by Stephen Lacey
May 17, 2017

Stephen Lacey: This is the Interchange, a weekly conversation about the global energy transformation from Greentech Media. I'm GTM Editor-in-Chief Stephen Lacey in Boston with my co-host, GTM Research SVP Shayle Kann. Hello, Shayle.

Shayle Kann: Hey Stephen.

Stephen Lacey: Who are we talking to this week?

Shayle Kann: We are talking to Mateo Jaramillo, which is a name that is going to be familiar to anybody who runs in energy storage circles, perhaps not outside. Mateo spent a long time at Tesla and basically stood up Tesla's stationary energy storage group. And so, he was there before doing the stationary energy storage thing for them, he was directing their power train business development group, and even before that he was doing commercial behind-the-meter energy storage deployment in New York way back in, you know, a decade ago. So, he's an OG for energy storage.

Stephen Lacey: He is an OG. As he likes to say, he likes to be on the vanguard of industries, which is why he chose storage early on in his career, and which is why he's moving on to thinking about seasonal storage, which we'll talk about. We cover a lot of ground in this one; it's kind of a panoply of storage topics. We talk about his early industry experience, Mateo's time at Tesla, his thoughts on where the storage business models are headed, and this new passion for seasonal storage.

First, before that, the reading list. What kind of wonky material has got you turning the pages this week?

Shayle Kann: Well, this one I really like partially because it doesn't read as wonky as it kind of is. There's a paper that came out last week that was published by the SIPA Center on Global Energy Policy at Columbia University called, "Can Coal Make a Comeback?" It was written by Trevor Houser who's a partner at Rhodium Group, also the energy policy adviser to Hilary Clinton during the campaign, Jason Bordoff, who's the head of that Columbia Center on Global Energy Policy, and Peter Marsters, who also works at Rhodium Group.

First of all, it's a very readable document on the state of coal in the U.S. It just, it reads really cleanly, it's very clear, and the other thing that I like about it a lot is that it attempts, at least for the first time that I've seen, to quantify the impact of various factors on coal’s decline in the U.S. And so, the headline result is that they find that 49 percent of the cause for the decline in coal in the U.S. over the last few years has come from cheap natural gas pricing. 26 percent has come from just lower than expected demand for coal, that being both from the electricity sector in the U.S. and from exports primarily to China.

And then, renewable energy is about 18 percent, and finally environmental regulations were basically negligible. They estimate something like 3 percent of the cause of the coal decline at most would've been caused by environmental regulations. That kind of runs counter to, especially the rhetoric that you hear out of the Trump administration right now, which is that, you know, they're imagining that the regulations like the Matt's rule and clean power plan potentially have been the things that have killed coal. I think a lot of us in the cleantech industry have been sort of shouting, "No, it's mostly natural gas." And, this sort of backs that up quantitatively through a pretty interesting methodology.

Stephen Lacey: Yeah, we've been talking about this for a while and it's nice to have some numbers tied behind it. Speaking of numbers, Ben Geman at Axios, who writes the Axios Generate newsletter, wrote about coal jobs this morning, and Axios found the newest Labor Department data, and they showed that coal mining jobs dropped 8 percent in the first quarter of 2017, so coal jobs continue to decline. And, of course, if you pay attention to the news cycle, every single CEO in coal generation and utilities and in coal mining says, "We don't expect the jobs to come back." Really, these regulations will improve the bottom line of coal companies but not the jobs picture.

Shayle Kann: Yeah, that's the other thing I liked about this piece that SIPA published is it also tries to model out what a best- and worst-case scenario in the future might be for coal in the U.S., and they find that in the best-case scenario that they can model, they project a pretty modest recovery to 2013 levels of coal demand, which is a little under a billion tons a year, which really is quite a modest recovery and wouldn't bring back all of those jobs. And then, the worst-case scenario output would fall to about 600 million tons a year, so that's 40 percent lower than the best-case scenario. Basically, in any of those scenarios, they're estimating employment for coal mining being basically below anything that had been experienced before 2015, so you know, again -- the argument that coal jobs are just not coming back no matter what.

Stephen Lacey: Well, my reading list is a bit different. I've been doing some background reading this week on three very powerful women in energy that I'm going to soon have the privilege of interviewing on stage. Sunrun CEO Lynn Jurich, Solar Energy Industries Association CEO Abby Hopper, who just took over the reins there, and Green Mountain Power CEO Mary Powell. I'm going to be talking to Lynn and Abby on stage at our very own Solar Summit, which is coming up on May 16, and we're also going to have Lynn as a guest on this podcast from that event, so we've got some good material coming up.

I'm going to be talking to Mary Powell on stage at the Clean Energy Trust Challenge in Chicago next week, and assuming that audio turns out well, we will probably feature that on the show, so plenty of good material coming up with some of the smartest women in this industry.

Now, let's turn our attention to Mateo Jaramillo, the former VP of products and programs at Tesla Energy. We started this conversation off on a lighter note talking about his background in theology. Mateo has a master’s degree in theological studies from Yale and he explained what dedicating himself to that path taught him about how to carefully craft his career, which I liked, and after injecting a bit of humor, he turned it into a valuable piece of career advice, and then we just went from there.

Mateo Jaramillo: You might say, Stephen, that I've always focused on higher power systems.

Shayle Kann: There  -- oh, oh.

Mateo Jaramillo: Another bad one in that same vein would be to say that I've ignored “prophets” for a long time.

Stephen Lacey: That's a better one, actually; I like that one.

Mateo Jaramillo: Yeah, I do get asked about that a lot, and not just sort of as a joke for an introduction [for a] speaking engagement, but I found a lot of people are trying to figure out what to do with their careers, especially younger people. Maybe you've only got a couple of years under your belt, and so I've had a lot of conversations with people just over the course of doing what I do in the field that I'm in where people sort of [with] bewilderment ask me how I went from theology into energy, much less energy storage.

What I say is that the main skill that I picked up at divinity school studying theology was one of practiced discernment, so basically figuring out what I wanted to work on. What I say is that when I realized, you know, given the tools that I developed at Yale through the discernment process that the vocation of the ministry was not for me, I took those same skills and applied it to what I did want to work on. And I arrived at energy and renewable energy, and within that, storage, and it sounds a little bit wacky maybe, but I, before I was done with my master’s in theology, I knew I wanted to work on storage.

My undergraduate degree is in economics, a little more traditional, and specifically within economics, I focused on energy economics and environmental justice issues. So, when I…realized that I wasn't going to go into the ministry, I sort of reverted back to those roots and thought hard about what I wanted to do there, and this was in 2003, 2004, you know, First Wind was picking up some news and you started to see more solar deployments coming on-line and you could already start to track the cost declines there. And so I…made a sector bet, which was that renewable energy was ultimately going to succeed and that if it was going to succeed, then storage would…by necessity play a critical role in that as well.

I wanted to be at the vanguard of something, so I picked storage and I found two co-founders of a very small company in New York to hitch onto and sort of bluffed my way into the job and went from there, and that was 2004. Given my own career path, I do really encourage people to be very mindful about what they do want to work on, because you can't sort of fall in – generally speaking, it's a mistake to think you're going to fall into a career that you really enjoy, you have to be thoughtful about it and you have to spend time really thinking about it and you know to use that word discern what you want to work on.

I ran into Yet-Ming Chiang, founder of A123, maybe like a year and a half ago or something at a conference. He said, "Ah, Mateo, how's it going?" We just started chatting and somebody else came up and introduced himself and so the three of us are chatting, and Yet turned to this other guy and he said, "Do you know this guy, do you know Mateo?" He said, "I tell all my students about him, he has a degree in theology and now he works in batteries, I tell them you can do anything you want."

Stephen Lacey: If he can make it in the storage industry, you can do literally anything.

Mateo Jaramillo: Yeah, that's right.

Stephen Lacey: And, that company you referenced was Gaia Power Technologies, right? You were CEO over there for almost five years and they were doing behind-the-meter storage energy management as early as 2002?

Mateo Jaramillo: Yeah, 2003 really, 2003, 2004, the first projects that we did were done under basically projects through NYSERDA, so we got grants from NYSERDA to do behind-the-meter demand reduction. We had three stores, three Starbucks in Manhattan, the W Hotel, a couple other places, and we were using lead-acid batteries and Xantrex inverters and Fluke meters, and you know, it was all very kludgy and wires running all over the basement of Starbucks. But, it worked, and you know that was sort of the first indication that you could actually make batteries pencil in the real world, at least if you assume some reliability of the equipment, which we didn't have. So yeah, that's how it got started. A lot of credit to NYSERDA first for being forward-thinking and supporting those kinds of programs at the time.

We were also doing grid edge stuff, so we had a project with Delaware County Co-Op, which is an upstate county in New York, and that was using a Plug Power fuel cell combined with a battery system to improve grid edge…voltage and frequency issues that one of these small, rural communities was having.

Again, but for the reliability of the fuel cell, that project was at least pointed in the right direction.

Shayle Kann: To what do you ascribe the sort of slow growth of energy storage given that you were doing projects that with some NYSERDA funding penciled in, what did you say 2003, 2004? So we're like 14 years on and only in the past couple of years have you started to see the market really pick up, and even there, it's thanks to state-level incentives in other states. I mean, you know, you could, if you try to compare it to solar, you had a bunch of early deployments in 2005 onward in California thanks to the California Solar Initiative and then it really started to build momentum I think pretty quickly, and storage seems like it's taken a longer time to get there.

Mateo Jaramillo: No, I definitely agree, and I would say you can attribute that to a number of different factors but the primary among them [was] the state incentive program from NYSERDA…not enduring. It was a one-off project, it's not like there was a pot of money that anybody could go after like you had under the CSI program for solar in California. And two, it was a very narrow geographic spot where that worked, Zone J in Manhattan, and those are pretty unique businesses and pretty unique operating environments there. You can't just…take what you learn there and immediately extrapolate to a much broader swath of the country.

And then three, the equipment at the time took a lot longer to…advance. I mean, at the time we were using lead acid batteries and you know, these were…deep cycle batteries, but there was really very little thought given to…[the] complete balance of the system, and the company I was at at the time was trying to do that thing, but it was a pretty small company and you know, we were trying to mix it in with backup power provision to residences and, you know, it just, it was a very, very small niche market at the time and some of these broader structures that solar benefited from were never really put in place for storage. Primarily, I would say, perhaps with justification because regulators and other…incentive drafters realized that the technology was pretty immature still.

I mean, there were no purpose-built inverters for this, there were no purpose-built batteries for this, and the markets were just sort of waiting for cost to come down. At the time, lithium-ion was far, far too expensive to use, and I think that that particular path was not even really viable. Certainly, nobody considered that it would be where it is today. From a technology perspective, it just wasn't there.

Shayle Kann: So then, how'd you end up at Tesla as director of powertrain development, and was stationary storage always a part of the plan of that group?

Mateo Jaramillo: Yeah, so, first of all, the prior company I was at, Gaia Power Technologies, sort of foundered on the shores of 2007 and when the residential part of the business went away, then the commercial piece couldn't sort of sustain itself. […] I left the company, it sort of wound down, and I ended up just doing some consulting in the field, and one of the folks that I was sort of consulting at the time was a venture capitalist who…was part of DFJ and of course they were an early investor at Tesla. So, I was providing guidance on what energy storage was looking like as a market.

Of course, back then there was a lot of early enthusiasm for cleantech and for batteries in particular, and I generally was not optimistic about a lot of what you were seeing at the time. Finally this guy said, "Well, what should I be looking for?" And, I started to tick off all the things I thought you needed to be successful in energy storage, and he said, "Well, I don't know if they're interested but Tesla's got all that stuff -- you might want to talk to them." And so, he put me in touch with JB Straubel, who of course is the CTO, one of the co-founders, and JB has a passion for all things energy.

Almost immediately we started having great conversations about what you could do with batteries on the grid. He invited me out. I was…getting grilled about how I was going to be able to sell more batteries to Daimler, and I had to sort of stop the interview and say, "To be candid, I don't know anything about the automotive market." And JB sort of sheepishly said, "Oh yeah, I forgot to tell you, like, all that stuff we were talking about, we want to get there someday but in the meantime, you know, the real work is right now on the powertrain business development side of things."

I said, "OK, well, I can do that." So, that was how I came to Tesla, but yeah, as of day one when I got there, I started to think about how to build up the stationary storage effort. The thinking there is pretty simple and along the lines of what I had mentioned previously, which is if the company was going to be successful on the vehicle side then we knew sort of by definition we'd end up with a compelling battery from an energy-density standpoint, from a cost standpoint, from a longevity, performance, durability standpoint. […] So we started to lay the groundwork for that back in 2009.

Shayle Kann: Can I just ask about the limitations that you see in that line of thinking? […] I mean, thanks to Tesla largely I think, all of the major car companies that are developing electric vehicles are also sort of trying to spin off stationary storage businesses using their proprietary battery technology that they're using in their EVs. I just wonder whether that sort of dual-purpose usage for a technology that was designed for mobile energy storage, not for stationary storage in the first place, whether we're going to end up finding ourselves hitting some limit where, you know, we actually don't have the technology that's needed to serve all the purposes that energy storage can.

Mateo Jaramillo: Yeah, well, so the idea certainly from Tesla's perspective when we started the effort there was not to just take the vehicle battery per se and then slap it in a new enclosure and put it on the wall; it was to meaningfully adapt what was already there in the right ways for the grid markets. That's a number of different ways of course -- it's directly irrelevant for which part of the electronics you're using and also which enclosures and those kinds of things, mechanical systems, electrical systems, but also at the chemistry level as well.

This is public information, but you know the car uses an NCA formulation for the cathode in the battery, and on the grid side of things it's been an MNC formulation, so you know, you don't just sort of blindly take what has been used on the automotive side and use it. And, frankly, the term “lithium-ion” is probably too broad at this point. It doesn't really convey the differences in the formulations that are out there in the market today, and that was always certainly the approach within Tesla, and I assume that the other automotive companies understand that difference as well -- they should.

I would say that what is happening there is you're seeing an attempt to reuse as much investment as possible, but not also just doing a copy-paste and assuming that things will go well there.

Shayle Kann: I want to talk a bit about the business development around a certain technology, which of course for Tesla is lithium-ion. You said in that initial interview with JB Straubel that you guys talked a lot about stationary storage, and he said, "Well, that's a couple years off; let's worry about the electric vehicle power train." And even co-founder and former CEO Martin Eberhard talked about the Tesla energy group and identified early on the need to build a stationary storage business.

So, Tesla -- and you, before Tesla -- had been thinking about this business for a long time. How do you go from inception to executing on something like developing the products you did and building the Gigafactory? What can you tell us about how that came together underneath your group?

Mateo Jaramillo: First of all, none of that comes together if, of course Elon doesn't…set the tone for what he wants to happen at the company, which is meaningful, large-impact businesses. The conversation that JB and I had early on, again, assumed success on the vehicle side, and assuming success on the vehicle side, we had to prepare for success on the grid storage side of things as well. But, of course, at the time, 2009, nobody had ever breathed the word “gigafactory” quite yet, and so in that environment -- at the time Tesla was…a couple hundred people -- and obviously heads down on making sure that the Roadster was going to work right.

But the only way I know how to do it is step-by-step, and one of the ways that we got started within Tesla, and this was, we used to sort of conceive of the company as having a powertrain group or a powertrain division sort of informally anyway, and within there, which is where I was obviously focused. The way that we got started was similar to what I had done in New York, which was to use a grant. In this case, it was from the California Energy Commission also under the CSI program [and the]…Research Development and Deployment program. This was a program that we did jointly with Solar City (they were the prime, Tesla was the sub) and it was to take one of the smart batteries, these are the batteries that Tesla was producing at the time for Daimler in their smart program, and to modify it appropriately for grid usage and to deploy a number of those.

That was, you know, highly traceable, sequestered money that had to directly to fund people working only on this project, and that's how I was able to hire their first couple of engineers and not have to walk around with my hand out and ask the company for money at the time when, of course, it was extremely resource-scarce. So, that's how we got started. Once you get started, to start to figure out all the holes and all the paths you need to take, and that was very much, I'll call it a Powerwall-like product, it was a residential battery product. But, pretty early on, we also started to think about commercial and industrial products as well, and that's when we started our work simultaneously on the much larger systems, what eventually became the Powerpack 2. So, it's not like we didn't think about the entire market from the beginning, we absolutely did, we just had to start somewhere and that was easiest to start with the smaller residential prep.

Shayle Kann: And was full in-house product design and development always part of the plan?

Mateo Jaramillo: Yes, absolutely, at Tesla, of course. There's a strong preference for building everything here, and so that was certainly always the intention there.

Shayle Kann: You started with residential, which is an interesting one just in that…the economic case for residential storage is still probably the furthest off of all the market segments. In grid-scale storage, you've got regulatory issues, participation in wholesale markets and things like that that you mentioned, and there's obviously an economic question depending on what the use case is.

Commercial energy storage, you've got demand charges in various places that you can play with, and sometimes…value stacking using some kind of grid service, and then residential -- the business model in the U.S. at least just isn't quite there yet, because you don't have that much of an incentive. There aren't big differentials in time-of-use pricing; there isn't so much of an incentive to self-consume solar if you have that on your roof just yet.

I'm curious -- there's a bit of a debate I think that pertains mostly to the U.S. but to a lesser extent globally about residential energy storage [and] whether it really is supposed to be an economic value proposition for customers or whether it's supposed to be about reliability and resiliency, and it doesn't actually matter that much whether it's saving you money in the short term, which is a sort of distinction from how solar was built up as, you know, solar took off for residential when it was about savings not about being green or getting off the grid for that matter. So, I'm curious whether you think that energy storage is just a little more immature right now for residential and it heads in that same direction, eventually becomes all about the economics, or whether the value proposition will always be built around reliability.

Mateo Jaramillo: I'd like to quibble a little bit with your characterization there, Shayle because, clearly the early adopters were about being green and there is a segment of customers who are interested in solar because they highly dislike their utility. So, there are a bunch of different factors --

Shayle Kann: But that's not, I mean, that is not how the residential solar market has scaled. I'm sure that for everybody, almost everybody who's installing residential solar now, they still feel good. I mean, they probably wouldn't do it if it were like a diesel generator that were saving them money or something like that. […] The fact that it’s solar matters, but we have 1.3 million residential solar installations in the U.S. right now, and I would bet you that a million of those wouldn't have happened…if there weren't a strong economic value proposition for those customers.

Stephen Lacey: Yup, I think that's fair.

Mateo Jaramillo: And I would say that the same forces are at play for energy storage, but as to why we started there, I mean the only reason we started with the energy storage going into residential is because one, it was a simpler product to just get out there and be done with from an engineering standpoint. But also, because you can always find individuals who will want these kind of things and sort of be…the early adopters, and we needed adopters. It's a lot easier to find those folks, as you were mentioning, who they [have] disdain for the utility or just desire to have the newest, latest, greatest [technology], or…want to go green [and] will allow you to put new batteries into their homes.

Shayle Kann: One of the things that I'm interested to chat with you about is seasonal energy storage, because most of the time when we talk about energy storage right now, battery storage, we're talking about, you know, even when we say long-duration, we mean like 10 hours at the most, right, maybe we're talking about 6 hours. One of the conversations we had in a previous episode of this podcast with Jesse Jenkins was talking about what is going to be required for deep decarbonization, so when you get to really high levels of penetration of clean, renewable energy on the grid, one of the issues that you face down the line is that of seasonal differentials in production.

You have solar generating, for example, a lot more in the summer than it does in the winter, and you can't just solve that with 4-hour or 6-hour duration energy storage -- that doesn't [offset production] differences amongst seasons. And so, that's been a concern for people who are trying to model out these deep decarbonization scenarios because they have to make up for that lost generation in the winter in that case, and oftentimes that ends up being, you know, optimized for a gas turbine or something like that or even a baseload plant that might be coal with carbon capture.

So, the people who are proponents of a really high penetration renewables future always throw in some version of seasonal storage, but one, we don't really have a market for seasonal storage yet or an economic case for it, and two, I'm not clear on what technologies exist to provide that apart from…maybe pumped hydro or driving a rail car up a hill or something like that. Is that something that you've spent a lot of time on?

Mateo Jaramillo: Broadly speaking, yeah, I've started to spend a lot more time thinking about that. Even things like pumped hydro or pumped rocks or rail or whatever you want to call it doesn't fulfill the need that's there. […] When you're talking about seasonal shifting, you're talking about taking something in four months of the year and shifting it to the opposite four months of the year. Very few things are really capable of doing that today, and the seasonal storage that we have today is largely hydropower. It's the water in the reservoir, but it's also the snow, which is in the mountains…[and] melting over the course of summer.

That's really the seasonal storage that we have today, and you're right, there is nothing that's out there that really approximates the cost of it. Of course, the snow is free and the melting water’s free and everything else. So, you know, as far as being able to address those challenges, I definitely agree with what Jesse said -- there is a distinct need for flexible base (I think that is the term he used for these very deep renewable penetration scenarios).

How do you get that? You know, I think you need to sort of expand the aperture a bit and think about where all the embodied energy is. […] Think about where all the energy…is in the world and how it's used, and I think that those kinds of things start to become interesting as part of the solution. Not as a complete solution but, you know, something like 1 percent of the entire world's energy goes to production of ammonia. That's a lot of energy. OK, well, could that be harnessed in a certain way to make use of very deep penetration, renewable penetration scenarios?

Shayle Kann: Is that a version of demand flexibility as opposed to energy storage, in that you're talking about changing the volume of energy required to produce ammonia on a seasonal basis, which would then counteract the differential in renewable energy generation? Or is that actually using something like ammonia production as a means of energy storage?

Mateo Jaramillo: I think it could be both, but I think that those things need to be understood and mapped and, you know, our entire industrial society could be probably remapped along a lot of these lines. The way that we think about storage I think just needs to be expanded a bit, as opposed to, ‘There's a cell with a battery with the chemistry inside and your ion transport internally.’ In order to solve the challenges that we have, I think you've got to think creatively about all this stuff.

Stephen Lacey: What are some of the technologies, other technologies that are interesting to you? There's compressed air storage, there's power to gas, hydrogen production -- what are the sets of technologies that you think are available and worth pursuing?

Mateo Jaramillo: I think power to gas is pretty interesting, especially if you can get to something other than just hydrogen, but part of the challenge is scale here. I mean we're talking about, you know, hundreds of terawatt-hours, potentially, per year for any industrialized nation. Germany, France -- they both collectively produce about 550 or so terawatt-hours per year of overall generation, and as Shayle had mentioned the [difference between] summer solar production and winter is quite extreme. It's 6-to-1 in Germany, and so they sort of have the most exacerbated problem.

I would say that from an industrial standpoint that they've got to think very creatively about what all those solutions are. I don't have a perfect solution right now. It's part of why it's an interesting problem to think about, but…thinking about the energy flows in general and how you can affect those either from a demand side or from a sort of embodied energy standpoint is I think going to be a very interesting field, broadly speaking.

Shayle Kann: How do you think about? I know you spent a lot of time at Tesla, especially in the last couple of years, on policy and regulatory issues. As we think about things like seasonal energy storage, the other concern…that comes up for me is whether the market is designed to incentivize that even if it's something that we need. Say we just had a great seasonal energy storage technology today -- it's not clear to me that you could actually get that built in Germany, just because the market doesn't have a mechanism to provide, to yield value from that apart from just sort of waiting for wholesale prices to go up in the times when there's less generation from solar.

Mateo Jaramillo: Yeah, that's absolutely right, and anybody in the energy storage field should not be shy about engaging in policy, that's for sure. It can't be an area that you don't want to do. I think that it's sort of a given that you're going to have to go into the markets where this makes sense and get the regulation put in place that supports the approach overall. You know, carbon pricing is maybe the thing that we're never going to get, but that would be…the most obvious way to deal with a lot of this stuff.

But, you're absolutely right, you're going to have to make sure that the structures are in place and then get the market redesigned, you know, in the European project sense of it at least is how they're thinking about it today. The EU will take their time in getting something implemented, but they are thinking about what it means to be the energy union and how they can meet their stated goals of the commission for decarbonization, and even within the member states, how each member state is thinking about it. We hear a lot about retirement of coal in the U.K. for example. That probably means that they're moving over to natural gas, and that gets you maybe halfway there to the goal of a decarbonized grid, but it doesn't get you all the way there.

Stephen Lacey: You talked in the beginning about being discerning in your career choices, so this is clearly a very specific choice that you've made to focus on long-duration storage. Why move from Tesla and a focus on lithium-ion into something like long-duration storage that is still so nascent and in many cases unproven? What is the need that you're -- I think you actually clearly defined the need -- but what is it about the potential for deployment that has you so interested?

Mateo Jaramillo: Well, I think…your question sort of answers itself, which is that it is nascent. There aren't a ton of people thinking about it right now, and the markets really aren't well defined for it. Tesla's going to go do great and awesome stuff, with lithium-ion and the…related markets between the vehicles and that particular battery chemistry and that approach, and it's great. I have nothing but phenomenal memories of course of my time and my colleagues at Tesla, and I'm obviously still a huge fun.

It's just that for me personally, I wanted to go work on different thing, and to tell you the truth, when I left, I didn't know that that was what I wanted to work on. In fact, I sort of really considered other options…in the field of energy -- you know, agriculture, water, different things, and I found that maybe I've just been in storage too long. But I really couldn't put it down, and so I started to think…[about] what the frontiers are for storage. I think the competition of lithium-ion is going to be intense, and…those markets are, I would say, pretty well characterized and understood -- it's a question of scale and cost at this point.

But there are markets that lithium-ion's just not going to be able to compete in, and that's where I started to take a look, and that's how I started to think about this other market. […] I do want to…almost always be working on the vanguard, you know, in a nascent market, and be the one who’s in there early and really pushing the market to what it could be.

Stephen Lacey: I was really struck by something that you said in your conversation last December with Shayle on stage when you guys talked about what storage is going to look like in 2030. This was at our Storage Summit out in California, and you implied that 2030 really isn't that far off -- that's three or four utility rate cases away. The technologies that are being developed today and business models that are being developed today are very relevant when we think about how vendors, technology providers, service providers will work with utilities in the future. Can you just elaborate on that a little bit more? I was just really struck by those comments that…thinking about 2030 is actually kind of a short timeframe in your view.

Mateo Jaramillo: For a technology company or for an entrepreneur, 2030 feels like it might as well be never. But given these markets, where you have utilities that think in rate-case cycles, it’s important…to put that in their perspective, which is that it does feel like it's almost here. That was really sort of how I think about that issue. There is going to be an impedance mismatch there between markets and the way that they move, especially this market and the way that it moves -- heavily regulated -- versus the technology providers.

You sort of have to trick yourself into, at least I do, operating at that cadence to talk about things in the right way, to sort of set up the entire problem of it. I do think that the storage technology vendors that are out there today do need to be working with utilities on their horizon right now and working with the existing solution set that's in hand, but as much as possible sort of figuring out what comes right behind that.

Stephen Lacey: I can imagine a lot of vendors out there, some of the startups in the storage business rolling their eyes and saying, "2030, God, I'm trying to sell a few systems now." Is that statement, that belief, sort of a luxury of being at Tesla where you have Elon and therefore you and your team members thinking about multi-decade timescales? Because that's what's unique about Tesla. So is that a product of working in that environment?

Mateo Jaramillo: I'm sure to some extent, and certainly being in a place like Tesla is a huge luxury for lots of different reasons, but also for the reason you mentioned, Stephen, so I can't disagree with that. On the other hand, you know, the entire industry has to think in those terms, and you look at the leaders in it and they're doing just that, right?

AES is, of course, thinking along those timescales and all of the other major vendors are also thinking about that timescale. I think if you're a startup, of course, you don't have that luxury, you're right. And in that case, that can't be your focus. Your focus has to be getting into the market in a different way, but it means that the industry overall does need to be engaged at that level, and I think that there's some…trade groups doing a much better job of that today or in the recent period than they certainly were going back five, 10 years.

I mean, that was a generation ago, but yeah, it just means that overall as the industry evolves, it also needs to be thinking coherently about that timescale.

Shayle Kann: You talked a fair bit about utilities and how utilities think about this, and obviously, they're a central player in decision-making on the grid and the operation of the grid. But there is still this question that keeps popping up in regulatory venues more than anywhere else of whether utilities are meant to be the ones that own and operate these assets. And assets in this case could be broad -- it could include generation, but it's also true of energy storage. In some cases, utilities are owning and rate-basing energy storage assets somewhere on the distribution grid, and there are other cases where a third party will do it and the utilities send either price signals or actual market signals saying, "OK, I need you to do this if there's a contract in place."

I'm curious how you think about. Which of those models -- utility ownership or utility…signal-sending -- makes more sense in the long term, or whether it's case by case based on some other factor.

Mateo Jaramillo: If we're talking about the United States, there certainly has to be a state-by-state consideration, just because the regulatory environments can be so different. I think you'll sort of see that…continue to evolve, but certainly I think that storage will become more and more just part of the infrastructure of the utility and what it owns and rate-bases. […] Almost no matter what happens on the retail side of things, storage can be a cost-effective alternative, non-wires alternative, to the transmission distribution network. And, broadly speaking, that's where it's happening right now. You're seeing energy storage compete in the power markets -- not the energy markets, but certainly the power markets (and power markets, keep in mind, include 4-hour capacity, so we can have that…be a part of that consideration for the utilities).

But they'll start to see that there is that value there, and it's quickly deployed and provides more and more functionality to the grid overall, but in the areas where, let's say, you do have a deregulated market and you want to be able to capture more value, then of course you've got to be able to ensure that that value can be accessed…through bilateral agreements for…participation in the wholesale markets by some third party utilizing that asset.

Those kinds of things do need to be worked out -- the multi-use sort of regulatory structures to enable the assets to be fully compensated for what they have. I think you'll see that…emerge in all the different ways that our states are idiosyncratic when it comes to the energy markets overall.

Shayle Kann: We've talked a couple times about participation in the wholesale markets, and obviously, there was this really exciting glimmer of hope late last year when the Federal Energy Regulatory Commission, which regulates all the wholesale market operators in the U.S., issues this [Notice of Proposed Rulemaking], which …was basically set up to make all the ISOs and RTOs figure out the rules to explicitly allow energy storage to participate. [This] is something that hasn't happened in the past and has been a limitation for deployment of grid-scale energy storage in particular in a good swath of the country.

Now we have some new FERC commissioners, and it's not entirely clear where that's heading. Can you sort of divine where you think we're going in terms of wholesale market participation for energy storage, given the new makeup of FERC and just what the rules need to be in order for energy storage to play?

Mateo Jaramillo: Yeah, I certainly cannot divine what's going to happen on the political side of things, so what's happening at the FERC is just going to play out, but what you're seeing is plenty of pressure, and maybe more can be brought to bear. But nonetheless, there’s a a pretty good effort at the individual ISOs themselves by the various storage industry stakeholders to get clarification on rules and to push for market design change where appropriate.

You know, there are ongoing proceedings for storage at, I'm pretty sure, all of the RTOs right now, and you know you're getting direct interaction there, so, while of course FERC following through on the NOPR would be fantastic and issuing very clear guidance around that, but I don't think anybody’s sitting on their hands waiting for it. There's some strong advocacy that's happening right now, which is needed no matter what. Even if the FERC did come out with those clear rules, you’ve still got to be engaged and you’ve still got to make sure that the final market design is truly reflective of what's needed for storage.

Stephen Lacey: I'm really keen on hearing your thoughts about technology evolution, particularly in lithium-ion. Tesla in January announced that it had developed the 2170 form factor cell, which is 21 millimeters by 70 millimeters. Musk has said it is the cheapest cell around the world and has the highest energy density. Improvements across the industry have been fairly astonishing and have beat a lot of analyst expectations over the years. What do you see as the most compelling technology advances in lithium-ion right now, and do you have a sense of where costs are headed?

Mateo Jaramillo: I think from a grid perspective, certainly, yes, it's very important what the cell costs and what you're getting at that level, and there's been huge improvements there, faster than anybody anticipated even going back one or two years. I think that there's still some good runway there -- we continue to see pretty steady improvements, 3 percent to 5 percent per year, somewhere in that range, across all the figures of merit as measured at the cell level. That's for cost but also energy density and energy retention over life and those kinds of things, and that should continue. Getting a silicon anode is one of the next great things that is expected to come down the pipe.

But when you're thinking about it from a grid perspective, of course you have to consider the complete balance of system, and today with as much as costs have come down, you're still seeing at least about two-thirds of the cost for a grid-connected system be in the non-cell costs. That's your balance of plan, that's your interconnection cost, that's your installation cost, shipping, logistics, and so all of that needs to really come down, and there's a huge opportunity there. I think we're already starting to see some compression, for example, on para-electronics and integrated system design.

But, you know, you could get at least as big a lift by paying attention to the non-cell cost as you can get just by paying attention to the cells.

Stephen Lacey: And in fact, I think that’s under-recognized in general. We face this battle a lot when we show system price forecasts for energy storage and they're declining, but they're not declining that fast, and people say, "But the cost of batteries is falling so rapidly." Indeed it is, but the problem is that the balance-of-system costs actually haven't been falling nearly at that same rate, so you do need innovations across all that other stuff in order to get system costs for energy storage down to the levels that everybody wants them to be at. When we hear these really earth-shattering numbers, we're mostly referring to the cost of the cell or the battery pack at the most and not the system.

Mateo Jaramillo: Yeah, and you see a fair amount of work done to try and estimate where the floor really is on the cells. I haven't seen any work done or published out there for public consumption that tries to do the same for the non-cell costs. What does the metal cost; what are do the basic input costs for the complete balance of system? I think that that's at least as important and interesting for the industry as the cell stuff is.

Stephen Lacey: I want to revisit one other thing that you said during your conversation with Shayle on stage at our Storage Summit. You said that the important thing to keep in mind is that storage will participate no matter what the structure of the market is, and no matter what path to regulation we take -- you can come up with some sort of solution that is going to allow us to integrate energy storage. Can you elaborate on that a little bit more? Are you talking about that sort of wide-open market as a function of costs coming down? Is it just because storage is so diverse in terms of the applications it can fulfill? Help me understand what you meant by that.

Mateo Jaramillo: That's essentially it -- storage is such a flexible asset that there's almost no way to prevent it from participating in the market at this point unless you specifically called it out in some regulation. But storage, as I've said in the past, is in many ways a Rorschach test for people on the grid. They see in it what they want to see -- it looks like buyers or it looks like demand or it looks like generation or, you know, sort of whoever is in the position viewing that asset, it can be whatever they want it to be and sort of reflects the values of the people that are looking at it.

In that context -- again, because it is a load or it's generation and it's flexible in so many different ways -- it's just a phenomenal resource that…definitely is not fully valued on the grid today, but nonetheless you can still start to access a lot of value. As I mentioned, most of that value today is in the power markets, unless you're talking about things like islands where it does compete with solar for energy, but broadly speaking in the power markets, in the infrastructure markets, that's where it's competitive today and getting increasingly so.

Stephen Lacey: I like the “energy storage as a Rorschach test” metaphor, just because there's so many [applications] for energy storage. […] Energy storage is the Swiss army knife of the grid; it's the holy grail for the grid.

Shayle Kann: As Katherine Hamilton…says, "It's the bacon of the electric grid."

Stephen Lacey: Bacon, right.

Shayle Kann: It makes everything better.

Stephen Lacey: Right, right, but I like Rorschach, that's a good one.

Shayle Kann: Yeah, me too. Are there any underserved markets or…aside from seasonal storage that we talked about, are there any other sort of shorter-duration markets that are underserved, maybe co-location with renewables or [other] markets and applications that are interesting to you?

Mateo Jaramillo: I would say that the co-location with renewables is not where people maybe thought it would be even a couple of years ago, and I think that's because, one, there's no pressure to get that done, you can sort of do it offsite and the markets…don't penalize…the renewable generators.

Shayle Kann: Well, the ITC and the PTC -- that's your reason to co-locate right now.

Mateo Jaramillo: Yeah, so that would be the main driver, but even still, coming up with the cost proposition for that co-location specifically is -- it's not obvious, I would say. In the future, you may see regulatory commissions…require…fully firmed renewables, but we're not seeing anything like that today. Maybe the forecast errors are now being required to be at lower levels and there are penalties in some jurisdictions if you're outside of that, so you can start to see what direction that might [go], but it's definitely not like every single solar site has batteries affixed to it.

Now, I think in the commercial space that may change faster than in…the wholesale space, where you would have a combination of solar producing the energy and then batteries managing demand and making that pencil out for the consumer in a very transparent way.

Stephen Lacey: I was at this utility conference last week and talked to a bunch of utility procurement folks about how they're thinking about renewables and energy storage as well, and I think what you're going to start to see happen is we'll get a few announcements -- there's been one or two already; there will be a couple more coming up -- of surprisingly cheap solar-plus-storage PPAs the utilities are signing. That is going to wake up a bunch of other utilities to the fact that they could either mandate firm renewables in their procurement, or if not mandate it, then at least offer some icing on the cake, some added benefit. I think you're going to start to see a lot more of the utility RFPs that go out for renewables saying, "Either this has to come with storage, it has to be firm, or…if you can deliver during these times of day or deliver with this reliability during these times, we'll give you a premium." Or something like that, and I think that's what's going to jumpstart co-location a little bit more.

Mateo Jaramillo: I'm going back…to the question of market design broadly speaking. To the degree that the notion of capacity is…more robustly considered for where the value needs to be, then you definitely would see more storage co-located with renewables, I'd say.

Stephen Lacey: I want to get one other thing out of the way that I know some people were curious about. You spent eight years at Tesla running a major division. In terms of stress level, I think that's probably like being president of the United States for two terms right, at Tesla?

Mateo Jaramillo: I would not say that.

Stephen Lacey: Well, you know --

Shayle Kann: How much golf did you do?

Stephen Lacey: Yeah, right, as long as you were playing golf once a week. Inevitably, when someone of your stature leaves a company like Tesla during a time of transition -- Tesla bought SolarCity and people speculate about what's going on in the company -- you did make it pretty clear that it was just kind of time to take a breather and make a conscious decision about the next piece of your career, right? It wasn't anything specific to Tesla. Is there anything you want to say about that transition?

Mateo Jaramillo: Tesla was an exciting place to be. The entire time I was there was fantastic. And, you know, everybody there -- everybody who lasts, anyway -- is sort of an endurance athlete, right? You operate at a pretty high level for a long time and you don't really think about it too much. At the same time, I've got three young children, two of whom were born while I was at Tesla, and, you know, it's unavoidable to think about that part of it, of course, and I did want to take some personal time, and I definitely did that, so that was nice. But it's not like I was burned out per se; I mean, I love thinking about these issues; the only thing I want to work on is energy, broadly speaking, and you know, apparently storage is it for me. I always was energized; it's not like the place ground me down to a nub or anything like that. It just was personally time for me to move on.

Stephen Lacey: You've still got storage on the brain in a big way.

Mateo Jaramillo: I can't seem not to, Stephen.

Stephen Lacey: Mateo Jaramillo, this was a real pleasure, thanks so much for joining us. We learned a lot.

Mateo Jaramillo: My pleasure, Stephen. Thanks to you and Shayle for having me.

Stephen Lacey: Well, that's going to do it for this week’s Interchange. Thanks to AES Energy Storage for their partnership on our public launch. Visit them at aesenergystorage.com/interchange. If you liked this show, find us on iTunes and give us a rating and review, pass along a recommendation to a friend while you're at it, and shout out to me and Shayle on Twitter for story ideas.

If you're listening to this on the Energy Gang feed, we'll be back with a normal episode next week. We'll catch you then. I'm Stephen Lacey with Shayle Kann and this is the Interchange, conversations on the global energy transformation.