companies. This week, the one and only Dr. Jigger Shaw, exclaimer, not actually a doctor, diagnoses the maladies of the rooftop solar industry, and prescribes VPPs as a solution.

When utilities need flexible capacity they can count on, they turn to Energy Hub. Energy Hub works with more than 170 utilities, coordinating over 2.5 million devices to manage 3.4 gigawatts of flexibility built for the moments when utilities can't afford uncertainty. Energy Hub builds and operates virtual power plants that utilities actually stake their grid planning on, coordinating EVs, batteries, thermostats, and more through a single platform built for utility scale. Predictive, verifiable, and designed to perform when it counts. Learn more at energy hub.com.

I'm Shayal Khan. I invest in revolutionary climate technologies at energy impact partners. Welcome. Well, I think Jigger Shaw probably needs no introduction, but I'll give them one anyway. Jigger and I have been friends and collaborators for a... very long time. You know him today as the director of the loan programs office at the Department of Energy in the United States. I know him as one of the founders of Sun Edison way back in the day. He worked at a place called Carbon War Room. Very few of you are going to remember that one,

but it was pretty interesting, founded by Richard Branson. Jigar was leading that for a while. He wrote a book called Creating Climate Wealth before the term climate tech was a thing. I think he was recently named as one of the Time 100 most influential people or something like that, though, I would certainly never talk about that to his face. Anyway, Jigger and I have been talking about climate tech stuff for a very long time, and it's always an interesting conversation, as anybody who talks to Jigger knows. This one in particular was really interesting. We started out talking about rooftop solar and what's going on with rooftop solar in the United

States. We have not spent a lot of time on that on this podcast recently, but it's not a great story at the moment. It's been a tough year or two for the rooftop solar market, particularly the rest of residential solar market. And Jigger has long been into distributed generation back to his son Edison days and even before. And he's a proponent of that market, but he also has some, I think, sort of wake-up calls to offer to that industry and what it's going to need to transform into in order to resume growth. And so it was an interesting conversation that started with talking about

rooftop solar and then morphed into the world of load growth, how we're going to serve it, and what role distributed energy resources of various kinds, not just solar, can provide. So with no further ado, Jigger Shaw. Jigger, welcome back. Thank you for having me. All right. Time to put on Dr. Jigger's stethoscope and diagnose what's going on in the rooftop solar market. My goodness.

There's a lot of negativity out there right now, isn't there? I mean, you know, as you know, we predicted this. back in 2012, 2013 during the first net metering wars. And back then we did the value of solar work in Minnesota and some of these other places. I think California and New York has done that too. I think we're just at a point now where people recognize that what's really of value to the electric utility company is dispatchability. Right?

It's not the generation of power on rooftops. It's the battery. that's actually in the home. And even in 2017, 2018, the battery seemed not that important. Attachment rates are really low, et cetera, but now you're starting to see attachment rates that are much higher and you're starting to see an interest from utilities to use those batteries for, you know,

sort of other purposes that they have to help manage their load growth. Yeah. I mean, my sense was always, look, like net metering in its full form, where every kilowatt hour you feed back into the grid is compensated at the full retail rate, that was never going to last to infinity, right? There was always going to be some point where that was going to change. And so that was inevitable, but what wasn't necessarily inevitable was particularly in California, which is by far the largest market for rooftop solar.

This is the epicenter of where this changed. It changed pretty dramatically, pretty quickly, and that changed coincided with high interest rates. And I think like the combination of those two things was what led to, just if you look at the purely the deployment numbers of rooftop solar in California, like a cratering. But to your point, it cratered and the remaining market has a very high battery attach rate. So you could make an argument that's exactly what the point of the policy was supposed to be. If you believe the value is in the battery attached to the solar, then you need to like force a high attach rate. and this is what did that, right? Yeah, there's a couple pieces to this.

One is that I think we've always known that net metering has declining value beyond sort of 5% penetration. But when you get to 5% penetration, the solar industry has so much political power that they're able to keep things going for a little longer. And so that's sort of what happened in California, and you see that same thing playing out in Puerto Rico right now,

where they pass another law. And so then when it really gets to the point where you have this cost shift, then, you know, it feels abrupt, even though they probably should have been eased in three years earlier. On the battery attachment rate, I totally agree with you. And, you know, but the thing that frustrates me about California, right, is that they did an M3.0 piece, but there's no transparent way of getting paid for your battery piece. So, like, they didn't do, they did the peanut butter, but they didn't do the chocolate. So talk more about that, right? So the, I like the peanut butter chocolate analogy.

the way you get compensated, the basic way you get compensated in a NEM-3.0 type regime, which, to be clear for anybody who's not deep in the weeds of net energy metering, is basically you get paid much less for exporting to the grid than the full retail rate. You get paid closer to the wholesale rate. So the argument for a battery then, the economics for a battery, a simple version of it is basically just charge up when you're going to have excess generation, discharge that battery into the grid or into the home when prices are high, and you're doing an arbitrage.

Are you saying that's not like a sufficiently, that's not ascribing sufficient value to the battery, just doing the time arbitrage? Yeah, I think, I mean, maybe stepping back for a second. The point is, like, what are we solving for? Right. Like, I'm not solving for the solar industry to continue to be able to, like, find a value proposition for customers.

Right. What I'm solving for is that we are sitting in a moment right now where we are being told, and the data is suggesting, that it's true, that we're going from 0.4% load growth a year to 2 to 2.5% load growth per year, right? And when that happens, the question becomes, like, what tools do we have to be able to meet this load growth, right? And so one of the tools that people talk about is the fact that we have 40% rooftop solar in Australia and that we should have something more similar to that here in the United States, right?

and so that could be one source of generation. And, you know, if we can sculpt it in a way that makes sense to the grid, then, like, it offsets all sorts of distributions of them upgrade costs and all sorts of other things, right? But we're in this moment where we're having a conversation about how we compensate homeowners, right? So NEM3.0 basically says that if you self-consume the power, then you get paid all this money.

And if you export it to the grid, you get paid very little money. So you need to add a battery to, to maximize your self-usage, right? But it doesn't actually force the electric utilities in California or the CCAs, for that matter, to use the batteries to actually solve these problems. So when you think about, like, the Sun Run 30-Megawatt pilot with PG&E,

I mean, I'm as excited about the pilot as the next guy. But the question becomes, like, we don't have just 30 megawatts of batteries in California. We have probably something on the, to four or 500 megawatts of residential batteries in California, right? Not counting like commercial batteries that are behind the meter as well, right? So now, like, when does that 30 megawatts become 500 megawatts? And in what structure do they actually get systemic compensation so that I can actually

add that feature set into IQ8 with N-phase or with like, you know, lunar energy system or whatever it is that the hardware and the software is that you're funding, the question becomes, like, are you confident that, like, you're going to take NM3.0 and make sure that those batteries are getting paid these other value streams within the framework of California? It's interesting you're saying this. I think it's a good point. It reminds me, I think this is a repetition of a problem we face when we craft policy and regulation for batteries behind the meter over and over again. And in fact, even in California, you remember the S-CHIP program, which was the program. The program designed to incentivize commercial behind the meter batteries, I don't know what that was, seven or eight years ago, maybe more. And the problem with that program, ultimately, as all the reports after the program was operational for a few years came out,

were basically that the program incentivized you, the commercial customer, to reduce your peak demand. But your peak demand may or may not be coincident with system peak demand. And system peak demand is actually the thing that you really care about reducing from a system perspective, obviously. And this is the same thing, what you're saying here, that basically the way NEM works is it incentivizes you, NM3.0, incentivizes you to self-consume. So it says, you know, use all of your solar within your house, don't export it to the grid. But if you're optimizing for what the grid actually needs, and to your point, what the grid is

going to need a lot more of in the coming years because of load growth, that might be a different thing. There might be some overlap, sure. But it's actually not like pointing the, the gun at the right target necessarily. No, that's exactly right. And this is what Lon Huber and I talked about on stage at R.E. Plus last year, which was, you know, like the deal that he negotiated with both solar and SIA and Sun Run in North Carolina was exactly that. And what they wanted to do is systematically discharge your battery from six to eight in the morning because that's their peak. Right.

And so they're saying, we'll give you net metering and we'll do all this stuff. but only if we have the right to control when we dispatch your battery. But it only really makes sense if, you know, like Duke gets to discharge at 6 to 8 in the morning. If they can't get you to do that, right, well, then it's not as valuable. And even when I talked to him on stage there, he said, you know, like, well, we're going to do this pilot of 60 megawatts or something. And I was like, well, pilots.

I mean, the solar industry eats that for lunch. We can get that done in a month, right? And so, like, how far does this go? And he's like, look, if we truly have dispatchability, we probably could be fine with 20, 30 percent of our rooftops having solar on it, because now we're using that battery capacity to actually, you know, take excess solar power that gets generated during the middle of the day because of all the solar farms we have in North Carolina, right?

We're dispatching it at the right times and all these other things. And I do feel like that level of systemic conversational. is something that is lacking because, you know, folks are trying to sell 45,000 systems a month and keep people employed and, you know,

keep, you know, the lights on. And I think offer a simple customer proposition, right? That's the other tricky thing about these VPP type programs in general, I think, is it's, it just makes it inherently a little bit more difficult

to go to a homeowner and sit at a kitchen table and say, like, I'm going to put solar on your roof and a battery in your garage and it's going to save you X dollars because of, of Y and Z reasons.

And if it's because you're going to like participate in some utility program and we're going to control your battery, some of the time, but you're still going to have sufficient reserve for backup, I mean, this, I think inevitably is something that has to get solved. It's the same thing with like smart charging EVs.

Like a little bit more customer friction, but necessary. But as you said, the companies that are selling residential solar, they're trying to hit volume targets predominantly. So it's harder for them to have to have these project be parts of VPPs, and I think that's part of why it's all these kind of specific pilot programs today.

Yeah, look, I think that the game of just putting dumb solar in people's houses, you know, providing them alone, right, making money on that loan, right? And it's a securitization story, right? So you get debt from Wall Street, and then you own the equity slice, and then you try really hard to make sure that folks, you know, continue to find this valuable.

right, that game has a short shelf life, right? And you've heard both Sun Run, Sonova, but also others, announced that they are now VPP companies, right? So it's not like, you know, I'm the one putting words in their mouth. I mean, they've already suggested that publicly, I mean, even starting probably in 2021 or 2022, right? And they've got partnerships as a result. And so the question really, as you move forward, though, is, you know, to what end, right? I mean, I mean, because you watch on Twitter and there's people in Texas who are on Tesla Electric and they have negative $600 electricity bills. And the question is, should they be putting like four batteries in their garage and arbitrageing

the ERCOP market? My sense is that that's not probably the most scalable solution, although it is interesting. But I think, you know, to me, the what end piece is that, as you know, our country is experienced in extraordinary amounts of growth. and for many people, if you have an existing commercial facility, let's say, and you want to add EV charging to it because you've got heavy trucks or medium-duty trucks that you want to charge there, the utility is saying it might be three years before we interconnect you. Now, if you think about the technology that we have today,

you can put solar on the roof of that facility and put batteries in their parking lot, and you can use the grid connection you already. have more efficiently, right? So you use it at a higher capacity factor and not have to have an upgraded service from the utility, right? And so that's where we're headed is that you have this ability

to increase loads on severely underutilized distribution circuits and use the battery, the solar, all these things to actually increase the utilization of those distribution circuits substantially, while allowing for all those loads to get added and not having to spend the $50 to $100 million to upgrade that distribution circuit, right?

But the question really is whether the solar industry is in charge of those solutions, right? Like, are they actually selling those solutions? I mean, they clearly are saying that our hardware has the ability to do these things, right? Certainly Lunar Energy or N-Phase IQ-8 or others are saying that we have this software, by which we can integrate your backup natural gas generator and your thermostat and your water heater and all this other stuff. And we can do that, right?

But the question really becomes, like, is that their business? Is that what the people who work in the solar industry think that their business actually is? And then, as you're suggesting, we need a simpler sales profile, right? And there are solutions to that, too. So like Rocky Mountain Power has made it very clean.

that they view these behind-the-meter batteries as a certain value, and they're willing to pay you up front for it. And so they'll say, here's a big rebate, and now we get to do whatever we want within this service-level agreement for the next 10 years. So we can dispatch your battery four times a day if that's what it means to be able to keep our natural gas generator peaker plant offline, which is what they're doing.

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That's why more than 170, many utilities rely on Energy Hub to manage over 2.5 million devices delivering 3.4 gigawatts of flexible capacity. See what that looks like at Energyhub.com. I want to draw out one point, I think, for a minute, and then I want to talk about what it takes to go from these like discrete pilots to this being the state of distributed energy. The first point is all the things that you're describing, for the most part, can be done with batteries that don't have solar attached to this. And the premise of this conversation is, you know, the distributed solar industry, the rooftop solar industry, is in a tough spot right now. It's not a growing market at the moment. It's painful.

And, you know, I think you're saying in some ways, like, there's a, there's potentially a bright future somewhere out there for this industry if it can just figure out how to be more than solar. and instead it becomes dispatchable distributed energy that can help solve the problems of load growth and capacity constraints and so on. But do you think it is inevitably true that you need the generation component of that? You definitely need the flexibility.

Like it's clear that solar without batteries doesn't really solve that problem. Batteries without solar might, right? Yeah, so it is most certainly the case that many utility companies would love batteries without the solar and be willing to have that conversation with folks and say, here's what your battery is worth to us, and here's how we would compensate you for it.

And certainly that's really valuable, right? But I think when you think about the way in which our grid operates and the load growth that we're facing, there's a couple of pieces to this, right? So the first is to say that for many of us, because our distribution circuits have been upgraded so substantially, you're down to 20% asset utilization. right? So like so 20% of the total capacity of that circuit is being utilized, right? And that's because

it's made for everyone plugging in at whatever, five to seven p.m. and like the rest of the time, it's like not being used, right? A little bit better post-COVID maybe, but like, but still sort of that way, right? So now you add a bunch of batteries to it and you can actually get that asset utilization up on that circuit, right? But at some point, you might still need electrons to be, added to the circuit, right, beyond what the transformer allows for. And so in that case, you might need to add generation. And when you look at, particularly for commercial distribution circuits, you're talking about something on the order of 200 terawatt hours of cost-effective solar that can be put on

warehouses that are four acres or larger in size, right? And so then when you look at, you know, interconnection cues from utility scale solar and that kind of stuff, it may actually end up being net net cheaper to put solar on these four acre warehouse rooftops than to put it in the middle of a field. Or at least faster, right? Even if it's not cheaper, to your point, in interconnection cues, there's a decent case that you can build the aggregate same amount of capacity behind the meter faster just because of how long it takes to get interconnected at utility scale now, at least in some places.

Yeah, I think that's exactly right. So then the question becomes, when you have a system. where you have a Tesla power wall or Sonin system or whatever it is, and there's an inverter that's a part of that, right? And that system can be installed without solar, right? But my sense is it could become sort of solar ready, right? Then that system has its own payback rubric, right? Whatever that is. And now the question is, how much is the solar? So now that I've got a battery with an inverter, right? And it's solar ready.

How much is the solar? Right? Today, that number is, you know, whatever it is, 475 a watt or whatever it is with the inverter, right? But if the inverter is already paid for over here and, you know, now you're doing solar,

you could imagine that, like, maybe you could get a lot more competition with that upgrade, that solar upgrade, right? And maybe you can get it down to 250 a watt. Okay, so now to this question of how does this type of thing where solar plus battery, maybe plus other stuff, backup generator, whatever it might be, you know, serves as a quote-unquote virtual power plant, which, you know, as always to me,

it's like a term that means everything and nothing at the same time. But the key point being, you're welcome. You're welcome. Thank you for that. Really appreciate it. You know, where it starts acting as a true grid asset that could be valued as such, we go from pilot to this is how this stuff gets deployed at scale. What does that have to look like to you? You said that earlier that this conversation is not happening.

What would it look like for it to happen? Well, I think the first thing you have to look at is what are the alternatives, right? Because clearly this is a culture change, norm change issue. And so it is not anyone's first choice to figure out how to flex virtual power plants, everyone's first choice is to two things exactly the way we do them now,

which is to have utility scale generation assets, right? Transmission assets, distribution assets, load. That is what everybody wants. It makes everyone's life easier. It's interesting. That's what your traditional centralized utility planner or whoever wants. And then what your, as you've said, as what your rooftop solar company wants, It's just to keep throwing as many systems out there as they can, basically.

And keep the customer value proposition as simple as possible. Keep the economics as simple as possible, because, again, they're going to go get a bunch of loans based on this and securitize the loans. The whole thing is predicated on a stamp and repeat model. Yeah, for sure, right? But one of the things that we all acknowledge is that when you look at what has happened to electricity rates from 2019 to today, I mean, this has been the fastest, you know, that electricity rates have gone up in, you know, like least my career. And so when you look at that, that the old way of doing things, the business as usual way of doing things, is not working.

Right. And so we can say, well, look, I mean, on the margins, this solar power is $25 a megawatt hour, $35 a megawatt hour, or $35 a megawatt hour, and now we're adding one hour, two hours of battery storage, whatever it is that we're doing. And then on this side, we're saying, you know, we're going to use grid modernization tools and, you know, upgrade the grid and get, you know, at least 30% more capacity out of the existing grid that we've already paid for, right? Although that even is not guaranteed because a lot of folks would rather like replace old, you know, expiring conductors with, you know, the same old technology they were putting in before. And then you upgrade the distribution circuits, right? And you, you know, now have a transformer shortage, right? because everyone is prophylactically increasing, you know, transformer capacity, et cetera, right? And so at some point, you have to suggest that we need a new approach, right?

And that is only now, I think, being considered. And you saw that with New York State, you know, sort of mandating an entire docket on this recently, right? You saw the state of California and their desire to do dynamic pricing, which I can't imagine is a great idea, but I'll let them do what they want to do. Right. But then you see what Luma is doing on their virtual power plant down in Puerto Rico, and you see a lot of other great things that are being rolled out. But the challenge, I think, is that there is a lack of understanding by everybody around what it will take for this particular solution set to be dependable.

Right? I mean, the biggest challenge with the electric utilities and their regulators is they're saying, Well, you know, when it's super hot out, people don't want their thermostats to be messed with, and therefore, like, they're not as reliable as people suggest it might be, right? And so obviously, batteries are more reliable than a thermostat-based thing, you know, electric water heaters, etc. And so part of this is figuring out, okay, fine, let's just give you that point that today they haven't been as reliable as one would want them to be. But what would that framework be for reliable? right? Like because, you know, presumably you're saying that that it might cost a little bit more to make it more reliable, you know, to do that. And so when you think about that, there's software layers, right? There's a level of certainty that you need on the software side to make sure you know exactly what's happening on the distribution circuit to be able to, you know, dispatch when you need to dispatch. There's a level of integration within the grid, you know, operations, software, etc. And, you know, our estimates is that, that this would cost roughly $35 million per utility to put all the software layers in place from the venture-backed companies that have created them to be able to actually fully integrate this whole suite, right?

And that has been done in pieces and parts and in some cases in full suites for certain co-ops and folks like that, right? And so, like, you know, to me, I think that part of this is trying to unpack for people what this future might look like, how much it might cost, so that when people say, well, we're ready, we've got all these solutions, we're happy to get paid to dispatch our battery, right, that there isn't this false conversation

where the regulator is saying, wait a second, I know that you're ready, but the utility actually needs to upgrade their software. These other things need to occur for this to be a viable option, and all of those costs have to be put into the calculations before we agree that this is going to be a solution set that we're going to roll out and abandon what we've been doing, even though what we've been doing isn't really working well,

but we're not going to abandon it until we trust this new solution set. I think one of the open questions in this general space is where the fundamental control layer needs to sit and where the interface of the utility needs to sit. So as this stuff gets more complex, right? So one building, be it a home, be it a commercial property, you know, might have generation, in the form of rooftop solar, it might have more generation in the form of backup power. It's going to have a battery. It might have smart load control, thermostats, et cetera, HVAC.

It might have EV chargers that are going to be controllable and controlled. And there's this complicated ecosystem emerging of all these different players who are doing different components of that, and then offering controllable versions of it. Right? And so each of them want to go to whoever it is, the aggregator, the utility, somebody, and say, okay, I'm installing, you know, generation and a battery, and I can control it, and you should make me part of this VPP. And then somebody else comes along, says, okay, well, I did the EV chargers.

And actually, that's, like, far more load than anything else in the building put together, and I can control that. So I should also be part of this VPP. So do you have a view on just to make this successful large scale, does there need to be a single aggregation point at the building level or the distribution level? Or can we just figure out a way for all of these disparate loads and sources of generation and storage and so on to automatically play with each other? Yeah. So it's a good question. And one that I think depends on where you end up with your sort of tribal proclivities.

I think it is most certainly the case that if you want to backfeed power into the grid, then you will need a much more robust and expensive structure. Right. So if you were to say, like for those, for instance, there's a lot of people who are obsessed with vehicle to grid, right? If you want vehicle to grid, then you need a very expensive set of permissions from the utility and others before. they'll allow you to backfeed onto the grid.

Right. And so if you make a simplifying assumption, which is that no one is backfeeding anything into the grid, right, that the batteries, you know, basically use case here is to make your home go off grid, right? Sort of an energy efficiency play. So your home now has zero load because you're getting it from the battery. you're not actually backfeeding that battery into the grid, then that simplifying assumption solves so much of the answer to your question, right?

Because once this is basically like, you know, like I promise you I'm not back feeding into the grid, well, now you don't need to ask the utility for permission, right? Because the utility doesn't care. If what you're doing is varying your load from zero to something else, they don't really care all that much, right? And so that becomes a much easier framework by which to run a VPP and to like do VPP, whatever it is,

1.0 or 2.0, whatever we're at now. And for me, that's important because I don't have all the answers to the 6.0 questions, right? Like, I don't exactly know because you could imagine us going to a distributed sort of system operator, right?

Sort of a DSO. And then now you're basically saying, okay, you know, south of the transformer, we can do whatever it is, 50 megawatts, 150 megawatts south of the transformer. And as long as we stay within the 150 megawatts, we're good. But like that requires a level of regulatory approval.

Like, you know, like just sensors and, you know, software implementation, et cetera, which even the CCAs have, I mean, as far as, I can understand it, have no real appetite to do. Right? But they could do it if they wanted to, but I don't think that they're signing up to that, right? So I think that the answer to your question is, like, is made a lot easier if we're not

talking about backfeeding into the grid. Yeah, that's an interesting way to cut it. All right. Last question for you, it's a bit of a tangent, but you mentioned it, and it's on my mind, which is you talked about how electricity prices have been going up. I mean, you know, I don't think this has been talked about enough, actually. And this is true in lots of places, but California is where it's most dramatic. Retail prices for electricity are way up over the past few years.

And I think the general expectation is with all this load growth, which is not just in California. In fact, most of it is outside California. You know, the rate of electricity price increase, it's hard to imagine electricity prices declining on a real basis over the next few years, and more likely it's going to go in the other direction. How much do you worry about that in the context of electrification, whether it be of heating or vehicles or industry or whatever? I mean, are we risking slowing down electrification because electricity prices go too high too fast? Or do you think the train is left the station doesn't really matter? Well, I mean, I think certainly on an individual decision-making basis, I mean, I do think the train is left the station and people prefer the solutions that they're buying.

today, which is why they're buying them, whether it's heat pumps or electric vehicles or whatever it is. On an aggregated basis, though, I do think that we need to be very thoughtful about who's causing the rate increases to go up, right? And I think that it's important for us to start being very pointed in the way that we talk about this stuff, right? Because it is most certainly the case that all of the distribution grids that we've already paid for can handle all of the of the load growth that's occurring on residential distribution lines. I mean, that is like crazily, simply, like, solved, right? Like, you know, the amount of energy consumption coming from these homes just needs to be scheduled in the right way to be able to utilize the capacity that's already

there. And if that occurs, right, then the capacity utilization of those circuits goes up. And by definition, the cost of what we've already paid for gets amortized over more kilowatt hours sold. So on a net kilowatt hour cost basis, like the cost per kilowatt hour should come down, right? Because we're utilizing the assets that we've already paid for more efficiently. So that is clearly the case, right? Now, you know, not everyone forces them to do that, right? And so this is negligence, in my opinion, on the part of the right?

regulator and the utility for not forcing the features of those loads to be used. Every single car company has an ability to program when your car charges. If the utility is not integrating that feature, it's really on the utility. It's not like the car companies want to wreak havoc on the utility system or to raise raids. They're providing all these features in their car and sharing APIs with all these companies that are creating these things, right? There is separately an entire conversation around peak load growth, as we talked about at the very beginning of this call, right?

And it is most certainly the case that the 25,000 megawatts of data center load that's getting attached will increase peak because why not, right? And so they have some solutions. They can do on-site, you know, natural gas generators that they're putting in. they're putting in battery storage, they're doing other things on site where they can reduce their impact on the grid. They've got some flexibility that they're trying to build in. But either way, right, what would be a damn shame is if those loads were added to the grid and everyone's bill went up as a result as opposed to charging those people for the full impact

that they're having on the grid. And I think if you talk to those data center companies, they want to pay for the full impact because they're two trillion-dard companies and they don't want to like have that impact. But a lot of the electric utility companies are saying, we don't know how to charge you a different price than we charge other loads. And so we're having challenges with figuring out how not to tax everybody on the system because that's what we know how to do. Right. And so there is that particular piece there. And then for the other loads in the middle, right, whether you think about manufacturing loads and things like that that are occurring, most of those folks are interruptible.

So most of those folks, if you said to them, I'm happy to give you a 20% discount, but what I need you to do is to actually shut down production for two weeks in a year when it's 100 degrees outside and have everybody stay home. And if you're okay with that, then we'll give you a cheaper price. Yeah, I think we should do another conversation just on this topic.

I mean, I think what we're learning is there's a difference between an interruptible load, which is better than nothing, clearly. You can participate in a couple of demand response events a year type of thing, versus you're contributing to peak every day. So the system's built for system peak, and so the first order problem is solve system peak, which is only a couple times a year.

But then the second order problem emerges pretty quickly, which is like a peak that occurs a lot more often, and you still have to solve that problem. So having a bunch of interruptible load is helpful. It's better than nothing. But it doesn't solve your problem if you're adding gigawatts of new load to a grid that hasn't seen gigawatts of new load in a year since the 90s, you know? Well, but the reason I, I mean, and you're right, this is probably a different conversation,

but the reason why it matters for the virtual power plant piece to me is that these are not loads that are going to get added to the grid in the way in which people think they're going to get added, right? So when you think about how our electricity system has morphed since the 1970s, right, everyone decided to get air conditioning in the 1980s. That's why we have natural gas speaker plants. and all this other stuff, right? So as a result, the system capacity utilization

of our system has been going down every year since the 1970s, right? And so when you think about all these loads that you're saying is getting added to the grid, that does not mean that we have to add to system peak as you're, I think, continuing and suggesting, so I think you're right. And so the question then becomes, how best do we deal with that?

And my point to you is, we have, 400,000 megawatts of batteries and interconnection cues. The reason they're stuck in interconnection cues is because the ISOs think that they have to have dedicated transmission such that they can actually charge in the middle of a peak. Right? That's crazy talk. Right? And so they should all be approved next week with certain, you know, like sort of assumptions

around when they can operate and when they can't operate, right? And if you had 400,000 megawatts of batteries, right, on the grid with, let's call it, one hour, two hour, three hours worth of storage, right? That's the entire peak of our system in, you know, the spring and the fall, right? And so, like, I just think that the amount of, you know, that we can, the amount of load growth that we can handle within the actual system that we've already paid for is gargantuan. It can easily take us through probably 2034, 2035, right? Which by which time we think nuclear will be more cost effective, enhanced geothermal will be more cost effective. Some of these other 24 by 7 clean firm power sources will be more cost effective, right? And so I think we have a really definitive choice here.

And we're not describing the situation and the problem statement correctly. And so this really is, if you care about rates, you will figure out how to use what we already paid for more efficiently. And that is strictly virtual power plants all day, every day. All right, Dr. Jigger, nice to hang out with you, as always. I think we opened the door to like four other conversations. So we're just going to have to do this again soon. But in the meantime, thank you, as always, for your time.

Oh, my pleasure. It's always good to be back. Jigger Shaw is the director of the loan programs office at the Department of Energy. This show is a production of latitude media. You can head over to latitudemedia.com for links to today's topics. Latitude Media is supported by Prelude Ventures. Prelude Beck's visionary is accelerating climate innovation that will reshape the global economy for the betterment of people and planet.

Learn more about their portfolio and investment strategy at preludeventures.com. This episode was produced by Daniel Waldorf, mixing by Roy Campanella and Sean Marquan, theme song by Sean Marquand. I'm Shale Khan, and this is Catalyst.