After it was liberalised 30 years ago, they typically play the role of generating most of the electricity. They have been great for customer support. Decreased cost from $300 to $50 for each support interaction = better support for each person.
They have largely had a huge MOAT and hence why it is an oligopoly. This is because of illiquid markets. They are not people that can actually supply this amount of energy. Also, newcomers find it hard to enter the market due to the sheer amount of money needed to buy electricity from the grid wholesale, especially considering the buy now, get paid later model by consumers & the hedging tariffs that come alongside with it.
In many ways, the operate like a Hedge Fund. They hedge the price of energy at a certain price that they know they can charge customers an additional margin on top of. This requires huge OPEX, creates a MOAT around the amount of cash that is needed. It generally means the prices of energy for the consumer are more stable than they are in the actual market. It is the most volatile commodity.
However, because they fix the prices it means they are not able to take advantage of prices generally being lower during the day and higher at night. Meaning that consumers don't get to save energy, nor manipulate when they use it for their own benefit.
They also have to paid the hedge fund fees. Coming in various forms like the 60 day agreement to have enough money to pay generators if they default + the fee they give to ensure they can access electricity at the price they bargain for.
Tech innovation typically happens 1-3 cycles before the final iteration of the tech product that sees mass adoption. This is because of things like Moore's Law which says the prices halves every 2 years. By the time, the price is reasonable, innovators already have a brand, traction, understand the product & market better than the incumbent could. It's why startups will always win against enterprises plagued by entropy & stagnation.
Therefore, tech innovation is typically low-margin & inefficient. Big players have to give up short term gain pushing existing high-margin services for these other ones. Startup cultures like Tesla & Space X are important.
Traditional coal & oil plants are still cash-cows, but are declining in value, holding back innovation. AGL owns Liddell & Loy Yong A → Coal Plants retired by 2035. Cannon-brookes urging that this happens sooner.
Trad Retailers make their money from the Grid. They analyze supply & demand trends, give a medium and then set a price for the end consumer. The prosumer model that DER allows for, with the consumer being able to store excess energy into batteries & be able to store cheap energy from the grid (between 11pm-7am) and use at a time when it's not expensive, decreases demand for the grid energy which reduces demand. Here, DERs flatten the demand curve for consumers, resulting in reduced demand for the grid. This means they are cannibalising their own demand.
They lost the solar race. Now, as battery race increases because of govt regulation & battery costs decreasing, they will lose this race as well.
Australia's energy market is relatively deregulated compared to the US. Comparable to EU/UK with 75% deregulation aside from NT, WA. NSW, QLD, VIC and SA are all deregulated. Though, Texas is deregulated & therefore BasePower Company can become $1BN in Texas alone.
Cable's thesis is that Australia has been rapidly quick to implement PVs/Solar. They have minimal adoption of batteries. ~150k vs 4M Solar. Every house that has solar would benefit from batteries, as well as non-solar households/businesses to a lesser extent. However, because government subsidies haven't been here, battery costs have been expensive, batteries have not been widely sold nor adopted in Australia.
Opportunity to sell fully-financed batteries, initially to SMEs & then to residential. 1/7 solar are now bought with battery. SMEs is higher-margin because use more energy & less of them. Less upfront costs of batteries + higher multiplier of spread because of usage.
Product = Battery Installation Fully-Funded. Cable does not pay for this. SPV pays for this. Offer perks like free for business, no lock-in contract, initial deposit for commitment & initial cash-flow. Cable charges from the grid. Means they can go for Solar people & non-solar people. Grid = Algorithm arbitrage. They also own software to control & manage pricing, optimising best time to extract prices. This requires Data Science & Engineering team. Overtime, they'll do residential which requires slightly different product scope. Dom calls this risk management platform, mitigating the risk to the end user.
Customer Acquisition = Large concentration in Sydney & North Shore DSNP area. Affiliates via brokers & partnerships through solar & battery installers. Margin for them to upsell existing customers. Long term, would do D2D direct sales team with 19yos, content & advertising.
Asset Finance Component = SPV Fund that can own & pay for the batteries. Gives them the initial spread from the first $4m worth of batteries.
Cannon-Brookes tried to take over the entire company. Failed. Bought an 11.3% share in the company to prevent it from continuing coal generation via Victoria Coal Plant.
Installed 4 new directors, stopped hostile takeover.
Largest decarbonisation opportunity in the world. AGL accelerating closure of Coal Plants, moving towards renewables: Grid-Solar & DERs
Torrens Island Project. Expand battery to 1000MWH over time. Grid-scale lithium-ion battery.
Have assets that throw off tonnes and tonnes of cash → Generation Plant Capex, Transmission & Distribution, Retail/Supply + Upstream Fuels & Storage ....
Power Plants/Batteries (solar, coal units, farms) → Sell electricity into city, fixed ticket deal: $70/wave for 15 years → Specialist Developers: Infra & Super Funds
Transmission & Distribution Lines → Govt lets you charge regulated toll → State-owned or pension fund
Retailers (Origin, AGL) → Buy wholesale bundle → utilities/challenger startups
June 2024, $2BN Fund.
Investments made b/w $15-250M
Pushing more and more toward renewables with 1/3 of homes having solar, 150k batteries installed. Coal plants to be stopped by 2035.
Built on goals of 50% reduction on 2005 carbon emission levels, 70% reduction by 2035 & Net-Zero by 2050.
Types of investment: equity investment, debt financing, credit enhancements, PPA's, early stage risk capital, infra co-development & LP in energy-specific fund
Grid-Scale battery investment. $20M Mezzaine debt. 5 year capacity available contract. Renewables developer. $40M debt + $10M equity.
Wind-Farm co ownership. 50M equity for 20% share in the business. Private partner has $200M equity & projec financing.
DER Aggregation. 5k battery installations across low-income & remote communities → $10M Subsidise. $10M grant & anchor buyer of VPP capacity. Priv Partner: energy tech startup, install software aggregation & dispatch.
Essentially, there are three players involved in this business: Westpac (Asset Finance), Verdia Energy & The Customer
Energy installation businesses inherently have high capex. The end customer, nor the business wants to pay for this. Typically, some sort of fund/bank/asset manager will enter the arrangement. Energy businesses are good targets because you have the physical infra as the collateral & they save good money so that is a fallback.
COO of company was from Westpac, so probably got the intro from him.
Westpac has incentive because of above reasons & therefore they wanted to add it as another secured lending project. Project cashflow savings & assets made this a low-risk loan.
ESG policies & regulatory zeitgeist of the time meant Westpac incentivised to dabble in pro climate-changed movements.
Only risk was trusting that Paul & his crew at Verdia could project cash-flow savings accurately, hire competent contractors to fulfil the work.
For the bank, they give out a loan of $5M to finance the capital infra of the project & make the money back from the enterprise customer paying them back with interest.
Value proposition is extremely clear. With energy from the grid & trad-retailers because of hedge fee, lock-in contracts & inability to adapt to volatility, there are huge cost-savings for the company if they use a lot of electricity.
Cost of project is $500k. Annual savings of $300k. 5% interest on the loan means you have $11k of financing per month. Save $200k per year even after the loan.
Banks wouldn't trust them with loan. Verdia's expertise gives bank confidence that cash-flow savings will be accurate, project will be delivered on-time & they'll get interest payments.
Skill Issue. They would struggle to hire & find people to build out the savings project.
Huge CAPEX problem. If they couldn't finance, they would have to purchase $1M of solar upfront presumably, meaning they would have to put a lot of stress on balance sheet, rather than $10k every month for 10 yrs.
1. Audit of Current Energy Site → work out savings potential from total energy costs right now. Electrical engineer.
2. Model IRR based on location, usage & incentives.
3. System Design → Design layout of solar
4. Procurement: tender to approved EPCs
5. Installation oversight
6. Performance training & handover
To Infra-Fund. Stacking ~$200M annual revenue from the 10-20 projects they deliver yearly for enterprises.
Customer Acq = Banks Partnerships, Pilot → Scale, Enterprise Sales. Multi-site portfolios = repeatable deployments.
Coca-Cola: 10k solar panels, 3.5 MW of Solar PV, $1.3M Annual Savings.
Opal Aged Care: 54 aged care, 10600 solar panels, 42% reduction in grid electricity.
Stockland: Led Lights, 30k solar panels.
Enterprise Sales Reps w/connections to big corporate companies. Basically paying 7 figs for their network.
Energy Engineers: audit sites, models.
Project Managers
Difficult to secure asset finance side of the business. Typically, relies on connections & network. Guard railed to people who are already in the industry.
Enterprise Sales. Cannot cold-call your way into these deals, many stakeholders, risk averse CFOs.
Due-Diligence: difficult to hire the talent to get high 9s of reliability.
Initially started as consulting gig for Westpac. Charged $250k to put together the business plan. Westpac didn't want to build out the whole thing. So, they started it using Westpac as the asset financier.
Started in 2016, shut down in 2021. COVID19 meant businesses were reluctant to take on any sort of risk; potential for cost-savings to be inaccurate.
ATS Solution. 12 month lock in period. Custom workflows. Job noticeboards uploaded to all the different sites like Seek, LinkedIn.
Airtable & Zapier. Pretty cheap & easy to whip up.
Roles = waitlist momentum & generating materials for that, GTM Piece of work, Business Operations, CRM maintenance, Waitlist sign up financial software piece
$55k salary. $40k Equity. 70% of salary is common rule.
4 yr vesting period for equity. Be here for 1 yr. Portfolio of gigs & Superpower experience.
In due time, desires to build out all channels across everything.
Affiliates. Initially, partnerships because low CAC. Existing customer base. Partners that have already installed solar. Re-engage existing customers. Take 20% margin. Battery is $40k and they get an $8k clip. Therefore, they take the $8k and move on. Questions around quality of implementation.
Affiliates. Brokers. Energy brokers. 20-30 of them total. Should form relationships with 10 of them. Make sure that they recommend Cable to people who are looking for help in this area.
Content should work okay in due time. Consumer content via IG, TikTok.
Paid Media targeting households and business owners as well.
D2D Sales for this should work okay as well. Having direct sales team that door-knocks. 19y/o uni students who go house to house. Lots of fun selling a product that is actually good & actually works.
Start with SMEs. High Margin here. Form 20% of electricity supply. 30% for Residential. 50% for C&I. But 1/9 the total volume of Residential. Underserved & fragmented market here as well.
Evolve to Residential. Burden on residential is a little greater than SMEs. Life hardship policies. Optics in Aus being silly. VC-backed doing Residential already in AUS. Less noise about it. License at the end of March.
Evolve to different product bundling. Integrate more of the stack over time. Do EVs, Solar & other factors related to this as well.
Evolve to software/infrastructure layer? Overtime becoming the Android layer of energy. This isn't something I understand.
Partnerships → Potential for this to go wrong. Partners don't seen incentive. They want to keep installing solar. Quality assurance is tough here.
Asset Finance → Raising the Fund. Making sure the investors get good IRR% from owning the batteries. Ensuring that they can raise from VC as well.
Risk Management → Ensuring that the hedging they are doing is effective & successful. They make good arbitrage on what times they storage the energy & when they get it back. Ensuring that the kWH should actually be 27 not 35. Something like this.
GTM → Least of his concerns. So many different channels, if the offer is good then one will work in due time. Content, Paid, Sales & Affiliates. One is bound to work.
Recruit someone to run the asset. Hard to do because people capable & qualified to run a battery fund don't like doing the 0 → 1 stage of things. They prefer to do already off the ground businesses.
$3-4M AUD by EOY.
Try HNWIs first. More flexible term sheets that don't reduce equity of founders & employees.
Then, try VC. However, VC have usual non-dilution, 1x liquidation preferences on their agreement. Non-dilution means they're raising a $10M Series A at $40M. If this goes down to $30M at Series B, then the founders & employees will lose shares over the VC.
NOAH: POS Solution for Solar Retailers. Short payback period so you can get the money immediately.
Raised $1M Pounds in 2 days. Sell to Installers. Cashflow positive and sold first loan <3 months. Fast for Fintech.
Banks came and cut the loan. 5% interest, not 13% interest offered by Noah. Immediately came &
Tailwind. BTM & DER energy became more useful than Grid Energy. Because of Putin invading Ukraine
Pivoted hard to Solar Installation. 7 figure business in 3 months. Blocking & Installations. Huge months but lumpy revenue because project-based with no retainer revenue.
CTO. Bad partner & relationship. Annoyed that Dom was his boss.
Less Fragile Business. Out of depth because wasn't accustomed to Spain.
Don't over-index on engineering unnecessarily.
Be Louder. In July/Aug, will be talking about Cable to everyone he meets. Try and get PR in press.
Recurring Revenue. Not project based.
Transmission = MODO Energy
Energy Insiders
ChatGPT/Google
$250k consulting gig for Westpac initially. Paul spent all of that on resourcing the people & hires to initially do this.
4 types of customers: Mining People, C&I, SMEs & Residential. Paul & Verdia went after C&I. Mining people off the grid and need power. But typically in 15 yr contracts with initial providers.
Westpac guy. Had connections with every major bank. In all divisions. Keep going till he found one guy. He had distribution to all C&I. 50% of electricity consumption from 250 major people.
Paul would send the email to the guy. He would flick the email. They had incentive to do it because it was good for their major clients.
Paul did one year of looking at every single electricity bill & from there deducted a formula around what was needed. Once he got the meeting with the enterprise clients, he would put together a 4 point presentation. From google maps, or some place, he managed to find info on their business and then suggest a plan about what to do.
20% came from door-knocking & hustle. Paul said he wouldn't have done it without the connections he had initially. The affiliate/referral partner was vital. Ironically was also probably the reason it couldn't sell because no consistent acquistion method & therefore nothing to fall back on. Also meant they went bust in COVID19 when people didn't want to throw capital into the market.
Mainly worked with huge enterprises. Aged-Care, Schools & Industrials were the best. No-one in hospitality owns the building, despite theoretically being really good to talk to.
Tried SMEs. Run into many problems. Scale sales team to 7 people and then shut it down.
Doesn't remember Dom. Thinks most entrepreneurs, in many businesses, barring complex product ones that will obviously work if you can make them, benefit from first talking to customers rather than sitting down theorising about plans. Paul went to some corporate & is paid to build out clean energy program. Got first customer & asked if they'd be interested in it before ever doing anything else.
SMEs = 30% electricity. 1 million of them.
Firstly, Most don't own the actual building. 80% have PTY LTD and work from home. 10-15% one person office or co-working space. 5% have meaningful business that actually uses a lot of electricity & energy. Even less actually own the property. Most have short-term leases that means they cannot guarantee payback period. Plus, they also need approval of the landlords. Going to the landlords is an absolute nightmare
Secondly, spread on energy needs to be really high. Works for Essential DNSP in the country. Dairy Farms have high spread of electricity. They lock into contract based on biggest spread months. So, batteries are really helpful to reduce the spread between them & tame the high load.
Thirdly, limited to the upper end of the SME class. Residential is not worth playing in according to Paul. Bottom-feeders, selling rubbish batteries. Race to the bottom. So, they take out bottom of SME as well. You won't beat these cheap installers.
Option is to have them install your stuff. Preserving your margins, while also having no incentive to do good quality work?