You're listening to Redefining Energy. Your co hosts from Berlin Gerard red and from
London Laurent Segalin Today on Redefending Energy Jod, we have the pleasure of receiving
the grand master of energy storage, Alex. What's the second I know?
Well, i'll tell you just after the world from Asponsor. This podcast is
powered by Expo, an international leader in providing sustainable energy solutions for the future.
What we were saying, Job, Alex, could you just tell me
what Alex's family names? Okay, Job in theory, I could tell you.
But remember two weeks ago we had a French guest and you could not
pronounce his name. So I'm sorry. I have no idea. I mean
I read something and I hear something else. So please Alex okanady, Alex
okaneedy, but I read Alex oc need. By the way, my daughter,
my daughter's called order and that's spelled or l a in Jaelk the spelling
is all or l A I d H. Look, we're not going to
make a podcast on the pronuncision of gay Leek. No. I'm looking forward
to have the conversation with Alex about energy storage and the inspredible growth we've seen
in the last few years, particularly the Ireland nations, in other words,
Britain Ireland because they need it quickly and more than everybody. But I mean
it's now gone global, right and Alex is at the forefront. What is
pretty phenomenal is that if you look at his footprint is probably the only player
was a footprint in California, Texas, Ireland, UK, Germany. So
we'll be able to compare those different markets mature at the type of revenues,
if it makes sense to have the same type of strategy or not. And
I think we learned a lot. So let's bring Alex o o Ken Alex,
welcome to the show. Thank you for having me. But Alex,
I remember I met you, I don't know seven eight years ago and you
were launching a new product from almost a telephone booth with your mobile phone and
your laptop on your knees. And now you manage something like a gigawat of
batteries. So it's the story of an entrepreneur. You've been recently celebrated Man
of the Year of the storage energy storage industry. How do you see the
past seven years? Probably very few times when new market entrants driven by entrepreneurs
and myself and various other other folks can actually influence a really important industry.
Energy storage, we believe is the critical asset and our energy transition gor streets.
As you say, we started small, our first asset six megawatts,
which we still own. When we had that commissioned in twenty seventeen, it
was the largest privately omalythium ion in gb It was one of the largest assets
doing quid balancing in the world. As you say, we have about one
two hundred megawats in our portfolio in five different energy systems. I think we're
probably the largest player, even including the utilities. But that has been driven
by the absolute need for energy storage, which we identified back in twenty fifteen.
Alex, I'm literally just back from our home country, Ireland, and
what I got out of Ireland was the need for batteries. Can you talk
about why there is a smith need in Ireland and the Great Britain compared to
say, the continent where I'm living. Yeah, I'm talking to from Ireland
actually today. It's interesting. The problem that we're trying to solve is that
we have obviously, you know, incredibly difficult catastrophic situation with our climate.
Energy to transition is taking place to help solve that, and that transition is
driven by building intermittent power, solar and wind power that produces electricity when the
wind blows and the sunshines, and getting rid of baseload power a pasload power
which is killing us coal and gas. That becomes a really difficult problem for
the grid operators. The grid operators have a big problem trying to balance that
intermittent power against the needs of the grid, and that's where energy storage comes
in. But that problem is made even harder if you have island nations where
you don't have strong interconnectors to other countries. So the reason that GB was
the market leader from twenty sixteen on in energy storage was not only the fact
that the national grid was very forward thinking in terms of setting in place auctions
and alike where we could participate, but because GBS, an island nation,
didn't have the ability to balance its needs against the rest of the continent as
easily as for instance, France and Germany. Ireland's the same very low hydrocarbons,
poor interconnectors into GB and to mainland Europe and a very significant build out
of onshore wind and soon to come off shore wind, and all of those
really spark the need for energy storage. When we look back and your first
battery was a six megae wat and probably I don't know half an hour or
an hour. What are the batteries you're building now, I guess that much
bigger. We think about that six megawat up in North Yorkshire and participate in
the first auctions of the national grid around the Enhanced Frequency Response, which is
this auction to provide grid balancing services. As I said, one of the
largest in the world doing grid balancing the time of commissioning. Our latest acquisition,
Big Rock Californian four hundred megawatt hours right, a really significant piece of
infrastructure for southern California in construction now will come online December twenty twenty four.
That's the demonstration of both the size of the opportunity that's now been in front
of us, but also the maturity We have assets which are really significant parts
of our energy infrastructure providing that critical service. So it's really interesting to see
how fast the sector has moved on and that out of course, has allowed
players such as Gore Street to take a material part of that sector. It's
better as an investor to be investing into these super high growth markets where one
can take a position. Alex, I'm just quite taken back by that November
from six to four hundred. Tell me what is that four hundred mega?
What our battery actually doing and all the markets we're in and we're uniquely positioned.
So gor Street made a decision back in twenty eighteen that we wanted to
diversify our portfolio away from one energy system. So we moved into the Irish
market in twenty nineteen. We moved into the Texas market early twenty twenty two,
we moved into German market early twenty twenty two, and we moved into
California early twenty twenty three. Right, So it's consistent deployment into new energy
systems. Now, they will have different characteristics in terms of regulations and rules
and counterparties, but in essence they are the same investment pieces. They're driven
by large build out of renewable power, decommission out coal, gas and nuclear,
and then problems in the grid caused by that transition. So our asset
in California is going to be doing very similar things to our asset in Texas,
Germany, Ireland and in GB it'll be balancing the grid. Our assets
will be fifty percent full of electricity, so they can be a consumer or
generator and they will act as a grid balancing mechanism for the grid operator who
will ping it second by second and be a consumer, be a generator,
be a consumer, be a generator, and for that service we'll charge them
a price per hour over a certain length of contract. On top of that,
though, is batteries are flexible, you know, in renewables in general,
if you own solar and wind, you produce electrons and you sell electrons
with batteries. Really we're more a service, so we fight grid balancing services,
which I've talked about it. But we also do wholesale trading, so
we're trading electricity trading that spread between day and night, and we're probably the
most active of all the listed peers in terms of wholesale energy trading. Not
so much in GB, but in Ireland and Germany we're very active in a
wholesale trading. And then we also have what's called CAPA, so we enter
into capacity contracts with the utilities and the government to provide backup power at times
of super high demand during the year. Wow, let me digest a bit
this, and you're telling me that fundamentally your four hundred megaa our battery is
not that different from your six megawab battery. Or you know, the suppliers
have changed, the price have gone down. I mean, I don't know
the chemistry has changed. So how do you see the technical evolution of those
assets? At my fifty five collegues and Gore Street, the majority are engineers
and the project managers, and they're all now in horror at the idea that
their CEO is about to talk about engineering. But what I would say is
that the supply chain remains deep. If I look at our portfolio, we
have assets which have been built for us by LGCM, Samsung, nydek Fluence,
byd Tesla. We have a large supply chain we manage, and we
manage a large supply chain because we want best price discovery, right, we
want better services. The battery chemistry has moved on, for sure. There's
different types of chemistry in several of our batteries, some without nickel, some
with nickel. We're constantly looking at new solutions from the Tier one manufacturers that
might give us a cost advantage or could open up new services for our batteries.
So you should take it that overall we're playing in the same supply chain.
That supply chain is producing better and better product for us, which has
slight differences in chemical makeup or the way it's organized, but they do allow
us to do more or less as different the same set of services that we
have been doing. What I would say, there has been price volatility in
the supply chain for sure. When we started this journey looking at energy storage,
we presumed that energy storage would develop in the supply chain rather like solar
PV did. What do I mean by that? So I used to be,
in a past life a very large investor in solar. If you look
back in two thousand and seven, there was a really big build out by
the Asian manufacturers building huge capacity in solar PV manufacturing, and that lowered the
unit price very, very considerably. When we look in energy storage, we
saw that same trend coming about. So the large agent manufacturers adding huge capacity
not so much for energy storage, but to replace every internal combustion engine in
a car with a battery. And that huge capacity growth and manufacturing led to
a very significant decline in cost. Now sadly, twenty twenty one and twenty
twenty two we saw big increases in cost in the inflationary world that we're living
in through COVID and post COVID. That has now started to moderate and we
see price declines again. Just on the pricing thing, can you talk about
like prices per kilo water per kilo water today compared to when you actually started,
just to give an idea of actually what has actually happened in terms of
pricing. Oh yeah, we saw, you know, between about forty to
fifty percent price decline. Now a lot of that came back up there in
twenty twenty one and twenty twenty two, but we've now seen another good chunk
of twenty twenty five decline. It is very driven by the lithium ion price,
and that's very driven then by EV demand. So, for instance,
this summer we saw a big decline in pricing driven by the fact that the
Chinese government removed a subsidy for EV buyers in China, and that led to
them more cells being available for the energy storage market, which led to then
price decline. So it's a complicated supply chain one that gore streets invested in
very heavily with our own procurement group and a very wide range of suppliers.
We are the cost leader. So if I look at our list of peer
comparison, our assets are getting built at the same quality for a considerably less
than our peers. And that's really important because energy storage is smack in the
center of renewables. It's all about capex. The cost of running these assets
is a pretty low percentage of your revenue, so it's all about minimizing capex
to protect your irore When we talk about energy storage and the capex, the
pure battery is only one element of the overall cost. And then you've got
your those you've got your antifier system and for instance, out of fire legislation
the same of kind of equivalent in all your jurisdiction, or some are much
more stringent than others, because there's always one our story. But of course
the oil and gas industry is to appy to promote it. You know,
some batteries sticking fire? Do you want to talk about that a bit?
All our assets operate to the highest level of our safety, So regardless of
the individual countries regulations, our assets are operating at best in class level.
Course, Street takes far safety incredibly seriously to the extent we have in house
initiatives around how we become best in class, and we believe we are operating
best in class. One good example of that and the software monitoring system we
implemented called lion Tamer, which monitors the composition of the air internally in the
containers and gives us advanced warning of any composition change which might indicate that there
is a problem with one of the cells. We're very strict that it's our
responsibility to our shareholders, to our employees, and to our local communities.
And today we have an excellent safety record. Can I ask you a little
bit about your trading strategies, because I can imagine with an asset like this,
you can do a huge amount of things and some could be hyph for
looten and complicated, or you could just do it pretty simply. And I
would like to hear how you see that and how you see that developing going
forward. So we have our own commercial group. Commercial group is in charge
of deciding what contracts our assets should be in it any time. If I
kind of go back to the start of the conversation. There's three things you
can do with these assets, really three buckets. You can do grid balancing,
So you're an assets of fifty percent full of electricity, consume, generate
depending on what problems the grid has. That's about overall across our portfolio is
probably about seventy percent of our revenue. And within our portfolio there's probably twenty
types of contracts within grid balancing, depending on different types of duration or speed
of response or the different energy system they're in. Then there's this capacity contract.
The's a long term usually fifteen years in some case index linked where we
are available for times of high demand in the energy system. That's usually,
for instance, in gb that's winter hours between six and nine pm. Our
assets will be one hundredercent full of electricity, ready to deploy electricity if and
when the system needs it. And then that's about fifteen percent fifteen to twenty
percent of revenue. Big Rock actually in California will be about fifty percent of
revenue. It's a really interesting contract. It gives a big counterpoint to the
portfolio. And then finally kind of wholesale trading, where it's about five to
ten percent of revenue in Ireland it's about thirty percent of revenue. In Germany
it's about thirty percent of revenue. And a lot of cases that's looking at
the day ahead market and saying what's the energy price going to be tomorrow,
dropping out of our grid, balancing contracts, buying electricity at two am,
and selling electricity at the peak. So it's a complex pattern, but it's
what's really interesting. There's lots and lots of different ways for us to make
money. Now you need to build the and capital up, be able to
correctly organize yourself to be able to put your assets in the right of contract.
But if you look at our results ourselves, then demonstrate how well we've
done. By far, we have the highest revenue per meguat among our peer
group. I think we have the highest absolute level of revenue and ebit as
well, so we're over it. We're doing very well. Our assets are
averaging about nineteen pounds per megua prior twenty four to seven. A lot of
that is due to our diversification strategy. If we had been gb only,
our assets will be making about six pounds fifty per hour. So by our
diversification, by the internalization of the commercial team, we're generating three extra revenue
we would be if we'd stay just in the GB market. If I look
at the statistic of a company which are like a lot which is Modo Energy
and you know is tracking every batteries in GP and now in Texas, it
looks like the revenue are very location dependent. And of course all the batteries
which are the border between says Scotland and England are performing much better than the
Nezuela. So when you decide to implement a new battery, how can you
analyze the value of the location? And other developers need like you, So
there's going to be competition on those sides. So how does it work?
In general? Gore Street's been able to do any deal we wanted to do.
We're the market leader. We created this asset class for the public investors
the first IPO and back in May twenty eighteen, and we have a large
track record of successfully completing transactions, so we have a lot of transaction security
to developers. Of course, we're looking for best price and we're looking for
best location, and there's a lot goes into that. It's what's the cost
of land, what's the cost of the grid connection. How far away is
that grid connection date. A lot of the services you provide are not location
dependent, So a lot of the grid balancing services are not location dependent,
but there is other things which are. So for instance, we have assets
in Scotland, they're very profitable for us. We also have a very large
asset which we'll go into construction late next year in Middleton up in the north
of England, an interesting place given the decommissioning that's scheduled around a nuclear power
plant up there, right, So that will take out a whole load of
baseload power from that region, and so other services become available to us.
So we're constantly looking for other ways that we can make money from our existing
portfolio and our future assets. And a lot, yes, a lot to
do is do with location, but also a lot to do with the configuration
of the battery, right and how you're thinking about managing that through software,
how it spits into the overall portfolio. You talk about the revenues, and
you made the point that because you've got your geographical diversification, there is a
certain year where this country is going to be better and that country is going
to be But let's fay see to twenty two was bumper a year, if
not an exceptional year for everybody owning a battery, and probably too. Twenty
three we go back to normal and you need to be much more granular,
and it's a bit in relation to banking and being able to have access to
banking finances about you know, the stability of revenues. I read somewhere and
you're going to tell me if I'm wrong that batteries in a normal well supplied
environment are going to do not much, But then there's going to be certain
days and in certain days you can make a month. So it's really about
the intermitency in a certain way of revenue. So or am I just babbling
now? No, not at all. You know, we were wrong on
the upside in twenty one and twenty two. We did not think revenues would
be that high in GB I know some of our peers absolutely did think that.
We believed that rationally economic actors with similar costs of capital will build more
assets and therefore revenues and grid bouncing will go down. But what we found
in twenty one and twenty two was that our competitors had a hard time building
assets, getting the grid connections and therefore as the incumbent, we absolutely really
benefited in GB revenues have come down pretty steeply in twenty twenty three, absolutely
on trend for what we presumed will happen. But our job as a good
investors in building a diversified portfolio was to reduce that volatility in revenue by through
diversification. We did the regression analysis recently because we're kind of those kind of
geeky people, and if I look at what we see in terms of our
revenue versus a GB only strategy, we reduce volatility by about fifty percent,
so our revenues are having much less volatility than our peers. Interestingly enough,
our revenues are also three x at our peers because other markets are at different
points in the cycle. Each of these markets are not correlated, so GB
and ours revenues are not correlated. In Ireland, we make money in grid
balancing. We make more money if there's more wind on the system. Why
is that because the grid operator is paying you for value. If there's more
wind generation on the system, the balancing issue becomes more and more pronounced for
we add more and more value, so they pay us more. If there's
more wind generation. This summer, for instance, there was high winds across
Ireland and that is not usually it's higher winds in winter. That was driven
by climate change. There was higher temperatures in the Atlantic and that generated much
more storms and therefore there was much more wind generation. We made much more
revenue. That is not a market mechanism. That is in GB, so
uncarlided markets, but right beside each other. Texas we make the majority of
our revenues in summer. Again, overall it's driven by two things. It's
driven by climate change, so very high heat, which in the Texas contexts
drops out gas generators. They can't cope, so they lose generation and huge
amount of solars producing a lot of electricity, and there the balancing issue becomes
harder. But also everybody's running electricity really hot because they're running air conditioning.
And so during the summer for a few months we were making one hundred and
fifty pounds per megua per hour twenty four to seven against six pounds in GB.
So really very very significant revenues and again not correlated to our GB revenue.
Germany we're doing well, probably about ten to twelve pounds per Maguat.
A lot of that revenue is driven by volatility on the energy system coming from
the war in Ukraine, a very significant, huge transition that Germany is trying
to undertake in a very fast way. Another way to think about it,
and I'd like this tagline, and I hope it doesn't sound kind of to
kind of give, but investors in this portfolio are investing in volatility. We're
long volatility on the energy system. The more volatile the energy system is,
the more assets energy storage assets, stabilization assets will accrue value. That's what
these assets are doing. They're balancing the grid. They're moving electricity from times
of low demand to times of high demand. They're providing certainty to the grid
that there is electricity there at times of super high demand during the year.
So they're all stabilization activities. So the more volatile the grid, the more
these assets will accrue revenue. And volatility is not going away because our transition
absolutely puts volatility into the grid. Can I ask you just to really give
us a glimpse of how you see the future of energy storage, and I'd
also like you to talk a little bit about how you see the role of
what I call decentralized storage and going forward, how do you see it.
I'll talk about the decentralized bit first because I think there's some really interesting things.
I'm lucky enough to be a research fellow up in the Cambridge Energy Policy
Research Group, and recently he was about a year ago they put a paper
out around ev using evs to balance the grid when everybody whenever it sticks their
car and to be charged, the battery is sitting there and available to do
things. So I think there's really interesting things one can do with spare capacity
in our system. I think the problem is is the technology leap the ability
for the grid operator to manage millions of decentralized systems to solve the big kind
of macro problems they have, and the energy system is very very difficult and
we're I think, decades away from that. So that's why our focus is
very much on large scale utility systems which can contract with the grid operator to
provide this really material service at points of difficulty. Where do I see the
future. I've been investing renewables since back in two thousand and seven because I'm
old, so I've been doing this for a while. Solar wind or shore
on shore solar, pb CSP waste energy. I by far believe that energy
storage is both the most intellectually challenging as an investor, given the multitude of
revenue streams one needs to manage, but also the most important. Without proper
energy storage on our grids, we just frankly won't be able to hit the
targets we need to hit as the society. And so we're dealing with a
market which has got undergoing really significant changes. Six megwats to two hundred megwats
is Gore Street on its own. Banks are now lending in, Manufacturers are
producing better and better product, you know, better supply chains, pricing coming
down, and the need for storage continues to increase. I think there's really
interesting things that are going to happen on long duration in terms of building very
long dated systems to kind of move electricity from day to day even from season
season. But there's also just really interesting things happening second by second to make
our grids better and better. So we have a large pipeline in all the
markets that are operating in and we're very focused on completing the build out over
one two hundred megawatts. But this is an investment team for us, which
we believe is decades to run. Alex. Sometimes we have pugnicious podcasts,
but this one, I can't tell you, was just a long and pleasant
surf and they are very happy about our conversation. And you know the light
you shed on the not only the energy storage, but you know also around
the entrepreneurship, the grit, the commando thinking, and this is why you
are succeeding and big larger and Cubans are struggling. So thank you very much.
Thank you guys. It's been great, really enjoyed it. Thanks Alex,
good seeing you well. Job. I still can't his name, but
I can tell you is the ultimate rock star. There is so much to
digest from this interview, right, agree with you? Toking of that where
would you start? Number one vertical integration and the fact that now is almost
is on EPC and he used a lot of different suppliers. The fact that
he has his own trading operations so it doesn't rely on thought party optimization,
The value of geographical diversification, the impact on the ivysur plus, on the
price of batteries which has been going down. I mean, I could go
on for quite some time we could. Absolutely no, he's at the forefront
of a revolution. Is We've been saying that for years, but in a
way, alex epitomize what we've been saying is in this world of intermittency of
vulnerables, the one who are winning are those who are harnessing space and time.
So space design interconnectors and we'll talk about it in another episode, but
here it's all about time and it's training strategy, which I love is what
I call long flex short vel. You have a long position in flexible assets
so you can sell volatility on the market and the market is very thirsty for
volatility. Wonderful success story, and it's a success story of entrepreneurship, grit
and the mastering of a new technology. You're absolutely right. We got a
lot of absolutely The one thing we didn't talk about is that what's the best
financial vehicle to manage these assets? Because what alex as is are very is
going to pure play vehicle manage batteries, and I suppose I wonder is that
the right vehicle going forward, because I think what's going to happen with batteries
is that they're going to be everywhere, but they're going to be part of
automobiles, so it's going to have to manage them. It's going to be
part of the generation of somebody who the soul rats. They're going to have
them as well. Sot of therese is it long term? That's the right
vehicle? And maybe I'm just thinking about it round Maybe I should be just
thinking, Jared, my god, you're just do mean too analytical about the
whole thing, you know, But I'm I'm thinking what's the right home for
batteries and storage going forward? I think it sort of ends up being part
of a wider generation portfolio or Okay, that's the view. My view is,
you have twenty different type of revenue, and if you don't have the
expertise to play one against another and optimize permanently, you're not going to extract
all the value from the batteries and the guys. Would you know, they
have a behind the metal battery. They're gonna okay, they're going to do
a bit of a load shedding, a bit of arbitrash, but that's going
to be the end of it. So I believe that the central portfolio management
extract much more value. Okay, So let's follow up and follow on that,
I agree with you, I would say, okay, So the question
for me still is whether that's part of a larger centralized generation strategy or a
stand alone until the market are saturated, and some might be soon. Standalone
makes sense, and again just from a human expertise point of view, it
is a totally different expertise than win or solar and everything. Ultimately, his
secret source will be scattered. Hopefully by that time you will have gone into
new dimensions. But so far I believe the standalone has been a correct formula.
Okay, But I just said I don't believe that going forward because I
believe that you cannot own generation without having storage around it. True, I'm
talking about intimate and generation and even old world generation. I'm talking about you
know, if you think about like, let's assume you have a hydro power
plant, Okay, if you put a battery beside that, you increase the
flexibility in it and around with that power plant. And honestly, that's that's
where I'm calling from, right listen, But listen, we're talking about the
future. He's done a great job. What it means is because he's got
this great storage asset across the world. He's got massive flexibility to do other
things based on storage. Right, So that's that's what I conclude. Excellent
conclusion. So we thank Alex, We thank Axpo, our partner. And
three weeks ago we were invited in Copenhagen for a very nice conference and we
did a live episode which was never recorded, so nobody will ever listen to
it, and chard I took to you in two weeks time, look forward
to my friend. Thank you for listening to Redefining Energy. Don't forget to
read the show and subscribe on Apple Podcast, Spotify, or the platform of
your choice.