Podcast #203 Digital Energy

 TRANSCRIPT

Ken: Good day, and welcome to episode 203 of our Momenta Digital Thread podcast series. Today, I'm pleased to host Julio Mestroni, the former Chief Commercial Officer of Power Digital at GE Digital. Julio is a senior executive with over 26 years of experience scaling and leading global businesses across energy management sectors. From decarbonization and electrification to decentralization and digitalization, Julio has become a trusted adviser to many in the industry as companies and governments outline paths to achieve more sustainable, competitive, affordable, and dependable energy uses. Julio most recently served as the Global Chief Customer Officer of GE Digital Power Generation. He previously held leadership positions in diverse GE energy businesses spanning from technology ventures and product development to introducing new business models and leading large global operations. Born in Italy and educated in Argentina, Julio has worked for over 17 years in the US and is now based in London. Hello, welcome to our Digital Thread podcast.

[00:01:45]

Julio: Ken, great to be here.

[00:01:47]

Ken: Great to have you. This is a very important topic when we talk about energy and decarbonization, net zero, and everything that goes with that, so I'm excited to have you. As you know, we call this the Digital Thread podcast. We always like to start asking, what's your digital thread? In other words, one or more thematic threads that define your digital industry journey.

[00:02:12]

Julio: My digital thread is probably shared with a number of other people like me who, for the last 10 or 15 years, have been engaged in deploying digital solutions and trying to make sense of data. If I mention a few key elements of the digital thread, I have to start with the proliferation of lower-cost and better sensors. That enables the ability to track equipment failure mechanisms and performance, understanding whether the equipment is working too close to the boundaries or there is some level of conservatism. The next one is developing and proliferating advanced algorithms and analytical capabilities. That was important for businesses because it really paved the way for data to become information and for information to become intelligence and insights to facilitate decision-making. Then the last one is the ability to democratize data that came with cloud computing and cheaper data storage capabilities. Data was limited to certain facilities or organizations. With cloud computing and storage, much of that data and information was cross-pollinated across businesses. These three combined: the sensor, the algorithms and analytics, and cloud solutions, help redefine life management for physical assets.

I think this is quite relevant for energy companies from the perspective of finding a way to reduce operating costs, understand how to manage risk for the operation of those physical assets, and then equally important is the ability to understand what I call the art of possibilities on how equipment can be operated to generate revenue for the business. This is one side of the equation. The other side is for companies to triangulate between operability to generate revenue costs and risk so that companies can make the right decision at the right time. This is something that is becoming critically important and is crucial for the energy transition. This transition will force a number of businesses to flex their muscles and be extremely opportunistic in the marketplace. The ability to make the right decision at the right time to capture market opportunities will be one of the important things that will dictate whether companies will succeed through the energy transition.

Ken, my thought might sound provoking, but in the last number of years, I'm still seeing a number of businesses that are not embracing digital transformations and are trying to digitize adjacent or non-core areas and do pilots before embarking on meaningful transformation. The clock for the energy transition is ticking, and many businesses urgently need to retool operations.

[00:05:18]

Ken: I agree with you on the latter matter. During COVID, a meme floating around LinkedIn was a checklist: "Who's leading your digital transformation?" with options like CEO, CDO, and "COVID." In essence, COVID drove much digitization, particularly in remote working and asset management, much more quickly than an organic approach would have allowed. The same thing is happening in the energy industry now, especially after the conflict in Ukraine. All of that to say, I'm glad we're talking today because you have been a lifelong practitioner in energy, and what I appreciate is your leadership roles in both physical and digital asset businesses. Let's jump into that. What's your view on the ongoing energy transition?

[00:06:11]

Julio: I'm excited to be a participant in the energy transition. The next decade or two will be seen in history as pivotal moments. It's an inflection point, a moment that will reshape the landscape of geopolitics as we know it. Geopolitics today is largely defined by sources of energy, so the source of energy and the independence of energy sources will reshape the forces in the market to a large extent. As an engineer and a businessperson, I'm extremely happy to be a part of it. I'm happy to be alive at this time in history and contribute to extending the possibilities for the deployment of new technologies, for the proliferation of cleaner alternatives, and to how we consume, store, generate electricity, and manage energy in general. This energy transition will hopefully mean a significant reduction in fossil fuel use and economic dependency, specifically, the combustion of oil, coal, gas, and several other derivatives. This is quite interesting; combustion could become old-fashioned as other cleaner and lower-cost electricity-based technologies emerge and proliferate. Just look at what's going on with electric vehicles versus internal combustion engine vehicles. EVs are not just cleaner but will be cheaper to own and will play a critical role in energy markets with the potential to redefine the energy management space with tools and concepts like vehicle-to-home (V2H) or vehicle-to-grid (V2G) or transportation as a service (TaaS) driven by autopilot and a number of different automation-type activities and technologies that companies are part of developing. It's really exciting times.

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[00:08:17]

Ken: You mentioned geopolitical forces; let's click on that one. What are the key competing geopolitical forces and imperatives in the energy markets?

[00:08:27]

Julio: Sustainability is the core objective of the energy transition and the driving force. However, deciding on a transition roadmap is unique to every country and probably one of the most complex decisions countries must face. It is more complex than just deciding to include renewables and storage technologies, carbon capture and hydrogen, and other technologies into the roadmap. This solution needs to be a well-crafted compromise that considers a number of different factors with strong interdependency.

On one side, energy in general, but electricity in particular, needs to be competitive for businesses. Why is it important for businesses? Manufacturing portfolios have primarily gravitated towards lower labor costs, but with the development of AI and automation, electricity will become one of the key elements of manufacturing costs, even beyond labor costs. Companies will likely transition their manufacturing facilities to countries with lower electricity costs, so a competitive electricity supply is becoming important on a geopolitical level.

The next factor is affordability for people. This is for obvious reasons. The third factor is accessibility for all. Globally, over 800 million people still don't have access to electricity. The last factor is the dependability, availability, and reliability of electricity and energy sources, with adequate reserve margins and reduced dependencies from external supplies.

It is fascinating to see how, more than fossil fuels, mining and the capability of processing natural resources like nickel, copper, cobalt, and lithium are becoming stronger sectors that will need to reshape geopolitics in the future in a similar fashion to what fossil fuels have done today.

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[00:10:45]

Ken: We've often discussed the three R's that are most impactful for us: remote asset management, resilience, and renewables. The latter two directly impact Europe, given Russia's illegal, immoral invasion of Ukraine. To what degree are these trends driving future business, especially in energy?

[00:11:06]

Julio: You mentioned the conflict in Ukraine. If anything, that conflict has highlighted the need for the energy transition across Europe and the importance of energy independence? The situation serves as a clear example for many countries of the strategic nature of renewables and the need to diversify their energy supplies and reserves. From an asset management standpoint, what's interesting is that for every conventional power plant that shuts down, there will be hundreds, if not thousands, of renewable energy assets, whether centralized or distributed. How those assets must be managed will significantly differ from how we manage conventional power generation. Renewable energy assets are often less complex and risky than conventional plants because they are highly standardized and use simpler technology. However, managing them will be more complex due to the exponentially higher number of assets that need to be managed and their variable nature. The flow of electricity that has historically gone in one direction will soon become bi-directional as consumers and traditional power generation contribute to the grid. This is where digital technologies will play a crucial role in managing this increasingly complex ecosystem. As a CEO of a utility friend of mine said, "Success or failure for utilities will not only depend on their choice of physical assets but equally important on their ability to outline and deploy digital solutions to enable more accurate and faster decision-making as companies are orchestrating more complex electricity ecosystems." It's important to focus on the need for digital solutions to manage renewable energy assets effectively, not just on the physical assets themselves.

[00:13:55]

Ken: What about net zero and decarbonization? Can you tell me about both of those industry trends or targets?

[00:14:03]

Julio: Net zero and decarbonization: Electric generation is the most crucial sector to decarbonize. Renewables are key to achieving this, and in many areas, they are now the cheapest source of electricity. For example, in the US, renewables are cheaper than 99% of all coal power plants and often cheaper than the operating costs of natural gas power generation. While renewables are capital-intensive upfront, they have low operating costs compared to traditional technologies since we don't pay for the wind to blow or the sun to shine.

However, adopting renewables requires incremental grid-balancing resources due to their intermittent and variable nature. Someone must balance the grid when the wind doesn't blow, or the sun doesn't shine. These mechanisms are critical to the grid's stability, and the proliferation of renewables is limited by the ability of grids to manage these balancing activities. The goal is to avoid the quality of service and service interruption issues that can lead to potential brownouts and blackouts. To this end, there are various technologies being invested in and deployed for storage, both short- and long-duration, to help balance the grids.

In the future, generation and consumption may decouple, meaning electricity doesn't need to be generated at the time of consumption. Electricity can be generated, stored, and eventually consumed. It's equally important for consumers to have the ability to shift their load from high-cost electricity areas and hours to those where electricity is rarely used. These are crucial areas to explore in the pursuit of net zero and decarbonization.

[00:16:22]

Ken: Let me ask you to put your prognosticator hat on. In addition to decarbonization and net zero, what are the other key trends and disruptions you see relative to energy in general and digital in particular, over the next 10 years?

[00:16:36]

Julio: As mentioned earlier, the decarbonization of power generation is a significant contribution to sustainability, which is already in progress through renewables and storage technology. Additionally, the decarbonization of transportation is well-positioned thanks to the proliferation of electric vehicles. However, there are other paths to achieving sustainability. Electrification is another important set of technologies that will drive sustainability in different marketplaces over the next decade. One way to achieve electrification is through the adoption of heat pumps, which can replace fossil fuels for heating purposes in households, commercial facilities, and industries. Heat pumps consume only a fraction of the energy required to heat a house using a gas boiler, making them a more sustainable option. For industrial heating processes, heat pumps are an excellent choice for applications close to 200°C.

Another path to sustainability is decentralization, which is already ongoing and will accelerate over the next few years. Rooftop solar, battery storage, heat pumps, and the proliferation of EVs at the consumer level are paving the way for decarbonizing the economy. Incentives such as the IRA in the US will also contribute to this effort by providing instruments and resources to manage the grid better. Finally, digitalization is another critical path to sustainability. As assets in grids grow, the bidirectional flow of electricity will make managing the grid even more complex. Digital technologies will play an instrumental role in facilitating sustainable technologies' deployment and ensuring that grid resource orchestration happens optimally.

[00:18:41]

Ken: It's a good circle-back point. You started the conversation about your digital thread, discussing sensors effectively and how to connect and orchestrate the grid. I was impressed with your background: you were involved in digital technologies relatively early in the energy sector, leading software and analytics as early as 2009 for GE. This was a formative time for the application of digital and energy. What were some of the key use cases you're most proud of from that time?

[00:19:12]

Julio: For us, the process started with questioning whether we were using the data we had access to in the most efficient way to capture information and insights from markets and customers. We aimed to provide more value to customers by helping them manage their physical assets better. This exercise defined IoT before IoT was even a term. The part I'm most proud of is our ability to deploy technologies and solutions in the market while being customer centered. Our approach was 100% outside-in, where we put ourselves in the customers' shoes to understand the market, business issues, and opportunities and then co-created solutions with them.

We employed a platform that consumed data from physical assets on a global scale. This platform had various embedded applications that captured data from operating assets and turned it into information to have better visibility, manage risk, understand operating profiles, and support customers. We also created a benchmarking tool that enabled people to understand how their assets performed relative to similar assets in the industry.

It was an important moment for the company, not necessarily from a revenue standpoint, but because it helped us clarify and understand the possibilities of how software and analytical technologies can enable more value to be created for customers in the market. We questioned whether this approach was only applicable to power generation or if other industries could also benefit from it. 9 out of 10 businesses or local industries we logged, the answer was yes. The same concept could apply to them.

I don't want to claim that this was the only reason GE ventured into digital, but it was one of the important proof points that convinced us that there was something beyond just providing physical assets. Through technology, software, and analytics, we could create more value in the market that customers could capitalize on and improve their overall operations.

[00:22:09]

Ken: You made a provocative statement earlier about digital transformation and its relative progress. Could you say a bit more about that? How do you see that applying to energy particularly?

[00:22:25]

Julio: Yeah, digital transformation. Only some people need to be a pioneer in digital transformation, but as we move towards the energy transition, companies must become more flexible and find ways to accelerate decision-making processes. As renewables become more prevalent in the general electricity mix, electricity prices will become more volatile, as seen in markets such as California, Germany, and the UK. Being opportunistic in these markets and positioning assets and operations to capture opportunities will be critical for businesses success. I've observed that not everyone is embracing digital technologies, instead focusing more on physical assets, which will remain crucial for the industry. However, for companies that have not yet adopted digital technologies, the ability to make decisions at the right time will dictate their success over the next 5 to 10 years.

[00:23:39]

Ken: I appreciate that. I know you were involved early and often in your GE career in startups. I'm curious, what are some of the more interesting startups that you're following these days?

[00:23:50]

Julio: There is a proliferation of startups, so it's almost impossible to mention all of them. There are a number of different things that are fascinating to me these days. One side is on retail, as companies face consumers and 'prosumers' who can decide when to consume, store, and give electricity back to the grid. There are a number of different companies that are exploring the market and developing technology. Some of those aren't necessarily startups; they were probably startups a number of years ago. But what I'm fascinated with on the retail side - to mention a couple from here in the UK - is what Kraken, which is owned by Octopus, and Kaluza, which Ovo owns, are doing from a retail standpoint, managing the interface with consumers and supporting grid operators. They have platforms that can become important for the retail business, but the opportunity for these companies is to extrapolate and explore markets on a global scale.

In summary, how to replicate what they're doing with their utility and retail portion of the business and offer the same solutions on a global scale. I also like what Piclo is doing here in the UK with flexible markets and how to tap into a number of different resources that were not available for balancing markets and flexibility. Piclo is one of those companies that I have had a few discussions with before, and I'm tracking their progress. I'm also interested in storage, specifically long-duration storage. Shorter-duration storage is dominated mostly by hydro pumps and lithium-ion batteries, but I'm interested in long-duration storage. It's storage that can provide power for days, if not weeks, and I'm following a number of different companies. If I have to mention two of them, the first one is Form Energy. They have interesting technology with multi-day storage and iron-air batteries, which are low-cost and have high discharge efficiency. The second one is an early-stage company called Noon Energy. Again, similar long-duration storage-type technology with low cost, dense batteries, and good discharge efficiency. I'm following up on their progress, seeing where their startup is going and how the technology is expanding the market.

Then on the visual side, Ken, there are too many to mention, to be honest. There is probably one that I will say, again, very early stage. It's called Molecule Systems. Molecule Systems has quite promising Edge computing capabilities with flexible architecture and is easy to deploy and manage. I mentioned Molecule Systems because the future will depend on Cloud computing abilities and Edge computing-type capabilities. I think the ability to connect different energy resources from a household, whether it is a heat pump, charging an EV, or air-conditioning and heating for the house, will depend on a number of Edge computing-type capabilities to connect the dots and make sense of all the data that's coming and the interaction between Edge computing and Cloud computing to optimize the energy management space. Molecule Systems is an early-stage company, but one of those companies that can play a significant role in the market.

[00:27:27]

Ken: Excellent, we will certainly check them out. Knowing you've recently left your role with GE, what's next for you?

[00:27:35]

Julio: I worked with GE through the end of 2022 and am now in the market. I'm looking at spending time and evaluating the next chapter in my career. I'm looking at consulting, which is quite an attractive thing, something that I've done without necessarily calling myself a consultant, but something that I've done through probably the last 10-plus years. On the other side, I feel the opportunity to collaborate with private equity and venture capital type companies. Throughout my career, I have scaled startups and I ran large operations. I restructure businesses and understand how to connect the dots. I want to bring my two cents on how private equity and venture companies explore the marketplace, decide where to invest or not, and how to operate those businesses to scale those businesses in the marketplace.

[00:28:31]

Ken: It sounds like you're in the right place at the right time with the right skill set and relationships, so there'll be lots of opportunities popping up. Even Momenta may have an opportunity to engage you. In closing, I always like to ask, where do you find your inspiration?

[00:28:48]

Julio:

I am currently consuming much content which is familiar to me. I've been dedicating time to trying to understand where disruption could come from, attempting to see around corners, and grasping the technological forces and business models that will disrupt businesses as we know them. In the past few years, I've read several books and listened to numerous podcasts, reading a book every two weeks. It's difficult to list all of them, but I try to find the right balance between people from different perspectives and opinions.

A few of the books I have read in the last six or seven months are "How the World Really Works" by Vaclav Smil, which offers a nice perspective on energy and the future of energy, and "The Inevitable" by Kevin Kelly, an extremely relevant book that provides insight into technological forces and how they will reshape the future. "Electrify" by Saul Griffith and "Winning on Purpose" by Fred Reichheld, from Bain and the creator of the NPS score, are also important books for me. The NPS score is a method of putting customers at the center of what businesses do, and it will be crucial for companies to succeed in the energy transition.

I am reading "No Miracles Needed" by Mark Jacobson from Stanford, which provides an optimistic view of renewables and storage opportunities and how they can transform the energy landscape as we know it.

As for podcasts, I listen to several, including "The Catalyst," "The Carbon Copy," "The Interchange," and "Columbia Energy Exchange." I am very much into sports and enjoy listening to these podcasts while running and swimming.

[00:31:02]

Ken: Awesome, great recommendations. We will have links to those in the bio that associates with the podcast. Julio, thank you for sharing this time and insights with us today.

[00:31:12]

Julio: Thank you, Ken. It was great sharing these few minutes with you in this dialogue.

[00:31:17]

Ken: As well, and a very timely topic. This has been Julio Mestroni, the former Chief Commercial Officer of Power Digital at GE Digital. Thank you for listening, and please join us for the next episode of our Digital Thread podcast series. Thank you, and have a great day. You've been listening to the Momenta Digital Thread podcast series. We hope you've enjoyed the discussion, and as always, we welcome your comments and suggestions. Please check our website at momenta.one for archived versions of podcasts, as well as resources to help with your digital industry journey. Thank you for listening.

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