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Ep320: Streamlining Utility Planning for Rapid Deployment
00:20:32
Pier LaFarge, CEO of Sparkfund, explains how distributed capacity procurement is helping utilities rapidly deploy batteries and other distributed energy resources to meet grid constraints and rising demand.
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- [00:00]
A
Foreign welcome to Currents of Norton Rose Fulbright podcast. Today we're recording with Pierre Lafarge, CEO of Spark Fund. Pierre joins us to discuss Sparks Fund's distributed capacity procurement model in a time when building new electric generation is confronting a challenging market. Pierre, welcome to the podcast.
- [00:23]
B
Todd, thanks for having me. Glad to be here.
- [00:26]
A
All right, well, I didn't give much introduction on what you guys are actually up to because I figured you could say it a lot better than I can. So first, can you explain what the DCP approach is and how it differs from traditional demand side management?
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B
Sure. Sparkfund is a utility services company we've been around for more than a decade helping utilities grow their grid by putting distributed energy resources out where the grid needs it most. And obviously in an age of rapid demand growth from large load customers, from data centers, manufacturing, electrification, we're seeing a really exciting opportunity to help utilities and system operators put mostly batteries, some gensets and solar systems out onto the grid and help really build that capacity faster than traditional centralized resources. Simply put, it's easier to build a bunch of small things faster, get them permitted and interconnected, and you can target them to areas of congestion and feeders that need it, and get them built on time and on budget. And that's what SparkFun helps utilities get done.
- [01:29]
A
So how specifically are you helping them deploy the batteries or get them deployed even if they're not doing it?
- [01:35]
B
Yeah, we work with utilities, sort of like a buyer's rep. So we act as an extension of their traditional procurement systems. Utilities are really good at buying big centralized things like wind farms and, you know, gas plans, transmission lines. What we help them do is handle all the fragmentation at the grid edge. So working with hundreds or thousands of customers to determine where the best host locations are. Key nuance in the distributed capacity procurement is these assets are paid for by utilities or large load customers or a mix of both. So when we ask a host to have a battery on their location, we're actually paying that host on a per square foot or per megawatt basis to host a utility asset. That so it's a little bit like putting a wind farm in a farmer's field or a gas well on an Appalachian Hillside, or a 5G equipment on a building. This is traditional infrastructure hosting. It's a great long term annuity from a utility without any risk or obligation. The utility takes care of the asset, maintains it. So our first task is to help them find places to put the batteries, make sure those sites are appropriate, have the right space and Then we coordinate a bunch of bids. We build a local and regional vendor, vendor ecosystem that actually just like any utility procurement gets competitive bids from companies to build those batteries.
- [02:51]
A
So who in the audience potentially would want to participate in something? How big are you talking about? Are these as big as a megawatt or are these smaller, like 250kW or what size is this like something that a Home Depot has or is this something that somebody who's got a home in suburban wherever, Westchester, New York, that they would put the battery there or both?
- [03:16]
B
Yeah, it can be broad. I mean, the distributed capacity procurement at the simplest level is actually a pretty uninnovative idea. I think it's just that utilities need capacity and they have procurements and now with our help, they can access distributed resources as part of that growing capacity need. So distributed capacity procurements could be anything from smaller batteries all the way up to large Systems. But what SparkFund really focuses on commercially in our services are focused on what we call medium format batteries. So think 500 kilowatts at the smallest range, all the way up to 2 megawatts with an average right around a 1 megawatt nameplate, 4 megawatt hours. So think a shipping container, batteries. We construct kind of standard ballots of system skid designs and, and then get companies to bid into a very standardized spec that helps increase the kind of efficiency of the deployment, lower cost, and help us get a whole lot of these things out there. Because the most important thing is being able to deploy capacity quickly on the grid to meet the demand of load growth.
- [04:20]
A
And why is this in the utility's best interest to one, reduce demand from their customers and also to allow kind of the, you know, this resource which they're going to need to be in many different locations, which I'm assuming is tougher to manage. And also they need to access a third party site.
- [04:42]
B
Right. Well, something we say a lot is distributed energy Resources, I think can be a really critical piece of the puzzle of meeting load growth, but it's only a part of the solution. It's important not to overstate their role. I think that it's pretty easy to imagine over the next decade ders and batteries in particular, meeting 10 or 20% of the peak capacity of a grid. Because you can put them right where the grid needs them. They can store, they charge when the grid has lots of available electrons and then dispatch where they're needed when the grid is constrained. Right. So batteries are sort of both time machines and transporters. It can be A really important part of the solution, but the rest of the growing need of capacity is going to be handled with traditional centralized generation transmission and the traditional utility playbook.
- [05:32]
A
So I know you participated in a white paper. I saw it online, I didn't download it, but maybe you can save me the trouble and maybe one, let our audience know where you can find it and two, explain to us some of the findings that you want to make the public aware of. Sure.
- [05:51]
B
No one actually reads white papers. You just know they exist and then use them as industry objects to discuss. They're like trading cards. Yeah, we did actually a really great white paper with SIPA. And you know, you can go to SEPA's website and, or just Google distributed capacity procurement. SEPA. SEPA. And ultimately what that white paper was trying to do is describe the way in which a distributed capacity procurement can be a new gear on the bike for utilities and system operators to help grow their grids faster by putting distributed resources right into the core of utility planning. Right. That's the real critical intervention here is utilities plan their systems. They have the superpower of long term thinking. Right. They're one of the last institutions in our society that can really think 5, 10, 15 years in advance. And so putting distributed resources into planning at the hundreds of megawatts or even gigawatt scale really lets them understand what impact they'd have on their system and use that utility planning and procurement system in a very kind of traditional way. But with new, but with new assets.
- [06:55]
A
How is it different than just, you know what, let's say you didn't have this program in place and people just either start building batteries based on RFPS that the utility puts out or just build batteries associated with some of their own generation. You know, how does this differ? Why is this, or I guess you should say, in which instances? Is this a superior approach?
- [07:23]
B
Yeah, I don't think it's superior, it's just additional. We very much believe in an all of the above approach. In a moment of load growth and constraint like this, we need third party owned batteries, we need aggregator led VPPs, we need connected assets. Right? Every thermostat should contribute to this. Every hot water heater should be connected and dispatched. I think the era of grid growth we're moving into is one where a whole range of connected distributed assets can and will help meet this challenge and deliver the sort of capacity to fuel economic growth and AI and manufacturing and meet the nation's priorities. I think ultimately where the distributed capacity procurement can add to that is by Putting hundreds of megawatts into a procurement, opening a bidding in a process so that you have a competitive ecosystem of der companies bidding in and building them. You maintain all the value of competition, but you bring what has always been lacking in this market, which is scaled predictable procurement. The reality is that selling an individual customer a new battery or a solar panel is hard and slow. We've done it through utility programs for more than a decade. It works and it can be a good product. But ultimately it's, it's slow to deploy. They're often smaller systems that are sized to that customer's load, not the needs of the grid, because they're based on customer cash flows. And you're asking a customer to take time out of their day, whether they run a hospital or a school or just a, you know, homeowner to understand this product, maybe take out debt and become a part of a grid system that frankly, you know, the best thing about the US Electric grid is that people wake up every day and the lights are on and they don't even have to think about it. Right. That's an infrastructure success that lets people focus on their lives and their core business or their core mission. While utilities run an infrastructure system at.
- [09:11]
A
Scale, maybe you can give one or two specific examples and also explain what role there is for the parties involved that are not the utility.
- [09:25]
B
Sure. So the utility puts the resources into planning, a regulator reviews them and make sure that they're cost prudent, that they're compared to other alternatives. A valuable way to grow the grid. What we're seeing in that vein is really promising. Right. Batteries help utilize the grid. You have better, you can sell more electrons over the existing wires, and that puts downward pressure on rates and increases capacity faster than almost any other technique. So I think, simply put, we're going to go, I think in the United States through a sort of super cycle of deploying batteries. For that reason. They really have that unique property of taking underutilization when it's available and then, and then having available electrons when the grid needs it most. But ultimately, once that regulated regulatory body has approved the planned procurement, then utilities pay companies like Smart Fund to go and set up procurements. We call it value chain management. We build and vet regional ecosystems of vendors, OEMs and suppliers. We bundle up hosts. We ask hosts, hey, can we put a battery on behind your building? They say yes. And we, we turn those into tranches that companies can bid competitively into to supply. And we do that on a recurring monthly, quarterly basis, depending on the scale of the procurement. So ultimately we're turning utilities into the best wholesale customer of a der value chain in, in that region and, and getting the assets out on time and on budget.
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A
So. But does the utility actually own the best, you know, that's sitting there, the energy storage system that's there, that's sitting behind the grocery store or whatever, or so you're bidding it out. So the grocery store or whoever it is, is basically leasing you the site and allowing you to access the this battery storage system that you're putting there in exchange for some whatever monthly or annual payment. Is that the general structure?
- [11:21]
B
Yeah, that's right. You're paying a host to again host the battery. That's a monthly site access or lease payment. Ownership is flexible though, in many cases. Yeah. The utility procures the asset and rate bases it just like any other utility scale asset, like a, you know, batteries are really distribution infrastructure. Right. And so it's just the same way that they would rate base a substation or a capacity bank. And in the same way batteries are freeing up capacity and hosting capacity to grow the grid faster. But if, for example, a hyperscaler wants more batteries than would be the normal need of the grid, they can pay in the incremental or full cost to help accelerate these deployments. Or a third party can own the battery and enter into some sort of tolling agreement or other structure with a utility. So there's lots of ways to handle ownership. What really matters for a distributed capacity procurement is putting it into planning at multi hundred megawatt scale enough to confidently impact the system's capacity as a whole and have that deployment be predictable so that it can be included as a real system asset. That's the hardest part about letting the market just bring onesie 2z batteries to a system is you can't see them coming and you're not sure where they're going to be. You don't know which customer is going to buy that month. And so not being able to see things coming means you can't really include them in the planned capacity of the grid. And then you've got a data center trying to interconnect and no one knows how much is going to show up when. So if you can't plan for it, then you can't approve a new load and then we get less economic growth.
- [12:52]
A
So where are the best places for this to work? Is it in areas where there are large grid constraints? Is it in areas where it's tough to build otherwise? Build large scale utility scale. Either batteries or renewables. And where have you found this to work the best?
- [13:11]
B
Yeah, those are the two key criteria. Although that's starting to apply to more and more of the United States. Right. Where there's, where there's capacity constraint is also where there's economic growth and new development. So anywhere, any states that are seeing strong manufacturing, build out, data center interest, electrification of homes, of transportation, and you know, in almost every case it is harder and slower to build large centralized resources. But to go back to my previous point, you know, centralized resources like large wind farms, utility scale solar gas plants, nuclear if we can, if we can get it, and transmission lines are going to be 70 or 80% of the solution here. Right. This is not a replacement for or better than the traditional utility playbook, but if it can truly add 10 to 20% of peak capacity, it's a very big tool that's able to help kind of COVID the capacity growth in that critical three to five year window as we're bringing those other solutions online.
- [14:13]
A
So how do you then see your business evolving? It seems like to me it seems like there are more and more areas that are constrained and we saw with PJM's capacity auction where prices are going and generally where just prices seem to be going, I guess. How does that play into your business model?
- [14:36]
B
Well, what we really like about our business at SparkFun is as a utility services company, we can have a sort of capital, light, specialized service that helps utilities coordinate the fragmentation of growing their grid in this way. Right. And to the extent that we're going to go through a cycle of deploying potentially hundreds of gigawatts of batteries inside a grid, growth that could be more than that. We think that that's a very attractive market, both in total and what we can address over the coming years.
- [15:07]
A
How dependent is your business on the regulatory framework that's in place either on a state level or from ferc?
- [15:16]
B
Well, in one way very dependent, because that regulatory compact directs how the grid is going to grow. But I would say that my favorite part of the distributed capacity procurement idea is, as I've said before, it is truly the least innovative idea anyone's had around doctors in quite a while. Because it's using utilities exactly as they were intended to exist. Right. Distributed capacity procurement is just putting new capacity resources into planning, organizing procurements that are regulatorily approved, and then asking a growing competitive ecosystem of suppliers to bid into it. That's exactly how utilities buy gas plants, it's how they buy solar and wind. And so it really is using that utility regulatory framework with no extra steps, no needed modifications. Obviously, a regulator needs to get their head around the value of distributed assets, and there is new analysis that needs to happen at the feeder level. You've got to do distribution planning a little differently. You have to do power flow analysis to really understand the impact of a battery, for example, on a given feeder. But that's extra analysis, not a new regulatory structure.
- [16:21]
A
So we've talked some already about kind of the impetus for the need for this. How do you see the, you know, the recent reconciliation bill that was passed and just tariffs and the overall, just market competition impacting your ability to implement your program here?
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B
Well, it's good to have certainty, as always, and the more certainty, the better. I think in terms of the recent reconciliation bill, it was interesting and somewhat surprising to see how bipartisan the support for batteries has become. I think batteries are really critical tools to get more out of the grid we have faster. And so preserving those tax credits is certainly going to lower the cost of the batteries to ratepayers. At the end of the day, though, I would say that even if the tax credit had gone away, the value of putting a battery onto an existing grid, in terms of how much more system utilization you get, would still have been worth the investment. But if you want to put downward pressure on rates, then subsidizing at the federal level a critical infrastructure component of grid growth is, I think, a valid political choice.
- [17:34]
A
All right, so last question for you. If you could wave your magic wand here and kind of either change something in the regulatory framework or make sure the public understood something better than it does that you think would help your business, what would it be?
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B
I think that to regulators, to utility regulators giving utilities approval for the recovery of the analysis part. So new money to do distribution planning, better to do power flow analysis. It's not very expensive because in many cases a few million dollars a year for a whole utility to really understand its distribution grid at a granular level and understand the impacts of what these new tools might have, I think is a very low cost way to get a whole lot of value when you understand that system. So I think that would be my suggestion is utility regulators being proactive to utilities and saying, if you commit to bring distributed resources into your planning and into the picture of growing the grid and meeting this historic moment of growth, we'll, you know, approve the money to understand the system in the way that makes sure we're all accounting for that value correctly, because there is the risk of a chicken and the egg problem where if a utility doesn't have that data and the regulators haven't approved the money to do that analysis, then if you don't know the value, you can't confidently plan and approve for these assets and then you're leaving value and available grid growth on the table.
- [19:01]
A
All right. If somebody's interested in participating in one of these programs that you're setting up, is the best thing to do to go to your website or how do people find out about this?
- [19:09]
B
Yeah, sparkfund.com certainly is a good place to start. And you know, we've seen this approach be filed by Xcel Energy in Minnesota, and that's an active regulatory process that's really exciting. We saw Exelon with their joint utilities in Maryland, file a distributed capacity procurement. And we're talking to more than 15 utilities and hyperscalers all across the country bringing this to both vertically integrated markets, to restructured markets and wholesale markets. So I think that this, again, this concept is pretty straightforward. You need more capacity. Some of it can be distributed. It's easier to build small things, put it in planning at scale and go and go procure it in just the same way that we've procured utility scale assets for decades.
- [19:54]
A
All right. With that, Pierre, thanks for joining us today.
- [19:56]
B
Todd, thanks so much for having me. Appreciate the opportunity.
- [20:01]
A
You can find us online at www.projectfinance law or or send us an email at currentsordonrosefullbright.com Please rate, review and subscribe on Apple Podcasts, Spotify or your preferred podcast app. Our show today was produced by Emily Rogers.
- [20:18]
B
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