November 14, 2016
Announcer: The worlds of architecture, engineering, construction, and development are changing fast. There is one place where you can keep up with what’s going on. Find out about industry trends before they leave you behind. Take a peek into the future of AEC and development. Welcome to Building What’s Next brought to you by Mortensen.
Mike Wilson: Hey, welcome to Building What’s Next, the podcast. I’m your host, Mike Wilson. I am a bit of a technology geek. I like gadgets, and I like evolutions and technology. It’s a very cool time to be alive. The iPhone for example. The smart phone didn’t exist until 2007. Now my children don’t know a world in which they haven’t grown up with all of the world’s combined knowledge in the palm of their hand. That’s very, very cool.
There’s some very cool stuff that’s been happening with energy, with the grid, and it is being transformed by just leaps and bounds. Here at Mortensen, we are in the energy storage marketplace. We are really launching a business specific to helping companies overcome the challenges that they are facing with any new emerging technology. There’s going to be a little chaos, and things like that. Joining us today is Brent Bergland, he is the general manager of our high-voltage transmission business, and he is heading up our launch into the energy storage market, which has been in play for a little while. Welcome Brent.
Brent Bergland: Thanks, Mike, thanks for having me.
Mike Wilson: I always like to start this, tell me a little bit about you, your background, where you came from, what your interests in our world of AC are, and all that good stuff.
Brent Bergland: Sure, sure, yeah. I’m a 20 year Mortensen guy, and spent a vast majority of my career in the energy side of our business. I spent 14 years working on the wind side of our business, and watch that business, and was part of that business growing for the company back when I got in in 2002. Now it represents a big chunk of our annual revenues, and we have a leading position from year to year from building wind farms. In early 2014, I moved over into our high-voltage transmission business, and really made a shift in my career out of renewable energy generation to the electrical infrastructure side of our business.
I’m excited to be part of this group in the company, and we are doing some really impressive things in terms of markets that we are targeting, projects that we're working on, and able to really add value to what our customers are seeking in the industry. Like you said about energy storage, it’s a new thing, and we like new, we like to be on the forefront of new technologies, and, in the case of energy storage, it really is a logical extension of our existing capabilities as a company.
Getting into the market made a lot of sense for us to leverage what we’ve done in wind and solar, and high-voltage transmission. The makeup of these projects, and the parts and pieces, yeah, they look a little bit different, they have different applications, but there is so much commonality with the current way that we are doing business as a company.
Mike Wilson: Well, it’s exciting to jump into something like that too. It’s interesting because, one of the knocks on renewables has always been, well, if the wind stops blowing, we lose that energy. Now technology and energy storage is really catching up, so it’s a very exciting time. Let’s talk a little bit about that. You came from our renewables group, so let’s talk about Mortensen’s experience, and what we’ve done in that world of wind and solar and things.
Brent Bergland: Sure, yeah. We got involved in that part of the business in 1995, and so we are now 20 plus years in that marketplace. Probably like to consider ourselves somewhat pioneers of getting in the market that early, and staying with it. There was some lean years, no doubt, along the ways with the way that policy started and stopped, and we were able to put together a plan, and kept us riding through the low parts of those curves. Then it grew from there. We got large and wind, and then we took those competencies and applied them to solar in 2009.
Then we really started figuring out, what are the ways in which we can be better builders of these projects? We started then self performing electrical and civil infrastructure work about 5 years ago. It’s the way that we are doing the work ourselves with our own team, doing preliminary design work, doing our own procurement, and doing our own construction. We are in the mode where we’re cruising the field, our Mortensen paycheck receiving employees, we are not subcontracting this work.
What that’s allowed us to do is it allows us to be that much better at executing these projects, because our own people are doing it. It creates different motivations to advancing our lean culture, and to improve productivity, and ultimately, at the end of the day, our customers are the beneficiaries of that. All of that way of doing business is the same, whether we are doing wind or solar, or civil projects, or transmission lines, or substations, or the newest thing right now, which is energy storage. We are just at the beginning of that.
Mike Wilson: Cool. We’ve announced that we were getting into this about a year ago, and in that time we’ve spent some time doing some stuff. I know that, when we go into a business, we are not tire kickers, we are not just thinking about it, but we dove in, and I know that we are going to talk a little bit about an industry study that we did. What have we been doing in that time?
Brent Bergland: Sure, yeah. Part of getting involved in a new market is to leverage your way of doing business, and baselining what you know and what you don’t know for the better part of 6 months was all about learning who the players are. You could call the broad set of people active in the marketplace as market participants from suppliers, technology providers, integrators, design firms, financial firms, advisory, etc. etc. We need to know what everybody’s doing in this marketplace, because we want to do business with the companies that match up to our culture and our way of doing business, and it takes a lot of hard work and effort to figure out who those companies are.
I’d say we’d have pretty good success rate, and we are well along the learning curve of knowing who does what, and what their own value propositions are. What’s been interesting to see, even within the first 12 months in the marketplace is, some of those value propositions in the industry don’t stay consistent from month and month, or quarter to quarter. That’s another important part about learning this business is, is who’s going to stick with it, and not be in the tire kicker category? You hit the nail on the head there with tire kicker. When we get involved in the marketplace, we go after it, and we resource it. Some of the other stuff that we are doing is we’re adding to our team, we’ve got a full-time technical manager who is dedicated to making sure that our scorecard of all the companies that we expect to do business with are the right kinds of companies. Jason’s on our team.
Then we have another 4 or 5 people whose, pretty much, day job is to focus on the energy storage market. We’ve got probably about 6 or 7 full-time equivalents that are working on this marketplace. Then we are also, obviously, spending time getting to know our customers, because ultimately they are the ones who hire us for our services, and we want to be providing the right services to the right customers in the right areas of the country. We are proposing on quite a few projects, not everything, we still want to be focused in target on the right opportunities, so thankfully we’ve been selected on a couple of projects. Both a manufacturing assembly type opportunity, where we actually containerize the battery energy storage solution, and we built that in Iowa, and shipped that to the desert Southwest.
That project’s already started and finished. Then we are in the process of making a contract right now for our first grid scale energy storage project in the Rocky Mountain state. That’s exciting because that really, finally puts our pin on the map as they say, that we are actually seeing some success with doing what we said we were going to do. That always feels good to get that first big contract signed, and moving along, and more is going to come right behind the heels of that.
Mike Wilson: Well, and it’s interesting, diving into a new arena that, even though it’s very, very, very similar work, it’s, “What have you done?” We’ve done the work, it’s just it looks a little different. Let’s talk about the state of the industry itself actually. Also, we’ve been studying the industry, trying to learn the state of things. Not just our customers, but get a real handle on everything, and talk about that, it’s a little bit chaotic. With any emerging technology you’re going to get some chaos, but we're talking about transforming the grid even more. There is some confusion, some chaos up there.
Brent Bergland: Yeah, that’s an excellent question. One that we have to be sharp on how it impacts our business each and every day. The state of the industry in terms of its maturity level, the state of the industry in terms of policies around the country, and is the needle always pointing in a positive direction in terms of policy development? Who are the key players, and who are the ones that are around to help resource and influence technology, I’m sorry, policy developments. Yeah, you use the term chaos, and I use it quite frequently, because that is a good descriptor of the marketplace right now in terms of the prevalence of the number of companies that are involved in the industry, the faster nature in which I’m seeing utilities get involved in the industry, faster than they did in wind, and faster than they did in solar.
I think a lot of them are wishing they would’ve got involved in the renewable energies sector quicker than they did. They are starting to learn from their lessons that are getting involved in these markets, and in energy storage from both originating and doing their own projects, be it some demonstration and some pilot projects, and then also moving forward with true, mature grid scale big projects.
At the same time, we’ve seen a lot of investments that are being made into companies in the industry who have got good technology, both hardware and software type technology, and we are seeing a lot of money flow from the utility companies into these other technology-based companies. That’s a strong sign, it adds a little bit of the chaos, because in terms of where the investments are coming from, and sometimes that can create different type of motivations about how companies partner up and try to advance the industry. The policy conversation is really, really important, because it doesn’t exist on a broad base across the US.
There are hot markets like California, and Hawaii, recently announced Massachusetts, and a handful of others in the country that are taking proactive steps and saying, “We see the benefits of energy storage, and we see the grid transforming around us, and energy storage plays a crucial part in making sure that our grid remains safe, resilient, flexible, and reliable, and the grid is changing in front of us, and we are in a big transformation period. We are in the middle of it right now, and it will continue to go on.” Instead of people sitting on their hands waiting for things to happen around them, we are seeing much more proactive approach is taken by many of the market players to help influence what’s happening with the grid. Many different stakeholders play a role in that evolution of the grid improving.
I’m proud to say that I’m part of the Minnesota Energy Storage Alliance Steering Committee, and that's newly formed organization for advancing energy storage in the state of Minnesota, and the broader MISO market, and get to participate in a lot of interesting and value added meetings and conversations with the policymakers, and with the companies who want to help shape the policy. I was over at the Minnesota Public Utilities Commission for an all day workshop on Monday talking about the grid modernization effort in Minnesota, that is also connected to the Department of Energy’s grid modernization efforts.
It was interesting to see the industry talk about what goes on at the PUC level, and what it takes, and the investment and the time it takes to change, to make sure that the rules in which we have to abide by, when it comes to the generation and transmission of electricity, being in, you could call it, the belly of the beast, and seeing firsthand what it takes to change policy is something that I’m happy to have time to do. Also, we want to put our own efforts into helping shape that policy as a company.
Mike Wilson: It is, the grid’s very regional. There’s not one grid, we call it the grid. That’s such an important part of figuring out how this is all going to work. Everybody is excited about the technology, and it is the missing link that make renewables really, significantly viable. Part of our energy mix. How do we even begin to touch on where the policies are going to be, and where they are going and things? That’s a challenge, right?
Brent Bergland: Right. That’s a conversation that’s easier had today here at Mortensen than it was when we first got involved in energy storage. Quite often there was some simple comparisons made that energy storage is just like wind and solar, and if we take our lessons learned from that and apply it to energy storage, voila, we’re going to have this nice, clean business. Well, that’s not the case because energy storage, the way that it provides benefits to the grid, and to commercial end-users, and to utilities is extremely variable, and there is multiple ways in which energy storage can provide benefit to those multiple users.
It’s not just merely a generation type asset that you build, and you're generating kilowatt hours of electricity. The way that all the technology interacts with the various rules of the road, and the various ISOs and RTOs around the country is all adds to the complexity, which then gets us back to the chaotic aspect of the marketplaces, that those rules of how energy storage fits into the grid around the country isn’t well established. There is not this common definition, there is not this common application that everybody can just point to, and open up a book and say, “If you do this and you do that, then it's going to lead to easily quantifiable, consistently defined ways of how it operates.” Yeah, you’re right, the grid is complex.
Mike Wilson: That’s a civil way to say it. I’m just interested, and we’ll talk about this a little bit later, but that’s one of the things that has really been the technology, and the things that are going on, not just lithium ion, and things like that, but there’s lots of stuff going on, so it's learning that. It’s also really being able to help guide customers through these problems they don’t even know exist with the interplay of different ... Even at the PUC level, and all that stuff. We’ll get into that a little bit. We recently released an energy storage industry study. It is part of our renewable energy leadership series. We’ve done lots for wind, lots for solar, and I think this is our first real step into energy storage, and capturing what everybody in the industry is thinking. What did we learn? Give me some highlights.
Brent Bergland: Maybe not in any border of priority, but what we learned is our early learnings in the marketplace, and our own hypothesis of, or hypotheses of, what are the challenging aspects of the industry? What are the changes that are necessary to move it more mainstream, and have it not be viewed as this bleeding edge technology that some people in, let’s say, the financial part of our business are steering clear from. What we found is the study helped us with validating what we were thinking early on, which is always a good thing to get feedback on, because if you had an opposite response to what you thought when we formulated the business, and in 2015, then that could call and question our abilities to evaluate a market and what we go into it. That wasn't very helpful.
What we found is, also, there was some differences of opinion from the different stakeholder groups. If you put the developers and independent power producers into one category, and you put the utilities in another category, it was interesting to see the feedback between those 2 different groups about the time frames in which they believe major changes are going to be underway, and maybe more commercial. There was some differences of opinion on how prevalent the distributed aspects of our grid is going to be in the future, and what that tells me is that we can’t have enough conversations between those 2 groups of businesses or entities, we can’t have those conversations too much.
I think what it does is it helps us open up and ask different types of questions to those types of companies, and it allows you to probe a little bit deeper when you get some study feedback, and it helps us ask the right type of questions, and hopefully get the value added, insightful answers that will help improve the business across the country. Another thing that it told us was that the improvement necessary in the costing side of energy storage projects is necessary. There is this pretty strong feeling that the pricing for energy storage isn’t to the point where it’s universally cost-effective everywhere across the country. That the regulatory environment and the policy environment needs to improve.
When you start talking about when costs drop, and then when policy improves, and at what point does that magic collision happen, and then the market explodes? I would say we’re still a couple years away from having a big inflection point in the market where cost comes down and policies improve, and the nice thing is is we are a company that invests for the long term, and we're not looking for these quarterly returns. If something doesn’t happen within a short amount of time, that we are going to exit the space. We understand that there’s a lot of activity that needs to take place in the industry for it to be a true ... Call it a mainstream market. We are very much invested in the long-term.
Mike Wilson: Well, that was one of the surprises is that, many industry folks thought that the consolidation that needs to happen to really get things moving in one direction was going to take a little bit longer than they were guesstimating between what? 5 and 7 years, or something.
Brent Bergland: Yeah, I was surprised by that, that I think the term was meaningful consolidation in the marketplace. Yeah, I would’ve expected the feedback to be at a shorter timeframe of that. When you look at the most recent example in a modern grid with solar, and there was a ton of consolidation that happened. It happened quicker than that timeframe in terms of, if you look at the marketplace when things started to take off, in terms of amount of megawatts installed per year, and how quickly it took panel manufacturers to either get acquired by other companies, or to just close their doors. I think some of that is going to happen here in energy storage. It feels like there’s a lot of companies that are in the tire kicking mode right now, and I don’t think that the market right now, today is big enough to support all of these companies.
Mike Wilson: Well, and as you discussed earlier, the other part of that equation is that with solar and wind for example, a lot of companies waited too long, and now they are seeing this as an opportunity to get in early. Some of that will sort itself out, most likely a little bit quicker than we expect it.
Brent Bergland: It will, yeah, it will.
Mike Wilson: This is the part where we talk about us. Because obviously, we are in this business, we are looking to solve problems for customers, and dive in, and be a part of this. We’ve done it in wind and solar. I just saw something recently that 3 years ago the cost per kilowatt was on solar was over $2 just 3 years ago, and now it’s under $1 for the first time. That is a dramatic change in a very short amount of time. We’ve seen it, and we’ve been a part of leaning processes, and driving costs down. Why do we think we can help customers in this market?
Brent Bergland: Sure, yeah. When you look at our company, and you experience what I’ve experienced in the company for the last 15 plus years as being an energy and infrastructure focused individual, and knowing that we continue to add to our suite of offerings, there is still a number of players today in wind and solar, and electrical infrastructure project originators that are also in energy storage. What we like to see is that our existing customers are also trying to grow and do new things related to the grid. We want to do that with them. By being able to provide a true suite of services to them that can cater to pretty much any one of their business needs, is a really neat and important thing for us.
That relates to also having to be nimble in the marketplace, and not take too long to make decisions, and then also to have a custom enough approach that a market like this is ... There’s quite a few small projects that are out there, and in some circles, people don’t equate Mortensen with small. With the diversity and project sizes, the diversity and project applications in terms of what they are trying to solve, diversity in terms of the geography around the country, being able to leverage the scaling and apply that across the market is going to be really important.
That’s part of one of our successes in lean is the fact that we get to leverage lots of experience, and apply that in many, many quantities across the marketplace, and help us improve the cost curve on these. There is ample evidence in front of us today that the costs are dropping in energy storage, and our role in that is still quite important as the provider of the services that we do provide.
Mike Wilson: Because we are not just working in utility scale, and we're not just working in behind the meter stuff. Because we work on such a diversity of projects, there are opportunities to play in areas where other companies that specialize, and in certain areas don’t. Geographically, we are all over the place. That’s a good thing as well. All that shared experience just drives costs down and makes things more efficient.
Brent Bergland: Yeah, and the other thing that I feel is important is, historically, we’ve been a balance of plants, or balance of systems contractor on our projects. We are not satisfied just playing that role in energy storage, and we want to move up the value chain. We talked about costs, and we talked about the need for costs to improve in this industry. As a company who, and you made the comment about the big changes in how solar pricing changed over a very short period of time, we were at the forefront of that, and we are absolutely obsessed with our lean culture as a company, and applying that lean culture to turn those into measurable results for our us and our customers.
At the end of the day, our customers are able to then turn around and make the commitments that they need to with the utility providers, etc. If they are going to make some financial projections around what the cost for the service or the project is going to be, and construction plays a key role in that, they can do that with a lot of confidence knowing that Mortensen is by their side. This obsession with constantly improving is in all of us, and it’s included in us, it's part of us in the office, it's part of us in the field where we are directly putting the work in place.
Mike Wilson: I think that some companies don’t even understand how deep we go with this. We have an internal video system where we have folks out in the field that can pull out an iPhone, and if they figure out some lean process, make a little video of them doing it, and then they share it companywide. It is instant, and it’s just the culture.
Brent Bergland: It’s measurable.
Mike Wilson: Yeah.
Brent Bergland: We are improving productivities by leaps and bounds, and we put aggressive targets out there that says, “We are not just satisfied with the first 10 or 20% of improvement, we want to make another 10 or 20% improvement, and then do it again and improve on that.” It is definitely not as status quo, you have to be constantly evaluating how we operate in this business. One of the other things that’s really nice to see is that energy storage is another good example of, we can take this experience and this culture of lean, and we can help our customers be better manufacturers and assemblers of their own goods and services. It’s, you don’t really want to say, drinking the Kool-Aid, but when you can say, “We done this, and it’s improved our business by 20%, we believe that we can do the same thing for you.” And give you tips and tricks on how you can improve as well.
Mike Wilson: In one of the previous episodes we talked with Tim Mog who runs our wind group, and I was involved in filming a little video of a project where we are working, where we actually helped the manufacturer of this wind turbine rewrite their installation manual because of so many innovations we had. It snowballs I guess.
Brent Bergland: Absolutely. There aren’t really players in the energy storage market that have 5, 10, 15 years of robust history of improving their processes. We are at a real ripe stage of being able to take the way that we do business, and help them be better at theirs. We’ve got to try a few things, and we’ve got a ton of support from our company leadership to go out and try a few things in this marketplace to see what really fits to what we want to be as really a full service solution provider that can go from coast to coast, and tackle all types of work. You mentioned at that both utility scale, and the commercial behind the meter type projects.
A lot of people ask us questions, or they scratch their head a little bit and say, “Really Mortensen? Commercial, small, behind the meter type projects?” I say, “Absolutely.” When you describe our mix of business as a company, where roughly 60% of our company’s revenue has come from the commercial sector of doing things like healthcare and sports, hospitality, commercial, office buildings, educational facilities is, we are in that market today, and we want to bring energy storage solutions to our customers who we’re already building the big building for. It’s going to be an easy add on.
Mike Wilson: It’s just integrating this into that plan, right?
Brent Bergland: Yeah, exactly. That’s been really rewarding to get involved in that side of the marketplace where we see a bunch of companies who are now interested in Mortensen’s business, and it's a lot of 2-way relationships where one day of the week we have a behind the meter focus company who says, “Hey, can you provide installation services for us on our tranche of projects?” We say, “Absolutely.” Turnaround the next day and say, “Hey, I’d like to talk to you about putting your technology into our commercial facility.” Everybody is, “Absolutely, where do we start?”
Mike Wilson: That integration into these projects, that’s just our way of doing business too, right?
Brent Bergland: Exactly. The practice, and working on hundreds of different types of energy infrastructure projects where you have some of these projects could have 20 plus stakeholders involved in them, and-
Mike Wilson: That sounds fun.
Brent Bergland: Yeah. It is fun. It’s fun to solve, because we take a very much a dig in and get things worked out and figured out. Because, what we find is, as the company who’s at the finish line working on these projects, and as the builder of these facilities, we have a vested interest in what all these stakeholders need from us, and what we need from them to be successful. In many cases, we don’t have commercial relationships with all of those stakeholders, yet they provide something that we need for us to be successful, which then in turn provides a successful project for the customer.
Energy storage has many of the same type of stakeholders that we have to figure out how to integrate into the overall master plan for the project. We get pretty jazzed about being able to help our customers navigate the seas of these projects, and help them with the watch outs that can trip up the success of a project. We take the approach of, here’s something that we need to manage more closely on a project because we’ve seen it 10, 20, 30 times before. This might be a customers only 5th, 6th, or 7th project, or maybe their first project. They’re looking to us to reach into our quiver, and to find the tools that we’ve developed, and the experience that we’ve had over the last 20 years doing energy and infrastructure projects to make them better, make their business better. That’s just the way that we do our work.
There is a nice and growing list of companies that we are really having a lot of fun doing business with, and they are seeing value in having a proactive, insightful, constructive way of doing business. For a company who can just, today, announce that, “We are in the energy storage business.” Not just saying that we are in it, but now we’re doing real projects. Even starting 6 or 8 months ago, customers coming to us and saying, “Hey, will you be on our team? Because we see value. Even though this is a new industry that you’ve technically haven’t done a project yet, we know you’re going to be able to do it.”
Those are really rewarding relationships, and there’s a handful of companies who are interacting with us in that style. It’s a lots of fun to go after it together, and understand who is really good at doing what they do, and being able to put together a really nice and compelling team to provide the end-user with the right solution that they are looking for.
Mike Wilson: Excellent, it sounds like a very bright future. It’s going to come very quickly for energy storage. The entire industry, and here at Mortensen, it sounds like we are pretty committed to it. Brent, thank you so much for joining us today.
Brent Bergland: Thanks, Mike, I appreciate the time.
Mike Wilson: All right, that will do it for this episode of Building What’s Next, the podcast. Feel free to subscribe in iTunes. You can always follow us on Twitter, we are at M.A. Mortenson Co on Facebook, we are also at M.A. Mortenson Co of course, hit us up at mortensen.com. Thanks for joining us, and we'll talk to you next time on Building What’s Next.