Soldera Markets #1 | GO Ecosystem Overview

Transcript of the episode's discussion between Oliver Bonallack, Stenver Jerkku, and Al William Tammsaar [00:00:03] Hello everybody, and welcome to the first episode of Soldera Market Discussions. [00:00:07] I'm joined by Al and Stenver from Soldera. [00:00:10] So yeah, hi guys. [00:00:12] It's good to be just discussing guarantees of origin and renewable energy certificates. [00:00:16] First time in a podcast format for Soldera. [00:00:19] So yeah, [00:00:20] we get to get an introduction from both of you and a little bit of background on [00:00:23] Soldera more generally. [00:00:24] And then why don't we go into giving a high level overview of the Go ecosystem for the viewers. [00:00:29] Yeah, thanks for inviting, Oliver. [00:00:31] And yeah, I'm the founder and CEO of Soldera. [00:00:34] I've been in the environmental asset space for more than 10 years. [00:00:38] I have a technical background. [00:00:40] I've done multiple companies in the space everywhere from region ag, [00:00:44] where we help farmers become carbon farmers and help them create carbon credits. [00:00:49] all the way to carbon-grade trading platforms and now Soldera, [00:00:52] where we help producers remove all the compliance and administrative burden related [00:00:58] to guarantees of origin and also their trading side as well. [00:01:01] And yeah, [00:01:02] I'm really into tech, [00:01:04] into using AI solutions to solve all the issues we have and essentially making sure [00:01:09] that all these systems that should be automated will be automated. [00:01:13] And yeah, Ella. [00:01:14] And hi, I'm Al. [00:01:15] By background, I'm a product manager and data scientist. [00:01:18] I've been working with Stenwer for about a decade, [00:01:21] solving a bunch of different environmental technological problems. [00:01:25] It's been a great time and currently we're working on this. [00:01:29] So we're, [00:01:29] as Stenwer said, [00:01:31] significantly simplifying how renewable energy producers approach guarantees of origin, [00:01:37] how they manage the renewable energy, [00:01:39] trying to get that down to [00:01:42] having to do almost nothing. [00:01:43] That's the dream, right? [00:01:46] Sure. [00:01:47] So yeah, what does that currently look like? [00:01:48] I mean, what are we simplifying? [00:01:50] For those who don't really understand what guarantees of origin are, [00:01:53] or maybe they do, [00:01:54] but all they know is it's something complex, [00:01:56] right? [00:01:56] What does that simplification process actually look like? [00:01:59] I'll quickly cover high level how they work and then maybe I'll get into the nitty gritty details. [00:02:05] So essentially like what are even guarantees of origin? [00:02:08] I guess it's a good place to start, right? [00:02:10] So imagine at your home where you have a choice whether to buy regular electricity [00:02:16] or renewable electricity, [00:02:18] then you may start thinking like, [00:02:20] how do they get those green electrons to my house in case of the renewable electricity? [00:02:25] Well, [00:02:26] the answer is they don't, [00:02:27] because if you take power from the grid, [00:02:29] it's like taking water from the ocean. [00:02:31] You have no idea where it came from. [00:02:32] So to solve that issue, [00:02:34] then on top of the electricity markets, [00:02:37] they build the guarantees of the emerging market. [00:02:39] And it simply proves that the electricity was from a renewable source. [00:02:46] It works very simply. [00:02:47] It's like accounting. [00:02:49] Every megawatt hour you sell to the grid, [00:02:51] government related entities, [00:02:53] usually the TSO will give you one guarantee of region and on the other end, [00:02:57] you buy it. [00:02:57] But in order for you to get that, there's tons of bureaucracy. [00:03:02] And we noticed that 30% of producers are not even utilizing that option. [00:03:06] They just leave money on the floor in the EU. [00:03:09] And is it really as simple as not even, [00:03:11] you know, [00:03:12] these producers aren't aware or is it more I think they're aware, [00:03:15] but it's too difficult for them? [00:03:17] It's there's just too much bureaucracy or they're not aware. [00:03:20] It's either of those two. [00:03:21] And even if you do get through the bureaucracy, [00:03:24] whenever you go making, [00:03:25] doing deals, [00:03:26] you need to do like KYC stuff. [00:03:28] That's another layer of complexity. [00:03:30] The bigger you get, the more [00:03:32] KYC burden you have, all the deal making, everything about it is like it just sort of takes time. [00:03:38] And at the same time, [00:03:39] the market access for them is limited as well, [00:03:41] because if you're too small, [00:03:42] nobody wants to bother doing this with you because it's just not worth their time [00:03:47] or effort. [00:03:49] what do you see the current stage of the guarantee of origin ecosystem being right [00:03:53] now especially someone who's trying to build a startup in it you know an intense [00:03:57] regulatory environment it'd be great to get your insights here as well out that [00:04:01] that seems like a daunting task for a lot of people but it's something that you two [00:04:04] just see a problem that needs solving right so because he has some thoughts [00:04:08] Yeah. [00:04:09] So on a very high level, guarantees of origin are regulated by the Renewable Energy Directive in Europe. [00:04:17] So that's kind of like a pan-European union thing that just exists and is [00:04:23] implemented a bit differently in each country. [00:04:26] But ultimately, guarantees of origin are this kind of cross-border phenomenon, right? [00:04:31] Like you can... [00:04:32] move it anywhere you can consume it anywhere within the European Union it's [00:04:36] ultimately like all the same guarantee of origin. [00:04:39] Now when we get into the nitty-gritty of exactly how it works country by country [00:04:43] there are like major differences sometimes in what kind of documents do you need to [00:04:48] issue do you need to do in anything like on a monthly basis for example report to [00:04:53] the amount of electricity you're producing directly [00:04:56] For reasons, there can be audit requirements. [00:05:00] You know, [00:05:00] you need to go to a certain auditor, [00:05:03] get like a stamp of approval that yes, [00:05:05] this renewable energy device is real, [00:05:08] even though it's clearly connected to the grid and it's producing something. [00:05:12] every five years yeah that 100 megawatts is still there it hasn't left anywhere [00:05:16] yeah it hasn't left like definitely real sometimes it's it does get a bit goofy but [00:05:21] like this bureaucracy is different by from country to country but ultimately [00:05:26] everybody's kind of trying to do the same thing like the rails are the same the [00:05:30] specific implementation is a bit different [00:05:32] And managing that is just kind of a varying degree of a hassle depending on which country you're in. [00:05:37] But ultimately, [00:05:38] everything is manageable since, [00:05:40] you know, [00:05:41] governments like standardizing things like there are forms, [00:05:44] there are procedures to doing everything. [00:05:46] And what we've really drilled down on is how do we streamline everything for the producer? [00:05:51] How do we make it as simple as possible? [00:05:53] How do we make it so you don't have to do all of these things? [00:05:56] We just handle the complexity in the background after you give us a couple of topics. [00:06:00] That's ultimately the decision. [00:06:02] Tell them about the German example. [00:06:05] The German example. [00:06:06] So in Germany, there are multiple degrees of guarantees of origin. [00:06:11] So there are obviously the international guarantees of origin, [00:06:14] which you can import into the country and then consume in the country. [00:06:17] There are also regional guarantees of origin, [00:06:19] which inside of Germany essentially are a different registry, [00:06:23] but they ultimately fill the same goal and you can't get both. [00:06:26] there's essentially like a regional tag of hey this is a guarantee of origin super [00:06:31] real and then on top of everything else there's essentially this fact that if you [00:06:36] get some sort of a state subsidy you can't get guarantees of origin but that's [00:06:39] claimed by the energy the balance responsible party whoever is like trading your [00:06:44] electricity has to just kind of keep track of that and also manage that and like [00:06:49] They can display that this part of my electricity is green from essentially paying out those subsidies. [00:06:55] So there's kind of like multiple layers to this. [00:06:57] And once you get beyond the 20 years of getting a subsidy, you have to move into the other system. [00:07:03] So now you're getting guarantees of origin instead of a subsidy. [00:07:06] And it becomes like kind of this like mess to keep track of, like what exactly is happening. [00:07:11] And the best part is [00:07:12] in some situations you can move in and out of getting guarantees of origin and not [00:07:16] getting guarantees of origin depending on perhaps the market conditions are a bit [00:07:20] better this time so we'll use the market conditions the electricity price basically [00:07:25] you know yeah and when it comes to actually declaring the volumes like for every [00:07:30] production device one by one you essentially have to like type in an sms code every [00:07:35] time you want to get guarantees of origin [00:07:37] So like all of this together kind of creates this long list of just like random [00:07:42] steps you have to do and things you have to think about to even get them. [00:07:45] And if you consider that from an electricity producer's perspective, [00:07:49] this makes up maybe 5% of their revenue. [00:07:51] It can be a very important part of the profit margin, [00:07:54] but if it makes up 5% of your revenue, [00:07:56] you don't want to do this full time. [00:07:58] That's not like your core business, right? [00:08:00] They want to put less than 5% of the resources there. [00:08:04] And, [00:08:05] you know, [00:08:05] we've visited the producers in Germany and some of them have like people whose only [00:08:10] job is to literally just verify the monthly volumes with SMS. [00:08:15] They like literally enter the data, [00:08:17] imagine like this Windows 95 style, [00:08:20] you enter the data in essentially that. [00:08:23] And then every device needs their own form filled. [00:08:26] And then you have to verify it on your mobile phone by SMS. [00:08:30] and solidera just automates all like it's done quickly just bringing the [00:08:33] conversation back to geography specific guarantees of origin explain how that [00:08:37] relates to importing and exporting different guarantees origins yeah i know it's [00:08:41] hard to speak generally in a market where everything's so complex and diverse but [00:08:46] is it easy to say that those goals are constrained to that particular geography or [00:08:50] can they be switched into the international type that can be then sent elsewhere [00:08:54] it depends another good example of this is Sweden so in Sweden they also have this [00:08:59] internal guarantees of origin system and an external guarantees of origin system so [00:09:04] if you want to export it to other countries you need to fill out special paperwork [00:09:08] and now you're getting a different kind of certificate compared to the internal one [00:09:11] which usually is like small producers people that put less time into it like [00:09:16] they get the internal one. [00:09:17] Big producers get the external one. [00:09:19] It's worth more. [00:09:20] It's kind of like, you know, again, a bit random like that. [00:09:24] They're used for slightly different things sometimes, [00:09:27] but ultimately you need to fill out like an additional layer of paperwork and then [00:09:31] you can get the external ones. [00:09:33] In almost every country in Europe, though, you can [00:09:37] just get the guarantee of origin as regulated by their noble energy directive and [00:09:42] export that, [00:09:43] import that, [00:09:44] do whatever with it. [00:09:45] There are no major limitations in most places. [00:09:50] But for example, [00:09:50] if you're in Spain and you receive subsidies, [00:09:52] you can't export, [00:09:53] but you can use internally. [00:09:54] Like there are these kind of small rules everywhere you need to keep trying this. [00:09:59] it's a bit different from country to country on when exactly can you import when [00:10:03] exactly can you export but ultimately the principle behind it tends to be were they [00:10:08] produced by complying with a similar set of requirements and constraints ultimately [00:10:14] that's what it comes down to if it's a bit different in like another country it [00:10:18] might not be considered equivalent but in europe generally [00:10:23] all of the guarantees of origin in each country are interoperable. [00:10:26] So if you are, for example, in Germany, you can use Estonian guarantees of origin. [00:10:32] Like, that's not a problem. [00:10:33] And does it relate to connectivity in transport? [00:10:36] Like, the transmission itself, is distance a challenge? [00:10:39] Because I guess the end goal of a fully functional go market is that anybody can [00:10:43] purchase renewable energy that's then being serviced to them from anywhere else. [00:10:47] But I guess, what are the actual physical constraints? [00:10:50] I guess you need to consider this fact that guarantees of origin are traded [00:10:55] separately from like the physical electricity. [00:10:58] So when a guarantee of origin in Estonia gets exported to Germany, [00:11:02] the electron doesn't necessarily like follow the same trajectory, [00:11:05] right? [00:11:05] generally people have large organizations that use guarantees of origin have [00:11:10] certain limitations like it needs to be connected in like a viable way the place [00:11:15] where you're buying guarantees of origin from and the place where you're consuming [00:11:18] them so for example you couldn't use icelandic guarantees of origin in germany that [00:11:24] would be a bit weird it's still done right now and that's a bit problematic but [00:11:28] essentially guarantees of origin and the physical electricity are not connected [00:11:34] But there is this important thing we need to talk about, which is called the residual energy mix. [00:11:40] And this is like super relevant when it comes to guarantees of origin, [00:11:43] because that's the main thing that it affects. [00:11:46] So if you are in a country that has [00:11:50] Let's say you're in Germany, [00:11:51] Germany, [00:11:51] a lot of your electricity like physically still comes from fossil fuel sources, [00:11:57] right? [00:11:57] You're burning fossil fuels. [00:11:59] And ultimately, what guarantees of origin kind of do is that it spreads this out into other countries. [00:12:04] So you essentially say, [00:12:06] hey, [00:12:06] Estonia or hey, [00:12:07] like Lithuania, [00:12:09] I like that you're producing this much renewable energy. [00:12:11] I'm essentially going to like on paper import this into my own country and [00:12:15] In exchange, [00:12:16] you're essentially getting the remainder of what is left over in my country after I [00:12:21] have consumed the guarantees of origin. [00:12:23] So there is this kind of equalizing system. [00:12:26] That's why we need this concept of a renewable energy mix, [00:12:28] which is everything that is left over after consuming guarantees of origin. [00:12:33] So there is this kind of exchange between countries. [00:12:36] It's even doubt it's kind of complicated, [00:12:38] but ultimately what it results in is, [00:12:40] hey, [00:12:41] I got clean energy and everybody that isn't consuming guarantees of origin, [00:12:45] they essentially got what was left of. [00:12:46] There's also, [00:12:48] so the entire guarantee of origin market is regulated by an organization called AIB, [00:12:53] and they have been creating these European level directives to guide the market and [00:12:59] standardize the market. [00:13:00] One of the directives that they're working right now on is Red 3. [00:13:04] And actually, it does have a lot of references towards moving like more localized systems. [00:13:11] So you can only use the guarantee of origin within the same tree. [00:13:15] I guess that's a separate discussion if that's a good idea or a bad idea. [00:13:19] So the AIB's role in guarantees of origin is essentially they work as this [00:13:24] standardizing body of like getting the nitty gritty details that aren't written in [00:13:30] the European directives, [00:13:31] getting those agreed between countries and getting that fully interoperable. [00:13:35] So they kind of function as this bridge between countries. [00:13:38] So you could move things in and out in like an easy and very technically simple way. [00:13:42] because otherwise you would need to essentially call germany and go like hey i have [00:13:47] some stuff in like the estonian registry would you uh please like mark that [00:13:52] somebody has consumed them i'll cancel them over here and then that gets really [00:13:55] messy and instead there's kind of a system of like okay i exported it here i'm [00:14:00] importing it there like we're still keeping track of it like across multiple [00:14:04] registries but ultimately they set these [00:14:07] standards of the nitty-gritty details of what is a guarantee of origin, [00:14:11] like how is it managed, [00:14:12] like what exactly does it look like, [00:14:14] what kind of documents do you need to provide the public about how this registry works. [00:14:19] These kind of things are generally defined by the AIB, [00:14:23] while the European Commission essentially defines the high-level stuff of what [00:14:27] exactly is the goal, [00:14:29] where are we going, [00:14:30] what kind of systems do we want. [00:14:32] That's more something happening on the European Union level. [00:14:34] This is why we have Al in our teams. [00:14:36] I'm curious, you said that there's kind of like a shift towards this more local consumption model. [00:14:41] Do you think they're going to encounter friction when it comes to, [00:14:44] for example, [00:14:44] in the German case, [00:14:45] where regional governments that kind of guarantees their origin as something that [00:14:48] are at odds with subsidies as a sort of [00:14:51] reward or like a compensation method, [00:14:53] whereas the broader trend is that there is a market being created here. [00:14:57] So how are those things going to be resolved? [00:14:59] Quite a lot of different things to discuss about that exact same thing. [00:15:03] The German market and most markets actually that have this system of if you get a subsidy, [00:15:08] you don't get currencies of origin. [00:15:11] They're discussing a lot moving into still giving out guarantees offer agent [00:15:16] because some countries are doing like there's simply a tag on every kind of [00:15:20] guarantee offer agent if it's with support or without support. [00:15:23] So like German producers are literally losing out because in their country, [00:15:27] they don't get guarantees offer agent marked with support. [00:15:31] And the price difference on the market, [00:15:33] while there is some price difference, [00:15:34] like a few cents to ten plus cents or something like that, [00:15:39] it's usually not that big. [00:15:41] And it's really hurting the local producers and all of those governments that are [00:15:46] seeing that are noticing that and are like, [00:15:48] why aren't we capitalizing on this opportunity, [00:15:51] basically? [00:15:52] Yeah, [00:15:52] generally what you see in countries that don't limit this, [00:15:56] they simply, [00:15:57] when we're doing the calculations of how much subsidy should I pay you, [00:16:01] they just factor in that, [00:16:02] hey, [00:16:03] guarantees of origin have like a specific kind of value. [00:16:05] I can just subtract that from the payment. [00:16:07] You can have your guarantees of origin, like everything makes sense. [00:16:10] that just makes it so all of your electricity is more trackable without creating [00:16:14] these kind of parallel systems and creating like more tracking mechanisms for hey [00:16:19] like what's the composition of my electricity usually that's kind of the reason why [00:16:24] it ends up playing out this way is hey i don't actually want to manage like this [00:16:30] market mechanism you can have it i'll just keep that in mind [00:16:33] When I'm calculating what exactly is like a good subsidy pay to still motivate [00:16:39] renewable energy producers to keep building new renewable energy production sites. [00:16:44] So before we get into another regulatory debate as to, [00:16:48] I mean, [00:16:48] whilst it seems quite obvious that the renewable energy producers should be able to [00:16:52] sell goods as well as getting subsidies. [00:16:55] I think it's a good way to get into the conversation of how does the market [00:16:58] actually decide what is preferential, [00:17:01] what is preferable, [00:17:02] sorry. [00:17:02] Because, [00:17:02] you know, [00:17:03] Stanley, [00:17:03] you mentioned that there's price differences between goes with support and goes [00:17:06] without support. [00:17:07] So yeah, let's talk about, you know, how does the market decide? [00:17:11] Well, a big chunk of the market, a large part of it is driven by voluntary demand. [00:17:16] So it's either ESG or people switching to that type of power. [00:17:21] So there's a lot of brokers and traders out there. [00:17:26] And when they speak with these end consumers and buyers, [00:17:30] some of them have more stringent requirements and they're like, [00:17:33] we'll only buy guarantees of origin, [00:17:36] which are unsupported and for plants that are less than five years old. [00:17:40] because we want our money to directly incentivize construction of new plans. [00:17:45] And then there's other players in the space who are more like, we just want our power to be green. [00:17:51] We don't really care about the details. [00:17:53] And that's how the demand on a large bar comes from. [00:17:58] Now, I can't speak about specific subsidies because there is compliance demand on the market as well. [00:18:05] In Estonia, for example, if you buy an electric car, [00:18:08] you get the subsidy from the government. [00:18:10] But you only get that subsidy if you start using renewable energy going forward every year. [00:18:15] Now, this subsidy specifically, for example, doesn't have any requirement. [00:18:19] So basically, [00:18:20] that's on the bucket of use whatever you want, [00:18:22] just make sure it's green because it's like green subsidy. [00:18:26] so so that's that that's really how the different demand sources come from and then [00:18:30] there's some like super innovative players like google for example who want to have [00:18:34] hourly tracking because right now the guarantee of reaching it works like for 12 [00:18:38] months from the moment it's created the moment where you have to consume it [00:18:42] otherwise it's simply taken away and like destroyed you have 12 months and this [00:18:47] this this is another topic that's a longer discussion but like [00:18:51] Currently, [00:18:51] you can use a guarantee of origin like solar electricity produced in summer during [00:18:57] the winter, [00:18:58] which doesn't make all the sense, [00:19:01] but it does make the market simple. [00:19:03] So, you know, it allows the market to grow. [00:19:06] Like if you want to invent an iPhone, you don't start with iPhone, you start with Nokia, right? [00:19:11] So like you have to like build up to it. [00:19:13] But some companies are very forward looking. [00:19:15] so they're already doing this hourly matching so they only buy guarantees of origin [00:19:20] which are created in the same hour that was also done where the consumption took [00:19:25] place basically so you touched on the shift to hourly go consumption what does that [00:19:32] currently look like i know it's a regulatory target so people want to get there [00:19:35] eventually i mean that's going to be pushed but are people already doing that [00:19:39] voluntary voluntarily is it is the onus on the producer to sort that out yeah what [00:19:44] is that [00:19:45] Yeah, it's actually very hard to do right now. [00:19:47] Like there's not a lot of like compliance options to do it. [00:19:51] There's four countries or five countries that are like leading into trying to test it. [00:19:56] Estonia being one of them and Belgium and so on. [00:19:59] I think Netherlands was as well and even Dutch. [00:20:03] Yeah. [00:20:03] So some of the countries are like experimenting with it, [00:20:07] but it's expected to come like in 27, [00:20:10] 28 timeframe, [00:20:11] something like that. [00:20:12] And a lot of people in the space are even like skeptical that we'll get it so soon. [00:20:16] But you can still do it. [00:20:18] There's companies out there like technology companies that specialize on doing it [00:20:22] and sort of build their own trusted body on top of the governmental body. [00:20:27] And they do the hourly matching and they map it back to the specific monthly credit [00:20:32] that the government has given out. [00:20:35] It remains to be seen if any of those play will succeed or not. [00:20:39] We're definitely very excited about that. [00:20:41] We very much like to see innovation. [00:20:43] And having been in the carbon credit space, we've definitely seen our share of greenwashing and stuff. [00:20:48] So we want to make sure that this market is very legitimate and we're very [00:20:54] supportive in whatever makes sure that the quality keeps going up and down essentially. [00:20:58] But yeah, [00:20:59] long story short, [00:21:00] in the newest version of the European Renewable Energy Directive, [00:21:03] they essentially wrote like [00:21:04] hey it would be very cool if you all could start looking in this direction and like [00:21:09] figuring it out like that is something we're interested in but there wasn't a lot [00:21:13] of push other than hey please start looking at this if you're a government agency [00:21:18] that manages these things please like start looking that's essentially the phase [00:21:23] we're in with these kind of things right now [00:21:25] There's a couple of pilot tests and there are obviously technology companies that [00:21:31] actively specialize in this. [00:21:33] But ultimately what we saw working in the voluntary carbon space was if you have [00:21:40] private companies doing it, [00:21:42] it's a very fragile market because the moment the trust gets eroded in some sort of [00:21:46] a private entity you have market collapse right if you have a government managing [00:21:51] the trust layer or you know i could trust that this was produced on this hour and [00:21:55] this was consumed on this hour if that's managed by a government generally the [00:21:59] trust [00:22:01] problem is solved by the government having to act in a very trustworthy manner [00:22:05] otherwise they have like much worse consequences for themselves that generally [00:22:10] private companies doing these kind of things don't experience yeah we're currently [00:22:14] in this kind of phase where as stener mentioned there are multiple countries [00:22:17] looking at piloting some kind of solutions there isn't like a necessarily a [00:22:21] standard just yet there's more [00:22:23] a couple of experiments of how can government registries be retrofitted or upgraded [00:22:29] to support hourly guarantees of origin but ultimately the issue comes down to just [00:22:34] how much more data how much more infrastructure you need to manage this kind of a [00:22:40] thing compared to the monthly issuance option which is the standard right now where [00:22:46] every at the end of every month you essentially get the guarantees of origin for [00:22:50] the electricity you produce that month that's it [00:22:52] Like that's the whole complexity for them right now. [00:22:54] It moves out. [00:22:55] It gets consumed. [00:22:55] Who cares? [00:22:56] If you get on an hourly basis, [00:22:58] now you need to be like, [00:22:59] okay, [00:23:00] you know, [00:23:01] every hour gets printed out as a separate certificate. [00:23:04] Somebody needs to send it. [00:23:05] Somebody needs to consume it. [00:23:06] We need to have negotiations on what exactly is a... [00:23:10] guarantee of origin worth if it was produced three in the morning by a three in the [00:23:15] morning by some sort of a wind farm when you know there was no sun and we didn't [00:23:21] really need heating right so like essentially the supply and demand curves are [00:23:25] gonna get very similar possibly to the electricity market and that doesn't at the [00:23:32] current prices seem like a [00:23:34] really good way to go. [00:23:35] It's a lot of complexity, [00:23:36] but we need to figure out how do we actually solve that in a manner that's going to [00:23:41] make sense for everybody. [00:23:42] I also think that it's really good that these private companies and tech companies [00:23:45] are doing this experimentation because, [00:23:47] so I mentioned in the beginning, [00:23:49] like both me and Dal's background is in environmental asset space. [00:23:53] We've seen carbon credits, we've seen the good sides, the bad sides and so on. [00:23:57] But one thing that we definitely have seen is that the private companies have sort [00:24:01] of done the experiments and led the way and set the standards and figured out all [00:24:06] the quirks. [00:24:07] And the nations that are currently adopting these carbon frameworks are basically [00:24:12] all inspired by what these non-profits or carbon companies have been doing. [00:24:18] Hopefully they'll also take the learnings of what they've been doing wrong. [00:24:22] We'll see. [00:24:24] But the power markets are way easier than carbon markets in almost every sense [00:24:29] possible to be when it comes to the green part, [00:24:33] the guarantee of origin part. [00:24:34] And I think it will be very easy to take all of these learnings and essentially [00:24:39] adopt them in a regulatory framework. [00:24:42] That was going to be my next question actually is, [00:24:45] obviously, [00:24:46] it's not the case of policy reacting to innovation or innovation reacting to policy. [00:24:51] It's like a dance between the two, right? [00:24:54] They're working in tandem with obviously a lot of the controversies that have, [00:24:58] and obviously the benefits and impressive outcomes from the carbon markets that [00:25:02] we've seen. [00:25:03] Do you think there's direct learning opportunities and do you think that they're being taken on board? [00:25:08] Yeah. [00:25:09] Yeah, absolutely. [00:25:09] Like one of the example is, for example, the Japanese carbon markets. [00:25:13] So if you look at the Japanese carbon markets, [00:25:15] it's been like almost exactly copied from the voluntary carbon markets and then [00:25:20] just put some more regulatory stringent requirements on top of it, [00:25:25] which is good because like [00:25:26] one of the things carbon markets definitely need is oversight. [00:25:30] I think it's been made abundantly clear by now by many different experiments we've seen over there. [00:25:36] And in the guarantees of a rich market, you see the same. [00:25:40] We have also approached and talked with a few [00:25:43] of the TSOs and asked if they're interested in experimenting with hourly based geos together with us. [00:25:49] And they've always been very interested and they appreciate the private sector [00:25:53] showing its head as well and taking the initiative on this front. [00:25:57] The thing that the carbon market generally struggles with is defining what real is. [00:26:03] Essentially, let's say you plant a forest and we give you carbon credits for it, right? [00:26:07] There's a lot of math and assumptions that go into figuring out, okay, what's one ton of CO2 equivalent? [00:26:14] And when should I give it to you? [00:26:16] And what exactly are the properties that we agree on that, yeah, this is now real? [00:26:21] Like what needs to go into that? [00:26:23] While in the renewable energy world, [00:26:25] ultimately what you just need, [00:26:27] assuming there's essentially government monitoring of what's going in and out, [00:26:30] you just need a meter that tells you how much electricity is going out of this [00:26:36] production site. [00:26:37] And that's all we need, right? [00:26:38] Ultimately, that's your ground truth. [00:26:41] That's your evidence that the electricity that's getting put on the grid is green. [00:26:45] Because we measured the thing putting electricity onto the grid, the electrons were functionally counted. [00:26:52] And we know that, hey, this amount is now on the grid. [00:26:55] Everything's good. [00:26:56] In the carbon world, you don't really have that. [00:26:58] And that's actually where a lot of the complexity comes from, where a lot of the problems come from. [00:27:05] I think the most complicated area for renewable energy ends up being this subset called biomass. [00:27:12] So essentially there are these kind of co-generation plants and just electricity [00:27:18] generation plants that essentially burn some sort of biomass to get electricity and [00:27:24] or heat. [00:27:24] So that's kind of a bit more complicated because while we can just look at the wind [00:27:29] blowing and go like, [00:27:30] okay, [00:27:31] this wind turbine clearly produced wind electricity from wind and it went onto the [00:27:35] grid or with solar energy, [00:27:38] we can just go like, [00:27:39] Hey, [00:27:39] the sun is shining. [00:27:41] It hit the photovoltaic panel. [00:27:44] We got electrons. [00:27:45] They moved onto the grid. [00:27:47] Everything solved. [00:27:48] Like as long as that's, you know, figured out it's good. [00:27:51] But when we get biomass, [00:27:53] Generally in biomass, [00:27:54] you see a lot more complexity because we need to understand what exactly are you burning? [00:27:58] Like what went into it? [00:28:00] Is it truly renewable? [00:28:01] Like what makes sense in that context? [00:28:03] So this is like an ongoing discussion in renewable energy space. [00:28:06] And I think that's the closest thing we have to like a carbon-ish problem. [00:28:12] Because it's a bit more nuanced, [00:28:14] the conversation of where exactly is like the real energy, [00:28:18] what exactly qualifies and how is this monitored? [00:28:21] Because clearly we can't just look at the electrons and we can't just look at the wind and the sun. [00:28:25] We have to consider, hey, you like logistically got a bunch of like woody biomass into this turbine. [00:28:31] Where did that come from? [00:28:33] Does that make sense to say that it's renewable? [00:28:35] Should you get guarantees of origin for that? [00:28:37] That's like a nature thing that every government currently has like a much more [00:28:41] complex procedure for to figure out if they should get guarantees of origin. [00:28:46] I don't know if you actually knew, [00:28:47] but guarantees of origin were under greenwashing fire as well before the regulatory [00:28:53] frameworks came in prior to 2019 or 18. [00:28:57] And there were some major scandals and a lot of them actually rolled around exactly [00:29:02] what I'll just describe. [00:29:04] Yeah. [00:29:05] And that's ultimately why biomass facilities need, like, they need to fill out a form. [00:29:10] There needs to be occasional audits. [00:29:12] Somebody needs to look at it. [00:29:13] They need to check the logistics and make sure what you're claiming makes sense. [00:29:18] And there's a lot more procedure there. [00:29:20] While for wind turbines, we can essentially go like, there doesn't seem to be anomalies. [00:29:24] You're just producing wind energy. [00:29:26] What we're observing makes sense. [00:29:28] And that's essentially all we need. [00:29:31] So when there's more capacity for sort of doubt or human error, does that also get reflected in pricing? [00:29:37] So where does Biogas rank in terms of price? [00:29:41] Biomass. [00:29:42] Biogas is its own certificate. [00:29:45] So biogas kind of exists as a parallel market to the renewable energy market. [00:29:50] It's its own kind of world. [00:29:51] My next question was going to be, [00:29:52] how does the increasing trend towards energy storage play into this, [00:29:57] right? [00:29:57] Do they count as production devices? [00:29:59] Does energy discharged from storage, is that eligible for GOES? [00:30:04] Do you think it should be? [00:30:06] What's happening there? [00:30:07] Storage is kind of this hot topic when it comes to how that should be managed in [00:30:11] terms of guarantees of origin and there isn't a coherent narrative on that actually [00:30:17] just yet because storage has largely been this thing that's been developed and has [00:30:22] evolved a lot in the past couple of years. [00:30:24] Many of these protocols about guarantees of origin were written a couple of years [00:30:28] ago and they just haven't like fully caught up. [00:30:32] Just yet. [00:30:32] There are many examples of how storage is handled and generally the answer is they [00:30:38] don't participate in the guarantees of origin system right now. [00:30:41] Essentially anything that you put into your storage device and put out of the storage device [00:30:47] That's just essentially whatever is on the grid. [00:30:50] There is no way to take like a guarantee of origin, produce one month and spit it out in the next month. [00:30:55] Sadly, that's not a thing. [00:30:56] I think it would create a lot of value, especially in the hourly market. [00:31:00] Once we get there, [00:31:01] if we had something like this, [00:31:03] because then you could essentially move solar energy into the night, [00:31:06] which would be very cool. [00:31:08] We don't necessarily have that complexity in the system just yet. [00:31:13] And generally, [00:31:14] storage devices do not actively participate in either like generating or storing [00:31:19] guarantees of origin. [00:31:21] It would cause like, [00:31:22] especially this persuasion will cause a lot of like interesting arbitrage [00:31:26] opportunities and like make battery and storage investments a lot more attractive actually, [00:31:32] right? [00:31:32] Because you can suddenly cut paid for on top of [00:31:36] taking the power arbitrage, you also can optimize it together with the currently of origin. [00:31:42] But it really needs more automated systems, which we're working on. [00:31:46] It would be very cool for storage to get more integrated into how everything comes together right now. [00:31:52] But essentially, it would be very cool if storage was more tightly integrated into counties of origin. [00:31:58] Currently, it's not really. [00:32:00] It's very peripheral to it. [00:32:03] It just kind of exists on the site. [00:32:05] But if we're going to move into this hourly model, [00:32:07] it's going to create a lot of new interesting opportunities. [00:32:11] And we're super excited about that. [00:32:13] The opportunity to move a solar energy into 5 a.m. [00:32:17] is pretty cool. [00:32:18] so what are the current state of the markets i guess from the the people who are [00:32:22] listening who are interested in the financials and the market movement to this and [00:32:26] i guess we did name this so there are market discussions so we should take a final [00:32:31] moment to just reflect on the current state of the market [00:32:34] Oh, [00:32:34] the markets have been disappointing for a lot of people this year, [00:32:38] especially since like last summer, [00:32:40] they were some peak deals happened at like 10 euros per megawatt hour. [00:32:45] And this summer they were one euro. [00:32:47] And now if you look at like 2024, it's like less than 50 cents. [00:32:51] had a massive drop. [00:32:52] But what has been very interesting and has changed is the forwards. [00:32:56] So historically, [00:32:57] if you do like a back testing and look at like if you lock up your forwards versus [00:33:02] if you had just sold a spot all the time, [00:33:04] you can actually see that you will have made less money in forwards. [00:33:08] But when the drop happened, this flip [00:33:11] And for last year or so, [00:33:14] you've actually had really good forward deals where you can get like up to two or [00:33:19] three times better results by locking yourself in the forwards. [00:33:23] Yeah, the market seems to be a bit starting to rebound, but there's a lot of oversupply from 2024. [00:33:31] And we still have this big layer at Italian government who kind of crashed the [00:33:36] market initially because they just kept on failing the auctions. [00:33:40] They failed their auction again in September. [00:33:42] So that was like, oh man. [00:33:44] And so we actually onboarded a lot of our producers to take the forward [00:33:50] opportunities and worked out like automated systems, [00:33:53] how to make sure that you always get the best deals in forward as well. [00:33:56] Not in risky bets when to sell, [00:33:59] but actually like market average and like spreading the risk out throughout the time. [00:34:04] That's what we really propagate in general. [00:34:06] It's very hard to see how the markets move. [00:34:08] It's super volatile. [00:34:09] Like, you know, you see 10x movements. [00:34:11] It's like crypto, you know. [00:34:13] So it's a very, very volatile market. [00:34:18] And world power markets in general have been super volatile in Europe, right, for the last few years. [00:34:24] So in that situation, serious companies with big taxes, you want to have certainty. [00:34:29] So it's really about how do I manage this risk? [00:34:31] How do I make sure this income is spread out throughout time instead of like trying [00:34:36] to bet on buying and selling at the right time? [00:34:40] So that's what we really specialize on as well. [00:34:44] and i guess to talk about like the oversupply and why are we in an oversupply [00:34:47] situation the interesting thing to know about the guarantees of origin market is [00:34:51] the biggest exporter is norway so they export a lot of guarantees origin into the [00:34:57] rest of the european market and that's essentially because they have a huge amount [00:35:00] of hydro [00:35:01] And there hasn't historically been this drive to actually use and claim all of this hydro within Norway. [00:35:09] So they end up kind of selling it out into other countries and other countries [00:35:13] essentially get flooded by hydro, [00:35:16] electricity, [00:35:17] guaranteed version. [00:35:18] There's been a couple of very good years when it comes to rain. [00:35:22] Currently, [00:35:22] the aquifers are in the best state they've been in for a while, [00:35:27] meaning they have very good levels of energy stored up to get released at whatever [00:35:34] is the most offered. [00:35:35] And they've been generating a lot of electricity that just essentially gets [00:35:41] translated into more and more depressed guarantees of origin prices. [00:35:44] There essentially was a drought a while ago that caused the huge price hikes and [00:35:49] everything seems highly correlated right now with the Norwegian electricity production. [00:35:55] This hopefully will get changed since there are more reasons to consume guarantees [00:36:01] of origin coming in over time. [00:36:03] Norway will participate in at least some of them and that will likely reduce the [00:36:08] amount of exporting happening from Norway, [00:36:10] likely boosting the prices by just, [00:36:13] you know, [00:36:14] cutting down on the supply entering the market. [00:36:16] Um, so yeah, we should, we can maybe wrap it there. [00:36:19] It was a really good discussion. [00:36:20] We touched on the complexities of the market in general, [00:36:23] and then, [00:36:24] you know, [00:36:24] final concluding thoughts about, [00:36:26] um, [00:36:26] you know, [00:36:27] Norway and, [00:36:27] and the Italian government as well. [00:36:29] Uh, yeah. [00:36:29] Thanks for that guys. [00:36:30] And thanks Denver now and, uh, yeah, catch us in the next episode. [00:36:34] Perfect. [00:36:35] Bye. [00:36:36] Bye.