Electricity: The Power Of Decentralization & Ownership

December 2nd, 2018 by The Beam

This article was published in The Beam #6 — Subscribe now for more on the topic.

Most people know Philipp Schröder for his previous role as Tesla’s Country Director for Germany and Austria. And it’s fair. Not everyone can say they got an email from Elon Musk’s office to be offered to lead Tesla’s market entry in Germany. Not everyone can say that they successfully exceeded the sales and revenue targets of one of the most disruptive automotive company in the world, either.

While this was certainly a major achievement, Philipp decided to come back to sonnen after two years, bringing with him some of the brightest minds he was working with at Tesla. While his interest for sustainability and renewable energy comes from way back, it might be in this position leading sonnen’s sales, marketing, and PR operations globally that his skills are contributing the most to driving the energy transition forward.

I sat with Philipp in the sonnen offices in Berlin and tried to understand where do the successes — his and sonnen’s — come from. Working hard, setting targets, standing up after a fail, and trying to think ahead of others seem to be good starting points. No secrets here.

Hello Philip, and thank you for your time today. Before getting into real talk, I was wondering what brought you to this industry? I have heard you decided to quit your studies to found your own renewable energy company when you were 24 years old. What was your motivation back then?

I was raised on an organic farm, at a time when organic farming was not very popular yet. I grew up in the early ’90s, and our farm was close to Gorleben, which is the nuclear waste disposal center for Germany. So I always had this big intrinsic motivation to prove that there is a way to be economically successful while doing something good for the environment.

If you lived on an organic farm and you were antinuclear in the ’90s, most people probably thought you were an idiot. Things have completely changed. The public perception has changed dramatically and renewables are somehow kind of sexy today. But it didn’t use to be like that.

Sustainable projects must be viable socially, economically and also ecologically, and if you lack one of these parameters, your business model will not work in the long run. I always liked that idea and I think I had enough anger and enough ambition to just start something. I must admit that I started with very little knowledge about the industry, and it didn’t work at first, but this was a very important first step.

You said that the public opinion has changed. Do you think this is global?

I think it depends on which socio-economic groups we’re talking about. In the highly educated urban societies like L.A., New York and Berlin, the eco-friendly sentiment and the sustainability movement are alive and even mainstream. That doesn’t mean that it is mainstream for the majority of people in Europe or in the U.S. There are also setbacks when it comes to the middle-class mainstream, but compared to the mid ’90s, when it was a niche movement, it has majorly grown and opinions have changed dramatically.

What did you learn from building your first company?

We now live in a time where being a founder and being an entrepreneur is very hyped. Everybody thinks it’s kind of sexy. But the first thing I learned building my own company is that it’s lot of hard work, and it’s not sexy. It might get sexy once you have a company that makes a hundred million in revenues and once people start to know you, but at the beginning, it’s simply really really hard work. That was my first lesson.

Another lesson I learned was not to view yourself too importantly. At the beginning, you always have a lot of dreams and naive ideas about who you want to be and how you’re going to do business, but you quickly learn that you’re much less important than what you thought, as a founder.

Last but not least, always remember that it’s good to make mistakes very early. At first, I was trying to prevent myself for making any mistakes, but that was not healthy, because instead of just admitting that something doesn’t work, you keep on doing it because you don’t have this process of admitting to the mistakes.

What did you take away from your experience as Country Director for Germany and Austria with Tesla?

I learned that it was okay to think big, and that you sometimes have to think big if you really want to change something. It’s really about where you set your targets, that’s what makes the difference between whether you become a niche middle size company that’s successful and profitable, or a company that really makes a difference in the world. Tesla taught me to think big, to execute and to work hard.

sonnen was ranked among the prestigious Boston MIT list of the 50 smartest companies worldwide in 2016. To what do you attribute the company’s success?

sonnen has a unique way of how it’s positioning itself in the market. If you look at the competitive landscape, and at most energy companies that do solar storage, they are only focusing on the hardware. They sell a hardware asset once, get a revenue for it, and have to sell it again over and over again. They never look at the potential that those hardware assets have once they’re installed.

I think sonnen is probably the only company that really worked on a model where the hardware sale is just the beginning of the relationship, and where the main business case is about how you orchestrate the asset afterwards.

We built a product that can empower the owners but also can unleash the potential of decentralized assets by centralizing them by a virtual power plant. That’s pretty unique.

This idea of empowering the owners — can you elaborate on that?

When sonnen was created, and before I left to Tesla, we talked about how to brand it. People who buy an expensive watch, for example, do it because of the perception. It’s about what we wear, what kind of laptop we use, what kind of watch we own. It’s easy to build your brand when the product is seen and defines you. But, you can’t see electricity. It’s the classic commodity. The question for us was: how can we make it sexy and how can we bring status symbol into electricity?

We’ve created a hardware product that is visible and that is reflecting the kind of lifestyle and choices that our customers want to make, and empowerment is the key. It’s about taking responsibility, about not being dependent on politics. We allow people to make their own choices, and to save money at the same time.

In the end, it’s about the people. The smartphone hasn’t been successful because governments wanted them to be successful, but because customers wanted the product. I think the community is a key aspect to bringing status and social context into our brand and it’s working, people like it.

Tell us about this community you’re building. And how do you think this will contribute to changing the future of energy?

It’s pretty easy. If you just think back to 1998, there was less than 1% renewables in Germany and were about 100 critical assets that generated all the power. Today, you have almost 40% renewables in Germany and they are contributed by 1.7 million assets and those assets are not owned by corporations, they are owned by private individuals. So the main difference is that the new power generation is decentralized and the ownership is not in the hands of corporate energy utilities anymore.

The real fundamental issue is that we’re getting away from corporate-owned few central assets to a decentralized privately owned sustainable energy system, and for that you need completely different answers. It’s much more about interconnection. At sonnen we don’t own a single one of our assets. Still, we enable them to become a utility themselves. And I think the paradigm is decentralization and ownership, it’s not the about the big utilities anymore. Anyone can produce electricity.

Do you think the old models, with traditional energy providers, are set to disappear?

They will disappear. The question is always what time frame and what region you’re looking at. If you look at Russia, I think it’s pretty safe to say that there will not be a lot of change happening in the next 10 years. If you look at countries like the Philippines or Australia, where solar is already the cheapest source of electricity, the change will be accelerated by capitalism. In 2016 and 2017 renewables capacities have been outpacing conventional capacities.

There are other markets like Germany, Australia, California, Hawaii, but also Italy and Spain, where, because of the high feed-in-tariff they used to pay, you already have critical mass now. Other markets are just pacing up but at a completely different volume. If you look at developing countries, they will be outpacing the European development and they need to because their population is growing, and they might not even build grids anymore.

So yes, at some point, maybe 100 years in the future, there is not going to be a single company that is building conventional plants, because it’s simply stupid. But if you look 10 years from now, there are still going to be many, but getting fewer.

Is your product adapted to these emerging markets you’re talking about?

One of the key aspects that makes sonnen unique is that we are prepared to go everywhere. We have certifications and product types for every market and can offer our platform on all infrastructure settings. You need to have a product portfolio that is individual enough to cater to all markets. If you just take the approach of having one size fits all, it might be too large for the Philippines and at the same time it can be too small for some consumers in the US.

How do you explain sonnen’s strong growth, despite being in competition with bigger players from the old models?

Everything that we’re seeing at the moment is that we’re in competition with various players in solar installations and storage; some from the hardware side, some from the energy utility side. But the real change will happen when the millions of assets that already exist fall out of the feed-in-tariff. Once this fades in the next two years, operators won’t make money anymore.

If look at the energy utilities, they don’t have their own installer partners all over the world, as we do. And if you compare us with hardware producers, they are not a utility, so they can not leverage the goods that they manufacture in a virtual power plant.

We don’t mind the competition because we are preparing something that needs to be ready in 2020. It will be very difficult for others to buy all the ingredients that are needed to be successful, such as a virtual power plant team, their own software, their own hardware, as well as installation channels and service channels in all key markets, all over the world, and we’re there already.

E.ON, for example, might be a competitor for us in Germany, but they are not global. And once we get over the peak out of the niche market, this is a global game and it will be played globally. You’ll need to have the key ingredients to be successful and you will not be successful if you just sell the hardware, or if you’re just a utility in Germany. You need to be playing in all relevant markets at the same time.

Can you talk to us about the sonnen charger and how it’ll change the game for eMobility and grid stabilization?

We interconnect storage and solar systems, so we have a production pool from the solar side and we have a storage pool from the storage side. Our first blockchain project with Tennet, a large transmission grid operator that manages the transmission lines from the German northern shores down to Bavaria, revealed one main issue: how to transport wind energy at times of too little or too much production. So we work with them on generating decentralized storage capacity.

The next step is quite simple: we’re just integrating cars. The sonnen charger can charge any electric vehicle, and once it is connected with the car, we can integrate the capacity into our virtual power plant.

If electric mobility comes through for the mass market, there are no grids in the world capable of taking those loads if they are not managed. Let’s take a distributed energy grid on the lowest level, for example a road here in Berlin. If you try to charge 10 Teslas at the same time at night, the transmission line will fail. With our charger, once you plug your Tesla in, you specify on the app what time you want to leave the day after, and we now have until that time to charge your vehicle. In the meantime, we can sell this capacity to the grid operators.

The second challenge we are trying to solve is that until now, none of the electric mobility companies had a solution for customers to actually get clean electricity. If you look at the Teslas driving in Northern America, 90% of them probably drive on classical conventional electricity, mainly coal. And I think everyone understands that it doesn’t make so much sense to go through the economic change process of going electric everywhere if we continue to get the electricity from coal power plants.

So once we have solved the grid challenge, how do we make it possible to have 100% renewables and power all mobility at the same time through it? Cars are part of the solution. If you take one million EVs and you connect them as a mega battery, you can manage volatility and add to residential storage without touching the grid.

The charger is a cool product for everyone who needs one, and it’s solving two of the largest issues we have today: one is simply to keep the grid stable within your neighborhood, and the second is, on the larger scale, if we need more renewables to power the additional electricity for electric vehicles, we need to have a mega battery. While we could build dozens of mega batteries, the smartest thing is to use the cars that are simply standing for 18 hours a day.

Customers that allow us to use their car, can get up to 8,000 kWatt hours for free. For an average German home, using 4,500 kWatt hours or even 5,000, it leaves up to 3,000 kWatt hours for driving, which is with a Tesla Model S an equivalent to 15 to 17,000 km for free. So what we like pitch aggressively in the market is the idea of riding on sunlight forever, for free.

The idea really is: if you help us to create a solution that can make mobility clean, and sustainable in terms of grid cost, in return you get free electricity.

How do you see blockchain helping the energy market to shift towards more renewables?

In the energy world, the most simple mechanism of blockchain will help a lot. If you take into consideration that we’re moving away from 200 assets for 80 million people producing towards two to three millions assets that need to be interconnected, you see that the amount of transactions is enormous.

And for that, blockchain is brilliant because it’s low cost and it’s safe. If you look at the non-blockchain way, you’ll need analog methods on how you document a transaction, how you build a customer, how you build the transmission line operator, how you build the asset owner, and that kind of communication. To do it at the moment without blockchain will require half a dozen billing systems, which would be very complex and cost so much money that it might make the business not viable.

We have an absolute non-hype application of blockchain, which is not related to cryptocurrencies. It is just about processing a lot of data and making it available to all the stakeholders in a very fast and secure way.

Where do you see sonnen in 10 years?

In 10 years, we’ll be in 2028, and almost half of all assets in Germany under the feed-in-tariff would have fallen out. That means that just in Germany there are 600 to 700 thousand assets that need to be integrated in a post feed-in-tariff environment which will need to have a marketplace and storage. Divide this by ten, that’s 60,000 units a year. We did 10,000 units last year, globally. So if you look at the potential in Germany, over the next ten years alone, that would mean that in average we would grow by 600% just in the German marketplace. If you break it further down, 600,000 assets will mean that we are supplying towards 2.4 million people. So in 10 years, I’m pretty sure sonnen will supply energy for millions and will be the largest asset operator when it comes to decentralized energy in Germany, but also across the world.

Interview by The Beam Editor-in-Chief Anne-Sophie Garrigou.

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