This transcript has been generated using machine learning technology. While this technology was trained with CIBC terminology, it may contain errors.

Tom Heintzman: Welcome to The Sustainability Agenda, a podcast series focusing on the evolving complexities of the sustainability landscape. I’m your host, Tom Heintzman. Please join me as we explore today’s most pressing issues with special guests that will give you some new perspectives and help you make sense of what really matters.

Pull Quote (Paul Grod): Huge data centers are being told that if you want to connect to the grid, you must be flexible. You must be prepared to reduce your power consumption when the grid operator needs that. So we’re going to see significant growth in demand response or whatever it’s called in the future. You know, call it a VPP, call it demand response, but it’s basically flexible load.

Tom Heintzman: Welcome to our multi-part series on the role of electrification in the transition to clean energy. The series highlights the trends and market developments impacting the electrification value chain. In a recent episode, we discussed how battery storage technology has evolved and the impact that it is having on the electricity grid.

Today we’re going to dig a little deeper into that topic. In this episode, we’re going to discuss how commercial battery energy storage systems, in other words, batteries installed by large electricity users like manufacturing facilities, actually participate in the electricity market, both in Canada and in the US. We’ll also discuss how BESS or battery energy systems’ sibling, commercial demand response, works and how it participates in the energy markets. Demand response is when large users of energy actually reduce their electricity consumption at peak times because they can earn more from selling their energy savings, or the fact that they’re not consuming, than they can from the associated manufacturing. Finally, we’ll discuss how these concepts come together in what is sometimes referred to as a virtual power plant or VPP.

To help us explore these topics, we’re fortunate to be joined today by an old friend, Paul Grod. Paul is the President and CEO of Rodan Energy, which delivers innovative solutions to power producers, utilities, and large energy consumers in the US and Canada. In addition to running his business, Paul has participated in numerous committees and task forces to recommend how battery storage and demand response are integrated or should be integrated into the energy system. Full disclosure: prior to co-founding Rodan Energy in 2003, Paul was a corporate and investment banker here with CIBC World Markets. Paul, welcome to the show.

Paul Grod: Thanks, Tom, and appreciate you mentioning me being part of the CIBC alumni network and really appreciate everything that CIBC is doing on the electrification front.

Tom Heintzman: Well, thanks, Paul. And you’ve been at it for more than twenty years now in the trenches, well before batteries were in any way mainstream. So let’s begin at a high level. Can you tell our listeners a bit about who your customers are, what services your company helps provide and how your customers get compensated.

Paul Grod: The company today, Rodan Energy, we are a grid optimization company. And that really means that we work with three types of customers. They’re the large energy users, they’re the power producers, and the utilities and the grid operators. And we help each of those parties optimize the grid. Because as a grid operator, or utility, you’re trying to run your grid as efficiently as possible. And what we’re providing is grid flexibility services to that customer class.

The second customer class are power producers, and they are everyone from your large nuclear fossil fuel gas plants to wind, solar, battery energy storage, hydroelectric, and even pump storage. And so we work with each of those power producers in how they interoperate with the grid, in particular, how we put the systems in place so they can properly meter and monitor and also control and dispatch those resources. And we support them using our 24-7 real-time optimization center. Some people call it a ROC, we call it a ROC, some people call it a network operation center, but essentially we dispatch them. As part of that service, we’ve built sophisticated AI-driven with human-in-the-loop algorithms, with sophisticated data sets, with a full-time energy trading team that helps to maximize the revenue that these power producers are earning, as well as they’re able to they’re meeting their grid commitments when they’re bidding in and having to deliver on their commitments.

And the third customer class, and quite probably one we’ll spend most of the time talking about today, are the large energy users. These are manufacturers, they’re data centers, cold storage, municipal water and wastewater, commercial real estate. And we do three things for that customer class, for the large energy users. Number one is we help them reduce their total energy spend. Number two is we help them hit their sustainability targets because the solutions we are implementing help make them more sustainable. And then number three is helping them with grid resiliency. And we work with the largest and most sophisticated energy users.

And the types of services we’re providing to them is around how do we optimize their interaction with the power grid. So in markets where there’s, for example, a day ahead and real-time market, we are dispatching and optimizing them both day ahead and real time. We are using their flexibility to help them reduce their total cost of energy and providing it as a grid resource.

And Rodan Energy was really the pioneer in Canada on demand response. Some people call that VPP. And that we’re able to aggregate and offer to system operators on an aggregate basis. So they have one button to push and they can reduce hundreds of megawatts in different zones wherever they need it and how or quickly they need it.

So today, Rodan Energy, we dispatch and manage over 1500 megawatts of demand response and flexibility across a number of North American energy markets.

Tom Heintzman: Paul, let’s make it really as practical and tangible as possible. I’m a steel plant or I’m a big cold storage unit. how exactly does it work? How do I decide whether to shut down or not shut down? Like can you just walk us through an instance of where capacity is required and how information flows and how it all gets affected.

Paul Grod: Hundred percent. So what we do is we would work with those large energy users and basically develop an engineered solution for them to determine what is it possible or they can’t do based on their current operating parameters.

For example, if you’re a steel manufacturer and you’ve got arc furnaces, you can turn off those arc furnaces within seconds. And you have a very fast acting resource. So we know what you can do there. If you’re a cement plant, you have a grinding process. We know we can probably get that shut down within about an hour or two. If you’re a cold storage, you could drop quickly. If you’re some sort of other process, it may take longer. So we assess how quickly you can respond. And then we will optimize that depending on your operating parameters because the faster you can act, the more value it has to the grid. So we could get you more revenue.

We have a huge aluminum smelter in upstate New York that is able to drop 60 megawatts of power within seven minutes. That is a very valuable resource. And we are able to dispatch that kind of resource almost instantaneously through a direct connection between a New York ISO, our ROC and the customer site. What we’ll do is we’ll build that optimization plan. And then we will work with them to see maybe there’s a value stack and maximize the economic opportunity for that large energy user. We would then put the systems in place, the metering, the monitoring, the SCADA systems, so they know what’s going on, and we know what’s going on. The system operator knows what’s going on and provides full visibility into this resource.

We’re also looking actively, Tom, to build in additional resources. So we understand that flexibility, there’s limitations. Your average manufacturing plant can maybe go as deep as 20% of their load. Some of these larger, more commodity-based, like steel and cement, can go sometimes even deeper than 50%. But they can’t go much further than that.

What we’re looking to do today is build in behind the meter battery energy storage systems. So they have maximum flexibility. And that gives them three things. Number one, helps them reduce their total cost of energy, where we’ll put in that battery, we will operate it for them, and we’ll make sure that they’re reducing their total cost of energy. We share those savings with them. Number two, they’re helping to hit their sustainability targets. And number three, they’re enhancing their grid resiliency quite dramatically. And so we’re seeing an evolution in the kind of technology that we can bring into bear today, which has become more much more cost effective than it was say five years ago.

And so as a result, these technologies like battery energy storage systems and often paired with other resources like solar that we’re able to build together and almost build microgrids in some of these places. We have projects where that also incorporates electric vehicle charging that into that whole environment as well. And we’re able to optimize how all those different assets are working together in order to ensure that customer has the best economic value for themselves as able to provide a resource to the grid.

So it’s often a multi-layer. You know, we start with flexibility, curtailment, demand response, reducing your power consumption based on a process you have in your facility. And then we try to build on that and help educate their operating team on how they can go deeper, and then implementing other technologies like battery energy storage systems behind the meter. And the great thing about behind the meter resources, Tom, is the interconnection queue issues are significantly reduced. As we know, putting big battery systems on the grid, the challenge is that the grid is not able to get them in the queue quick enough. If you’re behind the meter, you already have the interconnection. So these resources can be deployed much more quickly than grid-connected resources.

Tom Heintzman: Well, there’s a lot in there. Just going to tease apart a few concepts. Some of our listeners are in the energy industry, but others are not. One was that batteries can help reduce the cost of electricity for your clients. I understand that to be because it both enables them to offer more in terms of demand response, so get paid more from a utility for the demand response. And because they can arbitrage the cost of electricity by storing charging these batteries up overnight when the cost of electricity is low and then using it during the day in order to avoid using high priced daytime electricity. Did I get that right or is there more that you would throw in there?

Paul Grod: I call that the value stack. So there are depending on the market, almost all deregulated markets have some form of a capacity product. They’re paying you to stand by and be ready to reduce your power consumption for short periods of time. That’s your capacity price. So you’re getting a capacity price often through some sort of an auction mechanism. That’s revenue stack number one. Then revenue stack number two is if you are called to reduce your power consumption, you’re also paid an energy payment. And then number three is reducing some sort of capacity charge on the grid.

Tom Heintzman: Okay, I’d like to talk about a specific jurisdiction in the United States. I think you’ve had a presence there for some time, but you’ve just recently won some large contracts in PJM, which is the largest electricity grid in North America, and it stretches from Chicago to the Atlantic coast. PJM just held a capacity auction and you were successful on behalf of your clients. Can you give us a bit of the background on this. What is the situation in PJM? Why are they procuring capacity? What types of capacity did they procure and at what cost? And why was demand response and why Rodan in particular successful?

Paul Grod: As you mentioned, Tom, PJM is the largest electricity market in North America, covers about 13 states, and their demand is growing much faster than their supply. So more people are putting load on the grid than there is power being built on the grid, which is not a great combination. Data center load in particular in PJM is at pace that nobody ever planned for. We have coal plants that are retiring and a new generation is stuck in what’s called the interconnection queue to be able to connect on.

And PJM for since market opening for well over a decade, they have been running an annual auction where they procure all their power. So they procure a hundred and forty thousand megawatts, hundred and forty gigawatts of power through this annual auction, which is a three year ahead auction. And so they’re finding challenges today in procuring new generation using this mechanism. And not to get too deep in the weeds here, but they’re actively considering introducing what’s called a reliability backstop procurement auction and they’re going to try to procure up to 15 gigawatts of long-term energy, which will be new for PJM. It’s a bit like an RFP, but it’s more market based and it’s open to many more power producer or demand response provider. So you’re either reducing power off the grid when it needs it or you’re putting power onto the grid when it needs it.

PJM is stuck in this position where more data centers are being built in PJM than anywhere else in the US. But 50% is being built in the US today. And they just can’t keep up. So the auction they just cleared, they cleared, I said, about 140 gigawatts of power in that grid, they have a cap, and so it’ll clear at the ceiling. This is the third year in a row that it’s hit the cap. and the market operators said that if it wasn’t for this cap, the price would actually be 70% higher than it is right now. Just to put into perspective, it’s slightly higher than the Ontario capacity auction price. it’s $120,000 US per megawatt, and Ontario is about the same. So essentially very similar, but I think it demonstrates the market dynamics that both markets are facing quite a bit of supply crunch.

And so they’re actively trying to find ways on how they bring more power under the grid. And you know, I think every jurisdiction is struggling with that today.

Tom Heintzman: And Paul, I think I’m right in saying there wasn’t enough power offered to this most recent tender. And that’s why they’re looking at doing this supplementary program that you mentioned. Is that fair to say? It doesn’t mean that there’s not going to be enough power in PJM, but that they’re closer to their critical limits than they would like to be.

Paul Grod: A hundred percent. They were short of their buffer. and in PJM it’s about seven thousand megawatts and that’s what they’re short. They’re just on the razor’s edge. And that’s why they’re going to be taking some pretty bold steps, things that we haven’t seen before, with a long term fifteen year procurement with this reliability backstop procurement. And it’s going to happen quickly. It’s going to be happening this fall. We’re certainly hoping that our financiers are going to be able to help us get there because it’s an incredible opportunity to build out some exciting assets in some of the US markets which are very, very busy today.

Tom Heintzman: Paul, Wood Mackenzie says that VPP or virtual power plant capacity in the United States is increasing rapidly. It rose 13.7% in 2025 to 37.5 gigawatts, or thirty-seven thousand five hundred megawatts, which is larger than the entire capacity of Ontario. And projections are that it’s going to keep growing to potentially serve 80 to 160 gigawatts of total peak demand in the US by 2030, so growing threefold from 2025 to 2030. What’s fueling this growth and what’s needed in your industry to be able to address this growing demand, to be able to get that capacity online in time.

Paul Grod: I think it starts with confidence that the system operators and the grid operators are going to be consistently procuring these resources. I think what often happens in a lot of markets is system operators like generation. Generation, they send a dispatch signal and you have one huge generator that turns on their natural gas and they deliver thousands of megawatts of power. And it’s easy for a grid operator to watch it to see that it’s happening and to rely on it.

When you have thousands, if not tens of thousands, of VPPs, like basically individual virtual power plants, again, whether that’s a battery that’s operating at a cement plant or it’s a cold storage facility shutting down their power for a short period of time, or it’s a residential thermostat coming off or an electric vehicle coming off grid. That’s hard to manage. It’s taking a paradigm shift, a culture shift within the market operator community to fully appreciate the value of this. They’re starting to use it more and more so. And I think it’s just really important for us as the VPP providers to ensure integrity of this and reliability of this resource. That’s certainly one part of it.

The other part of it is uncertainty around pricing is always a challenge because the price of capacity in Ontario basically went up by what over 50% year over year from one year to the other. That’s always hard to invest in, right? It’s always hard to say to an investor, we’re not sure what the price is going to be next year. This is where the regulators, the ISOs need to start thinking about. How do they ensure the integrity of these solutions by giving a clear price signal and a long-term price signal to where these assets are going to be?

We know that when we compare even in Ontario, the ELT procurements with the cost of the capacity auction, the cost of the capacity auction is half of what the cost of the ELT procurement is. And I’m not saying one is bad and the other is good. I mean you need a full range of resources, but I think it’s important to put into perspective.

These VPPs are going to grow quickly because we see so much more electrification happening on the grid, right from the residential level to the largest industrial. And it’s a fantastic resource that really needs to be leveraged because it is the lowest cost kilowatt that can be used on the power grid. So we see that that’s going to continue to grow, and works to be part of that.

Tom Heintzman: So last question, Paul. We usually ask our guests to look into their crystal ball and tell us what they think the future holds. How do you see demand response, BESS, and VPPs developing over the next call it five years? What important changes do you think we’ll see going forward in that period of time?

Paul Grod: There’s a term, I’m not a huge fan of it, but I think it tells a story. We’re going to see a lot more prosumers. I don’t know if you’ve heard that that word prosumer, which is basically a consumer of power now becoming a producer of power and vice versa. And so you’re going to see a lot more of that happening, where you’re going to have a manufacturing plant have their own power system, and that is being driven largely by lack of other options.

And we’re seeing with data centers right now, they are being required by governments, by system operators, by utilities to bring their own power. And we’re going to see a lot more of that.

The challenge we’re going to have, Tom, is that power going to be clean or not? And depends on how you define clean, but we’re seeing a lot of natural gas generation being put on the grid through these data centers because they’re being forced to bring their own power because they are such great energy hogs. That’s not sustainable. So this is where these data centers are going to be forced to through regulation, not because of cost, because the value that they’re going to get out of you know dispatching or participating in demand response is not significant enough for them to move the needle for them.

That’s why we’re going to see regulation come to play be able to require those and we’re seeing that today in PJM, we’re seeing that in other markets where the huge data centers are being told that if you want to connect to the grid, you must be flexible. You must be prepared to reduce your power consumption when the grid operator needs that. So we’re going to see significant growth in demand response or whatever it’s called in the future. You know, call it a VPP, call it demand response, but it’s basically flexible load. And I think the new reality is that all these loads are going to be actively managed.

And we’re going to try to see that there’ll be more battery, more solar, you know, to be able to balance that with the natural gas generation. But it’ll be a very, very dynamic grid. And that’s where the role of an optimizer like ourselves it becomes incredibly important because we’re the ones who have that sophisticated energy markets knowledge. We have the technology to be able to design the algorithms and put the systems in place to be able to control and monitor these projects and it’ll be an interesting dynamic between the load side and the grid operators and I think it’s going to be exciting.

These are the things that are going to allow for a deeper permutation of renewables because as we know we need flexibility in order to enhance renewable power. We need to be able to have resources like demand response and battery energy storage systems in order to have more renewable generation to manage some of the intermittency that we see with renewables. So I think one is very complementary to the other.

Tom Heintzman: Fantastic. Well, Paul, thanks for taking the time to join the show today. You’re a wealth of knowledge. And thank you to our listeners for tuning in.

Paul Grod: Thank you, Tom. Real pleasure, as always.

Tom Heintzman: Please join us next time as we tackle some of sustainability’s biggest questions, providing you different perspectives to help you move forward. I’m your host, Tom Heintzman, and this is The Sustainability Agenda.

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Demand response and the new economics of grid flexibility

Tom Heintzman

MD & Vice-Chair, Energy Transition & Sustainability

CIBC Capital Markets

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