Sonnen is one of our favorite cleantech leaders. It is great at innovation, leadership, and vision. Last month, I published a January interview with sonnen CEO and co-founder Christoph Ostermann. The good folks at The Beam went and created a transcript of it. If you can’t be bothered to watch a video but would like to read it, here you go!
Zach: So, we talked with you last year after you won the prize, I remember mentioning I was not surprised at all — I’m not surprised to see your ongoing progress, because Sonnen seems to be at the head of the game. What are some of the most recent big projects you guys have been excited about in the past year?
Christoph Ostermann: Oh, well, we had a very good year in 2017. Finally, the Australian market developed very, very nicely for us, mainly due to the reason of a retail power price increase on the first of July, by 25 or 30 percent or something like that.
You’re talking about for residential storage, right?
Absolutely. This has really kicked off the market and we are developing nicely over there, and then another highlight of 2017 is that the US business did very well. Unfortunately…
California and Hawaii?
California and Hawaii not as much as we thought. It was rather on the East Coast and also in the Caribbean Islands — for example, Puerto Rico due to the hurricanes….
It’s really unbelievable … if you have not seen it, you would not believe it. It’s unbelievable how the island is destroyed.
And the depressing thing now … there are still so many people without electricity, with roofs not on their homes. It’s a systemic problem. But what was your role? How did you get in to help them? I mean this is sort of a question that has been a little bit still unclear with you and Tesla. You have great — obviously, some of the best solutions to offer — but how did you get in?
How did we get in? I mean, first of all, we saw there is a huge need we have a partner in Puerto Rico we are working with since three years. It’s a company called Pura Energia. They told us about the problems they have on the island and then we sent a team over there.
Are they for-profit, where do they get their … ?
Actually, they are an installation company. But when we saw the state of the island, we decided to help very fast, especially for those who can’t afford an expensive storage system and solar immediately, and so we decided to put 15 sonnen battery systems into social projects as a donation. Pura Energia participated in doing the installation and everything necessary on this end for that.
And I think the videos we’ve seen were about that, connected with them and the installation.
I think the videos you’ve seen — I’m not even sure what you’ve seen …
We’ve seen some walking through some of the projects.
I think you saw the laundry in San Juan?
Where we got from Whirlpool six washing machines and a fridge so that some people from the community can at least wash their clothes. Because sewage is also a problem, it’s not only electric power. If you want to wash your clothes in the creek or the river, you’re in trouble, because the water is not clear.
There’s so many of these kind of things that are still just lingering and the tension has just moved on to the next matter.
Which is really a mistake. It’s especially a shame because it’s a US territory. I was there two months after Hurricane Maria and it still looked like it was yesterday, it’s unbelievable.
Even recently, Donald Trump has highlighted work that they did in Texas and Florida after hurricanes, and didn’t mention the work they did in Puerto Rico. Of course, they didn’t do a very good job in Puerto Rico, maybe is part of it. But there’s this lingering issue that we’re not treating it the same — we’re not treating it like it’s an American territory. And people don’t treat them like they’re part of the American community, which is sad. So it’s been great to see companies like you come, even from across the ocean, to help.
We have a subsidiary in Atlanta, Georgia. And the US team was very much involved with that. And even with every shipment of systems that we shipped over to Puerto Rico, the employees of Atlanta collected goods for the people there and we donated a lot of other things.
That’s awesome. When did you set up the US base?
We set up the US base something like two years ago, but we concentrated everything in Atlanta in the beginning of 2017. With our own factory, with R&D hub.
Atlanta you mean? Both, we had our marketing and sales departments based in LA because we thought that the markets are up in California. And when we decided to set up our own R&D hub, we had the opportunity to take over a team of power electronic engineers from a Swiss inverter company, SolarMax. They were in financial difficulties in 2015 and we decided to take everything over, including the lab, including the team. And it was in Atlanta, so we started with two bases in the US, one on the West Coast and one on the East Coast, but now we have concentrated everything in Atlanta.
When did you start using blockchain?
Something like one and a half years ago. We were in a cooperation with TenneT. TenneT is the largest TSO in Central Europe. It’s a Dutch-German company. We are even in a project together with them and IBM where we are using blockchain technology. But our VPP team, which is based in Berlin, developing our VPP software, we have also two blockchain specialists there as well.
So what are you using blockchain for?
For the billing mainly.
For the peer to peer that you are working on?
For the peer to peer and also for the grid services we are providing — for the grid operators. Even though it’s a buzzword, which attracts a lot of attention, we are not claiming too often that it is blockchain because, I mean, nobody is talking about the programing language either. It looks nice, but what is it about? And most people don’t even understand what it is about. I think a lot of players on the market think that we do not have our own software platform at all, that because we have also some cooperations going on …
So that’s for billing, you have the home solar and storage … there’s still the transmission infrastructure in between. In Europe, you have a certain business structure with transmission being separated from power generation more. How do you see that this is applicable in the US, for example, or in Australia?
In Australia it’s almost the same, actually. It’s relatively routine regarding technical standards as well, which is an advantage for a European company, of course. In the US, everything’s different, of course it is. In the US, the only way to deploy kinds of communities is in cooperation with utilities. And we are piloting the first sonnenCommunity in Arizona, where we are a partner in a homebuilding project where 2,900 homes are being built in the Prescott area in Northern Arizona, and all of these homes will be equipped with both PV and sonnen battery systems. And the utility’s also at the table because building a brand new community, literally in the desert, requires infrastructure investment from the utility, and for the utility it makes a difference if the homes are equipped with PV solar or not.
Will they be able to sell peer to peer like in your other communities or is it going to be basically everything is still through the utility billing system?
It will be through the utility billing system.
You could see the utility potentially just taking a cut from you — you working with the utility in the background and then working with the customers separately.
We are providing for the utility a tailor-made technology…
It’s great for them.
And they can use it, and use it with their name as well — it’s not a problem, because at the end of the day it’s a competition about concepts and business models, and we are more than happy to partner with the utilities.
So a few years ago I remember some utility conferences where utilities in the US mostly didn’t get yet that solar was going to be competitive very quickly and then for sure didn’t get that battery storage was going to be competitive not long after that. Now the situation has clearly changed, where solar and battery storage together are often as good as it gets. How would you say the utility response in the US has changed to your technology and your ideas in the last three years?
I think they are much more open to that. They are all in different stages, some are more advanced others are rather following. I think that everyone is progressing and moving forward but at different stages. And some of them have recognized that this is a thing to consider, but they did not get yet how to use it and how to make a business out of it as well.
I’m from Florida originally and we have a rather scathing long series that we’re publishing right now from a man who has been researching these topics for decades at the Florida solar energy center in Cocoa, Florida. It’s quite critical of FPL, NextEra Energy, because of how they’ve tried to squash the residential democratized distributed component and want the solar and storage to be utility scale. And of course the commissions that regulate utilities in Florida have been on their side. Do you see these barriers in Florida as a big problem for you still? Do you see any progress being made or any specific avenues around this? Or is it political — is it basically get the right people on the public service commissions?
Many people have to be involved and have to be convinced as well. What we are doing is brand new and also for the regulator, it’s a high challenge to understand what’s going on because there’s so much going on and so much going on so fast. So for them it’s not so easy either. The utilities are simply a different situation in the US because they are monopolists in their region at the end of the day. And the pain point, the pressure to move is for sure on a lower level than for utilities in Europe and the UK and Australia.
They don’t want to lose their monopolistic power and profits. Last questions then… As you said, it’s hard for anyone to follow — the changes have been so fast that even people in the industry have been shocked by them often. Would you say you’ve been surprised in the past couple of years at how fast the technology has improved and the cost has come down? Or you’re in a role where you’re actually like, ‘Yeah we were there, we were ready, we were planning for this!’
First of all, as a startup entrepreneur, you are always bullish — things are not going fast enough for you, because you make business plans and you expect tremendous growth and you think that your business will explode! So I can’t say that I’m overwhelmed by the fast development. And secondly, we’ve been very, very early in the marketplace. I remember very well in 2010 when we deployed the first storage units and when we showcased our products at the Intersolar show in Munich, everybody was laughing at us, ‘What do these idiots want with their box! Nobody is storing solar power.’ We deeply believed in that, so we are not surprised in this development. Even though I must admit that some things are still developing, you can’t foresee them. Also, that it’s possible to use thousands of distributed storage systems in a virtual power power plant — this was an idea that was not on the table in 2010, to be clear.
You’re a leader in this place, in part because you jumped in when people were laughing at it and people thought it was ridiculous, and you got in there. There were a few players, but you’re one of the most notable ones. And then, what, you followed this market or this technological innovation as you could? What inspired you to jump in first? Was it like battery prices are coming down and they’re going to come down more?
Nobody knew that at this time, everybody had an expectation of battery prices coming down, but nobody knew how fast this would really happen. And this is actually a thing where we were surprised. We did not expect…
I remember interviewing the director of National Renewable Energy Laboratory maybe a 4 or 5 years ago, and he said he spent decades on batteries and it’s a very slow-moving technology, that it takes a lot of time to innovate and bring costs down. So he was not very bullish, he was still open to hydrogen more because of batteries taking a long time to develop.
But I mean the prices are cut by 80% over the last 7 or 8 years — I mean, this is incredible, this is fast!
For sure, it’s amazing.
It’s really amazing.
But you just saw the opportunity combined with solar, then?
In the beginning we were just enthusiasts. We were enthusiastic about our product and we developed our product for ourselves actually. We were the first users because we loved it and we were passionate about it. And then friends saw it and they said can you make such a storage system for us as well? We said we can, but it costs a lot of money.
And you had a lot more energy awareness in Germany where you started. You had more energy awareness about solar, about distributed energy …
About solar, yes. But when we started, the solar world was already spoiled, because everybody was following the paradigm of feeding solar power into the grid as an investment case. And nobody understood why we should change even the metering of a PV system for self-consumption, and we were also preaching to change this paradigm and in the beginning was very hard. Yes, we didn’t have competition, but didn’t have customers either. So in the first year when we started sonnen battery we sold 80 systems. This is the production of one day today.
And then you sort of just kept following the interest in your product?
We were pretty resilient and we thought that we can sell it and we can find fellow enthusiasts who are ready to buy it.
So when do you see yourself on every continent?
I mean, we are already on three: Europe, Australia, and the US. There are not so many missing! In Asia, we are already piloting with the CLP (China Light & Power), for example. We are piloting as well in the Philippines and Malaysia, so this is moving forward. In Africa we are not yet…
And there’s great potential in Africa, but you need a different a different kind of financing model and different kind of network of distribution.
That’s right. Our system is quite a developed concept or system, which is not covering the basic needs, it’s a rather sophisticated system which can also control home appliances and so forth. For the base case in Africa, this is probably too sophisticated. However, there are markets like South Africa, developed markets, where a system like this applies.
And you mentioned in Arizona you’re doing this community-scale model to work with the utility more. You don’t do utility-scale projects …
Utility scale we don’t do at all.
But do you see markets like Chile, where they have strong renewable energy shifts happening, do you see this opportunity for community-scale developments that work on a larger scale with utilities and developers more as an opening to scale up as well? I know you’re always focused on the democratization aspect, which I love. We love this social democratization of energy, democratization of power. I know that’s been a core focus of yours, which we really appreciate.
We will stay in the residential space. Because simply we have the right product for the residential space and the residential space is often a leader and an early adopter because the residential space is also triggered by emotions — for example, by responsibility, by the willingness of changing the world a little bit, and I think this is exactly what we need. And, to combine them, thousands of residential systems into a virtual power plant has a lot of cost advantages as well. Because you can deploy grid services like utility-scale storage, but you don’t have the investment to make because the customer already made the investment because he simply loves what he’s doing and he has his payback, by self consumption or whatever, so it makes sense.
I always think it’s the last question, you’re such a stimulating conversationalist on this! You see in Australia and California these big grid-scale battery storage products happening, but you know, you just highlighted the benefit to utilities and others for this residential community scale. How do you see these markets splitting out in the coming decade or so?
I think utility-scale storage systems as they are today are a legacy from the old way of thinking in the industry because the energy industry was always centralized. Everything is centralized: big power stations, and now big storage systems. … It’s still the old way of thinking — centralized. This is not what’s going to happen in the future. Because in the future, as we see already today in many countries, everything’s decentralized. We have decentralized generation, we have decentralized consumption, you have self-consumption, and this means as well that the load is switching or going from the transmission grid down to the distribution grid. And in the distribution grid what can you do with utility-scale storage? Nothing. But we are already there, because we are in the homes of the customers.
Yeah. I’m moderating a panel later this week that sonnen is on, on digitization and how that’s changing the story. Much of the improvements in the coming years and decade are going to be around demand response technologies. Whether related to electric vehicles or appliances or whatever — smarter control of the demand — and storage is going to be an easy key component to help that along. But on the local scale more. I mean, on the grid scale, battery storage could come in and help, but on the local scale, it would enable so much of this demand response technology. I don’t know if I have a question there…
No, I mean that’s absolutely right. I think the advantage is that we can cluster the amount of deployed systems as we would like to. We can either say, okay, we have 1,000 systems in the distribution grid here, or we can say we have 30,000 systems nationwide, which is more than 100 megawatts of power. And this is only the beginning! Last year we deployed as many units as in the two years before, in 2015 and 2016.
So two final thoughts then. You know, there’s this big vision of how much grid storage we need in the coming decades. And there’s this sort of estimating, projecting that we’ll need this much utility-scale storage for renewables to be a certain percentage. Do you basically think that these estimates, these projections, are going to be modified year after year to say, ‘Hey, we’re getting more of this distributed than we thought, we don’t need this much utility scale storage.’ … ?
From my point of view, everything is going towards the distribution grids, to the transmission grids. It will be solved in the next two or three years.
The second thing: the regulatory process for this kind of demand-response residential storage, EV to grid, or these things … the regulatory process is often the bottleneck because it just doesn’t allow certain things to happen because they’re trying to protect the grid and it’s a new world. How much progress do you see being made on the regulatory side, in the US especially, but also Europe and elsewhere? Or do you see it still as a very slow-moving challenge?
To be honest, I still see it as very slow moving. And this is also why the residential space is nice because people just want to do things and they don’t care so much about regulation.
Do you think that’s going to push people off the grid or do you think that’s too much of a fantasyland idea?
Off grid, there’s no need, and there’s no reason for it. We have the grid: it’s there, it’s paid, and why don’t we let the grid operators earn money with it. At the end of the day, the flexibility and…
It’s basically a giant battery for everybody. If you’re on the grid, you have a giant battery.
Absolutely. We need it. And to manage it is a difficult task, and I’m happy with the grid operators earning money with it. It’s important — it’s like the pipes for gas or whatever.
Well, thank you so much. Thanks for what you’re doing and for all you’re doing and all of your insight. We’re always trying to learn more! And you know about as much as anyone out there, so it’s a pleasure to get to talk to you again.
Thank you. See you.