Episode 38 Transcript: Utilities Are the Key to the Energy Transition. Who’s In the Pool?

MW Voice-Over:
Welcome to Everybody in the Pool, the podcast for the climate economy. We dive deep into the climate crisis and come up with solutions. I'm Molly Wood.

This week … we’re talking about building a better grid … well, grids … really …

And here’s why. Among the absolute MOST impactful things we can do to stop emitting so much carbon dioxide and slow global warming to manageable levels … is transition as quickly as possible to renewable energy …

And electrify everything.

That is … all by itself … a large … challenge. And sitting right at the heart of that challenge … after actual fossil fuel companies … is of course … utilities.

Historically … these are the outfits responsible for generating … and distributing … electricity … to houses and companies and streetlights and whatnot. And so utilities are now the ones …

EXTREMELY ON THE HOOK to generate and distribute electricity from renewable sources … figure out how to integrate new sources of energy that aren’t always super consistently available … like wind and solar …

AND … build out their energy transmission networks … to handle the already increasing load … that’s posed by … well … electrifying everything.

Oh also they have to keep the lights and the heat and the air conditioning on … in the face of increasingly severe weather. So like … that’s a fun job right now.

And some utilities … are handling it better than others … investing in renewable energy projects … grid modernization … and yes … the innovations and inventions that we’ll need … to meet all these demands … and probably more we haven’t thought of yet.

Steve Smith:
Hi, Molly. I'm Steve Smith. I'm president of National Grid Partners, which is National Grid Group's corporate venture capital fund based in Silicon Valley near San Francisco.

Molly Wood:
And you are somewhat new, before I dig into the organization itself, you are somewhat new to this role, right? Congratulations, welcome.

Steve Smith:
Thank you. So yeah, I took the role on around about June of last year, so I've been doing it for sort of nine months or so as we roll into March.

Molly Wood:
So tell me about these two organizations. Tell me about National Grid Partners, the organization you lead.

Steve Smith:
Yes, so National Grid Partners, so we're part of National Grid Group. So National Grid is a large electric and gas utility. So we operate in the United Kingdom and in the United States. In the United States, we're in Massachusetts, also upstate and downstate New York. And in the United Kingdom, we basically cover most of the country. We run the high-voltage transmission lines and also the distribution system down in the southwest.

So we are really at the heart of the energy transition, and we're sort of one of the key enablers because, at the end of the day, we need to build the networks that we will need to carry the clean electrons from renewable generation to people's homes. So I think when we look at the scale of the challenge for us, both the amount of new capacity we need to build on our networks, the way we need to digitize them, and all of that entails, then...

we realized we needed a ton of innovation because if we did it the way we'd done it historically, it just wasn't gonna happen fast enough or in a way that was affordable for our customers. So about six years ago, we set up National Grid Partners, recognizing that utilities historically haven't always been great at innovation and haven't always been great at working with startups. And so it was an opportunity for us to invest in startups and then give them an opportunity to work and deploy on our network so that...

we could deliver what we needed to deliver, but also fundamentally at the end of the day, if we decarbonize our networks in America and in the United Kingdom, but nobody else does globally, we haven't solved the problem. So the hope was also that if we could prove it on our networks, those companies we'd invested in could scale their technologies across the globe on others' networks as well.

Molly Wood:
Mm-hmm. And before I ask you more specifics about the investments and the investment thesis, I do think that, and tell me if you agree, that corporate venture has been a little bit of a slept-on trend when it comes to funding climate tech startups. We had this sort of heated moment of venture investments in 2021 and 2022, but it feels to me like there's a real story there around corporate venture and big, big companies saying,

"We've got to allocate money to this innovation ecosystem for, to your exact point, our benefit and the benefit of the world."

Steve Smith:
Yeah, I think that's right. And that's my perspective. I mean, I guess, you know, there's a ton of sort of private money going into and corporate venture capital going into sort of climate tech generally, but the networks part, which is a set, is a key enabler, I think is different. And the key barrier we identified, as I said, is for a whole host of reasons, you know, our networks need to be safe, they need to be reliable.

We weren't historically very good. If somebody came at us and said, "I've got a new piece of technology or a new piece of software, can I deploy on your network?" Typically, you know, sensible engineers would say, "We need to think about that, and it's going to take some time because we do." So it was a way of sort of trying to unlock that led us to, you know, setting up National Grid Partners, because I think, you know, the more we have this close relationship through the investment of the companies, the more we can fast-track them through some of our sort of safety and regulatory processes to get them...

The ideal is to deploy them first of all on small bits of the network, prove them, and then scale them up, but do that much, much quicker than we would have been able to do. You know, have we not taken that equity stake and really got to know the companies and got to know the management.

Molly Wood:
Are there other, you know, I think there is an ongoing question. It is certainly utility by utility, energy company by energy company, but there is an ongoing question about whether some of these companies are partners or hindrances in some cases to the energy transition. At what point would you say the National Grid Group decided to go all in on this strategy as opposed to maybe like Slow Walk Solar, like we've seen?

Steve Smith:
I mean, we've been here for a number of years now, you know, since before National Grid Partners was set up, but I guess we're in a fortunate position because we're primarily a networks company. So we do have customers in the United States, you know, four million of them, but over 90% of our revenue comes from our network businesses. So in some senses, that means we don't have some of the sort of challenges that other bigger utilities do that have, you know, fossil fuel generation.

very small volumes of that on Long Island at the moment. So we just see it as really simple for us, which is we've just got to build those networks that we need for the transition, and that's what we need to get on with. So we have that sort of strategic clarity in a way that other energy companies, other utilities probably find it a bit more challenging because they've got business lines or significant areas of interest that may have to look very different because of the transition.

Molly Wood:
And then just to do a little definition, when you say networks, you mean sort of effectively you don't care what kind of electrons.

Steve Smith:
Yes, so on the electric side, we own the transmission wires, high voltage, the distribution, so yeah, we're blind to electrons and electrons, and it moves across our network. And actually, the transition will be very good to the extent that as we electrify heat, as we electrify transport, we're just going to need much bigger networks. So the real challenge for us is how can we build them both bigger and smarter to meet that increased load.

And then on the gas side, you know, we do have gas networks in the U.S. Northeast. And what we're trying to think about there is how do we use them as a transition to that electric future? So how can we decarbonize the gas that moves through them through the use of renewable natural gas, through potentially blending hydrogen in to basically bias the time for that electrification that's coming? Because obviously, we have very cold winters in the Northeast, our gas network...

Today on a typical peak day carries three times the volume of energy that our electric network does, so there's lots we can do, but it takes time to build out our network. So we're trying to rethink how do we use our gas network as that bridging technology where we decarbonize it as much as possible and as I said continue to use it as we begin to build the networks to be able to transfer heating load onto those electric networks.

Molly Wood:
Can you give us some examples of companies you've invested in? I'd like to put a little bit of a fine point on the types of innovations that you see as transformative, you know?

Steve Smith:
Yeah, of course, of course. So the danger of that, I'll start with a few and then tell me when to shut up and when I talk too much. Yeah, yeah, yeah. So a couple I'd highlight on the electric network side. So we've got a company called LineVision, which do something called dynamic line rating. So that is basically putting sensors on our existing transmission towers, measuring basically whether our lines are sagging under the load using...

Molly Wood:
You don't have to pick your favorite babies either, right? Oh, no, please.

Steve Smith:
AI and also weather and temperature data. I mean, that's amazing. So essentially it's a retrofit, but on a good day, you can get 30% more capacity out of your existing line. So it's a way of just suddenly, you know, magically saying, you know, this system I've built has now got, you know, anywhere between 15 and 30% more capacity because we know second by second how much power it's safe to push down the line. So that's an amazing technology.

Molly Wood:
Wow. And that will mean less wasted power or like fewer blackouts.

Steve Smith:
So no, that will basically mean we can connect more renewable generation faster. So typically, you know, we'll be constrained in terms of how much we can connect until we build capacity. So we can basically get more green power on sooner. And also, it means insert. Yeah, exactly. Just give us that bit more headroom. Then there's another one when we're thinking about...

Molly Wood:
Got it.

Molly Wood:
Ah, bypass some of that like interconnection problem. Love it.

Steve Smith:
building new lines called TS conductor so that's actually a new type of transmission or higher voltage distribution line that uses a new composite material and again that basically could mean that we can, for a given span, we can get more capacity and it also means because people don't love transmission lines it means that we can get more capacity with fewer towers, shorter towers, so less visual impact.

So that's a really exciting technology as we think about building out the network, because it means that we will get more bang for our buck for every new line we put up, and the line should, as I said, have shorter towers, fewer towers on the span. So that's a couple on the electric side. We're doing some interesting stuff around, again, I'll get nerdy and you'll have to stop me. So when you think about the distribution system, which is what takes the power to your home, most of our networks are above ground. So it's poles...

Molly Wood:
Right.

Steve Smith:
and wires, you'll see them. One of the biggest things that causes outages in storms is the storms and trees bring those poles down. So one of the biggest things you do is vegetation management, trying to work out where are the trees, where's the vegetation that in a storm might bring your lines down. We have a company called AI Dash that uses high-resolution satellite imagery and AI to basically tell us when and where we need to...

Molly Wood:
Right.

Steve Smith:
cut back because when the next storm comes, that's what's going to bring the lines down. So that again, really exciting technology that just takes something we've done through the history of our networks, just the application of technology to it, high-resolution satellite imagery, just potentially a game changer in terms of how we manage that risk and ultimate benefit to customers is high reliability, fewer outages and shorter outages during storms.

Molly Wood:
Mm-hmm.

Molly Wood:
Right. And maybe not the brute force tool of we'll just turn off all the power until the wind passes. Just as an example of what could be avoided. Amazing.

Steve Smith:
Yeah, exactly. Yeah. And then, you know, we've got other things. So there's quite a lot around looking at how we plan and design new routes. So historically, we would have, you know, sat there with maps and data and thought about routings, and then we'd have to have sent people out physically to go and inspect and think about the land and whether we were going to get land access rights.

Now we've got tools that use mashups of all the available digital data and then allow us to take a process that might have taken us months down to literally somebody could do it on their desktop in a week using all of that data. And then rather than sending people out into the field, if there's bits where we need to basically check things out because the digital data is not perfect, you can do drone flyovers and things like that rather than physically having to send somebody out. So that could...

transform the length of time it takes us to plan new capacity on our networks. And then if I go away from electric networks, so another example of something which is very different on the gas side is a company called Modern Hydrogen. So they've basically rethought the problem which is a lot of people are thinking how do I make green hydrogen and then can I push it down gas lines and the answer is yes but it requires some retrofitting...

investment to make the gas pipeline safe because hydrogen is a much smaller molecule. They've actually invented a piece of equipment that industrial customers can use where you still take the natural gas but it converts it to hydrogen actually at the factory gate through a process called pyrolysis. And essentially what that means is you take natural gas but out of this comes hydrogen...

and then carbon black which you can sell to people who make roads. This is something you use in asphalt and road coverings. And so again, that's potentially interesting because then if you're burning hydrogen, you're only venting water in your industrial process, no carbon dioxide, but we haven't had to retrofit the gas network and we can still use that pipe to take the energy to you.

Molly Wood:
Right.

Steve Smith:
So that's a really interesting technology on the gas side that, as I said, just turns the problem on its head and says, well, how do we actually decarbonize the gas at the customer's premises rather than trying to produce bulk hydrogen via electrolysis and then repurpose the pipeline system.

Molly Wood Voice-Over:
Time for a quick break … I had to stop myself from asking a million more questions about how cool it would be to like … use natural gas … like … for good? For hydrogen production? Don’t worry I’m going to track down that company ...

When we come back, more on the specific challenges … that utilities are trying to solve.

Molly Wood Voice-Over:
Welcome back to Everybody in the Pool. We’re talking with Steve Smith of National Grid Partners … about the various ways it’s invested some $480 million dollars … into trying to uncover new companies and technologies … to improve access to renewable energy … and more reliable power. Oh and my absolute favorite topic … decentralization and bidirectional charging! I need some hobbies.

Molly Wood:
So as you're describing this, I'm sort of trying to hone in, I'm honing in, I think, on what seem to be some central problems that National Grid Group is trying to solve via National Grid Partners. And it sort of feels like it's this question of...

Steve Smith:
Yeah.

Molly Wood:
capacity, maybe we can take these sort of one at a time. Like let's talk about capacity, which is I would say a bugaboo that, you know, that people use to sort of say, well, the renewable energy transition can't, does it make sense? We can't electrify everything, there's just not enough capacity. And so it sounds like that's at least one of the kind of core issues, you know, that keeps you up at night. Is that a fair assessment?

Steve Smith:
Mm-hmm.

Steve Smith:
Mm-hmm. Yeah, that is so. So in essence, we've got, I kind of think about it, there's a couple of different elements to that. I mean, one to build new capacity is time-consuming. So typically on the transmission system at the moment, it can take, you know, seven to nine years. You know, a large part of that process is the planning process actually to physically construct the kit. Normally, typically only two years. So, you know, we can't go fast enough at the moment.

The second thing, as I said, is part of the reason it takes so long and permitting can be so hard is people don't love transmission lines, they don't like the look and feel of them. So that's the second thing. And it's really about how can we use technology to cut down the time it takes us to build new capacity, how can we use new technologies so we need less visually unattractive to some people transmission pylons.

Molly Wood:
Yep.

Steve Smith:
That's what I've talked about with TS and line vision. How can you get more out of every line you build, make the lines have less impact? So yeah, that's absolutely a focus because, as I said, otherwise we would probably be perfectly capable of building the networks, but whether we could build them fast enough would be the issue. And then we're also looking at, there are all kinds of robotic and drone technologies that can help speed up the construction of those networks. And then probably the other thing that we're looking at...

bigger issue in the United Kingdom, but it's coming to the U.S. Northeast. As we start building more and more offshore wind, we have to build more and more electric networks out at sea. That's a whole different set of challenges for us. Not as easy to get there to maintain them. The marine environment is more harsh and electrical equipment needs to be secure against salt sea, all of those incursions. So also that's another theme for us is just thinking about, you know...

innovative technologies that will help us also build networks out at sea as well. Because as I said, that's coming on the East Coast of the U.S. as well, obviously, as they start to build out offshore wind.

Molly Wood:
Right.

Molly Wood:
And then it feels like reliability and safety and even resilience is a little bit of what I'm hearing you describe, right?

Steve Smith:
So, yeah, reliability and safety always, and reliability and resilience, there's a couple of elements to that. I mean, people are heavily reliant on electric networks today. But if you're then moving over heat and transport, then even more so. So our networks typically run to very high levels of reliability. But thinking about how we, you know, get them even higher and obviously...

Battery technologies and software and automation of our network, so their self-switching, self-healing, has huge potential to work. And then sadly, the other element of that is cyber and cyber security. So our networks are also potentially something attractive to malign actors who want to cause economic damage. So we've also focused a lot on...

Molly Wood:
Hmm.

Steve Smith:
cybersecurity and just making sure that our networks are super resilient from a cyber perspective as well and that's been an active area investment for us historically as well.

Molly Wood:
Yeah. And then is there a specific kind of adaptation and resilient element to this at all? I mean, certainly when you describe drones that can say, this tree might fall in a storm, there's part of that. But I wonder how you're thinking about kind of hardening against actual extreme weather events.

Steve Smith:
Yeah, yeah, absolutely. So definitely looking at companies that can help us physically harden our assets against more extreme climate and also, you know, software and other tools that can help us properly quantify that risk and work out, you know, where are we at increased risk of flooding? You know, where are we? I mean, fortunately, we operate in areas where we're not, you know...

largely prone to wildfires or things like that, but actually, you know, software modeling tools that say, if this is the way historically we've managed the physical resilience of our assets, how will climate change take that and what do we need to be thinking about and do we need to put flood defenses in, you know, to keep pieces of infrastructure need to be moved, and that's definitely an area of focus for us as well.

Molly Wood:
And then just for kind of my own curiosity a little bit, as a network operator, how do you think about decentralization? I feel like it's sort of tempting to say that future grid reliability will be all about decentralization or, I don't know, every house becoming a virtual power plant because it's got an electric vehicle in the driveway.

Steve Smith:
Yeah, yeah, look, 100% and that again, historically the way these networks were run were one-directional flow from big thermal power generators that flowed down our transmission lines, down the distribution system, into the customer's home. The customer's completely passive. They flipped on the light switch, expected it to be on, and that was about as much as they thought about it. And so a lot of the way the systems designed reflected that, which is you had...

big central control systems that were all about sort of trying to forecast what customers were going to do and then force the power down. In a world where it's bidirectional, where customers at one moment could be generating and then the next moment the cloud cover comes over, they may or may not have a battery, they may be charging their car, that moves you away from these old sort of big centrally top-down central control centers.

Our distribution systems will need to become much smarter. So at the moment, you know, the control of our distribution center, we're physically switching circuits over when there are faults, doing things like that. We have the concept of what we'd call sort of an intelligent substation. So effectively, you know, the substation in your neighborhood close to your street will have, you know, real-time communication. The other side of it, you know, through the customer's smart meter, we'll be able to see everything that's going on in your house. And it will be basically optimizing the grid...

at that local level to basically cope with those swings. And so instead of people in control centers taking those decisions for whole large regions, it will go hyper-local and you'll have, as I said, substations that have AI and what we call sort of grid-edge computing that's basically making live decisions of reconfiguring the network to move it from, oh, you know, we're sending pad net to customers in this area at the moment, to, oh, now they're exporting to us. And that is a huge, huge shift. So...

It's not just about building more capacity, it's about how we build smarter capacity, but also we're going to have to do that to all our existing assets as well.

Molly Wood:
Yeah, this is sort of a personal obsession of mine, I think, because I just am, I can't stand the idea of having a really big battery sitting in my driveway and a really big battery installed in my house. You know, I'm sort of like, I'm obsessed with bi-directionality and vehicle to grid and this idea of, and even like you said, customer control and potentially rewards, right? There must be some net metering system that can also be built in here where...

where you're rewarded for the power that you contribute effectively.

Steve Smith:
Yeah, yeah, yeah. And look, we've made a lot more progress on, I say this side of the Atlantic, because that's the side of the Atlantic I'm sat on at the moment. You know, we have those. We have those. Yeah, yeah, we're London. Yeah, so we have, you know, we have a lot of those schemes active in the United Kingdom now. And, you know, they are hugely, hugely popular. So we have customers being paid to generate, you know, attractive rates being paid when they've got batteries.

Molly Wood:
Well, London will remind people.

Steve Smith:
We've even had the first launch in the last couple of weeks of some really early beta vehicle-to-grid things. So I think it's only a certain manufacturer who's allowing its batteries to do it. But one of our retailers here, Octopus Energy, you've probably heard of, are now enabling customers with those cars to basically leave their car plugged in and will be paid when they are able to pull down power from it. So...

We've seen in the United Kingdom and the juries in, customers love this stuff and they're happy to do it, but as you said, they need to be rewarded for doing it. We had huge issues last couple of winters because of events in Ukraine, sadly, and the impact on power and gas markets across Europe.

Molly Wood:
Yeah.

Steve Smith:
Yeah, we found massive willingness of customers being willing to, you know, shift peak load and do all kinds of clever things that meant that what could have been some pretty challenging winters, you know, weren't at all. And we've seen that in the United Kingdom, you know, we've seen for what a relatively modest, you know, payment that customers are very willing to say, actually, yeah, you know what, I can delay putting my dishwasher on for a couple of hours or a later in my dryer or washing machine on for a couple of hours. If you...

tell me when to do it and you offer me a small reward for it.

Molly Wood:
Right. I love this. This is like the future that I cannot explain. And also it says a lot about my personality that this is such an obsession of mine. But I think it's really powerful. The title of this podcast is Everybody in the Pool. And I like the idea of socializing this behavior.

Molly Wood:
With our last remaining minutes here, I gave you some of my obsessions, but you must have much more interesting ones. Tell me what are some of your like, "This is the dream startup. If I could just will this innovation into being, what would it be?"

Steve Smith:
Wow, that's a brilliant question. I share many of the similarities or many of your obsessions as well. To me, it's all about the customer because I'm sort of confident, I back humanity. We've done it so many times to sort of deliver big engineering challenges and to find ways to make them affordable and find ways to do the impossible. I mean, I was a space nut as a kid and, you know, just remember, you know...

learning about the Apollo landings and things like that. So I back us on the big engineering stuff, but for me, it's all about the customer and two things, you know, how do we sort of drive it beyond that? And I hope I'm not toying with my brush, you know, I'm an early adopter, I'm a geek, I'll sign up to all this stuff, I'll try it all, I've had an electric vehicle for, you know, six years, but I know that most people aren't like me. So how do we make it...

simple and accessible and easy to do for the vast majority of people. And then there is a specific focus on how do we make sure we don't leave anyone behind because there are people who are challenged because of income and how do we actually make it affordable for them. So that's really what keeps me up at night is how do I get the mass market to adopt this stuff and not just the sort of geeks and the early adopters like me, but then also how do I make sure that...

that people who are unfortunate and at the other end of the income scale, that this isn't just a sort of middle income or above aspirational thing, it's something that everyone can do without compromising their living standards and still live in heated homes.

Molly Wood:
And then finally, how did you come to this? What's your background?

Steve Smith:
So, I kind of have an interesting background. So, I spent most of my life in energy, worked in energy for the first 20 years of my career in a different time when particularly in the United Kingdom where I was based then we were sort of pioneering all these big reforms to try and drive competition, you know, lower prices. And actually we had these visions then of customers who would be actively involved, you know, doing things on their side of the...

kind of a finish of those thought processes for me. But then I actually had 10 years out in retail banking, which is not a path well traveled to go from utilities to retail banking. And that was fascinating because I just watched an industry get ripped up and ripped apart by digitalization. We went from having physical branch networks and customers interacting with us in branches and stores and over the phone.

to suddenly doing everything on their smartphone. And it was just fascinating to see how powerful that technology was. But again, many of the same dynamics, how did you do that in a way that didn't leave people behind and people who were less comfortable? So I feel that's given me a lot of insights as I've come here, because I work for the United Kingdom's largest retail bank. We had 15 million customers. I used to do customer insight for that bank as well. So I know a lot about...

what customers like, what they don't like, and how hard it can be for certain groups of customers to persuade them to change the way they've done things for a long, long time. So I think it's that combination of utilities experience with stepping outside the industry. But for anyone who's known me for a long time, and if there's a consistent theme in my career, I kind of like disruptive change, everything I've ever done. And I'm at my best when I'm like, wow, everything's changing around me. And it's...

Molly Wood:
It's okay if you just want to say ambitious, like that's fine. You're excited about it. Um, Steve, this is.

Steve Smith:
It's very excited and very, you know, as I said, I sort of describe myself as a pragmatic optimist. I'm hugely optimistic, but I'm pragmatic about how we're going to have to go about it.

Molly Wood:
Yep, I love it. Steve Smith, thank you so much for the time. The new-ish CEO.

Steve Smith:
Molly, it was a pleasure to talk to you and thank you. I really appreciate the opportunity.

Molly Wood Voice-Over:
That's it for this episode of Everybody in the Pool. Thank you so much for listening.

There’s more reading about utilities and the energy transition in the Everybody in the Pool newsletter … which you can subscribe to at our website … everybodyinthepool.com.

A Sierra Club report from late last year suggested that although there are plenty of financial incentives built into U.S. legislation like the Inflation Reduction Act … most utilities … even the ones with aggressive net-zero goals …

are moving WAYYYY too slowly to reach those goals … or really accelerate the energy transition at all …

So. We talked a lot about solutions yes … but keep the pressure on … because these are the central players and we need a lot more from them … a lot faster.

Don’t … get me started on Pacific Gas and Electric. Californians … you see me.

Email me your thoughts and suggestions to in@everybodyinthepool.com and find all the latest episodes and more at everybodyinthepool.com, the website. And if you want to become a subscriber and get an ad-free version of the show, hit the link in the description in your podcast app of choice.

Thank you to those of you who already have. See you next week.