Insight Conversation: Christian Feisst, GreenCom Networks

GreenCom Networks' CEO, Christian Feisst, spoke to S&P Global Platts about his vision of energy supply moving away from a traditional utility model, to one focused on services and that resonates with end-users’ lifestyles.

GreenCom Networks is a Munich-based software company offering an internet of things (IoT) platform that connects distributed assets in electricity end-users’ homes.

The platform allows the company’s partners, which include utilities and device manufacturers, to create energy-management based offerings for electricity end-users, aggregating storage capacity and increasing grid flexibility.

Christian Feisst, CEO, GreenCom Networks

Tell me about the products GreenCom Networks has developed. How do you help end users manage energy usage?

Generally GreenCom is a software company and we offer an IoT platform. Our customers are typically utilities as well as device manufacturers, solar inverter manufacturers, battery manufacturers, that create offerings out of our platform for their end customers.

With our platform, we can connect all sorts of distributed assets like solar PV, batteries, heat pumps, electric vehicles (EVs) – energy-relevant assets focused on residential customers. We allow utilities or other customers to create their own products on top of our platform.

In the past, the main asset of the utility was the power station – 80% of profits came from power generation, 20% from the grid and 0% from the customer. Whereas we are convinced that the asset of the future is the end customer.

It's just like in other industries, you need to create access to the end customer. And you need to be able to create services around them that will drive the future of your business model.

That's exactly what we are enabling with our platform. If you look at [one of our] customers, Centrica, for instance, they create offerings around the end customer on top of our platform.

We know that other industries, like telco, provide all sorts of carefree services like an internet flat rate and telephony flat rate. This is where we see the energy industry heading. That's one part of the business models that we are enabling.

We can also allow end-users to connect with each other. A second trend beyond carefree offerings is the shared economy approach, where excess production on my rooftop is not just fed into the electricity grid but instead I can see where my excess production is used in my neighbourhood with my friends.

Those are the kinds of things that we see. And we are enabling the creation of things like energy communities, peer-to-peer trading, on top of our platform.

It's interesting because some new players in the energy retail market have been very successful offering completely new tariffs, more customer-driven tariffs.

And the reason they are able to do that is they don't have legacy billing systems in place. Quite often when we talk to utilities, their first reaction is "it's great that you guys can help us to offer disruptive services but unfortunately, I cannot invoice those services on my existing billing solution.”

Classic utilities have legacy billing systems in place so they can't offer new tariffs, because offering just one new tariff means a project of 12 months [with a consultancy], costing a lot of money. At least 80% of the bigger utilities have the same problem.

New players have created their own billing systems, which are way more flexible and that's one of the hurdles to overcome for classic utilities. That's one of the reasons why we created our application that allows us to be put these services on top of existing billing solutions.

What other obstacles do you see to the uptake of new technology in the sector?

Utilities have sold a commodity product over decades, at quite interesting margins. Now, that business model is broken and utilities have to invest in services for end customers, and that investment is not profitable overnight. So utilities are struggling to create a business case. They are looking at business cases that have a payback of two to three years, which in this new environment is not possible. You have to have a longer-term perspective.

But if you look at the history of utilities, the main profit driver has been power stations. Power stations have a lifetime of 40 years and breakeven was typically reached after 20 years. So there was no problem investing billions of euros into large assets.

Now, if utilities have to invest into future services, there is a different mind-set for whatever reason, and that needs to be changed. Looking at other industries, Amazon, for instance, was not profitable at all for the first 10 years. Even today, they are not necessarily interested in creating a lot of profits. They're interested in scaling and that's the mindset that needs to come into play with utilities.

How does your customer Centrica make use of Greencom Network’s products and platforms?

GreenCom's platform is the underlying platform for a new business unit that Centrica created roughly one year ago, the home energy management business unit. Centrica decided to invest into that because Centrica sees the end customer as their asset of the future, and they see themselves as a service company based around the end customer.

We provide the underlying technology platform for Centrica to create offers like power flat rates and heating flat rates. Centrica’s home energy management unit is like an internal service provider and they are using our technology in sales channels like UK home [and] like Hive, Centrica's smart home unit, and other business units.

The information GreenCom provides is accessible through applications, which GreenCom provides to utilities as templates.

We have also integrated with Centrica's flexibility trading arm, called Centrica Business Solutions, which is basically a flex trader in the market. We are integrating with them in order for our platform to aggregate all their residential assets while they are acting as the flex trader.

Centrica is also integrating our platform with Hive in order to bring smart home together with home energy management. Smart home is related to things like comfort and security control whereas home energy management is really focused on the energy relevant assets. Hive has a customer base of 1.7 million customers so it would be fantastic to upgrade that customer base into a home energy management customer base. Those are the main areas that we're working on.

How much capacity has Greencom Networks aggregated to date and into which markets? Has there been any penetration into wholesale markets?

I'm not allowed to disclose exact numbers, but I can give you a couple of examples showing the order of magnitude. In Germany, we kicked off a project where we are connecting up to 1 million storage heaters to our platform. Storage heaters are old electrical heating devices that have a stone inside.

These assets were deployed in the past to create a baseload for nuclear stations during the night. They were fed with electricity to heat up the stone, and during the day they release heat. They're a very old-fashioned device with a capacity of between four and eight kilowatts. In Germany, we have 4.8 million of those devices – in the UK [there are] 6 million.

There are a lot of assets out there that are old fashioned and cannot be controlled. We joined forces with an infrastructure fund here in Germany to replace 1 million of those storage heaters with new ones that can be controlled through our platform, so that we can dynamically load and discharge them with energy. This means that we can turn them into wind storage heaters, solar storage heaters or whatever, when there is excess production available on the market.

That is a significant capacity: up to 1 million storage heaters over the next 10 years will be connected, each with a capacity of between four and eight kilowatts. That's very significant and no one else around the globe has such a capacity of connected residential assets.

Another example is that we just signed a deal with a leading global battery manufacturer to connect their entire installed battery base [residential batteries] and every new battery sold to our platform. That gives us access to about 20,000 batteries immediately, and about 10,000 on top every year so that's a large number of batteries connected to our platform.

We are currently not looking into [connecting grid-scale batteries] because by focusing on residential assets, you can scale, since every residential customer is more or less the same. When it comes to larger assets, it’s all about individual projects to integrate them, which is more difficult to scale.

At present, most people do not have the assets, such as solar PV cells, batteries or heat pumps, to get the most out of such products. In what kind of time frame do you see large-scale adoption of this kind of technology in Europe?

Today, we have roughly 150 million assets around the globe in the residential space including solar PV, batteries, EVs etc.  According to numbers from Bloomberg New Energy Finance, this will grow to about 500 million in the next 10 years.

We believe that this will definitely happen. As well as the uptake of EVs, the electrification of heating systems is significantly driving this.

Also, if we look at what is happening today with the coronavirus pandemic, people have to stay at home and are concerned about how they get enough food and stuff like that. That will significantly push people to be more independent, also pushing autonomy.

I would assume that coronavirus will have a significant positive impact on battery sales in the future. Maybe not today, since we’re not allowed to leave home, but in the next 12 months battery sales will go through the roof in my opinion.

In terms of adopting this technology, the key driver is electricity price. In countries with very low electricity prices, it's very difficult. Solar PV has a certain total cost of ownership and if that is higher than the electricity price then it is very difficult.

States like Texas, for instance, have extremely low electricity prices. Even though there is demand for solar PV there, it is way more challenging. However, in the likes of California, or in Europe, the price level justifies investing into distributed assets. Solar PV today has a total cost of ownership of roughly 10 cents per kilowatt hour while electricity prices in the German market are at 30 cents per kilowatt hour. In other countries it may be slightly lower, but there is still a good business case to be made.

Plus I've never seen that the classic tariffs go down. They always go up. Not necessarily because wholesale prices always go up. But because taxes and grid fees increase. In my opinion, there will be no different direction in the future.

How do you see the future of the energy retail market in Europe?

I believe there will be many new players entering the market and we see that already today. Oil and gas companies, for instance Shell, have been particularly aggressive. We will see automotive companies entering that market. Volkswagen has created an energy subsidiary that offers power supply because if they sell a car they need to sell the power for the car, wall boxes and services.

Device manufacturers will also be more involved. How can you survive [in a competitive global market]? By bundling your hardware into a service offering that differentiates you. So there will be many players entering that market. In the US market Amazon is already offering a power supply tariff with a smart thermostat to end customers. So far this is only in the US market but it's only a matter of time until something like this flips over to Europe.

If you are traditional utility and if you want to play a role in this future business, you have to think carefully about what to do. You have to react quickly and build up your position around the customer.

You need to address your existing customer base because otherwise, other players will acquire your customers. [Utility retailers of the future] will have to be the energy service companies in the background that manage local energy communities and virtual energy communities on behalf of their customers. And they will be a service provider providing assets, maintenance, services, and power supply.

Take Airbnb or Uber, they're doing similar things. It's way more digital and much less asset heavy but the approach is exactly the same. For utilities, why not become the next Airbnb or Uber? They are sitting on the customer base and are going to lose out if they don't utilize it.

How important a role do you see energy management and electricity balancing playing in reducing emissions and can you quantify this?

In my opinion, it is absolutely vital to have energy management solutions in place if you want to increase renewable power generation. Today there are a lot of power production cuts to large wind or solar farms, because when there is excess production , the grid operator curtails this power production.

Today, in Germany, there are balancing costs of roughly Euro 3 billion which is to a large extent driven by curtailments. If you want to further deploy renewable energy sources, you have to do energy management; to manage consumption, and battery capacity. That’s how you reduce curtailments because every curtailment is a waste of energy.

Go deeper: Rapid renewables growth brings challenges for US states

I can give you one example where we have connected an entire city district of the city of Cologne. It's with about 700 customers in 16, multi dwelling buildings, where the utility has put solar PV on the roof top, batteries in the basement,  and included heat pumps, district heating, charging stations. Everything in place is connected to our platform and our algorithms manage the energy flows in that city district.

Just the energy management driven by our software platform had an impact of 19% on CO2 emissions, which is significant. That's just from artificial intelligence managing energy flows.

And it's important for end users to see how much they're reducing emissions. Customers don't think of power as a product. You have to make it sexy at some point, and these day sustainability is sexy, independence is sexy.

So you have to think about all of that stuff and, and get customers to buy in. It's the right point in time, because there is a bottom-up movement from the customers and utilities have to take care of that. They should build up their future business model on those movements.