The School of Hard Knocks

Developing solar power in parts of Europe not known for being sunny is like being a student at a rough school – you come out a tough kid. At least that’s how the CEOs of Nordic firms Otovo and Alright Energy see it in this week’s episode. 

Hear the outlook for rooftop and large-scale solar across Europe. 

Host: 

• Richard Sverrisson, Editor-in-Chief Europe, Montel

Guests: 

• Andreas Thorsheim, CEO, Otovo
• Harald Overholm, CEO, Alight Energy 

Transcript

Anna Siwecka, freelance journalist/podcaster: 0:01

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Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:29

Hello listeners and welcome to the Montel Weekly podcast, bring You Energy Matters in an informal setting. This week's show returns to the fastest growing and cheapest energy source out there. Solar power and joining me today are the CEOs of two of the Nordic region's, prominent solar firms, who I hope will explain the promise of the technology in a part of Europe, not known for its sunny weather. So a very warm welcome to you, Andreas Thorsheim of Otovo, and to Harald Overholm of Alight energy. How are you guys doing in these in these challenging times? And how's business amid these COVID-19 pandemic? Harald, could I start with you?

Harald Overholm, CEO, Alight Energy: 1:11

Yeah, thanks. That's a good question for anyone these days, COVID has been the disruption, of course. Luckily, I would say we've been on the production side in terms of building solar. We haven't had any significant disruptions. We were able to complete the the largest solar park in Sweden. Actually during the COVID crisis during May and June last year. So this far, the supply chain of solar has been holding up very well on the customer side. We, as a company, we work almost exclusively with commercial and industrial customers. And I think it's a dual story, right? Because short term they've been disrupted. So of course business has been a little bit more difficult than it, than you would've wished. But somewhat long term, and I think many others than us are experienced this. The COVID disruption has triggered an almost stronger commitment to to sustainability and to the un sustainable development goals. And I'm not sure I fully understand the connection, but it's certainly, it's there. And just look at the EU COVID recovery package, which is very green. And I think that's happening on a corporate level. It's happening on a regulatory. Somewhat unexpectedly COVID has meant a stronger demand for solar.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:24

So in a sense, perhaps a clean break with the dirty fossil fuel of the past, maybe in a new beginning. Andreas, could I ask you as well how are you coping and how is business in these in this corona time? So

Andreas Thorsheim, CEO, Otovo: 2:35

we are addressing the residential market and for us, the Corona situation rippled through the supply chain starting in. In Q1 with lockdowns in China, affecting panel production and later panel shipments to Europe. In Q2, we had lockdowns in Europe, which affected the demand adversely people. Refraining from maybe the larger CapEx decisions in their lives, postponing them to later. And that affected installations in Q3, which is the quarter where you install what you sold in Q2. So this kind of rippled through. But at the other end of that, I think what Harold said resonates with with me, we're seeing the same thing consumers coming out with, a bit of a leapfrog. Corona is a decade happening in a year and a lot more motivation to go to go green to buy stuff online, which is beneficial for rot, tovo we sell our solar panels online and for us entering also Poland at the end of the year and Spain at the beginning of the year. Our growth comes after the worst COVID effects and very optimistic about the year we have ahead of us.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:38

We'll come back to that as well, your, the plans and for growth and expansion and the outlook for 2021. But as I hinted in the introduction, solar in the Nordic region, what's the big deal here? Andreas?

Andreas Thorsheim, CEO, Otovo: 3:48

For us, it was a great school, right? It's, it's a region as you said, not known for being the sunniest on the planet, although a lot better than people think. High labor costs and quite low electricity prices. So it it trains you to be efficient, to be automized, to be a highly digital. And it was in the Nordics that we learned to play our game and we're exporting that that knowledge and being, we're cost leaders in France and Spain and Poland. And now later in the year, Italy. I think, if you go to a to rough school you become a pretty tough kid, right?

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:17

Absolutely. What's your feeling in here Harald ? You are in a different sector from otl, but you are in the MER commercial and industrial side. How does that work? Solo in, in Sweden or in the Nordics or even pan-European but specifically solar in, in, in the Nordic region.

Harald Overholm, CEO, Alight Energy: 4:32

Yeah. I really like Andrea's point of view here that if you can make it here, you can make it anywhere, the darkest place in Europe and also much like Andrea. Which I'm the founder of, we're expanding rapidly across Europe so we're certainly not not focused on being a Swedish solar company. But, that said I also wanna just take a step back and say, look, when Solar works, it works and it does two things. The one thing is that it generates value for customers, and we've been able to make sure that solar does indeed generate value for customers in Sweden, and that's why they buy it. You reach that point, it generates value, then that's it. Secondly, I think we're all purpose driven and we come into the sector because we believe in it's, we wanna see the environmental impact happening and that too. I think that's a little bit my actually talking about Sweden, a little bit of a pet theme of mine is that you often hear that Sweden has a hundred percent clean and renewable electricity supply, which is of course true, but Sweden also has an immense amount of export and import, whether it's surrounding countries not to be Poland, Germany, and Lithuania. There was this report two years ago from something called NEP, which is just this really broad coalition of universities and energy industry, and they actually came to the conclusion that if we build out clean power production in Sweden, we could export up to 60 tert hours per year to these very dirty countries. Poland is there was this chart in the Economist actually last week saying that Poland is the one country in the EU that you can see. The border from space because the amount of coal that they burn. And we export directly into Poland from SE four, which is the most southern region where we typically would put the solar. And the conclusion was that by doing this, we could offset about 60 million tons of CO2, which is coincidentally the entire CO2 debt of Sweden. Just by exporting clean power makes Sweden basically carbon neutral. So I think that's a little bit of a forgotten story sometimes when we get very narrow and just think within our borders. Power is a trans national system and it's a system perspective that you need to see that impact.

Andreas Thorsheim, CEO, Otovo: 6:36

I think also a lot of those sort of, this solar is to costly or isn't profitable in region x. That's always information with a due date, right? With the incredible reduction in solar energy prices that happens every single month. Yeah. Keep in mind we're the cost of this. Product is coming down 1% per month, right? So a lot of that news is yesterday's news. Basically. The question is, when or by how much do you do you beat the grid prices? And I think the hypothesis when we started at Tovo was that with this drop in prices, solar energy is gonna win everywhere. That hypothesis, number one, and I think that's coming increasingly true. And second, the hardware price is gonna matter less and less because you know it's asymptotically going towards a zero. It's all the other stuff that you need to be good at. The financing, the marketing, the last mile, logistics, these things. And I think that's why I think Scandinavian countries can be leaders coming out of the, out of this decade because. We experienced the ratio of non hardware to the rest being high first, right? Because we have more, more expensive labor at the outset. So I think that's what drives, now Nordic companies to be at the forefront of where solar is going in the next decade.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:48

Currently, the Nordic region, ex experiencing the very cold weather, so power prices are high at the moment. If we look back at 20 19, 20 20, they've actually been very low. How can your offering compare with the retail market as it currently stands? Andreas

Andreas Thorsheim, CEO, Otovo: 8:02

obviously with with the dynamic market like in Scandinavia, there will be ups and downs, and I think the long term trend is that power prices to consumer have been increasing over the last last decade. And I keep in mind that we're selling energy that's behind the meter. Which is a lot more stable than the wholesale prior PRI prices. And in general, the most valuable power you can have, right? Because it's. It's produced and possibly stored at the point of consumption. And that power is a lot more valuable. It contains the wholesale price, the grid price, the tariffs and the VAT if that gets added. So that's a lot more stable and a higher number. And we're seeing in most most European countries. The price we're competing against is high flat or high in increasing. So I think this leaves us room to beat the grid price ever more every year.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 8:47

And does it help? I know that in Norway, potentially also coming in Sweden, Harald, but in Norway, there's a very strong. Grassroots or anti wind feeling. Does that benefit Otovo that you are not wind, you are renewable, form energy that is solar instead.

Andreas Thorsheim, CEO, Otovo: 9:01

I like wind power. Just have to say that first. I hope we can build out all the renewable energy. We can both at sea and on land. That being said, I like also conflict free energy. We are in, we need to transition so much fossil fuel activity that we need, to find. Energy forms that can create good compromises and with a minimum of conflict. And when we build out the distributed solar, it happens often in industrial areas, on rooftops, on commercial buildings, or in our case on houses and garages and and barns that already exist in the landscape. And that's popular to people. We had a, we had this poll before Christmas. Where solar energy came out as the most the most popular to have in your backyard. And I think that's that's indicative of one of the strengths of solar. It's easy, it's fast, it get, gets built out without without protest. And that's one of its strengths for the decade to come. So

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:50

it's maybe it's a wimpy, a welcome in my backyard type of energy source. Harald, if I can then ask you, how do you see the wholesale market impact and how you can compare? With power prices that exist in the markets for commercial and industrial sectors?

Harald Overholm, CEO, Alight Energy: 10:05

Very good question. And first of all, just to summarize it, just to let me say that we always have, these days, we always have a positive NPV for the customers buying. The product in our case is a power purchase agreement. It's a long term power contract that's, that makes sure that the customers buying the contract from a new solar asset and they always have a positive MPV. So there's just, we're not selling this on the back of any particular environmental premium. The environmental driver is there and it's important to customers, but it has to be a positive mpv. That's, I think it's just generally accepted. But the question is how do we get that how do we get to that positive net present value? Maybe the Monte po is a good place to be a little bit more specific about power prices, because in most cases I would just say, look, it works. You don't have to, you don't have to worry about it. But lemme actually take just a brief moment and go into the details because I think it's a widely misunderstood topic. And you of course know that when we see the average power price being printed in the newspaper, whatever it's indeed the average of a lot of. Different dimensions when you're a commercial industrial customer buying solar. First of all the price zone matters a lot, right? So you do solar in Sweden in the two southern zones, which is SE three and SE four, and they obviously have, significantly higher prices than SE one and SE two because of the trouble of getting all of that wind power from SE one and SE two down to the south. Would be the first thing to think of. The other thing is that what we call the capture rate, which is the intraday volatility of prices is very good for solar. And now solar is the capture. The production curve of solar is pretty given. We always produce the most in the middle of the day. And in se four, for example, you have these very significant power shortages in the middle of the day, in the middle of the summer. This summer we saw something like, I think it topped out at a hundred. Hundred euros per megawatt hour in the middle of the day in SE four. And that's amazing for a customer with a PPA with solar because, any large scale PPA today will be 30 megawatt, 30 euros per megawatt hour or lower. That delta is just amazing. We're not only saving money, we're talking, making significant amounts of money. So I guess when you break down to the story, to that level of granularity, you see a different story, which is that the volatility is increasing. During the summer month, you have the peaks in the middle of the day and that's exactly what solar is addressing. So yeah, it's a good story.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:30

What about sort of demand growth in the region? We talk a lot about, demand has been falling in the Nordic region, both in Norway, Sweden, but there is talk of the electrification of heating and transport, of which. You guys are a part of, in a sense. What's your view of demand in the region, Harald?

Harald Overholm, CEO, Alight Energy: 12:45

Yeah, definitely. So electrification is happening. It's a long-term trend across, across the globe. It's a long-term trend in Sweden in many different ways, and it's coupled, especially in these very mature markets. It's coupled with another trend, which is the retiring. Fleet of centralized assets and of the grid. So you have these two macro factors that just make sure that there's gonna be a delta power gap coming up in the future. That's maybe the long term, but even when we look at this summer, there was power shortage in SE four in the middle of the day. Just people using too much power and too little power being produced. So I think we're seeing that here and now. And Sweden is not that large of a power market. We don't have that many centralized power producing assets. If one of them. Get switched off as you had these unscheduled interruptions with nuclear this summer. Suddenly you have a power shortage that's actually true here and now. And it doesn't matter how many EVs we add to that equation. It's actually true in this moment. I think this is something where distributed assets like solar that you build out incrementally, organically, the whole time. It's great. It's obviously addressing an urgent need here and now and that need is only gonna grow.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:53

Absolutely. What's your view Andreas on demand in the region and Norway in particular?

Andreas Thorsheim, CEO, Otovo: 13:57

Yeah, I think it's going to be super, super strong. Our estimates of Europe as a whole is that by 2025 will be. Installing residential solar power on the continent. Not just oto but all players for a yearly value of 9 billion euros, right? So it's enormous. And you can see countries like Poland which most people, think of like an entirely coal powered country. They did about 200,000 residential installations last year. They're the number one country in Europe. No one saw that coming two or three years ago. Sweden is a market that is right now the size of of the French residential solar market. So something's wrong in that equation, and it's not the size of of Sweden. It's France gonna 10 x. And I think the inherent logic of solar is super, super strong. If you can beat the grid price, if you can beat the wholesale power price, you can, this makes sense. Developers of property will see this increasingly, whether it's residential property or commercial property. The utility players are going to add utility scale solar, even in the Nordics, and it's so fast. You don't see it coming. But if there's a rationale as Harold said solar gets built out in a matter of weeks and months in the commercial sector, utility sector. And for households it can be a matter of days, right? We see demand coming up when there's a front story news about price hikes or big price changes. Afton and vg. They drive demand when they talk about power prices.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:19

You talked about Poland, but isn't it also, I'm surprised to hear that the Netherlands had showed a big increase in, in solar, and that's also not known for its space. But you both mentioned sort of growth areas and views to expand elsewhere outside the Nordics. Could you talk a little bit about what your plans are? Plans are uhs Yeah.

Andreas Thorsheim, CEO, Otovo: 15:34

We started in Norway in 2016. Went to Sweden in 2018. We acquired a French solar portal called In Sun. We trust 2019 and entered Spain organically by the end of 2019. So we've been there about a year. We entered Poland last month. And we're going into to Italy now in in February. Our tactic is to enter the large European countries to gain market share in those and expand our gross margin and take each country to profit within three years. That's the method. And if you look at the, at our European map, there are a few. Large European countries missing, I'd love to add them in the coming years.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 16:11

Do you work with retailers, power retailers, or do your customers are mainly off grid here, or what's the situation?

Andreas Thorsheim, CEO, Otovo: 16:17

We're entirely on grid existing housing. Standard panels. Very standardized. The way Ottowa works is that we sell solar panels online to consumers. Our software calculates the optimal project on their roof. Then finds one of the available installers in the area and conducts an auction between the installers we have on our platform to do that project in, in real time. So if you go to a Tobo SE or AEs or wherever you may live, you input your address, you will get the quote that is live and and committed from us and our installers. Immediately on the back end of that, we have about 300 installer companies that that provide the service and price their labor. Driving costs, scaffolding, everything that goes into it goes into a project. We are a marketplace for energy installations. That's how it works. We put it up on people's roofs behind the meter and they own the energy from there on and do with it, with their whatever they whatever they choose. And to us, the electricity grid and the electric retailers, they're they're part of a, of an ecosystem that we live side by side with them,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 17:18

but certainly some kind of disruption there as well into traditional ways of doing things. For you guys. Alight, where are your plans for growth and expansion?

Harald Overholm, CEO, Alight Energy: 17:26

I think very similar to what Andreas is saying, that we just look at the map and figure out where, where things are happening, where there's a strong and clear long-term demand. And also from the regulatory side where it's, where you can see that it's apparent that you can deploy solar and power purchase agreements at this today without trouble. It's been, we have the team on the ground in Spain, and then in Poland. Indeed. So Poland for us is very important market, just as Andrea is saying it's come from basically nowhere and it's accelerating very rapidly. And the first large scale power purchase agreement with a commercial customer was signed in Poland actually just four weeks ago. Not by us, but by a German company called, which signed with Heidelberg Cement. But I think that's just the tip of the iceberg. There's so much going on now in the market. And then in addition to Poland and Spain, places like Germany and Netherlands that you mentioned are becoming very important. And I think what's happened in those markets is that they have a long history of deploying solar on the back of very strict incentive regimes. So a very kind of artificial market, if you like, but that's now changed. Very rapidly. So in Germany now you can actually deploy unsubsidized solar ppa, banked solar, and then of course the maturity of the market is there because people are used to seeing solar. It's interesting switch in, in, in those markets that we wanna be a part of and we wanna lead that. We see that as, we see ourselves as the second wave of solar in Europe. So it's like the first wave was very much about capturing incentives and just deploying according to what's, what governments were asking for. Now the second wave is to build out organically a market-based solar that's just. Yeah, just based on the idea that you can, if you can create value for a customer then you can build solar. That's it.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 19:06

We see in, in, in Poland and Spain especially, you have a lot of very large scale renewable tenders and auctions. How do they coexist in with the PPA market?

Harald Overholm, CEO, Alight Energy: 19:15

Yes. That is a good question. And in Poland, especially now that's exactly what's happening there is there are auctions coming at certain intervals and in between you, you wanna do the PPA sort of transactions. They're co coexisting in a peaceful manner, I would say. But of course, it's up to you as a, as someone who's deploying in the market, if you have access to a particular site, you have to figure out if you think that you're gonna have the best return on your investment if you put it into the auction or not. But that, that's, the auctions ultimately, most likely will, if not go away, they will at least become. Somewhat secondary to the PPA market. So yeah it's not something that's disturbing. What was it difficult before was the feed tariff regimes, the FIT regimes, because typically they basically prohibited other deployment of solar. So in Germany you couldn't do solar if you didn't do it in the FIT regime, the auctions is not like that. The auctions is just. Essentially it's just a government buying a PPA from you. So fine. For us it works well.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 20:13

I'd just like to close on one final question, and this would be maybe on a wishlist for the for the green deal recovery post COVID, what would be your number one wishlist for to the regulators in Brussels? Harald?

Harald Overholm, CEO, Alight Energy: 20:25

It is definitely about evening out the regulatory framework across Europe. Just leveling the playing field and making sure, and this is something that the the European Commission has explicitly asked member states to do. So they've asked them to level the playing field for power purchase agreements and make. Unsubsidized commercial, solar efficient and just something that's clear. Something that works just as well as the old regime. I think that's on. Its certainly, no, no one in particular is against it but I would like to see if we could see some money invested in making that happen, then that would help the market. Because at the moment. It's a bit of a puzzle with the regional and national legislations for you. Andres, what would be top of your list? Oh, we like what the u has done already with being pro-consumer and pro third party ownership in in the residential sector. So very thankful for the. A pretty level playing field that has been created between the performers on the one side and the energy incumbents on the other. So a good start to that. I think where we want to go now is to reduce the permitting a load for residential solar. The EU could do well in, in copying Poland saying that anything below a certain threshold, for example, six or nine kilowatt can be installed on the grid without any permitting that would speed things up and lead to a faster deployment without much risk to the grid. I think, the permit acceptance levels are at 99% in most grids because the players know what they're doing. So you could do a. After the fact documentation rather than before the fact permitting that would accelerate the market and it would bring the market forward by at least a quarter.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 21:59

That's a refreshing view and not one you hear very often. There. You should learn from Poland. But guys, thank you very much for an excellent discussion and all your insights into a very dynamic and fast growing sector.

Harald Overholm, CEO, Alight Energy: 22:10

Thank you Richard, for having us. It was wonderful.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 22:12

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