A new software platform in Germany lets utilities buy and sell “regional electricity” by connecting up small producers with consumers. Start-up Lumenaza, founded three years ago, meets a growing demand for transparency, explains CEO and founder Christian Chudoba in an exclusive interview with Energy Post. Unlike a typical virtual power plant, Lumenaza targets tiny producers such as owners of rooftop solar. Its goal is to connect up all of Germany’s 1.4 million small power producers.
Lumenaza was inspired by a family party in southern Germany. Christian Chudoba, today the company CEO, realised that everyone around him was generating electricity, but there was no way of buying this local produce. In response, he founded co-Lumenaza with his Siemens colleague Bernhard Böhmer in February 2013. Three years later, the company offers utilities a software platform that directly connects up small, local producers with consumers in the same region. Eight projects are up and running and another 3-4 expected by the end of the year.
Chudoba comes from the world of software telecommunications at Siemens. He had the business idea; Böhmer, today Chief Technology Officer, supplied the software expertise. Oliver March, now CFO, jointed one year later bringing in the financial expertise. The two have created a product that they believe can help improve the acceptance for building more renewables in Germany. Just as consumers like to buy local, producers “like the idea of knowing where the electricity they produce is going”, says Chudoba.
We call it a marketplace or “utility-in-a-box” software. The platform buys the electricity from local [renewables] producers and sells it to consumers
What would help their business case is if regulators opened the door to time- and location-dependent grid fees, Chudoba notes. “Sometimes there is a lack of capacity in the grid. Why shouldn’t you have price signals to avoid that?” Producers could get a bigger financial benefit if they react to what is happening on the network. It would also open the door to active consumers: “It’s extremely difficult for a household to have a positive business case for any demand side management right now.”
Q: What is the idea behind your business and where did it come from?
A: The idea is rather simple. You want to sell electricity where it’s being produced so people know where it’s coming from. We have full transparency. There is big demand for this at least in Germany. People start buying food again from local farmers for the same reason: so they don’t rely on big supermarket chains that bring food from somewhere in the world and they don’t know exactly how it’s produced.
The idea came to me at a small family party in a village in southern Germany. Pretty much everyone had a solar panel on their roof and the local farmer sitting next to me was also producing electricity and heat from biogas. The strange thing was you couldn’t buy it. You could buy the food from his farm but you couldn’t buy the electricity. That’s where we started: what would be needed to make that possible?
We left Siemens and started looking for utilities to work with but no one was really listening to us. We decided we needed to develop a product. That’s what we did in 2013. Then after about a year or two of development we got the first electricity producers and consumers onto the platform. Then we talked to the first utility and they said that’s exactly what we’ve wanted to do for many years. Now we have eight projects up and running and I guess by the end of the year we will have three or four more.
Q: What is a project for you? Who are your customers?
A: We always look for a utility or people acting like a utility – it could also be an energy-cooperative – that wants to use our software to offer regional electricity. A typical customer for us is a municipal utility that offers electricity in a specific region.
Q: So you sell a software package that gives the utility a platform where producers can sell and consumers buy local electricity?
A: We call it a marketplace or “utility-in-a-box” software. The platform buys the electricity from local [renewables] producers, which can be very small solar plants – the smallest ones we have connected are 5kw peak which is really a rooftop solar installation – and sells it to consumers.
In Germany you have 1.4 million smaller power producers – mainly rooftop solar – and we want to be able to connect them all. Most aggregators still focus on bigger installations
We [also] need to balance supply and demand. We forecast production and consumption and we mainly control the producing entities to match demand and supply. More and more we are also controlling batteries to store electricity. So what is typically called “balancing group management” is also included in the software. We are acting as an aggregator and supplier of electricity and balancing group management.
Q: So the producers you work with could be anything from a household to what?
A: It could also be a wind park. The biggest PV we have is 5 MW and a typical individual wind power plant is 3.5 MW. The only thing that we definitely don’t do is offshore wind because there is no region around offshore wind.
Q: How important is the demand side, also for balancing? Couldn’t energy savings also be sold on the platform?
A: It’s extremely difficult for a household to have a positive business case for any demand side management right now. We don’t have any price variation on electricity for private households during the day. What we can do is control big consumption or storage entities like heat pumps and more and more batteries. But we do it in an automatic manner so the user doesn’t see it. In the end he cannot save very much from it. It’s more that we can make sure that the heat pump is consuming energy when the solar panels are producing it, for example.
Q: Is this something you’re thinking about for the future?
A: We are definitely thinking about it. Our platform could do it. There might be some regulatory changes coming that would enable it – there are talks about grid use fees becoming localised and time-dependent. Then there would be a business case. For the time being however, we are focusing on the combination of PV and storage and how we can use that on the intra-day market.
Q: What would create the business case for demand side management? Only that grid fees become more flexible?
A: Actually a few things. At the moment a household has a standard load profile that is the average of all private households. If you do anything at the household level it is not taken into account for balancing purposes. Even if I shift [my consumption], I still pay as if I had not. That needs to change. That is going to change. There is a smart meter roll out starting next year. It’s going to be pretty slow and it’s not completely clear when the balancing [procedure] will adapt but say from October. Then at least you have that first step.
I strongly believe we need flexible grid use fees because the grid is in the end the bottleneck and it’s weird that you don’t have any price signals on that
Second, if you look at the commercial part of it, on the energy exchange electricity costs about 3 €c/kWh but a private household pays 30 €c/kWh. The difference is mainly taxes and fees and grid use is one big part of it. The problem is that all of these charges are fixed. The only variable one is the 3 €c/kWh. You can optimise that 3 €c/kWh to 2.5 or even 2, but in the end for the consumer it’s only a difference between 29 and 30 €c/kWh. That’s why it’s so important that one of the other fees also becomes flexible. Grid usage is one of the main ones and also makes the most sense because sometimes there is a lack of capacity in the grid. Why shouldn’t you have price signals to avoid that?
Q: How is what you’re doing different to simply creating a virtual power plant?
A: In a virtual power plant most of the software is geared towards collecting electricity from rather big power plants and you sell it to the energy exchange. You can sell as much electricity as you want. You don’t have the hassle of dealing with individual consumers and their limited consumption. Handling that and the balancing group is one big difference.
The other is that we’ve put a lot of focus on automating everything to make it as low-cost as possible. In Germany you have 1.4 million smaller power producers – mainly rooftop solar – and we want to be able to connect them all. Most aggregators still focus on bigger installations.
Q: Supply needs to meet demand. Do you always succeed in balancing?
A: Of course not. That is the goal, but sometimes we lack electricity or more often we have too much electricity. What we do then is first we try to sell it to another community or region on the platform. If that fails, we go to the energy exchange. It’s kind of like an insurance policy for us.
Q: Why would producers and utilities come to you rather than simply using the grid?
A: For a producer, moving to what we call direct selling [rather than selling to the grid] means they can earn a little bit more. There are also more and more producers that no longer get a feed-in tariff so it’s an opportunity to sell their electricity. Finally, we see that they like the idea of knowing where the electricity they produce is going.
I believe that with all this modern IT all types of regional electricity market or peer-to-peer energy markets are the future
The utility does it because for them, especially a municipal utility, being local is their USP [Unique Selling Point]. Becoming the energy service provider and not just a simple utility, that’s how they differentiate themselves from any nationwide retailer.
Q: How does what you do fit with the work of distribution system operators (DSOs)?
A: From a regulatory point of view these are two different worlds. Where we come together is the balancing management part. There are a few initiatives that are looking to better connect the grid to the retail side. If we got signals from the grid that it is in a critical state, we could increase consumption or decrease production, but this is not allowed in Germany today.
Q: What regulatory changes are most important for you going forward?
A: I strongly believe we need flexible grid use fees because the grid is in the end the bottleneck and it’s weird that you don’t have any price signals on that. Unfortunately it’s not in the upcoming EEG [renewable energy] reform. Maybe it will be in the next one, which would be two years from now.
We could have a much more attractive offering for consumers then: if they react to what is happening on the grid, they get a bigger financial benefit. If there is a local component in the fee, then that might push the regional business case as well.
We also strongly believe that flexibility should be traded on the intraday market in future. The ancillary services market is heavily regulated with very high barriers to entry, which makes it very difficult if not impossible to use the flexibility you have in households or SMEs. We take the technical requirements for big power plants and we put them on households – that doesn’t make any sense.
More generally, I believe that with all this modern IT all types of regional electricity market or peer-to-peer energy markets are the future. I think we will have many more direct connections between producers and consumers of electricity.
Q: Germany has so many local producers. Why are grid fees not yet flexible?
A: Two reasons. First, people believe that energy should cost pretty much the same everywhere. Mainly big energy companies are still putting this forward because then they can build bigger grids and get lots of money for it. On the other hand, if you make it more flexible it’s more complex and there’s fear of complexity.
Q: Are there any changes coming up in the 2017 EEG [German renewable energy reform] that will benefit you?
A: Unfortunately not too many. But there is at least one. Now, if you own an apartment building with your own rooftop solar and you want to sell directly to your renters, you need to pay the full EEG fee for it. In future, there might be a reduction.
I don’t believe in the large scale. In the end it’s really a technological revolution: small power producers are as efficient as big power producers and that calls for a much more distributed, local market
The other one, which I guess is best for us, is recognition that the local or regional origin of electricity has a value and that it can help improve the acceptance for building additional renewables. We will have a certificates scheme with regional proof of origin in it. It doesn’t provide any financial benefit but at least it’s a first step.
Q: How does keeping things local fit with a more integrated, connected Europe?
A: I believe they can come together. The strange thing is that when most people talk about this internal European market they say we need to build a grid so it doesn’t matter where you produce the electricity, the cost should be exactly the same. This is saying ignore a big part of the costs because obviously it costs billions to build these grids. It would be pretty much the only industry where you wouldn’t include transport costs! If you do and it’s more efficient to produce in Spain and transport to Germany, fine.
But I don’t believe in the large scale. In the end it’s really a technological revolution: small power producers are as efficient as big power producers and that calls for a much more distributed, local market. Of course we should be able to trade energy inside Europe though. With modern technology there doesn’t have to be one central marketplace, but no region will be fully self-sufficient either. There will always be trading.
Q: What are you most excited about going forward?
A: We are very excited that in three years we’ve gone from nobody listening to us to peer-to-peer energy markets and regional markets becoming almost mainstream. I believe there will be a lot of innovation around it and this will put pressure on politicians to change the rules so we can do even more.
From a technical point of view, we are also looking at the advances of block chain technology. We don’t use it at the moment, but if it turns out that you can manage individual contracts more efficiently that might be something we also implement in a couple of years. It might become more efficient to have contracts directly between producers and consumers, though you would still need a platform on top that manages the balancing group and offers balancing services.
Q: Are you an energy company or an IT company?
A: We are a little bit of both but from where we actually want to be it’s much more an IT and services company than an energy company.
Lumenaza won the German Federal Ministry of Economic and Technology’s IKT innovation award “From the Smart Home to the Smart Grid” in August 2013. This is the most important award for start-ups in the ICT sector in Germany. They also won the Gold medal of the Ecosummit Award in 2016 as the most promising cleantech start-up. The jury consists of more than 60 international members of the European VC community.
Christian Chudoba will be a speaker at the InnoEnergy Business Booster event in Barcelona 23-24 November.
Math Geurts says
Management summary: the main advantage is avoiding payment of EEG surcharge.