Invest Like the Best with Patrick O'Shaughnessy: Episode 434 Summary

Title: Zach Dell - Powering the Future
Release Date: July 22, 2025
Guest: Zach Dell, Co-founder and CEO of Base

1. Introduction to Zach Dell and Base

In Episode 434 of Invest Like the Best, host Patrick O'Shaughnessy engages in an insightful conversation with Zach Dell, the co-founder and CEO of Base. Base is pioneering a modern approach to home energy services by deploying distributed battery storage systems. These systems not only provide homeowners with affordable and reliable power but also serve as valuable resources for the electrical grid.

2. Understanding the Electrical Grid

Zach Dell begins by demystifying the complex infrastructure of the electrical grid. He explains that the grid is a "real-time supply and demand machine," consisting of three main interconnects in the U.S.: the Eastern Interconnect, Western Interconnect, and ERCOT (primarily in Texas).

Zach Dell [06:08]: "The grid is one of the most interesting machines in the world. It is probably the most complicated machine ever built by humans."

He breaks down the grid into three primary components:

• Generation: Where power is produced (wind farms, solar farms, gas plants, etc.).
• Transmission: High-voltage lines that transport electricity over long distances.
• Distribution: Lower voltage lines that deliver power to neighborhoods and homes.

Zach highlights the historical evolution of the grid, emphasizing the significant infrastructure developments driven by events like the New Deal and the deregulation attempts in the late 1990s, which led Texas to become a hub for energy innovation.

3. Economics of Electricity

Patrick prompts Zach to explore the financial dynamics of the electrical grid, focusing on the flow of dollars alongside the physical infrastructure.

Zach Dell [10:57]: "If power prices continue to rise at the rate they've been increasing, we'll use a lot less power. But if they go down or rise more slowly, power usage could increase significantly."

Zach elucidates that approximately half of a typical power bill covers generation costs, while the other half pertains to transmission and distribution. He explains how regulated utilities propose capital expenditures (CapEx) to public utility commissions (PUCs), which are then incorporated into their rate base, effectively determining electricity rates for consumers.

This regulated structure incentivizes utilities to invest in infrastructure to earn returns, but it discourages innovation, as introducing new technologies often faces resistance from PUCs wary of unproven methods.

4. Base's Innovative Approach to Energy Storage

Base addresses the grid's limitations by deploying a distributed network of home batteries. These batteries serve dual purposes:

1. Backup Power: Ensuring homeowners have reliable power during grid outages.
2. Grid Support: Acting as a distributed battery farm that can store energy when prices are low and discharge during high-demand periods.

Zach Dell [28:30]: "We think of ourselves as an energy technology company, but really what we are is a battery developer and asset owner."

Base's model involves:

• Installation: Homeowners pay a $500 upfront fee and a $16 monthly charge for the battery system.
• Energy Arbitrage: Batteries are charged during low-price periods (e.g., midnight) and discharged during high-price times (e.g., evening peak hours), generating revenue for Base.
• Ancillary Services: Participating in ERCOT’s ancillary services market to provide additional grid support and earn compensation.

5. Unit Economics and Financial Viability

Zach delves into the economics of Base's battery systems:

• Installation Cost: Approximately $10,000 per battery, reduced to $8,000 in the next generation, and projected to drop to $6,000 with further vertical integration.
• Revenue Streams:
  • Retail Power Margins: $200/year from selling electricity at a marginally reduced rate.
  • Customer Payments: $200/year from monthly fees.
  • Energy Trading: Varies based on market conditions, averaging $40/kWh over ten years.

Zach Dell [38:20]: "Our math suggests that a battery in ERCOT over the next 10 years will average on the order of $40 a kilowatt hour."

The payback period for homeowners is projected to be around 2-4 years, depending on battery generation costs and market conditions. Additionally, Base aims to leverage debt financing and tax equity partnerships to scale efficiently.

6. Battery Technology and Supply Chain

Zach provides a primer on battery technology, discussing different chemistries:

• NMC (Nickel Manganese Cobalt): Predominant in electric vehicles due to high energy density and fast charge/discharge rates.
• LFP (Lithium Iron Phosphate): Safer and more stable, though heavier and with lower energy density. Base favors LFP for grid storage due to its safety and cost-effectiveness.

He addresses concerns about raw material constraints, asserting that mineral abundance is not a limiting factor but acknowledges challenges in mining and supply chain logistics.

Zach Dell [53:32]: "There's a ton of lithium, a lot of iron, a lot of manganese, a lot of cobalt in the earth's crust. That's not a real constraint."

7. Capital Markets and Financing Strategies

Base’s capital requirements are substantial, necessitating sophisticated financing strategies:

• Tax Equity Partnerships: Leveraging tax credits (e.g., ITC) to reduce upfront costs.
• Asset-Backed Securitization: Packaging cash flow streams from battery deployments into financial instruments for investment.
• Project Finance: Using Special Purpose Vehicles (SPVs) to finance large-scale battery projects.

Zach emphasizes the importance of aligning cash flows with capital needs to maintain financial sustainability while scaling operations.

Zach Dell [54:28]: "Securing debt financing is about matching our cash flow stream to a cost of capital that has the appetite to underwrite those cash flows."

8. Leadership, Culture, and Personal Insights

Zach credits his professional journey to pivotal experiences and mentors:

• Blackstone: Learned analytical rigor and process orientation.
• Thrive Capital: Gained insights from leaders like Josh Kushner on deal-making and ambition.
• Family Influence: Draws inspiration from his entrepreneurial father and his mother's resilience as an elite athlete, instilling values of hard work, continuous improvement, and unwavering support.

He highlights the importance of building a strong engineering culture, emphasizing speed, rapid iteration, and meticulous operational processes.

Zach Dell [69:15]: "We think about the business as a technology company that is developing solutions to electrify the built environment."

9. Future Vision and Expansion

Looking ahead, Base intends to:

• Expand Horizontally: Integrate additional home energy products like solar panels, smart EV chargers, and electric heat pumps.
• Partner with Utilities: Collaborate with utilities to implement innovative grid solutions, leveraging distributed storage for enhanced grid reliability and cost-efficiency.
• Innovate Upstream and Downstream: Develop advanced technologies for substations and transformers, acting as an R&D partner for utilities.

Zach envisions Base as a transformative force in the energy sector, akin to how SpaceX revolutionized aerospace.

Zach Dell [59:23]: "Base wants to do to energy what SpaceX did to aerospace."

10. Personal Reflections and Growth

Zach shares his personal motivations and the support system that has enabled his entrepreneurial journey. He reflects on his parents’ partnership, the rigorous yet supportive guidance from mentors, and the unwavering support from his fiancé, Emily, underscoring the importance of a strong personal foundation in driving professional success.

Key Takeaways

• Distributed Energy Storage: Base’s model leverages home batteries to support the grid, providing dual benefits of cost savings and reliability for homeowners while enhancing grid stability.
• Economic Viability: Clear unit economics with multiple revenue streams make the battery system financially attractive despite market volatility.
• Technological Innovation: Emphasis on LFP chemistry and vertical integration aims to reduce costs and improve efficiency.
• Scalable Financing: Strategic use of tax equity and securitization positions Base for significant scaling.
• Leadership and Culture: A robust engineering culture, inspired by exemplary mentors and personal values, drives Base’s innovation and operational excellence.

Notable Quotes

• Zach Dell [06:08]: "The grid is one of the most interesting machines in the world. It is probably the most complicated machine ever built by humans."
• Zach Dell [28:30]: "We think of ourselves as an energy technology company, but really what we are is a battery developer and asset owner."
• Zach Dell [38:20]: "Our math suggests that a battery in ERCOT over the next 10 years will average on the order of $40 a kilowatt hour."
• Zach Dell [53:32]: "There's a ton of lithium, a lot of iron, a lot of manganese, a lot of cobalt in the earth's crust. That's not a real constraint."
• Zach Dell [69:15]: "We think about the business as a technology company that is developing solutions to electrify the built environment."

This episode offers a comprehensive exploration of the current state and future potential of distributed energy storage, underscored by Zach Dell’s deep insights into the electrical grid, innovative business models, and the intricate balance between technology and finance. It serves as a valuable resource for investors, entrepreneurs, and anyone interested in the evolving landscape of energy infrastructure.