Energy Capital Podcast Creating a Distributed Battery Network with Zach Dell
For this episode, I had the pleasure of interviewing Zach Dell, who recently launched Base Power Company, the first and only retail electric provider in Texas to offer customers a home battery, monthly energy service, and installation all in one package.
This episode demonstrates one of the things I most love about Texas’ competitive energy market. It has its flaws for sure, but we are seeing a lot of innovative offerings. And in that category, Base Power stands out.
The goal of Base Power is to essentially operate as a Virtual Power Plant (VPP). When the grid is up and running, the batteries installed in participating homes will improve grid stability and lower costs. And when the grid goes down, these batteries will provide customers with backup power, avoiding outages or, in the case of a major outage like Winter Storm Uri, shortening their magnitude and duration.
Just yesterday, ERCOT proposed generation hubs in far flung parts of the state. We should have storage hubs throughout population centers of the state. And the private market, with the right policy and regulatory framework, can drive the investment instead of government. People often forget that with the prominent exception of Winter Storm Uri, the vast majority of outages, over 90%, happened at the distribution level.
When increasingly dangerous storms, hurricanes, wildfires hit the distribution grid, no amount of large central station generation will keep the power on; that will take distributed resources located at homes and buildings. Increasingly, homes and buildings will become part of the grid and part of our resource mix.
During the interview, Zach and I discussed Base Power and its business model, what Base is offering consumers and how their home battery program works. We spoke about the challenges of entering a highly competitive market and how BASE is unique in its goal to build a distributed network of residential batteries. We also talked about the potential benefits of AI to deploy the batteries, BASE's software for managing the batteries, how current incentives and system costs impact companies working to develop distributed energy resources, the possibilities for reforming or a cut to be more conducive to dispatchable distributed batteries, and much more.
If you like the episode, please don’t forget to recommend, like, and share on Substack, Apple Podcasts, Spotify, or wherever you listen.
I look forward to hearing your thoughts. Thank you for listening and for being a subscriber! Transcript, show notes, and timestamps are below.
Timestamps
2:47 - About Base and its battery program
6:26 - Why launch a retail electric provider (REP) business in the ERCOT market?
8:56 - Initial areas Base serves and status of their rollout
11:26 - The batteries Base uses and their capacity
13:19 - How does Base Power’s battery offering compare to other options for home reliability and backup power
17:56 - Engaging customers in a competitive market, potential for working with small municipal utilities and co-ops
23:42 - Building a distributed network with residential batteries, working in ancillary markets, and reaching low-income households
27:59 - Blackouts and batteries
31:34 - Challenges encountered in launching Base
33:38 - AI’s potential benefits to the grid
35:47 - Zach vision for the grid in 5 to 10 years
38:28 - How regulatory structures and market incentives impact DER companies
42:25 - Possible regulatory and pricing changes that would benefit DER owners
46:06 - Impact of the IRA
46:44 - Energy addition rather than transition; rethinking categorizing batteries as supply
Show Notes
Electric Panel Upgrade Tax Credit
Electric Co-Ops and Local Power with John Padalino
Doug Lewin
Zach Dell, welcome to the Energy Capital Podcast.
Zach Dell
Thanks Doug, I'm excited to be on.
Doug Lewin
So excited for this conversation, really excited to learn more about the company. This episode is a little different than most I've done because you're CEO of a startup, a true startup, a few months in, and I'm really intrigued by the company and by your vision. Can you explain for our audience a little bit what Base Power is and how you think it's going to drive change both to the power grid and the power industry and to consumers' experience?
Zach Dell
Well, I'm excited to join you on the podcast, Doug. Thanks for having me. Base is an electricity provider and battery developer in Texas. We started the company to get more storage on the grid faster. When Texans switched to Base, we install a free battery to protect their home from power outages. We own and operate that battery and use it to support the grid when it's up. And when the grid goes down, you get to use the battery to power your home.
So really we're bringing home storage to those who can't afford or don't want to pay $20,000 plus for a traditional battery and generator setup. So we charge a $2,000 install fee roughly 10 to 20 times less than a traditional equivalent power home battery or generator.
Really from the perspective of the grid as a system, we started Base to be the scalable storage solution for consumers and the grid. So I think we can all agree or many of us at least agree that the grid needs more batteries. And current instantiations of battery storage are a very good start, but really are limited by interconnect queues as been widely documented, and you've talked about in the podcast, and transmission constraints. So our strategy really is installing batteries where grid interconnection exists to avoid those long interconnection queues co-located with the power load to avoid issues with transmission and reliability. So we're able to get storage on the grid in a matter of weeks versus years for the traditional storage developers.
Doug Lewin
Amazing. And of course, it's distributed storage, which I think has a particular value, right? Because that's, not that the large storage, you know, wherever it's located, it all has value. But having that closer to where the demand is, where the demand is closer to the customer has extra value, correct?
Zach Dell
Yeah, exactly. So storage lowers the cost of transmission by increasing load factor on the distribution grid. So the closer storage is to load, the higher the load factor of the lines between generation and load. So the lower the load factor, the higher the cost of the system. So distributed batteries, we think, are really the unlock to the energy transition.
Doug Lewin
Yeah, totally. And I think, you know, I always like to back up and kind of explain these terms, because I always want this podcast to be accessible to folks that aren't doing this kind of stuff every day. But there's so many people interested in the power grid these days. And we talk about load factor, really, we're talking about there's the vast majority of the hours out of the year, there's abundant, cheap power, we have a lot of extra power. And so storage, you can think of it as yes, it's providing power, when there's scarcity, it's actually also soaking it up when there's a lot of it. So it actually improves the economics of solar, wind, nuclear. I mean, anything that is, I mean, really it improves the economics of all forms of power, right? But particularly those that are variable in their output, like wind and solar.
Zach Dell
Yeah, that's right. Batteries are particularly complementary to high cap-ex, low op-ex forms of power generation. So, marginal, low marginal cost forms of power like wind, like solar, like nuclear as well.
Doug Lewin
So back to Base Power you have set up the company as a retail electric provider. Can you tell me why and explain to our audience why you decided there's a lot of different ways you could go to market, as a storage owner, operator, developer, marketer, all kinds of different things. But you chose the route of a retail electric provider. Can you talk about why?
Zach Dell
Yeah, there's really two reasons. And I'd say to zoom out, we are a retailer. We are a retail electric provider, but we're really a retailer and a battery developer combined. And the retail part of the business is how we bid our behind the meter assets into the wholesale markets. And so at the core of this is the technology, the hardware, and the software to deploy distributed batteries and to aggregate them and bid them into the markets to support the power grid in times of need. And the retailer is how we do that behind the meter. The behind the meter aspect obviously is what allows us to deploy batteries on the order of weeks as opposed to years when it comes to the interconnect process. So that's reason number one.
And then reason number two is really to build a relationship with the customer. If you live in Texas the last couple of years, unfortunately your power has become less affordable and less reliable. And we need to reverse that trend. And so that is really what we are focused on doing for our customers is making sure their lights stay on and their bills stay low.
Doug Lewin
So, I have a question about that. So on the website, in your Q&A, you talk about how, when folks do sign up, and it'd probably be good for you to give a little kind of status update about where you're at with your rollout and what areas of the state are available now and encourage folks in other parts of the state with retail competition to continue to kind of check if they're interested in this offering.
But you say on there for the customers that can sign up right now, they're on a waitlist when it's time to come off the waitlist that's when they'll find out what their KWH is, their charge per kilowatt hour. They're energy charged. I can imagine some customers might be kind of nervous about that. Are you guys though, I assume there's a target. You said the grid has been less reliable and less affordable. You're trying to bring some of these power prices down. We've seen power prices pretty consistently for retail shoppers in the 14 cent kind of range over the last year, even post really high gas prices in 2022 and power prices were higher, stayed pretty stubbornly up there. And there's a lot of reasons for that. We could get into that if you want to, but can you talk about, I mean, what are you trying to get, what are you able to get to customers at this point, as far as that energy charge?
Zach Dell
So we launched our beta last month with customers in Oncor territory right outside of Austin. So Austin is where the company is based, where we're installing systems with customers today in Ground Rock, Pflugerville, Georgetown, Hutto, really the Oncor territory closest to us. We will very soon be opening up the product to Houston and Dallas and the greater area. So Fort Worth as well, kind of the area, really the broader Texas triangle.
We're increasing our install rate as fast as we can and looking to work our way through the waitlist. And so if you do live in the competitive areas of Texas, you can go ahead and sign up today on the website, basepowercompany.com to reserve your spot on the waitlist. While we can't, pricing is really more of a function of market dynamics than it is individual reps and what they're doing on a day-to-day basis. As you well know, retailers are for the most part, outside of the Jim Taylor's, they're buying power in the wholesale markets and selling it to retail customers. So, your cost to serve really determines what you're able to charge the customers. Of course, different retailers bake in different margins to those pricing assumptions.
So, our ability to price customers is partially what's happening in the market and then it's partially our ability to accurately predict how much power they're going to use when they're you're going to use that power. And that comes down to data science, algorithm software, which we're trying to get really good at so that we can provide customers with really accurate pricing, which really means more affordable pricing.
Doug Lewin
Makes sense. You mentioned gen-tailers earlier. I just want to explain that for listeners that might not know. That's the companies that are integrated generation and retail. The biggest examples would be Vistra and NRG, but most companies now, Calpine, etc., have retail electric arms. And because they have generation and retail, they're able to do some different things with pricing that's different as an independent.
You guys are kind of, you're not a gen-tailer, but you're kind of a little bit because you don't have generation, but you have storage. Would you consider yourself a gen-tailer or not really? Or just a different definition? It's an evolving market. It's one of the things I love about markets, right?
Zach Dell
Totally. Yeah, I would think about us as a retailer and a battery developer. So we're a distributed battery farm that is enabled by our retail business. We big plans for the future and we'll roll out different products, different markets. And so the designation of what we look like might change over time. But for now, that's how I think about it.
Doug Lewin
Absolutely. That makes a lot of sense. If I may, I wanna ask you about hardware. Can you talk a little bit about the batteries you guys are using?
Zach Dell
Sure, so we, you know, when you look at the home batteries on the market today, what you find is that basically all of them are designed to back up solar panels. You really can't find a home battery installation that doesn't have solar attached to it. There are some out there, but they're rare. And so if you look at the systems, at the hardware, at the batteries and the inverters, they're sized specifically for the array that goes on the house, they're wall mounted, they're, you know, not really built for energy trading, supporting the power grid, discharging rapidly to the grid. They are, to some extent, built for ease of install, but it matters less if you can do a battery installation when paired with solar in three hours versus six hours, because a solar install, as most people know, takes a lot more than six hours, and so it's not really the long pull.
And so a lot of the engineering work that we're doing as we develop iterations of our battery hardware is to make the system more performant for the use case. So designed to support the power grid as best as possible in times of need, both, you know, at first in the energy markets, and then eventually in the ancillary services markets. And then also to be installed easily, efficiently.
And so it's really a product that is designed for behind-the-meter energy trading. It's not necessarily designed to back up home solar, although you absolutely can connect solar to our product. Now we're not taking on homes with solar literally today. It's probably the next product that we'll launch. And so if you're a homeowner in the competitive part of Texas, you can look out for that release. But yeah, in short, our system is a home battery setup that's designed for behind the meter energy trading.
Doug Lewin
Can you also talk about how would this compare if I'm a customer and I'm thinking about different options for increasing the reliability of my home another thing that I might consider would be a gas generator. Can you talk about the difference between this system and a gas generator? I assume there's some things about it that are going to be better and some things that aren't as good, but yeah, can you do a compare and contrast?
Zach Dell
Sure, so the striking difference is going to be the cost. At equivalent power, so our Gen 1 hardware is a 20 kilowatt hour system with around 11 kilowatts of discharge capacity. Our Gen 2 hardware is a little bit larger, 30 kilowatt hours of storage and about double the discharge capacity. So for a generator system at comparable power output, you're going to spend 10 to 20 times as much as our $2,000 install fee. So the cost is really the biggest one. And then with generators, more regular maintenance on them. You've obviously got a good amount of noise. You've got some smell. So it's just a different technology. I think, you know, what's interesting is one of our first installations, the customer kind of said to us, they said, oh, this is like an electric generator. And we were like, I guess so. We hadn't really thought about it like that. But batteries really are electric generators in a lot of ways. Now they're different. You can't fuel them up with fuel. You have to charge them, right? And so it's a different mechanism, but they are quite similar.
Doug Lewin
So you said the Gen 2 is 30 kilowatt hours, and to put that in perspective for listeners that may not be as fluent in that, that's about what an average house will use over the course of a day, give or take, right? Or not quite?
Zach Dell
It's hard to say. Yeah, that’s about right
Doug Lewin
Yeah. I mean, obviously it depends on the conditions, right? If it's 105 degrees, you're probably gonna use more than 30 kWh. If it's 70 degrees, you may use less, but on an average basis, that's probably about right. And you said a 22 kilowatt discharge. I mean, that's a lot, right? I mean, 22 kWh, an average home, 22, excuse me, KW, kilowatts. So that's the sort of the max output at a given point of time, right? And so a home, go ahead, I'm sorry, is it not?
Zach Dell
Yeah. So it's actually a little bit larger than that. And the way that we got to these system specs, we didn't just make them up, is that we looked at the distribution system and said, okay, well, what kind of system could we design for the grid? Right. Well, most homes have either 100 amp or 200 amp panel connection to the grid. So 100 amps at 48 volts can take 24 kilowatts of discharge capacity. If you have a 200 amp panel, you can take 48 kilowatts of discharge capacity. So our single stack product is really built around that 24 kilowatt discharge assumption. And then you back into the 30 kilowatt hours of storage based on 80% depth of discharge, which is really to protect the health of the cells, the LFP cells in our battery. And so if you have a 200 amp panel, we'll actually install two of these systems, and so you'll get double the capacity. And if you have 100 amps, you'll get one.
Doug Lewin
Now, does that double the price they have to pay four thousand if they've got a 200 amp or is it still two?
Zach Dell
It doesn't, no it's a flat install fee $2,000 for everybody.
Doug Lewin
Okay. And I believe there's a pretty significant tax credit to upgrade breakers, right, so that you can get to, like your electrical panels, so you can actually get to that 200 amp. We can run that down and put it in the show notes too. Cause I think that's important if that allows people to get twice as much, that's great. So again, to put that in context, 22, 24, whatever it is, KW, you know, and a home, even on a hot day is probably using somewhere in a five, six, seven KW kind of a range. So if you're discharging, this has benefits, not only for the person inside of that home, but potentially for the broader grid and, and just for neighbors within that neighborhood.
Zach Dell
That's right. Yeah, we really want to expand our capacity for power consumption. And we think the way to do that is to outfit the grid with additional capacity that's software enabled on the edge that allows us to bring on flexible demand and make the system more reliable.
Doug Lewin
Makes sense. So let's talk a little, I've got, there's so many questions I wanna ask about software and we're gonna come back to that. Cause I think how it's deployed when the batteries are charged, when they're discharged is obviously a massive issue. So I know we're leaving that hanging there, but we're gonna come back to it.
But I just kinda wanna stay on the customer side for a little bit. Cause I do think as I'm sure is not lost on you and probably isn't lost any listeners, you're in a very competitive retail market. This is going to sink or swim based on how good this is to customers. What is the and maybe this varies by customers so maybe you can't really answer this. But is there a standard contract commitment? Because this is one thing I hear from other retailers is like there's a bit of a barrier within the market for longer term contracts. But what you're doing is giving somebody this reliability and peace of mind that if there's an outage, they're going to be able to stay up. So maybe that desire overcomes what has been kind of a barrier in the market to get beyond like a two year contract.
Zach Dell
Yeah, you know, as you know, bringing products to market is a, or at its best is an iterative process. And so we're in the early days of putting things out there, getting feedback from our customers, iterating on the product. And I think over time, you'll see us experiment with different kinds of products based on customer feedback. So we're, you know, about a month in a little less than a month into a live product taking enrollments installing batteries kind of really pedal to the metal here. And I think you'll see us probably iterate on our product strategy over time as we hear back from customers.
Doug Lewin
And what about co-ops and munis? I mean, you're a retail electric provider, so you can't as a REP, but you're also a battery developer. Do you see any potential in co-op and muni markets?
Zach Dell
We do. We're really focused on building the technology, the hardware, the software, the operational expertise to deploy distributed storage, software enabled distributed storage onto the grid to solve these hard problems that we have to solve for the Texas power grid. And that goes for the competitive markets that also goes for the NOIE [non-opt-in entities, or co-op and municipal utilities] markets as well. And so we have started conversations with some of those parties to work together to deploy our technology in their areas we're excited to have those conversations and collaborate with some of those groups and so we’re very much open to business on that front.
Doug Lewin
Yeah. And I think we had a podcast earlier with John Padalino of Bandera Co-Op and they're doing something similar to what you're doing, but within their service territory, I think there's going to be, you know, while co-ops and munis are monopolies within their service territories, they are not immune to competitive pressures. Customers can do things on their own. They exist in a broader market. And I think as, you know, people in Houston and Dallas start talking to their, you know, friends in co-op areas or in Austin or San Antonio where there's municipal utilities, customers are gonna want this, customers are gonna demand this.
Zach Dell
Yeah, and John is the total pioneer in this space and I'm a big fan of the work that he's doing over at Bandera. I think it comes down to the fact that this is a cost saving exercise, right? We think that distributed storage lowers system costs. And so if you're a NOIE, a muni, a co-op, you're looking to lower your system costs and you can pass those savings onto your rate base, you're going to look to the latest and greatest technology to make that happen. And that's what we are looking to develop.
Doug Lewin
Yeah, and interestingly, and this gets a little nerdy, but I think we've got a generally pretty nerdy audience. And we talked about this on a few podcasts, there actually is even a greater value to the munis and co-ops for batteries because they are exposed to that four coincident peak pricing, which again, I've explained it before, but just for folks that may not know, it sounds very complicated, but it actually isn't their transmission charge, if you're a municipal utility, for the entire year is based on how much is used within their service territory during four 15 minute increments, June, July, August, September. So if they've got quote unquote behind the meter battery storage at their customers homes, if they're able to deploy it or if they're able to work with you and your software is deploying that and they can move that peak down, they actually, that is a very direct one-to-one where you can see not only that customer saving money, but everybody in that service territory. And I talked about that with John, but that 4CP effect for co-ops and munis, that's a, that's a huge one that doesn't apply in the competitive areas.
I wanna also just ask you, and you've said you're gonna iterate, you're gonna figure things out as you go. So you may not have answers to this, but I just think it's interesting to think about. I would imagine there's a pretty large market here also for small commercial customers. I'm sure you got your hands full just dealing with a wait list on residential, but is that on the roadmap? I just gotta imagine there's a lot of restaurant owners and all kinds of businesses that like, even a blip on the power grid can really disrupt their business. So I got to imagine this is going to be pretty attractive to a lot of small business owners.
Zach Dell
It's absolutely on the roadmap. It's something we've spent some time on already. Yeah we're looking forward to rolling out some pilots. I think specifically, as you mentioned, the quick serve restaurant industry is kind of primed for a solution like this, given the inventory loss of a backup or an outage situation. So I think there's a lot of value in that. And then also just generally cost savings that batteries can drive for those customers are obviously very meaningful when you're running a business. So we are looking at that space. It's early days, but it's certainly interesting.
Doug Lewin
Yeah, super exciting. All the potential out there for us.
All right, so let's do come back to the software because this is obviously incredibly important. And it really kind of touches on the business model. You're a retail electric provider and battery developers as you said. You have access to these batteries. So the customer gets the battery when the grid's down, if the grid's up, you're controlling the battery, right? So then you have to have software that is monitoring connected to receiving signals from the grid as to when to charge and discharge, right? So a lot of times that's called arbitrage but it's like buy when prices are low, sell when they're high. Can you talk a little bit about how you guys are managing that and what that software is doing sort of behind the curtain?
Zach Dell
Yeah, absolutely. So we are building a distributed network is kind of the way to think about it, to connect all of these assets and bid them into the wholesale markets. So we have compute modules in all of our systems that communicate with our cloud and that cloud communicates with the individual nodes on the network to determine when to charge, when to discharge, and since data telemetry back to our cloud, our network, a kind of management system to monitor the health of the system and make sure things are running smoothly.
Doug Lewin
And so you mentioned earlier that you can arbitrage using energy spot market prices, but eventually these ancillary services markets can be opened up as well. And again, it's been discussed on this podcast a lot in the past. There is this aggregated distributed energy resource task force, the Public Utility Commission, ERCOT, and a lot of stakeholders have worked together to actually open up some of those ancillary service markets to distributed energy resources, which would include these distributed batteries. Is that something you're trying to take advantage of, or again, is that kind of on the roadmap for the future?
Zach Dell
It's definitely on the roadmap. We're obviously just getting the plane off the ground here. And so we're focused on what's right in front of us, which is bidding into the wholesale markets. But we are absolutely looking at participating in the ancillary markets. And I think the ADER Task Force and work being done led by Jason Ryan is a fantastic step in the right direction. And we look forward to being a part of that in the future.
Doug Lewin
I think it's really important for this discussion because really, as this sort of moves forward and as hopefully more and more customers come into this, in order for this kind of offering to get to as wide a group as possible, and what I mean by that is frankly getting into areas of the economy where there's obviously a huge part of the population that doesn't have $2,000, even though that's way cheaper than a generator and way cheaper than just buying a Powerwall or whatever product you can just sort of get, still that's going to be a barrier. But if you can start to stack all of these values and get paid for them, yes, there's the energy market, but ancillary markets are expensive and having more competition and there's good for all customers helps lower the cost.
There's also value in, there's a value that is brought to the distribution grid as well. Right? Because what we're doing here, what you're doing here, what anybody who is trying to bring batteries into the market is doing, is you are lowering those peaks that are really putting a strain on transformers and substations and all of that distribution grid.Is that something that, that you guys are hoping will materialize in the long term as well?
I want you to answer that question. I also want to get your thoughts on low income customers and how do we, am I right that it's going to take adding all these different value streams or are there other ways we can make sure that these batteries are available to all even folks who don't have $2,000 to put out?
Zach Dell
Yeah, I mean, we are focused on bringing affordable, reliable power to all Texans. And so over time, you'll probably see us work on new products that open the market or open the offering to folks in a lower part of the market. That's kind of all I can say on that front today, but it's definitely something we're thinking about and focused on. And I've been lucky to come up the learning curve and spend time with the folks at TEPRI and other organizations that are focusing on these problems. And so we're excited to see what happens there.
To your point on lowering system costs on the distribution grid, absolutely strongly agree and we think that batteries really just provide fundamental value to the grid. As we discussed, they increase the load factor on distribution lines, they stabilize the grid, they help with congestion, voltage control, they're very good for load shed. So these assets are actually an incredible tool in the tool belt of the TDUs and the PUC for what it's worth and so we hope that we can be a part of that solution.
Doug Lewin
Can you talk more about what you just said there that they're very good for load shed? I actually, I mean, it's obvious, but I hadn't actually thought of that before, but because it's going to take some interface and interaction with the TDUs, which I guess you have, because you have to interconnect, right? So there's a process with them. So they know there's a battery there. Is there any indication they're actually building that into, I think, we're recording end of April. I think it's like September 1, they've got a due to the PUC as to how they're going to segment the distribution grid to roll outages. Obviously, that was a major problem during Winter Storm Uri, but could be a problem during other incidents as well. So yeah, is that already happening or is that more like a future looking thing where these batteries could help with load shed?
Zach Dell
So I'm certainly not the foremost expert on what the TDUs are doing. There are many of the folks who've been on the podcast before me are much more knowledgeable on that topic. But what I do know is that batteries are a very valuable tool that can take load off the grid, right? You have this battery in the home that can offset the load of the home. And so instead of pulling from the grid at times of peak demand, you can pull from the battery and it's a very efficient tool for that use case. So our hope is that over time, the fundamental value of batteries on the power grid is able to be realized. And I think to your point that will bring more access to this technology to more people.
Doug Lewin
Yeah, and look, I mean, if there is a particular area, I hope there are transmission distribution utilities listening to this, if there's a particular area of the grid that is overloaded, look, it's really hard to even get new transformers right now. There's like a two, three, four year backlog on transformers. If there's a place that's starting to get overloaded, you can actually put some additional incentive, help customers reduce that $2,000 upfront.
As a matter of fact, the TDUs do have, I don't know if you're familiar with this, but we can put some links to where the different utilities offer this, but they have through their utility efficiency programs, REP offerings, they tend to be things like, Retail Electric Provider offerings, tend to be things like thermostats and things like that, but there's no reason they couldn't be batteries. Then you get to a point where you could actually reduce the cost of replacing infrastructure. And if you get to, God forbid, but you get to the point where there has to be an outage and there's load shed, you know this neighborhood, there's batteries all over it. That can be the first one you push because you know people there are still going to be safe because they've got batteries at their home, right?
Zach Dell
Absolutely, yeah, you're exactly right. I mean, as you know, we are laser focused on developing the hardware and software to address these challenges. And we know that we're going to have to cooperate with the TDUs and the existing players in the space to bring these solutions to Texans and we're excited to partner with them. So we're very much open for business on that front.
Doug Lewin
Can you talk about, you've been out there for a little while now, it's still very new, but what in these initial days and weeks and months, like what are you starting to hear? Are there barriers that are out there that you wouldn't have anticipated? I mean, things like interconnection or permitting or I don't know, other things that might have come up that just are non-obvious.
Zach Dell
Well, we're early, so ask me in six and twelve months, and I'll probably have some war stories for you. But I think we're not naive enough to think that this was gonna be without its challenges. This is a complex coordination business, right? We have to be good at hardware, software, deployment, installation, permitting, financing, all of these things kind of at the same time. And so there are absolutely acute challenges in all of those areas, but they’re not insurmountable, and frankly they're the kind of challenges that get a team like ours really excited. I think, you know, this is where the fun happens. It's going up and trying to solve these hard problems and making real progress.
Doug Lewin
Are there, you've talked about how what you're trying to do is create this network. In a lot of different places of the economy, you don't hear this maybe quite as much in the energy space. Though I think it applies, you hear of like network effects, right? That like, as, I don't know, does this apply here, as you get more and more battery storage onto the distribution grid? Is it not one plus one is two, but one plus one is three? Do you start to see that kind of thing happening, or does that really apply here?
Zach Dell
Well, at the system level, there is value in more battery storage that allows you to bring on more intermittent supply. So we can build more wind, more solar if we have batteries to firm up the capacity that is available in times where maybe the grid doesn't totally need it and we have lots of production. And so at a system level, there's absolutely value in scale.
Doug Lewin
Yeah, that makes sense. Can you also talk a little bit, so I should have asked this question when we were talking about software, but we'll come back to software for a minute. Obviously everybody in the energy world and everybody they know, like to two degrees of separation, everybody's talking about AI these days, right? This is the topic du jour, and I don't think it's probably going to go away either. Obviously maybe the intensity and volume of the conversations will change, but this is going to be with us for a while.
Usually when folks talk about AI, they're talking about, this is a great big load that the grid is going to have to serve. And oh my goodness, how are we going to deal with that? It was a big presentation at ERCOT Board meeting, just a few days before we recorded about this. But I think not talked about as much as how AI actually might help relieve some of the strain on the grid as well. That this intelligence can be applied to, as one example, when to charge batteries and discharge batteries. Can you talk a little bit about AI and how it might impact that, it might impact grid reliability?
Zach Dell
This is an optimization problem at its core. Price prediction is an optimization problem and AI is very good at optimization problems. I think we're already seeing companies implement large language models and AI inference in their production deployments of whatever their software might be. And I think you'll just see more of that over the next couple of years as these models get better, more efficient. And so absolutely, we will definitely see AI assist us in this optimization problem.
Doug Lewin
Why not offer solar too? I mean, I gotta think just like customers are really attracted to batteries, there's a huge attraction for solar. Why not include that in your initial?
Zach Della
There's a very mature market for home solar installations. There's not a mature market for affordable backup power. So that's really why we're focused there initially.
Doug Lewin
Yeah, that makes sense. That makes sense. All right. I wanna pivot a little bit and ask some bigger picture questions. You're obviously, you've got a vision of the future. Can you look ahead, go ahead and get out your crystal ball or whatever. Let's think like, in that kind of five to ten year, we're not talking next year or two years, not talking generations out in the future, but five to ten years. What does the grid look like and how is it different for customers?
Zach Dell
Yeah, well, I think my crystal ball is probably a little cloudier than many of the folks you've had on the pod, but I'll do my best. Yeah, I think my take is not that novel, unfortunately, which is that, you know, everyone agrees that load is going up, right? Today, if you go to a dinner party and you ask people what they think penetration of EVs are for new cars in the US, they'll guess 20%, 25%, 30% because we all see Teslas and Rivians on the road all the time. The truth is it's closer to 5%. In Europe, it's closer to 17%. In China, it's closer to 25%. These are obviously leading indicators. So when that number goes from 5 in the US to 50, and everyone wants to charge their car at home when they get back from work at the same time, the grid is going to be under immense stress. Right?
And then, you know, you also are seeing the increase in penetration of electric heat pumps. You're seeing the electrification of industry, obviously seeing tons of demand for AI data centers to power advances in AI. So you know, there are a lot of factors that are contributing to increased amounts of demand. People know it's coming. We're doing what we can to prepare the system for it, but at the end of the day, it's going to require new technology to absorb this coming demand.
I think for consumers, our hope is that it's a future where power is more reliable and more affordable. Unfortunately, consumers in Texas have seen increased prices and decreased reliability over the last few years. So we need to reverse this trend. It's going to be hard. It's going to require a lot of work and innovation and cooperation, as we discussed earlier, from all of the players in the space.
But you know Texas really should be the low cost energy capital of the world. It's in the middle of the sunbelt, it's in the middle of the wind corridor. We've got ports, we've got land, we've got infrastructure, we've got a free market. It really is, the stars have aligned here in Texas to build the energy capital of the world. And so we're looking to do our part to contribute to that.
Doug Lewin
Yeah, I think all that's right. You know, as you were talking, there was something I wanted to ask earlier that, I think something that stands in the way of that vision potentially, particularly on the low cost piece. Cause I agree with you with the sort of confluence of factors you have here, the natural resources, the market, all of that. It all makes a lot of sense that we should have lower power prices. I think there's several things missing there, but one particularly in the context of this conversation is, and I don't think the vast majority of people understand how their power bill breaks down. But what we have seen over the last 10 years is a steady decrease in the cost of generation as natural gas prices have been low and wind and solar come online. But an increase in distribution costs. So that, and a lot of people would say, well, that's transmission to connect renewables. Actually, if you look at the data, there is an increase there, but it's not nearly as much as the increase on the distribution system. And this is a place where price signals don't get through yet. If I'm, when I am, you know, using whatever power I'm using at three in the morning or at six or seven in the evening, peak power prices or lowest power prices, the price I'm paying to my transmission distribution utility in Houston or Dallas or Waco or Laredo or Corpus Christi or Lubbock, which is now in competition, it's five cents, basically. It could be four and a half, could be 5.2, whatever, but it's basically five cents and it doesn't move. That's gotta be a problem for, it's not just for you, it's not unique to Base Power, but for anybody trying to do this work to bring distributed energy resources That's a problem, is it not?
Zach Dell
Well, I think, you know, incentives drive behavior, right? And so if the price signals aren't there, if the incentives aren't there, then the behavior won't follow. And so if you want to change behavior, you've got to change the incentives. Price signals, liquidity, these are flywheels, these are flywheel lubricants, right? The increase in price signals increases market activity, increases capital volume capacity. So I do think that more price signals, more liquidity is probably a solution to some of these problems for sure.
Doug Lewin
Yeah, and I wonder if, and the reason I bring it up in this context of a five to ten year vision, that's probably, the market probably needs to move that way to where there's some price signal. You're absolutely right on the incentives, right? There's a Charlie Munger quote I love where he says, “you show me the incentive, I'll show you the outcome,” right? And the incentive here is just like, use power whenever. If it's five cents whenever, you just use it whenever. Aligning that price signal with when there's actually scarcity on the grid, that will allow greater deployment of storage. That will widen the circle of people that could actually afford storage by changing the economics. So I think it's just an important one to flag in a five to 10 year kind of a vision.
So that's one that I, if somebody asked me, what are the two or three policies that I think would have the biggest impact, I might put that on my list. I think time-of use-really matters. What's on your list? What policy changes could enable more customers to access batteries and to cause the grid to be more reliable and more affordable?
Zach Dell
Yeah, I mean, I think it's what we just talked about. It's price signals and incentives to change behavior, right? If you want to change behavior, you have to change the incentives. So, you know, there's obviously a concept of 4CP, Four Coincident Peaks that incentivize industrial loads to decrease usage during peak times. Some kind of concept like this for the resi space seems like a potentially valuable addition to the set of incentives that exists that influence how markets participate in times of grid stress. So, you know, that's an interesting topic getting a conversation that's getting started in some of these circles.
On the topic of incentives, today, behind the meter, assets are not able to access normal pricing. So this means price signals that are available to these loads are not as frequent. In other words, it's a less liquid market for behind the meter market participants. So, as we discussed, liquidity is the ultimate flywheel lubricant. If behind the meter assets are able to access more price signals, it's likely that more liquidity and volume will enter the space. And this will hopefully ultimately lower prices and increase reliability for customers.
Doug Lewin
That's a really important point. And I want to explain it a little bit more. And then you jump in and correct me if I get any of this wrong, or you can explain it better, but we do have a nodal market in ERCOT where there are thousands of little points, but generators receive those price signals, right? Generators get the nodal price, but load is settled zonally. And the reason for that is there's a political reason for that. And I don't say that to be critical. It actually makes sense, where you don't want somebody who lives in a neighborhood, who happens to live in a neighborhood with a congested node, to have to pay two or three times as much as somebody who lives in a neighborhood on the other side of town. But I wonder if there's not a way for customers to have storage and want the economics to work, or solar storage, demand response, could be you could put anything in that blank, fill it in. EVs and wanna charge their cars at the right time. Couldn't opt in to some kind of a nodal, it's complicated, but I wonder if there's some way to help bring that price signal.
Zach Dell
Yeah, this market structure is a function of consumer protection, right? And to your point, not wanting to expose consumers to unfair cost structures. That said, we have developed a lot of technology in the last couple of years, hardware, software. We know what's a battery, what's not a battery, what's a DER, what's not. And so, yeah, I think there was potential there. It's worth mentioning, going all the way back to your point on the value of distributed assets, if you have a battery farm and all of those batteries are on different nodes that are responding to different price signals, your monetization capabilities are a lot better than if you're stuck on one node or one load zone. And so we're really excited about the opportunities to optimize our assets across different load zones, but also ideally eventually across different nodes.
Doug Lewin
Very, very interesting. Yeah, yeah. Yeah, this has, you have my wheels spinning. I wonder if there's not like a way to start to get to where load could be settled nodally. There would have to be like a big transition and a plan for helping folks again, that don't have capital to put out to get assets to basically like retail electric providers and utilities would work together to make sure that customers had access to ways to mitigate that effect.
But actually, if you look at it the other way, there's the risk avoidance of like, we wanna make sure people aren't exposed to higher prices. What you lose though, is the ability to actually lower the system costs and lower the price for everybody. So I wonder if there's a way to sort of square that circle, have a transition period, where everybody knows it's coming and there are policy supports to make sure nobody ends up sort of upside down on that deal. Be very complicated, but it might be worth working on.
Zach Dell
Yeah, as you know, these are very complicated issues and there are people who know a heck of a lot more than I do about...
Doug Lewin
And a heck of a lot more than I...
Zach Dell
Marketing design is not a trivial topic, that's for sure.
Doug Lewin
Yeah, yeah, for sure, for sure. Alright, so, one other, actually two other questions I want to ask you. Is there, there has to have be a change, has the IRA, the Inflation Reduction Act, made this easier? There is now a tax credit for the batteries, right? Has that enabled this that, if it didn’t exist, it would just be harder to do or impossible?
Zach Dell
It definitely helps. We are the battery owners, we do benefit from the IRA tax credit. We designed the business and kind of thought about the business model in its earliest days as, okay, well, what happens if this gets turned off? And we very much underwrote the opportunity to account for that. So it's a business that does work, so to speak, without the benefit of the tax credits.
Doug Lewin
Perfect. And then one last question. What is something that is sort of commonly misunderstood, either among the general public or within the industry that as you've been building this business, you're like, here's something that just seems to be accepted sort of axiomatic as a truth and it's probably not.
Zach Dell
Well, again, I'm still getting up to speed. So, bear with me here. And I actually used the phrase earlier, which is funny. The energy transition is an amazing thing. It's incredibly uplifting. It's the most exciting development of our lifetime. It is our path to energy abundance, which really is our path to human prosperity, right? If you look at the cost of power and GDP, those things are inversely correlated. If you can bring down the cost of power and make it more available, more reliable, you just wholesale make people's lives better. But the phrase energy transition, I think, is a misnomer.
It is a transition in a way, but it's really more of an energy addition. Right? We are adding low cost capacity to the supply base, right? We are adding low cost wind, we're adding low cost solar. And so I think what we're seeing is not a wholesale transition of our supply stack. It's an addition of low cost capacity that's going to allow us to scale our power consumption and really power the growth of the economy, which is an amazing thing. But I think that if the phrase energy transition, if we started saying the energy addition, a little more accurate.
The other thing that comes to mind is that batteries are commonly talked about as an alternative or competitive in some way to generation technologies like gas, solar, coal, wind, nuclear. I think this is just a symptom of fierce competition, which is a great thing and different groups wanting to promote their technology of choice. The reality is that batteries are more akin to transmission and distribution infrastructure than they are to generation assets. Right? Storage, as we've discussed, lowers the cost of transmission by increasing load factor on the distribution lines. So the closer the storage is to the load, the higher the load factor of the line between the generation and that load. So if we can lower, if we can raise load factors, we can decrease the cost of the system. So it's really a different asset class than the generation entirely. So, you know, batteries are the unblocked, the energy addition. And I think that's something that's a little bit overlooked.
Doug Lewin
I love it. Yeah, totally. And yeah, it's sort of neither fish nor fall, right? It is, like you said, kind of its own asset class. It's not exactly TD. It's not exactly generation. It's its own thing. One thing on the energy addition piece, the my friends at Texas 2036, which is a great organization, sort of think tank based in Austin. They talk about energy expansion. They've put out a bunch of reports sort of about, yeah, and I think that's a good way to think of it. It is, there's just a, there is a lot more coming. There's no doubt. There's just no doubt about it. It's just, there is an expansion happening. Obviously, batteries are one of the things, but you know, you've got geothermal and you've got nuclear coming. You've got all sorts of different demand response, energy efficiency technologies, heat pumps, electric vehicles. I could go on. Zach, this has been great. You keep saying I'm new to this and I'll get more of it. I think you're selling yourself short. I think you've got a great vision here. I'm really excited to follow Base Power and watch its growth. Is there anything, I didn't ask you that you wish that I would have, anything you wanna add?
Zach Dell
You know, we covered a lot. I really appreciate it, Doug. Yeah, I'm very much coming up the curve here, getting up to speed as fast as I can. I've got an incredible team that I get to work with every day that teaches me so much. I've got incredible people that are outside of the Base team that we get to collaborate with and learn from, folks like you. Many of the folks who have been on the podcast, I've had the pleasure of getting to know, which has been awesome.
I guess my message really is that we're open for business. We're here to develop technology, hardware and software to solve these hard problems. And, you know, like I said earlier, we know that we need to cooperate and partner with local regulators, utilities, policymakers, researchers. And, you know, we're all going to have to work together to, you know, deploy these solutions and bring affordable, reliable power.
So I know that many influential industry leaders are listeners of the pod. And so if there's any folks out there who want to chat about working together, joining our team or otherwise, like I said, we're open for business. So you can reach out to me directly. I'm at zach@basepowercompany.com. You can find us online. And I'm excited to connect and work together to solve these hard problems.
Doug Lewin
I encourage folks to reach out to Zach. And as he mentioned, they got a great team as well. We'll put some links to your website so folks can see the team you've assembled there, which is impressive as well. Zach, this has been a pleasure. Thanks so much for doing it.
Zach Dell
Thanks a lot Doug, really enjoyed it.
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