How AI Could Cut Energy Trading Costs - Tem Energy

Ed Porter (0:00)

I'm your host, Ed Porter. Welcome back to Transmission.

Joe McDonald has spent over a decade inside the middle of the energy market, watching where the money goes on its way to the meter. He's now CEO of Tem Energy, a platform building AI infrastructure to strip those intermediaries out of the chain for business customers. At times, Joe says, close to 30% of a power bill goes to something other than power, trading desks, balancing costs, wholesale market fees, layers most customers have never heard of, each taking a cut before the energy arrives. It's a big claim and one worth testing. Is that a market working as designed or a market taking more than it should? Have a listen and make up your mind. We'll get into the regulatory exemption quietly reshaping who pays for the grid and how batteries might work as an insurance against price shocks. If you want to dig any further into the numbers Joe raises, Ko can help you find the answer. Sign up is free and you'll also get trial access to Modo Energy's research pieces. Link in the description. Let's jump in.

Hello Joe, welcome to Transmission.

Joe McDonald (1:14)

It's a pleasure to be here.

Ed Porter (1:16)

Well, thank you for coming. And as ever, let's get straight into it. So what is one thing that people get wrong about supplying businesses with energy?

Joe McDonald (1:23)

Hmm, just one thing. Okay, the one thing I think most people don't recognize is the actual owner of the business relationship often is the supplier, the kind of brands that you would know, right? Your EDFs, your Octopus, et cetera. But it's actually not them that add the most cost onto the transaction and the price that a business pays for their energy.

It's not just the account management or brand or acquisition costs that get layered on. It's actually the behind the scenes. It's the trading costs, the balancing costs, the wholesale market costs. And behind that one customer application owner, the actual utility, there might be five or six more intermediaries that you don't even know about that are actually helping transact your power and adding on their fees.

Ed Porter (2:04)

And that is pretty controversial, right? Because when we see the suppliers that are out there, it is in the press a lot. It's those main names that you mentioned. There are others. And it's always kind of looked at and you say, oh, the margin in those businesses is a couple of percent.

But you're saying sort of behind that sort of top layer, there's all this sort of machinery and sort of middlemen that sort of all take a slice.

Joe McDonald (2:26)

Yeah, exactly. I mean, you see the people who make record profits when there's price volatility. And actually very rarely is the utility layer or that customer application owner layer. They are running on very fine margins, really trying to optimize their cost to serve, cost to acquire, to still be able to grow and be profitable. But behind the scenes, despite potentially how it's presented to market, most of that transaction flows through what I would call the true big energy intermediaries.

And these are your kind of big energy companies that came from oil and gas and provide balance sheet, trading and access to all of those utilities to the wholesale market, which underpins all of pricing for certainly forward contracts for electricity for businesses and generators today.

Ed Porter (3:10)

Okay, let's just quickly, what's a forward contract?

Joe McDonald (3:13)

So, when we look at energy contracts, you can basically have almost like a tracker mortgage equivalent, right, where you're just getting the price that is being cleared every single settlement period, so every single half hour in the market, like an index price in the UK, that system price, maybe you can index on a day ahead price.

Forward market contracts are effectively where you're agreeing a fixed price over say, six months, 12 months, 24 months, 36 months. It can be called PPAs, it can be called OTC. There's many different ways of saying it, but it's where you actually get a fixed rate for your energy that is not going to be variable as time goes on.

Ed Porter (3:51)

So instead of locking into something that's happening very near term, where you've got good transparency of the price, just going out into the market and booking something in over say, six months. And that's where you think that there's a chunk of value that's being handed over to the sort of machinery that sits in the middle of this.

Joe McDonald (4:07)

Yeah. And because you kind of needed that machinery, right? But the problem we're trying to solve when you want price certainty to customers, right? So I'm a business, I want to know what price I'm paying for my energy for the next 12-24 months. So I have budget certainty.