Georgia:

Hello, and welcome back to “Watt's up with energy?”, a podcast by gridX.

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I'm your host, Georgia Knapp, content manager here at gridX, and we are still talking about the nucleus of what gridX does, home energy management systems, or like I said before, as we call it, HEMS.

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I am once again joined by our head of growth services, Robert van der Meulen.

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Hey, Robert.

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Robert:

Hey, Georgia.

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Georgia:

Thanks again for joining me.

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So in our last episode, we gave a pretty extensive background on what HEMS is, what it does, why it's so key to the energy transition. 

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So now I want to talk about what the current state of HEMS and the HEMS market is here in Europe.

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I know there's not one singular HEMS product being used across the whole of Europe, because obviously there are many countries. But can you talk about maybe why this is the case? And what are the differences between the different markets and what are the different HEMS solutions that they each require?

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Robert:

So if you want to talk about that, it's crucial to understand again what HEMS does. It's about shifting loads and production of decentralized assets such as PV systems or an EV charging process or a heat pump. And that's why it is totally depending on the rollout quotas of these assets.

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And in Germany, for example, you have a big rollout quota of PV systems already. It's a super mature market. In the Nordics, the market, it's more about EVs, for example, because they have quite a good subsidy schemes for EV systems, and they have a good charging infrastructure as well. And that's why, this is just two examples why you have a totally different use cases for one HEMS technology.

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Additional to the rollout quotas, you can take a look at the regulatory scheme. For example, if you compare Germany to the Netherlands regarding the PV systems, Germany went for, in the early 2000s, they went for a feed-in tariff where you get a certain amount of, a certain price for every kilowatt you feed into the grid.

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And that was, there was an arbitrage between the feed-in price that you get for, for your energy, for your own produced energy and for the energy you consume from the grid. And that arbitrage was quite high. 

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So in Germany, it makes total sense to buy a battery storage, for example, to increase your self-sufficiency optimization. In the Netherlands, you have until, in a few years, they will phase that out, but you have that net metering scheme.

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And that means that the entire energy you produce locally and you feed into the grid, that makes basically your electricity meter count backwards. So the energy that you feed in had always the same value on your energy bill, as the energy you consume.

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So it lowered your energy bill tremendously. So there was no need for storage, since the grid was the storage in the end.

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Georgia:

And I think for the Netherlands, my understanding is, that's why now it's a greater incentive for Dutch residents to get a home energy management system now, because once that metering scheme ends, they will save more money with the PV and the battery.

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Whereas right now, you said, they don't need the battery.

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Robert:

At this moment, they don't need the battery with the net metering, used for the, yeah, because of the net metering. But if this scheme is phasing out, in, I think it is 2027, then batteries will become way more attractive as a use case for self-sufficiency optimization, for example.

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Okay.

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Georgia:

Do you have a HEMS right now?

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Robert:

I unfortunately don't have any HEMS, because I'm living in a rental apartment in Munich. And unfortunately, there's no way to participate in the HEMS world. Even my balcony is, there is not enough sun to build even a balcony PV system.

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Georgia:

One of those little pop-up PVs that I...

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Robert:

I have smart heating systems, so more like the smart home side of energy management. I use that since a few years. But yeah, personally, I don't have a HEMS system, as we call it within gridX.

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Georgia:

Okay, so actually pivoting off of the solar panels, so we published a HEMS Report recently. When this podcast comes out, I think the HEMS Report will have been out for about a month now.

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And so in that report, we talk about how the EU rooftop solar standard is expected to drive installation of 150 to 200 Gigawatts (GW) of additional rooftop solar in the EU between 2026 and 2030. And this is enough to power 56 million homes.

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Could you maybe explain the two different scenarios to me? The one where these 56 million homes get this PV, and they do use HEMS? And then the scenario where these 56 million homes have the PV and do not use HEMS.

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What would be the major differences between those two scenarios, and what would be the danger of so much distributed solar without intelligent management?

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Robert:

Okay. Yeah, let's work on these two scenarios. So imagine building so much PV capacity distributed over the entire energy grid, which is not intelligent, as you just said. Think about how to manage that flow, energy flows. What happens during midday from, I don't know, 10 a.m. until 4 p.m. when the sun is shining across all Europe? How much energy you will produce?

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And looking at the grid, at the energy grid, technically, you always have to consume as much energy as you produce. So it has to be synchronized. If you don't do it, you will get blackouts. That's the bottom line, basically.

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Of course, you have local ways to optimize within the grid a little bit, without even steering smaller assets, so more on the large scale, but without, like, not using these distributed assets and not being able to steer the distributed production is . . . yeah, that comes with super high costs, and that will unstable our grids, which leads to outages.

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Georgia:

That's really interesting, because, I mean, I bring this up now every single season, that I am an energy newbie. I have never once considered what actually considers what causes a blackout, other than a lightning strike, because . . . 

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Robert:

Well, you can imagine that, looking at the bathtub, so there is an outflow and an inflow, right? And within the electricity grid, you always have to have the same amount of inflow as the outflow. Otherwise, the bathtub will run empty or it will, how do you call it? It will be overloaded.

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Georgia:

Spill over, yeah.

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Robert:

And that is . . . Otherwise, other than with the bathtub, the electricity grid is super sensitive. So you have to manage that at 50 Hertz, technically. That's the frequency you have to maintain.

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And this is where the decentralized assets and the de-central production and the loads, it's not only always about the production, but it's always also about the de-central loads, as we talked about, wall boxes, EVs, heat pumps, to manage them and to synchronize them in a way that you can stabilize the grid on that frequency. That is something our entire energy system will benefit from.

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Georgia:

So, in this HEMS Report, we also show that the number of European households is expected to grow by nearly 11 fold by 2030. In some countries, this is different. Like in Germany, it's actually 20 fold.

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And this is largely driven by the massive switch to electrification by individuals, the cost and energy savings that HEMS provides, becoming energy self-sufficient, and being able to take a more active role in combating the climate crisis, which obviously a lot of people want to do right now. We even quote a study by Ernst & Young that found that 64% of consumers would switch brands based on which had the better environmental impact.

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So given how many years you've been in the industry and the talks you've had with our partners, what are your thoughts on this? Do you think that HEMS really will grow by 11-fold by the end of this decade, or is this just wishful thinking?

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Robert:

I would say it's a clear yes. I truly believe that the different countries, they see the potential.

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So first of all, the consumers see the potential in building up their own PV system because more and more people want to be energy-independent. Also, more and more customers are buying EVs because they are more economic, more, more, better, better experience. And with the rise of the de-central assets, the HEMS becomes more necessary for the entire systems, as we talked about.

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And this is something that regulatory bodies across Europe see that as well. And they are creating legal frameworks at the moment to support these smart prosumers based on HEMS.

And they are doing this because from a national economic standpoint, they want to harness the flexibility of decentralized energy systems, right? To reduce the total cost of the system.

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And to make it a little bit more tangible, for example, in Germany, there is this paragraph 14A, where DSO can dim… So DSO is the distribution system operator, so the local grid operator in the end. And they can dim a customer's asset due to the need to stabilize the grid.

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And the regulatory bodies are really fostering that, that this is possible, because they see the demand for DSO to be able to control that.

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Georgia:

So, as I mentioned in our last episode, I really like analogies.

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So if we were using 14A with your bathtub analogy, would that mean if a DSO saw that the bathtub was in danger of flowing over, spilling over, they would do something to make the water stop pouring as much, and so that the bathtub would not flow over?

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Robert:

So if you use the bathtub analogy, think of the 14A not as the control of the inflow of the bathtub, but more of the control of the outflow.

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So to make it more explicit, if you have an EV at home, and you want to charge it, but currently the production side, as said, the production has always has to equal the demand at all time, and you want to charge your EV, but there is not enough production on the other side. The grid operator can dim your load of your EV charging process to match the production side again, and therefore to stabilize the grid. That's 14A.

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Georgia:

Okay. We will actually have a full season dedicated to 14A, because it's such a technical and complex topic. 

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Robert:

And there's another reason why I think an 11-fold raise will succeed. And I think there's a strong market push as well. So not only a regulatory one, but a market one as well, because innovative companies like 1KOMMA 5°, Soly, Tibber, Octopus, or RaboCharge are leading the market with entirely new products, such as dynamic tariffs, optimization, and hardware tariff bundles in response to these regulatory changes.

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So they are heavily investing in educating customers about new energy products, because they haven't been available before. So there were no products to buy for the end customers.

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And what they do is, and this is something we see at the market at the moment, they raise awareness for new energy services, which then causes a fulll effect for new customers asking for new products, even at their local utility, for example.

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So more and more players will get involved in that as well, and because in the end, more and more customers are asking for new solutions.

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Georgia:

Hmm, okay.

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And then normally, when we think about countries that are zooming ahead with green initiatives, I think we often think about Scandinavia or the Netherlands. But in our research for the HEMS Report, we actually found that Germany, as far as the HEMS market goes, is in the number one position.

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And this is because Germany has the highest number of installed solar PV and BESS, which is battery storage, which we, as we talked about earlier, are kind of two of the stepping stones towards utilizing a HEMS.

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Why do you think Germany is so far ahead of other countries when it comes to the HEMS  market?

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Robert:

As you said, Germany has been building up PV systems for a long time. And if you look back, why is it like this? Because there was a governmental push in the early 2000s, where the government of where the Green Party was part of it.

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They introduced the EEG, the Erneuerbare Energiengesetz, where they said, okay, if you buy a PV system, you get a high subsidy if you feed in. And this high subsidy was super attractive for customers to build their own PV system.

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So Germany goes back for 20 years plus experience of rolling out PV systems. And because of that, Germany was quite strong in the PV industry. So before it became a commodity, it was a high tech product.

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And I think, due to Germany's engineering skills and heavy engineering background, it was just an industry which was basically invented here, before it moved to, as a commodity, to companies, to countries, which are better in low-cost production of a commodity.

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Georgia:

Okay. 

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Robert:

And of course, last but not least, starting a new industry, you need money for, right? And Germany is quite a wealthy country, so there was money involved. And that's why I think Germany was the nucleus of the PV industry, or was a good seeding crown for the PV industry.

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Georgia:

That's super interesting. I honestly did not expect for any of that to be your answer. I don't know what I expected.

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Because that's, yeah, because when I think of, if I were to choose a European country that I would think was like the top for PV, I probably would have gone like Spain. I would go for a very hot, super sunny country. So that's interesting. That also, that was very progressive of Germany 20 years ago.

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Robert:

It was, definitely.

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But for example, for Spain, of course, you harvest way more energy than in Germany for the same size of a PV system, because the sun radiation is way more intense than in Germany.

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However, that's why I think the wealth of a country plays a role here as well. The PV systems at the start were huge invests. So you have to have a buy, or you have to have a strong finance background.

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Georgia:

Yeah. Oh, interesting.

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Robert:

Financial.

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Georgia:

So actually, the number two slot in our HEMS report goes to the UK.

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So Germany in the HEMS market is the top, and then number two is the UK, which I personally assume has largely been driven by, we all know the UK is having rising energy costs right now, and an energy crisis following their exit from the EU.

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But the UK also has an open market, which is where consumers can choose their energy providers, and therefore, energy providers have to compete with one another to offer the most attractive solutions.

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Could you speak to this about the difference between an open market versus a closed market, and what that means for energy management?

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Robert:

Yeah, sure. To be honest, I'm not an expert on this topic, but on market liberalization. But the UK market as well as the German market has a long history in liberalization. So back in the days, the energy market was quite a monopole. You had a monopole structure, you had these governmental owned, state owned companies, which were vertically integrated.

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Somebody produced the energy, transported the energy, and sold the energy. So that is quite a strong position because there was no competition.

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And Germany and the UK were quite progressive on unbundling these structures and therefore fostering this, or encouraging the competition in the energy market, which led in the end to lower energy prices to customers who can choose their energy tariff provider, for example, which leads, for example, to price comparison tools, where you easily can change your energy provider.

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So we have a long history in the education of customers that energy is a product they can at least choose, even though most of the customers are still quite passive in that.

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But the UK and Germany, compared to France, where you still have a government-owned or state-owned energy provider, which covers more than 80% of the market, I guess, if I'm right, you have way more awareness and competition.

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And what does that mean for the HEMS market? I would say people are more aware that they can be responsible in choosing their energy products, in building up their own PV system, in not taking energy for granted, which is totally managed by a state. So that's why I think could be one parameter why HEMS in these markets are a little bit maturer as in France, for example.

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Georgia:
And what are some of the current challenges and limitations faced by HEMS providers?

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Robert:

I think one of the major challenges is the integration. So we just talked about Germany, right?

That there's already a few million PV systems, and integrating these legacy systems is definitely one major challenge. So many homeowners have older infrastructure that may not be compatible with modern HEMS technology. And that makes it difficult to address these customers. So you could focus on new build, but the question is how to address these legacy customers. That's one major challenge, I guess.

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As well as, still we talked about this, we touched that a few times, the interoperability issues.

So HEMS needs to work seamlessly with a wide variety of devices, of decentral assets, as we touched it, right? As well as the integration into the energy market.

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We talked about different regulatory schemes in different countries. Scalability is an issue, because to scale, you need one technology being suitable for these use cases. And, of course, you have still regulatory uncertainties. I mentioned that there is a push from a regulatory side, but there are still many, many uncertainties if you look at the details.

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For example, in Germany, there is still a challenge for HEMS providers to build business cases around charging the battery from the grid, like integrating the battery as an integrating part for the diamond and tariff optimization. And, yeah, and to navigate in that complex and evolving regulation, that's definitely a challenge for HEMS providers, because it will change over the years.

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And as mentioned, it is crucial to find an HEMS provider which offers you an infrastructure which is adoptable over the time for these different use cases.

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Georgia:

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And then when it comes to the go-to-market strategies, which sale channels have proven to be the most effective for HEMS distribution?

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Robert:

Oh, that's a really good question. One, we are actually working with several partners on at the moment. So currently, most of our partners focus on new-build systems and providing the HEMS with a new-build asset, as we talked about it earlier.

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But these are all, most of the companies have a large installer base. So they have their own installers, they sell the PV system, or they sell the wallbox, and they bring in their HEMS.

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So for companies without large volumes of own installers, you definitely have to be more creative. But the good thing is, there are ways. 

So what we currently see is that even smaller customers … So what we currently see is that even smaller installers are approaching us, because they see the need of offering a HEMS system for their end customers, because they are always approached, or they see themselves being attacked by companies like 1KOMMA 5° or Soly, and end customers are really asking them, okay, what can you offer me as an HEMS system?

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But as we, as our experience shows, that the small installers will never be able to build a smooth HEMS system because there comes so many processes with it. You have to do a product development, you have to do customer support, so you really have to own the customer. You have to offer energy tariffs in the end to make that, as I talked about earlier, these ecosystem work, and the small installers are all too small for that.

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So they want to focus on hardware sales, they want to focus on installations, and that could be a really interesting combination for them to partnering up with our HEMS partners, such as Soly, such as EON, for example.

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So that is one sales channel I can think of for companies without a large installer base. The other is, for example, in Germany, the metering operators. In Germany, you have to know that there is, I think, only 5% or less than 5% of the households have smart meters. 

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So there's a huge rollout in front of us that has to be managed by the metering operators. So they go to, in every house, to change the meter, the electricity meter, good connection point. And for them, it would be easy to not just install a new smart meter, but to take the hems with them. There could be a nice distribution channel for partners of ours.

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Georgia:

Okay.

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Robert:

And another one is, which I like to deep dive on, because I've talked to loads of OEMs, so manufacturers, during the last weeks, is to find strategic partnerships with, yeah, OEMs, manufacturers of PV inverters, of wallboxes, or heat pumps. Because I see there is a huge potential in that as well.

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And another one is more regarding strategic partnerships. For example, there's many ways to build strategic partnerships for sales, but one really crucial one in Germany, for example, is partnering up with metering operators. Because metering operators at the moment have a huge amount of rollout volumes of smart meters on their timeline.

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In Germany, the rollout quota of smart meters is just less than 5% at the moment, and it has to be 100% by the end of the decade or the beginning of next decade. And then we are talking about more than 40 million smart meters. So, quite a volume. And, yeah, if you, as a HEMS provider, partner up with these, might be a good sales channel to think about.

Another partnership, strategic partnerships, I can imagine could really work quite well, is with OEMs, so with the manufacturer of PV systems, of wall boxes or heat pumps themselves.

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And, if I may, I would deep dive on that a little bit, because I talked to a lot of OEMs during the last weeks, and I see the potential in leveraging the OEM distribution channels via their wholesaler network or their installer network that they have. And that could actually be a huge game changer, too.

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Georgia:

Okay.

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Robert:

So, to understand the OEM situation, you have to see that the market for hardware manufacturers is becoming more and more competitive and price sensitive. There are new players coming into the market with great hardware for reasonable price.

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So, what do you do as a manufacturer? You have to, so hardware is becoming more and more of a commodity, and how do you differentiate your product from the rest? You can, of course, make the electrical engineering even better and more solid. But the question is, is that enough?

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And with recent market developments and due to regulatory changes we talked about, there is a need to extend your offering towards the new use cases of energy services. And this is where OEMs are currently facing a decision to be made. So, HEMS, make or buy, right?

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And we, at the moment, we see a long list of leads of top manufacturers that approach us for that decision that they are doing at the moment, or they have to do at the moment. And in my discussions over the last couple of weeks, the bottom line, I, or they are telling me at the moment, they are actually telling me all the same thing. Bottom line, we can do the electrical engineering part, but we are not a software company.

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And in addition to that, we are not energy market experts. We can't build solution on top of our hardware that can provide interoperability needed to talk to third-party hardware. And we can't provide use cases, which focuses on local regulated markets.

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We talked about 14A, for example, in Germany. Which is totally understandable. If you take a look at the big OEMs, especially from Asia, they are active worldwide, right? So Asia, America, Africa, Australia, Europe. And if they need to adopt their solution to a regulation specific for Germany, for instance, yeah, that actually doesn't work, because the product management sits in Asia, and they have a huge backlog. And addressing one feature, which is specific for one country, that will always be de-prioritized.

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So the German or the local sales units of these, like who are active in Europe, who want to sell their hardware in Europe of these manufacturers, they are actually approaching us, and they actually say, with gridX, that could be a shortcut in making our assets compatible with local market requirements.

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Georgia:

Okay.

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Robert:

And so the OEMs are looking for strategies on how to enrich their offering, and building strategic partnerships with us, technological, and with one of our HEMS partners such as EON or such as Soly, commercially, could be a solution they could consider as well.

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Georgia:

Okay.

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Robert:

And that would boost the sales numbers of our HEMS providers.

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Georgia:

Okay. It sounds like the topic of OEMs integrating into the HEMS market could be like its own three-episode season itself, just because it sounds like very . . . 

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Robert:

Oh, sure. Definitely. You can talk about the tech stack, the super in-depth tech. You can talk about sales channels because they have huge installer networks, they have academies, how to train their installers again, and they have like this access to the small installers as well. So, you can really find and talk about business models and products for the OEMs.

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Georgia:

Okay. It sounds like that might be a good place to stop this episode for today, because in our next episode, we will talk about the future outlook of the HEMS market. My fun question for you for today is, if you could be any distributed energy resource, which would you be?

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Robert:

I would be a heat pump, actually. Because a heat pump can not only provide heat for the house, but also provide cooling, because you can turn it around, technically, how it works, because it's a heat transfer. And being able to provide both, in winter times, like heat, and summer times, the cooling, it's quite cool, right?

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Georgia:

Yeah.

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Robert:

With one asset. I do miss air conditioning, so I like that answer. Yeah. Maybe I would also be a heat pump, only for the turning it around aspect.

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Cool.

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Well, thank you again so much for joining me, and I'll see you for our third episode.

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Robert:

Thank you, Georgia, for having me.

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Georgia:

If you'd like to learn more about the world of renewable energy or energy management systems, be sure to check out our website, gridx.ai, where we produce regular blogs and glossaries about the subject.

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You can also follow us on LinkedIn, or on Twitter and Instagram @getgridX.