The commercial battery comeback

Commercial and industrial (C&I) battery storage has long been the missing middle of the energy storage market. It’s been too complex and expensive to scale like residential systems, but too small to compete with utility-scale projects. That may finally be changing. In this episode, Shayle sits down with Tim Hade, senior vice president at Voltus and founder of Brightfield Infrastructure, to discuss why C&I storage has historically struggled, why the economics are shifting dramatically, and why the next wave of distributed energy could be driven by commercial customers rather than utilities. They explore the four revenue streams that are making batteries more valuable, from demand charge management to emerging capacity markets, and examine how declining hardware costs, stable federal tax incentives, and AI-powered automation are reshaping project economics. Tim also explains how aggregating thousands of commercial batteries into virtual power plants could help hyperscalers bring new data centers online faster while easing pressure on an increasingly constrained electric grid. Shayle and Tim discuss: - Why commercial battery storage lagged behind residential and utility-scale markets - The four revenue streams driving today's C&I storage economics - How rising electricity prices and capacity shortages are changing customer demand - Why battery hardware costs have fallen by roughly one-third in 18 months - How AI could reduce project transaction costs by as much as 90% - The opportunity — and challenge — of aggregating thousands of distributed batteries into virtual power plants - Why data center growth and "bring your own capacity" programs could accelerate C&I storage adoption - Tim's outlook for the fastest-growing segment of the battery storage marketResources Latitude: Voltus is acquiring energy storage startup Brightfield AI Latitude: Google is Voltus' first Bring Your Own Capacity Latitude: Can VPPs unlock grid capacity for data centers? Catalyst: Battery booms and the rise of flexibility Latitude: The Off-Grid Data Center Fantasy Credits: Hosted by Shayle Kann. Produced and edited by Max Savage Levenson. Original music and engineering by Sean Marquand. Stephen Lacey is our executive editor. This episode of Catalyst is brought to you by ENGIE, the smarter energy supplier. ENGIE doesn't just provide the power to run your business — they supply the energy to move it forward, with reliable, flexible solutions built for what's next. Learn more at engieresources.com. Catalyst is brought to you by EnergyHub. Peak season puts every grid to the test — and the utilities that pass are the ones that built flexible capacity before they needed it. EnergyHub works with more than 170 utilities to coordinate 2.5 million devices and 3.4 gigawatts of dispatchable flexibility through a single platform designed to perform when it counts most. See what that looks like at EnergyHub.com. Catalyst is brought to you by Bloom Energy. Bloom Energy fuel cells deliver affordable, ultra-reliable onsite power for hospitals, utilities, and data centers – at speed and at scale. Learn more by visiting BloomEnergy.com.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Speaker 00

  Latitude Media, covering the new frontiers of the energy transition.

• 0:07Shayle Kann?

  I'm Shayle Khan. I invest in early-stage companies at Energy Impact Partners. Welcome to Catalyst. Okay, quick history lesson that will be relevant to the discussion you're about to hear. This is about how the solar market developed in the US. Long, long ago, before the market really inflected, I'm talking maybe mid 2000s, the bulk of the US solar market was commercial and industrial scale, CNI. Hundreds of kilowatts apiece, maybe a megawatt or two. In fact, the first big acquisition in the space came in 2007, when SunPower bought a company called Powerlight, which was a developer of those commercial and industrial projects for $330 million. Side note, the president of Powerlight was Dan Sugar, who is now the CEO of NextTracker, but that's another story.

• 0:52Shayle Kann?

  So anyway, CNI was winning the solar market, and then it lost. And over the next 20 years, residential solar scaled and utility-scale solar scaled, and CNI just didn't. There are a variety of reasons for this, some of which we will get into in a bit, but it is stark. And it's relevant because the same thing has so far been happening in the energy storage world. Residential batteries have taken off, grid-scale batteries have taken off, and CNI has basically been left in the dust. But is a repeat of solar's experience inevitable in batteries? I actually do not think that it is, and neither does my guest today. Tim Hade was the co-founder and CEO of Brightfield Infrastructure, which was built to buck this trend.

• 1:36Shayle Kann?

  I say "was" because his company was acquired less than a year after founding by Voltus, where he is now, still fighting the good CNI storage fight. For disclosure, we at EIP co-led the seed round in Brightfield, so I'm an erstwhile investor in Tim's company. Anyway, what would it take for CNI storage to finally see daylight? That's coming up next.

• 2:04Speaker 00

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• 2:47Speaker 00

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• 3:01Speaker 02

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• 3:37Shayle Kann?

  Tim, welcome.

• 3:38Speaker 03

  Thanks for having me, buddy. Happy to be here.

• 3:40Shayle Kann?

  CNI storage.

• 3:43Shayle Kann?

  Start by telling me why it has sucked historically. Like, what's your diagnosis of the historical problem?

• 3:49Speaker 03

  Yeah, man, so, so look, I think, to start off with, right? I think it's important to keep in context that, like, batteries in general on the grid are a pretty new thing. And so, if you think about pre-2020, I think going into 2020, there was less than 2 gigawatts of total storage on the US grid. As of 2025, that number is like 40 gigawatts. And so, all of the growth in storage has happened over the last five years, so this is a nascent thing that we're dealing with in real time. Of that, you know, roughly 40 gigawatts of storage that's been added to the grid over the last five years, something like 90% of it is utility-scale and 10% is residential.

• 4:30Speaker 03

  And if you add 90 and 10, that gets to 100, which means that basically nothing is CNI. So look, I think, you know, the argument for utility-scale storage is pretty easy to make and pretty easy to explain, which is, utility-scale storage on a per-kilowatt-hour basis is cheaper than CNI storage and cheaper than resi storage. I think one of the really interesting things is why resi is 10% of that and CNI is zero. And I think that has to do with the fact that a lot of resi storage is in a purely economic decision. And so, you know, generally speaking, in the CNI space, the driver of customer adoption is economics. And I don't think the value proposition for CNI storage

• 5:14Speaker 03

  has historically been attractive enough to most customers to sort of take that leap. But, you know, I think what we're going to talk about is a lot has changed over the last 18 months, and I think we're now in a different place than we've ever been, and I'm pretty bullish on the future of the asset class.

• 5:29Shayle Kann?

  Yeah, okay, so the core of your diagnosis, which I generally agree with, is that the economics just haven't been there. And as you said, there is a residential storage market, but it's like equal parts or maybe greater part resiliency-driven historically than economically-driven. Like, that's changing a little bit now, but, but again, as you said, it's a new thing. We should acknowledge the pioneers of the CNI storage world that, like, you know, pushed hard at it like a decade ago, right? And they were trying to make an economic value proposition there, which was, you know, these were companies like STEM in the early days, and Green Charge, and AMS, and things like that. And, you know, mostly what they were going after was CNI demand charge management. Like, that was the main thing. It was like, if you were in a state

• 6:13Shayle Kann?

  where your electricity bill for a commercial customer is driven in significant part by a demand charge, you could use a battery to peak shave, basically, and reduce that demand charge. And like, the numbers sometimes came close to penciling, but it wasn't a no-brainer customer value proposition. Or like, the savings weren't big enough that it created huge adoption. But there, but, you know, it's not the first attempt now to say like, hey, there's an economic case for CNI storage.

• 6:41Speaker 03

  No, for sure, right? And I think, you know, if we, if we think about, again, some of those early pioneers, right? I continue to marvel at the fact that they got as much done as they got done, right?

• 6:54Shayle Kann?

  100%.

• 6:54Speaker 03

  But, but, but, but look, I think, you know, the reality is, you know, when, you know, those folks were kind of doing this in the, you know, 2015 to 2020 timeframe,

• 7:06Speaker 03

  the economic value proposition for CNI storage was essentially an edge case, right? And so, where you saw most of that development happen was in states that had pretty heavy state-level subsidies to incentivize the deployment of storage. You know, California being sort of the leader of that effort. And then you also saw, you know, sort of specific situations like the Load Control Response Program and SCE that was, you know, a derivative of the Eliso Canyon gas leak. And then, you know, SCE had to figure out a way to kind of get a bunch of storage on the grid really quickly, and there were some big projects like that. But for the average CNI customer, the economic value proposition just didn't make sense.

• 7:50Speaker 03

  It wasn't that you couldn't have an NPV-positive project. I think in most cases, it was just like, the juice wasn't worth the squeeze, right? It was, you know, complicated to acquire storage and think about how it worked and figure out how to, you know, operate it and all that kind of stuff. And, you know, the bottom-line savings on the utility bill weren't compelling enough to push most people over that hurdle. But I think we're in a different world now, you know, 10 years later than we were. And now I think the economic case for CNI storage is a lot more attractive in a much bigger area of the country.

• 8:21Shayle Kann?

  I want to get into the economic case in detail. Before we do, though, what do you think? Do you have like a heuristic for what a CNI, or, you know, a representative CNI customer, they're not monolithic, obviously, there are many different kinds, but what do they need to see in terms of economics? Is there like a percent of bill savings? Is there an IRR calculation? Like, what is the metric we should be thinking about where we say, like, we cross some threshold and the economics do, quote, pencil for them?

• 8:50Speaker 03

  Yeah, so look, I, I, I think, before I answer your heuristics question, right? I think that, you know, I think about this, generally speaking, in terms of, you know, everything that, you know, all CNI customers do is they do cost-benefit analysis. And I think, you know, a huge part of this is the time commitment that's required on the part of the customer to make these projects happen. And so, one of the things I do think our industry has done a really, really good job over, over the last decade is figuring out how to sort of simplify the customer acquisition process, right? Like, the contracts are simpler, they're clearer, the economics are, you know, more transparent to the end-use customer.

• 9:32Speaker 03

  Financing these types of projects has gone from, you know, kind of a one-off, right? On a, from a project finance standpoint, to more of a standard offering. So I think the time commitment for CNI customers to actually acquire a storage asset today is materially different than it was, you know, even five years ago. And that makes a big difference, right? Like, storage is never gonna save your business, right? It's not gonna be something that, like, hey, I had a bad business on Tuesday, and then I put a battery- And then on Thursday, like my business was booming. That's not really the case. And I think most CNI customers are focused on, you know, their core business. Um, and so, you know, a- adding storage has to be simple for the CNI customer to acquire. And I think we're doing a much better job of that as an industry today than we were five years ago.

• 10:17Speaker 03

  But look, I think from a heuristic standpoint, like generally speaking, I like to think about it as if you can reduce the customer's net electricity spend by 5%, it's worth having a conversation. If you can exceed 10%, you probably have a really, really good project and, and people are really interested. And, you know, I think that's, you know, as we've seen electric rates, you know, go up in different areas of the country over the past two years. I think a lot of folks in the CNI world have stopped thinking about that economic benefit as a vitamin and have started thinking about it as a painkiller. And so there's more of a sense of urgency on the customer's, you know, front as well. And so, yeah, I think the combination of sort of those macroeconomic factors have kind of, you know, coalesced

• 11:00Speaker 03

  around, you know, a TAM that's pretty big at this point of, you know, CNI customers who could really benefit from storage. And we can hit that minimum, you know, return hurdle.

• 11:10Shayle Kann?

  Okay. So let's talk about the unit economics now, because your, your hypothesis and mine as well is that like, that is what's changed. And now actually you can make this pencil in a way that is exciting for CNI customers and hopefully at scale pretty quickly. There's the revenue side and there's the cost side. So let's talk about the revenue side first and then we'll talk about the cost side. On the revenue side, I assume every listener to this podcast already understands that electricity rates have been rising. Now they've been rising at different paces in different parts of the country. I live in California. It's been a ludicrous increase in California. Other places haven't seen the same thing quite as quickly, but it's coming. But rising rates do not inherent, like those, rising rates are inherently beneficial to behind the meter generation.

• 11:56Shayle Kann?

  They're not inherently beneficial to storage, right? You could have rising rates and then no better economic value proposition for storage. It's a function of how those rates are structured. So can you go like one level deeper? What is it that has changed on the revenue side? That allows you to just generate more revenue from a storage asset that sits at the customer site?

• 12:15Speaker 03

  Yeah. So, you know, generally speaking, I think if you think about the distributed storage value stack on the revenue side, there's really four components to it, right? There's time of use arbitrage, right? Which is just energy arbitrage in areas of the country where time of use rates are in effect, which again has, you know, changed a lot over the last decade, right? That wasn't really a thing 10 years ago, and now it's a thing in a lot of utility areas. You can essentially buy power when it's cheap, store it, dispatch when it's as expensive. And that arbitrage generates more value today than it historically has as time of use rates have come online. So time of use arbitrage is the first sort of, you know, stat, you know, component of the stack. The second is demand charge management, right?

• 12:58Speaker 03

  And I think generally speaking, you know, we like to talk about the fact that electricity bills have gone up a lot, you know, retail rates have gone up a lot. But the demand charge component of a lot of people's electricity bills has outpaced energy. Um, and so the ability to do demand charge management has become more valuable over the last decade. Then there's ancillary services. So things like, uh, you know, frequency response, frequency regulation, things like that. That has traditionally been a driver of a lot of CNI storage projects. That varies a lot, uh, you know, depending on what region of the country you're in and what program you're enrolled in. Um, and so, you know, maximizing ancillary services value is kind of component three.

• 13:37Speaker 03

  And then component four is capacity, right? And I think that's the thing that's changed the most over the last 18 months from a revenue standpoint. Where, you know, now we have this situation where the grid is constrained, unlike it's ever been constrained. And the people who most want that power want to move really, really fast. And so, you know, things like, uh, you know, bring your own capacity, which is, you know, something I'm actively involved in right now. Where hyperscalers have the ability to execute bilateral contracts to get capacity deployed on the grid faster. That's increased the capacity value stack significantly. And when you add those four things together, that's kind of what makes up the revenue side of the equation. And, you know, it varies by utility and it varies by state and it varies by region.

• 14:21Speaker 03

  But generally speaking, the combination of those four value streams is going up and to the right.

• 14:26Shayle Kann?

  Right. And I think the, the interesting, there's a trend line over time. Is that those first two, time of use arbitrage, as you said, you know, that one becomes available in some places recently where it wasn't before, just by the introduction of time of use rates. But also time of use rate arbitrage plus demand charge management. And demand charges, as you said, often outpacing energy charges. Both of those are kind of a function of the same thing, which is that like the peaks are getting peakier. Right? And if the peaks are getting peakier, and that's part, that's due to load, that's due to, you know, a lot of solar being added to the grid, et cetera. Then your delta between your low and high time of use prices is going to be higher. That's good.

• 15:10Shayle Kann?

  Bigger arbitrage for the battery and also the demand charge is probably going to go up. So those are sort of like symptoms of the same root cause, I think, that are both trending in a direction that is positive for batteries. On the third one, ancillary services, you know, you kind of said this, this was like what, this was the, the, the early part of the stationary storage market in the US was entirely ancillary services driven. Now that's like a tiny minority share of the pie, right? Nobody's really like building a big business off of ancillary services today. But that fourth one, capacity was not a thing at all until pretty recently. So that one is just like a brand new opportunity, either in the form of the bring your own capacity thing

• 15:49Shayle Kann?

  that you said from hyperscalers, or even, and I'm curious to have you comment on this, like bidding into capacity auctions in PJM. Or whatever, right? Just like playing in the wholesale market as a capacity asset. I'm, I wonder how big a driver you think that part is?

• 16:05Speaker 03

  Yeah, look, I mean, I think, uh, you know, bring your own capacity and the capacity market overlap a lot. And I think, you know, the way to think about this in PJM, right, is capacity prices have gone up 11X in the last 36 months. Right? And so how you solve that problem, you can do in a few different ways, right? You can increase the price of the auction, right, in the market. Which is, let's just call it politically complicated, right? Because that auction price then ha, you know, gets rate based.

• 16:34Shayle Kann?

  You mean the ceiling price of the auction, right? Because we keep hitting the ceiling price, basically.

• 16:39Speaker 03

  Correct. So there's, you know, for the, for those who aren't super familiar with capacity markets. In PJM, there's a price cap, right? And that price cap for the last few auctions, we have hit and not cleared, uh, what we need from a capacity standpoint. And so I guess a high level way of saying that is the market is not functioning properly, right? And so, um, again, I think one of the anecdotes to that is bring your own capacity, which allows hyperscalers, which are a big driver of capacity prices in a lot of different markets, to sort of contract bilaterally with capacity providers. And they don't have exposure to that cap. So they can kind of pay whatever price they deem reasonable to pay to get incremental megawatts of capacity online.

• 17:23Speaker 03

  And so again, I think, I think the fact that capacity prices have gone up 11X in the last three years is a big driver of value. How you solve that problem, right? Because we don't want to live in a world where capacity prices go up by orders of magnitude in short timeframes. Uh, I think is the ba, is the big question. And that gets us into, you know, grid utilization and how we actually accomplish grid utilization in a market where the peaks are peakier, right? And that's essentially, you know, I think where storage sits as a key solution to, you know, the overall problem of, you know, how do we use the infrastructure we have and get more megawatt hours flowing through it?

• 18:01Shayle Kann?

  I want to acknowledge, I think, the one counterargument, at least in some markets, to the increasing value of storage, which is that in some markets, we've seen a lot of storage added already, mainly utility scale. So tech, let's take, let's talk about ERCOT for a second, right? The arbitrage value in ERCOT has been low the past couple of years, thanks to batteries primarily, right? Like we're, we've got, I, I was actually just looking at this, this week, we hit a new net load record in ERCOT because it was a hot day. And we had 10 gigawatts of batteries dispatched. And so prices never got above 250 bucks a megawatt hour, which in, which in Texas they can.

• 18:40Shayle Kann?

  And so if you're building a battery who, you know, intends to earn a significant portion of its revenue off of that arb, it's been declining or at least flat for a while. Again, not just because we've added enough batteries to the system. So there's some equilibrium there, right? People expect we're going to see a bunch more load growth in Texas. That'll make it pick up again. But over time, that arb value in particular is like a function of both the market and how much batteries are in the market.

• 19:10Speaker 03

  I think if you talk to a lot of people who are ex- experts in ERCOT, right? They will tell you that, uh, over the last five years, solar and storage has saved ERCOT. Right? That's sort of like the high level argument they make. And I think if you dig into the data, there's a pretty compelling case behind that, right? At the same time, a lot of people who have installed batteries in ERCOT, which have saved the grid, are not being economically rewarded for those investments. And I think that's the conundrum from a market design standpoint that we have to solve, right? Which is, you know, grid operators are benefiting from storage assets. That's just definitively true, uh, in all markets where storage has been deployed at scale, right?

• 19:55Speaker 03

  This stuff is working and it's helping to solve a lot of the problems that we have on the grid. And at the same time, that hasn't necessarily been a good investment to make in the markets where storage is having the most impact, right? And so from a market design standpoint, we have to figure out how to come up with a set of rules that incentivize the behavior we want. If we want folks to install tons of storage in a grid, there has to be an economic case for them doing that. That's compelling and opens up capital stacks and gets people to want to invest in these types of assets. And look, I don't think we're there yet, right? I think that's one of, you know, the underlying issues that we have in different markets, in different ways around the country.

• 20:37Speaker 03

  Uh, but that's something from a market design, design standpoint that we're going to have to solve uh, over the next, you know, five, 10 years. Uh, if we want to have the best electric grid possible and sort of facilitate the next wave of economic growth in the country.

• 20:50Shayle Kann?

  Yeah. Okay. Well, that last point notwithstanding, uh, I agree with you that like on the revenue side, you know, it's location specific, but there's just more opportunity to earn more revenue for a battery that sits at a customer's site. Let's talk about the cost side.

• 21:05Shayle Kann?

  Walk me through the cost stack for a CNI storage asset. Historically, we could split out hardware and soft costs and so on. And then I think we should talk through like, what has changed or could change on each of those to drive costs, I think substantially down over the next couple of years.

• 21:21Speaker 03

  Yeah. So, so look, I think when we start talking about the cost side of storage, it's overwhelmingly a good news story, right? And most of that good news has sort of arrived in the last 18 months, right? So the first thing is, um, you know, storage is eligible for a 30, 40, or 50% investment tax credit under the IRA, right?

• 21:44Shayle Kann?

  Which does not expire when the solar credits expire and the wind credits, right? That one survived for the long term.

• 21:49Speaker 03

  That's, that's right. And, and you know, you remember you and I were talking a lot about this last year and all the uncertainty in the market was, is this tax credit going to continue to exist under the O triple B? Or is it going to go away? No one knew. Then July 4th of 2025, they passed the O triple B and the storage tax credits survived, right? And so the IRA storage tax credits were maintained through the O triple B. And so that was the first piece of really, really good news on the cost side of the stack, which is you get a 30% base ITC. If you have domestic content, you meet the domestic content requirements, you're still eligible for a 10% adder. And if you deploy that storage system in an energy community, you get an additional 10% adder on top of that. So a lot of storage being deployed in the US today is eligible

• 22:34Speaker 03

  for a 50% investment tax credit, no change from the IRA to the O triple B. So that's the first big thing of good news that's happened over the past, you know, 18 months. The second big thing is just the cost of batteries has declined significantly. So at the pack level over the last 18 months, battery costs are down like 40%, depending on sort of what analysis you look at. And at the system level, maybe like 30% is the right way to think about it. So the cost of, you know, an actual system that you deployed, an actual system site, the hardware side of it, uh, the cost is a third cheaper than it was 18 months ago. Um, and so that's like a huge thing, right? Hardware costs have gone down 30 to 40% uh, relatively quickly.

• 23:20Speaker 00

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• 24:02Speaker 00

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• 25:30Shayle Kann?

  Before we move on from the hardware, um, you and I have talked about a bunch, this part of it, which is, you know, because in part, the market has been dominated by utility scale and residential, the products available, if you're trying to install residential batteries or utility scale batteries are mature, and there's lots of suppliers, and you can pick amongst them. Um, commercial scale batteries, where you're trying to buy a, a pack or a system in the hundreds of kilowatt scale, let's say, has been a lot more limited historically. And so you, you didn't necessarily see the same cost declines. You just had fewer suppliers because nobody was like, trying to, you know, manufacture into a market that basically didn't exist. How much do you see that changing? It's a bit of a chicken or an egg problem.

• 26:13Speaker 03

  It, it's changing, but it's a really important point, right? And so from a hardware standpoint, there's essentially a gap in the market, right? So if you think about utility scale storage, and I'll talk about this as like an, an over generalization, but utility scale storage projects are basically built in one megawatt blocks, right? For the most part. And so you can use that same one megawatt product in a CNI use case, if you have a commercial and industrial load that's justifies a one megawatt system. So for the CNI space above a one megawatt system, you don't really have any equipment problems, right? There's a robust market. There's a lot of providers, both, you know, domestic content providers and alternatives. Um, and so in that side

• 26:56Speaker 03

  of the, on that side of the equation, like, supply chains and availability of equipment and options are not a problem at all. Then on the, then you sort of have the resi side of things, right? Which are typically like, let's call it 10 kilowatt sort of baseline blocks, right? And for very, very small commercial applications and right, STEM is a good example of a company that's sort of done this, you can stack those blocks together, right? So they have like, is an example of the three-phase power wall coming out, you can stack a bunch of those together, and maybe you can serve like a 70 to 100 kilowatt commercial facility with that. So under 100 kilowatts, you have a pretty good range of products. Over a megawatt, you have a pretty good range of products. The gap is sort of between 100 kilowatts

• 27:41Speaker 03

  and a megawatt. And unfortunately for the CNI use case, most CNI facilities fall in that sort of middle ground. Now, there are really good providers, right? So there's companies like, you know, SoCamac and SunGrow and a host of other folks that are building really good commercial products in the space right now. But that's really sort of from a manufacturing standpoint, where we need, you know, more players to come into the market, you know, build more products, you know, get more creative with manufacturing, drive price down, things like that. Um, but again, on the, on that sort of 100 to one megawatt sort of gap, the products that do exist in that range have experienced a similar cost decline to what we've seen on the utility scale side and the resi side over the last 18 months. So costs are going down.

• 28:26Speaker 03

  I think more players are going to come into the market as the CNI space becomes a bigger thing. And I think, you know, for reasons we'll talk about, there are some compelling reasons to believe that CNI, over the next three to five years, is going to be the fastest growing sector of the market.

• 28:39Shayle Kann?

  Ooh, that's an ambitious, well, I guess from a small base, it's not that hard to be the fastest growing. But if you're saying fastest growing by like total megawatts, that's a very ambitious thing to say.

• 28:49Speaker 03

  Yeah, yeah. So I'm talking about the rate, not the total megawatts, but

• 28:52Shayle Kann?

  Okay, yeah, fine.

• 28:53Speaker 03

  We, we, we can unpack this, right? And so, look, the challenge with utilities, with, with net new utility scale battery projects right now is the interconnection queue, right? And so if you look at the interconnection queue, by the way, this is the same interconnection queue that exists for large loads, right? If you want to build a utility scale battery in PJM today, and you submit your interconnection application to get in the queue, on average, you're waiting about six years right now. In KISO, you're waiting maybe nine years. In ERCOT, you're waiting maybe four years, right? And so as we look at sort of demand growth over the next three to five years, which is anticipated to be significant, right? It's really, really hard to add net new utility

• 29:38Speaker 03

  scale batteries, uh, en masse, uh, in the next sort of 36 to 60 months, right? Um, and so that means that that need for batteries still exists, right? But that has to come from either the residential sector or the commercial sector. And that's where you can get fast interconnection. And so I think, again, right, as people start to, you know, embrace this, and it's already happening, um, you're going to have sort of more manufacturers come into the space, and I hope that drives hardware costs down, which then makes it a better economic value proposition for everyone involved. So that's kind of the argument on why CNI will grow the fastest.

• 30:12Shayle Kann?

  Yeah, fair enough. I mean, the only thing I would say to that is like, the reason the interconnection queue is so long is because there is so much in it already. So yeah, if you're trying to build like a net new greenfield storage project right now, you're going to wait forever for interconnection. But the reason for that is because there are so many storage projects in front of you in the queue. So we're going to get a ton of that stuff online, too, right? Like, but anyway, it's beside the point. I want to talk about soft costs. Because historically, the knock on CNI for storage, and for solar, for that matter, um, was, yeah, like, your equipment costs are higher, you're in this kind of never, nether region between residential and utility scale. But really, that's not the thing. The thing is that the soft costs kill you. You have these, you know, soft

• 30:54Shayle Kann?

  costs, and that includes labor and permitting and customer acquisition and all this stuff, design, system design engineering. And all of that is like, you know, similar order of magnitude complexity to utility scale, but at, you amortize it across a much, much smaller project, and that blows out the economics and it kills you. Um, this is where I think, you know, the way that you've been thinking about it is the most interesting to me. Because that's, this is the problem that's been the most intractable in my mind. So what, what gives you confidence the soft costs are going to change?

• 31:29Speaker 03

  Yeah, all right. So if you think about sort of the total project cost of a CNI battery, right? Roughly half of it is what we traditionally call soft costs, right? So let's just say for the sake of argument, uh, $800 a kilowatt hour is sort of the average CNI project in the world today. So traditionally, the way to think about it, and this is sort of post-ITC, right, is $300 to $400 of that is the hardware, about $100 a kilowatt hour of that is the soft, software. So $400 a kilowatt hour gets you the hardware and the software obligations you need, right? Um, the other $400 a kilowatt hour is what we traditionally call soft costs, and that's broken down into two buckets. About $200

• 32:14Speaker 03

  a kilowatt hour of that is installation costs, and about $200 a kilowatt hour of that is what I generally call transaction costs, right? Which is all the things you mentioned, interconnection, permitting, financing, you know, the people, cost of customer acquisition, all those types of things.

• 32:31Speaker 03

  Like, I think there are huge opportunities for reduction, both on the installation side and on the transaction cost side. The thing I've really been focused on over the last, you know, 18 months is the transaction cost side of things. And that's where I think AI is a huge part of the solution. Right? And so, you know, the reality is, is that a lot of the work that we were traditionally paying human beings to do, right? Financial modeling and writing contracts and, you know, filing interconnection agreements and all this type of stuff is repetitive workflows. Right? And so you can actually train agents to do those repetitive workflows and that drops your transaction costs significantly.

• 33:14Speaker 03

  And so a lot of the projects we're doing today where it used to cost us $200 a kilowatt hour to do that transaction cost bucket, we're currently doing for $25 to $50 a kilowatt hour. And we're not even really that good at this yet. Right? And so as we continue to get better, that transaction cost bucket is just sort of declining. So I think in that world, you know, we're, we're on a path to that being a very, very small fraction of total project cost, which then has a corresponding impact on the customer value proposition. I think there's, you know, my company and a lot of other companies are working on that today, and I think we're making tremendous progress. Where we're not yet seeing as much progress is on the installation cost side of things.

• 33:57Speaker 03

  And my belief, right, is that's just also kind of a function of repetition. Right? And so the high level way to think about it is the reason it costs so much to install a commercial and industrial battery is in part because there is no market or has traditionally hasn't been a market for commercial and industrial batteries. So if you go out to an average electrician today and you ask them to install a commercial and industrial battery, you're paying for two things. You're paying for them to learn how to install a commercial and industrial battery and you're paying for them to install the commercial and industrial battery. As this industry sort of ramps up, my expectation is the learning curve is going to be pretty, you know, important here. And I think you'll see a corresponding decrease in installation costs too.

• 34:40Speaker 03

  So my best guess is, you know, over the next three years, the transaction cost bucket will go from an average of about $200 a kilowatt hour to maybe $20 a kilowatt hour. I think there's going to be a 90% reduction in the cost, in, in sort of transaction costs, primarily as a result of AI and agentic tooling. And then on the installation cost side of things, it's a little bit more difficult to predict, but I think we're probably looking at like having that over the next five years. So going from $200 a kilowatt hour to $100 a kilowatt hour. So, you know, if you think about that, if nothing else changes on the hardware or software side, and that's still, you know, costs you $400 a kilowatt hour. Right? And we just do those things. All of a sudden, we've driven the net cost of a CNI battery down from $800 a kilowatt

• 35:25Speaker 03

  hour to maybe $510 a kilowatt hour. And I think that and how that flows through to the customer value proposition is part of the reason that I think people are really excited about this, because that starts to result in more customers who save more than 10% on their net electricity spend every year. And I think that's really going to accelerate the industry.

• 35:46Shayle Kann?

  What about, I guess, the one component of soft costs that historically has been kind of a bear for CNI stuff that you didn't mention, although it's kind of embedded in some of the things you mentioned is customer acquisition? Where like, you know, the, the knock on CNI historically is like every project is a snowflake and every customer is a snowflake. And so you have to go through all this rigmarole to get a deal signed with a customer. And that also contributes to this really high soft cost. I mean, some of that is sort of AI-ifiable, I guess, in the sense of like proposal design and development, that kind of thing. But how do you think about customer acquisition?

• 36:21Speaker 03

  Yeah, I mean, look, I think this, this is one of the most interesting, you know, aspects of this conversation. You and I have talked about it a lot and a lot of our friends have talked about it. Right? And so there are no right answers here, but I'll give you my theory of the case as someone who's been trying to sell commercial and industrial batteries for a long time. I think it's really, really hard to sell stuff that doesn't have a clear beneficial value proposition to customers. Right? And so 10 years ago, when I was trying to sell commercial batteries, right, as part of microgrid systems, I had to put a lot of work into making every single project optimal in order to deliver a customer value proposition that was compelling enough for a customer to sign on the dotted line. Right?

• 37:06Speaker 03

  And what that meant was my hit rate, and I was pretty good at this, was probably like 5%, meaning I would go out and talk to 20 customers and one of those customers was signed on the dotted line. But I had to pay for the other 19 trips I took to meet with those customers. And so that all got rolled into the project I signed and hence customer acquisition cost was high. Right? I think as we drive costs down and the value proposition becomes a lot clearer and a lot easier to sell. Right? Now my hit rate is maybe 30%. Right? Where now I only have to talk to three customers in order to get a deal signed, which means by definition, my customer acquisition costs have dropped substantially. So I think customer acquisition costs are essentially a proxy for how hard it is to

• 37:50Speaker 03

  sell the thing that you're trying to sell. Right? And I think it's getting materially easier to sell CNI storage. And therefore I believe that customer acquisition costs are going to come down a lot industry wide.

• 38:02Shayle Kann?

  All right. We've covered the revenue side. We've covered the cost side. I think the last thing that we should talk about, though you mentioned it, but I, you know, it's an interesting emergent new trend is this, is aggregation and bring your own capacity, things like that. I guess the question that I have for you is, is sort of the order of operations. Right? Like the, conceptually, the idea here is, you know, hyperscaler X wants to put a data center in a given location. And part of the deal now that's like pretty standard across the board is they got to bring their own capacity. And that can mean a bunch of different things. They can put capacity behind the meter. They can come up with a tariff with the utility, with the utility builds capacity.

• 38:43Shayle Kann?

  One of those versions is the hyperscaler, as you said, does a bilateral deal with somebody who can aggregate a bunch of batteries behind the meter, be they residential or commercial. And that contributes toward their capacity contribution to match the need of the data center. The question that I have for you is on scale. Right? Because you got to, to be interesting in the context of a data center, you're in the hundreds of megawatts at a minimum. And if you're doing hundreds of megawatts of CNI storage, you're already the size of the existing entire portfolio of CNI storage, let alone doing it in a short period of time in a given metro area or something like that.

• 39:27Shayle Kann?

  So how do you see it ramping in these types of contracts? Like, how do we get to enough scale that it matters?

• 39:35Speaker 03

  Yeah, so I think that is the, I was going to call it the million dollar question, but maybe it's more like the hundred billion dollar question. Right? Like, um, look, I think, I think this is, this is the key sort of question that we're trying to answer in the market today. Right? And so everything you said is 100% right. Right? Which is that the driver of a lot of load growth and the customers most willing to pay for incremental capacity are hyperscalers. Right? That shouldn't be a surprise to anyone who listens to this podcast. But hyperscalers think in gigawatts, not megawatts. Right? And my whole life has been in the megawatt world. Right?

• 40:19Speaker 03

  And frankly, sometimes the kilowatt world. Right? And so how we get from megawatts to gigawatts is the question. And the answer to that is aggregation. Right? And so one, one megawatt CNI site doesn't matter to a hyperscaler, but 1,000 one megawatt CNI sites matters a lot to a hyperscaler and can represent a competitive advantage for their business. So the problem I had, right, was I don't know how to aggregate individual batteries into a virtual power plant that sort of serves that type of, of load. And that's where Voltus comes in. Right? So, you know, as I think people know, I started a company called Brightfield AI that was really

• 41:02Speaker 03

  focused on sort of driving the transaction cost of CNI batteries down via the deployment of agentic tools. And then I, my company was acquired by Voltus and I'm now part of Voltus, which is one of the best, if not the best aggregators of commercial and industrial load in the United States today. And what Voltus does is really the key to taking, you know, individual CNI battery projects and making them valuable for end-use hyperscaler customers that are trying to transact in gigawatts. How you do that is enormously complex. Right? And so, you know, again, I think at some point in time, my new boss, Dana Guernsey, should come on this podcast and kind of explain the details of how bring your own capacity

• 41:47Speaker 03

  works, because I don't get it. Right? Like, my job is basically like build as many one megawatt battery projects as humanly possible and work with, you know, partners and developers and OEMs and, you know, all those folks to do that. What Voltus is providing me is the inputs from a bring your own capacity standpoint to do the economic analysis necessary to get the customers to sign on the dotted line and make sure that they're getting a good deal moving forward. And so, yeah, like, look, I think there's kind of two components to how we're going to deploy CNI storage or distributed storage over the next five years. The first is what I'm focused on, which is we need the DER industry to be able to deploy

• 42:29Speaker 03

  a lot of individual site, site level projects. And then the second component of it is we need aggregators to be able to aggregate and accredit that capacity so hyperscalers can benefit for it, from it, and build data centers faster. Right? And I think that sort of, that equation is really the key to success in the short term. Definitely over the next like 36 to 48 months, my guess is bring your own capacity. Right? Which is sort of the umbrella term for everything I'm talking about, is going to be a very, very, very quickly growing sector of this market. Because when hyperscalers think about where do I get net new capacity, especially in really

• 43:11Speaker 03

  constrained regions like PJM, there's not really anywhere to go in the short term. Right? And the place to go is bring your own capacity. And I think if we can pull that off, which is what we're working on today, it's a really, really big market and it'll have a lot of positive benefits for sort of the, you know, economy overall.

• 43:28Shayle Kann?

  All right, Tim. Well, though our time together at Brightfield was too short, it's fun to still be able to hang out with you here. Appreciate your time.

• 43:38Speaker 03

  Yeah, should we talk about the 50 days that I was in EIP portfolio company? I do, I do want to say-

• 43:44Shayle Kann?

  It was the best 60 days, man.

• 43:45Speaker 03

  I, I, I do want to say before, before we leave, EIP was awesome to work with and continues to be awesome to work with. And so Jake and Anthony and Lauren and you and all the folks that, that sort of worked with us, I'm eternally grateful because without your support and guidance, we wouldn't have been able to get to where we are. And then, look, I'm really, really excited about the moment we're in right now. And I think this is really going to be something that, you know, has societal impacts. Right? I think, you know, at the end of the day, what we're doing with hyperscaler load growth is one of the most important things we're doing in the economy. And again, I think sort of this idea of how do we use aggregated distributed resources to help us move faster is, is, is a huge part of the answer.

• 44:30Speaker 03

  And, you know, I wouldn't be where I am without EIP, so I'm eternally grateful for that.

• 44:34Shayle Kann?

  All right. Your bribe check is in the mail.

• 44:37Speaker 03

  There we go, buddy.

• 44:38Shayle Kann?

  Thanks again for the time.

• 44:39Speaker 03

  I appreciate you, brother. Thanks so much.

• 44:42Shayle Kann?

  Tim Hade is a Senior Vice President at Voltus, which recently acquired his company, Brightfield Infrastructure. This show is a production of Latitude Media. You can head over to latitudemedia.com for links to today's topics. This episode was produced by Max Savage-Levenson. Mixing and theme song by Sean Markwond. Anne Bailey edits the video version of the show. Stephen Lacey is our executive editor. All of our episodes are on YouTube. Subscribe to Latitude Media for episodes of this show and Open Circuit. And you can find the audio version of the show anywhere you get your podcasts. I'm Shayle Khan and this is Catalyst.