Navigating the Growth Phase of Renewable Energy

Full Transcript

KRYSTAL WITH PANDELL Good afternoon, thanks for joining us today. My name is Krystal, I am one of the Marketing Specialists here at Pandell. Welcome to our Pandell Leadership Series Webinar.

Today's topic is Navigating the Growth Phase of Renewable Energy. This session will highlight advancements in renewable energy technology that are driving the acceleration needed to achieve aggressive deployment projections and climate goals. We are delighted to have Jake Anderson with us.

Jake is a co-founder and CEO of Anderson Optimization. Anderson Optimization is the leading site selection software platform in the renewable energy industry. They support many of the largest developers including companies such as AES, Samsung, New Leaf, EDP, Strata, Origis, and more.

Prior to founding Anderson Optimization, Jake began his career in Fortune 500 corporate finance where he led a variety of cross-functional project teams and focused on strategy and business operations.

So, with that said Jake we are very excited to have you and I will pass the stage over to you.

JAKE Thank you so much Krystal. Really appreciate it and thank you everyone for tuning in and joining today.

So, to give you guys a little background on what we'll be discussing is today we're really looking at how we plan to achieve the expected growth that the renewable energy industry is forecasting into the future.

I think as most of this group knows, renewables have already shown a lot of growth especially in recent years. But at the grad scheme, we're still in the overall early stages of the overall industry life cycle and even more dramatic acceleration is going to be necessary to achieve the overall future forecast.

So, today we're going to be really taking a step back and really understand what changes are going to be necessary in order to achieve that future growth.

So, to start out we really want to kind of take a step and understand, you know, where are we today? And where do we expect to get going? Because one of the things that is most critical here to understand is just how dramatic the required acceleration is to where projections plan to take us.

So, when you look over the next roughly 25 to 30 years in the U.S. for example, we are looking to go from about 20 percent to about 44 percent of usage coming from renewables. And I think most people are aware again that this growth is coming but when you really put into quantification of how much energy that really is it becomes quite staggering.

So, according to the EIA [Energy Information Administration] we are basically projecting to go from about 0.75 trillion kilowatt hours to just under two and a half trillion kilowatt hours over that next 30-year time horizon. And so, to just really put in perspective of what that is that's about 165 million homes per year of energy usage. And then at a global scale we're going to have to deploy somewhere between 40 to 70 terawatts of renewable energy to meet the overall climate change targets set in the Paris Climate Agreement.

So, again to really put that number into perspective since 70 terawatts, 40 what does that really mean? In the U.S. total to date, as it relates to just solar capacity, there are about 142 gigawatts that have ever been deployed. So, in other words that means we're going to have to have about 350 times the amount of U.S. solar to date across renewables globally to achieve those targets. Which is frankly a very staggering number. Especially when you really take into account that it took the industry about 60 years, from 1950 here to 2010, to go from about 0.25 trillion kilowatt hours to about 0.75. Which is about again 0.5 trillion kilowatt hours of growth over that 60-year time horizon. But now with those projections I just stated, we now need to grow that by about 1.75 trillion kilowatt hours in the next 30 years.

And I realize I just threw a lot of different stats and numbers at you, but the way to think about that in layman's terms, is we basically have to triple the amount of growth that we have seen in half of the time. Which is all to say that this is really unprecedented growth that we're talking about. Which is going to require unprecedented operational activities and methodologies in order to achieve that.

And these numbers are quite staggering. And it really does beg the question how is that even possible? We've never seen that level of growth, but we have to do it in order to hit these targets. And one of the things you see is that this is actually a very common pattern across industry segments. Almost every industry follows a very similar curve in terms of how it grows accelerates and matures.

So, the way industry life cycles work is there's the startup phase. Which is when industries are really, just starting to emerge and they're usually a smaller number of companies in the industry. Costs are usually quite high, and there's a usually only a handful of service providers, and the economics frankly are not great.

But then you really start to hit this growth phase. Which is really characterized by a rapid increase in demand for these products and services. You also see a lot more companies coming into these industry segments. And the economics really start to shift to become much more profitable and lucrative which really helps to drive further acceleration. And those economics are often unlocked by operational automation and other activities to really help achieve that scale. And additionally, companies at this phase are really focused on expanding that market share and increasing their production or service space so that they can achieve it. And then ultimately companies do reach a level of maturity where growth rates slow. There's usually a level of consolidation before industries ultimately decline and give way to new sectors.

So, when you look at renewables really where we are today is we're just starting to enter into that growth phase. I think we've all started to see some exponential growth here in the recent years over the past five, ten years. And we're really starting to see some of those commonalities that I mentioned in the last slide of companies becoming bigger. The economics as we all know have really started to lean towards renewables versus traditional forms of energy. But we're definitely not mature as I evidenced on those earlier slides where it really shows the amount of growth that we are looking for, but we are well past the renewable sector being this niche industry with only a small number of players.

So, with that we've already actually started to see some of these growth phase activities starting to play. And so, some of the things that are currently happening is that we're really seeing a lot of advancement in the level of tools and capabilities in the industry.

When the industry was really in its infancy phase a lot of the service platforms and tools really had a lot of key common issues and this is a pretty, consistent theme in the industry. Typically interfaces when you're in the earlier life cycle are very, very unclean let's say. They often look like Windows 95 as we can kind of see over here, and they're really, clunky to use.

Also too, earlier in the stage, these processes have been very manual. Every single step of the entire value chain was really required its own set of tools that users would have to manually interact with to achieve whatever their core goals for that function would be. And because of that manual nature it required a very large toolkit in order to accomplish really the work that needed to get done. And also, too since these tools were all built in a very bespoke manner, they really were non-collaborative and were not interacting properly.

But what we've started to see here over the past several years is that automation in particular is really a key driver across industries going from kind of this static manual multi-tool approach to much more of a platform concept. And while this is happening in renewables this is a very common theme of automation that you see across industries.

You see this in manufacturing for example where things such as IOT [Internet of Things] and robotics have really driven to accelerate and scale production and we're now seeing that when you come into the manufacturing side of our space. From logistics and transportation over recent years with digital technology such as autonomous vehicles, drones, warehouse management, operations. Also, another technological advancement that's really helping across other industries but now have very similar activities here happening in renewables.

Also, in the healthcare industry for example we've seen how digital automated records for health records streamline kind of the patient process; they're now using robotic surgery systems to really create more precise surgeries and really automate away from some of that human interaction. Banking and finance we've seen how Fintech have started to use automated trading platforms to really leverage their industry. And in retail even basic automation for things such as self-checkout kiosks, inventory management systems, customer experience tools are all really revolving on how digitization and automation are driving the industry.

And that's very similar to renewables where we've seen a wide variety of digital and technological providers help to take the manual processes that used to be done across many tools and put them into much more standardized platforms.

And that platform concept is really a key driver that we're seeing very actively happening here in renewables. The industry has really, traditionally been focused on a tool mindset and is really, now shifting to a platform mindset. And what I mean by that is historically what companies used to do is they would have to like I said have a single tool that would focus on almost every single step of a value chain in the overall renewable process. This created significant inefficiencies to get that work completed in the overall time frames that were required.

However, what we're now starting to see is that service providers are starting to take entire steps of the value chain put them into single platforms or service tools such that they can automate what used to be historically many discrete steps of this value chain into a single automated process. By dramatically shrinking the number of steps that it takes to get this work done it's really starting to unlock the overall upside and acceleration that's going to be required in this industry. And it really reduces the number of service providers, tools, contracts that the actual renewable companies are using in order to get this work done.

But in addition to the overall standardization, we're going to see from automation on the technological and process management side, there's also a lot more still that is going to come. Because it's just simply automating operations and taking discrete steps of the value chain really is not enough to get that full exponential uncapped upside that we're looking at completed.

And so, one of the other common themes that you see through industries during the growth phase is that companies really start to focus their business models. When you're in that startup phase companies tend to be very focused on really, just getting the work done. So, they tend to do activities in a lot of different steps of the value chain that all have slightly different mechanisms. This makes it really, hard to create that standardized and automated approach that we were talking about. And we're already starting to see some of this focus and specialization that really unlocks that upside start to happen and the example here I've got is First Solar.

You know First Solar I think we all know is an excellent company in our industry that's had a lot of success and historically has really done a mix of everything. First Solar had an O&M [Operations and Maintenance] business, it had a development business, as well as a production business.

But in recent years what we've seen back in 21 they went, and they sold their renewable development business to Leeward, a really, excellent developer in the industry. They went and took their O&M business and sold that off to Nova Source, a more of a true O&M company. And then also too for Solar then took basically the savings there and invested heavily into really scaling the production.

So, it's a perfect example of where these different categories and companies within the overall industry have really figured out what they do best and are really putting their resources behind doing that as efficiently and at the largest scale possible. Using that automation that we talked about mixing with that specialization really unlocks upside and the capacity to achieve some really exponential growth that is not as effective when you have to manage teams, processes, tools that go across completely different operational processes.

And what that allows is by companies really focusing and deciding what is their core business model, they cannot only take the discrete activities and put them into a single step of the value chain but they're really now starting to take that entire value chain within a core business model and automate across all of that all-in-one ecosystem such that they can do it all in-house and effectively as possible. The way to really unlock overall operational efficiency is by creating as much synergy across that and by focusing on a core business model rather than trying to do lots of different business activities is a much more effective approach. And this is very common like I said across almost every industry you see is this level of specialization and acceleration to unlock that.

But then from there is, once you have all these companies that are really focused on core discrete business models, that are really focused on a very specific segment, what ends up happening is that you really need to start forming much more across cross business model partnerships in order to enable this type of growth.

And just looking at another example in an area is where you've got you know Uber and Lyft for example who are ride sharing companies that are heavily reliant on mapping type of data. But they are not mapping companies by nature, so they very much just directly partner with Google to bring in the Google Maps capabilities via APIs [Application Programming Interface] to really unlock that automation. So, Google can focus on what it does best as it relates to mapping, data. And Uber and Lyft can really focus on their ride optimization and their core business model. And again, it really all relates to understanding what you do best and emphasizing that to the highest degree possible. And then looking for other services that are able to fill in the gaps where your focused on the business model may not be.

But all of that really gets us to a point like we showed towards the top where we can automate all we want and really grow and that's going to help to get us to those longer-term growth targets and the exponential growth that we're seeing, but at a certain point you do start to see those level of automation to start to taper off. And industries ultimately do hit a level of maturity where you are no longer so focused on growth, but actually starting to consolidate and operationalize. So, what is we expect once we do hit that kind of 20–30-year time horizon from here to really hit into the future?

And ironically what you really started to see at that maturity level, and what we can likely expect from organizations and renewables, is that really large-scale corporations start to come to life, that do actually revert back to this methodology of not just focusing on a single business model. But really actually trying to bring everything all within one ecosystem, even if those operational processes of each business model are quite different. Because by the maturity stage, companies have reached a level of scale where they can actually manage completely segregated business activities and still support that economically, operationally, and from a human capital component. So, in the future you know it's very likely that we will see companies that are focused on development, fully EPC, manufacturing, O&M, and really incorporating all of that into one place at that same level of automated mass scale that we're going to need into the future.

And again, as we look at some of the other industries, you know a good example going back to that same Google one, is this is very common. Where if we were to take Google, you know they started out as a basic search platform but as they became the behemoth that they are, they now focus on a variety of industry segments. Whether that is software, with their traditional workspace products; their search; YouTube; platforms such as Android, which are operating systems; and then pure hardware.

And you can kind of think of the synonymous nature here in renewables where you can imagine renewable companies that have their technology component of their business. Platforms being their overall development and deployment ecosystem, and then hardware from the manufacturing, deployment, and that type of scale as well. So, we can really expect even though renewables is somewhat of a unique industry that it will really likely follow a lot of the same core patterns that we see across other spaces as well.

So, you know really where that ends up leading us to is the idea that ultimately what we're going to see is that over these next kind of coming years during this growth phase is that companies are really going to identify what is their true core competitive advantage? And they're going to really be investing behind that such that they can really unlock that scale to the degree that they want.

And then they're going to supplement that competitive advantage with as much automation, investment, and human resource capital that they can achieve to really grow that. And when you kind of couple all of that together it really unlocks the overall formula that almost every industry follows to really reach that kind of rocket ship acceleration that we're going to need in order to hit our future growth targets well into the future.

And so, with that you know I'm happy to take that and then move towards any questions here that we have from the audience.

KRYSTAL WITH PANDELL Thank you, Jake, for that very informative presentation.

I have a couple questions here. Is the projected growth actually possible even with the automation and acceleration that you've discussed?

JAKE Yeah, I think in the way to think about it is at the end of the day you can never understand exactly where things will land. So, whether it's you know four terawatts or 40 to 70 where we land in that, you know you can never say for certain, but I think it's inevitable that this growth is occurring.

I think we're already seeing a lot of these trends occur that are driving the acceleration of this industry already starting to happen. And then when we had tailwinds such as the IRA [Inflation Reduction Act], the Paris Accords, and non-industry specific tailwinds that only further accelerates.

So, I think it's very fair to say that no matter what we're gonna see really dramatic acceleration. Where that ultimately lands, we might not hit every projection, but I think it'd be hard to say that we're not going to see something that's been truly unprecedented in the renewable history to date.

KRYSTAL WITH PANDELL Great and then just to kind of second that question is, how is this type of growth possible when interconnection cues are already so backed up?

JAKE Yeah, that's a fantastic question because yeah those do not make deployment easy right now. But the way to think about it is you know, while I really was highlighting in this presentation a lot specifically on more of the development side as one example, the renewable industry is a fully interconnected industry.

So, while these are a lot of the core steps of say the development value chain ISOs [International Organization Standardization], RTOs [Recovery Time Objective], utilities they also have their own operational processes and so they're going to be going through and actively are going through a lot of the similar processes. They're looking for automated tools that help them model their cues better. They're looking for ways to make moves through the manufacturing side and the project analysis side as well.

So, even though we really focused on development here this is really across ecosystem trend. It's kind of a rising tides effect where every entity, company, utility, ISO are all going to be going through this. So, we can expect that in the future those queue times will likely continue to decrease as they bring in similar amounts of automation and process standardization that we're going to see on the development, EPC, or this side of the coin as well.

KRYSTAL WITH PANDELL Okay, we have a couple questions that came through. First one, where do you see the most opportunities for wealth creation in the energy transition?

JAKE Let me think on that one for a second. I think there are a few areas. I think you know one is always there's always wealth creation when you can fix the biggest bottleneck. So, I think there are a few like we were just talking about interconnection cues is absolutely one. It's something where that it still takes years to go from citing a project all the way to that project being alive. A large part of that is when it's really going through the side on the queue.

So, service providers who can really figure out how to make that process efficient, effective, and really meet the needs of all of the stakeholders, because there are so many, it's an extremely hard problem to solve. And when you mix hard problem with lots of stakeholders it really does create a significant upside.

Additionally, too I think one of the other key components is storage. As we all know, is renewables you know one of the biggest issues is the intermittency effects that we see. So, being able to figure out how we store that energy such that we can handle the non-dispatchability of renewables at scale is going to be really critical in order to make those deployments achieved. Because if you only have non-dispatchable renewables that are intermittent, creates stress on the grid, it also still is always going to create demand gaps at different times of the day. So, however we can kind of figure storage out at large to be economically viable, with the deployments necessary to achieve that renewable, I think there's also significant upside there.

And frankly too, you know those are two of the thoughts that I have but I think you could make arguments that there is significant opportunity across almost every piece of the renewable value chain because this is again really kind of an industry-wide growth, not just any one specific component.

KRYSTAL WITH PANDELL Okay, let’s see here next question. What products do you see in the development space creating synergies to increase operational efficiency?

JAKE Yeah, absolutely. So, when we really look at the value chain, we kind of think of you know I've got a handful of these steps here, but I think it's really tying the kind of three core teams that we often see in the development phases into one ecosystem. Because even to date where I had talked about, we're already starting to see companies and kind of go back a couple slides here we're already seeing companies that are automating steps of the value chain. Yeah, you've got your land management companies, you got site selection companies, you've got your layout companies. But it's the technology to really pass that all through into this singular ecosystem.

So, the way that we think about it is, kind of the future platform is, you're going to need something where your transmission folks, and your energy market modeling folks, are in one the same platform as your developers, that are in the same platform as your engineers. Because right now those all live in very siloed ecosystems across the organization which creates friction at the seams of where those come.

So, the way we think about it is, that you're going to have to have your both capacity analysis, or injection studies, plus your energy market modeling basis risk, passing right to your development and your site selection teams to go find the sites that meet those best areas. But then traditionally the pain points that you see right now between site selection, and layout, and land management is that then you have to kind of pass those over. So ultimately, we think you'll start to see actually layout, design, resource assessment capabilities coming right into that site selection process such that, you know from both an engineering and a resource perspective, those sites are pre-vetted prior to spending significant time in your land management phase.

And then finally, it's being able to take those cursory resource assessments, and layouts and move it right into your true engineering and design phase, so that you're really well equipped to move into EPC. So, that this friction between these two pieces is significantly reduced.

And that kind of gets to this overall framing where we really think of it as ultimately there will be singular service providers where you can basically run the entire development value chain all in one platform. And they're likely similar synergies that you would see where already they're full-scale EPC companies that are doing all steps of that, as well as the manufacturing side. So, you know both within development but really broadly it's going to be taking not just individual steps of the value chain but really platforming the full value chain into one place.

KRYSTAL WITH PANDELL Thank you. You mentioned companies focusing on what they do best. Do you see companies continuing to develop both wind and solar or focusing on one or the other?

JAKE Yeah, great question. And so, I am not a developer, so you know take that caveat on the top end. But at the end of the day, you know develop the process of development regardless of technology there are definitely synergies. You're going to need where you're going to put those sites, you're going to need to get it into the interconnection, you're going to need it. So, a lot of the operational steps have synergies between them. So, while you may have different teams that are doing different activities, because they definitely are different technologies that have their different difficulties and issues, the fact that they all have a lot of common operational and workflow steps still allows in our minds, companies to be able to do each of those items effectively. But then still within their own internal ecosystem managing and automatically kind of figuring out how to assess for those uniqueness components for each of those different technology types.

So, my take is yes. I definitely think you'll still see companies that do the different technologies. But I think it would be a full-fledged development company versus a company that's trying to be a full leading manufacturer, while also being a developer. Which are you know pretty different business models at the end of the day. One is to create hardware. One is to get projects built.

So, as long as that kind of thinking and the operational activity is the same, definitely still see that to be a component. Especially with the way co-location is becoming a more and more important thing especially with storage.

KRYSTAL WITH PANDELL Okay, next question is what data is still missing for site selection and then what data is Anderson still looking to add?

JAKE Yeah, great question. So, one of the ones that we continue to think a lot about of how to do it well at scale is zoning. Zoning, when you really get into it at a very refined kind of sub-county level it's really hard to do at scale. The data is messy, it's not standardized across regions, so that's definitely an area that we spend thinking a lot about. And I'd say as we've you know that's one, I think for us. But as we've even researched it externally with other land focused companies, that are even land consultants, it just seems to be a pervasive problem regardless of us. So, you know zoning is definitely I think a key data gap.

And then you know one that I think traditionally has also been a bit of a gap in site selection is the one I mentioned before. Where, the way historically site selection has been thought of and kind of is, you know it's really figuring out buildable areas; figuring out where you can build; where you can stay; and the step of actually understanding the resource, at least a cursory level array layout, is currently thought of as a slightly separate step. It's sort of thought of this pre-cad design and resource assessment step.

You know the thing that we hear all the time from our users is they really want this one-stop shop where that resource assessment and the layout is somewhat critical to understanding what the best site is. So, we really expect that that will be somewhat of a fusion into a more singular step and conversely going upstream is understanding ideal POIs [Point of Interest] and energy markets because as I mentioned the biggest bottleneck these days is the interconnection component.

So, you could have the perfect land and piece of land from a site selection standpoint that looks great but if you can't get that energy into the grid, it does not it is no longer a great site for a project. So, being able to factor in and making sure you're only finding pieces of land, nearby points of interconnection, and in areas where you've got good economics. And then also making sure that you have enough resource and that your panel layout designs work. You know the way we think of it is, this is really all ultimately one step at scale rather than right now being sort of thought of as these discrete marketing grid screening, a site selection process, and a pre-cut layout. And then it comes into the land management side of it is actually managing once you have those sites at scale is a problem that, I know for you guys, Pandell, who’s definitely doing a great job solving, but it'll be no longer thinking of these as one's discrete steps it's all one ecosystem to move through this project development life cycle very effectively.

KRYSTAL WITH PANDELL Thank you, Jake, that is it for questions. So, thank you everyone for joining us today and we hope that you'll join us again next time. Thank you again Jake and we will see everyone very soon.

JAKE Absolutely thank you all so much and if any other questions come up, please feel free to reach out.