Speaker 1: With Laurn's segle End from London and Gerard read from Berlin.
Speaker 1: This is redefining energy.
Speaker 2: Today.
Speaker 1: On Redefining Energy, we're going to talk about the opportunities
Speaker 1: in the German battery market.
Speaker 3: And it's going so crazy. I call that a blitz.
Speaker 3: But first of the well, from my partner.
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Speaker 1: Germany and the UK. A Bloco's batteries can be leased
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Speaker 1: more flexible. Back to the show, Yeah, that's a good
Speaker 1: way to put it all, right, absolutely, and it's huge
Speaker 1: amount of drivers in that market, Laurn starting with just
Speaker 1: price volatility, right, incredible.
Speaker 3: What's going on before we introduce our guests, I've decided
Speaker 3: to bring on for a few minutes Zach Williams from
Speaker 3: Model Energy because Modo is really the best analysis of
Speaker 3: every battery market for three four minutes. Zach is going
Speaker 3: to explain us what's the set of play in the
Speaker 3: German battery market. Let's listen to Zach. Zach, welcome and
Speaker 3: please give us a broad picture of what model analyzers
Speaker 3: and then a few key figures on the German battery market.
Speaker 4: Yeah, thanks, Lauren murder Energy. We look into how batteries
Speaker 4: are performing today and how they're going to perform in
Speaker 4: the future. So we offer benchmarking services, power price and
Speaker 4: batchy revenue forecasts and also research into these markets. So
Speaker 4: some of the key topics, challenges and risks behind that.
Speaker 3: You follow GB Australia, Texas, California and you recently opened Germany.
Speaker 4: Yeah, we originally started in GB and for about a
Speaker 4: year now we've been doing the US markets and Australia
Speaker 4: and most recently now expanding into Europe, so Spain, Germany,
Speaker 4: France and Italy next on the list.
Speaker 3: So it seems the German market is very hot right now.
Speaker 3: What's your assessment of the German market now and going forward.
Speaker 4: Germany is a really hot market at the moment. There's
Speaker 4: a lot of interest both from the local developers as
Speaker 4: well as a lot of foreign investments. So a lot
Speaker 4: of companies that have got a lot of experience in
Speaker 4: gb that are looking how to get assets deployed in
Speaker 4: Germany as well. The merchant case in Germany is particularly strong,
Speaker 4: so you've got really strong, robust merchant returns across the
Speaker 4: three key portions of the revenue stack. So first of all,
Speaker 4: the fundamental case in the day ahead power market. Germany
Speaker 4: has the strongest daily power spreads of Europe's major markets.
Speaker 4: So there's over one hundred gigawatts of subsidized solar capacity
Speaker 4: and only eighty gigawatts of peak load. So during peak
Speaker 4: solar hours, the grid is flooded with this additional solar
Speaker 4: energy which it can't consume. So the result is you
Speaker 4: get these deep troughs in negative prices. So Germany has
Speaker 4: the most frequent negative prices of Europe's major markets and
Speaker 4: the deepest negative prices. So it's a dream for batches
Speaker 4: because you can charge during these periods of deep native
Speaker 4: prices and shift that energy to later in the day
Speaker 4: when power prices have returned. So yeah, ultimately Germany has
Speaker 4: the strongest day head power price spreads in Europe. On
Speaker 4: top of that, the market design in Germany means it
Speaker 4: has an extremely lucrative intra day market. So why is that.
Speaker 4: Essentially in Germany there's no central balancing mechanism like you
Speaker 4: have in markets like in the UK, and there's very
Speaker 4: strict imbalance penalties for being out of position. So if
Speaker 4: you're a solar or a wind or thermal generator that's
Speaker 4: out of position, you deliver more energy or less energy
Speaker 4: than you agree to, you get charge to penalty. So
Speaker 4: they're strongly incentivized to make sure they sell as much
Speaker 4: energy as they produce. How this happens in practice is
Speaker 4: solar producers will forecast how much energy they produce in
Speaker 4: the day head market. Let's say this is one hundred megawatts.
Speaker 4: Then for the following twenty four hours, as the forecasts
Speaker 4: are updated, they get a clear idea of how much
Speaker 4: energy they're going to produce, they correct their forecast in
Speaker 4: the intra day continuous market. So this creates a lot
Speaker 4: of intra day volatility which batchies can take advantage of.
Speaker 4: So I've heard batteries can trade up to fifteen times
Speaker 4: as much volume as they actually deliver, so a lot
Speaker 4: of non physical trading in the inter day market. And
Speaker 4: on top of that, you've also got the ancillary services.
Speaker 4: So Germany requires about five point five gigawatts of total
Speaker 4: ancidary service demands which are not yet saturated. And the
Speaker 4: star of the show in that market is the AFRR
Speaker 4: or Automatic Frequency Restoration Reserve, which you can bid two
Speaker 4: gigawats in either direction, and there's only around five to
Speaker 4: eight hundred megawats of batches registered in that service already.
Speaker 4: So if you're an optimizer of bat trees, you've got
Speaker 4: these three really strong revenue streams which you can cross
Speaker 4: optimize between. And that's why Germany is looking so strong
Speaker 4: and so attractive for so many different players.
Speaker 3: Well, thank you very much. So it's a very very
Speaker 3: out market. Thank you so much for coming. Thanks my preasure.
Speaker 3: So Jerh, we've decided to bring a very special guest.
Speaker 3: We could have brought a very established developer institutional, but
Speaker 3: we have decided to go for a pioneer commando absolutely.
Speaker 1: So what we've decided to do is bring in Philip Mann,
Speaker 1: who's the CEO of a battery business called Terreller, very
Speaker 1: active in the German market, and some very interesting and
Speaker 1: pioneering agreements that they've put in place, which I think
Speaker 1: are very important for the future. Of financing batteries, not
Speaker 1: just in Germany but across the world.
Speaker 3: Yeah. Absolutely, And one of the innovations well, first of
Speaker 3: all is vertical integration, but with partner at every step
Speaker 3: of the way. But the second he has a master
Speaker 3: of toting agreements and a toning agreement. Basically, you build
Speaker 3: the battery and you go contract with a trader and
Speaker 3: somehow it's a swap fix to viable, which means Talaa
Speaker 3: is going to get a fixed revenue. So that's excellent
Speaker 3: because you can raise that on the top of that,
Speaker 3: and on the other side, the traders and these are
Speaker 3: big guys with that and fil they get access to
Speaker 3: the battery and they trade around it without having to
Speaker 3: invest in the battery exactly. And that's very important because
Speaker 3: people don't understand that the trading desk in those big
Speaker 3: company is very very far away from the industrial department.
Speaker 3: So in fact it's faster to go through a third
Speaker 3: party than trying to organize something in.
Speaker 1: House exactly exactly. So as and Minor, we bring Pel
Speaker 1: upon the show.
Speaker 3: Philip.
Speaker 1: It's great to have you on the show.
Speaker 2: Thank you very much for inviting me.
Speaker 3: Philip. We like to bring thriving on top onurs and
Speaker 3: I think you're one of them. Three years ago your
Speaker 3: company did not exist. You have managed to raise close
Speaker 3: to one hundred million of equity and debt, which is
Speaker 3: pretty phenomenal. So how did you succeed so fast?
Speaker 2: When we started November twenty two, we were still running
Speaker 2: our old company, which was a B to C luxury marketplace,
Speaker 2: and before that, I started my career at Glenkor. So
Speaker 2: the way I think about it is it's kind of
Speaker 2: coming back home, back to energy, which way I started
Speaker 2: my career. We've been able to move quite fast for
Speaker 2: the simple reason that there's this massive over indexing and
Speaker 2: renewable energy generation investment structurally too littless happening in grits
Speaker 2: and in storage, and so we felt very quickly on
Speaker 2: that this is probably one of the largest single asset
Speaker 2: capital deployment opportunities of our time. Everything is about AIAI
Speaker 2: is fundamentally about built world, which is data centers and
Speaker 2: data centers about power. We very quickly managed to create
Speaker 2: a differentiated value proposition and hypothesis, which, combined with attraction
Speaker 2: that we droped G attracted a lot of standout investors,
Speaker 2: and we've been very lucky too.
Speaker 1: Yeah, i'd be just to hear what you think, are
Speaker 1: you as peers.
Speaker 2: Yeah. So when we started with this business, you know,
Speaker 2: we looked at storage. In Germany November twenty two, there
Speaker 2: was under a gigawoud of grid scale bes. So we said, okay, well,
Speaker 2: there's obviously not enough storage, but if you truly believe
Speaker 2: that this asset class will be as big as people think,
Speaker 2: we felt three things needed to happen to make a differentiation.
Speaker 2: First one is aim there will be a lot of
Speaker 2: people that need flexibility, large CNI traders, utilities, et cetera.
Speaker 2: It will not be practical for everyone to own and
Speaker 2: operate their own assets, so we said, somebody needs to
Speaker 2: build something like the Amazon Web Services for energy flexibility.
Speaker 2: The second point that we made is that we said
Speaker 2: most people look at flexibility and best as just a
Speaker 2: development business. But you know, storage is an active asset class.
Speaker 2: If you build a PV plant, then you do nothing
Speaker 2: with it, still produces power when it's sunny. You build
Speaker 2: a battery and you do nothing with it, well, it
Speaker 2: does nothing. So I think a lot of the value
Speaker 2: is actually in the commercialization of the asset. And the
Speaker 2: third thing that we said, is you need to ownly
Speaker 2: off take. It's an infrastructure asset class in the making.
Speaker 2: It looks like infrastructure, it's hard assets, it's on the
Speaker 2: ground that's power involved. But if you actually look at storage,
Speaker 2: it's a volatile business in the very nature of it.
Speaker 2: So we said, you need to enable to attract off
Speaker 2: takers to drive long term revenues and if you have these,
Speaker 2: they would scale with you on a global basis. And
Speaker 2: we just closed two deals recently in Germany, one with RWE,
Speaker 2: one with button FID. And while obviously electricity markets are local,
Speaker 2: Germany is different the France, France, it's different the Spain
Speaker 2: and so on, but the off takers are global. So
Speaker 2: once you have somebody in Germany, you can expand to
Speaker 2: other markets for them. And so these were three key
Speaker 2: hypothesis that drove what we built, so ultimately that led
Speaker 2: us to build terror Alayer. What is terror Layer? We
Speaker 2: are a integrated energy flexibility provider, so on the one
Speaker 2: side we kind of have two parts of the business.
Speaker 2: On the one side, we are a quote unquote conventional
Speaker 2: best developer owner operator. We develop in ourse with partners
Speaker 2: and we own fifty percent of a joint venture where
Speaker 2: we develop grid scale back batteries, currently one hundred percent
Speaker 2: focused on Germany, and on the back of that, we've
Speaker 2: built an off take platform that aggregates these batteries, virtualizes
Speaker 2: these batteries and essentially markets portfolios of these batteries by
Speaker 2: toilling them out or renting them out to large off
Speaker 2: takers in a way that you kind of circumvent the
Speaker 2: conventional way to monetize these assets, because typically today when
Speaker 2: you own a battery, you have one of two options,
Speaker 2: very simplified. You can go to a trader called optimizer
Speaker 2: and they will trade your asset intra day day ahead.
Speaker 2: Then in the ancillary services you get very high revenues potentially,
Speaker 2: but it's volatile cash laws or b you can go
Speaker 2: to utility and you can rent out the capacity, which
Speaker 2: is great because then you have fixed revenues, but all
Speaker 2: the upside is gone. And also the problem is that
Speaker 2: currently in Germany ninety five percent of assets are below
Speaker 2: twenty megawats in size. So we said you shouldn't have
Speaker 2: to choose fully risky or fully de risk the no upside.
Speaker 2: So we've built a platform that aggregates assets across portfolios,
Speaker 2: building one large virtual battery across a portfolio, maybe Bavaria
Speaker 2: or across Frankfurt, and then gets off take us the
Speaker 2: ability to rent this capacity without the constraints of the
Speaker 2: individual assets.
Speaker 3: Thank you for the sales speech. I hope we didn't
Speaker 3: lose half of our listeners. Let's be a bit granular.
Speaker 3: You raise on hundred million. How do you choose your
Speaker 3: first sights and choose your supplier? Because I've been buying
Speaker 3: batteries that I can tell you it's a bit of
Speaker 3: a headache. So explain that process and the type of
Speaker 3: team you have. I would expect more established guys like
Speaker 3: in Caves or the classical solar developer to do that,
Speaker 3: but you managed to beat them. So how did you
Speaker 3: really build your asset first before you market them. Yeah.
Speaker 2: On the development, there's two ways to develop. Obviously it's
Speaker 2: our quantity, but I think it's also very much more quality.
Speaker 2: And we've been fortunate in the approach that we didn't
Speaker 2: just develop in house. So we very early on started
Speaker 2: developing with co developers, started a company with an engineering
Speaker 2: company from Hamburg, a greenfield development JV of which we
Speaker 2: owned fifty percent, and then also we did greenfield development
Speaker 2: in house and so from very early days we essentially
Speaker 2: developed across all forty SO zones in Germany. We currently
Speaker 2: developed in thirty three DSO zones. And the reason why
Speaker 2: we were able to do this faster than others was
Speaker 2: we had very fortunate timing to the market, but b
Speaker 2: we didn't have this romance of doing everything greenfield in house.
Speaker 2: We were happy to leave some economics on the table
Speaker 2: and have our partners make money as well to kind
Speaker 2: of parallelize the greenfield development efforts with many teams. So
Speaker 2: I think that enabled us to very quickly develop and
Speaker 2: as a result, we currently have two assets life in Germany,
Speaker 2: we have six assets in construction. We're about to sign
Speaker 2: another nine assets into constructions in Germany. And also we
Speaker 2: focused very quickly on the medium voltage, which is kind
Speaker 2: of typically ten to thirty megawads in commercial zones because
Speaker 2: it's faster to be permitted. As for the second part
Speaker 2: of the question, how do we choose the suppliers, We
Speaker 2: have a team from from Affluence from O rwe from
Speaker 2: A Noah from g on the team. We could in
Speaker 2: theory do full EPC in ours, but we buy fully repped,
Speaker 2: so we go to strong EPC partners like be Storage
Speaker 2: for instance in Germany or Axola and by fully repped.
Speaker 2: We have a team that is very active as a customer.
Speaker 2: You know, we drive to the sites every week, we
Speaker 2: look at how the systems are packaged, et cetera. But
Speaker 2: we decided to focus on where we think drives the
Speaker 2: most value with our skill set, and that's the development
Speaker 2: process and the commercialization process.
Speaker 1: Can I ask just to talk a little bit about
Speaker 1: the German market because what we hear is two hundred
Speaker 1: gigawats of batteries potentially in planning, and then we hear
Speaker 1: that you've got the distribution companies like the eises By
Speaker 1: our nets are blocking every single battery coming onto their system.
Speaker 1: So just talk a little bit about the dynamic there
Speaker 1: and that also what that means for your business going
Speaker 1: forward and how do you deal with that.
Speaker 2: There's a German saying, which is everything is cooked hotter
Speaker 2: than it is eaten. What that fundamentally means is, you know,
Speaker 2: people talk about development a lot more than what is
Speaker 2: actually developed. So what you mentioned with buying there, etcetera.
Speaker 2: Is absolutely correct. And there are these publications about two
Speaker 2: hundred gigawats of grid reservations et cetera. But at the moment,
Speaker 2: and this is this is changing, and this is good
Speaker 2: for the industry. But up until very recently, you know,
Speaker 2: everyone with a mother and a dog was able to
Speaker 2: submit the grid application with just the power of attorney,
Speaker 2: with a piece of land without having to secure that.
Speaker 2: But the quality of a lot of these applications is
Speaker 2: really low or these are people that actually don't have
Speaker 2: the financial means or the engineering means or the capabilities
Speaker 2: to realize these projects. And so what you see a
Speaker 2: lot in Germany is there's a lot of talk about
Speaker 2: all these grid applications and a lot of the disls
Speaker 2: and thesos just shut down these processes and they're now
Speaker 2: asking for proxies that help them determine seriousness. For instance,
Speaker 2: they want to see, do you already have that a
Speaker 2: system designer place? You have you already submitted the building permit?
Speaker 2: Are you able to prepay a portion of the grid connection?
Speaker 2: Charts the b KT about cost and sushus and so
Speaker 2: this is how they're kind of trying to triage now
Speaker 2: who's actually able. But the numbers that you just mentioned,
Speaker 2: I mean I read about them too, and you read
Speaker 2: about battery tsunami, et cetera. But I do think the
Speaker 2: people that are actually able to realize, construct, finance and
Speaker 2: operate assets this is a very small number in Germany.
Speaker 2: I am not that concerned about this flood coming because
Speaker 2: I think a lot of this stuff is just not
Speaker 2: high quality.
Speaker 3: You're smart, you have good partners, whether it's the EPC,
Speaker 3: the engineering. You start building your batteries, when do you
Speaker 3: decide to go for the tolling very early on, like
Speaker 3: almost before the construction or once the construction is finished.
Speaker 3: So how does the tolling and turn into the process.
Speaker 2: So basically, the layer platform that we build allows us
Speaker 2: to aggregate many assets and for a single API to
Speaker 2: give the off taker one virtual battery. The deal that
Speaker 2: we did with button file, for instance, is eight assets
Speaker 2: spread across the tenet region. So what we basically do
Speaker 2: every quarter is we assemble a cohorede of assets which
Speaker 2: we bundle and virtualize. Once these assets are a ready
Speaker 2: to build or before ready to build, we run a
Speaker 2: competitive auction with different offtaker partners like button File and
Speaker 2: Rwe We typically then sell fifty percent of the capacity
Speaker 2: upfront at pretty much at the same time as we
Speaker 2: mandate the EPCs. The acids then get into construction. Typically
Speaker 2: this takes give a take twelve months once they're alive.
Speaker 2: And then once the assets arelive, we have fifty percent
Speaker 2: capacity already told typically right now between five and a
Speaker 2: half and seven years. This will go longer over time,
Speaker 2: and then fifty percent is merchant. Now the merchant size
Speaker 2: the way that we operated, we auction it off on
Speaker 2: a daily basis to a multitude of bidders. If it
Speaker 2: does not clear above the hurdle price that we internally set,
Speaker 2: it falls back to conventional optimizers that are designated optimizer
Speaker 2: partners that help us. The idea, however, is from the
Speaker 2: kind of fifty to fifty to upsize over time to
Speaker 2: call it sixty seventy or maybe eighty percent tolling, but
Speaker 2: just that the capacity once the assets are cod is
Speaker 2: instantly available, and we believe you will be able to
Speaker 2: achieve a higher price for the tolling if it's click
Speaker 2: and tall and you can have it straight away rather
Speaker 2: than in twelve months.
Speaker 3: That's very impressive the fact that you have signed two
Speaker 3: tolling agreements, because I read recently on PEGSA Park that
Speaker 3: there have been only five toolling agreements are in Germany,
Speaker 3: so you're forty percent of the market.
Speaker 2: Yeah.
Speaker 3: Is there a market price for tolling or is it
Speaker 3: really location dependent?
Speaker 2: The short answer is there is no market price. I
Speaker 2: would say there is a range, but I think there's
Speaker 2: a lot of parameters that dictate tolling price. I think
Speaker 2: it's a contract size B. There is a little bit
Speaker 2: of an element which tears all Zonia in, but it's
Speaker 2: not really a big difference. And see it's you know,
Speaker 2: when you start to deliver, is it you know this year?
Speaker 2: Is it next year? As at the after? And then
Speaker 2: there's a lot of structuring that goes into tolling thinks
Speaker 2: that impact price that you wouldn't think that impact price,
Speaker 2: for instance, the credits. So if you want to do
Speaker 2: a seven year tall and needs a single asset, let's
Speaker 2: say fifty megawats one hundred megawatts. We've seen off takers
Speaker 2: that wanted two years of tolling fee sitting in your
Speaker 2: bank accounts as a guarantee. So if you have one
Speaker 2: hundred megawat TALL and I'm just going to invent a number,
Speaker 2: and you have one hundred thousand euros so ten million
Speaker 2: a year, it wants a twenty million kind of sitting
Speaker 2: in your bank account of a letter of credit, and
Speaker 2: that obviously eats into your economics, and so I don't
Speaker 2: think there is a market. That's why we created what
Speaker 2: we believe is a differentiated product because we think that
Speaker 2: we can create the market standard together with strong partners
Speaker 2: like Rwe like button File and other large utilities. But
Speaker 2: there is no stig price yet. The way you can say,
Speaker 2: that's the index and that's exactly the price, and then
Speaker 2: there's you know how many cycles a day, et cetera.
Speaker 2: So it's a rabbit you can get really into. So
Speaker 2: there's no such thing as the toll and that's the price.
Speaker 1: Philip, can I ask you, is the business model then
Speaker 1: to be an independent power producer going forward? Or do
Speaker 1: you at some point he just sell the assets to
Speaker 1: somebody else.
Speaker 2: Look, I think we're both. There's a lot of differences.
Speaker 2: But someone who we admire and think has similarities to
Speaker 2: us as Octopus Energy. On the one side, they have
Speaker 2: the utility that's our best business, and on the other
Speaker 2: side there have Kraden, which is our layer business. At
Speaker 2: the moment. There's a lot of synergy and we are yes,
Speaker 2: an ipp or ifp At the moment, I think over
Speaker 2: time we will run more and more other people's best
Speaker 2: assets on our infrastructure and we will add them structure tolleling,
Speaker 2: have them structured emergent deals, and become the operating platform
Speaker 2: for the business, hopefully partnering with other utilities, partnering with
Speaker 2: other optimizers, et cetera. We very much want to build
Speaker 2: this in an open way where we don't compete with
Speaker 2: utilities or optimizers. Well there as an owners Does that
Speaker 2: mean in the future that we may not own assets potentially,
Speaker 2: but I think we very much like asset ownership. We
Speaker 2: want to own assets. It's a very big part of
Speaker 2: our DNA and at the moment, I think something that
Speaker 2: goes very strongly hand in hand.
Speaker 3: The interesting part and again, tell me if I'm wrong
Speaker 3: in the fact that you're only totaling fifty percent of
Speaker 3: your capacity. In fact, you're giving them a seniority, meaning
Speaker 3: that if some of the battery don't work or only
Speaker 3: work at says seventy five percent, they still get their
Speaker 3: fifty percent. Is that correct? Or if the battery is
Speaker 3: only worth eleven So basically there's a bit of a
Speaker 3: trenching being done. And if you have a technical problem,
Speaker 3: you absorb it through not having the capacity to trade
Speaker 3: on the daily business. Is that correct?
Speaker 2: It's absolutely correct. Basically, the long term contracts always have priority.
Speaker 2: So for instance, button file has a fifty five megawats
Speaker 2: seven year toll. That's a portfolio just over one hundred
Speaker 2: megawats that they have, so around fifty percent. And this
Speaker 2: is compiled of eight assets, so if any assets are down,
Speaker 2: we have fifty headroom to always make sure button file
Speaker 2: gets what they signed up for. Anything that is spare
Speaker 2: is then auctioned kind of day ahead and so for
Speaker 2: the off take. And the benefit is you have much
Speaker 2: larger resilience because you don't have one brick connection with
Speaker 2: one very large asset. You have multiple assets in one
Speaker 2: TIERSO zone. You have much better resilience. You have one
Speaker 2: API which goes into your trading workflow, so you don't
Speaker 2: need to integrate many assets. We are the balancing responsible
Speaker 2: party for the innsillary services. It's one stop shop solution.
Speaker 2: And the beauty about it is also depending on how
Speaker 2: the customer accounts, this can have benefits from an accounting
Speaker 2: perspective for them because it's balance sheet light. Depending on
Speaker 2: their accounting treatment.
Speaker 3: Now, once you get those stuning agreements, can you bring
Speaker 3: them to banks and say, wow, I love this, I'm
Speaker 3: going to lend you. I not know eighty cents on
Speaker 3: the yuo or fifty cents on the yuo. So is
Speaker 3: it a good go at their own?
Speaker 2: Absolutely. The reason for the tolling, of course is you
Speaker 2: want to do risk your revenues, but you also want
Speaker 2: to drive your bankability. And there are a lot of
Speaker 2: local German banks that are happy to finance fully merchant,
Speaker 2: but that was because the fully merchant was the only option.
Speaker 2: Now that you see tolling deals starting to happen, banks
Speaker 2: very much want to favor tolling contracts, especially when you
Speaker 2: finance larger assets and b it allows you to push
Speaker 2: the gearing. The tolling is really important to drive bankability.
Speaker 2: But I would also say not all tolls are born equal.
Speaker 2: If you have a blue chip utility that is rated,
Speaker 2: that makes a big difference.
Speaker 3: If you have a.
Speaker 2: Super smart hedge fund style trader, they gave you a
Speaker 2: higher price, but they are not rated, so that's not
Speaker 2: really going to help you with your financing. All that's
Speaker 2: going to mean you have an I margin need to
Speaker 2: pay that at a bank, and so there's really a
Speaker 2: lot of elements that go into tolling. We always see
Speaker 2: this on panels at conferences. People go, yeah, you just
Speaker 2: total the asset. But to your point level, right, how
Speaker 2: many tolls have been made and tolling is really complicated,
Speaker 2: and so we're very proud that we did amongst the
Speaker 2: first tolls in Germany. I think we did the first
Speaker 2: multi asset capacity tolled globally with Buttonfile and then the
Speaker 2: second one with RWE, and we're hoping to bring further
Speaker 2: innovation to this.
Speaker 1: If I look at the spreads in Germany, I just go,
Speaker 1: this is an all equity play. Why would I bother
Speaker 1: bringing debt into this because the returns are just so
Speaker 1: good and so quick. Yep, what's your thoughts on that?
Speaker 2: Yes, it depends how much equity you have. Your right,
Speaker 2: spreads are massive, But if we actually look at between
Speaker 2: twenty nineteen twenty twenty four, the difference between spreads kind
Speaker 2: of daily press spread has increased two hundred and eighty
Speaker 2: eight percent, So you're absolutely right. Obviously there will be
Speaker 2: some compression at some point potentially, but this is something
Speaker 2: that works all equity as well. I do think, however,
Speaker 2: as a independent player such as ourselves, which is very
Speaker 2: much about pushing the equity returns for our shareholders, we
Speaker 2: think leverage, if done in a healthy way, is a
Speaker 2: good instrument to drive up those returns. But you absolutely right,
Speaker 2: this also works as a full equity play in Germany.
Speaker 2: Right now, I.
Speaker 3: Would say the following the moment your spread compress, the
Speaker 3: totaling prize is going to compress as well, so in
Speaker 3: a certain way, and I guess your business model fit
Speaker 3: correct me if I'm wrong, is to create an integrated
Speaker 3: value chain. But that every level you there is by partnering.
Speaker 2: Absolutely so we focus on two parts, the development and
Speaker 2: the commercialization, and everything else which is not core ip
Speaker 2: or does not drive core value relative to the skills
Speaker 2: that we have in house because we try to run
Speaker 2: this as a lean machine with only forty people at
Speaker 2: the moment we partner with others. You said something, Oh, yes,
Speaker 2: you know, spreads may come down. It's important to kind
Speaker 2: of cascade the revenue stack. So if we look at
Speaker 2: ancillary services, there will be a saturation in FCR and
Speaker 2: AFR similar to what we've seen in the UK. I
Speaker 2: think it's going to take longer but it will happen
Speaker 2: if you actually look at the power demand in Germany
Speaker 2: versus the UK, and twenty two Germany was at eighty
Speaker 2: two gigawadds versus forty four in the UK, so there's
Speaker 2: a much deeper market in the intra day in the
Speaker 2: day heads. So I think we may see some compression,
Speaker 2: but it's going to be mostly in the ancillary services.
Speaker 2: And then I would say, even if there was compression
Speaker 2: in the spreads the kapeks, the rates that we're seeing
Speaker 2: right now are falling so fast that actually future cohorts
Speaker 2: of best assets, even two, three, four, five years out,
Speaker 2: if you assume this trend to continue, will likely be
Speaker 2: even more profitable than today's assets, even at lower spreads.
Speaker 2: And if you then actually just look at the rate
Speaker 2: of wind solar deployment in Germany, I mean we had
Speaker 2: seventy four gigs of win today, We're going to two
Speaker 2: hundred thirty gigs and twenty forty five. And if we
Speaker 2: look at solar, we're ninety five today, We're going to
Speaker 2: two hundred fifteen in five years and to four hundred
Speaker 2: gig awads in twenty forty five. So I think there's
Speaker 2: a reason to believe spreads will actually stay or continue,
Speaker 2: but even if they compress, the kapex comes down a lot.
Speaker 1: Philip as I listened to here, So that begs the question, really,
Speaker 1: what you are a tech player? Are you an infrastructure player?
Speaker 1: Or what are you? How do you see yourself?
Speaker 2: We often get this question and we don't think about
Speaker 2: it this way. I would say the cheesy answers were
Speaker 2: infra tech, but the honest answer is what the customer
Speaker 2: wants from us, whether that's the utility, data center trader.
Speaker 2: They want flexibility. They want flexibility without the need to
Speaker 2: own the assets, without the development of the assets and
Speaker 2: operating the assets. They don't care if you are a
Speaker 2: venture technology company or an infrastructure type with the infrapev company,
Speaker 2: they want flexibility, and we believe that by owning the assets,
Speaker 2: operating the assets, and having differentiated software, we can deliver
Speaker 2: this value best to them. At the moment we happen
Speaker 2: to own most of the assets, we will continue on
Speaker 2: boarding more and more assets of other people. But I
Speaker 2: think it's a very good symbiotic relationship. We show that
Speaker 2: what we do make sense for our own asset base,
Speaker 2: and then we can prove these higher returns to others.
Speaker 2: So I think we're both. I think we are differentiated
Speaker 2: infrastructure operators. And so far it's been really great having
Speaker 2: our own asset base and our own software and it's
Speaker 2: been making it more compelling for our take our customers
Speaker 2: and other asset operator customers as well.
Speaker 3: Well. Thank you so much for coming on the show.
Speaker 3: Very interesting to understand this battery Ossian Germany. We wish
Speaker 3: you the best or a thank you very much for
Speaker 3: inviting me.
Speaker 1: Thanks a lot, Philip Lauren. You call it the blitz.
Speaker 1: It's a great way to describe that market opportunity in
Speaker 1: the next few years. And sorry I say next few years.
Speaker 1: You really have to be quick, Okay, yes, simple as that.
Speaker 3: Yeah, things are happening now. This market is going to
Speaker 3: trouble in the next two years. But even if you
Speaker 3: compare to gb you know, we could go to thirty
Speaker 3: gigawat no problem. So this market has at least five
Speaker 3: years of extraordinary growth in front of it. And to
Speaker 3: quote Alec Baldwin in this famous speech in Glenn Guy
Speaker 3: Glen Oz, this guy as brass balls.
Speaker 1: Yeah, well said, well said, and we wish Fillip all
Speaker 1: the best. Actually with that, you know, the opportunity in
Speaker 1: the German market.
Speaker 3: Well, Joab, I tell all our listeners watch out for
Speaker 3: the German market. It's red hot, absolutely sure is okay.
Speaker 3: I took to you next week.
Speaker 1: Good look forward to it. Thank you for listening to
Speaker 1: Redefining Energy. Don't forget to read the show and subscribe
Speaker 1: on Apple Podcast, Spotify or the platform of your choice.