You're listening to Redefining Energy. Your co hosts from Berlin Gerard Reid and from
London Laurent Segala. Today I'm redefining Energy. We're going to talk about monetizing
and trading green electrons. Yes, jab, I'm going to tell you a
funny story. But first a world from our partner, Redefining Energy sponsored by
a Mundi, the leading European asset manager, your trusted partner to accelerate the
transition to a low carbon future. Leading asset manager based on the IPE ranking.
Investing involves risk. Consult your financial advisor. So what's the funny story.
The fully story is the relationship between companies and reporting. I can tell
you first they're resisted one hundred years ago the financial reporting, so why do
we report our numbers are was perfect? And then thirty years ago when regulators
as to report on them environmental data, they say, no problem the environment,
We're all good. And then twenty five years ago when it was reporting
about carbon emission, they say, we're not in accountant. It's going to
be fine. Our engineer know the calculation very well, and on and on
and on and on and every time, of course regulator come in and your
forward thinking company and they start publishing voluntary protocols, which ultimately becomes low And
we've seen that over and over again, and this is exactly what we're going
to see with green electrons. Yeah. What I find fascinating about BRON is
just the role of tech companies in this, because they are at the forefront
of this by sort of going to say, we need to really change the
way this reporting takes place and do it a different way. And they're sort
of trailblazing, if I may say, and what they're doing, and I
also find it interesting thing is that I could argue that they're the heavy industry
of the twenty first century. So it sort of said, well, why
you do that? Should you not be shutting up too, you know and
hide in the corner, But they don't exact abswer. Yeah, what is
very interesting in the movement is that because you've got those trade basar companies starting
to put some protocols like we did the greenhouse Gas Protocol twenty five years ago.
Do you add voluntary company you put the greenhouse gas product. Now it's
the reference of the low the EU. California, they just took the standout
and the said okay, now it's the low because pioneers could demonstrate that it
could be done. And when it comes to green electrons, and especially twenty
four seven green electrons, because it's kind of easy to track on an annual
basis, but here we're talking about hourly basis. Regulators say okay, you
can do it, then everybody's going to do it. I think it's an
incredibly important topic because if we're going to build more renewables going forward, which
obviously we want to do well, being able to actually really track the green
electrons on an hourly basis, maybe even at some point fifteen minute five minute
bass going forward is very very important because it gives the economic signal to build
firm renewables. Now, I know that sounds very technical, but it is
a really really critical and important thing. If we don't do it then and
you know, I think we're just going to have well, actually, we're
not even going to say we are going to do it, because there's no
choice, right, we have to do it well. Not only we have
to do it because it's good reporting, but more and more legal frameworks are
not going to be based on this twenty four seven You can only have green
hydrogen. If you have twenty four to seven green electricity, okay, if
you don't produce a report of your twenty four seven green electricity, you're going
to be taxed by carbon border adjustment mechanism and on and on. So it's
not just a reporting thing, which is great. You're going to have subsidies
and you're going to have taxes which are linked to the fact that you can
demonstrate that your electricity is one hundred percent green or I mean, I don't
know what threshold. But we're going to start talking about big money now.
Well listen, as I said, I really enjoyed the conversation, and I
think you know, we also got a great guest star. Expect a big
time to get him on. Absolutely. I mean, talk a little about
about who JP is. Yeah, JP, everybody called him JP. It's
Ron Pablo Cerda, which I've known for six seven years. We invested together
in a platform called Zygo, which we successfully sold to Schnader Electric two years
ago. And last year our JP said look, I'm going to recreate a
new digital platform, and I say, okay, I'm in. And so
his digital platform has a great name. It's called Renewable, but without the
ed end so bl dot com. I do have a question fair before we
get you honest, why did you invest that in the company and the end?
And the reason why I said is it's technical a niche. That's what
I when I look from outside. But tell me why did you invest?
First we listened to the interview and then I'll explain you why I invested.
But it's going to be kind of self explaining. After the interview. Let's
get JP on the show then, JP, I'm really happy for you to
be on the show with thank you very much. Thank you very much Lauran
for having me. Let's start by the big picture and twenty five years ago,
the first carbon markets arrived, and of course they were about anything that
emits carbon, so it can be the bower sector, it can be the
steel sector, or the chemical, the cement and everything. And there was
some voluntary market, there was some compliance market, mostly in Europe. But
then after a while, I think the ronable industry thought that that blanket was
a bit too wide and the much more gnular data. So explain a bit
how we went from carbon to entennmental attributes of electricity. The cab market,
as you mentioned, is a very interesting market is changing very very quickly.
One thing that is important to note about the CAB market is the verification process
and how, for example, carbon offsets are used to assess the projects and
how they used to reduce or remove greenhouse gas emissions. One example is a
forestation or methane capture initiatives. One important thing and going from the carbon side
to the certificate market, is how these projects are verified. In contrast,
for example, carbon projects are verified, a forestation is verified once every ten
years, and certificates and cerifica market that we're going to talk a little bit
more later can be very on an hourly basis. So there is a very
interesting rule that will come into force in twenty twenty six in EU level that
basically introducing a blanket ban on claims that a product has neutral or reduced or
positive impact on environment if they're solely justified through the purchase of carbon oseets.
If we roll back ten years in fact, before regulations, and I guess
we'll talk about US regulation, which are kind of parallel to the uregulation.
You started having companies, especially big tech, who make big commitments in relation
to buying green energy. For instance, the R one hundred to Carbon Disclosure
Project and so on. So that really was the origin of that movement of
being much more cunular in tracking emissions. And of course because that was voluntary,
they needed a system which would because the public to trace the green electrons.
So probably explain the genesis of AIB in Europe and the equivalent in the
US. And just to take a little step back, there was a very
interesting evolution in the renewable energy certificates market. And just to give a little
bit of context on what certificates like renewable ANERGI certificates are, they are a
document that is issued to guarantee the origin of electricity generated from renewable energy sources.
So they have different names in different countries, like for example, across
Europe they're called GEOSO Guarantees of Origin. In the UK they're codes Regals or
Renewable Energy Guarantees of Origin. In the US they're colled REX Renewable Energy Certificates.
Whatever it is, the name, the concept is the same. So
they provide transparency and assurance to consumers regarding the renewable nature of the electricity they
consume. So basically for every make what hour of production, then the correspondent
issuing body certifies the origin of that make what hour, and they assess and
verify that it belongs to a specific renewable energy acid call it hydro wind solar.
Let's be very technical. I have a wind farm, it starts producing
power. How do I get my regal issued? Do I send a fax
or an excel sheet PDF? Is it automated? How does it work?
I don't think no one has faxes anymore. Probably in the old days they
used to send facts. I'm not sure, but I live in Germany.
They still use taxes here the German government awesome, so probably in Germany they
still use vaccines. But typically they are issued by a regulatory authority or certifying
body, and they are issued after verifying that the renewable energy generation source correspond
to the energy issued. For example, here in the UK, of Gym
of GYM is the verifying body the issues the certificate. Across Europe, you
have different issuing bodies per country, but they are all regulated by you mentioned
it LAN, the AIB, the Association of Issuing Bodies, which essentially the
task of the AIB is to regulate the issuing bodies and sets rules around process
of verification and how you can swarp cigtnificates between the AIB countries, et cetera,
et cetera. And basically they stipulate the rules on how buyers and sellers
can trade these certificates. And just to give a little bit of context,
sellers are typically renewable energy generators who produce the electricity from the renewable energy sources
and they have to apply for the certificates. And the buyers are usually energy
suppliers or businesses who procure renewable energy electricity and they seek to opposit their common
footprints with renewable energy certificates. So, JP, just if I look at
the market from outside, what you see is there's a lot of criticism of
companies are going out saying there one hundred percent renewable. Could you maybe talk
a little bit about that controversy and the changes that are going on in the
market to give us as customers more confidence that green washing is not taking place.
Quite a few companies, what they're doing is buying electricity and renewal energy
on an annual basis, and at the end of the day, that doesn't
necessarily count as one hundred percent renewal ENERJEEP. So when you actually look deeper
into various factors like, for example, what hours of the day you're using
the energy and where that energy actually comes from, then you realize that that
claim of being one hundred percent renewable is not one hundred percent truy GP.
What you're saying, and what we've seen is that at the end of the
year they would calculate all the a kilo, what hour okay, and then
they would go to see walkers and they say, okay, there's a lot
of hydro in Norway in April, there's a lot of sun in August in
Spain. So they would buy a batch of green certificates from Norway April,
a batch of green certificates from Spain in August, and they would match everything
and at the end of the year what hour did match? But they only
match on an annual basis, so in fact they were not green. They
just accumulated some certificates once a year. And probably it's time to introduce energy
tag because that's a movement we've been part of since the beginning, which the
whole idea was, look, the annual matching doesn't make any sense. We
need to go to ourly matching absolutely correct. So in terms of current net
position. The first and the most important step to begin measuring the overall level
of matching between consumption and clean energy generation on an hour lead basis is understanding
the cf IS, which is the carbon free energy score, and basically you
as a company can understand from the amount of certificates that you buy or the
energy and the energy sources, how does that correspond on an hourly basis,
and how does that match your consumption profile and you realize that. For example,
something that we do at Renewable is we plug into the SMA meter and
allow companies to visualize their energy consumption on an hourly basis, so they can
understand, for example, if it's solar that they is the main source of
renewbal energy that they procured, they can see exactly how that contract matches their
energy consumption an hourly basis. Same thing with PPAs, So basically you will
be able to understand more about how a wind farm or a solar farm and
the production profile corresponds to your consumption profile on an hourly basis. And there's
always going to be excess energy or excess certificates outside the consumption hours, which
is exactly what we're trying to facilitate and make better. So what you're starting
to introduce here would be a kind of secondary market. So the primary market
would be you have some consumers who in fact are getting some green certificates alongside
their power purchase agreements, which of course creates a certain shape. But of
course, if you do that on an annual basis, the fact that you
have too much or not enough, that's always gonna net itself. But the
moment you are tracking on an hourly basis, that changes totally. You'll get
some hours, will you'll have too much certificates and others, well, you
will have a deficit. And the all premise around energy tag and the hourly
matching becomes extremely critical because it's not just about disclosing this or that at the
end of the year in your ESGY report. It's about regulation. It's about,
for instance, and this is very important right now, what is green
hydrogen. So there are regulations and subsidies and taxes which are being put together
around that concept of twenty four to seven. Yeah, that's absolutely correct,
and the strong focus around twenty four seven, and the focus should be really
around transparency and bringing more technology to the mix and the traceability elements. So
it's not just about matching one hundred percent of your volume on an annial basis.
Two one hundred percent electricity generated by an acid is actually where that acid
is located. What do you stand in terms of procuring energy from the closest
acids to your operations? What the system is developing now into is a more
transparent and traceable system where you know exactly the origin of every certificate and every
electron that you consume and how and what actually environmental impact that has in your
CFISCO. What you are introducing here requires a staggering amount of data because if
you're trading on an annual basis to certificates, basically you give it to an
intern is going to call a broker. It's going to make too transaction and
you're done. But here you are talking about tracking eight seven hundred data points
per year, which means that the amount of data which is processed cannot be
processed manually. You need to put some systems. So explain a bit how
heavy it is from a computing perspective to track all those electrons on an hourly
basis. We do manage significant amount of data related to runeventy generation, but
not just the generation side, but the consumption. So we deal with companies
that have one, two, three tell our consumption pranum, and we need
to help them understand how that looks on an hourly basis. So we're employing
a very robust verification process to ensure that that data is very accurate, is
traceable, remains integral to the certificate system. What we use is we back
every single transaction that we do using an independent ledger, so that we trace
every certificate back to a specific acid. And in terms of trading, the
rule is that you can buy and sell certificates as many times as you want
until someone retires it. So we want to bring that transparency in tracing that
certificate wherever it goes until it's actually retired. JP can I just maybe it's
related to that is if you look at sort of I want to hedge,
what I use is some form of derivative product. If I take the case
of power, I can win the market as it is now, and I
can buy a yearly product and buy a quarterly product. I can even do
the same and CO two as well. How do you see that market developing
going forward as we move to sort of look, you might even move you
say hourly, we might move to half hour, we might move to fifteen
minute products. How does it work? And as Lauren has already said,
it's going to get really complex as it is, but I can imagine then
the derivatives' markets gets even more complex, and that's something that we are trying
to avoid to add more complexity to the system, because that's what the whole
industry shouldn't be about, right and adding more complexity. Our focus right now,
as I mentioned before, is definitely a transparency, but we're also developing
a trading system where you can actually trade hourly certificates on an our basis,
and every hour we believe that it's going to have a specific price. So,
for example, now the implementation of RED three to the Renewal Energy Directive
three that actually encourages hourly matching at scope two level, we will start seeing
more and more peak and off speak pricing, and the marketplace is eventually going
to evolve into a more open and sophisticated marketplace where every hour of the day
is going to have a different pricing depending on a supply and demand issue ones
of certificates. For example, during the sunny hours of the day, that's
going to be certificates issued, rather than the hours whether there's no sun or
the windows blow. What you're saying here is that through marketplaces like yours,
you're going to be able to give the price of the green attributes to electrons
at different time of the day, which is not the case because right now
we get one price per year and I imagine that producing solar in Italy at
noon in July is probably going to be close to zero. But finding some
certificates maybe through hydro balancing or batteries during peak hours in the evening, that's
going to be much more valuable. And of course, the interesting thing is
that that green attribute is not valued yet by the market, because the price
of a certificate at noon and at seven pm is the same. But the
way the system is going is that you're going to start giving a premium to
the hours where there is less production and even more demand for the green attributes.
Am I correct? Thinking that, yes, you're absolutely correct, and
this is going to be enabled exactly by the BREAD three. So the Renewal
Energy Directive three, which basically states that a guarantee of origin is going to
be so the standard size is one megaa hour, but it can now be
divided in fractions multiples of one what hour. So this will basically evolve the
granularity of the certificates market and how these certificates are going to be traded,
and this will create some opportunities. So there was a recent study from Aurora
that was published by Montel that stipulates that this change in hourly pricing from one
mega hour to hourly is going to increase the revenue for US owners by thirty
three percent. And the reason for these is if we add battery storage to
the mix, then it can help make wind and solar acids much more reactive
and much more flexible. Another case study that will benefit the industry is battery
storage. Battery storage, there's always an arbitrage between when the battery storage is
charged and when the energy is deployed. So if you think about a different
pricing system per hour, then this will allow battery storage operators to charge when
the price is low and discharged when the price is high. In fact,
the Association of Fissuring Bodies now have implemented and accepted a way that you can
double stamp if you use batteries essentially, so you stamp once when the battery
is charged, and you basically stamp again when the battery is deployed, so
you can basically match that energy that was charged. JP. Can I just
jump on what you've just said there and just make a point. I don't
know if you agree with me not, But as this market changes, what's
likely to happen is that the value of hydro and biomass, and I spec
I call a flexible hydro in flactor biomass, it's just going to go through
the growth. Definitely agree because of the constant production of power and the constitution
of certificates. That's that's correct, as well as interconnectors because in fact you're
going to put some green electrons on one side of interconnector and on the other
side you'll be able probably to recreate the same green electrons. Let's assume you
have Norway UK. There must be a system where we know that it's Norwegian
hydro on one side of the cable and on the other side in the UK
they should be able to recreate the green attributes that the Norwegian have exported.
Correct, And that's the beauty of hourly matching because you can actually verify the
certificates that correspond exactly when you charge on one side and then deploy on the
other. Yes, correct, I want to follow up on what you said
there, Laurent and JPR question there, so like just one hundred percent understanders,
I could understand that there's a virtual match In other words, let's assume
there's not enough transmission capacity from Norway to Europe, but they've got lots of
renewables, so what you're doing is a virtual matching on a time basis.
My question to you is is that what's going to happen or is it going
to be a real production matching because there are constraints in the grids. In
other words, is it going to be a virtual matching or is it going
to be a physical matching? From my perspective, I think initially it's going
to be a virtual matching and moving on to a physical matching because as you
say, it's going to have to start being a contract for difference initially and
then move on to kind of physical trading activity, which means back to Laurent's
point about the grid interconnector the grid Internet director has become really valuable because what
the gridded connectors enable you to do is move from virtual to real time delivery
to real time delivery. Correct. Correct. So JP based on all these
opportunities and your knowledge of developing platform like you developed Zygo in the past,
round power purchase agreement and so your knowledge of green electrons market, you have
started this very promising companyable. So it's renovable without the E at the end.
So that's that's kind of smart. Yeah, So explain a bit.
You trace green electrons. Okay, that's all fine, and I guess other
people are doing it. But the different thing is you help the transaction of
them. So can you explain how it works? And really it's about the
traders. They end up with a lot of green electrons from PPAs and then
they have too much, they don't have enough. They want to rebalance the
portfolio. Maybe they have too much in one country not enough in another.
So explain how your platform is helping that process. The platform is very valuable
for two different segments. One is a corporate sector and the other one is
as you mentioned, the traders. Our platform we do three things. The
first one is the verification and we'll let you know as a corporate what your
current CFE score is. So basically, we plug into the smart meter and
we analyze exactly how you consume your energy and what is the level of greenness
of the greed around you, and what contracts you have in place, and
then we give you an accurate hourly cf score. The second thing is we
highlight the gaps. So, for example, if you signed a PPA.
Typically companies will sign PPAs either past produce or baseload, typically for around thirty
forty percent of their annual volume, and then what happens with the remaining sixty
seventy percent. So we can help those companies buy hourly matched certificates from our
marketplace and then trace those certificates back to a specific acid. But our marketplace
is really valuable as well for companies that cannot sign PPAs, because there's a
big portion of companies that don't have the necessary volume, or they don't have
really good credit rating, or they cannot come into attend fifteen year contract.
So for those companies, they need to have some actual valuable solutions beyond PPA
is where they can actually buy hourly mass certificates that correspond to their consumption profile
and then understand exactly where those certificates come from, which win farm with solar
farm. And the third element is the compliance site. So we provide reports
that very five the origin of the certificates, and companies can actually create reports
that adhere to initiatives like CDP every one hundred, as BTI, et cetera.
So it provides a lot of value in three different areas and it helps
companies become compliant and remain compliant by buying certificates on an hourly basis. Yeah,
but those reports which are kind of voluntary or adherence to standards, that's
going to change because of regulation. Regulation is coming in, so it's not
like nice to have, it's going to be immersed have. Correct. So
at the moment is as you say, it is a nice to have And
what we're doing is help companies prepare themselves for when and the regulation comes into
play and they have to become compliant to those standards. We allow companies to
buy certificates on an annual basis, just as they normally do, and what
we do is we reconcile those certificates on a month minus one basis, so
they can just buy on an annual basis. As they typically do, and
then every month that passes and we know the factual consumption, then we allocate
those certificates to that specific consumption profile on an hourly basis and let them know
if they need to go back to the marketplace and buy more certificates, or
they can swarp some certificates, or they can sell certificates back to the market.
Well, JP, this is probably still more questions than answers, but
what you do and your team and your company are definitely one of the critical
tools to crack the code of tracking and trading cinerect Console. Thank you very
much for coming on the show. Thank you very much for having me guys,
good luck with the new venture. Thank you very much. So I
think the phrase that comes to my head is technical. It's very very very
technical. It's also very very very important this whole area of green electrons.
But the question I'm asked, I have to ask you is you're investing for
the second time in this area. Why? And the reason I'm asking you
why is is because sort of so technical, a niche. What's what's in
my head? Actually, I'm thinking to myself, what the hell is the
buyers for this business etcetera, etcetera. You know you have to invest in
probably be thinking of what the lexit is. But tell me what was in
your head when you made that investment decision. Well point number one. In
the first investment, I made quite a lot of money, right, so
that's always good. And the second thing is, look, we had the
simono from Flexido about yo and a half ago on the show, and that
shows how much that concept of twenty four to seven has advanced the momentum.
I see this being literally as big as the bokets. But as you said,
it's extremely digital and very very few people can honest that. It's not
your all style broker with his phone and is a few PDF female and that's
it, which means that the companies who can master the technology there are very
very few, and GP runs one of them. And because he's a trader
of my nature, it's not a digital guy you try to learn about trading.
It's a trader who has a partner with digital guys. He speaks the
languages of the guys who can trade those green certificates, which by the way,
our name Shell Sanrica. We you don't need to invent clients. The
clients are there, it's the energy market. Can I ask just maybe to
conclude the whole discussion. Is that not sort of the natural playground of the
energy exchanges and I particularly I think of it said the European Energy Exchanged ex
which ultimately has Deutsch burs at the back of it. So the goal listn't
there. They're trading everything on a real time basis. It's it not easy
for them to do what we're talking about. Well, in Vienna, if
you listen to us, I know the ex people very well. They can't
develop a new product. Now. If that goes well, I'm sure they'll
come with a very fact check in three or four years time. Okay,
it's very clear a Zygo. We were acquired by sharl Electric because they said,
look, your software is phenomenal and we could not develop that internally.
Because the development of the software there's a lot of trial and error and conversation
and you need to flip certain parameters over the weekend, and you will never
have a big company do that. They can only invest in stabilized product,
but they will be top dollars for that. I like what you just said
actually, which was ultimately the opportunity could be bigger than the power markets today.
I like it. I like it, I like it. I think
so okay. It was a great conversation. We thank JPFO coming, We
wish him the best and I'm helping him on a regular basis. We thank
a Mundi for supporting the show. Thank you, guys, Thanks guys,
and I talk to you next week looking forward with thank you for listening to
Redefining Energy. Don't forget to rate the show and subscribe on Apple, Podcast,
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