Talking New Energy: In conversation with... Charlotte Johnson

[00:00:01.800] - Jon Slowe

Welcome to Talking New Energy, a podcast from LCP Delta. I'm Jon Slowe.

[00:00:07.620] - Charmaine Coutinho

And I'm Charmaine Coutinho. Together, we're exploring how the energy transition is unfolding across Europe through conversations with guests at the leading edge.

[00:00:17.030] - Jon Slowe

Hello, and welcome to the episode. Today, I'm talking with Charlotte Johnson, who's general manager at Kraken. Hello, Charlotte.

[00:00:25.830] - Charlotte Johnson

Hi, Jon.

[00:00:27.620] - Jon Slowe

Charlotte, Kraken. I imagine most of our listeners will know of Kraken, they'll know of Octopus, but they may not have a clear understanding of how the two are related. Before we get into Kraken, can you just give us a very quick explanation of Octopus-Kraken relationship between them?

[00:00:46.320] - Charlotte Johnson

Yeah. Maybe starting from the very top, we've got this parent company of Octopus Energy Group. Then within the parent company, there's four verticals. The retail business, Octopus Energy, which most people are familiar with. They supply electricity and gas, largest supplier in the UK. The generation business, where they invest in large scale renewables, more recently, solar, actually, and also some community projects. The service business, where we manufacture heat pumps, we lease electric vehicles, instal smart metres, and then there's Kraken. Basically, Kraken is one of the verticals within the Octopus Energy Group, and Kraken is anything software technology related.

[00:01:27.740] - Jon Slowe

So, separate from Octopus Energy Retail, as you said, active in the UK and increasing number of other countries. Let's look at Kraken then. What's your elevator description of Kraken? Because it does many things, doesn't it?

[00:01:44.220] - Charlotte Johnson

It's broad, but the idea is that of those many things, everything we are doing is what a utility needs for the energy transition. That's the key part of it. There's a CRM that's used for a retail book of how to manage a retail book. It's got your meter data management, your billing, your CIS, all of that stuff sits within it. That's what Octopus Energy uses. That's the nice link back into Octopus Energy, the retail business. I think also 50% of the UK households are built through that Kraken CRM. You just might not know it because your supplier might be.

[00:02:21.070] - Jon Slowe

Yeah, so a lot of other energy retailers are using that CRM part of Kraken.

[00:02:25.910] - Charlotte Johnson

Exactly. You may have seen the other week, they've just recently moved into I think water, telco, and broadband as well. They're expanding to utilities beyond energy.

[00:02:35.660] - Jon Slowe

Yeah, okay. Everything that needs some software to underpin great customer service, I guess.

[00:02:42.250] - Charmaine Coutinho

Exactly. That's the CRM piece. Then you've got the flexibility side of it. Within that, we do flexibility of residential assets, anything in your house, so home batteries, EVs, heat pumps, solar on your roof, and then also everything outside of your house. It could be Behind-the-Metre assets, it could be data centres, C&I, grid-scale, solar, storage, wind. That's the flexibility platform.

[00:03:10.500] - Jon Slowe

Okay.

[00:03:11.950] - Charlotte Johnson

Then we have a distribution network monitoring business because I think what we identified, particularly in vertically integrated utilities, where they manage the network as well, they've got this challenge of how do you manage power quality, fault detection that's increasingly important as we move to a world with more distributed generation.

[00:03:33.820] - Jon Slowe

I think... Yeah, a lot of the network is dark, isn't it? The last miles of the network down to household are often aren't monitored and there's no data. There's very little visibility, what's actually going on?

[00:03:47.780] - Charlotte Johnson

Yeah, exactly. Visibility is a key thing, and also the challenge that there's increasingly more and more assets connected to the distribution network. I think 20 years ago, there was 39 generators in the UK connected to the distribution network, and now there's over 20,000 generators connected to that network. If you don't know what they're doing, it's really, really challenging to then understand how to dispatch assets or how to actually monitor the network.

[00:04:16.340] - Jon Slowe

Okay, so I think we'll focus the discussion probably mostly on the flexibility part of what you talked about. And your role, Charlotte, what's your role in the flexibility part that you described?

[00:04:33.500] - Charlotte Johnson

Yeah. Within the flexibility part, we've divided it into two main products. One we called Smart Flex, which is everything that I talked about in the home. So, its control, optimisation, a product for people that have got assets in their house. I sit on the opposite side of Smart Flex, which is what we call Infrastructure Flex or Infra Flex, and that's managing storage, renewables, and all those C&I assets, and that's the business that I lead.

[00:04:59.520] - Jon Slowe

Okay. Can you give us an idea of scale in some form? Markets, customers, Gigawatts (GW), whatever you feel.

[00:05:11.430] - Charlotte Johnson

On the residential side, we've got just over 250,000 assets connected to the platform, and they're all home assets, so EVs, heat pumps, home batteries, predominantly EVs, though, I should say. On the grid-scale side, we have about just under 2 Gigawatts of grid-scale storage on the platform, predominantly UK, and then we've got a few Gigawatts of solar and wind.

[00:05:38.290] - Jon Slowe

I would imagine quite high rates of growth as these markets are all quite high growth markets.

[00:05:52.700] - Charlotte Johnson

Yeah, definitely, and particularly outside of the UK as well. Historically, that fleet or that portfolio has been very UK-focused, but we're seeing a lot of interest in European countries, the US, and also APAC, actually. Japan is a very interesting market.

[00:06:08.820] - Jon Slowe

Yeah, okay. Well, hopefully that's given the listeners a really good feel for the flexibility part of Kraken and the parts of the business that you're focused on. I'm always interested in looking back at high growth businesses. I imagine you spend most of your time looking forward rather than looking back. But if you look back at the last year, what are you most proud of and what's been harder than you thought it would have been? The two might be related.

[00:06:44.100] - Charlotte Johnson

I think if we think about the grid-scale side for a minute, I'm proud of the market share or the progress we've made within the market over the last 5-6 years. We've got around 50% of all of the batteries in the UK are on our platform, which is about 2 Gigawatts. In the next six months, we're onboarding another 4 Gigawatts, so we're tripling that capacity. That's really exciting. It's also really important, the carbon impact of those assets. There's been recent studies around what's the impact of grid-scale storage on carbon emissions. There was a report last year by Modo, and I think you guys have done something recently as well on the impact of battery on grid carbon emissions. But essentially, it said that last year, batteries in the UK helped reduce carbon emissions by 4%. If we have 50% of that market, we actually had a real impact on helping our customers reduce carbon emissions by 2% if we're...

[00:07:49.100] - Jon Slowe

That's very cool. That must give you a lot of satisfaction as you walk home from it.

[00:07:54.760] - Charlotte Johnson

It's really good to know that we're making a difference, and we're not just talking about it. There's actually real numbers to back that up. It comes with challenges, though, because we've moved from a world of onboarding one to two sites a month, which for a big battery is quite challenging. There's a lot of work that goes into it. There's a lot of engineering. There's a lot of site design, there's sometimes some hardware as well. There's configuration of sites. Now we're having to do 20 plus sites a month. The scale is important, the automation, the self-serve, How can we use technology to actually get better at doing that job as you scale? That's just in the UK. You've then got to do that outside of the UK as well in Europe, like we just talked about, and Japan, where it's a very, very different market.

[00:08:48.230] - Jon Slowe

There's one element then of the software platform. You've got to have the right software platform. You've got to, I guess, continually evolve that. But the operational side of onboarding assets is... Has there been a lot of learning? Well, there is a lot of learning there, from doing the first few to then, as you say, working on how to do it quicker, smarter, more effectively.

[00:09:14.030] - Charlotte Johnson

Yeah, a lot of learning over the last 5-6 years on how you scale the team, how you grow the team, what are the skill sets that we need in-house, how do we use hardware? Because we're not a hardware business, we are a software-first business. Our preference is always to integrate via a software or API into an asset rather than actually put hardware on-site. However, in certain markets or certain services, we have to go down that hardware route. It's identifying what's the best thing for the site. But even as you get better at it and you start to automate and scale and self-serve and everything, sites are getting more complex.

[00:09:55.270] - Jon Slowe

In what way?

[00:09:56.960] - Charlotte Johnson

There's more and more sites nowadays. If you take a big battery site, it might have EV charging on. It might be co-located with solar. It might have some of NESO's (National Energy System Operator) new agreements around stability services or pathfinder agreements that people are still working out. They've won a great contract. It's very lucrative and valuable, but the delivery of it, no one knows who's responsible for delivering it. Is it the OEM? Is it one of the controllers on-site? Is it the market access person? Is it the optimiser? Lots of pieces have got to come together, and I feel like we're in that with some of these new complex sites, it's a first-time round thing.

[00:10:34.030] - Jon Slowe

Yeah, okay. I guess that's partly a reflection on the market structures evolving as well, like the pathfinder contracts, for example, and battery is doing ever more complex jobs for the market.

[00:10:47.480] - Charlotte Johnson

Yeah, which is also great to see because batteries are solidifying their role in the market. They're not just doing frequency services or they're not just doing energy arbitrage. They're now moving into more markets, so they're gaining more share of what they're capable of doing, which is great because we're using them for more things, but also we need to be able to actually combine that hardware and software piece together to enable it.

[00:11:16.070] - Jon Slowe

Yeah. The battery market is, I think, really interesting at the moment. It's growing rapidly. The revenues have tightened a bit in the GB market. Germany is where everyone's focusing at the moment. What would you highlight as the key issues in the battery market at the moment from your perspective?

[00:11:42.780] - Charlotte Johnson

I think one of the key issues that we're seeing at the moment is there's a bit of consolidation, at least in the UK market. We've been in the last year or so this low-revenue environment. I mean, in the last few months, revenues have picked up. We noticed there's definitely a correlation between between very windy days and either negative prices or just low prices. There's this arbitrage opportunity. It's picked up a little bit, but on the whole, we're still in this low-revenue environment. That means that people look for a way to squeeze money out of whatever is possible. So, that could be cycling your asset more. There's a big focus at the moment on battery analytics companies. So, companies that are basically saying, we can give you a better of charge reading than what you're currently getting from your on-site controller. And that's because we've got a better way of understanding exactly how the asset performs. And so, we can tell you that your state of charge might say it's 10%, but it's actually 30 or 40% right now. You have more capacity or more ability to do something. That's becoming really important in the environment today.

[00:12:52.420] - Jon Slowe

Yeah, okay. Focusing on margins, focusing on everything you can do to drive those margins, small gains will make a difference in what you said has been a low revenue market.

[00:13:07.400] - Charlotte Johnson

Small gains definitely make a difference for those players that have the portfolios. If you've got a large portfolio and you can squeeze out a few % across your portfolio, that then becomes a sizable number.

[00:13:22.170] - Jon Slowe

Yeah. That's really just a natural stage in a market evolution, isn't it? From everyone jumping into the market, being lots of revenue opportunities to some consolidation that you describe that we see going on in lots of different aspects of the value chain through to focus on those incremental gains.

[00:13:46.780] - Charlotte Johnson

Yeah.

[00:13:46.960] - Jon Slowe

Anything else jumping out for you in the battery market?

[00:13:53.550] - Charlotte Johnson

I would say there's a big focus as well on Europe. Like you mentioned, everyone's talking about Germany, the revenues are multiple times higher than revenues in the UK. For an optimiser, for a trader, Germany is a really lucrative liquid market. We're definitely focusing on Germany and a lot of our existing customers in the UK are also focusing on Germany, which is quite interesting. Italy is another one that people are talking about, but when we look at Italy, it's really a lot of asset owners are focused on Italy. That's more because I think they're thinking forward about the capacity or the maxi scheme where you're guaranteed some revenue. That seems to be less of an optimiser play and more of an asset owner play at the moment. But again, that's a market that we're live in, and we have customers that are interested in that. It's interesting to see the pull of people to different countries and what's driving it.

[00:14:50.700] - Jon Slowe

Yeah, and it gives some of the companies that grew quickly in the GB market, I think, a really nice experience to take to continental Europe. But at the same time, there's a whole host of new companies in the German market that know the German market really well. I think it's going to be fascinating to see that play out in the next years.

[00:15:09.660] - Charlotte Johnson

Yeah, but like you said, it's also a really interesting thing, I think, for UK companies that have got that foothold in the UK to start to diversify their portfolio beyond the UK with very different business models. I think it's a good idea.

[00:15:22.480] - Jon Slowe

Yeah, which the last few years have shown that you want to be that diversified portfolio to reduce reliance on the spreads in one particular market.

[00:15:32.060] - Charlotte Johnson

Yeah.

[00:15:34.030] - Jon Slowe

I'd like to move on to the Smart Flex that you described earlier, Charlotte, and I know it's maybe not the part of business you're involved in day-to-day, but interested in your views and perspectives on it anyway, because I think in some ways, I see demand-side flexibility, or Smart Flex, as you call it, as the big growth area in the energy transition in the next years. We've done some work looking at seven European markets and looking at new electrification assets in households in those seven markets. And over the next six years, over 300 Gigawatts are going to be installed in households. That's a mixture of EV chargepoints, solar battery, electric heating. So, if even 10 or 20% of those assets are on flexibility platforms, that's a huge wave of flexible capacity coming to the market. So, I think it's going to be a key area in the next years, you've described you've already got 250,000 assets on your Smart Flex platform. It's interesting how you see that area, maybe in contrast to what What we've been talking about so far.

[00:17:02.710] - Charlotte Johnson

For us, like you said, it's a huge growth area. It's exponential growth that we're seeing not just in the UK, but there's a lot going on in the US. Europe, we've got the same VPP product live in France, Spain, Italy, Germany. So, it's really starting to take off. It's a very different problem or an optimisation problem than grid-scale storage. I think to your point on the focus of it, from what we've seen from most forecasts, we are constantly underestimating the amount of flexibility that I think we What do you think you can get from these assets and how much we'll have online by 2030.

[00:17:50.960] - Jon Slowe

What's driving those underestimates?

[00:17:56.000] - Charlotte Johnson

I think it's maybe not fully understanding the full value of flexibility. How do you monetise it? How do you actually connect it to the grid? How do you talk to those assets? How do you get data from those assets? A lot of companies are still, I guess, finding their feet with what the potential is. I think because of that as well, system operators, grid operators, they don't have the full confidence yet in what it can provide. I think the fact that we have so many, if we take the UK as an example, we have so many smaller locational markets that are separated from the actual market is an example of we don't fully trust it yet to move into either the wholesale markets or the balancing markets, or we don't fully understand what its potential is. Which is why it's separated in these fragmented markets that exist today.

[00:18:49.920] - Jon Slowe

I can understand that perspective because the energy sector has grown up… It's used to focusing on numbers of big assets like you talked about earlier. Batteries are slightly smaller, but you can... You talked about onboarding 20 assets, so there's still big, chunky things. Whereas if you're looking at millions of electric vehicles, as you say, can you trust them? What's been your experience in can you trust them?

[00:19:24.010] - Charlotte Johnson

I think interoperability is something that we're really focusing on. Last year, we launched Mercury, which was a consortium, to basically work out or to work with key players in the industry to try and converge on how do we use these assets? What information or data do you want from them? In what frequency or latency, because at the moment, there's so many different OEMs, makes, models, brands that all provide data in a different format, in a different frequency at different times, and different levels of reliability. So, platforms like ours have to really, really understand the capability of each vehicle or home battery or heat pump to then actually take that into an optimisation and dispatch those assets because you need to know what they're capable of. By capable, we mean really what we can rely on rather than what it says it can do. We need to know what it can actually do.

[00:20:22.210] - Jon Slowe

Yeah. I guess you only learn that through experience and through having quite high volumes of assets. You've got that diversification of different brands, as you say, different types of assets, different customer groups, different customers behaving in different ways.

[00:20:39.570] - Charlotte Johnson

Yeah, definitely. I think we've got over 90% of all of the EV brands on our platform now. We've got those data points. Then you're right, customer groups as well. We cluster customers into different groups based on profiling, consumption, usage, charging behaviours. Then you can learn from that, and all of that's fed into our platform.

[00:21:00.830] - Jon Slowe

Yeah. I don't know if that's the right word, but you were investing a lot in that platform, the analytics, the algorithms, the learning. Is that constantly part of your business over the years of continuing investment?

[00:21:20.980] - Charlotte Johnson

Yeah, I'm trying to think when we really started Smart Flex, it was probably two years ago or alongside Octopus, we started working on Smart Flex. Now, like I said, it's over 250,000 assets across multiple different geographies and multiple different customers. But there's a lot of investment into growing that platform, not just in the UK, beyond the UK, growing the asset type, the complexity, adapting it for different markets, because like I'm sure you know, all markets are very, very different. How the UK market works versus continental Europe versus the US, which is a very, very different play. All our products where there is an optimisation layer has to be adapted or localised to that market.

[00:22:13.110] - Jon Slowe

What do you think the main challenges will be in building trust in residential flexibility? Or how long will it take, do you think, to build that trust?

[00:22:31.530] - Charlotte Johnson

Yeah, it's a really good question. I think the CRM platform that we've worked with and we've supplied to customers in the UK has an incredible level or an operating model that comes with an incredible level of consumer trust, because ultimately, if you don't have any consumer trust, it's really hard to give them a new tariff or to give them a tariff where we're asking the customer to give up control of their asset. Even if it is with a payment that comes with it or an incentive or a credit or a rebate, whatever that reward scheme is, all of that is irrelevant if you don't have the customer's trust. It's really important that, for example, the onboarding journey of Smart Flex. If we take the grid-scale side of onboarding an asset, it could take a few weeks to onboard a large asset, and a complex site might take longer than that. The engineering side, the installation, all of that stuff. You obviously don't have that with a customer. You need to take one to two minutes, three at the most, to onboard a customer through an app. That app has to be really simple to use, really easy, and the proposition needs to be really clear on what the customer is signing up for.

[00:23:44.980] - Charlotte Johnson

How you approach onboarding residential assets and residential customers is very, very different to how we would approach the grid-scale side of building trust. You're right, the trust is at the heart of that whole project,

[00:23:59.900] - Jon Slowe

Yeah, and it's trust in two directions, I guess. It's trust with your customers using it, and then it's trust with the market participants who want to know they can rely on trading that flexibly Flexibility, for example.

[00:24:18.610] - Charlotte Johnson

Yeah, exactly.

[00:24:20.390] - Jon Slowe

Yeah. Looking forward, we'll bring up the Talking New Energy crystal ball, in a minute. But before that, If you were to pick out one or two things in the next few years in the flexibility space for our listeners to keep an eye out for, to watch, to think about, what would you pick out?

[00:24:49.280] - Charlotte Johnson

I think in the flexibility space, I'm excited to see a world where at the moment we have VPPs going on for residential assets, and then we've got optimisation or VPPs for large, big, grid-scale assets. The world where those two converge or come together and create value for the utility or the customer. Because ultimately, what we want to do is provide the lowest cost of flexibility for the system, and whether that's grid-scale or residential, it doesn't matter. All of that should be optimised against a merit order or a cost to produce the lowest outcome for the system. And I don't think we're at that point yet, but it will happen in the next few years.

[00:25:30.160] - Jon Slowe

That mirror order concept, I think, is quite interesting because a lot of people we speak to will think of grid-scale batteries competing against demand-side flexibility, for example. In a mirror order, I guess they are competing, but in other ways, they will complement because they'll do different jobs.

[00:25:51.260] - Charlotte Johnson

Yeah, and I think you're right. That's two key things. One, they will do different jobs in the… The grid-scale stuff is very, very good at the ancillary The battery services, the- Frequency that is there.

[00:26:02.140] - Jon Slowe

Everything fast.

[00:26:03.140] - Charlotte Johnson

Everything fast and everything that requires 20 hertz readings, so 20 readings a second, and you don't get 20 readings a second from a residential asset. There's a unique role to play for those grid-scale stuff. Where they compete is potentially the real-time balancing, the reserves. There is some competition there. But also, if you look at how much flexibility we need, we're nowhere near that point yet. We're so far off it happening. Again, we've got more renewables being constantly built out, and particularly wind, which is less predictable than solar, as you know. There's a huge value for flexibility. Also in the absence of a form of long-duration energy storage, there's a lot of flexibility that we're going to require in the short term.

[00:26:50.280] - Jon Slowe

I think we'll see some of those revenue fluctuations you talked about in the GB market as well, because it's in a way a supply and demand game. The demand for flexibility is increasing, the supply is increasing, but they won't always go hand-on-hand at exactly the same rate, I guess.

[00:27:11.590] - Charlotte Johnson

Yes. And that also creates the business case more for these assets.

[00:27:17.340] - Jon Slowe

Yeah, and the portfolio plays that we talked about earlier.

[00:27:22.320] - Charlotte Johnson

Yeah.

[00:27:23.830] - Jon Slowe

Okay, well, let's get the Talking New Energy energy crystal ball out now and set the down to 2035 today. And I guess just extending what we're just talking about, Charlotte, what role do you see flexibility playing in the energy sector in 2035? Or how would you characterise it? How would you describe it? Or how would you paint a picture around it?

[00:27:53.610] - Charlotte Johnson

I think it will be key to the system. But I also I also think it will be at the forefront of all utilities' minds. At the moment, it's there. Everyone talks about it, but in a lot of people, it's at the back. I've heard it sometimes like the fourth pillar or the fifth pillar. It never makes it to the first pillar or the second pillar. I think by 2035, that will have totally changed because it's there, it's happening, it's starting to scale. Utilities are understanding that they need it. They're just grappling with how much do they need it. Is it a problem now or can they hold off and then can they wait a little bit longer? They're in that dark space.

[00:28:37.490] - Jon Slowe

Can they rely on their thermal plant still?

[00:28:40.500] - Charlotte Johnson

The system operators are obviously very much thinking about security and supply, and they've got a big, I guess, gaping hole at the moment that they're trying to work out how to fill, and they're seeing a little bit of stuff, particularly in the US, there's lots and lots of pilots going on around flexibility. There's not a lot of commercial residential flex happening. I think it will start to move from that phase where it's the bread and butter of our system. It's no longer a pilot, it's no longer a small VPP, it's no longer a demonstration. It's actually an in-market solution or it's integrated into the market. It's not that fifth pillar.

[00:29:24.510] - Jon Slowe

I guess what you're saying it will become a core competence of energy companies by 2035.

[00:29:32.140] - Charlotte Johnson

Yes, that's a much better way of saying it.

[00:29:34.210] - Jon Slowe

Just like the CRM is a core competence of an energy retailer today, flexibility will have to also be a core competence in 2035.

[00:29:46.840] - Charlotte Johnson

Yeah, exactly.

[00:29:48.060] - Jon Slowe

Yeah, yeah. Well, Charlotte, Kraken certainly, there are many other players in the space, but Kraken is certainly one of the leaders, and walking the path ahead for all the different types of flexibility we talked about. So, wishing you success in the next year as you keep pushing forward. And thanks very much for your time and sharing your views today.

[00:30:16.630] - Charlotte Johnson

Thanks, Jon.

[00:30:18.240] - Jon Slowe

Thanks to everyone listening. We hope you enjoyed the podcast and the discussion. Learn more about Kraken, about flexibility, big and small, and look forward to welcome you back to next week's episode. Thanks and goodbye.

[00:30:36.090] - Charmaine Coutinho

Thanks for tuning in.

[00:30:38.550] - Jon Slowe

If you're enjoying the podcast, please subscribe, and we'd love it if you rate and review it with us. And of course, share the podcast with colleagues.

[00:30:47.230] - Charmaine Coutinho

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