Fluence’s Kumaraswamy on Energy Storage: The “Flex” Making The Grid Smarter, Cleaner & Faster-Responding
Energy storage is playing a critical role in managing and reducing corporations’ and communities’ carbon footprint. And no one knows this better than Fluence, the technology company whose team pioneered the use of grid-scale batteries as energy storage 15 years ago. Kiran Kumaraswamy, VP of Growth & Head of Commercial at Fluence, joins our host Lincoln to share the history and importance of energy storage in transforming how countries and companies source, store and deliver electricity. They cover questions such as: How has public perception of energy storage evolved? And what roles are digitalization, companies’ pursuit of 24/7 carbon-free energy, and materials sourcing playing in progress towards net zero?
Energy storage is playing a critical role in managing and reducing corporations’ and communities’ carbon footprint. And no one knows this better than Fluence, the technology company whose team pioneered the use of grid-scale batteries as energy storage 15 years ago.
Kiran Kumaraswamy, VP of Growth & Head of Commercial at Fluence, joins our host Lincoln to share the history and importance of energy storage in transforming how countries and companies source, store and deliver electricity. They cover questions such as: How has public perception of energy storage evolved? And what roles are digitalization, companies’ pursuit of 24/7 carbon-free energy, and materials sourcing playing in progress towards net zero?
- Energy storage adoption is reaching record levels, adding resilience to grids and enabling greater uptake of renewable energy – but ensuring its operations support larger-scale decarbonization of electric grids is the next hurdle to overcome.
- By storing excess solar and wind power when it is generated and balancing the intermittency of those resources, energy storage allows regional grids to deploy clean energy resources more widely and cost-effectively.
- The marginal impacts of power generators vary by both location and time of day, with the potential to help or hinder the push toward decarbonization. Being able to accurately and efficiently track and store energy will allow companies and communities to optimize how batteries and other energy storage assets operate and help them reach net zero goals.
- IHS Markit white paper: Reaching peak performance: What the electric power sector can learn from society’s other vital networks
- Fluence blog post: How Battery-based Energy Storage Can Accelerate Deep Decarbonization
- Fluence blog post: 10X Thinking: How Super-Fast Energy Storage is Delivering a More Decarbonized Irish Grid
- Fluence storage-as-transmission (aka TSO) blog series: Five Challenges TSOs will Face Today and in the Future
Dana Dohse: On this episode of the Decarbonization Race.
Kiran Kumaraswamy: We think that energy storage fits in the epicenter of the clean energy transition, right? Overall, in our pursuit for decarbonization, I think that both energy storage and digitalization are at the center of that transformation.
Dana Dohse: Kiran Kumaraswamy, Vice President and Head of Growth at Commercial at Fluence, joins Host Lincoln Payton to discuss the state of energy storage and how his team at Fluence is helping accelerate energy storage in order to help in the decarbonization race. Along with his roles at Fluence, Kiran also serves on the board of directors for American Clean Power and has testified multiple times before the US Congress inferred on a range of subjects including wholesale market reforms and multiple use cases for energy storage. In this episode, he and Lincoln break down the role of grid scale energy storage in our overall efforts toward decarbonization and share tactical examples of how this technology is accelerating the efforts. Ready to lead the sustainability pack? This is the Decarbonization race.
Lincoln Payton: Hello everybody. Lincoln Peyton here, CEO of Clear Trace, delighted to be with you and the decarbonization race continues and continues very excitedly today. I’m delighted to welcome, absolutely super guest, Kiran Kumaraswamy, great to have you here.
Kiran Kumaraswamy: Good morning Lincoln. Good to be here.
Lincoln Payton: Fantastic. So where in the world are you these days, Kiran? What part of the world?
Kiran Kumaraswamy: So Lincoln, I’m in beautiful Washington, DC. That’s where Fluence is headquartered.
Lincoln Payton: Fantastic. Tell me a little bit about yourself, Kiran, first of all.
Kiran Kumaraswamy: So originally from India, from the southern part of India, my hometown is in Chennai, which is the southern part of India. Came into the US about 20 years ago. I did my master’s degree in electric engineering from the University of Wisconsin at Madison. So I’m a Badger and a Big Ten person.
Lincoln Payton: We are willing for the purposes of this interview to overlook all of that, the Badger bit.
Kiran Kumaraswamy: I drew the course of my academic career taking some courses on energy economics and I could talk about LMPs [Locational Marginal Pricing] and transmission congestion. Pretty eloquently in the 2003, 2004 timeframe. And so I guess that kind of landed my first job in consulting at a company called ICF International that’s also headquartered in the DC metro area. And I was doing a lot of power markets modeling and asset evaluation, due-diligence, step activities or private equity customers for ICF. Did that for about 10 years and then I came over to AES, the large power player in the energy space. I joined the energy storage team at AES in 2015 and have been in the energy storage space over the last eight years or so right now and have done a variety of jobs in that have helped open new markets for energy storage, help customers understand the value of energy storage for different applications, have had the good fortune and honor and privilege of being a leader in the space on regulatory and policy issues have testified in front of Congress.
Lincoln Payton: You’re being humble, which is great, but a repeated presenter in front of FERC and Congress, what sort of topics covering and focusing on there?
Kiran Kumaraswamy: Broadly energy storage, benefits, related topics and what the government can potentially do to enable greater investments in the space. And also remedying some of the market hurdles that energy storage used to face about five years ago, but most of them are in the process of getting remedied right now. And so have talked about many of those type of topics in different forums. And now I lead this growth and commercial team at Fluence, which largely is a function of how to enable Fluence to enter near market segments and grow the commercial side of the house.
Lincoln Payton: Fantastic. No, again, you’ve been very discreet there. We are very pleased to have you on the podcast with the distinguished background of speaking at very senior levels. That’s terrific. Before we get into the more generic topics, give me a couple of sentences on Fluence. I’m an ex-finance guy so I’ve watched with great interest the formation if you like, of the machine as it looks today. Two big powerhouses coming together. You’ve been there through that process. What is it, first of all, cause I think it’s significant for everybody listening and how’s it gone from a cultural point of view often interesting when two big strong machines get together and how do you feel about the results in sum?
Kiran Kumaraswamy: Look, I think we started the company in Jan first of 2018 between AES and Siemens and it has gone extremely well. I’ve been since day one in this company and we are about 90 people when we started the company. We are a much, much larger company today. We’ve gone public last year and it has been an incredible learning experience and a growth experience also for me being in the front seat of watching the company grow and watching broadly the sector grow from a point of trying to educate customers and regulators on the value of energy storage to now gradually people accepting their value and really transacting at massive scale. Maybe just to give you a quick idea of who Fluence is, this team has basically been in the business of delivering better energy storage solutions over the last 14 years or so, largely helping some prominent customers around the world deploy some of the world’s largest energy storage systems.
We have been consistently acknowledged as an industry leader that has pioneered new applications and pursued new markets for energy storage. We in addition to hardware-related product solutions, we also offer some software-based solutions, which we call them the digital applications, which are Mosaic and Nispera, these software products are also part of the Fluence IQ platform and they’re OEM-agnostic, which means that they can be used with any underlying technology provider on the hardware side. Mosaic and Nispera were also designed to work with different asset classes outside of battery energy storage like wind and solar and hydro facilities. What we think adds a lot of value from the Fluence side is the ecosystem of products that we bring to the table for our customers that we believe are essential for accelerating the clean energy transition.
Lincoln Payton: It’s very exciting. Again, I’ll tell you from my previous finance role and obviously my role at Clear Trace around the carbon and energy and digital space, very exciting what the storage world has achieved and very exciting what you’ve achieved at Fluence. So congratulations. It’s great. I really believe it’s an important component in going forwards. I’m going to ask you a really baseline level question here because we have a range of listeners, grid-scale, EVs, residential, lot of talk about storage in all these different and other areas, commercial vehicles, industrial vehicles, how do they fit together and how do they fit together with Fluence? Where are you focused and do you think the lines intersect or are they very different sectors?
Kiran Kumaraswamy: That’s a good question, Lincoln. I would say in this way we’ve always looked at it from what storage does in the electricity sector or as broadly. In fact, several years ago when we were still at AES, we had a study looking at what storage meant in other parallel sectors. So for instance, you can go to the natural gas world and look at what storage does in that. You can look at perishable goods for instance, where we buy food from our grocery stores and you can look at transportation models, the taxi networks or airplanes or ships and how storage works from that. And it’s actually very interesting because electricity is the only commodity where we have not had significant levels of storage embedded through the delivery and the production infrastructure. In every other commodity that you can think of, we have embedded storage at different parts of the value chain of how the commodities either produced, transported, and then consumed eventually.
Electricity is the only place where for a long, long time we just had pumped hydro facilities that we were using by virtue of the fact that we could build large infrastructure, but we never had a systematic way in which we could actually have large-scale storage. And so the way I think about it is that in the coming years, in the coming decades, all we will see is that storage is going to be embedded in different parts of the electricity value chain, right? Ranging from the places that you produce it to the places that you transmit them and distribute the electricity and the places that will eventually consume it.
And so it’s going to play different types of roles in that. And at Fluence largely is focused on the, let’s say in front of the meter, grid-scale type opportunities. So we are not at the residential scale, that’s the only exclusion zone for us because that kind of requires a completely different business model to pursue that segment. But anything that is not residential Fluence can potentially do. Although as a company and a group of highly committed individuals or focus is on the larger scale installations largely because it gives us more opportunities to enable the clean energy transition, which is the core mission that we are trying to serve in the world.
Lincoln Payton: When you look at the commodity world, electricity the biggest and the fastest growing for sure as we go toward decarbonization and there hasn’t been storage, you talked about pumped hydro and historically pumped hydro was the answer for storing electricity. Very quick, before we move on to the actual solutions and applications, perhaps compare and contrast pumped hydro with what Fluence can do today in capacity storage.
Kiran Kumaraswamy: So that’s a fascinating thing that I’ve gotten to realize in the last several years too. Today we are building these large scale energy storage projects that are in the order of hundreds of megawatts right now. So the projects that we are deploying in parts of California and the Desert Southwest and other parts of the world, they’re of the order of 200, 300 megawatts. These energy storage projects can then take roughly four hours of capacity. So if you think about it, 300 megawatt project, that’s about 1,200 megawatt-hours of energy inside this facility, that’s a pretty large facility actually. Right now, you are actually beginning to talk in the scale of what pumped hydro storage used to be, right? And so that’s one of the key things that this sector has grown into is to start deploying projects at a very, very high scale, right in the hundreds of megawatts scale.
That’s one. Number two is that one of the greatest advantages of this technology is that the environmental footprint and let’s say the NIMBYism that people have on this is very low, meaning it requires no water, it requires no fuel, produces no noise, it has no emissions. It is a very compact physical footprint in the electric infrastructure. And if you think about it in the broad business of developing electricity infrastructure, there’s not many electricity assets that fit that profile. Think about a ball plant, that’s a pretty large footprint, it needs fuel, it produces emissions, it needs water for cooling systems. So you’ve got a lot going on. If you think about our transmission and distribution infrastructure, they have pretty large footprints too. And so broadly in the ecosystem of our energy infrastructure, the relative compactness and simplicity of back energy storage in its footprint really adds to the appeal too, especially when you compare it against something like pump hydro because that has a lot of impact on a lot of different things.
Lincoln Payton: And also what’s interesting I think is the time to implement, it seems to me that battery storage is becoming, I don’t know about off the shelf, but it’s becoming ready for deployment. Whereas you look at the duration it takes to get approvals and implement and construct hydro facilities of any sort. It’s not irrelevant but it’s a different equation. Let’s say.
Kiran Kumaraswamy: Absolutely. Pumped hydro facilities can take anywhere from five years to sometimes in the order of 10 years. And so it’s an order of magnitude difference in terms of the amount of land that you need and the amount of time that you need to construct these facilities. Energy storage is totally the opposite end of the spectrum. You can basically get it done in a matter of months, and again, because of the low amount of land that you require.
Lincoln Payton: Terrific. So here’s the big picture question for you. There’s a lot of concern that I think is actually legitimate in many respects about as we grow electrification because of decarbonization attractions, the grid’s going to be under pressure, the current grid skeleton system that we have, how does storage help in balancing out that equation as we move to electrification, as we move to decarbonization, but inevitably we’re going to put more pressure on a somewhat, let’s be kind, mature infrastructure. Where does battery storage in the significant size that Fluence is doing it fit into this equation?
Kiran Kumaraswamy: We think that energy storage fits in the epicenter of the clean energy transition, right? Overall in our pursuit for decarbonization, we think that both energy storage and digitalization are at the center of that transformation. In fact, I would argue that those are the key enablers that help you achieve the transformation. One of the challenges that we see that is threatening our transition to this clean energy world is the lack of grid flexibility around the globe, which is surfacing in pretty much all the regions that Fluence currently serves.
Because all we’ve realized is that building renewable projects like wind and solar is just not enough. The regional power systems that we have must be adjusted to enable the renewable energy integration and our storage products are critical in enabling this transition. And even when you have these physical storage products, the digital applications of how you can maximize the revenue from these renewable assets, how can you make them more attractive as for their investments, really helps you in figuring out the economic picture behind enabling this transition. So I would say that broadly energy storage and digitalization are the epicenter of enabling the skill area transformation.
Lincoln Payton: Very interesting. So when you look at the point we are at today, which is quite exciting in terms of the way storage capability is a genuine element in the solution today and you are sitting back contemplating the holidays with your gin and tonic or your cup of tea or whatever it may be, what are the big forks in the road that can go right? And I’m talking about really the implementation of storage being a significant part of the solution. What are those forks, those choices that we as a society that go right or maybe don’t go, I don’t know about wrong, but don’t optimize the opportunity.
Kiran Kumaraswamy: I think when I started in the sector about eight years ago, battery energy storage was not a cool dinnertime topic. For example, my wife and my kids and my in-laws did not know exactly what I did for living. Today, it is actually much, much different, right? I have friends and family that are asking about battery energy storage that if I describe to them that I work for a company that actually delivers battery storage, they know what I’m talking about. And so it does seem to me that we have cut a corner in terms of in general our awareness of the subject and broadly the acceptance that the renewable energy future is the choice future that we have not because of our pursuit for decarbonization and clean energy, but simply because it is a cheapest resource available for us.
And that’s why I’ve always held this belief that this isn’t even a bipartisan topic because this is largely saying what is the most economic choice out there for us to serve the grid more reliably under the cheapest cost that’s possible and if you can embrace some of the cleaner energy attributes and it turns out that wind and solar have the absolute best profile in terms of the lowest marginal cost resources from an LCOE [levelized cost of electricity] perspective.
Now that’s the word that we use for the lowest cost of electricity. The level is cost of electricity. I actually don’t think that there is a downside case or a forking point where we go down a tangent and fall off a cliff or something like that. I feel like the momentum that we have snowballed into has taken us to this point right now that regardless of any attribute, the world is just going to embrace wind and solar. That is the cheapest electricity resource available out there, it’s the best resource available out there. You need a lot of energy storage to actually make sure that renewable electricity source is matching up with the demand profile that you have on the load site because you can’t get to this world of really loving renewables and not think about energy storage because somebody has to time shift all of that because the sun doesn’t shine from like 6:00 PM to 10:00 PM when all of us come home and turn on the air conditioners and switch on the dishwashers.
And so somebody has to time ship that 2:00 PM to 6:00 PM block of electricity that you produce anywhere in the world typically from solar to that 6:00 PM to 10:00 PM block, which is when we consume electricity. But the solar peaks in the opposite time when we are not home, when our naturally occurring demand things not happen. And so I think this is a natural choice and I find it all across the world that the things that we are arguing about right now are more the semantics of like how do we get the market rules written up for this technology? How do we make sure that this resource gets paid appropriately for the type of services that it provides? How do we make sure that we account for this resource in an adequate way in regulatory proceedings? So those are the type of battles that we are having. It’s not the question of whether we need it or we don’t need it. I think we are well past that point.
Lincoln Payton: That’s good to hear because one worries that potential can sometimes be cut short by stark decisions one way or another and that’s very positive. Before we go to the macro U.S. issues, can we talk a little bit about globally, Fluence is a pretty global operation today for a company that certainly has come together in the big high-profile way in a relatively few years ago, 2018 I think was the Siemens AES put-together. How do you look at where you are today globally and what are the aspirations and I guess what does that mean for that comprehension of the relevance that you mentioned that your family, your wife and kids understand the relevance? Is that a global phenomenon today?
Kiran Kumaraswamy: Today we have assets that operate in something like greater than 20 countries around the world and I personally have had the opportunity to work in many parts of the world including Asia Pacific where I had a role to develop some of the early stage markets in Asia Pacific for a while. And so I do think that the idea of clean energy and the role for energy storage is being appreciated by different countries and jurisdictions around the world. Now what is different is the pace of adoption and if you think about how technology adoption has to cross a certain curve, if you’ve seen different books on this topic like crossing the chasm and stuff like that, people talk about how each technology has to cross the chasm before it lands at the other side of that chasm.
I feel like in places like the U.S., the U.K., Australia, Germany, India, I feel like we’ve already crossed that one because markets and regulators and customers are deeply demanding that they need energy storage for specific applications, whether it be they balancing needs or it be a renewable plus storage to time shift the renewables into the evening peaks or commercial and industrial type applications where demanding industrial customers actually require that.
Now in certain other parts of the world, people are in a slightly earlier stage of an option curve, broadly on the renewable site, not because they don’t trust that it’s the best thing, it’s just that they’re a little bit slow to react and they’re catching up on that cycle. And so what we see is that the gradual adoption of the technology and its benefits is taking that curve in some of those other markets. And one of the advantages in my role of Fluence is I can help cross pollinate the learnings across from one region to other region so that I can go in from what I learned from like CAISO and ERCOT in the U.S. markets and try to see if some of those cases are applicable in Australia for instance, or in India and vice versa. Maybe you can find a great example of how Australia’s doing something or the UK power market is doing something, I can bring it back and say, “well, why are we not doing this in Texas or California?”
So that it helps you to globally learn from common examples. And that’s the other thing that I’ve found through my job and my experience in this sector is the power system is exactly the same thing. Wherever the world you are, the nomenclature changes the words that people use changes, but frequency is frequency and a governor model is a governor model and the controls are the controls. So it really doesn’t change when you step outside of the boundaries, it’s just the rules of the game changes and the words that people use changes. And so it’s largely a question of calibrating yourself to that local condition and figuring out what makes the most amount of sense for those regions and for those customers. And that’s the type of thing that Fluence typically does. We usually take a highly consultative approach towards understanding our customer’s needs pretty deeply.
Dana Dohse: When Kiran refers to frequency here, he’s referring to frequency regulation. Of the range of jobs energy storage performs on electricity grids, frequency regulation is often the “gateway drug,” balancing out electricity supply and demand, minute to minute, or in some cases second to second or even sub-second. In Fluence’s case, Kiran shares how electricity is our most perishable commodity because it must be transmitted or stored in the instant it is produced. Prior to energy storage technology’s commercialization, electric grids traditionally received the service from large thermal power plants, essentially huge rotating electricity generators ramping up and down quickly to balance supply and demand, not the efficient way for them to operate. Adding lots of renewables which adds more variability to the overall electricity system and reducing our reliance on large thermal power plants creates quite a challenge for grid operators, because this means they have to balance electricity flows at a faster and more granular level, even down to the second, to ensure frequency stays within its operating range. Kiran will bring this topic back around later with some great examples of how Fluence and their technology is working to help make this a more efficient process.
Lincoln Payton: Topical question here, what happens, and some of the reading I’ve done around the topic suggests, that Asia Pacific and China in particular becomes heavily into the storage market, maybe 2025 to 2030, very significant deployment and realization. What does that do for the manufacturing side of the equation of the hardware that we’re talking about here? China, India, famous for having capabilities to manufacture very efficiently at scale, maybe manage price in early stages of market establishment. There’s the good part, which is there’s the adoption of the practice and the principle, and I guess there’s the commercial challenge for North American players generally, when particularly the Chinese lion comes into the market, how does that influence things from a price and a value equation?
Kiran Kumaraswamy: It’s something that we think about all the time. It’s one of the reasons that Fluence has developed a global supply chain but with a regionally focused operational model to partner with innovative suppliers and assemble these products in proximity to major markets. Basically what we think is that this creates a strong foundation for new product introductions and leveraging regionalized supply chains that strengthen our commitment towards serving as lifecycle partners for our customers.
That’s it. I would say that COVID was pretty bad and during the pandemic we did have some impacts that came through because of the pandemic itself and we went through pricing related issues in the sector because of largely what has happened in every part of the value chain on batteries ranging from EV auto companies to battery manufacturers to storage solution providers like Fluence.
I would say that we are not immune to the global supply chain challenges, but at the same time we are continuously expanding and really want to be very robust in the U.S. market which we think is the most important market for us and globally. And so we think that creating this foundation and long-term commitment on the supply chain and regionalizing that will really help us weather the storm very effectively. Just to give you an idea, Lincoln, I would say that very recently we announced that we launched a contract manufacturing facility in North America to meet the increasing global demand because again, we think that those type of demands are best served using a regional market delivery model to address some of our supply chain constraints.
Lincoln Payton: The storage industry in general gets questions and I guess it comes mostly in the EV market where it’s in the public eye gets questions about, okay, the actual operational deployment is great, but what about the sustainability environmental consequences of producing of manufacture? So you talk about the regional and being balanced and smart with where and how you do things, how do you manage that side of it as well? Virgin materials versus recycle the usual equation of what goes into the hardware.
Kiran Kumaraswamy: We take that extremely seriously Lincoln. As part of Fluence’s commitment to maintaining a responsible supply chain, first of all, we require all of our vendors to comply with what we call as our supplier code of conduct, that’s the CoC. In addition to that code of conduct, we also conduct random audits of our key suppliers to ensure safe working conditions and labor practices and to ensure that there are no human rights violations. I and we generally recognize human rights violations so common in the mining industry and refining of certain metals in this space, which commonly are called as conflict minerals, as you may know.
We conduct panel audits of our supply chain to ensure that the minerals necessary for our products are not sourced within the regions that promote human rights violations, for instance. Currently we audit for metals like tungsten, tantalum, cobalt and gold. Beginning next year, we have even more aggressive goals of incorporating additional minerals into these audits. For instance mica, that’s a new mineral that we potentially would add into our audits. Overall from an overarching perspective Lincoln, I would say that we recognize that environmental responsibility to start and end with the sale of our products and services, but we have to show the stewardship on the alignment through the end of life of the products that we bring to market.
Lincoln Payton: Congratulations. It’s a tough question and I know what you’ve done and I think it’s great, so well done. It’s a part of the process of moving everything forward in that responsible approach as well.
Okay, terrific. I’m going to drill down a little bit because you do have such a fantastic knowledge, Kiran. Let’s talk about a couple of really specific values. So I look at the grid as a bit of a skeleton through North America and I look at it as being stretched in the coming few years, with this volume requirement and different types of requirement, microgrids, islands potentially a good solution or a good mitigant to some of that stretching and pressure on the basic framework of the grid. How does storage work in, fix, enhance the whole microgrid and island installation type concept?
Kiran Kumaraswamy: A few years ago when the hurricanes, Irma and Maria, happened in the Caribbean area, Puerto Rico suffered significant damages of that, so I had an opportunity to actually work very closely on the topic. In fact, we submitted comments to the energy commission at Puerto Rico arguing for what do we call at that time as mini-grids? It’s a slight distinction in that we basically said you could have small pockets of electricity generation and demand and that you could connect these small pockets of generation and load among one another. These bubbles are connected with a network of weather-hardened transmission lines, so that you don’t have one massive north-to-south transmission line like it is in the island of Puerto Rico. That is highly susceptible that if you lose that line you have massive amount of generation that’s trapped in one part of the island but the load happens to be another part of the island.
It just doesn’t work that way and you are highly susceptible because it’s Mother Nature. End of the day we argued for a design where we would build this mini grids and we showed some economic calculations of how that would pay for itself over the course of three years. And so there is actually significant potential in some of those type of markets to go very elementary and very basic, first-principles type approach to figuring out how you can create a highly resilient electric infrastructure and make it the least cost.
Now, then sometimes people also have this, in my view, wrong notion that this is an expensive proposition but in my view, and I’ve done this calculations myself personally, just it’s not true, because when you deploy these renewable resources, the marginal cost of electricity that you pay for that is zero. There’s no cost that you paid to produce solar energy, it’s only the capital cost that you put and after that the energy itself is free, you don’t have any fuel for that and so massively underappreciated, right? When you do these type of like long-term planning studies. And so I would say that in some of those markets there is an incredible opportunity for adopting renewables. You’re seeing that more and more. We are seeing that in many parts of the world. We have actually deployed in some island markets in Europe, in some islands in Southeast Asia and so it has significant value.
Lincoln Payton: It’s a particular focus of mine I have to say because I do believe as storage and renewable extraction, particularly solar, become more and more efficient, this is one solution for the short term in terms of the next five years in this market for us to grow the electrification. So exciting.
Okay, next slight technical topic. You mentioned earlier frequency regulation. I’m sure many people will have heard about it in terms of the demands that EVs may be making, especially commercial EVs and fast charge and this type of thing, but why is that another challenge to our current grid system? How does the storage capability help generators in that respect and help smooth the ride?
Kiran Kumaraswamy: It’s a very complicated mechanism. Imagine if we can zoom code that way. Imagine if you any other commodity that we will go crazy. If every second, I need to have the exact amount of food and coffee that I need, we all go crazy. But unfortunately that’s the world that we live in the electricity cycle, and so that basically creates operational challenges for the grid operators and so what they have to essentially do is to produce a moment of electricity and then depending on the nature of the demand that they serve on every second they have to balance the demand and supply conditions to make sure that the frequency of the grid stays intact.
Now, in certain parts of the world that’s 50 hertz, in certain parts it’s 60 hertz, but basically if you think about a tandem bicycle, it’s basically a people rowing on a tandem bicycle and everybody rowing in the same frequency. They’re sitting upright, they’re not leaning this way or they’re not leaning that way and so it keeps the machine upright and keeps that running. Now one of them goes out of synchronism, you know what happens in a tandem bicycle, you know fall off. If one of them were to go this way then you bring everything down to that way. That’s what people call as a reactive power model. I think this was an essential job in every power system around the world.
Now this is a unique job in that we always called on our traditional generators to perform this because you had to be really fast acting to make sure that you rapidly align for variations in demand of supply. We had no tool in the toolkit back in the day so that we called on the thermal generators, the coal and the gas fired generators to actually do this job for us. Turns out they’re not great at doing that. They don’t like doing that because they’re energy producing machines. That’s what these generators typically do. They’re really slow in responding, they’re just really slow in responding to those deviations and now we have with advent of technology, you have these really fast acting resources that can rapidly act, they act like a hundred meter sprinter. Well, if you see Usain Bolt, it’s lightning fast. The response that battery energy storage and some of these other technology, it includes demand response too to some degree, they act very quickly and that’s the characteristic that you need in providing that frequency control. And many markets have recognized that we have played a huge role in making markets accept that phenomenon in getting paid for those services and stuff like that.
But that was the entry point for energy storage is, that was an easy job for energy storage to do because it gave market operators a very tangible thing in front of them. There was a job to be done which was arresting for these frequency variations and the best resource for that was these energy storage devices because they could act very quickly, that they didn’t have the inner shear of a large shaft that you would find in a turbine and so you could really fast act and provide for the value and it still continues to be a fascinating application. Now we have delivered some projects in Ireland for instance, where the response time is in the order of a hundred, 150 milliseconds. It’s fascinating and if you see what these facilities do, Lincoln, it’s just quite fascinating because if you send them a signal and you see the response of that signal, you’ll literally see two curves superimposed on one another. No delay, no nothing.
Lincoln Payton: I’m guessing when people talk about flexible peaking capacity, it’s the same argument pretty much.
Kiran Kumaraswamy: It’s very similar in nature in that basically we used to build for, remember like we are building the grid for one peak hour of the year that happens five years out. I had somebody tell me once that you’re literally building the church for Christmas Day. Literally that’s what we do.
Lincoln Payton: That’s a very seasonally correct metaphor.
Kiran Kumaraswamy: So you have pretty large space but you built it for just one day of the year. The rest of the days badly get any crowd into the church, and so the grid itself is size like that too. So you have generation that you stack up that you built for that one day, you have transmission and distribution infrastructure that you stack up for that one day in the future. And so it turns out that that means that you’re going to spend a lot of capital on fixed-cost assets that are going to be significantly underutilized for a significant fraction of the time. It’s like that extra square foot space that we have in the church that you don’t need on normal Sundays, alas.
It turns out that that’s not a great idea. So the peaking replacement idea is largely that, that you have these assets that you’re building up that are fractionally utilized and people said it doesn’t make any sense. We should really think about other ways. So increasing the utilization of the resources that we already have and that’s how energy storage will center itself.
Again, there was a key job to be done on that and energy storage came up and said, well first of all, you don’t need to start up or shut down this machine. It just is connected all the time. It’s really fast if it provides peaking capacity, it can also do ancillary services like frequency control… so it could do many of these type of things. And so it became the resource of choice. What I find interesting is that the same value application on the transmission side also exists because worldwide what we end up doing is constructing these transmission lines but we don’t end up utilizing them as much.
Lincoln Payton: All the backup capacity worldwide. And you think frankly of all the commodities going into the physical manufacture, the money, but all the commodities going into the physical manufacture of all those backup line?
Kiran Kumaraswamy: That’s exactly right. It’s shocking how the awareness on this subject is pretty low because the AC electricity system is a complicated concept and so in general our knowledge and understanding of things like the utilization of an AC transmission system, it’s not so great because we don’t understand what controls power flow, right? Because fact of the matter is AC electricity means that power actually splits in the ratio of impedances. That just means that it’s like a water line network. You don’t control what flows on each transmission line. The pressure on the tank basically determines workflows on each line.
And so it’s very different from a natural gas transportation model, where you have pressure valves that you can move to move your commodity across a particular pipe. You just can’t simply do that in electricity. It’s just as a byproduct of where you put generation and load and how you draw the connections between them and the physical characteristic of those connections. And the byproduct of that is a line flow that you get that just leads to more interesting opportunities and those are the type of things that I’m pretty fascinated about right now at Fluence, where I’m thinking about how do you leverage an asset like energy storage to make the transmission grid function much more effectively than what we are doing right now.
Lincoln Payton: Let’s touch on something you mentioned earlier, which has been an enormous boom for the storage world, which is the IRA [Inflation Reduction Act]. What has that changed for you? You’re a young but established company in the space, clearly on a track clearly with capital because of the backing and the listing and all these other things. What has the IRA meant and changed for you in development?
Kiran Kumaraswamy: I would say that it has changed some things but has not changed a lot of things because one thing Lincoln is that we have always had a conviction on the value that energy storage which brings to the grid, built the business around those value attributes that we can bring to our customers. And for a long, long time we focused on applications that make sense, that make money for our customers and had a liability. And so in those aspects, nothing changed. There’s aspects in which it did change, which is that rectified in my view what was a little bit of an anomaly in the tax code of the United States. Because we had this notion that in order to qualify for the tax credit, this battery energy storage project needed to be paired up with a renewable project.
Now if you ask any smart engineer, they would tell you if you’re connected at the same substation or if you’re connected at a substation two miles down the road, it’s simply does not matter. An energy storage project is going to, it’s going to help you with the renewable energy project in making sure that it’s dispatched properly and it adds more value to customers that the renewable energy is serving.
And so in my view, there was a little bit of an anomaly in the tax code because this was done several years ago, 10 plus years ago. And so people didn’t anticipate what battery storage was and so it had that construct in place that sent that you have to be paired exactly at the same location for you to get the tax benefit and that if you’re like a mile away, you don’t get that. That makes no sense to me because if you run the benefits analysis, if you do modeling and analytics on this topic, if you put it at the same place, if you put it at a place a mile away, it’s going to fill the same benefits and so you’re kind of scratching your head and say, gee, why does it not work? But you’re working with tax attorneys and people in the government that make these rules and so they don’t talk like how grid planners talk.
I think what it immediately does is rectify some of those anomalies that existed in the tax code, so it makes it more common sense in my view. This is more common sense that if you add it with renewables, it gets the 30% credit, if you don’t add it, if you put it anywhere else, it still gets the tax credit because it just simply makes all the renewables and the grid function more effectively. From that perspective, I think it’s a big boon. I think we are very excited. I’ve been a huge vocal proponent of this in every forum that you can imagine and I spent a lot of time in the trade lobby and in the advocacy groups seeking to get this done for several years, very close, but every December season would come and go with me scratching my head and saying, oh, you’re not going to get this done. So this has been maybe a career highlight for me to make sure that I played the bit of role that I played.
Lincoln Payton: Well done. Congratulations. That’s great. The topic that you’re doing that’s very, very interesting and I guess very close to my heart as Cleartrace being a software, value-add layer on top of assets, and I guess talking my own book, you talked about the cost efficiency of storage, in terms of how it helps with the cost. Most of the folks in the industry who are listening would be similarly recognizing there’s a security of supply chain element there as well. We at Cleartrace like to think that there’s a carbon opportunity there as well. You can fill and discharge and use not just the most cost efficient times, but at the most carbon efficient times as well. So all of this type of thinking is moving forward in the industry. Tell us a little bit about some of that value add that you’re laying on top of the fixed assets, if you like.
Kiran Kumaraswamy: There’s two initiatives. One is the EnergyTag initiative and the second one is the Energy Storage Solutions Consortium [led by Meta, Broad Reach Power and REsurety]. I work in both of these coalitions, it’s oriented around how you advance industry standards in meeting national corporate 24/7 clean energy goals in how we position storage, the center of the solution.
Now, the EnergyTag initiative itself is an independent nonprofit industry-led coalition, is to develop a mechanism to tag and electricity with the time of production and the source of production. It’s actually quite fascinating when you start thinking in that way. And basically the idea would be that the tagging would allow consumers to seek and match their consumption with clean energy hour by hour, right? And so the coalition is basically trying to get a framework together for how to timestamp these EACs or RECs, however you call them, and so that then you can have those more reflective of how you actually consume electricity, right? Because I think people are a little bit tired about dealing with this in averages and aggregates, so, “people can say on an year, I consumed X, I bought X-plus renewable energy, and so I should be like, okay, right” No, no, no, hang on. Let’s time match this and then let’s see. It all works out on a time matched basis.
Lincoln Payton: And by the way, I’m delighted to hear you talk about that because this is down the middle of the Cleartrace fairway. We are members of EnergyTag and proponents there in the whole tracing, tracking, attribution of detailed granular knowledge, and I do think it’s one thing that is moving in the same way the storage momentum is moving worldwide. I think the thinking of, well, yes, you can manage and have high quality data to manage your carbon and energy footprint, it’s there now, so I think that’s exciting.
Kiran Kumaraswamy: Yeah, no, it is actually. I think we should collaborate on that more.
Lincoln Payton: Absolutely.
Kiran Kumaraswamy: The second one is this Energy Storage Solutions consortium, which is largely figuring out how to maximize the GHG reduction potential from energy storage technologies, right? Because I think the consortium’s goal is to create an open-source, third-party verified methodology to quantify the greenhouse gas reduction benefits of grid connected storage projects going through like a verified carbon standard program and figuring out some standards and methodology that they can use to quantify that, right again it’s an area that is slightly complicated because again, it goes into some high theory on the analytics and the methodology, and so you got to be careful how you set the standards and how you adopt a methodology that can quantify those greenhouse gas reductions from energy storage solutions.
So Fluence is participating in both of those initiatives. Both are very exciting. We have some extremely talented people at Fluence representing us in both of these forums, and again, in some of these forums. Also, some extremely like-minded people, you mention Cleartrace in some of these other ventures. We see some of the larger names also on the energy consumer side, A lot of smart people are putting their brains behind, figuring out how to advance these topics, and I’m always a huge proponent of the ingenuity of mankind, so I think we will eventually find out a solution on this.
Lincoln Payton: Tell me a little bit, when you do the work that you’re doing, where does it go? And I don’t mean for you, I don’t mean for Fluence, I mean your children, where does it go? What does it solve? What are you looking for? You’re clearly very articulate and technically strong and you’re in a leading company in the space, so you’ve got an opportunity to move things and like we were just talking about the IRA, you’ve been a component in moving things. Where are you hoping to move them to for your children?
Kiran Kumaraswamy: I think the key is to leave them with the world embracing more clean energy. Hopefully in our lifetime we’ll get to see 100% clean energy, at least in some parts of the world, but certainly in my children’s life, I want them to see the 100% clean energy world, simply because it just is the most common sense way of constructing these systems and it makes the most of all the sense. And so I think that the second aspect largely is enabling greater capital efficiency in the way we allocate capital in large infrastructure projects, right? If it makes sense in the energy sector, we should do it, if it’s a large capital project. If it doesn’t make sense, we should look at other options in which we can increase efficiency and consistently keep aspiring to increase efficiency of operations.
In every other commodity, that’s what happens. If you’ve read these books like the Third Industrial Revolution or those type of things, people argue that energy press and communication or the topics that have been at the forefront of the evolutions historically, energy created the first industry evolution – that was steam energy, steam engine, and so I think that energy will be at the forefront of the next evolution too, largely how we shape into the future. The same questions that you’re asking right now, Lincoln, is it more central? Is it more distributed? Do I buy more solar panels and batteries for my home and power myself? Those are really quintessential questions that lead us into the future. So I want to lead my kids into that and help them embrace that world and then also really think about how we can take more environmental stewardship as standard citizens. I think it behooves us consistently to ask that question on how we can be better stewards here, the scarce resources that have been endowed upon us, and really make the most amount of it. I try to tell my kids all the time that I can about those topics. Sometimes they listen, sometimes they don’t.
Lincoln Payton: Is there any other point you’d like to make out there that we haven’t covered?
Kiran Kumaraswamy: On a leaving note, I would just say that one thing that I’ve realized, and maybe for your listeners too, is that there is no instant gratification in this industry. It’s a little bit like gardening and farming. You have to plant a seed, you have to patiently water it for a while, for it to actually bear fruit after some time. And so pursuing new technology, new market development, new policy work, adoption of new technology for challenging existing ways in which people conduct their business or orient their business, that’s hard work. That’s very painful work. And so for people that are engaged in that, whether Cleartrace or other parts of the ecosystem, prior energy ecosystem as funded to share with experience, hang tight, be patient, and continue the pursuit, eventually the results will come.
Lincoln Payton: Congratulations, I know on the family, but congratulations on where you are right now. I don’t think it’s necessarily going to be easy, but you’ve done a lot of heavy digging in that garden and hopefully there’s some blossoms and fruits coming up, so pretty good.
Kiran Kumaraswamy: Indeed. It’s been a pleasure talking Lincoln.
Dana Dohse: Thank you for joining us on the Decarbonization Race. For more resources to help you lead the pack in the most important race of our lifetime, visit Cleartrace.io/podcast.