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- [00:03]
Latitude Media Announcer
Latitude Media covering the new frontiers of the energy transition.
- [00:08]
Shel Khan
I'm Shayl Khan and this is Catalyst.
- [00:12]
Zach Dell
If you look at a utility scale battery deployment, you have to buy or lease the land that the battery sits on. You have to pay for the interconnection to the grid. You then wait in the interconnection queue which adds additional cost. You then do what most firms consider project development, which is some level of construction to level the site and prepare it for the system. And, and so there's a bunch of kind of line items in the model that add to a cost that we think is higher than where we can get by vertically integrating.
- [00:36]
Shel Khan
Coming up, home batteries and retail energy with Zach Dell.
- [00:49]
Energy Hub Announcer
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 devices2 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@energyhub.com trillions of dollars are flowing
- [01:24]
Alfred Johnson
into clean and critical infrastructure. But those investments aren't driven by technology alone. They're shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux and host of a brand new podcast, Critical Capital. Each episode I talk with people deploying capital, shaping policy and building the clean economy. Tune in as we unpack how progress is actually made. Listen to Critical Capital on Spotify, Apple, or wherever you get your podcasts.
- [01:54]
Latitude Media Announcer
Catalyst is supported by Fishtank PR and an award winning PR firm focused on climate and energy tech, renewables and sustainability. Fish Tank is known for generating prominent and effective media coverage for the brands they work with. If you want a PR partner that's thoughtful, shoots straight and gets results, you'll like, fish tank PR. To learn more about fishtank's approach, visit fishtankpr.com that's F I S C-H fishtankpr.com
- [02:23]
Shel Khan
I'm Shel Khan. I invest in early stage companies at Energy Impact Partners. Welcome. So Base Power is the talk of the town, or at least the talk of my town, which is comprised of a mix of venture capital investors, founders and wonky energy people. Base is a relatively young company, but they're moving very fast and just yesterday actually announced possibly the largest Series C in history, certainly the largest in the energy space. They raised a billion dollars with a B at a $4 billion post money valuation. The basic model of the companies you'll soon hear Zach Dell, the founder and CEO, describe will actually be kind of familiar to people who've been around deregulated electricity markets for a while. Base acts as an energy retailer, as well as offering customers a cheap home battery that they can use as backup. You've probably heard various shades of that concept over the years from other companies, including Tesla. But Base has been taking off of late, and as I've dug in more and more and gotten to know Zach, I do think they're doing things differently in ways that are interesting and ways that tell us some lessons about the future of distributed energy resources or virtual power plants or whatever acronym you want to use. But basis story is also just interesting in the context of scaling a startup this quickly in the notoriously tricky energy world and everything that comes along with that. One of my normal rules on this pod is that I don't really like to talk to founders about their companies, at least not directly. First of all, that's what I do all day long in my day job, but also I'd rather focus on the markets that they're in and the technologies they're unlocking and so on. But BAS is especially interesting and I'm in the business of exceptions, so let's make one. Here's Zach Dell. Zach, welcome.
- [04:07]
Zach Dell
Thanks for having me, Shell.
- [04:09]
Shel Khan
All right, let's start by having you do the the base power elevator pitch, because I know what you're up to. I suspect a lot of our listeners have heard about base, but I'm interested in how you describe it, when you describe it briefly.
- [04:20]
Zach Dell
Yeah, I think of us as an energy technology company when I describe the product to consumers. What we talk about is saving money on power bills, keeping your bills low and your lights on, bringing reliability and resiliency to the homeowner. But literally what we are is an electricity provider. So we become are your power company. You buy electricity from us every month. We install a battery on your home that we own and operate. When the grid's up and running, we use that battery to support the power grid. When the grid goes down, you get that battery to back up your home. But to folks in the industry and listeners of this podcast, I would think of us as a gen tailor, right? So we own and operate battery storage on the grid, and we sell retail power to homeowners. And so our business looks a lot like some of the gen tailors that folks are familiar with. But our generation fleet doesn't include gas plants and coal plants, but is made up entirely of battery storage.
- [05:14]
Shel Khan
Okay, that's a great segue to one of my first questions, which is, okay, so I think of you as a gen tailor too. But obviously, you know, historical traditional gen tailors, they're the generation side of the business. They're, you know, big fleets of thermal generation or now increasingly batteries, maybe two, but they're utility scale things. So as you think about like the pluses and minuses of your version of a gen tailor, wherein the asset, the physical asset base is all residential scale, like what is it about that that is better than the NRG version of being a gen tailor? And what is it that is more of a challenge?
- [05:48]
Zach Dell
Yeah, well, there's the customer answer and then there's the system answer. And the customer answer is when you're, when you're selling power to homeowners, all that matters is price and reliability. So we are able to provide a level of resiliency to the home that the competition can't at a price that they can't compete with. Right? So when you sign up with base, you get a 25 or 50 if you opt for 2 kilowatt hour system on your home, that is all yours to use when the grid goes out for $19 a month for the 25 kilowatt hour system and $29 a month for the 50 kilowatt hour system. So in terms of home backup, it's the most affordable option on the market at the system level, though, why our Gen Taylor model, I think is more attractive than others, is strictly cost oriented. Right. What matters is fully landed cost of the megawatt. And our view is that we can land a megawatt gigawatt of storage on the grid faster and more cost effectively than the centralized utility scale developers. And for what it's worth, faster and more cost effectively than a gas plant or a coal plant. So we, you know, we use this strategy that we define as compounding cost advantage through vertical integration or kind of vertically integrate vertical integration plus technology to land assets on the grid, starting with batteries. And eventually we'll, we'll do other stuff faster and more cost effectively than the alternatives. And that's what matters. And I want to really double underline this point. It's like everyone listening to this podcast knows that electricity is a commodity, right? And when you're competing in a commodity industry, you need a cost structure advantage if you want to win. And and so we've designed the business, the mission, the vision, the strategy around engineering technology and vertical integration to achieve a cost structure advantage so that we can sell the lowest price electron in the market. That's really what matters to our customers, and that's really what matters at the system level is how fast and how cost effectively can you land megawatts on the grid. And so that's really what the business is designed to do.
- [07:45]
Shel Khan
All right, so you said two things there that I want to dive into a little bit deeper. The first one is just on the consumer value proposition. So, you know, I think let's, let's pause on this for a second. So part of your innovation here is you're deploying big batteries. You said 25 kilowatt hour, 50 kilowatt hours. So this is bigger than your typical residential battery deployment. There are others who will like stack a few power walls and get to the same place, but it's not been common. And, you know, I think folks can probably intuit that part of the reason to do that for you is that your soft cost, most of your soft costs scale with number of systems you're going to deploy. So could deploy a bigger system that's just better for you overall from a levelized cost perspective. But the mechanics of what you actually do with that battery, I think are interesting because you said the pitch to the homeowner is you have 25 kilowatt hour, 50 kilowatt hour battery that's fully yours and available to use in the event of an outage. But presumably you're operating that battery, you, base are operating that battery all the time doing arbitrage or what else you're going to do in the meantime? So are you guaranteeing some level of availability to the customer, or how do you square the circle between like, you're going to be charging and discharging the battery every day, but you want there to be some reserve available to the customer when there's an outage.
- [09:04]
Zach Dell
So the short answer is yes, we guarantee 20% of the capacity of the battery to the customer, no matter what. The reality is that the discharge window of the system is not very long. It's, you know, one to two hours a day. As you know and listeners of the POD know, power prices are spiky and unpredictable, but like reasonably predictable in terms of kind of the pattern throughout most of the days. And it's different in the summers and the winters, et cetera. But the windows in which you are discharging, they're reasonably predictable. And outages and high prices are actually not as correlated as one might think. So what I'm saying is that the likelihood that an outage happens at the bottom of the discharge window is statistically not improbable, but reasonably low probability. Given the fact that there are 24 hours in a day and only one or two of those 24 hours, the battery is kind of low state of charge. So most of the day the battery spends its time at a higher state of charge. It depends on where the battery is and what the optimization function is. But the reality is it is very unlikely that an outage happens at the bottom of the discharge window. Even if that does happen, we do maintain 20% state of charge for that situation. And as a benefit of having really large systems, you know, our next generation product, which we can talk about is a 40 kilowatt hour system that we also will install in parallel, getting you to 80 kilowatt hours. So 20% of an 80 kilowatt hour system is like a full powerwall. Right. So once you have, there's a bunch of benefits that come from having a really big battery on the house. One of which is even if you have an outer to the bottom of the discharge window, you're still going to have a lot of backup. But there for the home. We really have two businesses here and you know, we started talking about the Gin Taylor business, but there's a second business which is we are a technology provider to the utilities. And you know, two thirds of the country, as you know, is a regulated market where there are incumbent utilities that have kind of service territories and monopolies. And we are starting to partner with them to deploy fast, affordable, flexible capacity in their service territory. So this looks different than the Gen Taylor model. It's the same technology and stack, hardware, software, etc. But we give them a fleet of storage that they, they go deploy alongside us or we go deploy kind of alongside them, I should say, in their service territory. And then those customers, those, those homeowners are getting really affordable home backup, but they're still buying that electricity from the utility. So it's same tech stack, different business model. And we could talk more about that.
- [11:31]
Shel Khan
Yeah, yeah. I want to come back to the what does this look like in regulated markets? Bit in a little bit later. But before we do sort of staying on the. So you're starting in etot. So staying on the. What does it look like when it's the Gen Taylor model in a, in a deregulated market? The other thing I wanted to talk about from what you said before, which is, I think is like a bold statement in general, is that you think you will be able to get a landed megawatt of energy storage at the residential scale that is cheaper on a capex basis, I presume you're saying, than a landed megawatt of utility scale battery. So that's like a very bold statement and certainly flies in the face of where costs have been historically on a relative basis for batteries. But also you could say the same thing for solar, right? Like it turns out that economies of scale for solar are huge and we get utility scale solar sub a dollar a watt and residential solar for 4 bucks a watt in the US cheaper in Australia and other places. But anyway, give me the mechanics of like how do you get a. Just from a pure, you have, you know, you have customer acquisition costs and you have labor costs and truck rolls and smaller batteries and all of that. So like, how do you overcome all of that to deliver a cheaper megawatt?
- [12:39]
Zach Dell
Yeah, so this is kind of the heart of the issue here, and I think the shortest version of the answer is that vertical integration is the magic. And we'll talk about what that actually means tactically. And it can kind of start by saying if you look at a utility scale battery deployment, you have to buy or lease the land that the battery sits on. You have to pay for the interconnection to the grid. You then wait in the interconnection queue which adds additional cost. You then do what most firms consider project development, which is some level of construction to level the site and prepare it for the system. You have a big EPC firm come in and plug in all the hardware that you buy from an OEM that adds a bunch of margin on top of the cells that are reasonably commoditized. And so there's a bunch of kind of line items in the model that add to a cost that we think is higher than where we can get by vertically integrating. So compared to our system, we do have CAC that they don't have. They have install costs. We have install costs too. We'll come back to that when we talk about design. But we don't buy or lease the land that the battery sits on. We don't pay for interconnection to the grid because it's already there. We don't wait in the interconnection queue, obviously, because this is behind the meter. On the hardware side, we're designing and manufacturing our own batteries. We think there's actually a lot of margin to capture there. Everything above the Cell. Basically the cells are commoditized. Everything above the cell, the power electronics, the module, the kind of, you know, the design of the pack. We think there's, there's, there's a bunch of margin to go after there. And then in the install, the way that you actually design the system for install, if you own the installation, you design the battery in a very different way and you can take a bunch of cost out of the, out of the install and then, you know, the CAC piece I think is really interesting and this, you know, we could go on a tangent here and we could talk about the last decade of home energy companies and why, you know, all these companies in the space have positioned their products as premium products with this premium product valence. And these products look like, you know, iPhones strapped to the wall and they're made of glass and they charge $20,000 for them. We take a very different view here. Our view is that what matters to homeowners is cost and reliability. And we position our product as a kind of financial no brainer. And as we bring our next version of the product to market, the vertical integration leads to higher return, you know, lower cost, higher returns at the asset level and, and then we pass those returns on to the customer in the form of lower prices. So as you drop price, as you drop upfront price, monthly price, and then volumetric energy price, your cacs go down too, right? So the idea here is that through vertically integrating, our cost to install come down, our CACs go down because we're able to drop price, we're able to take cost out of the OEM part of the equation and the margin capturing and everything above the cell. And then we don't have the land and product development costs. And so on a fully landed basis we, we can beat utility scale by a pretty significant margin.
- [15:24]
Energy Hub Announcer
Virtual power plants are becoming a reliable way for utilities to manage capacity. But enrolling devices is just the start. What really matters is confidence. Knowing those resources will perform when dispatched and being able to prove it. From the control room to the living room, Energy Hub's platform handles the full picture from near real time. Forecasting, locational dispatch, and the kind of rigorous verification that holds up when regulators, grid operators or leadership ask did it deliver? Easy enrollment creates momentum. Proven performance builds trust. That's why More than 170 utilities rely on Energy Hub to manage over 2.5 million devices delivering 3.4 gigawatts of flexible capacity. See what that looks like@energyhub.com we're living
- [16:08]
Alfred Johnson
through a profound economic shift, and energy sits at the center of all of it. Trillions of dollars are flowing into power plants, transmission lines, battery factories, data centers. But the future of energy isn't shaped by technology alone. It's shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux, the capital platform for the clean economy. Join me for my brand new show, Critical Capital. As I talk with people deploying capital, shaping policy and building projects. Together we unpack how risk is priced, how incentives are structured, and how progress is actually made. Listen to Critical Capital on Spotify, Apple or wherever you get your podcasts.
- [16:51]
Latitude Media Announcer
Are you tired of overpaying for big name PR firms but not really knowing what they're delivering? Is your comms team wasting time reviewing lengthy messaging briefs and decks instead of engaging journalists or producing content? Are you wondering why your competitors are getting press and you aren't? Fishtank PR is an award winning climate and energy tech, renewables and sustainability focused PR firm dedicated to elevating the work of both early stage and established companies. Whether you need to position yourself as a thought leader in between project announcements or translate complex ideas and technologies into tangible, compelling stories that resonate with the media, Fishtank can help. Check out fishtankpr.com that's F I S C H fishtankpr.com.
- [17:36]
Shel Khan
It strikes me that if I think about the total cost stack of utility scale battery, you know, land matters, interconnection matters, but they're de minimis compared to the cost of, I guess the combination. I mean certainly compared to the cost of the battery itself, the hardware or battery plus controls and, and all that kind of stuff. And also probably the labor EPC cost as well. So like what you have to do, you know, you do have the benefit of you don't have the interconnection, you don't have the land and so on. But really what you need to do is, is make a dirt cheap battery, a dirt cheap residential battery. Like that's the core, right? If you could do that and you can get it somewhere close to the total cost from a hardware basis that a utility scale battery is, then you can sort of picture how that is possible. But that seems like the challenge, right?
- [18:30]
Zach Dell
Yes, but I will say it's not just cost, right? Reliability, safety, useful life, like useful life matters, right? So if you model the asset to 15 years and it degrades in seven years, then your model breaks, right? So you are correct and we are going to land the lowest cost home battery on the market. And you should hold, and the industry should hold us to that. But it will also be the most performant for the use case. Right. So if you want to use the battery as a grid asset, it needs to be able to discharge effectively at, in high temperatures, low temperatures, high humidity, low humidity. That is not a trivial problem to solve. Right. And the home batteries on the market today, they're not designed to do that. Right. The, the engineers that are designing these products to be paired with, you know, home solar and sold at an upfront gross margin. They don't really care about, you know, participation in capacity markets and energy markets. Right. Like that's not what they're designing around. And so it is a novel design requirement. And we look at the whole performance, the both the landed cost, but also the useful life and you know, your ability to actually perform grid services effectively. When we start thinking about design requirements and we plan to bring to market the most performant battery out there on kind of those measures.
- [19:48]
Shel Khan
Okay, so let's talk about design for a second then, because I guess as I think about. Okay, you said this sort of magic here is vertical integration. I could think about two heuristics for vertical integration. One is just your margin stacking. So you don't need to earn as much margin any given step in the value chain. And you know, so I, I think, you know this. I spent a lot of time paying close attention to like the, the first residential solar boom back in the day in the like late, late 2000s. And so I was watching various versions of vertical integration play out and not play out over that period. And it's not exactly the same thing with batteries, but it's not entirely different either. And you know, there were some. So there was lots of attempts at vertical integration in the sense that the same company that owns the customer relationship does the install, does the financing, does that whole thing. Right. That was. Lots of companies did that, I think really only SolarCity at one point took the step to go vertically integrate upstream. They bought a company called Salavo and they were going to start making their own modules, which is what you're doing. You're trying to make your own batteries a degree upstream there. So the other heuristic for vertical integration is that it allows you to do something differently in addition to just margin stacking, which it seems like is what you're saying. So that must manifest in the design of the battery that you're going to roll out at the high level. You just talk me through, like what batteries seem pretty Straightforward. What can one do differently if one is vertically integrated?
- [21:19]
Zach Dell
Yeah, I don't want to give all the secret sauce away, but I'll certainly, I definitely err on the side of oversharing and my team will give me a hard time for that. But I think that a lot of this, you know, comes back to the vertical integration. And I'm not trying to sound like a broken record, but there's a real point here which is like, take for example the way that the battery is installed. Right. So most basically all batteries on the market today are wall mounted. Why? Because it looks better. Right. And this is a premium product and you want it to look nice. Well, most people don't actually feel strongly about should this be on the wall or on the ground. I mean, your AC unit sits on the ground. This thing sits right next to your AC unit. We think it looks a lot better than an AC unit. And so people are pretty happy with ground mounted batteries. So when you decide to ground mount it versus wall mount it, that gives you a bunch more freedom. It relieves some constraints in the way that you actually design the pack. And then you think about the fact that we do the installation. So, you know, I won't name any names, but like other battery OEMs, you know, they, they sell the product and then Bob's Electric or Sunrun or, you know, Freedom Solar or, you know, any of those great installers go and install the product. And those guys charge time and materials and so they actually want the install to take as long as possible. So they can make as much margin, you know, as much money as possible from it. And so the OEM doesn't really care all that much about how it's installed and how fast it's. It's installed. Well, if we're doing it ourselves, it really matters to us. And so again, I don't want to give everything away, but you can do some really creative things around how the battery is installed, when and by who. For example, most of installing a battery is actually like heavy lifting, racking, stacking, mounting. There's a little bit of electrical work that needs to be done by a licensed electrician, but that can be decoupled from the racking, stacking and mounting. And so if you own the whole system, the logistics, the warehouse, you know, the last mile, the installation, the design of the hardware, you can build the whole system to be more efficient. You can break apart the insulation, you can have a truck driver show up, do the racking, stacking and mounting, mount a box to the wall where the hot work happens and then an electrician shows up the next day and does the hot work in 30 minutes. And then you can have that electrician hitting 20 homes in a day and you can have the truck driver hitting 20 homes in a day. You don't have to couple these things into a six to eight hour install now it takes an hour or two and that's actually a massive, massive cost efficiency. So that's one example and there's others I could give, but I think that's the most salient one.
- [23:34]
Shel Khan
Okay, so you're getting to the other thing that I think was the challenge that a lot of companies in solar as it was starting to ski, residential solar, I should say, as it starting to scale were facing, which you know, was not existential to anybody. Sunrun solved this problem presumably as of today. But that's like labor workforce optimization, right? Because you've got, you're going to have all these truck drivers and electricians on staff, right? Because back in the early days of solar, sunrun did not do that. Right. They were first a financing provider. Sunevity was this sort of like subcontracting model and SolarCity was actually the only one that was like really truly fertile, vertically integrated. And it, it clearly has benefits, but it also clearly has costs or maybe more risks. If you have like a cyclical business where the sales cycle changes, for example, in your context, I can imagine, you know, if you're selling an ERCOT like after a hurricane and an outage, I imagine you have a spike in interest, right? And so like how do you marry a flat level consistent workforce who you are paying those fixed opex for you with a demand cycle that might not be exactly suited to that.
- [24:44]
Zach Dell
Yeah, it's a good old fashioned hard problem. I think there's a couple ways to answer the question. One is that if you're a demand constrained business and demand is very spiky, then this hard problem is really, really hard to solve. If you're a supply constrained business, businesses are fundamentally constrained by something, right? And supply, demand and capital are really kind of the three core constraints. And if you're a supply constrained business and you have more demand than you can serve, which is the position that we're in today, this problem is a lot easier to solve, right? Because you're just like installing these things as fast as you can make them and your installers are running at near 100% efficiency. Obviously it's never quite that good, but you have this problem less so I think we're in the phase of the company right now where we are deeply supply constrained. We have incredible amounts of demand because our product is really good and customers really like it. And so we have had to solve this problem kind of, but it certainly will get more difficult and more complicated as we scale. And, and I think the way to get ahead of this is again, you know, not to keep going back to this vertically integrated thing, but you know, our North Star as a business is land a battery on the grid faster and cheaper than anyone and then widen that lead. Right. And that will allow us to drop price, drop price, drop drop price. Whether you're talking about our upfront fee, our monthly fee, our volumetric energy price to the point where it becomes an IQ test, right? If you're not signing up for base, it's like you can't do math because you're obviously going to save money. You, and that puts you in a position where you're not demand constrained for a very long time. I think the horror stories you hear about the solar coaster and the Sun Run and the Tesla stuff, and I've talked to all kinds of people who have worked there previously and now and whatever, they faced these kind of supply demand challenges because demand was very spiky and oftentimes not there. And they were kind of reaching for demand and then know, sprinting hard when they found it because the product is really hard to sell, it's very expensive. Not a lot of people have $20,000 lying around to go buy a, a solar array and a power wall and that kind of thing. So I think if you're, if you're not demand constrained, this problem gets easier. But it's, it's just a good old fashioned hard problem. And there's, you know, things you can do that we're doing like build internal software, have really well trained crews to, to make it better, but it's still hard. The last thing I'll say, and I apologize for rambling a little bit on this one, is that we really value the relationship with the homeowner. Our installers are the front lines and they are incentivized to surprise and delight our homeowners. So they get there, they do their job, they're very respectful, they're very communicative, they clean up after themselves. You know, they, they are the first impression on a face to face basis of our brand in the field and we really value that and we really invest in that. And I think to a degree that is quite differentiated in the space and our members seem to really love.
- [27:28]
Shel Khan
All right, I have Two sort of additional questions for you that are, I guess specific to the ERCOT deregulated market thing. And then, and then we can talk about the regulated market version of it, one of which is related to what you were just talking about in the relationship with the homeowner. So the other thing that is notoriously a challenge for anyone who's a rep in Texas in particular is churn, right? Like customers churn off of reps a lot. Now I think there's good evidence, and you probably know the details of this more than me historically, that if you're installing something, you know, others have done a version of what you're describing, installing something physical in the home in the hopes that that maintains a stronger, longer customer relationship. But what, what do you need to be true about customer Churn in order for your model to work?
- [28:13]
Zach Dell
So I, I love this question. You know, the best way to limit Churn is to have a killer product, right? Like reps have high Churn because the product is a commodity and it is really easy to compete with them. And there are lots of players in the space who are willing to do uneconomic things with a short term time horizon to capture arbitrage, for lack of a better word. Our product is really good. It's the most affordable home backup on the planet and it is a reliable, low electricity rate and customers really love that. So I'm proud to say we. I'm looking at a couple dashboards in the office and we've got on the order of 5,000 of these batteries in the ground, actually 5,000 homes. And so it's more batteries because a lot of them have two. We have had, in our direct business, we have had one customer Churn ever. I remember her name, I remember the day it happened. I won't say it on the pod, but it has been that low because the product is really good. So yes, we think we will have structurally lower Churn because there's an upfront cost and because there's an asset on the home. But most importantly, because we think we're bringing a ton of value to the homeowner and they really want the product. I mean, we've had a number of customers email us and say, hey, so you didn't ask the question, but I'll frame it up. So what happens when someone moves? Well, what happens when someone moves is that the new home buyer wants base. Nothing happens. The homebuyer just, we become their power company and the battery's already on their home and then the, the customer can sign up for Base on their, on their new home if they want. We've had a number of customers email us and say, hey, I'm moving and I really want base on my new home. Like, how do I make sure that base is there when I'm there? Like, I just want to make sure that I don't lose base. And it's super easy to solve, right? We set them up, you know, we get them all ready to go, we make sure the new home buyer is set up with us. But it's just a testament to the quality of the product. And I think that is the only way to limit, churn, you know, at the limit is to have a really killer product.
- [30:13]
Shel Khan
Okay, final deregulated market question. So you're, you're making money in two ways in, in ercot, right? You're, you're trading the battery, you're charging and discharging the battery in the market, actually maybe three ways, right? Because the homeowner's paying you a fixed monthly amount for the battery, then you're operating the battery in ercot, making money on that, and then you're a retailer and you're making money as a, as a retailer. Now the interesting question in ERCOT is where is volatility headed, right? Or historically ERCOT had high volatility. It's been down a fair bit this year. People are talking about whether that is because we've installed so many batteries last couple years, right? Is that because we've got so many batteries and we're only going to install more until volatility goes down? In general, you have to some degree a hedge there, right? Because volatility is good for your business on the battery side but bad for your business on the rep side and vice versa. Do you consider it a full hedge and you are totally agnostic to volatility in ercot, or do you like, lean a direction?
- [31:16]
Zach Dell
Generally, yes, I will again, I won't give away all the secret sauce on how we think about risk management and asset optimization, but generally speaking, yes, because we have this fleet of storage. Said differently, because we have a long position, we can be more creative with our short position, with our, with our load book, right? So there are things that most reps do to hedge their exposure that we don't have to do because of our long position and that becomes a profitable undertaking for us. That said, like the batteries are more profitable in times of high volatility. Full stop. Let's talk about volatility for a second. I don't have a crystal ball. I don't know what's going to happen in ercot. But what I do know is that markets generally work pretty well. And when volatility is high, people want to build a lot of batteries. And a lot of batteries presumably dampen volatility. And when volatility is low, people don't want to build a lot of batteries. And having, you know, as the march of new additions, solar, wind, you know, more, more so solar, probably going forward, increase intermittency on the grid and then you just have continued load growth and batteries, you know, let's say we have five more years of low volatility. Presumably the rate of batteries, you know, coming online is going to be lower than it would be if you had five years of high volatility. Well, load growth is likely to still march up. Solar additions are likely to still march up. And so eventually the market snaps back. Right. So what I would tell you, what I would tell our team and our investors and the way we talk about this and the way we think about it, is that there will be great years for batteries. There will be not great years for batteries. There will be great years for the retail book. There will be not great years for the retail book. Our job is to build the best technology in the world, to scale grid infrastructure and put more capacity on the grid, maintain a really strong balance sheet and make sure our risk posture is one that will be here to stay.
- [33:09]
Shel Khan
Right.
- [33:10]
Zach Dell
We are building a business for duration. We want to be able to absorb the bad years and take advantage of the good years. And so we think about it in this kind of balanced way. We don't try to predict where the market's going to go. Now, I will say, over time, I think our ability to, to see what's kind of happening based on the data that we have coming off our fleet of storage all across the grid, as the, as the volume of kind of nodes in that network grows, I think that'll be a real advantage to us. But, you know, we can talk more about that in the future when we're actually able to flex that muscle.
- [33:40]
Shel Khan
All right, let's switch over to regulated markets, which is your, as you said before, is kind of the next. The next big move. So it's a very different. It's sort of a different value proposition there. Right. You're no longer a retailer, you're not selling electricity to homeowners. What's the, the basic contour of how that business model works for you?
- [33:59]
Zach Dell
Yeah, so we sell megawatts. And the idea here is that we want to offer our Technology as a utility asset. So our hardware, our software and our deployment operations can be used to bring capacity online very fast and very cost effectively. And our view is that utilities across the country are now more than ever looking for alternatives to get capacity. Whether that's because they're seeing massive load growth from data centers coming into their territory, or they're seeing the electrification of transportation or heavy industry or just population growth, whatever it might be. If a utility is looking for megawatts, we can deliver them faster and cheaper than anyone. And we think we have proven in Texas and will hopefully prove across the country soon that our assets are just as capable. And we can talk about what that means as a natural gas peaker plant or coal plant or some kind of traditional utility infrastructure that the utilities are very used to underwriting and building and operating. So we want to bring to market the most attractive utility asset there is in the form of batteries and software and eventually some other products that we're not ready to talk about yet, but we will be soon.
- [35:16]
Shel Khan
The consumer value proposition in that construct is a little different too though, right? So, so you go to the utility and you say, I sell you capacity, you're going to pay me in and megawatt days or whatever, just like you'd pay for utility scale capacity. Now you go to the homeowner to go get that stuff installed. What is the value proposition of the homeowner look like?
- [35:35]
Zach Dell
I think it depends. I think in certain parts of the, of the country, rel liability is really a concern. And so we can say, hey, we are the lowest cost home backup option out there. Right.
- [35:45]
Shel Khan
And, and that part will be similar to West Texas. It's like a fixed monthly fee for the battery. It's just you remove the retail part.
- [35:51]
Zach Dell
Low monthly fees. Exactly. Low monthly fee. You get home backup. And that's really valuable to people. Obviously there are parts of the country where reliability is extremely high, but there's a really strong capacity need from the utility. And so they're willing to pay us a large amount in a tolling agreement or whatever the structure is. And then we can turn around and we can just. Because we don't need to reserve maybe 20% of that battery for backup because they have really no reliability concerns, we can turn around and we can actually compensate the homeowner for allowing us to put a battery on their home. And whether that means lowering their bill through the utility or buying down, you know, their, their bill ourselves or literally mailing them a check, like those are the things we still have to go figure out and it's really market to market. But the concept here is we can create value with these assets and we can share that value with the homeowner if our cost structure is attractive enough, which is kind of back to this like vertically integrated compounding cost advantage idea. So it'll, it'll, it'll vary market by market. In the low reliability markets, we think it's, you know, lean on the home backup value proposition. In the high reliability markets, it's lean on the cost savings. The mechanism by which we deliver that is still to be determined because it depends on the utility in the market.
- [37:06]
Shel Khan
As you've been starting to have those conversations with utilities where it's a capacity product, what are you learning about how they think about a fleet of distributed batteries as a capacity product as compared to centralized storage?
- [37:20]
Zach Dell
I'm, I'm cautiously optimistic. I think that utilities around the country are coming around to the idea that a fleet of distributed batteries is as capable, capable in air quotes as a utility scale power plant. Whatever you want to, you know, whatever kind of technology you want to use. As the example, I think that many of these utilities have kind of bad taste in their mouth from DER 1.0. Whether it's smart thermostats or other kind of technologies that maybe, you know, promised a lot and didn't deliver much. Our asset is reliable, responsive, high uptime. You know, we, we own the asset, we control it. There's no like, oh well, it turns out that the homeowner actually just shut off their AC or decided to override or you know, their car was plugged in and it's no longer plugged in. Like this asset is owned by us, it's controlled by us. We have, you know, triple nines, uptime and sub second telemetry, knowing what's happening at the asset level. And so I think we're starting to see the utilities wrap their heads around the idea that these are high quality assets and they can actually use them in their power supply planning. And that's really encouraging, I guess.
- [38:36]
Shel Khan
Final question for you. On the regulated side, there's this existing universe of these utility derms programs and things like that. There's some existing programs and then there's and VPP programs that are kind of starting to emerge in a few places. And then there's a separate thing you could do which is just selling capacity, right? Like you just like bid into a capacity RFO or whatever. Is one of those more attractive to you than the others? Would you like to see this just like as a capacity product and not treat it as a separate whole universe.
- [39:09]
Zach Dell
Short answer, Yes, I think so. I think that's the path to large scale. The longer answer is that we will experiment with different versions of this in different parts of the country with different utilities that have different kinds of priorities. And obviously not all utilities are the same and there's investor in utilities and munis and co ops and they have different incentive structures and so that'll guide some of this. But yes, we think that distributed storage software enabled distributed storage, like what we build should be considered a grid resource in the same way that a gas peaker or coal plant is. And we think it can be just as performant, significantly cheaper and orders of magnitude faster to deploy at scale, which is really what matters, right? Like we are deploying megawatts in Texas very quickly, like on the order of 20 megawatts a month. We think by this time next year we'll be deploying on the order of 100 megawatts a month. You can't find that kind of deployment speed really anywhere in the country. And of course, if you extrapolate that growth rate, there will be a time in the not too distant future where we will hopefully be deploying gigawatts a month. And in, you know, the, the situation we find ourselves in with the demand that's coming in the electricity sector, we need solutions to deploy capacity quickly and cost effectively. And that's where we are positioning ourselves.
- [40:24]
Shel Khan
All right. I think that's as good a place as any to end it. Zach, thank you for doing this. This is a lot of fun.
- [40:29]
Zach Dell
Thanks a lot Shell. Really enjoyed it.
- [40:32]
Shel Khan
Zach Dell is the co founder and CEO of Base Power. This show is a production of Latitude Media. You can head over to latitudemedia.com for links to today's topics. Latitude is supported by Prelude Ventures. This episode is produced by Daniel Waldorf. Mixing in theme song by Sean Marquand. Stephen Lacy is our executive editor. I'm Shayl Khan and this is Catalyst.