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A clever new way to distribute storage on the grid
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A clever new way to distribute storage on the grid

A conversation with Zach Dell and Justin Lopas of Base Power.
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A new startup called Base Power aims to bring more stability to the volatile Texas grid by selling customers oversized home batteries at minimal costs and then using the excess capacity to trade on the market. In this episode, co-founders Zach Dell and Justin Lopas discuss their innovative business model and its potential impact in Texas and beyond.

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Text transcript:

David Roberts

A couple of months ago, I heard about a startup in Texas that is testing out a new business model that I find fascinating and quite promising. Its ultimate goal is to get more storage on the grid, to help stabilize it and bring down prices, but it is the details that are interesting. Unfortunately, to understand why they are so interesting, you need to understand a few things about the Texas electricity market. So, if you will bear with me for a longer-than-usual introduction, here are five quick facts about Texas electricity.

One: The Texas grid is, for all intents and purposes, an island. It is not meaningfully connected to the large grids in adjacent states and does not import or export substantial amounts of electricity from them. This increases its internal volatility and makes it somewhat difficult to manage.

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Two: The Texas market is entirely restructured, which means it has a competitive wholesale market on the generation side and a competitive customer-facing market on the retail side. Retail electricity providers purchase power on the wholesale market and sell it to ratepayers. The utilities in between them do nothing but manage the wires.

Three: Most wholesale markets have what are called “capacity markets” alongside them, in which power generators are paid simply to be available in the event of unexpected need. Texas has no stabilizing capacity market; it is energy-only. When supply and demand get out of whack, the only way to realign them is through prices. This means that prices in the Texas market fluctuate much more widely than they do in any other US electricity market. More volatility. Part of what retail electricity providers do is use various financial tools and gimmicks to shield ratepayers from some of the wholesale price volatility.

Zach Dell & Justin Lopas
Zach Dell & Justin Lopas

Four: Over time, Texas electricity prices are not just fluctuating, they are trending upward. It's a familiar story: the cost of generating power is going down, because of all the new renewables coming online, but the cost of delivering power is going up even faster. The grid is the choke point.

Five: Texas suffers more and longer blackouts than almost any other state.

So that's Texas electricity: a self-contained grid, subject to frequent blackouts and wholesale price volatility, with retail electricity providers using what meager tools they have to protect ratepayers from that volatility.

Into that milieu enters Base Power, a new retail electricity provider in Texas that begins by selling its customers gigantic, oversized home batteries for little more than the cost of installation. In return, customers get more stable prices and backup power in the event of blackouts. Meanwhile, the grid gets distributed storage that helps to stabilize it.

Let’s dig in with the two guys who started it: Zach Dell, an entrepreneur, and engineer Justin Lopas, who among other things used to run starship manufacturing at SpaceX and helped found and grow the wildly successful defense startup Anduril. We're going to get into why they started this company and chose this model, how the model works, what they expect to get out of it, and its potential in markets beyond Texas.

All right, then, with no further ado, Zach Dell and Justin Lopas, welcome to Volts. Thank you so much for coming.

Zach Dell

Thanks, David.

Justin Lopas

Hey, thanks for having us.

David Roberts

Yeah, I'm really excited to get into this. There's a lot of stuff to cover. I have a lot of questions. So, let's focus in on the consumer experience. We'll start there, and then we'll pull the camera back. Zach, if I'm a Texas homeowner and I hear a knock on my door, and there is Zach Dell with a pitch to me as a Texas homeowner, what are you selling me?

Zach Dell

Great question. We're selling you more affordable, more reliable power. So, if you've lived in Texas for the last decade, your electricity has gotten more expensive and less reliable, and we want to change that with more affordable pricing and a battery to protect your home from power outages. So, the way our product works is, you sign up with Base and you pay an installation fee, and we install our product on your home. When the grid is up and running, we use that battery to load balance the grid, discharging when the grid needs power and charging when the grid is under less stress.

And when the grid goes down. When the power goes out, you get that battery to protect your home from power outages. So, the customer is really getting all the benefits of home backup without the high price tag of traditional home batteries or generators.

David Roberts

Right. And in terms of lower energy prices, are you guaranteeing me sort of like a set low rate or like, what exactly are you offering me price-wise?

Zach Dell

Yeah. So, we are experimenting with a bunch of different things, but the punchline is really transparency. As you mentioned in your kind of preamble, existing retailers in Texas, they're often a bit gimmicky, and they kind of do things like "free nights" and "free weekends."

David Roberts

Yes, there are dozens. And there's lots of hucksterism and scams, and it's a relatively shady area.

Zach Dell

Yeah, and it should be noted that there are plenty of good actors in the space as well. But we want to bring transparency to the market. Our core business is not necessarily selling electricity to customers. We do it because it's part of the offering. But our core business is really putting batteries on the grid and using those batteries to balance supply and demand. And so we really lean into transparency. So when you buy power to then go sell to homeowners, the price of that power moves a lot, as you noted. And so that's why you see such variability in pricing from different retailers.

Because if you sign up for a retail contract in October and you sign up with the same retailer in July, you're going to get a different price because the cost to serve that customer is very different based on the price of power in the wholesale markets. And so, we think leaning into transparency and saying, "Hey, look, this is what it costs us. This is what we're going to charge you. We're going to charge a small fee to basically serve you that power, but it's super transparent. And we're not going to try to confuse you with these different structures and rates."

We think that's the right, the right method. So, we will likely experiment with all different kinds of pricing methods, but the through line will be transparency. And so, as some of our customers have seen today, we offer a flat monthly fee. And so, a lot of our customers really like this because it makes pricing very predictable. Right. Let's say you pay $200 a month, because that's kind of a function of your usage and our cost to serve you. You pay that every month. So, in October and July, that's what you're going to pay. You know it's coming, you know how to budget for it.

Other customers want to monitor their usage. They want to kind of turn it up and down based on prices. Some people don't want to do that. So, we'll experiment with all different kinds of offerings, but really, the through line will be a more transparent retail energy pricing model.

David Roberts

Got it. So, lower, steadier, more transparent prices and backup if I need it. And you say, install your product on my home. The product in question here is a very big battery. So, once again, from the perspective of the consumer, what's it look like? Where do you put it?

Zach Dell

Yeah, it looks like a kind of slim, about 3-4ft tall, 2ft wide, roughly about a foot in depth. This is our generation one product. It's mounted on the wall. It typically goes outside, by the air conditioning unit. We think it looks a lot nicer than the average air conditioning unit. Our next product will be a little bit bigger. It'll be mounted on the ground instead of the wall, and it'll look like a kind of souped-up AC unit or think like a small kind of dorm room refrigerator type unit. So, the idea is that it kind of goes on the side of the home.

It's not necessarily a decorative piece, but it should look nice. It should be something that you're proud of.

David Roberts

Right. So it's like an appliance, basically, you're installing outside my house. And what's the process, again, from the consumer perspective, if you're coming installing it, like how easy to install? And do I have to mess with it at all?

Justin Lopas

Yeah, the process here is pretty simple from the consumer's perspective. We do basically all of the heavy lifting on the backend. So, the consumer comes to our website and they put in their address, and if we serve their area, they're in an area that we serve today. We start all of the process. We have the consumer just take a handful of photos of the outside of their home, kind of where the battery will be installed. That allows us to do all of the permitting work. And we go and process all of that in the background, and then we schedule a time to do the install with the customer.

It takes a handful of hours. The customer doesn't even need to be home, actually, because everything's done outside of the house. And so for the customer, it's pretty simple. Our back-end process involves permitting what's called an interconnection agreement with the utility. We schedule our electricians, and we generate all of the engineering documentation on the back end. Just from those handful of photos that come from the customer.

Zach Dell

Yeah, one thing I would add, David, is that when Justin and I were kind of researching this opportunity, one thing we found is that existing home battery companies typically outsource that entire process. So the installation process is a lot of things other than turning the wrench. It's permitting, interconnect agreements, scheduling the installer, last-mile logistics. There's a lot of paperwork involved. There's a lot of back and forth. And the installers, the electricians, they're really good at the installation, and they're less good, let's say, at the paperwork and the automation and some of those things. And by the way, these are not things that they want to do, right?

They're electricians, they want to be installing these systems. And so, what we do is, as Justin was mentioning, we handle everything up until the turning of the wrench, and then we outsource that to certified electricians who that's kind of their bread and butter. They much prefer this, the customer much prefers this and it allows us to make the process from customers saying, "Hey, I would love, based on my home, to batteries installed and commissioned and ready to go," backing their home up, protecting them from outages. We can get that down to like two days, which we've already been able to do over the last couple of weeks.

So, as far as I know, that's one of the fastest timelines out there. And I think that's enabled by our unique structure.

David Roberts

So, this is not like rooftop solar, six to eight weeks type of thing. This is measured in a couple of days.

Justin Lopas

That's right. And the interesting thing with solar is that it's far more custom, kind of on a per home basis.

David Roberts

Yeah.

Justin Lopas

You also have varied skill sets required. You need mechanical and roofing as well as electrical. And so, this is a simpler install from that perspective. And a lot of people just don't want holes in their roof and panels on their roof. Right. And so, this is a really compelling way to kind of participate in the energy transition and have affordable, reliable power without this sort of multi-week long, complicated process that is —

David Roberts

And all you need is a little patch of ground, basically, like a four by four patch of ground, which is pretty easy. Most people have it.

Justin Lopas

That's right, yeah.

Zach Dell

And that said, if you do have solar panels, we install alongside solar, and we actually often can shorten your payback materially by adding in the battery. So actually, solar customers are a really great fit for Base, but we're available to those who have it or those who don't or those who might be thinking about it in the future. All those customers are eligible.

David Roberts

And so, what's the customer interface look like? There's some sort of software. I mean, I assume there's an app. Everything's got an app. I'm interacting with the battery in some way. What does my day-to-day life alongside this battery look like?

Zach Dell

Yeah, so this is something that we're iterating on as we get feedback from customers. So today, we have a web app. You can log in, you can see how much power your home is pulling, and we show you some other information, kind of about the system. When the home is on backup power, when you're pulling from the battery, as opposed to the grid, we notify you. We let you know roughly how much outage protection you have, how much time we think you have. And typically, we will communicate with our customers directly. So we'll reach out to them and say, "Hey, power's out. Your home is on backup. You've got this much charge in your battery. This is how long it's going to last you. This is how long we think the outage is going to be." And over time, we'll build out that consumer-facing software to provide people with more and more information so that they are really well prepared for what's happening.

David Roberts

Is it purely informational, or is there any sort of smart home type stuff built in? So if the grid goes out, it can, you know, prioritize air conditioning or, you know, turn down the water heater or whatever. Is that kind of stuff built into the interface?

Zach Dell

It is definitely on the roadmap. Yeah. This is obviously a process, and a lot of this stuff takes time to build, but those kinds of features are certainly on the roadmap. And we're talking to our customers and trying to get feedback from them on things like this that they value.

David Roberts

And what is the battery chemistry? What kind of battery is it?

Justin Lopas

It's a lithium iron phosphate. So, it's the latest and greatest in lithium-based chemistry that's very safe, reliable, and good as a stationary battery.

David Roberts

Yeah, LFP. So, no fires.

Justin Lopas

That's right.

David Roberts

No fires and no rare minerals.

Justin Lopas

Yeah, and it's worth mentioning, our current technology is LFP. But as you know and have written about quite a bit, there's a lot of advancements in battery chemistry that we'll certainly take advantage of over time. LFP is just the latest, greatest, and best for this particular use case right now.

David Roberts

So, you could imagine, say, a sodium-ion version of this.

Justin Lopas

Yeah, potentially. Look, we take chemistry and reliability obviously extremely seriously. And so, we're really looking at what the latest and greatest is, but also what is a proven, safe, and reliable technology, and that today is LFP.

David Roberts

Right. And you're not manufacturing battery cells. You're buying cells off the shelf and designing sort of the packs on your own. Like, how much of the battery that's outside my house is designed by you versus off-the-shelf parts?

Justin Lopas

So today, it is primarily off-the-shelf components. And we are in the process of developing, and we'll have ready early next year on the market, a much more custom-based designed piece of hardware. That's what Zach was alluding to, the sort of wall-mounted, skinnier box that we have today versus the sleek air conditioning unit looking ground-mounted unit that we'll have early next year. And the short of it is, no, we're not manufacturing our own cells. If you're familiar with that as a process, it's its own whole can of worms — most battery manufacturers do not make their own cells — so we procure cells and we put them into a pack and also inverter design that is custom to us.

And really, like, it's, you know, there's a handful of requirements around this second-generation hardware that we've been designing to. I think very importantly for consumers, it is a bigger pack and a bigger inverter, which means it can handle more load on the home, and it has a longer duration of discharge. And then for the business, that means that we can serve the Texas grid for longer and with more energy. And so that's, like, the primary requirement. One of the secondary requirements is making it very easy to install.

We want to install these as fast and sort of as low effort, both from us and the homeowner's perspective, as possible. And so, that ground-mounted unit, you know, by virtue of being ground-mounted, you don't have to go find studs in the wall and figure out where to mount it specifically. And so, there's a lot of little things on the gen two hardware that enable faster and easier installation.

David Roberts

Got it. And how big is the battery in terms of capacity? And how long will that power my house?

Justin Lopas

Yeah. So today's generation one hardware is a 20 kilowatt hour. And, you know, it's very dependent on usage, of course. But it's on the order of a day, typically of an outage. In our generation two hardware is 30 kilowatt hour. So on the order of a day and a half or so, again, very dependent on usage. You can make the battery last a whole week if you're curtailing usage during an outage, if you expect the outage to be very long in duration. And also worth noting that dependent on the house, we will be able to sometimes install two of these. And so you can do the math and sort of figure the duration from there.

David Roberts

So, about a day and a half at full household use.

Justin Lopas

Yeah, your kind of typical use. And again, very, like I said, very dependent on what the usage is. We alert the user that they're in an outage. You might not even know, actually, your lights sort of, like, flicker as you transition over to the battery. But that's kind of the beauty of having a battery on your home as opposed to a generator, is there's not this, like, actual outage time, you know, between when the power goes out and the generator.

David Roberts

Are outages in Texas typically short? Like, is there an average length?

Justin Lopas

Yeah, it's worth noting our current hardware will produce — we've done quite a bit of research and data collection on this — our current system will last through 97% of outages. Most outages are on the order of half an hour, one-hour, two-hour timeframe. Very, very occasionally is it quite a bit longer than that. And even then, you have a day, day and a half, two days, and you're able to plan for your next step if you have a really, really extended outage.

David Roberts

So, as we're going to discuss later, you're trying to install basically as much battery capacity as possible, because you're doing other things with it other than serving the homeowner. So, why stop at 30 kilowatt hours? Is the upper limit practical? Is it about what consumers will put up with? Is it about the size of the interconnection? What's the upper limit on how big a battery you could install?

Justin Lopas

Yeah, it's a great question. It's primarily limited in the size of the interconnection, is the short answer. So, yeah, home interconnection typically has a 100 amp or a 200 amp panel, although that is, I don't know how down to the weeds you want to get, David, but typically the transformer that that is hooked up to from the grid company is undersized with respect to that. So maybe it's 25 kW or something is kind of what's typical. They're 25 or 37.5 are the specific numbers that are on the grid here in Texas. And so if you put more than that, you have to upgrade the local infrastructure, and that's kind of another whole issue.

And so, what we're doing is we're putting as much storage and as much power onto the home as we reasonably can, given the local infrastructure. But in cases where we can install more, we will. Like I said, we would do two systems next to each other, which would be 60 kilowatt hours.

David Roberts

Got it. So 30 kilowatt hours is something that you're confident any more or less, any household can —

Justin Lopas

Yeah.

David Roberts

can deal with.

Justin Lopas

Yeah, that's right. That's right.

David Roberts

And this is a subject where I want to be careful not to get in a rabbit hole, because I know.

Justin Lopas

Oh, we can do that if you'd like.

David Roberts

Well, any of these. Any of these questions I'm trying to skip lightly over all these rabbit holes. Are there zoning or homeowner association rules that you are finding to be more challenging than perhaps you anticipated?

Justin Lopas

Yeah, I wouldn't say necessarily more challenging than anticipated, although certainly challenging. Again, a rabbit hole we'll skip over, or we'll mostly not go down into here. Typically, the municipality that we're in, the city of X, Y, or Z, requires you to file for an electrical trade permit, which, again, as Zach and I were saying, we do totally on our own without the homeowner being involved in that. And that is a process that is very dependent on what the municipality requires. And then on the HOA, the homeowners association side, some do. Typically, it's a relatively simple, "Hey, here's a picture of what it would look like."

And it's typically an aesthetic concern. And as we were saying, both objectively and I would say subjectively, it's far more attractive than your traditional kind of gray box or your meter, gas meter or electric meter. So typically that's not as much of an issue.

David Roberts

You haven't run into a homeowners association that just flatly says, "No, we're not allowing white boxes outside of the —"

Justin Lopas

No, we have not. No, we have not. Which has been great. Yeah, look, we're adding value to the home. We're adding value to the homeowner, we're adding value to the community, we're adding reliability and resiliency to the Texas grid. HOAs are typically there to kind of push for at least some subset of those things, and so typically received pretty well.

David Roberts

Why just residential? Why not multifamily buildings or small businesses? Or is that on the horizon?

Justin Lopas

Yeah, so it is on the horizon. It's on the roadmap, starting with residential for a few different reasons. One is that the value, something that the folks in the electric industry oftentimes call the "value of lost load," basically, how valuable is it to provide backup is very high for a homeowner. Right. A homeowner has, if it's a family, they've got kids, they've maybe got medical equipment. These things really matter to people. And so there's a lot of kind of individual value associated with that backup, more so than a commercial building, oftentimes. Also, there's just a lot of homes.

It's a huge market, and we can bring individuals along in this energy transition. Again, more so than just businesses.

David Roberts

What about multifamily, though? Like an apartment building would seem like a great target?

Justin Lopas

Certainly. Multifamily is interesting. There's a less exciting but more practical limitation here, which is oftentimes space. If you live in an apartment building, you may have your meter in the garage, in the basement, or outside in sort of a panel. There's just physically typically not a lot of room for that. So, we're focused on single-family homes for now. But again, on the commercial side, it's certainly on the roadmap.

David Roberts

So, you're installing eventually dozens, hundreds of these. Presumably, you want to minimize the amount that you have to go back out and visit the homeowner again for repairs or anything like that. So, how do you think about ongoing management and operation in terms of just minimizing the touch, just minimizing the man hours of maintenance?

Justin Lopas

Yeah, it's definitely a consideration and a great question. So, luckily, with batteries, just by virtue of the technology in comparison to, say, a generator, you don't have to oil it, you don't have to change seals, nothing's moving. When you have physical parts moving in an assembly, you just definitionally have more things to worry about and preventative maintenance. These batteries should last on the home and require no maintenance. There's no scheduled maintenance, so to speak, where we have to go and change the oil or something like we would on a generator. So, it's certainly a consideration. And luckily, because we are talking to the battery over the Internet, we can do remote insight into the health of the battery and do any diagnostics that way.

So, we can do a lot remotely, which is really great.

David Roberts

Can you do repairs at all? Like how much can you do centrally? Can you fiddle with the actual —

Justin Lopas

I mean, we can change settings, we can update the firmware or the software. We obviously can't unplug and plug in wires and such, but we can do quite a bit sort of digitally, remotely. We don't want to have the homeowner inconvenienced by that. And we also don't want to go out as well.

David Roberts

Right. How long are the batteries supposed to last? Is there some kind of warranty, or when a homeowner signs up, how long of a term are they typically thinking about?

Justin Lopas

Yeah, so we typically think about it in a 15-year term, which is roughly the duration of health of the battery. But like any battery, there's some degradation that happens over time. And so there's not like a definitive end state, so to speak. But on the order of 15 years is what we've modeled and what we typically do.

David Roberts

Are they modular such that you can like remove individual cells or packs and replace them? Or is it the kind of thing where the whole thing has to come out and a new one goes in?

Justin Lopas

In our current hardware, there are four modules. In our next hardware, there'll be six modules, so you could swap them out. This is not something that we certainly would ask of the homeowner that we necessarily plan to do, but from a maintenance standpoint, if we needed to, it's not kind of an all or nothing.

David Roberts

Okay, so this concludes the consumer portion of our podcast. We forgot to mention: they pay $2,000, which is obviously a tiny fraction of what they would pay to buy a battery. I mean, if they were going to buy this battery, it's like, what, $20,000 ish? Is there a hard number there?

Zach Dell

That's about right for an equivalently sized home battery.

David Roberts

Right, right. So they're paying $2,000, which is basically just the price of installation. You install the battery, you maintain the battery, the homeowner gets steady, transparent power pricing. They're buying power from you as their retail power provider, and you're using the battery in part to steady their power and reduce their peaks and give them more reliable, steadier, and more predictable power prices. And you're offering them backup for when the grid goes out. And in exchange, they basically just have to let you stick a battery outside their house, and then it sounds like from there they just live their lives. And there's not a lot more. There's not a lot more to it.

Zach Dell

That's right.

David Roberts

Meanwhile, you now, Base are going to have this network of very large batteries, batteries that are wildly oversized for what the actual homeowner will need or use. So you've got a bunch of battery capacity that is mostly sitting idle, mostly not being used by the homeowners, that is attached to. And you have them all networked together. So you have a big network of batteries. What do you do with it? How do you make money with it?

Zach Dell

Yeah, so we bid those batteries into the wholesale markets. So there's a large industry of what are referred to as "utility scale battery developers." So folks like Broad Reach Power, Jupiter Power, iPower, Eolian, think like shipping container battery systems in the middle of nowhere, kind of in farm fields. And this is what they're doing. They're doing energy trading with the grid. So they're participating in the energy markets, and they're participating in the ancillary services markets, which are really a capacity market concept. And so what that means is when the price of power is high, these batteries are discharging.

When the price of power is low, they're charging. And so, our systems do the same thing, but in a distributed nature.

David Roberts

A virtual power plant, right? That's what this is.

Zach Dell

Yeah, you could call it that. I think we kind of laugh at that term. It's a good term. It's accurate. Many of you credit Jigar Shah with coining that term, and

David Roberts

He does love that term.

Zach Dell

Yeah. And he's been an incredible leader for this field and this industry. Many thanks to Jigar for the great work he's done to inspire a lot of people like us to go into the space. But we laugh because it's not virtual. There's nothing virtual about it.

David Roberts

The batteries are real.

Zach Dell

Right? The power is real. The energy's real. It's all real. So, it's a power plant. Now, it's not in traditional terms,

David Roberts

But maybe a distributed power plant. That's right. Too late to put that horse back in the barn, but —

Zach Dell

That's right. If you want to call it a VPP, that's fine with us.

David Roberts

And you are operating in wholesale markets as though you were just a normal power plant, as though you were any other bulk resource. Are there special rules? Are there different rules? If you're a virtual power plant or from the perspective of the grid operator, are you just another bulk provider?

Zach Dell

Yeah. So, we're a retail provider. So, we're a market participant. We're a load-serving entity. We're a qualified scheduling entity, and we act as a market participant and use those market interfaces to offer our power into the wholesale markets. There's a bunch of work being done in Texas, specifically, actually to qualify aggregated distributed energy resources for the ancillary services markets.

David Roberts

That's not done yet.

Zach Dell

It is just getting started. There is a pilot program called the ADER pilot (Aggregated Distributed Energy Resources) that is working on this exact problem. Basically, how do you get a bunch of distributed resources like batteries, like smart thermostats, to be able to participate in these capacity markets across Texas?

David Roberts

So, an ancillary services market, just in case listeners don't know, is sort of an energy market where you're just buying and trading energy. The ancillary services are things like frequency regulation, things that the grid — services that the grid needs to keep operating in a healthy way. So, I have questions about the financial part of this then. So, if you're not yet in ancillary services markets — and the way I understand it is that ancillary services markets, even if you gain access, are relatively easy to saturate. Like, it's not a huge market. So, it seems like the bulk of your money is going to come through arbitrage on the wholesale market, i.e., storing power when it's cheap and putting it back on the grid when it's expensive.

Zach Dell

Yeah, I think it's hard to say. I think there are a number of ancillary services, some of what you mentioned, that exist today. Those are a function of the state of the grid. There is no rule that says that new ancillary services cannot be created. We've seen a number of new ones created in the last couple of years, some of them that seem well designed for batteries to participate in them. And so, our view is that there's a likelihood that as the grid kind of evolves as part of this energy transition or energy addition, as we like to say, there might be new ancillary services that come up that we're really well positioned to go participate in.

And in terms of saturation, I'd say there's definitely two sides to that argument. And there are a lot of variables to consider when trying to understand when the market is going to saturate. But, yeah, if you look at the current products out there in the ancillary markets, that is a conclusion that many have come to. But we don't pretend to be experts in how that's going to evolve. But we think that batteries have fundamental value on the power grid, and we think we'll be able to realize a lot of that value in both energy arbitrage and ancillaries.

David Roberts

Yeah, and I guess I just wanted to hone in on the arbitrage a little bit. You know, obviously, as I said at the beginning, this is a volatile — the prices in this market are volatile, and they swing. They have quite large swings. So that in and of itself suggests that arbitrage, there's a lot of arbitrage to be had. I guess I just want to ask, like, you are hoping to pay for hundreds of $20,000 batteries and all the service provision and product development and software development, and all of this through the money you get through arbitrage.

Are you confident that there's, A) enough arbitrage to make a lot of money on and B) that there will be for the foreseeable future? Like, how confident are you that arbitrage is good business in the Texas grid going forward?

Zach Dell

Well, like I said, we think that batteries have fundamental value on the grid. Whether that value is realized via arbitrage on energy prices, participation in ancillary services, or supporting homeowners, that is kind of a sliding scale based on the conditions on the grid. If you look at ercot.com, it is a fantastic website, actually, that the folks there have done a really good job of aggregating all of the data. It's publicly available. You can go poke around and you can see the price swings at different times of year. They actually have some phenomenal learning resources in terms of "How do the markets work?" and "How does all this stuff connect to each other?" to help Justin and I get up to speed in the early days. But, yeah, we think that there is a massive opportunity here for batteries to be valuable grid assets, whether it's in arbitrage, capacity markets like ancillaries, or serving homeowners. So, we're very bullish long term on the value of distributed batteries on the power grid.

David Roberts

Talk a little bit about the data you're getting, because there's a lot of people out there trying to arbitrage already on the Texas grid. There's a whole industry. As I understand it, you think that the information you're getting from your batteries, from your homeowners, enables you to do sort of a better, faster job of that. Talk about a little bit about what kind of data you're getting and how it, and how it's an advantage.

Justin Lopas

Yeah, David, I think, like, one thing that might also be helpful in this context is the distinction between distributed versus centralized battery storage. This plays into the question on data that you just mentioned. But what 99 point something percent of the battery storage on the grid today is in, is in these big shipping container battery farms. They're really only economically exposed to the wholesale market's pricing at that given location. I don't know if your listeners are super familiar, but in Texas and most other places, the pricing on the grid is different, location to location.

David Roberts

Locational marginal... What is it, pricing? LMP. Thank you.

Justin Lopas

Yeah. Locational marginal pricing. And so, that can vary quite wildly, actually. You can have parts of the state that are deeply negative in pricing and other states that are at the price cap of $5,000 a megawatt.

David Roberts

And that's just because of grid congestion, right?

Justin Lopas

That's right. So, the phenomenon in Texas, very much so, is there's a lot of solar in the west part of the state and a lot of wind in the southern part of the state. But if you know where Houston, Dallas, San Antonio, and Austin are, they're all in the northeast part of the state. And so, there's a lot of congestion on the lines, just like congestion on roads getting that electricity from those generation locations to where it's consumed in the big cities. And so, by virtue of having distributed batteries, not only is the data that you're able to collect from various parts of the grid very valuable in and of itself.

But the ability to trade energy is far more effective than just being exposed to one price. So, if you put a big battery firm in Abilene, it's like, well, whatever the price in Abilene is, is the price that you're either getting charged or making money off of when you discharge back to the grid. Whereas for us, Abilene might be positive, while Houston is negative, and vice versa. And so, that's a very important distinction with distributed batteries that I think also this sort of data piece comes into, if that makes sense.

David Roberts

So you're able to arbitrage from a variety of different locations, depending on —

Justin Lopas

Yeah, the way to think about it is every battery is operating under its own economic incentive, which is based on the prices at that location. And this is something that no other sort of centralized battery is able to do. And it's not just — I mean, we're talking a lot here about kind of how the company makes money and how we think about making money. It's very important to note, though, that the prices are reflective of supply and demand. And so high prices mean there's a scarcity, which means that if you discharge into that scarcity, you both make money, which is great for the company.

But importantly, you're also relieving that congestion and you're helping the grid. And so, in the sort of free market of the Texas grid, so to speak, the arbitrage, or sort of financial trading, is actually beneficial writ large to the grid, which is an important point, I think.

David Roberts

Tell me about the telemetry. Like, you presumably are getting — typical market participants, I think they get, like, a price every, is it down to 15 minutes in the Texas market? It's pretty fast.

Justin Lopas

Yeah.

David Roberts

I guess different wholesale markets across the country do this somewhat differently. But in Texas, it's like every 15 minutes. But you are getting information faster than every 15 minutes.

Justin Lopas

That's right. We're getting information on the sub-second kind of the millisecond level as needed. And this is a key distinction also. Prices change every 15 minutes, and then there's like a five-minute — sub-tick is kind of the way to think about it, that ERCOT runs that sort of predicts the next 15 minutes pricing. Not only are we getting data on what the grid is doing at the location of the battery, but we're also getting data on what the home load is at the time of the battery. And so we're not only able to dispatch the battery that is best suited for us in our sort of economic participation in the grid, but importantly, also based on what the homeowner is doing.

And so, that's really, really valuable information that we can then use to operate the batteries far more effectively. So, the sub, sort of certainly sub-15 minutes data, is really, really interesting.

David Roberts

Right. And so, here we come to one of my fundamental questions about this whole business model, which is the trading you're doing, the arbitrage you're doing is helpful to the grid in that it is evening out these geographical and temporal sort of bottlenecks, right? Like, you move power in space to where it's needed and you can move power in time to where it's needed because batteries can store so they can move it in time, and then you've distributed all over the place, so you can move it in space. But as you do so, as you arbitrage, you even out, you reduce the peaks, you even out these bottlenecks.

And by doing so, you reduce the amount of arbitrage that is available. In other words, it seems like by distributing batteries all over the grid and doing this very sophisticated arbitrage, you are in some sense eating your own lunch. You're reducing the amount of arbitrage remaining to do. The more you do, the less there is to do. And similarly, the more you balance out the grid and the more you help the grid avoid these peaks and bottlenecks, presumably, the fewer blackouts there will be, which will again reduce your value to the homeowner. So, it looks like on both those metrics, you sort of are going to hang yourself if you succeed.

If you succeed in arbitraging, you're going to arbitrage away the arbitrage. And then what do you do? Are you worried about eating your own lunch here? Hey there, everybody. Don't worry, I'm not going to tell you about a new mattress or push a credit card on you. This isn't an ad. There are no ads on Volts. It is supported entirely by listeners like you. If you'll indulge me for a second, I'd like to ask for your support. I started Volts because we're all surrounded by depressing news about climate change and misinformation about clean energy. And it's never been more important to share the stories of the real people on the ground doing the real work of transition and all the ingenuity and courage and public spirit they are bringing to it.

People are hungry to hear these stories, to learn from and find inspiration in them. I've heard from people who change majors or careers after hearing episodes of Volts, people using it in classrooms, community groups, even state legislators who have passed bills inspired by specific episodes. Sharing these stories matters. It makes a difference. If you have found value in it and want to help me continue doing it, I hope you will join the community of paid subscribers at volts.wtf. It's about the cost of a cup of coffee a month. If you don't like subscriptions, you can make a one-time contribution, leave a review on Apple or Spotify, or just tell a friend about Volts. I am grateful for any and all support. If you're already a paid subscriber, thank you. And now, back to the show.

Like, if you succeed in arbitraging, you're going to arbitrage away the arbitrage. And then, what do you do? Are you worried about eating your own lunch here?

Zach Dell

Short answer, "no," but the long answer is long. So, let's jump in. And Justin, of course, jump in for anything I miss. So, this assumes that two very important variables stay constant, which we don't think are going to stay constant. One is the volatility of supply. So, we're talking about the volatility of demand, but the volatility of supply is a super important factor here. And when we talk about that, what we're really saying is intermittent supply. So, wind and solar, right. And so, the percentage of total supply coming from these intermittent resources is going up really fast.

And so, this is making the supply side more volatile. The demand side is also getting more volatile. So, you've got the electrification of the auto industry. I think if you went to a dinner party and you asked your friends what percent of new cars sold in the US last year they think were electric? Well, actually, David, what do you think the number is?

David Roberts

Oh, geez, a quiz right in the middle. Are we up to like 10%?

Zach Dell

That's a pretty good guess. Most people guess like 20%, 25%, 30%.

David Roberts

I knew I was going to guess high.

Zach Dell

If you live in San Francisco, you guess 50%. Maybe Austin is 40%. The Midwest is lower. The answer is 5%. In China, it's 25%. In Europe, it's closer to 20%. These are obviously leading indicators. Our view is that that number is going to go from 5% to 50%. And when people get home from work and they want to charge their car at home at the same time, that is going to create a bunch of demand. There's a lot of demand coming from electric heat pumps, electric water heaters, electric pool pumps. Then you have, obviously, the electrification of heavy industry.

You have a ton of demand coming from AI data centers. You have this volatility of demand coming. You have volatility of supply coming as more wind and solar come online. Batteries do drive that volatility down, but it's really a race. It's a race between these resources and this volatility concept. Justin and I feel that this is a really important problem to solve. Another point worth mentioning is that most people think that grid outages happen when supply and demand mismatch. And that is true. There are kind of controlled rolling brownouts or grid outages to control those situations.

But the reality is, the vast majority of outages that happen at the home level are due to outages on the distribution grid. And that is really like someone drove their car—

David Roberts

Squirrels. Squirrels, as I understand it, are the main culprits.

Zach Dell

Squirrels chew through a wire. Someone drives their car into a pole. A tree falls down on a wire, and those kinds of things will continue to happen. And we want to be there to protect homeowners.

David Roberts

So basically, you think the volatility on the Texas grid is growing fast enough, so fast that there's no reasonable expectation that you could get out ahead of it, basically.

Zach Dell

That's right. Our math suggests that we've got a lot of work to do to temper that volatility. And yeah, we like to trade.

David Roberts

So, your revenue, your main source of income, is somewhat volatile. Volatility makes bankers and funders nervous. Why not throw in a few long-term contracts for stability? I mean, presumably, you could sign as a VPP, you could sign long-term contracts, maybe with transmission service providers, just to provide sort of like help to the transmission grid. You could get paid for that on a long-term basis. Why put all your chips in this sort of short-term volatility?

Zach Dell

It's a great question, and I would say that we are definitely exploring options like that. I wouldn't characterize it as putting all of our chips into any one thing. At the core of what we are building at Base is technology to solve hard problems on the power grid. Hardware, software, operations, expertise to deploy distributed energy resources and manage them to support the power grid. How we package those products, that technology to serve the needs of our customers is definitely something we'll experiment with. We're really excited about the opportunity of working with what are called non-opt-in entities or NOIEs, these vertically integrated, kind of regulated utilities in Texas and outside of Texas.

And there could be some opportunities for some more long-term type deals with those folks, and then something closer to what you alluded to, which is having customers sign up for longer-term contracts. And structuring these products in a way that looks more akin to the way resi solar has worked over the last decade. And so, we're a very kind of data-driven experimental team at Base. And this kind of initial launch is our hypothesis as to where we want to start. But we will definitely test all of these kinds of things. Yes, the grid is volatile, but the volatility is relatively predictable in terms of seasonality.

And so, if you're — I don't want to get too in the weeds on how debt is structured, because it's not interesting to 99% of people. But there is a real precedent out there for structured debt around volatility, that has seasonality baked in, basically, where you know where the volatility is going to come. And so, you kind of structure financial products around that. We're not the first business to have a return profile that looks like this. And so, the capital markets are pretty sophisticated when it comes to building products for these kinds of companies.

David Roberts

One thing I forgot to ask, when you're sort of arbitraging and moving power around in this network of batteries, how do you, like, if I'm a homeowner, how can I be sure that when a blackout comes — because, as you say, the vast majority of them are really unpredictable. How can I be certain that when a blackout comes, my battery is going to be charged up enough to give me that full day and a half of backup? As opposed to having recently sent its power to the grid for arbitrage.

Zach Dell

I'm glad you asked. This is a really important question. Our number one priority is protecting our customers from power outages. That is why we exist, to make sure when the grid goes down, your power doesn't. So, we never discharge our batteries below a 20% state of charge. We make sure that there is a reserve for our customers at all times. Now, the other piece of context that I'll give you is that the way we cycle these batteries, and you can back into this by looking at the prices on ercot.com and how the market behaves.

There's really only about an hour a day where you want to be discharging these batteries. And so, for 23 hours a day, the battery is near a 90% state of charge. It's a very short window in the day where we're discharging the battery. And so, in the event that the grid happens to go down in the moment that we've just finished discharging the battery, you still have at least 20% of the battery, which, as you mentioned at the very beginning of the podcast, is a really big battery. So, 20% of our battery is actually going to give you a good amount of backup.

Now, it depends on the size of the home and how much power you pull, and that kind of thing, but that's how we think about it. Priority number one, protect the customers. And downstream of that is, well, we have this reserve capacity. And when things like big storms come or things where we think there are more likely to be outages happening, we make sure we've got reserve in the battery for our customers.

David Roberts

Got it. So, as you say, the central animating principle of the company, what led to the company being born, is this insight that the grid is the bottleneck, which is practically Volts' tagline. The grid is the bottleneck and batteries are what unblock the grid, basically that we need to get a lot of storage out onto the grid, starting from there. Say a little bit more. You've said a couple of things, but say a little bit more. Why not just become a battery developer? Why not just big battery farms? Or even if you're going to distribute them, why not community level batteries?

I know a lot of people are excited about batteries that are sort of on distribution grids, but in front of the meter, sort of like kind of large battery farms at the community level, or if you want them really distributed, why not just make use of EV batteries, which are profusing, are everywhere, are highly distributed, are not in use most of the time, et cetera, et cetera, et cetera. Why? I guess on the bulk level, why not just do battery farms? And on the distributed level, why not EV batteries?

Justin Lopas

Yeah, there's a lot to unpack there. So, the way we thought about it is if you take the very simplified view of the grid as basically imagining in your head a line between a solar farm and a home. The question that we asked ourselves in sort of thinking about how do you solve the problem of the grid, is where on that line do you put the battery? Let's say you put the battery on the — imagine in your head, this line on the left is the solar farm, on the right side is your home — so you put it all the way on the left, you've solved, or at least if you've sized it correctly, you've solved the supply volatility problem.

Because now this solar farm, instead of producing at noon and none at night, looks like a flat line across the day.

David Roberts

And that's what most batteries on the grid now are doing. The bulk —

Justin Lopas

Yeah, they're co-located with generation. That's right, yeah. Or they're in the middle of this sort of line in your head where they're in the middle of the grid. However, this doesn't solve the demand volatility problem, and this is a very important point. So demand is not constant. It's actually very unconstant. So, 06:00 p.m. everybody comes home and turns on their AC, plugs in their electric vehicle, etcetera. Now, there's a lot of usage, but in the middle of the day or middle of the night, usage is quite a bit lower. And so you have this, like, sharp ramp up that happens between like 04:00 p.m and kind of 07:00 p.m.

06:00 p.m. and 07:00 p.m. But anyways, if you go back to the sort of line in your head, you know, you slide this battery along this line, if you put it all the way at the home side. Now, you've also smoothed out demand volatility. And so the infrastructure that is required to bring the electricity from that solar farm to that home is definitionally smaller. It does not need to be as high because it doesn't need to support the peak load of the grid.

David Roberts

Right.

Justin Lopas

So, just to put some numbers in your head, to put some context around it, the ERCOT, the Texas grid's demand peak was last summer at 85 gigawatts. That's the latest record. And let's say you went and put ten gigawatts of batteries on the grid and load grew by ten gigawatts, right? Now, you're able to support that new load with those batteries, as opposed to building more or larger poles and wires. Pushing the batteries as far to the distribution side as possible, is, we think, the most effective for the grid. Now, your second part of your question is around EVs, and why not just use those batteries?

It's great, actually. Our view is that this will happen. We will likely participate in it in some way. EV batteries are interesting, and there's a lot of them now and going to be a lot of them in the future. There's a few limitations, though. One is that EVs are meant to be driven, meaning they're definitionally not plugged in all the time, which means that they're. And when you come home from work, if you're sort of in a traditional sort of nine to five style or day shift type job, you come home and your battery is discharged, and so you want to charge it in case you need to go out at night or whatever.

And that's the exact time when you want to be discharging onto the grid. So, the demand patterns don't really support it all that well. The other thing is that a lot of the EV manufacturers have a really hard time sort of monetizing or predicting their warranty if you're using the battery for the grid. And the last point that makes it difficult, but again, not impossible, but difficult, is the grid operators, like ERCOT, as an example, or PJM or NYISO, these big ISOs, they want to have a lot of predictability as to what resources are available on the grid, and you can't guarantee that everybody has their car plugged in when you need it.

And so, that also gives. It's a big limitation. So, long answer to your short question, but I think. We think vehicle-to-grid is an interesting technology and will certainly be used, but stationary storage really has a lot of value specifically for the grid.

David Roberts

Right, right. And how big is 30 kilowatt-hours relative to an EV battery? Just for listeners.

Justin Lopas

It depends on the EV, but on the order of half. Like, if, like Model 3, Tesla Model 3, the standard range is 62, I think, kilowatt hours.

David Roberts

Yeah, it's always mind-blowing to me how big the batteries in EVs are. Like, you're wildly oversizing your battery for home use, and it's still half the size of an EV battery. It's just —

Justin Lopas

Yeah, I mean, there's a lot of energy in transportation. I mean, look, and this is — you're highlighting the challenge that we have with the grid as heavy industry and transportation electrify. Imagine going from zero kilowatt-hours used for your transportation from your home to your work, to 60 a day or something like that.

David Roberts

Yeah, so one obvious question here is, it seems like the way you're set up, at least at launch, is very custom-designed for the Texas market. Like I said, you need restructured wholesale markets and retail markets. You need lots of volatility to arbitrage against. You need the ability to be a VPP, to operate in the wholesale market as a VPP and trade on the market. How well is this model going to travel outside of Texas, like, when — other wholesale markets are challenging? And then there's all the areas that are still vertically integrated. How are you thinking about this?

Or are you just going to stay in Texas for a while until you get scaled up and established? What's your sort of travel plans?

Zach Dell

Yeah, there's a bunch of questions in there. Let's see if we can hit all of them. I'm sure I forgot what you — no, all good. All good. They're all good questions. There's a couple of things here. So, the reason Texas is the place to start is because it's where the problem is the worst. And there's a reason for that. Right. Texas is in the middle of the wind corridor, and it's in the middle of the sunbeam. So, it's got more wind and solar, more intermittent supply resources than anywhere else in the country. It's also got a ton of load growth.

Right. It's tons of people moving there, tons of industry coming to Texas, which is a wonderful thing. And so the grid is under immense stress for those reasons. Now, it also has a market structure, like you alluded to, that is conducive to our business model. There are other markets that have that same, or similar, I should say, market structure. Much of the Northeast, in fact, Ohio, Illinois, Pennsylvania, New Jersey, parts of New York, all markets where this structure kind of broadly exists. There are nuances to all of them. They're not all structured in the exact same way as Texas.

I'd say market deregulation is kind of on a spectrum, and Texas is probably on the farthest end of the spectrum in terms of deregulation. It's also out of the oversight of FERC, which is meaningful in some ways. And so, there are other markets to go run this play.

David Roberts

Retail competition is not as common as wholesale competition. As I understand it, more markets have done the wholesale markets than have done retail markets.

Zach Dell

Right. If you poke around on the Internet and say, "How many markets are deregulated?" First, you see it's like, "Oh, it's like 16. No, it's really 14. Oh, it's actually really eight." It's nuanced. The punchline here is we certainly plan to expand outside of Texas. There are many ways to do that. One is going to some of the eight markets that are really attractive from a market structure standpoint. Another is selling products to the regulated utilities. And we could actually do that here in Texas first and then go outside of Texas. So, folks like Austin Energy, CPS, Bluebonnet, Pedernales, and those folks who need to solve these hard problems and don't have teams of engineers who are building hardware and software like we do, we can package up these solutions for them to serve their members.

And that's something we're excited about. And then, that model is obviously applicable in places like California, Colorado, Florida, Arizona.

David Roberts

So, how would that work, though? The monopoly utility, the regulated monopoly utility, would hire you as like a contractor. Like, they would hire you to go install batteries in there?

Zach Dell

I think it remains to be seen, and obviously, it depends on the counterparty. So, it's something that we'll experiment with, and we're excited to collaborate with some of these folks on how to best serve their members. But it could be something like that. It could be something like, they buy these products from us and go deploy them themselves. We're pretty open-minded, as I've said a couple of times, we're really focused on solving the hard technical problems on the hardware and software side, and also operationally, there's a bunch of complexity here, as Justin was alluding to earlier.

That's where we're really focused. And we think those solutions can be packaged inside of Texas and outside of Texas for regulated utilities and in the deregulated areas. It's worth mentioning, though, David, that Texas is — this is going to sound silly — Texas is really big. Really big. It's the 8th largest economy in the world. It's just a massive place. There's 11 million single-family homes now, only 8 million of them, and I say only 8 million of those are deregulated meters, but that number is growing at 4% or 5% a year, and that growth rate could increase. And so, we think there's a ton of room to run in Texas.

But we are certainly, we have ambitions to build a business that is much larger than just a Texas-only company. That said, we're really proud to be based here in Austin and really focused exclusively for the time being on solving problems, specifically in Texas.

David Roberts

Are you in talks with or thinking about the real estate, the home building business, getting in homes as they're built? And would that change how you think about product design at all? Like, if you could design a battery into a new home as it is built, would you still do it the way you're doing it, adding on to existing homes?

Zach Dell

Short answer, "yes." Long answer: It's a lot easier to install a battery while the home is being constructed or towards the tail end of construction than it is a retrofit. And so, we are excited about that opportunity. We are working directly with some home builders that are building large developments in Texas in the deregulated areas. And I think we'll look to do more of this going forward, certainly.

David Roberts

Yeah, I mean, this is maybe just my imagination running wild, but you can think of all sorts of ways that, just aesthetically, you could design the battery into the construction of a house such that it —

Zach Dell

Be careful, David. We may try to hire you. These are good ideas.

David Roberts

— almost like in the wall or something like that. Anyway, Justin, you come from SpaceX and Anduril, which are very much about manufacturing devices, so factories. And you've thought a lot about manufacturing processes and how to rationalize them and optimize them, etcetera. What you have here is not that: You do not have a sterile environment in which you are building things. Here you are interfacing with humans and social and economic systems and regulatory systems. It's just this kind of workflow from start to finish here is much, much messier than it is, I think, than the sort of factory settings in which you are accustomed to doing your work.

So, part of what I found really interesting that I've heard you talk about on a previous interview is trying, in some sense, to carry some of that knowledge and some of those practices over from manufacturing to this more sprawling, messier process. So, the way you refer to this as having a "deployment factory," kind of like thinking of this like a factory process and applying those kind of rules to it. Talk a little bit about how you're thinking about rationalizing and optimizing these very messy processes.

Justin Lopas

Yeah, it's a really kind of central theme to what we're building here at Base Power, and it's totally right. My background in manufacturing, I think, doesn't immediately lend itself one for one to necessarily manufacturing rockets or planes or drones or whatever, because that's not what we're doing here. But I think there's actually a lot of parallels that are actually, I'd say, pretty differentiated between us and other companies that are doing electrification, energy-related things very broadly, sort of categorically. So what we call the deployment factor, exactly as you're referring to, is essentially everything that happens between when the customer says, "I would like to sign up for Base" and Base is on their home providing them protection from power outages.

David Roberts

How do customers do that? Are you going out and getting them? Are you going door to door? Are you advertising online? Are they coming to you, to your website? How do you acquire customers in the first place?

Justin Lopas

Yeah, we have a bunch of different channels. Most sort of funnel into the website, though. And so, somebody goes to basepowercompany.com, they fill out their information. If we're serving their area, they can go through the entire flow themselves. But a lot of this, honestly, is coming from referrals and word of mouth. The whole neighborhood's in an outage. They have their lights on, their neighbors are advertising. It's pretty good advertising for us. Most of the customers come in through referrals and word of mouth. And then we're also going to various different channels. Like Zach was saying, working with home builders, etc.

But back to the deployment factory piece. This is everything from a customer saying they want Base to be operating on their home. And similar to a factory, there's a bunch of different steps. Some of them are serial, some of them are parallel to each other. There is a process that happens within each step. Those steps have quality assurance at the end of them. There's an end-of-line sort of quality assurance where we do a sort of sign-off with the customer on the site once we're done. All of these things look and feel like a factory, even though they aren't done in a polished floor, tall, warehouse-looking building.

They're just distributed in nature. There's distribution and specialization of labor. All of these sort of factory physics concepts still exist. And so this is not something that, like if certainly a solar installer or an electrical company, really, do. They think about everything as a project. They have project managers. We don't have that. We have people that do various tasks, and those tasks have certain and very rigid sequences to them. So, yeah, that's the kind of deployment factory concept that I think is quite unique to what we're up to.

David Roberts

I mean, you're early days yet, obviously, but have you already learned things that have enabled you to speed things up and optimize them? I mean, are there obvious learnings? Because I was going to say, what you're trying to do here is a little crazy. You're trying to be a retail energy provider, a hardware designer, a software designer, and an energy trader. So there's like customer service — like there's just every which thing that's like five or six different things to optimize and get good at.

Zach Dell

If it was easy, someone would have done it already.

David Roberts

Yeah. So, I guess what I'm wondering is, in terms of optimizing those in this factory mindset, is there a particular place or junction of the process where you've learned something that's really helped you speed things up? Any particular lessons that jump out?

Justin Lopas

There's certainly a million little ones. And if you've ever been around or talked to folks in manufacturing, I think what you find is oftentimes there's not one thing that unlocks a faster rate or a more efficient factory. It's an agglomeration of a bunch of little things. I'll give you one example here. When you go and install solar, as I was saying earlier, it's very custom to the individual home, everybody's roof's a little different, there's tree shading in different locations, etcetera. Just by virtue of us not installing solar, certainly alongside our existing product, it means the install is both faster and simpler, and that has a bunch of upstream effects on the permitting and the engineering documentation that's required to install.

And you can have a much more streamlined and simplified permit plan set, so to speak. Just doing sort of the same thing. This is the old Henry Fordism of "You can have any color as long as it's black," right, for the Model T. Just doing the same thing, or as close to the same thing every time as possible, really means that you can identify all of these little areas in which you can improve the process.

David Roberts

Interesting. Okay. You know, we've been... I've really been honing in closely here on the particular model that you've launched with here, which is installing large batteries in homes, using them collectively to arbitrage, which is — so you're providing value to the homeowner, you're providing value to your own company, and you're providing value to the grid, stabilizing the grid, reducing peaks. And, you know, the whole point of stabilizing the grid and reducing peaks is to allow more renewables onto the grid, to allow the grid to green further without, you know, destabilizing. So, just take a step back and talk about what is the larger vision of the company here?

Like, if you are able to pull off mastering these five different tasks and are successful, and scale up and get enough batteries operated, that you're healthy and have some money, and you can do what's next. What is the big vision here? What's the larger vision of the company?

Zach Dell

Yeah, I think if you look at the electric utilities in the US, what you'll find is that they are this interesting combination of both the largest and least innovative companies in the economy.

David Roberts

Oh, say more.

Zach Dell

Well, they make up close to a trillion dollars of revenue. And they're not engineering-led, they're not technology-first, and they're certainly not R&D driven. So that is kind of the high-level insight, is that we intend to build an engineering-led, technology-first, and R&D driven company in this industry and really build the modern power company of the electric era, which is really a three-phase plan. And it starts with batteries and homes. It's what we discussed on the pod today. It's what you've seen online about Base. It's, hey, we're going to build a better product for customers.

We're going to provide more affordable, more reliable power, and we're going to deploy what we think can be the largest and most capital-efficient portfolio of batteries out there. We think it can be the largest because it's unlimited by grid interconnection. We can put these batteries wherever the grid already exists today, and we think it can be the most capital-efficient because deploying our batteries doesn't require us to buy the land that the batteries sit on. We don't have to pay for the interconnection to the grid because it's already there. We don't have to do any construction because the battery goes on a home site and the customer covers the cost of install.

That's really phase one is building this incredibly efficient portfolio of batteries.

David Roberts

I think we forgot to mention this earlier, but one of the advantages of doing this in a distributed way, rather than a big battery farm, is the subject of interconnection. We've covered interconnection queues on Volts before. They're very backed up. You have to wait a long time to find an interconnection. It's a struggle. And what homes have is all of them have interconnections already. So, it's just like a huge difficulty that you're more or less bypassing by going into homes.

Zach Dell

Right. And so, once we have batteries on hundreds of thousands or millions of homes in Texas, we're really well-positioned to then say, "Hey, David, we're your power provider. We've got this battery on your home. We're protecting you from outages. You should really buy our EV charger, our electric heat pump, our electric water heater, our electric pool pump, and even solar panels if that's what you want." Today, if you want to go buy any of these things, the market is extremely fragmented. You go to Bob's Electric and they sell you someone else's hardware. They maybe don't respond to your emails on time.

They charge you a lot of money. It's hard to coordinate. We think there's an opportunity, based on the systems that we'll already have built out, to provide some of these products to our existing customers. Where that takes us, though, is phase three, which is once we've got a million batteries in homes across Texas, we're serving power to our residential customers. What that means is we're buying gigawatts and gigawatts of wholesale power from other generators. What that means is our cost of capital to go actually build that supply or buy that supply, instead of purchasing that power from other players, is really low because we have an off-taker.

It's our book of business. It's our customer base. I think long term, the idea is that we eventually invest in generation assets and can go all the way from generating the electron to delivering the electron to provide the most affordable, most reliable power to our customers. And that's really how you build the modern power company of the electric era.

David Roberts

So, you're sort of trying to vertically integrate outside the regulatory —

Zach Dell

Well, that is how you provide the lowest prices to customers: vertical integration. There's a term, back integration, where you start with the customer and backwards integrate into supply. And that's how we think about it.

David Roberts

It raises the question: there are entities out there that have already done this. They are vertically integrated utilities. Why aren't they just doing what you're talking about? Why is no vertically integrated utility — I mean, what you're talking about doing seems like what all vertically integrated utilities ought to already be doing. It just seems like you're describing being a utility in 2020, whatever. Like, why aren't they doing it?

Zach Dell

Yeah, as we alluded to earlier, it's a little — well, it's certainly easier said than done. There's a number of really hard engineering problems that have to be solved to do this well. So, on the hardware side, home batteries on the market today are not necessarily built for energy trading. They're built to back up solar panels. And so, we're going to build a product that is really designed for this use case. On the software side, it's actually really hard to aggregate a bunch of distributed energy resources across the grid, get them to talk to each other really reliably with high uptime, good security.

That's a really challenging software problem. And then, as Justin was alluding to in the deployment factory topic, the operations and the complexity around deploying these assets is really difficult as well. Yeah, I mean, I think we'd be excited to partner with some of these folks on this, but at the core of this is engineering and technology.

David Roberts

Yeah, would you ever license, you know, since you're out there solving these, or trying, solving these very difficult problems, would you consider licensing some of your solutions to existing vertically integrated utilities?

Zach Dell

You know, never say never. I think we're open-minded. Right. Well, our mission is to promote human prosperity through energy abundance. And we think the way to do that is to provide affordable, reliable power. And so, whatever way we can do that, we're interested in. We've obviously outlined in detail today how we plan to do that in kind of a first-party way, but if there are other market participants who are interested in partnering with us to deploy some of these solutions, we'd be interested in having those conversations.

David Roberts

Extremely interesting top to bottom. Thank you, guys, for coming on. Thank you for taking the time. I'm super interested to see where this goes, so maybe we can check in in a few years and see if you're a robust, vertically integrated, full-service power company bestriding multiple states.

Justin Lopas

Awesome. Really great to speak to you, David. Thank you.

Zach Dell

We enjoyed it. Take care.

David Roberts

Thank you for listening to Volts. It takes a village to make this podcast work. Shout out especially to my super producer, Kyle McDonald, who makes my guests and I sound smart every week, and it is all supported entirely by listeners like you. So, if you value conversations like this, please consider joining our community of paid subscribers at volts.wtf, or leaving a nice review, or telling a friend about Volts, or all three. Thanks so much, and I'll see you next time.

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Volts
Volts is a podcast about leaving fossil fuels behind. I've been reporting on and explaining clean-energy topics for almost 20 years, and I love talking to politicians, analysts, innovators, and activists about the latest progress in the world's most important fight. (Volts is entirely subscriber-supported. Sign up!)