What does Spain’s blackout mean for the future of clean energy?

0:00This week has been pretty bleak for energy transitioners. Prices are high in many parts of the world. Tens of millions of homes in Spain and Portugal lost power at the end of April. A lot of people will believe that we're going too fast. We're halfway across the road. Now, if you've ever seen anyone hesitate crossing a multi-lane highway, that is a very dangerous thing to do. The best thing is to get right across as quick as you can. I think this gets us to the really meaty part of our discussion, which is about how you go and fix the grid. You can run a very high proportion renewable grid incredibly reliably, but you don't do it like you did the old ones.

0:31markets have got to move at the same speed as technology and engineering innovation. At some point, you start saying, should we open up a debate that involves the demand side as well as the supply side? That's a real-life social science experiment that you went off and conducted, right? 1.6 million households signed up. All we had to do was text them saying, tonight, earn a little bit of money by shifting your demand by an hour. What we got was the equivalent of turning off all of the electricity in two major cities. This message is different to a lot of the people who have talked about the renewable transition over the last 10 or 15 years.

1:05A number of the advocates are promoting it in a way that is very ideologically driven, that is probably not very persuasive, frankly. We'd sign deals in eight of the biggest house builders in the UK to build homes where there will never be an energy build. We shouldn't try to convince people this. We should be able to show it because it's available right now, right here.

1:29We're joined by Greg Jackson, the CEO of Optopus Energy. The company is only nine years old, but truly has enjoyed exponential growth. It's the largest electricity provider in the UK, and it serves tens of millions of homes worldwide through its software platform. I'm a happy customer, and I've been stalking Greg for several years, delighted to have him here. So today, we're going to try to make sense of the Iberian blackout. Tens of millions of homes in Spain and Portugal lost power at the end of April and dig into how we future-proof our future grid. How can we make sure they deliver clean energy safely?

2:08Or is that not going to be possible? So Greg's an expert here. Greg, the glass-jawed grid, like a boxer that just falls over the sight of the opponent. What happened in Spain and Portugal? I mean, look, first of all, we should be clear that we don't know yet. Looking into major events like this, which have usually got multiple causes, takes time. And we have to let the orderly process of investigation go on. There was a major blackout that affects a very large region of the UK, including some of the southeast or most populous regions in 2019. Investigations that, and it was a less serious event than the spend in Portugal, took many, many weeks.

2:51In fact, it's still emerging down the road. So let's be really clear about that. But I think we can draw a few generic lessons. And there have been kind of comparable events. I mentioned one in the UK. We, I think in 2000, was it 2016? South Australia had a very major blackout with some very similar looking characteristics. In that case, caused by storms. There's some characteristics in common. And of course, we've seen them in Texas as well. And what they've got in common is an energy island with very little interconnection. So I think only about 3 % of Spain's total capacity is available via interconnectors.

3:31And Texas famously, ERCOT, the land of the free, does not connect to anyone. No, I think technically there is actually a little bit of connection, but it's very, very, very skinny. Right. And Australia's got a similar thing, energy islands, because obviously the geography of Australia lends itself to that. So the first thing is energy islands. The second thing is lack of batteries. And I think this is really big. Essentially, you can run a very high proportion renewable grid incredibly reliably. But you don't do it like you did the old ones. And we should talk here about market structures as well.

4:04But one key feature of Spain's grid is, I can't remember, it's got like a fraction of a gigawatt of batteries. And actually very little planned in the pipeline. If I compare that to, for example, the UK at the moment, the UK has got five, six gigawatts of batteries and it's got plans to get to, you know, 10 or 20 times that. And the last bit, I think, is a lack of digitization. And I think it's shocking around the world how undigital grids are. You know, we put smart meters in people's homes, but most major substations that comprise the grid are not metered in real time. There's not much telemetry.

4:41And then we rely upon sort of manual control rooms rather than automated systems to balance the grid. You step back there. Let's step back to Spain and Portugal, right? So I think, as you say, we don't know the original cause of the incident that day. We know the proximate cause, which the proximate cause was that over the course of a couple of seconds, there was a frequency wobble and that caused things to trip and then power to be shut down. And that frequency wobble, I found fascinating as I started to dig into this a little bit. So, you know, grids in the US run at 60 hertz, at 60 cycles a second.

5:17In Europe, it's roughly 50 hertz, maybe 49 in some cases. And the grid is this massive machine where you have dozens, sometimes hundreds, of traditional fossil fuel turbines spinning. These turbines are enormous, 300 to 400 tons, some of them. And they build this inertial kinetic energy within them. And if there's a spike in demand or there's some problem with supply, the inertial energy in those rotating turbines is enough to smooth the grid out. And so you rely on the fact these massive machines are spinning. And I found it fascinating that a 0.15 hertz deviation, we don't know exactly what was the cause of the cause of that, was enough to bring the Spanish grid down.

6:03and what it seems to be that in other grids that are not as renewable as Spain, I think when we started recording this, Spain is 73 % renewables. It's a hot, sunny day in May and there's probably a bit of wind going on. You don't have so many turbines spinning, right? That seems to be the kind of proximate issue. So around the world, the frequency of the grid, it was kind of, it was served for many purposes. It was an artifact, a product of the fact, you know, we had these big spinning generators. Now, part of the physics is when there's a very high load on a grid, the rotational speed of those generators slows down.

6:43And that's a signal that you need to put more generators on the system, right? So essentially... You're sort of bleeding energy, the inertial energy off to kind of keep the grid running. Is that... Basically, the physics is when you've got a high load on a generator, then that high load, essentially acts as magnetism and stuff, right? but acts as drag on the speed. Right. When you see your generator slowing down, well, when you see the grid frequency dropping, you know you need to put more electricity onto the grid to reduce the load per generator, right, essentially. So that was the feedback loop you could literally use to control the grid in the old days.

7:22Right. That sounds very odd. I'm going to give an analogy here. That's a bit like if you go into a traditional car, there's a speedometer, and you can tell how fast you're going. In this version, you don't have a speedometer. You drive the car into a person and then you work out after the fact that you were doing more than 25 miles an hour. Well, you know what? It's sort of a bit like that, right? Because you're not actually measuring, you're measuring the actual thing, not the thing that tells you what's happening. Yeah, I think it's complicated, right? The simple thing is, if you keep an eye on the frequency in a traditional grid, you know whether you've got excess load or indeed insufficient load, right?

7:57Right. It's an automatic feedback loop. In a renewable grid, the electricity is not generated by things that are spinning. So what happens is you can't any longer rely on the old analog system that the frequency is the signal for what you need to do. Instead, you need digitalization and access to, you know, you need to be reading what is the load digitally and you need to be able to respond digitally. You know, for example, by using batteries to be able to either soak up power or dump it onto the grid quickly. to maintain that kind of supply and demand balance, of which the frequency is an indicator.

8:36I've met a couple of grid people in my life. I mean, I'm proud of this. The grid operators in the UK, and I've met some involved in the US. They seem to me to be incredibly smart and thoughtful, methodical people who are thinking quite hard about grid resilience, specifically grid stability. How do you get into a situation where everybody understands the physics, they understand the engineering physics, They understand what the amount of inertial energy there is in the system. It's measured in gigawatts, seconds or something. How do you get to a stage where you allow that resilience resource, that dampening resource that exists, to disappear without putting systems in place to make up for it?

9:20So first of all, we should say that, look, some of the most committed, dedicated, smart people I know include grid engineers. You know, the sense of mission, professionalism, and dedication, plus absolute technical expertise is off the charts. Let's note that. I think there are a couple of features of any transition. The first one, by the way, is the assumption that we need a grid of, say, 50 hertz, the European figure, right? Because if you're like in the traditional grid, where the frequency was a byproduct of how we were generating it, it was a way which we controlled it, everyone's alarm clocks used to run off the grid frequency.

9:58Obviously, these days they don't. They've all got microprocessors and use internet signals and stuff like that. On the whole, the equipment that relies on the grid frequency now is going to be things with big motors, especially a large industrial equipment. And at some point you start saying, should we open up a debate that involves the demand side as well as the supply side? And this applies to so much stuff in the world of energy, by the way. And I'd love to talk about some more of this. And saying like over time, rather than having this kind of religious dedication of extremely tight grid frequency, heavily synchronized, I'm going to see a tire system.

10:33Are we going to open ourselves up to a grid which has flexibility in that world as well? Now, that is super fascinating. And it reminds me slightly about why the old apocryphal story about why train tracks are as wide as they are. And the joke is it's the width of two horses' backsides dating back to the Roman Empire, right? So we engineered around a particular engineering configuration and path dependence has kept us there. But I think this gets us to the really sort of meaty part of our discussion, which is about how you go and fix the grid, right? Is it software? Is it markets? Or is it just going to be more deal?

11:12And I think this week has been pretty bleak for energy transitioners out there. Of course, we had this situation in Spain and in Portugal. Well, Tony Blair, the former UK prime minister, came out and said, look, net zero strategies are going to be a real problem because they've got quite ideological and politics won't support it. Consumers won't support it. And in a way, the energy transition and net zero have become deeply interlinked, right? Prices are really high in many parts of the world, typically in the UK. A lot of people will believe that we're going too fast, that this is happening helter-skelter.

11:46And you can understand why that is. Okay, so first of all, the last thing on that grid issue, I was going to say, I didn't really answer your question about the engineering. I'm sorry, yes. Yeah, no, I was going to say is, we've got to remember all these things are run by markets. And so, for example, one key feature of the Spanish market was that with batteries, you couldn't stack different revenue sources of battery. So you only had one revenue source. Whereas in the UK, you stack different revenue sources. You get paid, you make money by arbitrage in the grid, you make money by balancing the grid, by responding, by reacting to, frequency issues.

12:20And because you stack the revenue in all these different ways, batteries are much more financially attractive here, which means engineers have got more tools in their box. Whereas in Spain, the engineers don't have access to that tool because the market hasn't provided the incentive. And so very often, this critical mode of transition, which you're kind of referring to, we have a world where markets have got to move at the same speed as technology and engineering innovation, and it's not happening. And then you get consequences like this. I'll come into that point about markets because I think it is a really fundamental observation, right?

12:58So the old electrical system was incredibly expensive to get into. You needed a billion pounds or the equivalent. You needed to be friends with the Secretary of State or a Cabinet Minister to get the permit. And then you had to connect into the grid. And then the market was sort of designed and there's a whole academic discipline on the design of electrical markets. And it does seem like there's a whole set of new assets that are emerging. For example, couldn't frequency reserve, right, be a tradable asset that becomes like a financial product that you can invest in, you can get a rate of return on by saying, look, I'm going to be there and I'm going to ensure at these moments that the frequency will always be met.

13:35And that will turn into some physical asset, which might be, you know, a battery or something else yeah and essentially by the way that is what some grids have you get paid for helping for example sort out frequency issues and you know there was an interesting thing we had in the uk where we've got this technology platform kraken that um drives octopus but managers i mean by the way to give an idea about the amount of data in the modern grid today in the uk alone kraken processes 300 ,000 rows of data per second. That is 30 times more than Visa, the payments network, globally. And so energy is very rapidly moving from a world where you have very little of this kind of real-time data to a world that is astonishingly data-centric.

14:23And that's the way in which you can sort of manage a lot of problems we're talking about. You can manage the physical problems that would help reduce the risk of something as happened in France, in Spain and Portugal. But it's also how you deal with the economic problems that Tony Blair rightly highlights. The biggest offshore wind farm in the UK is paid to turn off 71 % of the time it could be operating. Now, what that means is because we don't have a dynamic way of managing to use the electricity that's available in a renewable world when it's available. The kind of theoretical, the sticker price for electricity from that suit is about seven or eight pence a kilowatt hour.

15:02But the effective price per unit delivered is more like 27 or 28 pence. Right. Because it's turned off two-thirds of the time, essentially. Yeah. And it's getting paid to be turned off. So not only you've got an idle asset, you're literally paying for the units you didn't get. And then you have to pay someone else to generate them. We're at a stage in the energy transition when a lot of the kind of rigidities of the old world are causing the physical problems you describe in this case the iberian peninsula and also the economic problems that tony highlights tony blount and so i think what we um what we need to do now is not row back like we're halfway across the road now if you've ever seen anyone hesitate crossing a multi-lane highway that is a very dangerous thing to do the best thing is to get right across as quick as you can and that's what we have to do the transition now.

15:49And to do that, we need to be taking sometimes hard decisions and driving sort of really important change in how we manage the system. And so this digitalization, it's quite interesting, actually. I mentioned earlier the South Australia grid. After their very, very major 2016 blackout, they actually had this question, can we deliver a reliable grid as we're becoming more renewable? Didn't they build that massive battery with Elon Musk down? Exactly. Built massive batteries. Yeah. But they've doubled down on renewables. They're now a 70 % renewable system. And I think it's certainly one of the cheapest in Australia from having been one of the most expensive.

16:29By embracing this change and investing in the technologies for it, you end up in a cheaper and more resilient, reliable world. Can I take us to Texas for a second? Because I think Texas is really interesting. You know, it's the home of J.R. Ewing and Dallas and Big Oil. but it is also the most dynamic renewables market in the US and really, really allows for quite a lot of competition. I remember you telling me something about a product that you had in Texas which allowed you to manage the demand of people's homes, which feels like it fits into exactly what we're talking about. That story to me is super, super interesting and really granular for people to understand what that future looks like.

17:15Yeah, it's honestly a great example. And first of all, by the way, what Texas has is relentless competition and the ability to build stuff. And I think that latter point is what's enabled them to really benefit from building out, you know, wind and solar in terms of electricity costs. And by those low electricity costs have then changed the economy of Texas because they're attracting massive manufacturing because, among other things, they've got really cheap electricity. and so one of the interesting things is you can get to virtuous circles once you've crossed this road now the product you're talking about there i should set the scene really yeah please do because the inspiration for so much of the way we think about this is uh sort of conversations i have with my mom oh i don't actually actually have them i have them in my head and i think what would my mom say and it started in the uk and the uk has got a half hour of the electricity market so every half hour the national price of electricity is set by the most expensive generator anywhere in the country that's needed to meet demand yeah and um can i just just build on that for a second so that's a really important part of the market design which is every 30 minutes you figure out how much electricity is needed and people file in the cheapest first and right at the end for that last what you need is someone who's gonna be really really expensive and that sets a price for the whole whole of the market it's worked for years it feels a bit odd now.

18:41Yeah, well, it used to work very well when essentially you had coal power stations, and maybe a few oil and gas, where the input cost was very similar between all of them. So they would all bid in a very, very similar price, which meant even though you were paying everyone the most expensive price, it wasn't that much more than the cheapest. Whereas in today's world, when you have renewable energy, there is no input cost. So you can achieve a very, very low price for energy from those units but in a market where the price is still set by the final unit of generation which will be gas and has a very very high input cost uh typically in recent times um you're paying a fortune for stuff that should be cheap that's the kind of broad issue i think really getting your head around why the system used to work and now it doesn't is so key and it's because there's much more heterogeneity much more diversity of generation than there ever used to be um because geographically as well because you know in the old days you've got a coal power station in a particular county whenever you want electricity in that county you fire it up whereas in today's world it might be windy in one part of the country not another it might be sunny in one time and one part and so on and you've got to handle that much more dynamic back end but actually this thing was my mum right it was a cold winter's evening and um national grid in the UK who balanced the system, we're going to be firing up very, very expensive diesel generators in order to meet the high level of demand on a cold winter's evening.

20:11And I thought, you know, most of that usage at the peak time is for things like cooking. Everyone's putting their oven on at the same time, very big consumer. And then they're putting their dishwashers on straight after they've done their cooking. They've got their hot water going for the shower and everything everything right and i thought there's no signal to tell people that you know um they could benefit if they shifted their time so nobody bothers shifting their time and i thought if i said to my mom hey mom tonight and it's not because you're an environmentalist by me i mean i don't know actually whether i don't know whether she is but um because she is definitely a bargain hunter if i said to my mom tonight they're turning on diesel generator to meet your needs she said well I'll just cook later.

20:52Right? For her, that is a no, it's no effort. And so we introduced this program in the UK where, you know, we paid people a small sum of money to shift their consumption out of peak times. And I think 100, no, 1.6 million households signed up. And on an average, more than half of them would participate. All we had to do was text them, sometimes just a few hours beforehand, saying tonight, earn a little bit of money. I mean literally I don't know 50 cents um by shifting your demand by an hour and what we got was the equivalent of turning off all of the electricity in two major cities right um I mean it's remarkable and just to give you a sense I mean that's a real life social science experiment that you went off and conducted right this question about can you shape demand and there was a lot of umming and ahhing in the press in the last 10 years say well people won't do that you know people make their tea when they make their their tea and what you demonstrated was actually people are willing to do that i get those emails greg and i charged my car two days ago 50 off the already discounted overnight rate uh so yes thank you very much i probably owe you a beer for that i mean you can afford to buy with the money you saved yeah there's one customer tweet me he said that he charged his car for one pound 90 uh and we'll be like two dollars fifty or something right Yeah, exactly.

22:12We'll be able to do 200 or 300 miles on it. I mean, it's mind-blowing. The reason I mentioned this is just the thing we're doing in tech. What we found is every time we come up with a way of helping people save money by using electricity differently, some people do it. And sometimes it's a lot. In the UK, we've got 7.5 million household customers and about 60 % of them have got a smart meter. So it only speaks of anything they can do. So we've only got about 4 million can do this. 2.5 million of our customers do these things. and look it shouldn't be a surprise because it works in every other market like when you go in a supermarket they will reduce the price of stuff if it's close to a news by day or if they want you to try it for the first time or if you know one brand is introducing a new variant simple price offers are everywhere in our life and it is mad that they're so absent in electricity in a world where electricity is now so dynamic what we find that literally on sunny days there's a whole pile of customers in regional uk where the grid can't handle the amount of solar being generated and There's not a capacity to put it onto the natural grid.

23:11It's just used locally. So we give people free electricity on sunny afternoons. Their consumption increases 400%. Yeah. Because they save their washing for those days, right? I'm thinking about buying one of those synthetic diamond presses. And on those sunny days, they require a lot of electricity. I'm going to mint artificial diamonds and then sell them on eBay. I certainly know people who talk about doing Bitcoin mining. at these times. Or train your large language model on the sunny days in July. So there's another bit of technology that we talked about a lot with an exponential view. I had it in my, I discussed it in my last book, which was the idea of the virtual power plant, right?

23:52So every, people have got cars, the car's got 60 to 100 kilowatt hour batteries. You could use 10 kilowatt hours and power your house and three of your neighbors, four of your neighbors overnight, and you wouldn't notice the range. and this notion that you could string these car batteries together and all be in it together and contribute a little bit to providing some storage and some supply of electricity overnight or some resilience. It looked great on paper, but I just wonder whether, has it been a bit like the metaverse, that it looked great on paper, but we didn't really deliver on it and I just got too excited in my book?

24:28It is the new normal. So among our customers, we've got nearly a quarter of a million people who've got an electric car and use a specific product. By the way, we've got another quarter of a million electric cars that don't do this. But there are a quarter of a million who they're signing up to a program where they get exceptionally cheap electricity for their cars. But all they have to do is when they get high, well, first of all, when they get their car, they pair it with us. So they use the cars app to pair it with Octopus. and that enables us to control when the car's charging they set some very basic preferences like a typical default would be i want 90 battery at 7 a.m have you been in my preferences because that's where i am yeah there you go that's i think it's the default it might be 80 but um anyways and then all they do is plug in when they get home and we'll decide exactly when it charges they get the charge they want but by us being able to control it automatically it's not only grabbing electricity at the cheapest times, typically when it's windy and sunny.

25:29But it's also able to, for example, help balance the grid, help reduce the risk of the exact issues we've just been talking about. And in return, they get very cheap driving. So the scale of this is mad. In three years, we've gone from zero to 1.7 gigawatts. Now, that's the equivalent of nearly two mid-sized nuclear power stations for free, right? Because basically, this is a byproduct of the car. That's when cars, EVs are only 5 % of the fleet in the UK. So as you get towards, you know, EVs being 100 % of the fleet, this isn't a bolt onto the energy system. It is the energy system. It's 20 or 30 nuclear power station equivalents.

26:07But look, let's get to this crossing, road crossing. I really love your description of it as crossing the road. And we've left one side. We're halfway across. And yes, there are all these lovely things on the other side of the road. There's the ice cream stand at the virtual power plant. There's getting cheap energy at this time and zonal pricing, which means that I pay a price that's more appropriate to the cost of producing and distributing the electricity to me. All these market mechanisms that create financial assets, which allow the grid to work with a higher degree of efficiency and resilience.

26:40It's lovely, but there's still four more lanes of traffic that I've got to get across. So let's not sugarcoat. It's harder today, right? I mean, the technology is a bit of a tailwind, but what happens market to market to actually get across that road? We're at the stage now where there are going to be winners and losers. So for example, you mentioned zonal pricing and that, I mean, more than half the electricity in the OECD is under some locational pricing model. It is the norm. But as countries move to it, it means that, you know, some of the generators today that get paid that high national price for every unit, even though they'd happily charge less, get paid less.

27:19They still get paid enough because they're getting paid above what they bid. It's just they're not getting paid their very, very high national price. And by the way, that's why zonal pricing doesn't just reduce it for people, prices for people who live near the jet assets. It reduces prices for everybody because we're no longer contributing to such an inefficient system. For example, when a generator is in a low price zone, any electricity they send to another zone is also priced at that low price. so instead of today where it's priced at a high price and that's how everyone benefits now governments that are grasping this opportunity are genuinely seeing lower prices for consumers you know for example gray examples in scandinavia for example but they're also attracting new industries like big ai data centers popping up in norway not because there's a big population there obviously isn't but because it's cheap energy right and so but the challenge is a very big difference between energy and other sectors is the amount of lobbying.

28:18So traditional retailers didn't get to lobby that Amazon was unfair or that the internet was unfair. They just had to deal with this new efficient source of competition that frankly was better for some people than what was there before. In energy, energy is the equivalent of Walmart being able to go and lobby that we've got to shut down the internet because it's unfair to us. Instead, I think what we need is governments that are able to say, look, we've already set climate goals. We shouldn't row back from those. But we can't expect people to pay more. Instead, actually, we should be accepting that renewable technologies are cheaper as long as we choose the market reforms.