Catalyst with Shayle Kann - The state of connected DERs [partner content]

Episode Date: September 24, 2024

The U.S. and U.K. could see 500 gigawatts of distributed resources hitting the power system in the next few years.  But after years of watching DERs grow quickly, utilities and grid operators are still figuring out how to utilize them. Are we finally reaching an inflection point? “When you move to a world where you have millions and millions of generators, that whole system falls apart. And that's where you need not only digitalization, but also automation. They're the two things that we can't do the energy transition without,” says Charlotte Johnson, global director of markets at Kraken, which has 40 GW of DERs under management. In this episode, Charlotte Johnson sits down with Stephen Lacey to talk about the state of connected distributed energy resources – and why Kraken is so focused on expanding into the U.S. market. This episode was produced in partnership with Kraken. Kraken's end-to-end platform offers full network intelligence, DER controls, asset health, and reporting for power providers around the world. To learn more about Kraken's capabilities, go to kraken.tech.

This is a branded podcast from Latitude Studios. Early in her career, Charlotte Johnson thought she might become a climate researcher. She studied ice sheets as an undergrad and postgrad, and built a model that simulated the retreat of ice in Greenland. So I was familiar with numbers and modeling. And I think when I was looking at what do I want to do next, I thought that I really wanted to start to apply some of those skills to real-world examples. So instead of ice, Charlotte focused on the thing that was causing it to melt in the first place.

heat-trapping gases. And that led her to energy. The nice thing about modeling is it's a skill that helps many industries. So you can apply it to what does EV penetration mean for the grid or what does battery storage mean when we add more renewable generation. After working for a couple years as a research analyst covering power markets, she landed at a team building a distributed energy resource management system for energy traders, retailers, and Great Britain's electricity system operator. We proved at the time that you could connect to

to these assets and you can control them and you can orchestrate them to do some really cool stuff. But there wasn't a market available. So there was a big kind of focus on how do we then actually unlock the value that we've shown that these assets can create in a market and what should that market look like? That company was Cracken, which now orchestrates tens of gigawatts of distributed resources. And today, Charlotte is the director of markets, where she focuses on spreading the value of DERs to grids around the world. It's crazy that you still have a room of people that sit there and decide how to dispatch different assets. And that might work really well when you have a small number of power stations or power generators on your grid.

But when you move to a world where you have millions and millions of generators and also millions and millions of consumers with EVs and heat pumps and smart thermostats or whatever the low carbon tech is in the home, that whole system falls apart. And that's where you need not only digitalization, but also automation. And I think they're the two things that we can't do the energy transition without. Hundreds of gigawatts have distributed resources are hitting grids. And after years of watching DERs grow quickly, utilities and grid operators are still figuring out how to utilize them. In this episode, produced in partnership with Cracken, Charlotte Johnson sits down with Stephen Lacey to talk about how to prove their value. And why Cracken is so focused on expanding into the U.S. There are lots of reasons why utilities and grid operators have a hard time.

I'm believing in the power of distributed resources or integrating them more effectively or digitalizing operations faster. What are the biggest constraints right now inside those entities that prevent them from moving faster? I think the biggest constraint is probably how risk-averse they are because they're running a system. So they can't necessarily take the risks that retailers might take or asset owners or traders might take in the market. So I think that's probably the first one. I think the second one is they're also working from a really difficult place. So in most countries, the networks have been heavily underinvested in the last few decades, which means that a lot of them don't really know the changes that they need to make

because they don't have the visibility of what's happening on their network. And I think there's a really good study that I've read somewhere that basically says about 5% of distribution networks globally are monitored, which means a lot of distribution networks have no idea what's really happening on their power lines between a transformer to the home. And that's where that digitalization piece comes in. But I think that's one of the reasons why it's quite difficult to make changes of what you want to do on the network or integrate more renewables or integrate more load when you don't necessarily have visibility of what's even happening on your network. Part of the benefit of these distributed resources, everything from EV chargers to solve.

plus battery systems to heat pumps and electric water heaters is they provide flexibility during critical moments for the grid. But you don't like to necessarily use the word flexibility. Why is that? Yeah, I don't. You don't go to the market and buy and sell flexibility. Like what we're basically talking about is energy that can be ramped up and down relatively quickly in a given window to balance supply and demand. And when you put it like that, it's not actually a new concept. We've been doing that for decades. The biggest difference is, is like, how we're doing that now. So historically, demand was quite predictable, and you would ramp up and down your coal or gas plants to essentially meet that very predictable demand, and it worked very nicely. But as you

move from dispatchable generation to intermittent generation, we need to ramp up and down demand significantly quicker and more frequently than we have before. And that's kind of increasing exponentially that need for flexibility, basically. And I think you talked about some of the gigawatt numbers that the US is looking at. The UK has a similar number that National Griders put out for, I think it's 2050, which is around 200 gigawatts of dispatchable capacity. And that sounds huge.

And when you think about the amount they have today, they've got about 50 to 60 gigawatts today, 80 to 90% of that is thermal. So when you remove that, you're basically saying you need to add 200,000, 100 gigawatts of flexible capacity that doesn't exist today by 2050. And that volume is huge. Do utilities believe that they can rely on those resources? I think that really depends on who we're talking about and in what country.

Because when you look across the world, there's so many different ways that networks or utilities or grid operators are trying to solve this problem. So in the UK, we have a really good example of national grid. bringing out a market called the demand flexibility service. So flexibility again in everyone, in everywhere you go. But the demand flexibility service basically means that in the winter, customers can be paid to turn down electricity instead of ramping up coal. And it was proven that it costs 10 times less to turn down a customer than it does to ramp up coal. So that works really nicely. And what you're doing in that scenario is you're saying to a customer, you have the option to

participate in this service. And if you do participate, you're going to get some money. And if you don't participate, that's okay. And it's just like when you go to the supermarket, you have the option to buy the food that you came in for, or you can go for the discounted food and make a totally different meal plan for the week. That works well. In other countries, what we've seen, so if you take Australia, for example, where one in three homes have rooftop solar, I think that's about 20 gigawatts of solar. So a very similar solar in store capacity to somewhere like Texas, the networks or grid operators are taking direct control of the assets. So they know that there's a significant amount of solar in certain parts of the network. And to manage that, instead of

necessarily sending a customer a price signal and asking them to respond, they're going to take control and export or curtail the export. So I think it depends. Places where there's a real issue and there's a real issue today that can't be solved, sometimes direct control of assets by networks is required. And we're seeing that in Germany. We see it in Australia. We see it in Norway, both on the demand side and the generation side. But there's also examples of where you can use an in-market solution,

like the UK has with National Grid, and customers can have that optionality. But I think you can only probably have that optionality when you're not at a critical point in your... journey or transition where a network has to basically step in and have that big red button to know that they can manage and safely manage the network. Let's turn to a very dynamic market here in the US, and that is Texas. We're seeing this surge of renewables and distributed resources pouring into the Aircott market.

And I know Cracken is very focused on Texas. Why is there so much international attention on Texas specifically? So I think it depends who you are and the assets you are. But I don't think people fully understand this sometimes, but a battery in Texas last year, and by battery, I mean a grid scale sort of front of the meter asset, made over four times more than a battery in the GB market or the UK market, which is a huge difference. And the reason I keep referring to GB when it comes to batteries is that GB outside of Kaiso or outside of California is the kind of second largest, most mature battery market. So a lot of people that have invested in. the UK market for batteries are now looking at, because the revenue stack is significantly lower and it's it's not where it used to be, they're looking at how can they make money or how can they make returns elsewhere. And Texas is the clear kind of winner when it comes to that because the market is significantly more volatile. It's more vulnerable to extreme events which drive these huge

revenue opportunities. They've got ancillary services, so frequency and reserve markets that help balance the grid that are not saturated like they are in other parts of the world. And it's also easier to get a grid connection in Texas than it is in many other parts of the world. I think it takes about one to two years. In the UK, it can take up to 15 years to get a grid connection. So if you want to deploy capital today and monetize an asset, Texas is a really good example of that. And you're dispatching both grid scale resources and distributed resources. What are those assets? And how are you dispatching them? Yeah, so we're really in the early phase of our journey in the U.S. and in Texas in particular.

but we have a healthy pipeline of opportunities and what that sort of looks like is no surprise batteries and then we've also got live residential assets like smart thermostats that we're dispatching. So Texas is a really key market for us for our flexibility platforms

so being able to control and optimize grid scale assets and residential assets and we're speaking to a lot of our existing customers actually in the rest of the world that have operations already in Texas. Beyond Texas, there's also a lot more opportunity for residential assets. And I know you're making a significant push into the U.S. here.

What about markets outside of Texas that are critical for your growth? So there's obviously a lot happening across all of the U.S., and I think we can be putting our attention to many different places. But where there's a change in regulation or policy and where there's a compelling business case, so for example, Illinois, Michigan, Maine, they have their states where they've basically got incentives for solar and storage. They're evaluating how we can reduce the barriers to accessing wholesale market

so that DERs can participate in wholesale market services. And that's really important for us at Cracken because we believe a lot of value for a customer can be found in markets like wholesale power. So that then creates a good environment for flexibility and for a customer offering. So places like that are where we're putting attention. really thinking seriously about because it's a favorable regulatory landscape or environment. How does the consumer fit into this? I mean, the consumer really needs to be at the center because if the consumer isn't engaged

and doesn't want to be involved, you can't just play around with someone's smart thermostat or charge their EV. So for us, it's really about how do you offer something where the consumer is at the center? And what do you need to make that happen? The key kind of ingredient is really trust. The consumer needs to trust their utility. What does the customer really want? Usually it's cheap range if it's an EV. So they want to know that they can drive the distance that they can drive in and they can charge their car cheaply. If it's a smart thermostat, they want to know that their temperature is going to be at the right, their home is going to be at the right temperature. So they've got the right comfort levels. And then the final thing is they want this ability to always

be in control. So just because we're controlling those assets and optimizing them and creating value for the customer, the customer always wants to know that if they need to, there is an override solution. There's an option where they can take back control if they want to. And then the bit that pulls it all together is the super simple customer offering that makes it easy for the customer to sign up, to set all of these preferences so they can decide what they want and when they want it. And all of that needs to take a few minutes. So at the moment, we've got just over 200,000 customers that are signed up to our Smart Flex program across different countries around the world that essentially allows us to control these assets within

the bounds of these preferences that the customer has set. And that's about 1.2 to 1.3 gigawatts of load that we can shift. Are you using the term virtual power plant when you're talking about dispatching these assets? Obviously, there's a lot of ways to describe this. And the term virtual power plant has taken hold, particularly in the US, as a way to describe a lot of ways to manage and dispatch these distributed resources. Is that a term you use? And are you hearing utilities use it? It's another thing like flexibility. I think it means something different to different people.

So, yes, we use the term. But for us, to be clear on our capabilities, is we connect to an asset and we control an asset. And then we can optimize that asset against different signals to create value. and that optimization piece is really what people often call a virtual power plan. I think it would be a lot easier if as an industry we talked about the capability or what you're trying to do, because often with a virtual power plan, it is to create value through of these DER resources from potentially the wholesale market or grid services.

That's basically what it is when we think about it. So in the UK and the US alone, we're talking about, a half a terawatt of capacity, distributed resource capacity, getting installed very quickly here in the next couple of years. That's an enormous amount of capacity. Meanwhile, you have aging infrastructure, increasing extreme weather that's stressing the grid. You've got a lot more net zero goals, this race to decarbonize quickly, changing consumer behavior. The cost of those distributed resources is coming down. So as we see this influx of distributed resources, a huge amount of capacity, what are the infrastructure and market constraints that you think

utilities are commonly having to deal with? I think the commonality across the world is probably, there's probably two things that we really think about. And one is decarbonization at pace. So how do you actually get all of these DERs connected? to the network, whether you're a utility or a grid operator or a trader or retailer, whoever you are, how do we connect stuff to the network as quickly as possible? And that's the problem that I think everyone is grappling with because of planning and grid connection times. The other bit is the market. Once you've connected all of this stuff, how do you actually make it work in the market or how does the market work efficiently for these assets? So many places have this same challenge.

if you look at the UK, all of the renewable generation or the majority of renewable generation for wind is in Scotland and the demand is in England in the south. So how do you get power from where it's being generated to where it's needed? The same in Germany. Wind is in the north, demand is in the south. In Italy, solar's in the south, demand is in the north. We've got all of this generation and we're continuing to build generation at pace in the wrong place. And that's where the market construct becomes really, really important. Because how do you then start to get the renewable assets and not just renewable assets? It's also the demand assets from low carbon technologies that we've talked about to all locate and generate or consume at the right time

of the day in the right location. And that's really where we think about the market design and locational pricing. So a lot of countries around the world have the same price nationally, no matter where you are, which means people are incentivized then to locate in the place where they can get land or they can get a grid connection, which isn't necessarily the place where you want them to generate electricity because it's not near demand or it's not near consumers. So over the last decade and a half, there have been a number of companies that have developed different flavors of distributed resource management systems. And I wonder, how is Cracken different? What makes Cracken different from other companies developing platforms in this space?

I think that digitalization piece of the end-to-end value chain and the fact that we work with people that own generation assets. And for them, we do control, optimization, reporting, asset management, everything that you would need if you have a generation asset. So then the people that own the networks and manage the networks, we offer services to them around power quality and food. fault detection. And then to energy suppliers and retailers or utilities, at the end of that chain, we offer the ability for the CRM management, the billing, the meter data management, and also the control and optimization of all of those devices in the home. So for me, it's the fact that Krakken touches all parts of the energy ecosystem and all parts of the value chain where we are digitalizing it and automating it. If we look at

the transition through 2050, so looking way out. What do you think the role of this distributed, dare I say, flexible capacity as part of this net zero emissions pathway in the power sector? What does it look like? How important is it? It's key. And I think what is also quite good about that is that that is becoming recognized by so many different parties around the world, whether it's the grid operators that are planning to governments, to regulate, most white papers or most scenarios or pathways that get countries to net zero by whatever their kind of target year is, all of them include some form of flexibility. And that flexibility usually comes from the electrification of heat and transport and battery storage and other kinds

of dispatchable capacity that's been proven. Charlotte Johnson, Global Director of Markets at Cracken, thank you so much. Thank you. This episode was produced in partnership. with Cracken. Cracken has 32 gigawatts of dispatchable assets under management. Cracken's end-to-end platform offers full network intelligence, DER controls, asset health, and reporting for power providers around the world. To learn more about Cracken's capabilities, go to crackin.tack, or follow the link in the show notes.