Today's guest is Joe Zhou, CEO of Quidnet Energy. Quidnet Energy is transforming the power sector towards renewable energy through the deployment of low-cost energy storage solutions. Quidnet's innovative technology repurposes existing resources to quickly implement solutions to our most pressing energy and climate challenges. Attracting significant investment, including Bill Gates's Breakthrough Energy Ventures, Quidnet's solution is a potential game-changer in balancing the grid as intermittent renewable resources are added to the power generation system. In 2017, Joe assumed the role of CEO. Before Quidnet Energy, Joe was the Director of Business Development at Green Charge Networks, which ENGIE North America Inc. acquired in 2016. Joe also served as an associate at McKinsey & Company and a Process Engineer at ExxonMobil. Joe holds a BS in Chemical Engineering from the University of Alberta and an MBA from Harvard. In this episode, Joe explains Quidnet Energy's unique solution, his motivations to work in climate, and how he ended up heading Quidnet. We also dive into the viability of battery storage, the role venture capital should play in accelerating climatetech solutions, and the future of Quidnet. Joe is a compelling guest, and I was excited to learn more about the startup. Enjoy the show! You can find me on twitter @jjacobs22 or @mcjpod and email at info@myclimatejourney.co, where I encourage you to share your feedback on episodes and suggestions for future topics or guests. Episode recorded September 9th, 2021
Today's guest is Joe Zhou, CEO of Quidnet Energy.
Quidnet Energy is transforming the power sector towards renewable energy through the deployment of low-cost energy storage solutions. Quidnet's innovative technology repurposes existing resources to quickly implement solutions to our most pressing energy and climate challenges. Attracting significant investment, including Bill Gates's Breakthrough Energy Ventures, Quidnet's solution is a potential game-changer in balancing the grid as intermittent renewable resources are added to the power generation system.
In 2017, Joe assumed the role of CEO. Before Quidnet Energy, Joe was the Director of Business Development at Green Charge Networks, which ENGIE North America Inc. acquired in 2016. Joe also served as an associate at McKinsey & Company and a Process Engineer at ExxonMobil. Joe holds a BS in Chemical Engineering from the University of Alberta and an MBA from Harvard.
In this episode, Joe explains Quidnet Energy's unique solution, his motivations to work in climate, and how he ended up heading Quidnet. We also dive into the viability of battery storage, the role venture capital should play in accelerating climatetech solutions, and the future of Quidnet. Joe is a compelling guest, and I was excited to learn more about the startup.
Enjoy the show!
You can find me on twitter @jjacobs22 or @mcjpod and email at info@myclimatejourney.co, where I encourage you to share your feedback on episodes and suggestions for future topics or guests.
Episode recorded September 9th, 2021
To learn more about Quidnet Energy, visit: https://www.quidnetenergy.com/
To learn more about this episode, visit: https://myclimatejourney.co/ctss-episodes/quidnet-energy
Jason Jacobs: Hey, everyone, Jason here. I am the My Climate Journey show host. Before we get going, I wanted to take a minute and tell you about the My Climate Journey or MCJ, as we call it, membership option. Membership came to be, because there were a bunch of people that were listening to the show that weren't just looking for education, but they were longing for a peer group as well. So, we set up a Slack community for those people that's now mushroomed into more than 1,300 members. There is an application to become a member. It's not an exclusive thing. There's four criteria we screen for, determination to tackle the problem of climate change, ambition to work on the most impactful solution areas, optimism that we can make a dent and we're not wasting our time for trying, and a collaborative spirit. Beyond that, the more diversity, the better.
There's a bunch of great things that have come out of that community, a number of founding teams that have met in there, a number of nonprofits that have been established, a bunch of hiring that's been done, a bunch of companies that have raised capital in there, a bunch of funds that have gotten limited partners or investors for their funds in there, as well as a bunch of events and programming by members and for members, and some opensource projects that are getting actively worked on that hatched in there as well. At any rate, if you want to learn more, you can go to myclimatejourney.co, the website, and click the become a member tab at the top. Enjoy the show.
Hello, everyone. This is Jason Jacobs, and welcome to My Climate Journey. This show follows my journey to interview a wide range of guests, to better understand and make sense of the formidable problem of climate change, and try to figure out how people, like you and I, can help.
Today's guest is Joe Zhou, CEO of Quidnet Energy. Quidnet operates at the nexus of energy and water to enable predictable delivery of power from intermittent sources and large scale deployment of renewable energy. Their breakthrough renewable energy technology uses existing natural resources to store renewable energy over long durations and in large quantities. This drives down large scale electric grid storage costs to half that of traditional pumped hydro and enables wide scale deployment of renewable energy across the power grid. Quidnet is backed by leading investors, including Breakthrough Energy Ventures, Evoke Innovations, Trafigura, and Prime Coalition. Quidnet also partnered with multiple government agencies for advanced energy technologies, such as U.S. Department of Energy and NYSERDA.
I was excited for this one, because Joe is an OG in climate tech. He's been at it for years. Quidnet has been making meaningful progress. And I couldn't wait to get his perspective on how to bring this deep tech innovation to market, where the gaps are in the capital stack, what's some of the biggest challenges and surprises have been on the journey so far. And also, it's fascinating to talk to Joe about the new wave of climate tech innovation that's been starting as more of Silicon Valley awakens to the climate emergency and wants to find things to build in this area. At any rate, it's a great discussion, and I hope you enjoy it. Joe, welcome to the show.
Joe Zhou: Thanks, Jason. Thanks for having me on the show. I'm very excited to talk to you.
Jason Jacobs: Well, I can't believe it's taken this long. Because I've been at this almost three years, and I feel like Quidnet popped on my radar very early on. I don't even remember how. But yeah, we're just meeting and talking for the first time today, no prep call or anything. So, who knows where this discussion's going to go [laughs].
Joe Zhou: Yeah. You know, I think the first time you heard Quidnet was also probably the first time I heard you. And that was on Matthew Nordon's episode way back when.
Jason Jacobs: Yeah, I feel like, I don't remember the exact number, but I feel like you might've been like single digits.
Joe Zhou: Yeah, yeah.
Jason Jacobs: Like, very, very, early.
Joe Zhou: Yeah.
Jason Jacobs: Yeah, because I'm in Boston and Prime's in Cambridge. And yeah, I got introduced to the Prime team early. And that's a... Gosh, I mean, that is... I think when I came in, I was worried about kind of just sticking with the bits. And so, I had this bug in my ear of like, you know, deep tech. And so, I, which I had no experience with, and so I tried to get closer to, you know, the, the Primes, and fusion, and fission, and carbon removal, and geoengineering. And now I think my perspective's a lot more well-rounded three years in. But that is, that is where I started with [inaudible 00:04:40]. That was pretty intimidating. I won't lie to you.
Joe Zhou: Yeah. That has been a long time. And Prime really started with that thesis, right, of finding a lot of these that are hard, literally and figuratively. And I think we were their first investment, and they were our first investor. And they really helped the company get off the ground and get some data to demonstrate that something like what we're talking about can be done.
Jason Jacobs: Well, what are we talking about. What's Quidnet Energy?
Joe Zhou: So, Quidnet Energy is a energy source company that's mobilizing the oil and gas supply chain to bring pump hydro storage underground. And doing that so that electricity's not only renewable but also reliable. The way that this system works is, if you look at how 95% of the world source energy, it's actually not batteries. It's pumping water up these big mountains. And when you do it that way, you need the mountains. These are mega projects. They're highly concentrated that take decades to get ready for construction. And so, you, you have this phenomenal capability for storing electricity that's been proven over a hundred years, but just not available to vast parts of the population. And so, what Quidnet does, instead of pumping water up the hill, we pump water down into the ground and store energy as pressurized water in the subsurface. And when you do that, you bring that same capability to a lot more of the population, and a lot more of the power grids that are undergoing transition.
Jason Jacobs: And how did all this come about? What's the Quidnet Energy origin story? And either after or in parallel, it'd be great to learn about your journey as well.
Joe Zhou: Yeah. You know what? I'll just do a quick bit on myself, because it really have intersected Quidnet at a point where there's actually a separate origin story for Quidnet where I happen to kind of intersect with the founders there at a really interesting time in both the Quidnet's lifecycle as well as where I was in life.
So I, I grew up in China. And my parents and I moved to Canada during kind of the middle of the oil sands boom. This is 1999. Alberta oil sands, they were technical immigrants. They work in the oil and gas... They still work in the oil and gas industry. I grew up in the oil gas industry. I went to Exxon as a chemical engineer. That's my first job. And then, shortly after joining, I just became really intrigued by what was happening in the power space. So, I left. I did a bit of walkabout. Professionally, I went into consulting, I went to business school.
And then, halfway through business school I dropped out to go join this battery storage company in the Bay Area. So, at that time, and I think it's still the case today, I learned that, look, wind is going to get cheaper, solar's going to get cheaper. But one thing that hadn't been figured out is battery storage. And so, I went, I left school, I spent a year leading the business development team at the startup looking at how this market would form all over the world. That company was acquired in 2016 by a French power company called Engie.
And after the acquisition happened, I had a chance to reflect, and really kind of sit back and look at the big picture of what's happening in power space. And there was a couple of realizations that kind of led me to leave that space and look for something else. And essentially, the realizations more or less look like, you know, for the past hundred years, electricity has been like a just in time delivery system, more or less. You turn your switch on and electricity is there. As it's generated, it's being consumed. And that system has worked largely because there's just an unimaginable amount of storage that happens upstream of the electricity value chain in the form of gas in caverns, gas in pipelines, coal piles, and nuclear fuel rods. We don't think much about that, but the reason why the electricity grid is able to run reliably is just because of just an incredible amount of storage upstream of the value stream, something like hundreds of terawatt hours worth of storage today. That's just in the U.S.
And for us to shift that storage into the electricity segment of the value chain, I did not see kind of lithium ion batteries as a cost effective way and practical way of doing it. I think it's very practical for vehicles and I'm very excited about what's happening there. But for it to be the solution for storage and power grid, I think we need things a lot cheaper and can be built for low cost and much longer durations. And so, for that reason, I left.
Right around my time through that journey, a gentleman by the name of Howard Schmidt was kind of going through his own, his own journey as well. So, he's somebody who grew up in Texas in the oil fields. His dad was running around the oil fields. He spent his life in a combination of research, applied research, technical institutions. Most recently, he worked at the Advanced Research Center for Saudi Aramco looking at how to pull the last drops of oil out of their reservoirs. And he kind of had an aha moment for him. So, he's [inaudible 00:09:20] existing technology. And the aha moment for him as kind of a one person's trash, another person's treasure, kind of moment where for the past 500 years as well the oil and gas industry has been dealing with water. Pressurized water in the subsurface is not a new thing. It's never been a monetizable thing, but it's not a new thing in oil and gas industry, and he's observed that.
And so, he realized that if I could tune those mechanisms for storing water in pressure, I can essentially take the mountain away from pump hydro and replicate pump hydro in part of the country, again, that don't have mountains. And so, he stared the business. He intersected Matthew. Matthew private funded the business through a few kind of initial field tests. And then, where our paths all merged together was in 2017 where I met Howard, brokered by Matthew and another founder of the company. And after kind of six month courtship, we started working together. And I have been with the company and Howard has been with the company ever since.
Jason Jacobs: So, what were you doing at the time? Were you still reflecting?
Joe Zhou: Yeah. [laughs] I was, I was still reflecting. I was still reflecting. I was looking around for what to do with my life, but also what to do in terms of what are some of the technologies that can set that cost thesis for storing on the grid much cheaper for much longer duration.
Jason Jacobs: So you, you said, if I'm hearing right, your realization was that storage was fundamentally important, and that lithium ion wasn't going to get us where we needed to go, that there might be some use cases, like EVs, where it might be good enough, but in some fundamental ones it will not. And if I'm hearing right, and correct me if I'm wrong, you set out on an expedition to understand what a better answer would be for long duration storage to make renewables more reliable.
Joe Zhou: That's right. And as part of the exploration, that's when I met Howard, that's when I met Quidnet and got to know Howard. Matthew's already on the board. And after six month diligence that I did personally with Howard on the company, came to some really exciting insights on what the technology could be for Quidnet. And that's led us to form or led me to join the company a-a-and run it since.
Jason Jacobs: So storage is one of these areas where, I mean, it comes up again and again as a big fundamental lever for, like we said, making renewables more reliable. There's factions that talk about how lithium ion will actually take us much further than, than some think. There's factions that say that flow batteries might be some portion of the answer. As someone who built a fitness app company for the last eight or nine years before getting into learning about climate change a few years ago, my eyes still glaze over when we talk about this stuff. It's very intimidating. It's hard to understand that trade offs. It's hard to understand how to assess these different technologies. So, before we get too far down the path of Quidnet, can you walk me and listeners through your assessment process? What are the key buckets in the landscape as you see it? And then, just high level, what are some of the trade offs or pros and cons? And how do you end up getting to the fact that Quidnet was where you wanted to anchor and spend the next days of your career?
Joe Zhou: I think that when you look at the power markets, what's nice about it is that it is a pretty... There aren't too many qualitative factors. You can typically quantify what it takes to win. So, when you take the energy storage landscape, and you can essentially take each of those technologies and distill it down to a set of metrics. And some of those metrics, generally, the community has a pretty good understanding of what our metrics that are most important.
What I found to be most important, number one, overwhelmingly is CapEx. Number two is asset life. And then, you get some distant second, thirds, or actually distant third, distance fourth, roundtrip efficiency, OPEX does matter. Roundtrip efficiency doesn't matter too, too, much. But once you start going below 50%, then things start to add up a bit. OPEX doesn't matter so long as you're within reason relative to a lot of the other technologies in terms of maintenance cost and service cost. So, CapEx was a big deal. It is the biggest deal, in my opinion, when I started looking at the space. And then, asset life second deal.
So, that is what... It's competitive relative to kind of what the space is looking for. And I think there is then another vector, which is, what does it take to get things to scale? And that vector is, you know, things comprised of, what is the underlying scientific risk in that journey? What is the total supply chain investments that you need to do to get to scale? And what are the things that you need to do to scale up? What is the scale up risk as well as you go down that [inaudible 00:14:06].
So for me, when I look at the space, it's, what is the potential of a given technology in terms of its CapEx, its longevity, its OPEX, RTE, and so on? And then, what's the journey? Is this something that everything's, you know, supply chain's already there for or is this something where, if you make... If it works, it also involves you back integrating into the supply chain because there's some rare earth metals supply chain that you need to scale up for that to provide, you know, the reactions components that you need to do the technology. And so, that's really the main, kind of two main levers, or two main dimensions that I looked at during the search.
And you can kind of plate the world of, of technologies on there. And I think you get some pretty wide things along that spectrum. You get things like us. A lot of the mechanical storage systems, the thermal storage systems, I think that fits in the category of the supply chain is fairly readily available and can de-deploy large scales. And that's when you kind of just look at the relative cost metrics across the technology. And then, there are ones that have a really different journey ahead of them. Neo electric chemistries is one of those, and that both in solid form and, and, liquid form. On that end of the spectrum, I think it is a different level of lift that's needed to get those technologies to market, different supply chains, level of investments that necessary. That's not trivial to be able to deploy at scale.
So, I took a look at that entire set across those dimensions. And that what, when Quidnet came, I saw a really attractive cost profile, a really attractive journey to get there. The journey to get there wasn't necessarily reinvent a new supply chain or new chemistry. It was just, okay, we'll take a, one megawatt pump, and you go instead of that one megawatt pump, go buy a three megawatt pump. That was a scale up journey that would be needed to scale the cost down for these systems. And that I felt like was something that was very doable and was then a bet that I was really excited to make. The entire supply chain's already there. The cost profile that could get to extremely attractive. Right?
So, the coolant of the battery tray for our system is actually building out a water pond. And that's very well known in terms of how that it done. And you can characterize and quantify exactly what that's going to cost. And the bulk of the system, actually, for us, is actually almost inverted relative to batteries. We don't bulk... The majority of our cost is not in the battery trays, so to speak. The majority of our cost is in what it takes to drill the wells, install the different facility, and all those things. Whether you have one hour storage or a 10 hour storage, or even more hours of storage, it's going to be the same cost. And so, that was also very compelling component of the analysis for us.
Jason Jacobs: And set the stage for me and for listeners in terms of when you joined Quidnet, what did the company look like at the time, and what did the market look like at the time? And then, we can kind of get into some of the twists and turns over the last few years.
Joe Zhou: Yeah, okay, so 2017, there was actually no full time employees at that time. So, it's two part-time founders, both had other things that they were working on. Worked together with Prime and Clean Energy Ventures in Boston to fund some field tests to show that this can work. And that was, that was essentially it. At that point, that's where I joined. They did some field tests on the basis through those results they're looking at what to do with the company next with no employees. And when I joined, I was employee number one.
I would say, the state of the market at that time is very different than what it is today. I think state of the market at that time was still unsure about when and how much long duration storage is needed. The dialogue, I think, is very different today. I think, at that time, there was the na- Frankly, looking my deployments were still nascent. And they are still nascent.
By the way, just as a matter of scale, just to put things in perspective, you know, if you look at the total gas storage in the U.S., it's like a few hundred terawatt hours. And last year, was a record year for lithium deployments, and that was a few gigawatt hours. So, we are one tenth of 1% of 1% of the storage capacity just in gas that the entire energy system has been relying on to remain reliable. And so, I think there's, there's a long ways to go.
And then, I think that relates to also that I don't think... This is definitely not a time to pick a winner yet in long duration storage and storage in general. I think we need everybody to push incredibly hard to really fill just the size of the need that the grid is demanding for, for it to remain reliable as we do this transition.
Jason Jacobs: So, what were the biggest priorities of the company in 2017 when you joined?
Joe Zhou: So, in 2017, priority number one, as the CEO, is to raise funds and build a team, and start to kind of go after this thesis with a high level of resources. And so, I joined in 2017. The existing investors extended yet another kind of feed round to the company. We're extremely thankful for that. That funded the company through it's series A raise. We raised our series A round with two lead investors, Breakthrough Energy Ventures and Evoke Innovations, both well-known entities in the space. And they've been just incredible sponsors of the company ever since.
Since that series A, we've also won around $10 million of government contracts, and subsequently had another private financing round. But really, since 2017, for the first year, it was raise the funds, build the team. And we did that. That took about a year and a half. And then, really, since kind of middle 2018, late 2018, till now, we've been in what I would call the exploration phase of this journey. Right? So, if you look at any kind of subsurface resource development play, there's usually three phases, exploration, right. And oil gas, is there oil? So for us, is there this kind of geologic pressure attribute that we are leveraging as a platform for storage? What comes next becomes appraisal and development, which is more the commercial scale implementation of the technology and the roll out of the facility.
So, even though we have this kind of underlying patent position over the technology of how to do this type of energy storage, we've taken the view from the very early days that for us to be successful, for us to have the impact that we're looking for, it's probably not through a model of license it out from year one. This is, we've got to go into the field ourselves, and we got to demonstrate that this can work. And not only that it can work technically, but also it can work with the stakeholder environment around it. Are the landowners okay with this on their site. Do the leases add up? Are the regulators okay with us doing this? And so, we spent a lot of the time in the past few years really working on that.
So I, so to kind of go back to your questions, early days though, the first kind of year and a bit of my time at Quidnet was just raise the funds so we have the resources to do something and build a team. And we had a very, very, small team in the early days doing some incredible stuff. Crazy stuff, actually, in retrospect, now that I think... You know, when we think back to what we were trying to do with the resources that we had.
Jason Jacobs: There's a bunch of things you mentioned there. You mentioned the tech itself, so that when there is this environment of geological pressure that you know what to do with it. You mentioned that, that environment needs to be in enough places so, as you said, the, the exploration phase. And then, you also mentioned the stakeholders, that when you find it and you know what to do with it, that there aren't any unintended consequences or things, or not in my backyard types, or otherwise that will make it not possible politically or from a permitting standpoint or things like that for you to do what you do. So, which of those things do you feel like are proved out now? And then, which of the things that might be in process or might be on the come at some point down the road?
Joe Zhou: Yeah. So, we're coming to the end of our exploration process today. And so, where we did this is, we intentionally took a very wide spread of geologic and regulatory contexts and settings to do this to show... I mean, our current investors, we want to know, our current investors want to know, prospective investors wanted to know, can this be done in multiple places? And we always had believed that, because we think that we are probably the least picky of rocks when it comes to subsurface resource development. But we needed to prove that in the field.
So, we went to Texas, Ohio, New York, and Alberta as a start. And for each of those places, it's exactly the things you just talked about. It's validating the rock, chem work. And I'll talk a bit about what that entails. Validating the regulatory context for deploying these assets. Working with the local communities. As you can imagine, the spread between doing this Texas versus doing this in New York is very, very, different. And setting up that framework for commercial deployment in those places.
I think we feel very good about validating that the resource is there. So, we've seen storage pressures in like flat, flat, prairie that's the equivalent to 1,000 to 2,000 feel of mountain. You know, equivalent to having a 1,000 to 2,000 foot tall mountain there to do pump hydro. So these are places in the country that never had that access or that kind of capability. We've been able to validate hy- roundtrip efficiencies of the storage reservoirs as we push water in and out of them. We've been able to validate water quality, right, of the water as it cycled through the system. And on the basis of all those, establish the parameters and the models to say, "Hey, we've seen it at this scale. For us to scale up, this is what it's going to take. This is the volume that it'll take. This is the type of engineering we need to do in the subsurface and above ground for us, for that to scale up." So, really, the past two, three, years have been focused on establishing and ground truthing those things.
We feel very good about... I'm very proud of, I should say, our team for how we've been engaging with the regulators in the local community. I think we took a very measured approach. Right? Very transparent approach. As you can imagine, in place like New York, have not had a simple history with people drilling underneath the ground. And the communities are naturally going to be curious about what exactly we're doing. So, we go in, we've had meetings with the county, we've had meetings with the local town board, and we've had meetings with concerned citizens, to say, "Hey, this is what we're doing. This is why we're doing it. This is how the process works. Right? We pump water into the subsurface. It's water. Here's the... When we use additives, this is the list of additives. It's clay. It's, it's kind of these gels that we use to seal the rock." I think we've established a pretty good foothold.
But that's going to be something that we need to work on as we get into new parts of the country. Right? So, as we go into other states looking at working with different kind of districts with the EPA, different local, state level regulators. So we have a pretty good playbook that we can build off of from the work that we've done over the last two to three years.
Jason Jacobs: So, what are the key priorities, say, over the next 12 months?
Joe Zhou: Over the next 12 months, kind of our focus is three fold. One is where we've already made a home for ourselves, we want to expand. We want to bigger wells. We want to take larger lease positions and really prepare for these large grid scale deployment. We want to extend ourselves into markets where we're getting some really interesting pulls. And obvious place that we're not at today is California. And there's some other ones where we're seeing kind of local customers pulling us saying, "Hey, what, what about our current setup that we've just previously had not had the bandwidth to address?" And then, the other piece is to kind of prioritize the partnership opportunities that we have in the funnel and really crystallize on one or two regional partnerships to help us accelerate kind of those two prior goals. I'll say that is the focus for the next 12 to 12 months for the company.
Jason Jacobs: Who are you selling to? What types of companies?
Joe Zhou: Yeah. It's a good question, and I wish the answer was simple. But power market is just incredibly complex. And depending on the region you go to, the construct of the market of the market is very different. So, I'll give you a couple examples. In some cases, we'll be working with the local utility, and we will just be providing almost like a storage warehouse contract. It's almost like a commercial real estate contract. You just rent the space, and this space happens to be, instead of storing boxes, you can store electrons in there. We're on the hook to make sure it works. You do whatever you want with it, and you pay us a fee. So, that's one model.
There's other instances where it's almost providing kind of a differentiated capability to an existing wind or solar farm. And we have a couple of folks that we're working with on that both outside the country as well as, as within. And then, the third is, you can imagine, it's kind of a variant of the second, which is interestingly enough there are folks who have a lot of land who may be already doing something with that land, such loaning to gas companies, for whom it's a very natural fit, to leverage that footprint, to also kind of incubate and develop a storage asset.
Sometimes, it's not too intuitive to think about it when w-we actually have a few different conversations with oil and gas companies where, on their existing footprint, especially for a footprint that's reaching kind of end of life, there's more things that we can do with that land. And there's more things we can do with the existing infrastructure that they built, whether it's the power infrastructure or even just the roadways that they've built, or the water infrastructure that they've built. There are ways to essentially give it a second life and repurpose to do something for grid scale storage. And so, it's a variety of folks that's in the funnel that's in our pipeline today. And what we are observing of the market is that there's likely going to be a few different structures and a few different ways of transacting storage solutions into the market.
Jason Jacobs: So, what types of alternatives are you competing against? And then, what is the value proposition that you're presenting when you're talking to potential customers?
Joe Zhou: Yeah, so when we talk to potential customers, the alternatives... I mean, there's lithium ion. There's pumped hydro storage. And then, there's a cohort of emerging long duration storage companies that are all going to have their views on where the market is and what the cost is. And I think, at the end of the day, our value proposition is that we are a long duration storage company. We are built on very mature supply chain. So, a lot of the underlying components, what it takes to do this, is already established and well-known with an operating track record. And when we piece it all together, we have a cost position that's very differentiated relative to the competitive set, certainly relative to lithium ion, relative to pumped hydro. But we also believe that we have the lowest cost structure relative to, I'll say, the emerging, emerging asset classes as well. And a lot of that is owed to the supply chain already being there in that scale, and just the fundamental physics that's involved in our system.
Jason Jacobs: And what types of o-objections come up? And is it different objections from different types of customers? Or do they tend to pretty consistent across?
Joe Zhou: You know, there's a couple of categories. There's always a just how does it work category. Really? That works? Kind of thing. And the reason is, it makes a lot of intuitive sense for people to compress air and store energy in the form of compressed gas. But when you think about a liquid, when you think about water, you don't really think that water compresses. And you're right. The energy is actually not stored in the compression of the water. Where the energy is stored is actually in very, very, slight bending of the earth. So, we are storing energy in the elasticity of the rock. And that takes a while for us to get people over the hump.
I mean, since joining the company, I have learned a lot more about rocks than I ever thought there was to know about rocks. And one of the coolest things I've learned is that the earth, on a daily basis, is actually flexing because of the moon rotates around the earth, as the earth rotates around the sun. It actually causes the physical earth, the solid parts of the earth to actually deform ever so slightly. So, that elasticity of the rock is how we're storing the energy. And that takes some time to just help bodies, folks at utilities, and, and IPPs, and, and whatnot understand just the fundamental physics of how it works. Once they get past that, then it's like, "Okay, all right. So, that's attribute and we're doing pumped hydro. I get it. Okay." So, that, that tends to be the first set of conversations that we go through.
And then, the second one, and I think that one is, is, common across the rest of the cohort anytime you're trying to bring a new hard tech technology to market is, "All right, what's your plan for getting this from where you are today to, A, at scale, and B, financeable?" And everything is thinking about how to do that. And then, I think one of the things that we point it is that a lot of times what it takes to go from where we are to do to at scale and bankable is how many reps do you do? How many iterations have you done? And how long have they been operating?
And one of the nice features about Quidnet being modular as it is, is that it's actually relatively low-cost for us to go through a learning cycle. It's very important that, essentially, you know, for some technologies, one shot on goal will take $80 million to $100 million. And then, you learn from that. And then, you get on to the next one. For us, $80 million to $100 million would involve tens of wells for us. And so, the pace of learning is very different. I think that is trying to be something that I really liked when I saw the company, because it's just we have to be practical. The first ones are not going to be easy, and they're not going to be trouble-free. And so, it's just how fast can you learn and what's the cost to learn?
Jason Jacobs: And from where you sit today, and I know this is a different answer than maybe, you know, 2017 when you started, but what are the biggest risk areas? If this didn't work and you're sitting 10 years from now looking backwards, why not?
Joe Zhou: I think that there are two risk areas that come to mind. One risk area is, if you think about now, just the technology and the overall system, right? This is a... You've got a surface pond. You got a pump and a turbine house. You have a well. And then, you have this storage lens with all the storage kind of is. This layer of high pressure water between two layers of rock. 95% of that system, the pond, the pump and turbine, the well, very well known. And I have zero questions in my mind that we will be able to do what it takes for those things to work and work at the cost levels.
I think where the novelty is, is how big can you get this lens? How much power can you get this lens to store, and how much power can you get this lens to output at? And a lot of that has to do with the geometry of the lens, how the water flows in and out, and how you manipulate that geometry. And so, that, for us, is what we've been working on, and we've, you know, developed all the IP around doing that in a way that can bring things to commercial. That is, for us, kind of the main uncertainty.
It has been since early as the company was taking a lot of uncertainty off the table. But as we try to go through the scale up phase, we will need to work through things. And I think that's going to be the one where, you know, as I think about, what does it take to be successful? And adversely, what is going to be the thing that keeps others from replicating? It's that. It's our ability to engineer this lens for it to get higher and higher flow rates and storage volumes. That's one. And that's something that's very much in our control.
The one that's, I think, a bit more common across the rest of the industry is that, at least historically, and I'm thinking, I'm saying that in the context of wind and solar, the deployment of that technology set has worked on the back of fixed price, long term PPAs, that can bring in project finance. And that capital structure was the way that industry can sca- or scaled thus far. It's not entirely clear how... I mean, for example, you're not seeing 10 hour storage tolling agreements flying off left and right across the industry. You're seeing some. We're seeing some. But it's not at the gigawatt scale. And so, how exactly does the power market reform its revenue streams to truly reflect the value of storage that hasn't had to pay for, for the last 100 years, because it always happened upstream? I think that is something that a lot of us in this industry are focused on, working together on. And I think that's going to be something that's very important to do to kind of catalyze the large scale commercial implementation of these technologies.
Jason Jacobs: So, I never really had the context, but I know when I've looked at storage in the past, sometimes I hear people say things like there's no business model for storage. Is that what they're referring, the fact that it happened upstream before so that customers aren't used to paying for it?
Joe Zhou: I think that's what they're referencing. I think when you do a solar plant, you can say, "Hey, I'm producing X megawatt hours a year. Here's the price of energy in those hours," and the map is fairly straightforward. For storage, it's, "Well, I'm providing capacity services. I'm doing a little bit of arbitrage. I'm also providing some of these other kind of spinning reserve capacity services." It's not clear. And it varies so much from region to region. And ERCOT's different than CAISO. CAISO's different than Alberta. And I'll say every grid has its own flavor of it. And so, I think that lack of, I would presume, that, that's what they're pointing at. And certainly that's what, when I was in the industry, and when we look at the market today, that's the thing that we're looking at. And how do kind of do this in a coordinated way so we form a clear, ideally simple, set of, uh, market structure for storage.
What I should say is that it, it doesn't mean people aren't doing something about it today. There are tolling agreements being written today. We are, again, we are working on some of these. So, people are willing to take a forward view on what the market's going to look like. And on the basis of that, write in agreements, they'll say, "Look, I think the value... I can say, you know, even if the market products aren't perfect, I can get a feel for what the value of storage should be in this market. And on the basis of that, I'm willing to take a view." And some, some utilities that are [inaudible 00:35:13] integrated especially can take that view. And, and essentially catalyze these markets for, or catalyze kind of the transaction structure for long duration storage.
Jason Jacobs: Uh-huh [affirmative]. And one thing I'm curious about is, I mean, you, you always hear that you don't want to be, and I'm not talking about in storage, I'm talking about in other unrelated categories, just that you don't want to be a technology in search of a market to apply it. That you want to know that the thing you're building is what customers want. How do you balance, in something like this where you need to go through this exploration phase, as you mentioned, and make sure that the technology does what it says it can do, and make sure it can scale, and make sure that from a permitting standpoint you'll be allowed, how do you balance the kind of internal focus of getting it ready versus making sure that the customer demand is there, given how complicated it is to get it ready in the first place?
Joe Zhou: Yeah, yeah. You got to do both. I think anything in clean tech, you've got to do both. Because, it's just a slow moving machine. And if you do build it and then get the market, you can't do it that way. You've got to get both going at the same time. If nothing else, because of the lead time from what it takes for both of those to work, right? To get the market set up and have the technology ready.
I think the way that we approach it today is to be willing to take fundamentals driven bets and place those bets. You know, we are in different parts of the country as a result of those bets being made. Right? So, we have a fundamentalist underlying market view on why Texas is a really interesting place for storage. And I think it's starting to already show in the underlying market revenues for storage. While those products may not be perfect, you're really seeing the revenues for storage or this revenue stack for storage in Texas go through the roof. We took a fundamentalist view in New York. That's a totally different market. That's a market where the state is driving a lot of emphasis in momentum and through the transition with these very aggressive targets. But nevertheless, we took kind of a fundamentalist view there.
We took a fundamentalist view in Alberta, where there is a high renewables rich region in the southeast. The grid is not exactly sized to get all that transmitted to its load centers. And we think are benefits to decongesting the grid in that, in that portion of the province to get more and more renewables to the rest of the, the province. And then, Ohio, there's a tremendous amount of coal plants that are undergoing retirement or planned retirement in the Ohio River Valley area. And so, our idea is to, say preemptively, explore that geology, so that when the time comes we are essentially right there.
So, I think it's actually not that dissimilar from what the wind and the solar guys have done for the past multiple decades is that you have just... You just take an underlying fundamentalist view on the market, and then you do the best to derisk it. You do the best to get the best voices in there to help you think through that. And then, you make some bets. And ideally, you Stage-Gate those bets so that you manage your exposure over time as you try to take some of those risks off the table.
Jason Jacobs: And when I asked you about the biggest risks, it sounded like they were internally focused, that the technology needs to do what it's set out to do and it needs to be able to do it as scale, and of course cost effectively as well. I mean, that's a risk that it seems like largely you can control. What about the ones that you can't control? What are the blockers outside of the scope of your control, if any, that are material, that keep you up at night as you look towards the future?
Joe Zhou: I think that there are... I guess it falls into two categories, one of which I already touched on, which is just the maturation of the market and the revenue mechanisms for storage. I think there is, this is one other one, which is, in light of that, in light of the market evolution and the fact that we are still, you know, we are, ourselves, developing the company and growing the company, you know, it's very easy to for investors to look at a market and thesis and say, "If I invest X, here is the revenue stream. Here's how we're going to get paid. And this is my investment thesis." I think that, when you have the market revenue streams not yet fully fleshed out, it's actually quite tricky to then try to catalyze investment into that space.
And so, the other thing that is, I would say, out of our [laughs], it's really out of our control, but we are seeing a lot of folks around us work really on, is finding ways to put capital against companies like ours to bring the technology and bring the product to full commercial scale as the market's evolving. Because, it just takes reps. It just takes shots on goals for people to iterate, to get to a point where you have a highly, you know, mature product that can be counted on, on demand, on the grid. And you kind of can't, you know, to the point of how do you do think in parallel versus [inaudible 00:40:00] I don't think we can wait. I think we got to do both. And so, things what like Breakthrough Energy's doing with the Catalyst program, very exciting. I think what's happening in the DOE in terms of cataloging demonstration project, very exciting. So, I think there's a lot of people working on things like that. And I think that's incredibly important, because we need to have all these technologies go through that field hardening process.
And that field hardening process is, is it's not trivial. It's painful. It takes time. It takes energy. It takes a lot of reps for folks, for solutions, to get there. And we need, I think, capital that's ready to ha- help these companies go through that journey, while they demand side gets matured.
Jason Jacobs: And do you have any thoughts on the right sources of that capital? I, I mean, if you take venture capital, for example, one of the knocks on venture capital is not so much that the technologies that were backed in the first wave shouldn't have been backed, but that venture was, in some cases, trying to do jobs that were better served by different types of capital than venture was meant for. So, how do you think about that? Do you think that venture capital has a role in doing this kind of investing? Or do you think that should come from other places? And if other places, is it asset classes that already exist or is it a different kind of asset class that should emerge?
Joe Zhou: Yeah. That's a really good question. And my view on this, based on my experience in the sector, is that there definitely is a role for venture to play. Because, you always need to form the team. And there's always some upfront derisking you need to do to validate that this is a journey that's worth going on. And that's a great place for venture to play. And then, I, I would say, you're seeing this too, within the... There's such a wide range, especially nowadays, on what is venture? What is a venture? But I think that, that is a no-brainer place for venture.
I think that you are probably seeing a cohort like ours who are coming up to and staring down this precipice of, okay, we got to build some large commercial scale stuff. And it's not going to be cheap. Different people have different ticket sizes, but in general, it's not going to be cheap and it's not going to be risk-free. And I think a lot of us are scratching our heads figuring out what are ways to cross that chasm. And I think there are a few pathways that I see.
The obvious ones are where the DOE, where government can play a role, absolutely we should be working with the play a role. I think that there's another... What I would characterize as applicable to potentially a, a, decent subset of the clean energy initiatives today is, s-step aside for a second, biotech. Right? Phase one, phase two, phase three catalyze different investments. And sometimes, you can go public even at earlier phases, because there's this, this, rhythm to it. And you don't see that in clean tech. Well, I would argue that, yes, you do see that in the subset of clean tech. Because, the oil and gas industry, though we don't think about it, I would view them as actually very aggressive venture bet makers when it comes to upstream oil and gas development. And they have a rhythm to it. Exploration, appraisal, development, kind of feels like phase one, phase two, phase, three.
And so, to the extent that we can bring more of those investment professionals who have had experience regimenting the risk into those buckets and are able to evaluate the risk across those ranges, and kind of form a standardized process around the equivalent exploration phase, appraisal phase, development phase. Again, for us, there is actually that analogy, because we're subsurface resourcive. Our [inaudible 00:43:33] for geothermal, there's that analogy. For carbon capture and storage, there is that analogy. For some of the other stuff, it's a little bit trickier. But do think that the kind of resource development private equity cohort actually has done a really interesting job of setting up the framework for channeling investment to help companies get through that scale up process. I think that's a really interesting pull. And I'd be excited... And we're having a lot of discussions with those folks. And I'd be excited for them to jump into the fight, so to speak, and deploy their capital into a lot of these growth sectors that are happening.
When you think about the space, I think you can't help but then touch on what's happening in the SPAC, SPAC world. I think that, to the extent that we can maintain, as a cohort, a really productive relationship with the public markets and a responsible one, I think that's a great way to capitalize the journey for some folks.
And then, the last, I would say is that, I mean, again, I go back to Breakthrough Energy Catalyst. I love kind of the underlying thesis behind that program. And it's all about deploying capital to get these early project off the ground, and start going through these learning curves, and drive the cost down, and drive up federal liability and performance of these technologies, while before the markets truly, you know, fully, fully fleshed out and sort of how the underlying contracts are going to look. I think that form of capital is going to make some meaningful dents in some of these technologies in terms of getting them through. So, a wide array. To go back, I think VC is there's role to incept and to start these things. And then, once people try to cross the chasm of, of, in the field commercial deployments, I think you're seeing a lot of us trying to get really creative.
Jason Jacobs: So, we're more than 45 minutes in. One topic that hasn't come up at all is just what motivates you. Why do you do the work that you do?
Joe Zhou: I have, since a very early age, been fascinated with the concept of finite resources. And, I think a lot of that comes from the fact that... So, I grew up in China. My grandparents, you know, parents were born, I think just after the culture revolution. My grandparents lived through the cultural revolution. So, they've been through times where there was just not abundant. You know, it was not trivial that there was going to be food on the table. And so, since a very young age, this concept that resources are finite had always bugged me, and always been something that formed kind of a, a, core part of my values.
And so, a lot of my life has been driven by that. A lot of my life has been driven by or been involved resources one way or the other. And when I was in oil and gas the primary, one of the reasons that drove me out of oil and gas was oil, that in a way, was a finite resource, which a lot of people say, "Well no, it's going to be here for a long time." And yes, there is a lot of it still. But in the grand scheme of things, there is a limited amount of that in the subsurface.
Again, I was at a young age, so I wanted things to last forever. And so, that really, in the early days, is what drove me to where is kind of sustainable resource development, finding ways to latch ourselves onto underlying energy systems that weren't finite, or at least in the grand scheme were quite infinite. And that's what drove me to the work that I do today.
I think, what I do now, and one of the core motivators, especially since I joined Quidnet is I grew up in oil and gas. And a lot of my friends in oil and gas are starting their careers at a time when it's actually pretty scary. You know, set aside the oil and gas is good, oil and gas is bad discussion, just from a personal perspective, right, for me, for a lot of these friends that I have, to be at the beginning of your career having invested a good chunk of your life in a particular skillset in an industry that is facing a lot of opposition, in an industry that is arguable going to be in, you know, probably not in the upward trajectory is really difficult.
And so, the thing that really motivates me now, especially in my role at Quidnet, is doing a good job of setting up a vehicle that can channel some of those skillsets into a growth sector. And in that case, for us, it's long duration storage in the subsurface that uses the same geological skillsets, the same kind of drilling, project management, process facilities, skillsets that a lot of folks that I've grown up with have, but it may, may not be as straightforward in terms of how they continue to leverage that skillset for their future.
Jason Jacobs: Yeah, I don't... I mean, it almost sounds like you're motivated by sustainability, but just in a different way than it's often meant in the climate world, where it's less about emissions, and temperatures, and extreme weather events, and flooding, and wildfires, and things like that. And it's more about stability, longevity, which people mean when they talk about it on a planetary context. But what I'm hearing from you is that you mean it more in the context of you and your career, others and their careers, like hitching your wagon to, to a growing sector that's in it for the long term. And so, oil and gas, outside of the harm it's doing from a collective good standpoint, is just on borrowed time, if you will. That sounds like that's a big piece of what's motivating you, yeah.
Joe Zhou: Yeah. It is. To your point, right, there's... You know, I started in the early days of resources finite. And I think you can think a lot of things in that lens. Right? And so, the, the climate's capacity to take on additional emissions is also, in a way, a resource that we're steadily chewing away on. And so, the concept of, can we fundamentally and, and leveraging technology to enable a different energy supply system that takes away some of those constraints is a lot of what, personally, drives me.
Jason Jacobs: So, if you could wave your magic wand and change one thing outside of the scope of your control that would most accelerate the progress of long duration storage and Quidnet specifically, what would you change and how would you change it?
Joe Zhou: In a way, I think a lot of this is... It's two things and I, I oftentimes go back to kind of the market analogy, right? The demand side, and the supply side. I think on demand side, I would love to see market reform accelerated and for there to be just a very clear and very straightforward way to articulate how storage is going to transact and it's going to get valued. On top of that then a lot of these transaction structures can be formed. And that can't happen sooner. And I think a lot of people are working on that. DOE's working on that. I think a lot of industry groups are working with the wholesale market operators on exactly that topic.
I think that then there is, on the supply side, I think the cohort of technologies, whether it's just us or others, need to get the commercial scale yesterday. Because, there's just so much ahead of us. There's, you get the first build. You get the first ones build. You improve on those ones. It takes a lot of time to introduce a hard asset product into electricity markets. And so, we can't slow down. And so, to the extent that, surely for us, because of the supply chain already being there, because of kind of what we've done thus far in terms of, in terms of our work in the field, we're ready to kind of hit the gas. And so, to the extent that capital continues to come into this space and kind of accelerate the development of these technologies and these companies, I think that's a great thing as well. And again, I think that is happening today. I think more of it can continue to happen. There's a tremendous amount of capital out there that's looking for returns. And I think this is a great space for it.
Jason Jacobs: Joe, where do you need help? If for anyone listening that's intrigued by what you're up to, yeah, where do you need help and who do you want to hear from, if anyone?
Joe Zhou: Yeah. So, I'll say for folks in the utilities, IPP trade, in the power space trying to figure out storage, we are too. And we love to share notes and learn from how you guys are seeing and [inaudible 00:50:54] from our perspective. I think for those kind of experienced project developers in the solar and wind space, we're looking to kind of take part in crafting our development playbooks of how we scale up our assets, and to see how we do leasing, how we do permitting, how we do interconnection. For folks who find interest in that, we love to hear from you. I think that's going to be a core part of our journey going forward. And just anybody else who listened to this and thinks this is remotely interesting and what we do is remotely interesting, please don't hesitate to reach out.
Jason Jacobs: Anything I didn't ask that I should have or any parting words for listeners?
Joe Zhou: One of the things that really struck me when I looked at different aspects of Quidnet's business was, if you go back to 2015, kind of height of the shale boom, the United States drilled about 20,000 wells that year, thereabout. Okay? Five years later, COVID, and just reduction in demand, and then all that, we are sitting at drilling about 10,000 wells a year. So, that supply chain has spare capacity for, let's call it, just 10,000 wells a year that's just not drilling today. If you drill 10,000 storage wells, like Quidnet storage wells, a year, I mean that 10s of gigawatts a year. You have fundamentally transformed entire regional power grids within a matter of years. And so, that's something that really, at least helped me, put things in perspective in terms of just the scale and the potential for impact that Quidnet technology could have. I think we're doing everything we can to try to bring that impact forward as, as fast we can. And certainly would of any help that people are looking to end both in terms of their time, their advice, their insights along our journey.
Jason Jacobs: Amazing. Well, gosh, I can't thank you enough for making the time to come on the show. I feel like every time I sit down for a session like this, I get a little less dumb about long duration storage. So, maybe another 500 or 1,000 of these and I'm might actually know a bit about what I'm talking about. But, this was awesome. Thank you, Joe, and best of luck to you and the Quidnet team.
Joe Zhou: Thank you, Jason. Thanks for having us.
Jason Jacobs: Hey, everyone. Jason here. Thanks again for joining me on My Climate Journey. If you'd like to learn more about the journey, you could visit us at myclimatejourney.co, note that is .co, not .com. Someday, we'll get the .com, but right now .co. You can also find me on Twitter @jjacobs22 where I would encourage to you share your feedback on the episode or suggestions for future guests you'd like to hear. And before I let you go, if you enjoyed the show, please share an episode with a friend or consider leaving a review on iTunes. The lawyers made me say that. Thank you.