The Exchanges

Q And why has industrial heat been so difficult to decarbonize historically? Is it purely economics? Is it because a lot of these, uh, manufacturing facilities or industrial players have such tight margins that they're purely focused on cost? Is it because these have not, that, that, that these are not necessarily drop-in replacements historically, and they require a What have been the biggest barriers?

A You mentioned them, the first two. That is, what we're doing at Rondo, we could have done five or 10 years ago, but it would have been stupid. Intermittent electricity at that time was far too expensive as a replacement for fuel, and there was less of a, shall we say, a corporate drive to decarbonize now, not decades from now. Having a solution that is cheaper than business as usual, not requiring a green premium, coupled with a drive to decarbonize, those two elements drive action at scale. There's been decades of the chief sustainability officer and the factory manager are at odds with each other, because the factory manager is measured on cost of production. We're now entering this world where, on an operating basis, Zero carbon heat is cheaper than fossil fuel heat. Those conditions, the availability of intermittent electricity at a price that's lower than the price of burning fuel, those conditions did not occur until very recently. So, we're just past this tipping point, and one thing we know for sure, looking at grid models everywhere, We see what that future looks like. Someone said the, the future is already here, it's just not evenly distributed. Look at South Australia with 70% renewables in the system and almost 3000 hours a year of negative electricity prices. Look at Oklahoma last year with more than 2000 hours of negative electricity prices. Look at the Netherlan…

AI assessment note: “You mentioned them, the first two. That is, what we're doing at Rondo”

Q So when, when you install one of these heat batteries, like, what kind of equipment are you replacing in an industrial facility? Are we talking about, you know, replacing a, a boiler, a kiln? Like, what, what, what is it replacing?

A Yes, exactly. What is the existing heat source? If we're in the paper industry, or processing food, or refining fuels, or making chemicals, the vast majority of our energy today comes from steam boilers. And those steam boilers hook up to a steam network. Our heat batteries make steam exactly the same way. They'll sit next to those steam boilers. You may run those steam boilers a little bit during the winter or on high price electricity days so that you have a hundred percent firm, but there's no change whatever to the facility. I was on a panel a while ago with the head of sustainability from a major consumer brand who said, my factory teams always hate it when the decarbonization team shows up. They want them to tear the factory apart and replace six-inch steam lines with thirty-six-inch water lines so they can use heat pumps and shut the factory down. This is a drop-in solution for anybody using steam. For cement plants and steel mills that use kilns and ovens, this technology heats, connects to those delivering superheated air, And there are some modifications to a kiln that was designed to run on internal combustion to now run on superheated air. We are working on those things with builders of kilns and ovens, um, in, we have a particular project funded in Denmark right now, but the race to scale is boilers everywhere. Just go replace that. That's something like 80% of ind…

AI assessment note: “the vast majority of our energy today comes from steam boilers”

Q a proof point to get to something bigger, and I'm going to be trying some new things here. So how did that relationship work? It sounds like you'd known them for a while. How did you talk to them about the degree to which this was already something that, like, you knew how to do versus this is something where you're really proving out some new pieces of the technology?

A Step one, this was a pilot for the, the full-size installation will be about 600 megawatt hours, and again, they recognize that that's too big a step. But the, the short answer, and the thing that's true with every customer, I think, once they understand what a Rondo heat battery is, all the engineers, like, okay, this thing makes steam exactly the way we make steam today. We make steam in exactly the same heat recovery steam generators that we build in. By circulating air, we blend it down to 650 C. So when an engineer looks at, okay, what is this thing versus what do we do today? Oh, it's fundamentally the same. And, oh, and there's nothing in the box except brick and iron. There's nothing that is capable of causing any Fire or gas release or whatever, because we're being installed in the middle of their refinery. Safety is the number one matter. Okay, and now let's do a, a walk down of all the design things, how we're going to connect. So there was technical diligence on their side, and then we chose with them a particular way of interconnecting to their process so that They put in the interconnecting flanges and the circuit breaker for us during a ordinary facility maintenance. Rondo has not caused five minutes of outage for Calgary since we started working there. And then the last matter was, let's create a commercial structure where we're putting our money where our mouth…

AI assessment note: “We're not asking you to take any technology risk. We're going to sell heat.”

Q So it's early, 20, 23. You're nearing completion of construction. You turn the unit on and you get First heat. Can you explain what that means and what that felt like?

A The way things roll, it was a little bit anticlimactic because of all the subsystem testing that led up to that moment. Um, it's not like launching a rocket. You know, this is a really very simple thing. Yeah, well, I suppose that's right, yes. And within, I will say that within about three days, there was a real moment of triumph because One of the things that we did not mention earlier that was critical about this system was validating the computational models of what goes on inside and, and seeing the observed set of temperatures within the system as we charged and discharged it. One of the members of our design team in his last job was working on Mach six hypersonic missiles, computational fluid dynamics. Now he's working on computational fluid dynamics at six miles an hour, and it's just as hard. You know, these things are really simple, but they could not be designed without modern multi-physics simulations of exactly how does all the gas and heat transfer work, because we'll either not charge properly, we could have brick that was deteriorating because it wasn't being heated evenly, or especially We wouldn't have the same storage capacity. We would not achieve this thermocline that I mentioned earlier, and that's about the gas dynamics. Three or four days after we turned Calgrin on, CTO was distributing this picture that, again, it doesn't look like much, but it's a pict…

AI assessment note: “it was a little bit anticlimactic because of all the subsystem testing”

Q field. So you've built, you know, this two megawatt hour project. You're now building hundred plus megawatt hour projects. Are you maintaining pretty much all the same technical specifications around the bricks and some of the basic elements of the plant? Is there anything new that you're putting into place with respect to Materials or construction processes or anything? How are you thinking about this, this next scale up step?

A There are no changes in the materials. The materials that we used in making these first things are the materials that we're using in all the current things. And our, one of our independent engineers said, look, you're using stuff that's 10 times stronger than it needs to be. That's on purpose. There will be a period where we're doing value engineering and bringing things down. But being conservative so that anything that we had not anticipated, there's a big, very large safety factor is part of the current design philosophy. There are things we learned, as I mentioned earlier, about tolerances and how to design around and create greater flexibility for tolerances, that there were some improvements. Those were particularly not the brick, but the, um, there's a system by which the electrical Heaters are suspended in space with ceramic. They call it furnace, kiln furniture. There's ceramic supports, and there were several iterations and to make it easier to install and make it easy, make them more reliable and make them more manufacturable. So there have been things, lots of small component things, and then the hundred megawatt hour units are a different system design. They're made of More of the same brick, but you know, all the, everything about airflow ducts and boilers and all those things are different. So there are system design things that, you know, the, the system around …

AI assessment note: “There are no changes in the materials.”

Q a plan to finance this on balance sheet through money that you're going to raise yourselves. And now you're starting to get into construction. One of the first decisions that you are facing, you mentioned this earlier, is about the size of the bricks that you're going to use. So can you say a little bit about what the challenge was there and the decision that you had to make?

A We had a structure, but we were implementing that structure with individual cast bricks that each weighed like 50 kilograms. But then we realized we store a little bit more energy per kilogram than a typical lithium-ion battery pack in brick, but We're going to build a hundred megawatt hours. It's a lot of kilograms. And a 50 kilogram brick is almost perfectly the wrong size. It takes two people to handle it, and there are a lot of them. So to the extent that we could make larger single bricks, we could reduce crane operations or people hours building these things. And we have a trade-off of manufacturability and yield and construction labor building the thing. And we know that eventually, We want to be using much larger things. We eventually want to pick up multiple tons with a single crane lift or lift as we're putting these things together. We also have tooling to choose. Are we going to use forklifts or telehandlers or hydraulic cranes, or how are we actually going to be constructing these? And we made a decision that said, instead of building Calgary with 50 kilogram bricks and then deciding that we're going to build the next one with one ton bricks or half ton bricks, Let's take that hit now. Let's make sure that we build cow grown of exactly the same brick and everything else as we build the large one, because otherwise we've got more kind of scale-up risk that we had no…

AI assessment note: “a 50 kilogram brick is almost perfectly the wrong size... Let's take that hit now.”

Q what you can do when you have cheap, abundant, renewable electrons, and you said that this would not be a feasible solution even five years ago. I'm wondering, when we think about both the benefits to the grid and to the industrial customer, how do you frame this? Do you think about it in terms of grid reliability, or do you frame it specifically around the unique industrial use case?

A That's a great question, and the value to different participants in the energy system is different. We're working with EDP at scale in Europe. EDP is, I think, the world's largest owner of commercial industrial C&I Solar. They're a major player building utility scale wind and solar. They have a substantial electricity trading and grid operations capacity. They're able to bring those skills together to monetize the value of, ah, flexibility and grid services, to trade in day ahead markets, and to put together a very specialized kind of power purchase agreement for energy that's delivered when they're controlling the charging knob. So as to optimize the value of existing assets and new assets, and then put that together with their development skills, and go to customers and offer customers a fixed price, long term, heat as a service contract. During our announcement just recently, the EDP commercial CEO said, this will make our average CNI project maybe 10 times larger, and allow us To not just deliver 20% decarbonization to a customer, but 80%. Cutting into their giant scope one emissions and saving them money. So, there was grid value, again, in, in having large centrally controlled, and right now controlled, dispatchable demand. Jesse Jenkins has, is publishing a paper shortly exploring that. His paper findings really excited us because he found that in looking at systems that…

AI assessment note: “the value to different participants in the energy system is different.”

Q How should we think about the size and scope of the market for heat batteries? Like, what's the total addressable market? How much of industrial heat demand can these batteries serve?

A People have looked at this from two or three different directions. That's exactly the right question. From a temperature standpoint, so electricity is electricity. You can convert power from one volt to a million volts back and forth. Heat is not heat. If you're going to deliver heat at some temperature, you need to store it at that temperature or slightly higher. The temperatures that today's Rondo heat batteries deliver serve about 90% of all the Industrial heat used in the world. The one exception is about 40% of the energy used in making cement, and the steel industry is flipping over from using coal to hydrogen, and most of that energy is not actually heat, it's chemistry, converting iron ore. So it's about 90% at the current temperature regime. If you look at that Tesla's assessment, when they looked at the all-in energy demand, that's about 40 terawatt hours of installed capacity. Their assessment was that it's about three trillion dollars of total for the industrial heat that was in use in the world four years ago, I think. Obviously, this is a sector industry, the industrial sector is growing as the world becomes richer and grows, so decarbonizing it Getting it onto this track of decarbonizing rapidly so we can just stay even is critical, and we see the path clear with what we're doing to decarbonize most of that within about 15 years, given the constraints on how fast…

AI assessment note: “deliver serve about 90% of all the Industrial heat used in the world”

Q cutting U.S. industrial emissions by 85% by twenty-thirty-five. And the DOE also just unveiled Nine billion dollars in funding for industrial decarbonization projects, including a couple projects that will use Rondo's heat batteries for beverage production facilities. What do you make of this strategy generally coming out of the Biden administration, and what are the levers of government support that are most helpful for this particular slice of the market?

A The DOE decarbonization drive has just been phenomenal. The Biden administration is doing something that has Never been done before. DOE has assembled expertise from across other portions of the DOE and the government focused on industrial decarbonization. One of the things that DOE, in all the applications, materials, and the evaluations, they said very clearly they're looking at things that will step and repeat. We're trying to build first of a kind larger Installations that will then directly inform ongoing deployment of that technology in that sector. That is super valuable because many industries, a technology may exist in some other industry, but it's until it's used in this industry, it just doesn't get attention. It's not believed to be credible. It doesn't wind up in people's strategic planning for the next factory or for the next overhaul. So, we've been hugely excited to see the breadth of technologies that DOE is supporting, and yeah, we are being pulled into multiple industries by this program, and one of the things that was announced just this week was a deployment of Rondo heat batteries in the food and beverage sector with Diageo, who have been an innovator Looking at every other decarbonization pathway for food and beverage. They've deployed heat pumps. They've deployed electric boilers. This support has created the drive for our first two heat battery projects…

AI assessment note: “We're trying to build first of a kind larger Installations that will then directly inform”

Q industrial heat by harnessing intermittent renewables, bricks, and heating coils you might find in your kitchen. So there are lots of different ways to potentially decarbonize heat. Industrial heat pumps, electric boilers, green hydrogen to replace gas, carbon capture, solar thermal. Um, you're approaching it differently. You're using thousands of tons of bricks as a thermal battery to deliver heat when needed. How does it work, and why this approach?

A First of all, why this approach? You mentioned two classes, I would say. One, the carbon capture path says you're burning fossil fuel, burn 30% more fossil fuel than you're using right now to capture the emissions from burning fossil fuel. We can stipulate that is not a pathway that's cheaper than burning fossil fuel. The other pathways, heat pumps and electric boilers, at different temperatures use continuous electricity to electrify a load. And in today's world, in most places in the United States, you can get at most about 40% of your annual electric power from renewables to balance by thermal power stations. A heat pump may get you about level with emissions from burning fuel directly locally, and an electric boiler will multiply your scope one plus two, at least by a factor of two and maybe three. But those two things have in common because they need baseload electricity. They increase the demand on the grid during peak periods. They drive This narrative that industrial electrification is going to require us to build a lot of peakers, a lot more wires, and so they are all in sharp distinction against what Brando is doing, which is, let's build something that is very low cost per kilowatt, an energy storage system that can take all the energy needed for 24 hours of operation during four or five hours a day. If it's cheap enough per kilowatt that we can do that, now this is …

AI assessment note: “First of all, why this approach? You mentioned two classes, I would say.”

Q That's very cool. Was that just because you were being conservative on your models or was there a reason that there was, there was actual upside there?

A Well, actually, way back at the beginning, When we were doing modeling, we didn't have enough computer power to do all the multiphysics stuff, and we had taken some shortcuts in modeling, and we built the early prototypes that were better than with the models, and we, it took a while to figure out, oh, we have to run this other stuff that makes the model run a hundred times slower. Okay, now we get match. We had sorted that out, so I think it had to do with assumptions about exactly what are the sizes of the air passages What is the average yield of those that affects the temperature distribution as you discharge the core? We did slightly better in storage capacity. I can't even remember why. There was a mix of several reasons, and it was, but it was, the biggest piece was that we had been a little bit conservative.

AI assessment note: “the biggest piece was that we had been a little bit conservative.”

Q And what's the state of the project now? How are things going?

A The unit's been in, uh, relatively continuous operation, but it's taught us a bunch of other lessons, too. When we started the conversation, we, we heard, okay, we, we turn off the refinery once or twice a year for overhauls. Other than that, it's all dead level temperatures, flow rates, nothing changes. So, okay, here's how we're going to operate. None of those things were true, and there was one element of this particular unit that required manual intervention to start it up. There's an emergency safety thing, and we required someone to go Physically there and pull a rope to enable the unit to start up. And we thought, oh, it's going to do it twice a year. There have been dozens and dozens of times that we needed to have somebody there. So there were, there were lots of lessons about, oh, look in a real world refinery, all kinds of things. And yes, there's a nominal operating condition, but we have now exercised the whole box of temperatures and emergency emergency and non-emergency shutdowns. That's also been quite valuable. The other matter is, it's been a place for independent engineers, owners, engineers of customers, and an IE that we engaged to go look at a real operating unit, look at its operating history, and obviously it's a pretty boring thing to look at a box, but it's also a pretty riveting thing that it's not PowerPoint, and let's look at the control system, and…

AI assessment note: “The unit's been in, uh, relatively continuous operation, but it's taught us a bunch”

Q links hundreds of megawatts of new renewables to these heat batteries and serves them to EDP's industrial clients, like, is that the kind of partnership that is required to scale this technology? Or, I mean, are you still going to industrial partners in sort of one-off relationships, or do you have to kind of create this portfolio of assets with large developers? What's the way to scale this, this technology?

A What's the way to scale this technology is exactly the right question, and that's the one that we ask ourselves all the time, and there are a lot of different pieces of that. One of them, make it as un-innovative as possible. We use completely conventional boilers and electrical heaters, all sorts of things. The heat battery very closely is modeled on a conventional industrial boiler. Two, make sure that the storage media is available at scale. I think the EDP relationship is one perfect example of how this can go. This, a new tool in their toolbox, lets them grow their business much faster, lets them in fact build utility scale projects that don't need to wait for utility scale grid connections. We can build them directly powering heat batteries near the point of use. So, in the United States, our experience so far has not been that there is a developer community on top of this at scale. Across Europe, there are half a dozen utilities working on this at scale in half a dozen countries right now. In the U.S., there's a developer community's attention, in my humble opinion, has been a bit attracted to the hydrogen subsidies, and that The place will get the next wave of growth for utility-scale solar. We'll be building hydrogen projects that sell hydrogen to somebody, somewhere, sometime. But these kinds of partnerships in the US, we think, can also unlock dramatic growth.

AI assessment note: “I think the EDP relationship is one perfect example of how this can go.”

Q makes this different, right? Where it, it, this is a very optimistic moment. You've got a technology that, you know, uses, uh, conventional materials and can drop into an existing industrial plant. But, like, why are you so optimistic given that, you know, you've seen a technology that seems very Promising not succeed because it got beat out by another technology or just didn't find its place in the market?

A That's an interesting, that's a great question, and we don't have to invent anything for gigawatts, tens of gigawatts, hundreds of gigawatts, thousands of gigawatts of renewable electricity to be built by a community that can finance and build at scale. There's nothing to prove there. In fact, that community is struggling with places where there aren't grid connections available. There, you know, there are the marginal value of more solar generation in a solar location can be approximately zero if generation is happening when prices go to zero. There could not be a more amazing set of market conditions If you have a technology that can harness that, and, you know, we do have electrochemical batteries that can move power from noon to seven PM, their economic viability in many places depends critically on how high that seven PM peak is, and it falls very rapidly with deployment of batteries in a zone. We have Electrolyzers that in principle can operate intermittently, but because of their capital costs, they don't pencil operating at capacity factors typically below 50%. But it's 15 or 20% capacity factor electricity that we can have with spectacular economics in most of the world. Between wind and solar, we now have the conditions. The enormous growth in offshore wind, huge deployments of onshore wind in all kinds of places in the world, as well as the solar regimes. Tesla relea…

AI assessment note: “There could not be a more amazing set of market conditions If you have a technology”

Q And let's actually start with Calgrin's piece in that, because presumably they're offering to pay you for the heat that you're providing in this particular facility, or I should say for the storage as a service. What was the actual contract that you signed with them? How was that structured in addition to whatever else they provided in terms of support and, as you say, the kind of physical interface?

A Because this one was the size that it was. We financed this on balance sheet. One of our board members says, look, it's easier to raise three billion dollars than to raise three hundred million. Get to work on the full-size project. And that's true from a projects to finance standpoint. If you want the A team of the bankers, it's gotta be worth their while. They gotta be putting money to work. Small projects, unless they're part of a big project portfolio, are very difficult to finance this infrastructure. And the other matter is, look, this is the first commercial one that we're doing. No one's gonna want to do it. So we did that First of all, we did that on balance sheet. And then second, because it was on balance sheet, one of the biggest issues in our particular business is, you might call it fear or volatility. When someone signs a power purchase agreement for solar electricity or electricity as a service, including a battery, they have a fairly good expectation that no matter what happens, electricity rates always go up. Whereas if I'm replacing combustion of fossil fuel, I mean, During my career in solar and renewables, I've seen natural gas be 14 dollars a million BTU and 60 dollars a million BTU in Europe, and I've seen it be a dollar 80. And structuring long-term off-take agreements for heat as a service, the buyer would love to be indexed to a fuel price. The finance…

AI assessment note: “we said, fine, we will sell you heat at a discount to whatever the then gas price is”

Q massive backlog of renewables. We have suddenly all this new industrial activity with ports ramping up and new, uh, production facilities and clean energy manufacturing facilities, uh, data centers. Like, we're seeing really significant increases in demand around the country. How do you think about These heat batteries as, as part of the puzzle in solving this, uh, load problem that we are starting to see in the United States?

A Yeah, this load problem. Utilities in the United States are used to years of no growth, and suddenly, for the, for, we're seeing huge shifts in IRPs, and are they going to go back to building peakers and another whole wave of gas-fired power plants, or Is that load growth going to be served by a huge uptick in building wind and solar? There is no inability to build the wind and solar. That is, we can make the panels, we can make the turbines, there's no issues. One of the big issues is, can those facilities be permitted? But, of course, the, the real pivotal matter is, what are the economics? What are the techno-economics of the energy storage needed To deliver 24 hour power for a data center or a manufacturing operation or any one of these things. And heat batteries play an interesting role in longer duration elect energy storage. If you had asked me this question a couple of years ago, I would have said we are working exclusively with industries, but two thirds of all the industrial steam in the United States is delivered by co-generation plants. That make electricity and steam in a single thermodynamic process, and wind up exporting electricity to the grid as a side effect of making the steam that they use. Because we are the hottest thermal energy storage of any kind that's in commercial operation, we drive those same cogeneration trains at higher efficiency than they are t…

AI assessment note: “heat batteries play an interesting role in longer duration elect energy storage.”