The Sustainable Finance Podcast is a weekly program featuring conversations with sustainability thought leaders such as cleantech entrepreneurs, VC investors, CEOs, NGO executives and creators of the ESG indices and analytics platforms.
Episode 256: Harnessing technology and AI for renewable energy solutions
Nick Davis, CEO at GridMarket, believes that in the future, energy will be clean, resilient, abundant and free. Grid Market is focused on accelerating global distributed energy deployment through data, predictive analytics, and artificial intelligence.
The platform revolutionizes clean energy adoption by automating technology and financial feasibility studies and then connects consumers and vendors through a digital marketplace. In this program I ask Nick to walk us through how they are taking an outdated, inefficient model for financing and operating large scale clean energy projects and making them affordable and profitable.
Paul Ellis: Nick, welcome to the Sustainable Finance Podcast. I want to start by asking: When you’re finalizing clean energy projects, how have you seen financiers, developers, and energy procurement and construction firms work to meet the financial needs of customers?
Nick Davis: Thanks for that question, Paul. And simply put, they haven’t met those needs. I think a characteristic that I think many of us have seen in the financial community in general is that what they’re really good at is solving problems for themselves. What that doesn’t necessarily mean is doing what’s best always for the natural world, but we’ll table that for a second.
But at minimum, customers have a lot of flexible requirements. They have a lot of different needs that have to be served. And what the finance community has done, particularly in the clean energy space, and particularly in the project and infrastructure finance space, is create very narrow buckets and very narrow buy boxes, which of course makes the customer have many different counterparties rather than single sources of truth.
And I think we’ll get to a little more around that later. But long story short, we’ve definitely fallen short of what customers need in order to scale and deliver in the time horizons required to both meet their own internal objectives and, most importantly, accelerate all of these installations, decarbonization and new energy transitions to actually help the world.
But I think there are solutions and hopefully we get into some of them.
PE: Great. And you’ve just used a term which I’m not familiar with and I would imagine a lot of our followers aren’t either. Can you explain what a buy box means?
ND: You know this is a jargon filled industry, so please, anytime acronyms or terms come up I’m always happy to describe further.
In terms of buy box, it’s very common and what people want, particularly on the investment side, is cookie cutter, highly repeatable deals. What that means is effectively turning what’s inherently complex into commodities so they don’t have to think about it. And the thousandth deal you do looks exactly the same as #2 and #3. That’s how you get rid of soft costs, it’s how your margins go up ultimately, and it’s how automation, and when I say automation, what I mean is pre-AI automation, which requires more standardized, same task, same task processing, like a Ford assembly line. That’s the automation of days past. Now we’re in a sophisticated automation zone where AI can actually address complex problems. Meaning the financial community and others really need to start thinking about these challenges as inherently solvable with the technologies of the day that allow you to expand that buy box.
And just very narrowly, a buy box is what an investor, what a customer, what anyone is willing to buy. And typically investors want something very narrow and very repeatable, and what a customer wants is something very flexible and tailored to them.
PE: It’s sort of opposite ends of the spectrum, right? So, to address these kinds of issues in the marketplace, how do companies partner with GridMarket to accelerate the development of clean energy projects?
ND: There are customers out there and there are vendors out there that build, construct and fund projects. And then there are platforms that can help optimize both the development, the scoping, the analytics and ultimately automate some of those deployment elements that are typically analytically intensive and that often will result in a project not being as big or optimal or proliferated across a company’s 10 or 10,000 facilities as would otherwise be if it was looked at in a more intelligent way.
That means less business for everyone. It means a smaller market. It means these big customers that have large ESG goals find that they all fall woefully behind their objectives. Then they have to go to their board and let their board know they’ve fallen behind their objectives. Then the market finds out they’ve fallen behind their goals and objectives.
And they can have supply chain consequences, they can have direct customer consequences depending on whether they’re a B2B business or a B2C business. But fundamentally what we’re doing and where we’re leveraging data and artificial intelligence is trying to make those complex decisions look more cookie cutter.
We’re basically serving a customer’s goal across an entire portfolio with a variety of needs, a variety of technologies in a more agnostic way — an opportunity to really coalesce intelligent financing across those needs rather than again having a limited by box with very limited results.
PE: It sounds like at the moment there’s what I would call a domino effect in the procurement process of clean energy projects that creates this system. What would you say is missing from the current financing options offered for individual projects and/or portfolio clean energy projects?
ND: So the audience has a concrete example of the way we see the market: One of our biggest customers is a large manufacturer. So in addition to the let’s say 20 to 30 large industrial facilities where materials are produced or the distribution centers where things are stored and then go out to their various retail centers.
This isn’t dissimilar across a number of different customers who have different operations. They may have industrial facilities, they may have data centers, they may have, you know, certain types of commercial or logistics centers, and they’ll have office buildings. What typically happens in this space is a solution provider, like a provider of solar or EV charging or fuel cells or energy efficiency or HVAC optimization and climate control mechanisms, they’ll knock on the customer’s door and say, hey, we’ve got a great incentive in California, let’s do a project here where it’s highly incentivized.
What happens is the customer goes piecemeal, 1 by 1 by 1, getting pitched by thousands of vendors and solution providers and ultimately spending years to vet things on a one-off project by project by project basis. Maybe they spend some capital budget on a pilot that takes years to validate. And ultimately what happens is very little gets done and people throw their hands up in the air and kind of give up.
What we really need to move towards because we’re out of pilot phase for most of these technologies is economies of scale based procurement where we are very quickly rooting out the full opportunity in a portfolio.
We do work with entire countries in certain cases, or map out the opportunity across an entire municipality or country or territory and really bind the full purchasing power of an entire company’s portfolio and their real estate assets together to drive, again, economies of scale based procurement. And look at this at kind of a macro level because they’re setting their targets on a macro level but then procuring on a very micro level in a mind-numbing process.
And when I talk about the financial buy boxes and the solution provider buy boxes being too small, what that means is there’s one type of developer or one type of solution provider or solar installer for instance, in one part of the country, that wants to do one size projects. They want to do maybe a 200 kilowatt project plus a small battery on a handful of those 3500 retail facilities where you get your brakes and tires changed. That same company is never doing the industrial facility as well. And the financier who’s also trying to package together those smaller deals is never also offering a customer service where they’re providing financing for both opportunities.
So when you look at the customer base here and they need to do 100 megawatts of solar in the desert for a larger off site in the procurement under a VPPA or a standard retail agreement, or a mini grid at one of these smaller facilities, or a true micro grid at a big industrial facility, there’s no financing solution that’s serving all of those entities and looking at the customer as really the customer. They’re looking at their vendors and solution providers that are piece meal servicing a small subset of each of these customers and each of these customers sites as the customer.
I think the mentality switch that needs to happen is the finance community needs to catch up and look at the end use energy user who’s making these big commitments and targets as the actual customer for financing. And not limit it just to these vendors and solution providers and installers who have a much more limited and narrow view of how they install and where they should install.
We need to change the scope for the financing community, simply put, as to who the customer is.
PE: Now we give us a couple of examples, no names needed, of projects that have chosen financing options and talk about what value or benefits made those customers choose that path for their projects.
ND: If you look at how many of these sustainability and renewable energy commitments work, you know that when companies make an announcement, they have to be 100% renewable energy by 2025 or 2030, and what they’re typically doing is creating a 3 or $400 million-dollar problem.
For us it’s a great opportunity. But for them the problem that they have to solve is, How am I going to fund all this work? How am I going to switch all of our procured power off of standard grid power? How am I going to maximize the number of micro grids that we’re putting together across our industrial facility while off taking large projects and large solar and wind projects from elsewhere? How are we going to change our industrial operations to meet the energy transition?
So what these companies never have is 3, 4, $500 million earmarked and set aside to actually self-invest in these energy projects. What they need to do is go out and secure third party, typically off balance sheet funding, to do it.
That’s typically done through mechanisms called power purchase agreements, PPAs, which are kind of larger installations that are off site, rec procurements in certain cases where you’re buying renewable energy credits and, in certain more innovative cases, energy service agreements and shared savings agreements where maybe it’s a different kind of more innovative technology that they don’t want to take a risk on but they want to host.
So, when they create that level of financial commitments on the back of these renewable energy and carbon commitments, they typically only have maybe a couple million bucks a year that they’re going to spend on pilot projects through their sustainability or engineering team.
So, what they’ll typically do is the first time they do a solar project, for instance, they’ll dip into that Capex budget. But then what happens to the rest of the requirement? How are they going to get the rest of the 400 million bucks in order to meet this transition? And they’re going to do it off balance sheet, they’re going to do it under these PPA style structures. It’s really the only way they can do it, at least right now. When we get to the world where energy is abundant, clean, and free, that’s a different story. But we’ve got a little while to go before that happens.
But if we look at where the market is now, because the buy boxes are narrower from the from the financial and technology community, and because the customers have such a large and diverse demand, you end up with Frankenstein projects when you use multiple technologies.
An example of that is one of our first projects, an amazing project out in Brownsville Brooklyn called Marcus Garvey Village, where we took six city blocks almost entirely off grid with a partner called L&M—that’s the real estate developer. Everything was financed completely separately. The solar was financed by its own mechanism. The fuel cell funding was brought by Bloom, the big fuel cell company, under its own power purchase agreement structure. And then the battery, which was the first lithium ion battery permitted by the FDNY in the New York area, that was ultimately funded under a shared savings and energy services agreement by demand energy, then a local New York based nonprofit assisted with the financing as well.
In contrast, years later the markets caught up and at least a number of technologies are being amortized together. So we have customers like Performance Food Group, which is a Fortune 100 logistics provider with a lot of facilities and a lot of need and is currently going through the electric vehicle transition. Now we have situations where they can procure and contract power purchase agreements for solar and battery storage together and bolting on EV charging, and other ancillary services that all really kind of make this more seamless.
So, things are getting better in terms of the technologies that can be stacked into one financing mechanism. We haven’t solved for the size of systems that that can also be bolted together to service customer need because these customers all have facilities of varying sizes.
PE: Now on to the most popular subject I’ve seen in the sustainable finance literature and daily dialogue and events and conferences, etc. And that’s artificial intelligence. How is AI supporting digital exchange and big data analytics platforms in the renewable energy industry?
ND: At the end of the day, AI allows you to do a lot more with your data and your assets than we were able to do before. It makes complex analysis more simple.
We’ve been in the AI game for a long time, but before it was AI and it was machine learning, right? And then it evolves into something that’s more actionable, and I think at the end of the day this is all about automating the decision making process so it can make the free flow of capital safer.
So, in this industry what we look at is evaluating projects on a more certain basis—creating enough scenarios in the background to understand all the downside risk associated with a project or a type of technology to be able to then manage those technologies in as optimal a way as possible based on both predicted and live weather patterns. Making sure that scatter systems and everything in the grid is really put on an automated track. These are really the perfect things that AI can do.
I know it’s all the rage to have, you know, ChatGPT, try to write a song or the next great American novel. And whether it supplants human creativity with that kind of stuff remains to be seen. Some of it’s pretty impressive, but what it can absolutely do a lot better than we can now is manage, massage, curate and act on energy related data items. That’s something that 1000 humans can’t replicate.
PE: You’ve mentioned one area that I’m very familiar with being from Southern Louisiana, and that’s weather. I know that there are lots of firms out there, and some that we’ve had as guests on the Sustainable Finance Podcast, like Weather Trade Net, that are using AI and producing all of this data that firms like yours can then use and plug into your process, if I understand what you’re saying correctly. Is that part of the process for you?
ND: Absolutely. If you look at the work we do, what we don’t want to do is be the absolute best, you know, LiDAR analytics provider for solar, or the best AI weather predictor to manage assets. Those are specialty products that really help us do what we do.
What we have to do is aggregate all of those learnings and a lot of those feeds and streams—in some cases we API it into our system. But really our goal is to compress the transaction cycle and bind as many of these types of deals across as many customers as possible to reach economies of scale and make all of these projects and services inherently financeable, so they get done for our customers.
So those tools are instrumental for us as we look to continue to automate, optimize, and make perfect what we do. And you see more of these types of tools that focus on different aspects of project work come out almost every day now. There’s a lot of optimization going on in AI applications to accelerate the permitting and interconnection and environmental analysis process before you install a wind farm or a solar field for instance.
And I think what’s critical is that all of these things happen as quickly as possible, because for a long time in the U.S. we were in efficiency and megawatt territory, where our demand was actually coming down relative to the number of users and the people drawing on that power.
But now AI itself has such a hulking power demand that we’re going to be falling woefully short, and we have to install and develop as much as we can as quickly as possible. What’s unfortunate is that that’s still not resulting in the kinds of grid level investments that would be required to maintain the standard transmission and distribution networks that we have. Which means these big data centers, these big industrial facilities, these big cold storage warehouses and logistics centers, universities, everything—everyone’s going to have to ultimately be a generator of their own power. At minimum to be a backstop for the grid that’s certainly aging out.
So we can spend trillions to update conventional infrastructure. We’re probably going to need to anyway, but we also have to start generating at the point source, which is where technologies like ours really come in handy. And AI is really necessary to evaluate and predict the veracity of that opportunity.
PE: Nick, thanks so much for joining us today. How can people learn more about the ways Grid Market is accelerating the pace of change in renewable energy project development as well get in touch with you about the topics that we’ve discussed in today’s episode?
ND: Email anytime at: [email protected]. And we’ve got great people managing our socials, so you can find us on LinkedIn and all of the other standard non-TikTok related things out there.
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