Adam Zuckerman
So, today we're here with Dejan Paravan, the Chief Innovation Officer at GEN-I. Dejan, welcome to the Energy Impact Podcast, it is great to have you here.

Dejan Paravan
Hi to everybody and thanks for having me.

Adam Zuckerman
Yeah, of course. Now, GEN-I is one of the fastest growing and most innovative companies in the European energy market, and is also the first Slovenian supplier of exclusively carbon free electricity. Congratulations. You're operating in 20-plus countries for electricity, eight countries for natural gas, you've have 25.3% share of the end customer electricity market in 2019, which makes GEN-I, for the eighth year in a row, the largest supplier of electricity in Slovenia and you're the Chief Innovation Officer. That's an amazing achievement. Tell me about your background, how did you get to your role, what do we need to know?

Dejan Paravan
So my background is in power engineering. And actually when I was doing my PhD, I did it at that time with my mentor professor Dr Golob. And the research and the PhD was on electricity markets, which were at that time, this was just when the new millennium started. And the electricity markets started all over the world and especially in Europe. At the time, my research was focused on hedging strategies and portfolio optimization of a power producer on the electricity market. So a lot of modeling optimization of operation of power plants, price forecasting, and all that stuff. And when I finished, or just before I finished, the PhD, Dr. Golob went into the business, and he took me with him. And actually, this is how the whole story started. So actually, we started the whole journey of GEN-I in 2004. We were backed by some blue chips here in Slovenia, and then after two years, also one state company, state utility company, big producer, also jumped into our shareholder structure. But we started from zero, actually from scratch. And in all these years, now we are 500 plus employees, we are on all those markets that you mentioned before, and with more than 2 billion euros of annual revenue.

Adam Zuckerman
For a bit of background there, why 2004? Why did the opportunity for GEN-I come? Was there a decentralization or liberalization of the market, can you please explain?

Dejan Paravan
Yeah, exactly. So the market opened in Slovenia started in 2001. And also it was very similar in all other European markets. Actually, the deadline for all European countries to liberalize the whole electricity market was in 2007. So, you know, in those years, markets started evolving and actually, this was our purpose, our mission to bring the benefit of market to end consumers and of course, also to take all of the opportunities that open market brings in terms of energy trading. That's why we we establish this company and we started with trading can supply business. Then when this power producer, as I mentioned before, enter our shareholder structure, our goal was also to to market their production and to hedge it and also to take care in case of eventual malfunctions that happen in operations and this is how everything started. So in 2009, we we entered also the household market here in Slovenia, again from zero, now we have the biggest market share, and in 2012, we entered also the gas market because the gas market and the liberalization of gas market, similar also in other European countries not just Slovenia, lacked a little bit behind and again the competition was not there. Everybody was looking at us, come on guys, you know you brought free market in electricity, why not also on gas? Just quite a tricky situation but then we entered it and also shaved a little bit of the pie. Let's talk a little bit about the size and the scale.

Adam Zuckerman
So not many people are as familiar, as we might hope they would be, about Slovenia itself. It's just East of Italy, it's South of Austria, it's Eastern and Southern borders are with Hungary and Croatia. Its square area is about equal size to Massachusetts, if you need a state comparison, but the population is much smaller. Massachusetts has about 7 million people, Slovenia has 2.1 million. What is the size and make up and composition of the country? How does that impact how GEN-I does business?

Dejan Paravan
Well, yeah, Slovenia is small, you know also Europe as a whole, it's quite fragmented and it has an effect why because we are positioned and not surrounded with a lot of markets. So there is a lot of interconnections. And when you think about markets, the more interconnections there are, more opportunities are there for optimization. So markets can bring more benefits. So this is this is one thing. And second thing is that, yes, because the winter market is small, you know, sometimes big players, you know, they have such a long stride that they just pass over. Okay, so this was the this was the exact reason why the situation on the gas market in Slovenia kept - although the, you know, the legislation was liberalized in 2007. But it took them four or five years before us entering the market and shaking the whole situation. Now, the question is, I think that you know, the big players, due to the smaller size, were not incentivized that much to enter into this new market. And we then just took that opportunity that was there.

Adam Zuckerman
So there's a new market player, you guys entered. The traditional markup is generation, transmission, distribution. Where did you fit in that supply chain?

Dejan Paravan
So initially, we started with trading, and then immediately started also with supply to B2B customers. We started that in 2005. And then as I said, four years later, we added also households. Currently, we are focused more into households, because that part of the market is much more vivid and interesting. And so these are the two main pillars. By time, though, in the very beginning, so 2007, 2008, we started also with PPAs, small PPAs, because there is certain legislation in Slovenia, which allowed to power producers who produce for renewables to go on the market, they were somehow motivated to go into the market. So we started over there with, with PPas, how to bring them as much value as possible from the market. And this was actually those are the two main pillars. So trading can supply were two main pillars in our evolution, and then, about five years ago, due to a whole bunch of trends in energy transition, the evolution of new technologies and so on, we recognize that, you know, first, this is a big opportunity for our business, to focus into new energy services. And the second, we also recognized great purpose, so that we help our customers and customer base to decarbonize and to lower their carbon footprint of their operations. So then we actually started thinking how to do that, developing several products. And then we added different services from demand response programs, aggregation function, then a solar program, so we are the biggest residential rooftop solar installer here in Slovenia, and then also other services. So this third pillar, let's call it you know, energy services or all kinds of energy services. It's now emerging, it's not as big as the first two but we believe that in five to 10 years, it will be even bigger than one of those first initial things.

Adam Zuckerman
That's very interesting. Let's focus on specific things that you mentioned, where you're selling to residential and that market is clearly growing for you. You actually led the team that introduced that service and I believe that you took over 10% of the market in four years, congratulations.

Dejan Paravan
No, that was not correct. Yeah, when we entered the gas market - and still at this time it was the biggest or the most successful campaign on any energy market worldwide, because we acquired 20% of residential gas market in less than two months, in less than two months. And this was the situation... okay, it was our people who could do an extremely good job. But also, you know, the competition plays a role because they somehow kept the Slovenian market under the radar, so that outside players from outside didn't enter the Slovenian market. And on the other hand, they, they, you know, without competition, they were a little bit slipping. So, they brought the market to the point in the situation to disrupt it, in terms of market was perfect. And that's why, you know, the situation evolves, like, with speed of light, you know, and when we entered it, it was autumn 2012. Yeah, in that time, in less than two months, we acquired 20% of the market. The peak was actually 1% of the market per day, on the on the spike, which is enormous, because on some markets, the churn rate is, you know, a few percent per year of the whole market, not per day.

Adam Zuckerman
What encourages a company or individual to switch? Is it price, is it online services, is it access? What is that innovative feature that can either get someone to come over or entice them to leave if you're not doing a good job?

Dejan Paravan
Well, that's time to surprise, obviously. It was a surprise. With the combination of easy access and trust into GEN-I, because we built a huge trust in our customer base, that we keep the promise, and people then didn't have any, you know, problem into switching, but the biggest difference at that time was price. Now, let's say 10-15 years later, the price, of course, still matters, but it is far away the only motivation factor. And you know, since - and this is also something that that we observe also in many other markets, throughout Europe - that price only is just not enough. And we are more talking of, not the lowest price, but we are talking about fair price. Okay, predictable price, fair price without some hidden stuff. And this is something that you need to have and second is loyalty, which you need to build with relationship and how you behave in past actually.

Adam Zuckerman
So the GEN-I group is operating in Austria, Italy, Bulgaria, Serbia, Croatia, Macedonia, Albania, Greece... several other countries as well. Can you provide an introduction of how electricity pricing and purchasing functions vary across Europe? Does it change country to country or is it relatively uniform for countries that have an interconnected grid?

Dejan Paravan
So actually, usually each country is its own market and usually each market, each country, it's also each regulating zone, so it has an own DSO which takes care and actually also, that country is usually a pricing zone. Okay, so this is how everything started. Then with fears and with European legislation, the European Union took a lot of effort into harmonizing the common or establishing European electricity market. Now, when establishing a common European electricity market, this doesn't mean that the price is equal all over. But this means that the rules are harmonized somehow, and they are, as much as possible, unanimous in such a way you can provide with easy access and easy entering into the market to foreign players to bring up competition, and to have clear rules in terms of how accessing the market, and then exchanging the energy between the countries. Now, the the particularity of Europe is that all these countries and all these markets are very well interconnected. So this is a little bit different to the US. Yeah, and this is also, at least one of the reasons, I think that we don't face such issues like, like you face in Texas now, or previously in in California and so on. Because the markets are more interconnected. And that's why the whole system is more robust. So then with evolution, the markets got also in terms of how to how to the prices are set and how you trade with energy got much more linked, so that you have, you know, different, much, much easier access to energy, and everything is becoming much, much more efficient, and also the prices are converging due to this efficiency, although they are not equal. So, you know, there are some adherence, which countries and then you have, always, of course, explanations and some reasoning behind why different parts of Europe have different price levels. And this, this is not connected to, let's say GDP or wealth of the country. So it doesn't mean that the poorest countries have the lower wholesale price, at least when we talk about wholesale price, which is obvious, but it's it goes just with demand and supply.

Adam Zuckerman
So, are countries able to subsidize the prices to make it more affordable for their population and their industries, or no?

Dejan Paravan
Less and less. It depends on the market, when we are talking about residential customers, okay. When we talk about big industry and and the B2B segment, at the opening of the market, there were some segments which were heavily subsidized. Nowadays, all those subsidies have gone away with, you know, it was a process, it didn't happen just overnight. But today, I could not tell that some big industry have subsidized. You have some special programs, which then, you know, help those heavy industries. But, you know, the, the laws in Europe are very strict in that regard. You cannot do the subsidies, at least hidden subsidies. So, it's very rare that this would happen. When we talk about residential markets there, it's a little bit more tricky, it depends from market to market. Still on some markets, you know, though you have the open market for residential, you still have some very strong state owned players who provide almost regulated option and then you know, depending on where that price is settled, it affects a lot of what happens on the market.

Adam Zuckerman
When do you think there may be a convergence where most prices in Europe are actually identical?

Dejan Paravan
Well, my belief is that this will never happen, because it cannot happen. Because if everything - you know, the market shows the true value. Now, if in some part you have cheaper production, then it makes total sense that there the wholesale price is lower. So I don't think that the prices will ever converge to the same level. But I believe that already now they give a very good signal where the prices are higher. So that means that you know, those who invest into the production, have a clear picture where to invest, where the wholesale prices are higher or tend to be higher. So the prices will converge with time, but I don't think that they will, you know, be all the time equal everywhere.

Adam Zuckerman
You mentioned early that you're working with PPAs and there are multiple different types and considerations. Have you seen in that generation or a rise of PPAs between independent power producers and offtakers? Where is that trend going?

Dejan Paravan
Yeah, I think that the trend is extremely positive in last year, especially last year, partially due to the the fact that the cost of renewables are falling. So, this is one thing which is extremely important, because in some countries, the cost fell dead low, so they don't need any subsidy for for those projects, we are talking about solar projects in Spain or wind projects in the northwest and so on. Second reason is that corporate customers are more and more aware, and they want to invest in solar or renewables, and especially, they want to invest in on-site projects, because then the grid is set much higher than the wholesale price. And those you know, are low hanging fruits, which are on the market. Yeah, now, this regulation is more dependent from country to country. So, here we have some, you know, general rules, we call them directives from European Commission, but then you have local specifics, which depends on country to country. So, for example, in many countries, you can do this, so that you can put embedded power generation on your site, at least for example, in Slovenia, you can do this, it can be their, you know, cogeneration plan, for example, or rooftop solar or similar. And then, you know, it depends how you how you size that production, either you consume all the electricity on site, which is, of course, beneficial because you avoid paying the grid costs and other taxes and levels otherwise, which you would need to pay if you take electricity from the grid. And if you don't consume that energy on site, you just put it into the market and just complete the market contract.

Adam Zuckerman
If they want to build on-site embedded generation, is it uniform across countries where they can connect directly to the power generation, or do those entities that are setting up, whether that company itself, or a subcontractor provider, do they have to provide that to the grid and then purchase it back? How does that work? And this this works and it's completely no problem. Is it faster to develop some projects in some countries than others? Or, is it generally speaking, once you're in the EU, it's going to take the same amount of time to develop a 50 MW solar development or a hydro development in Slovenia versus Austria?

Dejan Paravan
No, unfortunately, not yet. Yeah. I believe that European Commission is - the wish, of course, is that the rules are harmonized, because then the whole market benefits out of it. But now that the states still have state legislation, which is in some parts different and you know, when it comes to real life projects, details matters.

Adam Zuckerman
Which countries do you think are most innovative or most progressive and are approaching the environment and energy production in the overall market with the most vigor?

Dejan Paravan
Well, usually when when you observe Europe, the the most progressive markets, when talking about opening the markets, and also when talking now about sophisticated, let's say green energy services and so on, are usually northwest part of Europe. So we're talking of Nordic market, Great Britain, Benelux and so on. And then, you know, the continental or the Central Europe follows and the South and Southeast Europe. So if you if you look for the best practices in Europe, you should look into northwest in general.

Adam Zuckerman
Let's move away from the European market and let's focus on you. We don't have many opportunities to talk to people such as yourself, Chief Innovation Officer at GEN-I, what is innovation in the energy sector?

Dejan Paravan
Well, innovation by itself means something new which brings value. So, when we are talking about energy sector and we are talking something new and brings value, always it comes to mind new services linked to energy transition. So, here I see a lot of opportunities and here see also a lot of value that we can bring to customers and that we can bring into the market. So, for that reason if I would need to choose this is what I feel are the trends which I believe that a lot of innovation will happen, is happening and they will shape not not only energy markets, but also our living as a whole.

Adam Zuckerman
In a way, innovation almost means progress. Moving forward and making things a little bit better. Oftentimes, people in energy talk about decarbonisation, decentralization, digitization, which are all items that I know you're focused on. What are some of the initiatives you've put in place over the last decade or what you expect to focus on in the next 10 years or so?

Dejan Paravan
Okay. So, in let's say the last five years, we put a lot of emphasis into one of those and one of those is digitalization. Digitalization in terms of how to get benefit out of data and how to also bring everything into the data. So, we we embedded digitalization trend in all our segments and also in all, you know, it goes into the processes, either it goes into how we built the the strategies when entering into the market, either it means the relationship with our customers. So, next thing what we did is that we heavily increased our development department and analytics department. So, if I said that we have 500 plus people at GEN-I, you know, the number of analysts for whatever reason in GEN-I is around 70-80 people. So, this is quite huge. And so, we want to, you know, make our decisions based on on data, so, a data driven decision. So, digitalization is one thing and the other, the second thing, is decarbonisation, decarbonisation in terms of, okay, what can we do, which services can we develop in order to help our customers to decarbonize? And one of the initiatives, which you mentioned earlier, was that we we deliberately decided that from the first of January this year, we will not supply any more carbon based electricity to any of our customers. That means a portfolio of about more than three terawatt-hours, just roughly to have an impression, and supplying, you know, about 400,000 customers. So they can choose, you know, whether to choose nuclear, solar, hydro, but we don't supply carbon electricity anymore.

Adam Zuckerman
Is that only within a specific country's market? So, if you live in a market that has no nuclear, but GEN-I operates there, can you select nuclear energy from another country?

Dejan Paravan
Yeah, in Europe, we have a special system in that regard that is called guarantees of origin. So this is a parallel system to electricity, which takes care and is, you know, it's an officially set system in EU where you can where regulators and all the institutions back the system, so that it's totally clear which production and which source is linked then with consumption. So the markets also here are interconnected. So you can buy those certificates from Spain, for example, and then supply it in Slovenia, for example. So you can do that, yeah.

Adam Zuckerman
How granular does that get? Can I say, I want specifically want to buy energy from Krško Power Plant, or is it just I want nuclear in general then GEN-I goes and does all its magic on the back end?

Dejan Paravan
So it goes to two megawatt tower, okay. So this is the minimum lot and, and the resolution is in general per year basis, you can go to per month basis. But, you know, the operation costs if you would, usually what you do is that either you do it if you do it customer base, you usually do it per those big customers, otherwise you do it per portfolio. So, if you define your portfolio of customers, let's say residential customers, so people can have different portfolios, and then actually, you back the supply to that portfolio with those guarantees of origin and in such a way you you're guaranteed that the electricity supply to that portfolio was from a specific source.

Adam Zuckerman
And then, if GEN-I is sitting in the middle, are you purchasing and reselling at a markup? What's the opportunity and the reason people would purchase directly from GEN-I and not say, oh I need 20 megawatts of power for my mine or aluminum smelter facility, I'm going to reach out directly to the power plant facility? Is that even allowed?

Dejan Paravan
Well, of course, it's allowed, but then you need to establish the whole infrastructure, you know, so, of course, you could do it, a customer could do it, but also by himself, it makes no economic sense. So, usually, you go to specific supplier or somebody who can deliver the service so that he can do it for you, because otherwise, it makes just no sense. So, this is mainly the reason.

Adam Zuckerman
Okay. Let's switch back to the EU then. So, the European Commission under the governance regulation said that all member states had to submit the national energy and climate plans, which is effectively saying, a clear path from 2021 to 2030, focusing on areas like renewables, energy efficiency, greenhouse gas emissions reductions, interconnections, R&D, things of that nature. At first, people said, nobody's going to hit the targets. It's just not on track. And then the big elephant in the room hit, COVID. And now things are looking kind of okay, people will hit it. How is COVID actually impacting right now? Do you think that with vaccines coming out, that there might be an increase? Where is COVID impacting your life?

Dejan Paravan
Okay, so, if I'm thinking about our company, okay, how COVID is impacting our life, it made our life last year very difficult, okay, because it shook the markets,, it lowered the consumption. So, when you are supplying customers and taking volume risk on you and, you know, if if your customers are utilizing 20% less electricity than they should do, and you need to go into the spot market with those quantities, you know, then it's not nice, doesn't look nice. So, from that perspective, I believe that supply companies last year had a difficult time in Europe due to COVID. Also, you know, the markets were shaking a lot and so on. But if you look at the longer term trend and if we look at least GEN-I and also other companies, we are not alone, who bet on digitalization, on decarbonisation, on energy transition and so on, the COVID situation sped up all those trends. So it means just, you know, okay, we are in the right direction, now we just go faster. So from that perspective, I believe that the situation will, in the long run, produce some positive results because the innovation and the whole progress will will go faster.

Adam Zuckerman
Do you think that the demand and the growth for individual countries has changed because of COVID, and where do you think the most demand and growth will be in the next ten years?

Dejan Paravan
Oh, yeah. For sure. For example, if we look at the the last year results for example, I can tell you that the results for Slovenia just for benchmark, last year consumption, compared to 2019 - I just saw those results few weeks ago - was about 7-8% lower on annual level per business customers, but the residential segment was 5% higher. So, you know, five to 10% difference in consumption on energy markets is huge, this is something huge, okay, this is significant. So, also the consumption in in most European markets, okay, dependent from from market to market, but in the first wave of COVID, - we are talking about March, April, May - impacted heavily the consumption in in our countries. So, the consumption fell by 20-30%. So, it was a huge shock. We are not back yet. But the positive thing is that the second wave in this winter, although the COVID numbers, which were much higher than they were during the first wave, the fall in demand was much less intensive. I explained this just by the fact that the industry, the companies, the countries just managed to somehow live with with COVID. And they managed that not everything stopped, like during the first wave, which is somehow positive because the industry and the economic development goes on. And that the impact it's not that heavy as it was in spring 2020.

Adam Zuckerman
Do you think that some countries might experience accelerated growth coming out of COVID, almost like a whiplash effect?

Dejan Paravan
I don't see that. Yeah, because I also think that we, we will need one, maybe two years that we will come to 2019 levels, so that, you know, that some country will explode in terms of growth? I just don't see that yet.

Adam Zuckerman
If many countries are decommissioning dirty energy, they often need to replace that energy, even if things are holding flat with clean energy. What are some of the problems and challenges that new power generation may encounter and what do you think could be done on a policy level to accelerate and streamline that growth?

Dejan Paravan
Well, this is a very good and interesting topic, because different countries approach this topic differently. And all in a context of what is their backpack, okay. So you have some countries which are heavily dependent on coal, they don't have many options, and of course, their ambitions are much less than some other countries. So from that reason, you know, you need to look a little bit deeper to understand all those circumstances. But nevertheless, what I believe will happen is that, when we, you know - and this is also something that we pay a lot of attention, because we understand how the energy business works, and also how the electricity power system functions - is the impact on the grid, and the whole electrification trend, and, you know, putting renewables into the grid, we need to do it in a smart way. Because if we don't do that in a smart way, then you know, the, the penetration into the grid or sometimes we call it, great hosting capacity, will just not be enough in order to realize our targets. So, this is something that we pay a lot of attention to. Who's doing it the best right now?

Adam Zuckerman
If you said, this is the person, the entity, the country, that could put on the master class for everyone else to learn from, who is that entity?

Dejan Paravan
I think that a lot of countries are putting a lot of effort. So there are a lot of demonstration projects, pilot projects and so on. So we already have some, you know, because what I see is that, in order to achieve this, we will need to change our way of planning and we will need to change our way of operating the power system and here i see the opportunity and a need of a rise of localized flexibility markets not only on country - so let's say at TSO level but also on DSO level - and the countries which have such schemes are, for example, in Great Britain in again in Benelux, so we are talking about that part, but not only, so we have also some other countries which are experimenting. For example, in Slovenia we also have a cooperation with our system operators and we have a local flexible market so that end consumers, also small, can provide grid services to the grid in terms of smart grid functionalities.

Adam Zuckerman
What's something that we didn't touch on today that you think we should talk about?

Dejan Paravan
When we are saying that Slovenia is small, but we have, you know - also so maybe that your listeners will know where Slovenia is - we have one big guy, which is Luka Dončić, which is making a very good impression in the US currently.

Adam Zuckerman
And the last question for you: what's something that's exciting you about GEN-I in the context of the European energy market?

Dejan Paravan
Well the whole thing of energy transition and that we have big opportunities in terms of developing new solutions for our customers, so I believe that the energy sector is really in front of, on one hand big challenges, but on the other hand, also on on very meaningful purpose of doing good for people and also for our planet. So this is what you know, energizes me and gives me motivation when working at GEN-I, but not only, and this is also where I see a huge opportunity for the future.

Adam Zuckerman
Dejan Paravan, Chief Innovation Officer at GEN-I, I don't think we could have ended on a better note. Thank you for joining us today and we'll talk to you soon, I hope.

Dejan Paravan
Thank you, it was a pleasure and thanks for having me. Bye.