Charged with home invasion

KEEPING COOL WITH

Hey,

Today’s Deep Dive is on Base Power Company, a well-funded startup that came out of stealth last week to disrupt battery energy storage deployment in the U.S. CEO Zach Dell and I have traded notes and hours of conversation over coffee over the past year, so I figured I’d pen some words on their approach. I could have gone for 5,000 more words, but, as I am clearly still struggling to learn, less is often more.

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DEEP DIVE

Companies trying to make it (physically) rain more. Companies trying to synthesize fuels from air. And now, Base Power, a company trying to drive an order of magnitude more home battery energy storage deployment in the U.S.

A major trend in 2024 so far has been the launch and / or reveal of a slew of startups attempting really hard things. This is a welcome development on the heels of several decades where building software or apps or new venture capital funds or meme-coins was more popular, in no small part due to the fact that those are all great (and often easier) ways to make money. I’m not suggesting those things aren’t inherently also challenging (save for the meme-coin one, perhaps). However, a fundamentally different set of skills, circumstances, and savvy are required to build startups that are focused on making tangible impacts on the world we physically inhabit.

I’ve also written glowingly about the role energy storage will increasingly play on grids. Rather than re-hash all of that, it’s instructive to point to California, where the addition of 10+ GW of energy storage has occasioned an inflection point. California is, of course, also a great state for sun. And the combination of bountiful solar + storage is especially powerful. Now that there’s a lot of battery energy storage in California, the state’s grid is starting to use meaningfully less natural gas than it has in recent years. This matters because, until now, gas has stubbornly represented 30-40% of electricity generation in California for years, even as California legislatures positioned themselves as bastions of sustainability and as the world’s leading tech companies dotted its coastline.

The question now becomes how to deploy batteries en masse in states other than California. Many of the batteries moving the needle in California are larger, grid-connected installations. While California has moved at a breathtaking pace to deploy batteries (it didn’t really start until 2015), Base wants to move even faster. To accomplish that, they’re going with a different style of deployment. 

Charged with home invasion

Going the interconnection route is a significant constraint if you want to deploy a lot of battery energy storage capacity quickly, whether to reduce fossil-fuel-fired electricity production or make money, both, or other.

Hence, Base wants to scale the battery energy storage capacity it has under management by deploying batteries in homes. They want to get charged with home invasion (sorry). As Zach explained:

You may think that sounds like it'll take even longer to get to any serious scale, but there are several advantages to going this route (we'll explore the disadvantages, too). For one, many homes can support a grid connection without a massive amount of additional electrical work. 

Secondly, the customers at the residential level have strong incentives to work with Base. Adding batteries to their homes can backstop their homes during blackouts, which have become much more common nationwide in recent years, and save them money. Plus, Base is giving batteries away effectively at cost of installation only (!). Customers only pay for installation, not for the five-figure cost of the batteries themselves.

In return, Base gets to act as their electricity provider, and customers pay Base for their electricity monthly. Base charges its batteries from the grid and then manages the electricity however it wants, though it's in their incentive not to gouge homeowners. Make no mistake, there’s still a lot to ask here of a customer. Switching from which provider you get your electricity is often a pain and requires a lot of trust. Base aims to deliver reliability and affordability for homeowners; in Zach's words, he'd prefer if the modal homeowner with a Base battery deployed thought about the grid and electricity "far less." Still, today, customer trust depends on words versus watts delivered.

Trading up the degree of difficulty for effectiveness

On the disadvantage side of going the distributed, home-to-home route, giving batteries away for pennies (relatively) is a significant cost paid in return for faster deployment. It means Base better be damn confident about the rest of their business plan, where they’ll have to recoup the five-figure cost of each battery. 

Further, Base will have to build new hardware to optimize battery packs for what they’re trying to accomplish (namely, using batteries for energy trading). Base is deploying large, 20kWh batteries (50% bigger than one Tesla Powerwall) in customer’s homes. They’re also optimizing the battery packs for speed of discharge so they can trade effectively in power markets. While they’re not making cells themselves, this does mean they’re taking on the pack assembly and customization of cooling systems, inverters, and more.

They also have to build software to manage a theoretically massive network of distributed assets. If you go from, say, operating 10 assets to 100 to 1,000, each requires roughly an order of magnitude jump in terms of the complexity of data harmonization and asset coordination. Base will also need to acquire customers, build a strong brand, and navigate changing regulations, tax credits, and more on grids. That’s all hard. As Zach readily admitted: 

REP it out 

So, how does Base make money? How do they make this all pencil considering they’re giving batteries at cost to homeowners? The answer lies in the fact that they’re set up as a power company more than as a battery manufacturer or home electricity provider. Base Power is registered as a Retail Electric Provider in Texas; it’s set up to buy and sell power from the grid. Batteries in homes are, for Base, really a set of distributed trojan horses that (ideally) allow them to aggregate a massive amount of energy storage on Texas’ grid in a short amount of time. From there, they can make money in a few ways:

• Energy trading (arbitrage on electricity prices)

• Selling ancillary services

The former is straightforward, even if it isn’t simple, and is what batteries are most often lauded for. You charge them with cheap power from the grid and discharge some to the grid when power is expensive, though you have to also save some for the homeowner, and again, there’s no long-term value to the business if rates for homeowners aren’t reasonable. If you can navigate that dynamic, you make money, contribute to less overall demand and price volatility on the grid, and keep homeowners happy, a win-win-win. There’s plenty of volatility on Texas’ grid, given massive amounts of wind and solar (and owing to any number of other factors).

This volatility means it's certainly possible to make good money trading energy. Still, trading is always perilous to a degree. No small part of Base's business is going to hinge on how well it can trade and how good the power trading team and tools it builds are. Their future success on that front is basically a black box to me.

Ancillary services are actually a more significant component of how many utility-scale battery operators make money today, not just by taking advantage of price arbitrage. Batteries can act as 'grid-forming' assets, i.e., ones that help control voltage and frequency of grids. Not all power generation sources do this. Wind and solar can't. They adjust their output to match its voltage and frequency – they're 'grid-following assets. As more renewables come online, batteries become more important, not just to shift energy through time but to 'form' the grid. For which they can get paid.

This also isn't playing out flawlessly. Some battery operators are coming under scrutiny for overselling (and then not delivering on) their capacity to provide ancillary services. There's tension between operators' desire to maintain flexibility to make money on energy arbitrage and providing ancillary services. I don't know how this will play out for Base or how much of their business it will come to represent, but it's helpful to not be wholly dependent on trading.

Zooming out, the benefit of organizing as a power company is that Base can internalize the cost and benefits of batteries better than a large pool of disparate homeowners could. Base doesn't have to pay an additional margin for the hardware. When it comes to harvesting tax credits, Base will get to do the same thing many times over, whereas homeowners would each individually have to navigate that process themselves. Similarly, with a portfolio of assets, Base should be able to secure financing at lower rates than individuals would. 

And, of course, homeowners can't themselves bid into wholesale markets or ancillary markets. Base can do all kinds of creative financing and trading 'things' as a market participant with an aggregated battery portfolio. Whether or not that makes them money consistently is a separate question, though their cost basis is undoubtedly lower than any homeowner’s would be.

Other Base(d) benefits

There are other advantages to Base’s approach. Here are some more off the top of my head: 

Long interconnection queues aren’t just a bottleneck for new projects. They’re a product of insufficient new transmission being built or insufficient money being spent upgrading existing transmission and distribution infrastructure. As a result, the existing grid is often clogged. While large-scale battery projects are great, they can still suffer alongside all other projects on grids when they don’t have sufficient transmission and distribution wires to pipe their power into. 

Going the distributed route avoids this. Large utility-scale battery projects effectively solve a load-shifting function (moving energy through time) but don’t solve a distribution problem (getting energy to where it needs to be). Batteries that are already deployed in a distributed fashion don’t suffer from the distribution challenge as much. Really, distributed batteries are perhaps more akin to additional transmission and distribution capacity than they are to utility-scale battery installations. 

Further, by going the distributed route, Base will have myriad more data points than most operators of battery energy storage projects. Even in a few hundred homes across Texas, Base would already likely have more intimate insight into state-wide grid dynamics by virtue of being in a bunch of disparate ‘zones’ across Texas’ grid where prices are set.

Base is also designing its batteries to generate and process data from homes rapidly. Base will know when its customers are ramping demand, whether because they’re turning on their AC, starting to run their washers, plugging in their electric cars, or other factors. They’ll ‘see’ this data at a more granular level than other operators, who just see a ramp or decline in demand. Plus, Base will see it faster than other market participants, and the deeper into the 21st century we’ve gotten, the more speed to data and to transact has become one of the critical levers to make money trading (whether you look at energy markets or other financial markets). 

Finally, Base also seems well on its way to creating a strong brand. Tesla Powerwalls have spearheaded the first wave of residential energy storage deployment, and they’re good products. Still, fewer than 1 million homes in the U.S. have a battery, and not everyone likes Tesla. ‘Brand’ may seem like a rather blowsy factor compared to the rest of what this deep dive explored. But when you’re going direct to homeowners, it matters a great deal. To date, home batteries have been sold as premium products with a high gross margin. Said differently, they’ve been prohibitively expensive. I imagine Base will make friends with their model, which brings the barrier of entry down so customers can add a battery for ~$2,000 rather than $20,000.

The net-net

What Base is trying to accomplish is incredibly hard. I see their approach as optimized for an ideal end outcome for the grid and for customers. Whether you care more about homeowner reliability and electricity affordability, smoothing out grid-level demand and price volatility, enabling the entire landscape of energy infrastructure to ingest additional renewable generation capacity, or climate goals in general, it’s all here. 

Whether or not it aligns with an ideal end outcome for Base’s business itself is beyond the scope of my divinations. Companies with comparable goals go out of business all the time (including one recently). And based on how much money the company has already raised, they’ll need to attract many, many customers to grow into the hopes investors have heaped on them.

That said, Base has a stellar team, a ton of proverbial ‘internal’ energy, plenty of capital, and no trouble spinning up organic attention, whether as evidenced by articles in Not Boring or Bloomberg last week or on Twitter. Given where this section started, focused on the benefits for other stakeholders their model could portend, I certainly wish them well.

KEEP COOL PODCAST

Here’s the latest (and greatest) from the Keep Cool Podcast. In one of our bigger ‘gets’ to-date, we’re excited to feature Jigar Shah, the Director of the DOE’s Loan Programs Office, alongside Ian Dickinson, the CEO of LongPath Technologies.

In this episode, we broke down the commercialization of novel methane monitoring technologies to accelerate methane mitigation, a critical lever for decelerating global warming. Specifically, we discussed the ongoing methane measurement technologies LongPath is building for oil & gas infrastructure in the Permian Basin and what climate, economic, safety, and regulatory impacts are being driven by a step-change in methane measurement & monitoring technologies.

Further, we also discussed:

• Bridging financing gaps: The Loan Programs Office’s role in financing climate and energy technologies to create “flywheels of irreversible momentum,” in Jigar’s words.

• Momentum for methane: The range of tailwinds coalescing right now for methane measurement and mitigation that are accelerating the work of companies like LongPath.

• The oil and gas industry’s role: What does the oil and gas industry think of trends in methane measurement and monitoring, whether from a technology perspective or with respect to new regulations coming to the fore in the U.S. to price methane emissions?

Tune in here!

JOBS

Communications Manager (Public Affairs), The Carbon Removal Alliance

The Carbon Removal Alliance is looking for its fifth team member to round out the founding team of its startup nonprofit, which sits at the heart of carbon removal policy. The Communications Manager (Public Affairs) will shape the organization's communications program with creative campaigns that tell stories about real-world deployments of carbon removal across the U.S., build support for carbon removal with policymakers in Washington, D.C., and cultivate grassroots understanding and appreciation of carbon removal projects in the zip codes nationwide where they're being developed. It's a perfect role for someone who can excel on a small, agile team and is excited to build a culture not just for carbon removal broadly but as part of The Carbon Removal team. 

I can personally attest to how highly I think of the folks over at the Carbon Removal Alliance, having met with, hosted panels with, and hung out with them many times. If you're a passionate communicator who’s also passionate about climate, definitely check this one out. Apply here.

Director of Development, Terraset

Terraset, the leading nonprofit focused on using tax-deductible dollars to accelerate carbon removal through pre-purchases from leading industry players, is hiring a Director of Development. Terraset has raised millions of dollars so far and has partnered with some of the most innovative CDR companies in the world to remove greenhouse gasses from the atmosphere. Now, they’re looking for the right candidate to raise millions more dollars to remove millions (and someday, billions) of tons of carbon dioxide from the atmosphere. If that sounds like a job you’d be good at and would be excited to take on, apply here.

Bye,

— Nick