To my left, Julian Nebreda, who's the CEO of Fluence. And then, we've got, John Berger, CEO of Sunnova, to his left. And then to his left, from Plug Power, Jose Luis Crespo, who's the General Manager of Fuel Cell Applications. So thank you, gentlemen, for joining us this morning. And maybe, to start off, if each of you could briefly give a brief snapshot of your company, brief snapshot of the investment case, and then, we'll open it up for more discussion.
Fluence Energy, we're a battery storage company. We provide battery solutions in front of the meter, utility-scale in front of the meter. We are, I think. So, you know, essentially a technology company that provides solutions to our customers. I think our investment case is a great opportunity of the battery storage market. You know, this market exploded. The technology has matured in a way that has allowed that today. Regulators globally and customers globally, you know, are using this technology efficiently and economically, and the market is in a very, very good position, as we have seen a significant reduction in cost, that the more and more business cases are, you know, standing up, and we have seen that tremendous demand.
We are in a very unique position with an offering of domestic content in the U.S. and a de-risk solution outside of the U.S. that are, you know, that we have been able to convince our customers of our ability to deliver the business cases they are looking for.
Great.
Yeah. Thank you. So we are a behind-the-meter power company. We mainly do residential. We got a little bit of business market. We operate from Guam to Puerto Rico, and Texas to Maine, so about almost all fifty-five U.S. states and territories. I think we're in fifty-one. Essentially, we finance and make money on the financing spread. We keep the power flowing, so it's our service technicians that are out there repairing systems, so the power flows, so that people pay us seek financing. And also, that goes with that, you know, repairing after storms. So it's a lot of my technicians were out there fixing systems after the recent hurricanes. And then lastly, we aggregate and sell capacity and energy into the wholesale system.
And so that's obviously a growing revenue stream, you know, for us. I think the investment thesis is pretty straightforward. Utility rates are moving up. As Julian said, equipment prices, batteries, panels, inverters are moving down pretty decisively. We think that continues to be the case, as Julian indicated, and that creates a wedge that we take a big chunk of that, the value, if you will, with that wedge. Reliability is also dropping, as we've seen on the utilities.
And so as that takes place, more and more consumers are coming in just for the reliability reason alone, again, see utility rates going up and equipment prices moving down. That's gonna generate cash flow, and really, that's the focus of the company from a financial aspect, is you know, generating more and more cash based on the operations and the scale that we have as a company.
Plug Power is the leader in the hydrogen industry. As a company, we have the complete ecosystem for hydrogen. We produce hydrogen ourselves, but we also have the technology to produce hydrogen. We have from the electrolyzer that converts the electricity and water into hydrogen, gaseous hydrogen. Then we have liquefiers that actually convert the gaseous hydrogen into liquid. Cryogenic technology to store and transport that liquid hydrogen. We have refueling stations for hydrogen already deployed in the US and in Europe mainly. We have about 200-220 refueling stations right now already deployed. And then we have the fuel cell technology, which is the part of the company that I am general manager of, that actually converts that hydrogen into electricity for any applications.
So in the electrolyzer business, we don't only have the technology, as I said, but we also operate already our plant in Georgia that produces 15 tons a day. This is very good for our business because we already deliver 50 tons of hydrogen to our customers ourselves, and that hydrogen now is much more competitive and green. But also for potential customers that wanna implement ELX systems, because they understand that we already know how to operate a plant like this, and this plant is unique in the world right now. Not a lot of people, not a lot of companies are operating an electrolyzer plant of this size. In the fuel cell side, we do have already about 50,000 fuel cells already deployed with our customers, mainly in material handling, but we are expanding to other applications.
We use our own hydrogen, and we also use hydrogen from the market at the moment. We are growing our production capacity with another plant that is gonna come online before the end of the year in Louisiana, and we also have a plant in Tennessee, for a total, by the end of the year, of 40 tons a day of nameplate capacity. In terms of the investment case, we have spent the entire year in 2024 making the company much more efficient from a cash flow, sorry, a cash management perspective, and from a margins perspective. We have spent the entire year working on consolidating rooftops. We've done a little bit of reorganization in the company.
And as well, we have gone out there in the market and increased prices with many of our customers, which is already showing in the results on a quarterly basis for the company. We expect that the hydrogen market will start growing again at a high pace once we have the clarifications of the IRA rules. And we will be in the pole position to take advantage of that growth, because, as I said, we have a complete ecosystem that brings a lot of value to our customers.
Great, so maybe just you each touched on this a little bit, but maybe you could talk to demand trends in your business, and starting with Julian on the storage side, as you mentioned, a lot of growth, although storage still seems to be meaningfully trailing solar and the amount of and just do you see how long is it gonna take for storage to kind of catch up with all the solar that has been added, continues to be added, and the like?
I will say the following: first, on the technology. Today, our technology. When we started this technology solution, we were ancillary services, you know, for essentially frequency control management. Now, we are helping integrate solar or renewables, and that's what you're referring to. This technology can do a lot more than that. It can work at the, you know, not only on the residential sector, but even at the utility scale. There are opportunities for this technology to help support the grid in ways that are independent of renewables. That tells you the market is a multiple of what we see today. The market will be a multiple of what the renewable integration market is. Why do we need to get there?
The technology needs to continue evolving, prices need to continue coming down, the technology needs to continue to become more, you know, energy dense and more, you know, especially the hardware side of it, the core orchestration of it. So the technology, this is, I think we are just seeing the initial start of what this technology can do for the sector. This is gonna change the way grids work. This is gonna change the way people consume electricity. This is the way, this is gonna change the way people think about their cost of electricity. Over time, it will take maybe 20 years. What we have seen this year is that because prices have come down, that process has accelerated significantly. A country like Brazil, I worked in Brazil for many years. I tell i like that example.
Brazil has dams, as you can imagine, you know, it's a hydro system, so it has dams. They serve 60% of their energy through water, probably 60%-65%. And when I talked about batteries with the Brazilian government, you know, a couple of years back, "Well, we have all the dams. We don't need to reserve any water. We don't need to store any energy. We already have it." Just last week, they issued a new tender rules. Why? Because the prices, and now they realize that this technology can help them resolve some of the issues, because batteries can do something that, you know, dams cannot do, which is you can put them wherever you need them, rather than dams are wherever they are, you know, and wherever you can build them.
That tells you just a huge market like Brazil opening up for this, and why. Prices are at a point where that technology is gonna change the way. In that case, we are clearly, you know, competing not necessarily with renewable integration. We are competing with the cost of building the grid. That tells you the great, and this is when we looked at our company. We had that ambition in mind. You know, we are today working. We started doing frequency control like everybody else. We're now integrating back the renewables. But our thinking goes, it goes beyond this. It goes to the transformation of the power grid and what that will mean.
The way we think about our product, the way I think about, you know, the customers who work with our digital roadmap, what we're planning to do is that. I know that the financial markets probably don't look, you know, have a much shorter horizon for their investments. You know, I’m clear on that. I think it's important for you when you get into this, when you look at these investments, do not think of the short term as your only view. Think about what this will do. I think because of how integral, how important this technology is gonna be out of the grid, that we are uniquely positioned.
That, you know, being a Western company, based in the U.S., controlling the software, having a diversified supply chain, having a trust relationship with our regulators, with the governments, that puts us in a very unique position to serve those markets and be their rightful partner as the cost, as our systems embark on this, so.
Yeah. Great. John, just, I know you've been more focused this year on bringing the cash flow generation up, but just the demand trends in your markets and just now that financing costs have also started to moderate, are you seeing a nd I guess also the shift in the, to the TPO market, are you seeing, kind of a re-acceleration in demand growth?
Yeah, as recently as this morning, I was talking to a dealer, a very important one, and we were talking about the sales trends, and I said, "You know, I can see all the analysts arguing about, you know, the market's down 10%, now it's 15% down, now it's 20%, now it's 25% down this and that may be the case. We're not seeing any of that and haven't seen that all year. We've seen sales growth year-over-year.
I was pretty clear in the Q2 call that it was getting out of hand. It was outstripping our capabilities where we wanted to be, given the cash generation targets. You know, we changed payment terms. We mandated domestic content, which I know made some folks unhappy for at least a brief bit, but everybody understands this is where things are gonna or are going. I'm pleased to report that, and I knew, and I've told all of you, that that was a bet in terms of sales for starting on September 1st. We did pretty well on sales on September. So, I like where we are. In fact, that was probably towards the high end, candidly, if not a little bit above it, than I thought we'd be.
So that tells me, look, we got another probably 30, 45 days to work through the physical supply chain. Looks like we're pretty much through the financial side of things, which is extremely painful for those of you who work for banks, you know what I mean? Especially in this, you know, market. But we've gotten through, if not all of that, we're pretty much almost there. So what does that mean? That means that we have collected all the historical monies for the adders for 2023 and 2024, for energy communities, domestic content cost method, and now we're working on, and collected some on, domestic content safe harbor method, and low moderate income tax credit. So once we get through the next two weeks, we'd have collected money from we expect from every fund, from all of those.
So, that's a huge accomplishment. We were at the forefront of that, and I don't mean that in a braggadocious way, 'cause I've got the battle scars to prove it, and it was a painful process, to say the least. We're still going through that in the physical supply chain, as you know, delays in OEM deliveries and so forth, and domestic content, but those are measured candidly in days and weeks, not even months at this point. So again, I think that over the next 30, 45 days we'll be in a pretty good spot on the physical supply chain, and that will ramp up tremendously.
So on the overall growth rate, we're gonna end up, I think, year-over-year, we'll probably end up certainly single digits, whether that's mid single digits or high single digits growth year-over-year, I don't know. But at this point, we're hearing from a lot of the dealers that October's gonna be a huge sales month, and I'm a little like, "Okay," we gotta manage that from a working capital standpoint, at the same time we're ramping in this domestic content physical supply chain. So we don't see the growth problems, especially as we go into next year. I know a lot of people focus on interest rates and, you know, that coming down.
I've said this when interest rates are going up, so I'm gonna say it when interest rates are going down. It doesn't impact things on terms of demand as much as y'all would think. It just doesn't. What matters is the utility rates. I'm gonna say that over and over again. It matters on the utility rates. No, no, Virginia, loans aren't gonna come back. Why? Because the domestic content adders are so huge. Are they gonna come back? To some degree, I guess, sure. We sell some loans too, but, you know, loans are now 4%-5% of what we do. And that's pretty consistent with a lot of our major dealers. So I see more, you know, competition next year. You've talked about that, and you're, i do read your stuff, Steve.
On Sundays. My wife hates it 'cause it's Sunday morning. But, you know, we are gonna see some more competition. Do they price more aggressively? Yes, they do. They'll figure out the hard way, but they have backed off. You're right about that, especially NextEra. I can name that name. And so I think that largely that's fine. I can't take, nor do I want all the market share that we could pick up. We clearly have picked up i f you say, "Look, it's market's down 25%", we pick up 5% on growth, that's pretty big market share pick up. That surprises even me. But, overall, I think that we're headed into a pretty nice, decent year in 2025 for, I think, the industry, but certainly for us.
Yeah. And then, Jose, just on y ou mentioned when you get the clarity on the tax credits, you see demand inflecting. Maybe you could just give a little more color on, you know, A, what you're expecting to see, and then what, you know, how you kind of what customers, how do you see that playing out?
Perfect. I think to kind of set the stage a little bit, one thing that I would like to kind of clarify and make a point of, is that today already, there are companies that are using hundreds of tons of hydrogen. You have refineries, you have fertilizer companies, you have concrete companies that use hundreds of tons of hydrogen. That hydrogen today is grey hydrogen, it's not green hydrogen. So what we have now is in the EU, there is a directive to convert at least 42%-43% of that hydrogen to green hydrogen within, you know, the next few years, by 2030. That's gonna generate an incredible demand for electrolyzers, the way to produce, you know, green hydrogen.
In the U.S., we have the 45V clarification rules that is gonna open the floodgates also for those companies to start, you know, using electrolyzers to generate green hydrogen. What we have seen is that because we already operate and we have the technology, as I said before, we have the electrolyzer technology, we have the liquefaction technology, we have the cryo technology to transport, and we operate already in Georgia, a plant with 15 tons a day, many of those customers or potential customers are looking at us and saying, "Hey, you guys know how to do this. Can you help us for when we start doing these projects?" Especially when the 45V gets clarified. With that, we have been able to contract 7.5 gigawatts of basic design packages for these companies.
That means that all these companies basically are looking at us and saying, "Hey, how did you do this? Can you help us to do this?" Once that, those projects kick off, there is a high probability that if we have designed those projects, we are gonna get a big amount of the, of that demand. If we only get 50% of that, that would result in $1 billion in revenues for Plug. So that's where we see in the next three to five years, the big growth from Plug is gonna be in the ELX market for those type of, for, for those type of customers, and driven by EU directives and 45V here in the US.
After that, in the following years, we're gonna see that probably the ELX demand is gonna start, you know, leveling off, because we're gonna have enough production. What we're gonna see is that hydrogen is gonna start being looked at and used for utility balancing. Basically, right now, what we have for utility balancing and for some of these applications is bigger plants that are run on natural gas, and at some point, those bigger plants are gonna have to start, you know, going away.
Plus, the balancing of the network is gonna be even more important when the majority of the power that comes to the network comes from renewables. So we have a high-power stationary application that we are already implementing in the field, but we're fine-tuning, and we're gonna have it ready for when that demand comes, and that's what's gonna come to make the next wave of demand for Plug, which is gonna be in the 2030 timeframe. Between now and 2035 or so, we have a very good plan on how we're gonna be growing the company in a very significant way.
Just one follow-up for John. I was thinking i'm gonna ask you, and I forgot. Just you mentioned the idea that, hey, it's not about the financing costs, it's about the utility rates. And I'm curious, is there any markets where the utility rate impacts really drive y ou know, let's say this year is really driving your business more, or you're seeing that happening in coming months?
It has been across the board. Recent price increase, even in Puerto Rico, even with the price of oil falling as much, which frankly took me by surprise. It was a pretty decent one, too, I think $0.029 a kWh . Houston and Dallas, as you well know, Steve, has gone up tremendous. I was shocked at the retail rates that are down there now. And it doesn't look like it's going down anytime soon, at least that's what you would infer from the pricing of NRG and Vistra and so forth, right, in terms of the equity.
We'll ask them later.
What's that?
We'll ask them later.
Yeah. They [audio distortion]
Feel free to start coming and ask them.
Yeah, we were marking in the elevator on the way up here, it's really funny. You know, look at what they sell, look at what we sell, it's the same commodity. Tale of two cities. Just saying, okay? It's the exact same commodity. In fact, what we sell is even more reliability. And that's a big deal. Like, if you talk to even generator manufacturers like, you know, with Aaron over at Generac and so forth, a great time for sales, and we certainly see it, is right after a hurricane passes, right? Or these outages, and there's been quite a bit of them. Not as much as everybody thought, including me, this summer or this season but quite a bit, including recently. So Yeah, thank you. We don't like to see that.
That's for certain. But the reliability is becoming an increasing amount of problem, and we're part of the filling inside the system, and the higher the rates go. Because if you look at with all this CapEx, like for instance, you know, look at CenterPoint in Houston, rates are going up. Full stop. The question is how much? And it's not gonna be a small amount. And that coupled with, you look at the Northeast, Mid-Atlantic, that's been a really hot market for us. The Home Depot partnership has been, you know, I would say, very successful. California, to the best of the government's ability over there in California, it still keeps growing. Why? Because the utilities keep finding excuses, try to blame us, but keep finding excuses, raise rates even further, right?
So it's really been across the board with regards to rate increases and reliability decreases, but I think Texas has been and is got a lot of promise going into 2025, given what's happened this year. We've seen a lot of strength in the Northeast and Atlantic, strength in Puerto Rico, strength even out in the west side of things.
And then when you look at your cost to supply, so, you know, hopefully financing costs have now come down. How about equipment?
Equipment costs have come down a lot, and that trend continues, as we were both talking about earlier. I don't see how that trend reverses itself anytime soon. We have a, I was telling somebody earlier, if it was in the oil market, given the supply-demand imbalance, oil would be trading at $10 or less. I mean, it's that oversupplied. It's massive oversupply, and more is coming because-
That's mainly panels or everything?
Everything, everything. I mean, it's everything. It's like you, you iterate new products, but then who's buying all this other stuff you already have?
How about labor? Is labor then going up? Is-
Labor, labor's kind of gone sideways at worst, maybe down a little bit, you know, as things have loosened up in the labor market quite a bit, and maybe that, you know, that trend, in my opinion, continues. So you know, look, I will say another thing that's been, and it's a competitive advantage for us for sure, is you know, there are folks, as you referenced in we were talking about just earlier, that are gonna be competitors, you know, the NextEra and so forth, and you know, GoodLeap will have a lease and sometime soon and so forth. But at the end of the day, the services to our dealers really is measured in terms of software and the platform and everything else. That gives us a huge competitive edge. I'm not saying we're perfect .
We've always gonna do better, and then the same is true for our customers. How do you get that power flowing again? Once that storm passes, who's out there fixing this stuff? And with the demise of SunPower and so forth, a lot of folks have found out firsthand, portfolio managers, gosh, service was really important. Now, you're hearing this cry in the, you know, around Wall Street, which is, for years, for 12 years, I heard, "Service does, I don't care. It's just a loan financing, that's all, that's all you guys do." And then now it's like service matters everything, and to the point where we need backup physical servicing. It's not just collecting the money, but who's gonna roll the trucks, you know, to make sure the power flows, to make sure the customer pays?
As you know, Steve, that's been my point the whole time for years and years, and now everybody's figured that out, suddenly just like Wall Street always does. Doesn't care, and then suddenly it's the big- the biggest and most important thing in the room. So that gives us a huge competitive edge with our competitors, 'cause putting that in place. I mean, think about creating a utility overnight with all the manpower, the systems, the network, the dispatch. You just that is really, really difficult. And who does that for me is a former UPS guy.
And I hired him away, he's my COO. That was intentional, 'cause I wanted to see what company is out there that can go from home to home and do it efficiently, and that was UPS, Amazon, and FedEx so I hired somebody there, and that's worked out very, very well.
Good. So I forgot to mention, for those who came in, that we will open up for questions at the end of the panel. So you can start mulling those over and getting ready for that, but I'm gonna ask one more to folks. So obviously, there's been a lot of discussion in each of your businesses about, you know, IRA and domestic content, some of the tax benefits, which I think have really started to kind of kick in or hopefully kick in soon for Plug.
But then we have an election about to happen, so would love to get your perspectives, maybe starting with Jose and come this way, on what the election means, different scenarios, and not just IRA, but also, you know, obviously, tariffs seem to be a big part of everybody's plans in some way, shape, or form s o what it might mean for your company and how you're thinking about it.
So, Plug has been operating for over 20 years, almost 25 years already, and we've gone through, you know, different administrations, Republicans and Democrats. And, what we have seen is that there is bipartisan support for hydrogen. The IRA has already been passed. We don't expect, you know, major changes there, and we expect that the 45V clarifications will come out, you know, hopefully before the end of the year, kicking off, you know, the electrolyzer market. We also don't expect tariffs to impact Plug that much. We've been moving away from, you know, China supply chain and started, you know, using more US content, and therefore, we think we were shielded from that type of risk.
In general, we don't believe that either administration will make a big difference on the hydrogen policies. We always, like we have always done, we'll work with any of the administrations that come up, to make sure that the hydrogen industry keeps on growing in the US.
I think most Americans, the vast majority, would love a divided government, no matter who wins the White House. You know, I can say that I think that if you know what you're doing, having one party or the other control all three is not good. That's what I pray for, a divided government. I have my own personal opinions about who I'd like to see win. Obviously, it's a very close race, even in the Senate and House races, to decide who does control those respective chambers.
I will say that I am surprised, and I think most of y'all have taken note at this point, and I will say that my position has not changed over the last year or so, which is that, you're seeing a lot of Republicans publicly, right before the election, say, "I'm not gonna support a repeal of the IRA or major components." And most recently, Johnson even admitted, like, "Yeah, it's probably gonna be around the edges, right? In terms of changes." That is because of y ou look at, you know, for instance, companies like Plug with Hydrogen and so forth, being in Houston, headquartered, and you've got major operations there. You need to move there.
You too. You too.
I'm spending a week a month, so.
Okay All right, That's good. Yeah, I heard that. You know, it's good. But in all, and you know, Houston being the energy capital of the world now, not just the oil and gas, we get to see a lot of different views. And quite candidly, a lot of the oil and gas firms, these are the major, you know, contributors, let's just get down to brass tacks, to the Trump campaign, and the Republicans are in hydrogen, in carbon sequestration, in storage, usually on the big scale, right? Like Julian. But when you look at all this, there's so much embedded in that that I've spoken with some of the senior politicians on the Republican Party, and it's like, I didn't realize how in-depth this has already become.
And so I think that the idea that you can open it up, I think, is really not realistic at all. I think it's gonna largely end up being held together no matter what, unless there's one of the parties comes in. There's some things that the Democrats wanna fix, right, on the IRA itself. Again, I go back, I pray for a divided government, but I think largely we're gonna be left intact, and they're gonna fight over tax policy and a bunch of other things. Candidly, picking even some of the EV credits that have nothing to do with us out of the, that's not gonna move the needle on the tax situation, the deficit situation, right?
Okay. Well? You know, I don't disagree with what have been said, but I'll tell you our approach to this, which is, you know, we are not in the business of predicting what's gonna happen or, you know, ensuring. And, you know, it's in a scenario where things don't change. Yeah, wonderful. But what we have tried to do, what we have done for ourselves, is to develop a strategy that is resilient to one world where drill, drill, drill, and one world with green, green, green, you know? And, you know, I think that we have built a our domestic - in the U.S., this is clearly a U.S. issue.
In the US, with our domestic content, with the development, our supply chain in the country, with the customers and the markets we are, when we have, you know, done the financial planning and looked at what would happen if the IRA, which is not what we're proposing, but if it were to happen, some of the IRA support goes away and everything is changed with tariff. You know, how do we work? And we can meet our commitments either way, either under a potential, you know, red world, you know, drill, drill, drill, or a potential green, green, green. And that, I think, is what our job is. You know, I don't disagree with the view. It's unlikely that the IRA will change too much, but as I said, we're not in the process of predicting.
You know, we do believe that the U.S. will continue its disengagement with China. The, the speed will change depending on how things work out, but it will continue. This is a process that is, I think that if there is a group of people that make decisions, those people decided that that's what they wanna do. We'll see more industrialization in the U.S. I think the U.S. realize they need to bring jobs back to the Rust Belt, and they need to hire people in industrial processes, and not only in the services industry. So we'll see that happening. And these are trends that will go over time.
And then finally, on our technology, the only way to win is to offer a technology that is better, a solution that is better than what everybody else offers. No? So that's what we are working on, because I think that's, at the end of the day, the concept of resiliency will be based on that, on offering something that is safer, more—you know—more economic, well priced, provide services, and can help, and provide the reliability and the quality that our customers need. And with that, we can. We believe that that's the recipe for resiliency and the recipe to win, so.
Just to follow up on the tariff aspect and, or just the kind of anti-China, 'cause we obviously seen a huge impact on the panel-
That's right
market from that. And then batteries, it just keeps kind of getting noisier and noisier, and we saw, you know, the 301, but with a transition.
That's right.
But just any thoughts on how well the battery market can function to transition away from, I know you've got[audio distortion] you're trying to, particularly the cells, just seems really difficult.
It will be disruptive, no doubt. So that's what I think the government has been a lot b ut it has been very disruptive for the panel industry. International panel prices are, what, $8 a kW peak, you know, or 10?
$0.10 in Europe.
$0.10 You know, I don't know how much we're paying today in the U.S., but it's a-
28
Yeah.
28 to 35.
Yeah, three times. Hey, I think that has been very disruptive for that market. I think the government has been a little bit more afraid of disrupting the EV, the battery market, because of the effect it will have on the EV industry, which at the end of the day, there are employment and people. And I think that the government is gonna be a little bit more cautious as we move forward as the price. And if clearly, we'll see what happens. But I see that speed will change, but I think where we're heading, it's kind of clear. Yeah.
You know, speed will change. You know, there will not be it's unclear how fast it will go and, you know, as I said, we're not in the business of predicting, so whatever happens is, but ensuring that you can be resilient no matter what happens.
Yeah. Wanna open up for questions from the audience, either for all the panelists or individual ones. Now's your chance. Dave?
Hey, question for you, Julian. You talked about the future of batteries being in grid support which I assume you mean means a standalone battery solutions.
Connected to the grid.
And connected to-
Doing the work of, you know, substation.
Exactly.
Transformers and-
Could you talk about what you see as the revenue model or the contract terms, or how is it gonna work?
That's what is, you know, that has been the main point. We have a solution for transmission support that we have sold in Europe, very efficient. We haven't really sold that in the U.S. that much. Why? Because the regulatory scheme makes it very unattractive for the owners of transmission systems to offer this, because they cannot own it, or they are too limited on the what, how they can run them. So I think that hasn't been the, that has not been resolved, and that's where I think that we need to. My own view is that for this to work, the owners of this technology will have to be a utility, a transmission company.
They will have to be able to, and the main challenge we have today on that one is that, especially for transmission, the regulators do not want transmission operators to either dispatch generation or you know manage demand. A battery, at the end of the day, is no more than that, and that has been the main restriction. I think that's still o ne that gets resolved, it will you know I think this market will explode, you know. It has been, up to today, probably the business model isn't clear.
But the technology can do it, and when you looked at our pricing, we are looking at the pricing today, where we see prices, and, hey, you can really make the case of it can delay you know, you can economically delay substations just by putting batteries. You can redesign grids, you know, in economic terms. So there is the market is there. Can we develop and create the ecosystem to make it happen, is where we are.
So I'm just gonna follow up. So Julian, take PJM market. So when PJM identifies a transmission need, they go out, and they say, "Give us your ideas." Like, are batteries able to compete in that or not?
It seems the restrictions are they cannot, I don't know the PJM rules that well, but, you know, either they cannot be greater than X amount per substation, they cannot be owned by the same owner of the, So what happens [audio distortion] if you are a transmission operator, what are you gonna propose? A line that you can make millions of dollars or a battery that somebody else is gonna, you know, it's gonna be owned, or it's gonna be so restricted that, at the end, doesn't really resolve your problem. So that, that's the kind of issue, you know.
Okay. Every market is a little bit different. The rules and the rules allowed in the U.S. for batteries to be considered a transmission asset, so that has been done by FERC. Then most of the market have come up with rules of how that happens, but you will read them. You know, it sounds very good until you start reading, but, hey, this creates so many disincentives for people to own them, that it has been a kind of a limitation on how it works.
I do think, though, that brings up a great point about the U.S. market, which is different than Europe. I was on the phone, talking about the European market, which is much more capitalistic and open. You've heard me talk about this.
But I think that we're headed towards a ratepayer revolt in the United States. Rates are moving up, decidedly so. We talked about that earlier. It gives an enormous amount of opportunity for the individual decision-maker, whether it's a, it's an individual homeowner, like myself, or the industrial. We're seeing this happen in Texas with seven gigawatts behind the fence generation. It's not just solar and storage, but storage is perfectly fitted to go behind the meter and say,
"Look, I'm not gonna let a bunch of bureaucrats that got paid off or whatever, dealing with the, you know, the utilities. I'm gonna go solve this problem myself." And we're seeing that now spread to the industrials because of what's happening in the wholesale market. And I take a lot of heart in that, that is the tipping point for a ratepayer revolt, for changes in this country, which we're far, far overdue for, but also an enormous amount of business that he can do in front of the meter and behind the meter.
I'm gonna hire you as my investment. Looks like you lost your job.
Yeah. Yeah. Other questions? Dave, you want another one? It's all yours. You got the-
This one's for Jose. Could you talk about how carbon capture is, has, you know, helped the development of the hydrogen industry? 'Cause we've got the best carbon dioxide pipeline network in the world down in the Gulf, and I know there's potential for hydrogen facilities there, even fueled by gas or coal or whatever, because you can sequester the carbon, and then you get the credit.
Well, I'm not an expert on carbon capture. As I said before, my main concentration is on application, so I use the hydrogen that we produce to you know power equipment, different applications, right? I think not being an expert, I think carbon capture is you know an alternative to clean up some of the production of hydrogen in the market. Not sure how economically that's gonna you know affect the cost of the hydrogen and if it's gonna allow for all this other hydrogen produced in other ways that is not a hundred percent green you know get to the market.
I don't think that that is covered in the IRA, and that they will not be able to get some of the incentives that are in the IRA. And I think that that is what's gonna give a competitive advantage to ELX and renewables produce hydrogen. So that's what I can tell you right now, on that subject.
Okay. Question, question over here in the [audio distortion] . Yeah.
Earlier, you mentioned, I think on the call, that up to 40% of your pipeline has some leverage to the data center [audio distortion] . Could you give some-
In the U.S.
In the US. Could you give some examples of some of the project deployments that you're looking at? Are they all in front-of-the-meter, or is there some behind-the-meter solutions?
No, it's all in front of the meter, and it's all. You saw AES and Greg, who was here. It's through them. You know, we do not serve data centers directly. We work through IPPs, and we know that when we are bidding into a project or working with them on a project, that the end customer is Amazon, you know, Google, whomever is the data center. We are not serving data centers too. And then even though, you know, it's an attractive market and maybe an opportunity, our view has been that, you know, the IPPs do a very good job putting these projects together. They know how to serve these markets well, so serving them is the best way to serve that market. We don't have a behind-the-meter solution for data centers.
If I could just ask a quick follow-up on that. So, I mean, as data centers get to the stage whereby they're more industrial deployments than C&I, is storage not potentially, you know-
It could, it could work.
Yeah.
I mean, up today, we have to tell you, we do not have any projects that are behind-the-meter for data centers, more kind of industrial type. But in, you know, clearly our technology, like John was mentioning, is fundamental for any behind-the-meter solution because, you know, to provide the reliability, the 99% or 99.99% reliability that data centers need, that you will need a battery storage. The battery storage is the best and most efficient way of firming up capacity. So, you know, we will have a place. Today, we have not seen a project today in our pipeline that I can think of, which is a behind-the-meter, industrial type of solution like you're proposing. Even though from a technology point of view, we could do it. We just haven't seen it.
I'm actually curious, Julian, just, are you starting to see any customers kind of overbuild batteries? You know, basically say, "Instead of going to do a gas plant, we're gonna, you know, build three batteries here and
Yeah. Not, I mean, if they, if they're doing it, they're not telling me, you know? Maybe that's the way that I'll put it. They've been very, very active in ensuring their projects are very well-designed and to, for their returns. I think that's where we're going. I mean, when we always talked about, a lot of the financial markets were concerned that, and still today, with the prices of batteries, somehow our revenue goals was we were not gonna be able to meet it. And my view is that the elasticity of demand to battery storage is so great that it.
We might, you know, we had a challenge this last quarter, this last quarter of the year, but hey, in the great scope of things, it's, you know, a raindrop in the middle of a hailstorm. It is, you know, the reality is that lower cost of batteries is a tremendous tailwind for this industry, tremendous tailwind, that opens all these business cases. You know, understanding your battery storage. You know, but what we have seen is that in markets where we were doing one hour, like in ERCOT, only one hour, now the whole market in ERCOT is two-to-three, and people are considering merchant deals. Europe, where we were, people were doing only one hour. Now you're seeing everywhere two hours, in Australia. And that means that our revenue multiplies.
So that tells you the tremendous, and that's only one example. Brazil, we talked about. All these things, the tremendous, you know, force behind this industry, which has a negative side. It's becoming a lot more competitive, because anybody and their grandfather wants to enter here because they see it's a great opportunity. Okay, great! I love competition. I love it, as long as we win.
As long as we win, I love it. So, hey, that's my, tell my team. It's wonderful to see all this competition. Now let's win them. Let's use this to ensure that we are better. And there's only one way of winning, only one way: being better. There's no other way, there's not a Hey, [audio distortion] No, no, you have to do better. Better pricing, better quality, better delivery, better, you know, reliability, better services, better investor relations and support. You have to be better. That's the only way to do it.
You know, I totally agree on that.
Mark, Mark's brother works with us the head of product. So, you know, VP of product. That's why I was joking with John.
He'll work for less. Yeah, the one thing I will say, Steve, is that I do see merchant storage in our sector behind the meter in resi, is starting you know, there's a company out there that's doing it a little bit. We're you know, my view has been that that's where things are gonna go. And the other thing that couples with that is, we are going to see, I think, in the very near future.
Look at how much, what the deployment has been in ERCOT for solar and storage, both mostly in front of the meter, but some behind the meter, including us, and it is so quick. And with prices coming down on storage, it really opens up, as William was saying, we are gonna see the summer peak decimated, and the winter peak is gonna be the most important.
That's right
In ERCOT, I would think, probably, maybe literally within the next two years. And you gotta think about that. So the seasonal load shift is the last major challenge for solar and storage, right? So when you look at ERCOT, you say we need 20 gigs of capacity in our estimate, or you know, by the end of the decade. Half is combined cycle gas, especially with the subsidies from the state of Texas, which don't support subsidies at all, but and you, the other half is gonna be solar and storage. That together tells you a lot about where this is gonna go. You're gonna oversize your solar, you're gonna oversize your storage, particularly to be able to deal in the winter side of things.
So I think that's where we're, this is all going, very quickly. And the lower, At this point, panel prices, inverters, all that stuff, yeah, it goes lower, but it doesn't really matter, given where, especially where retail rates are, and even power, wholesale power rates now in places like Texas. It really matters where the storage price goes and the elasticity of demand, as you just said.