The flexibility episode

Europe’s net-zero targets for 2050 are ambitious, but the roll-out of renewable energy will not be successful without a significant boost to flexibility in power markets. Listen to a discussion on the prospects for batteries, both giga and household, in the energy transition and where the hotspots are in Europe. Could new technology such as sodium-ion be a game changer for energy storage?

Host: Snjólfur Richard Sverrisson, Editor-in-Chief, Montel

Guest: Sam Ebohon, Director Flexibility, Baringa Partners

Transcript

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 0:06

Hello listeners and welcome to the Montel Weekly Podcast, bring You Energy Matters in an informal setting as Europe seeks to decarbonize its energy system and massively rollouts wind and solar power. It also needs to tackle the issue of intermittency and the resulting volatile electricity prices. In this week's pod, we discuss the role of flexibility in the energy transition. What is this flexibility and how should it be used? Helping me, Richard Sverrisson discuss mainly, but not exclusively battery storage is Sam Ebohon of Baringa. Oh, a warm. Welcome to you, Sam, and good to have you back on the pod.

Sam Ebohon, Director Flexibility, Baringa Partners: 0:44

Thank you, Richard. Yeah really appreciate the invitation. Glad to be here.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 0:48

Perfect. So when we talk about flexibility, Sam what do we actually mean? We are mainly talking about batteries, right?

Sam Ebohon, Director Flexibility, Baringa Partners: 0:54

I think the conversation is much broader than batteries. I think batteries have been stealing the limelight as of. Late, but we are really talking about the ability to respond in a dynamic in a quick way to the needs of the system. So flexibility encompasses a number of different technologies and solutions. For instance, in the interconnectors, I would res regard those as flexibility. We're also talking about demand side response. We're talking about electric vehicles and that V two grid of V to home. Opportunity as well as battery storage, pump storage, compressed air, liquid air energy storage. There are many forms of flexibility and yeah, batteries are winning right now. But there's there potential in this space across a number of different technologies and solutions.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 1:50

If we start off with batteries, then and Sam, we, they're obviously, they have a massive role in the electrification of transport. They're crucial there. Yes. But in terms of the power market what is their role there? The, they're basically, as I mentioned to combat that issue of intimacy, aren't they? They're very important there.

Sam Ebohon, Director Flexibility, Baringa Partners: 2:07

Yes. So battery storage we've seen a huge. Increase in the capacity there over time. And yes, they support. That regularization of the supply of electricity, which is increasingly coming from intermittent sources such as wind and solar. But additionally they're able to support the ability of power systems, so providing. Frequency response providing reactive power, which is a vol voltage control. Also providing types of stability, inertia, short circuit level. Sorry, I'm getting a bit technical here.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 2:48

Yeah, no worries sir. But

Sam Ebohon, Director Flexibility, Baringa Partners: 2:50

But definitely more than just that kind of regularization of the renewable. Output the supply to match demand. They're able also to support the operability of the system, and that is really where. We saw them first make an entrance into the European power markets especially Great Britain and Germany and other markets.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 3:12

What size are we talking about here? Are we talking, under a megawatt or up to, I see projects of up to 50 megawatts and above for batteries, and that seems enormous.

Sam Ebohon, Director Flexibility, Baringa Partners: 3:22

Yes. We're seeing. I think in the last year we've actually seen quite a big uptake behind the meter. So kilowatt scale energy storage, battery storage, deployed in homes and businesses. I essentially in response to the energy crisis people were finding ways to, to use energy they were producing on site themselves, whether it was solar or other types of embedded or high, the meter generation. They were trying to find ways to use more of that and sell less of that. To the grid. So we saw quite an increase behind the meter. So that's kilowatt scale. And additionally, we've seen the multi megawatt scale really take off. So for instance, in Great Britain, we have systems above hun a hundred megawatts in operation Now. So yeah, you really, and in fact we've got some projects which are in the gigawatt scale. So you know, people are looking to deploy on a single site over a thousand megawatts of battery storage. So yeah, that's really where we are now. You are able to do the very small, behind the meter and the very large systems through batteries.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 4:39

But that kind makes sense in terms of, as we, the aim is to electrify, transport, move away from, petroleum petrol and diesel cars. And then you have this amazing battery if you aggregate it altogether. In, in five, 10 years you, you'd have an normal, enormous resource there that could, as you say balance the grid and provide that time type of frequency.

Sam Ebohon, Director Flexibility, Baringa Partners: 5:01

Yeah, definitely. We've been asked increasingly to support clients looking at the unlocking of that potential in our electric vehicles and the. And how that can be used to support the grid and to support that transition to net zero. So there is huge potential there. The uptake of electric vehicles is quite rapid. This what I'm seeing where I live in. In London, it seems as though at least every other car is an electric car. So there is great potential there, but we also need to understand the different archetypes of individual who's going to. Own these vehicles. Additionally we need to understand on the fleet side, so outside of you and I and our electric cars, the electric buses the electric trailers and transportation vehicles, and we need to understand the different patterns of use and the access then. We're going to have to these batteries in terms of the grid and the power system. Because this, for instance, just taking it back to you and I, if you work in an office quite far from your home you have using your car to drive to that office, the, you may not have charging facilities. At your office, and also it means that the vehicle is not connected at home because you've taken it to, to work. So you know that in that car will have relatively, and the battery. Of that car will have limited usage to the system as a result. So it's really understanding the different archetypes and the time, the availability of those batteries to the system. And yeah, we've been doing lots of work advising people in that space recently.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 6:53

And where are these batteries produced? Are they mainly produced in China still? There's not that much coming from Europe or the states yet.

Sam Ebohon, Director Flexibility, Baringa Partners: 7:01

Yeah, I would say, europe and and the US we were relatively slow in terms of thinking about the future in the way, and China was ahead of us. The competition on the internal combustion engine side. It would appear, China decided relatively early on to forego competition in that area, and instead they were going to focus on the car of the present and the future, which was the electric vehicle. And really master the supply chain to produce the battery cells that go into these vehicles. Having said that, the Gigafactories, which is the name given to. Where these battery cells are produced, we are seeing projects in Europe. We're seeing. Increasing projects in the US Tesla are the exception, the exemplar in the kind of European US context, and they are producing some of their own battery cells. But yeah, to, to your. To your question, China is dominant in this space and the rest of us have to play catch up.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 8:10

Absolutely. I think there's been a big push from China certainly in recent years and prices of those vehicles are coming down quite significantly. But it, is there's an issue. About raw materials here as well and the supply of raw materials. Is that gonna be an area of increasing competition and perhaps concern as well in, in the years to come? Sam?

Sam Ebohon, Director Flexibility, Baringa Partners: 8:28

Yes. I think ideally we would use something for our battery chemistry, which is abundant. And I think there's been a lot of research which has been undertaken. Some very prestigious universities or organizations that's looking into this. There have been some recent break breakthroughs, I would say, especially regarding the salt batteries, if you like, sodium iron batteries. So this is an area where. We've seen BYD for instance build your dreams of China. They have broken ground on a new gigafactory, which will be focused on this chemistry. So we're expecting some of those batteries to start making them their way into cars. Probably within the year to two years. And then some of these batteries will start making their way to the utility scale battery storage projects. So that's an area breakthrough I think on the solid state batteries as well. There's some breakthrough there also. So lithium is present in a number of different. Countries is present in, in Africa, it's present in Australia, in Europe in, in China. I think they have, in, in terms of China, they've really established the end-to-end supply chain. So controlling the mining of the lithium. And also, being able to cha transition that into. A ready for car battery. So that's where there, there is dominance, but there are other chemistries and more abundant elements, which will. Breakthrough in the coming, coming years

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 10:15

and that potentially quite a game changer as well. If you could do a sodium, iron battery, that's and then you can build it up to utility scale, then that could really have a major breakthrough in terms of balancing that energy transition.

Sam Ebohon, Director Flexibility, Baringa Partners: 10:27

Yes, definitely. I think, the abundance of element. Would suggest cheapness as well. So I think there is, it's, it's a, there's the potential for a significant game changer there. The cost of lithium-ion batteries have declined significantly over the last 20 years. This has largely been fueled by. Subsidies on the electric vehicle side, we can't get around this. We've, there's been tax breaks and number of expensives and initiatives, which have helped to break the back of the learning curve there. However, I think, the sodium batteries, they won't necessarily benefit from that same incentive mechanisms, but you're starting at a relatively low. Cost point to start with. And once the process is productionized, there is great opportunity for the cost to the, to outpace that of a lithium-ion battery in the not too distant future.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 11:28

No e exciting times ahead for sure. And if, but if we move on. To the, not the giga factory sites, but more the giga actually batteries that you mentioned there. One giga, how many, in terms of size how much size does that take up? Are we talking football pitches? Are we talking five to 10 football pitches? And where is that feasible to to build such sites in Europe? Because we are. As opposed to other parts of the world, we, it's quite densely populated and certainly GB is, Great Britain.

Sam Ebohon, Director Flexibility, Baringa Partners: 11:57

Yeah. It's a, it's interesting question. And we do have space in Great Britain. We have significant, agricultural albo land. And these projects are generally being cited in those types of places. So they're not being cited in and amongst the population centers of London, back Birmingham, Manchester, et cetera. But they tend to be cited leasing land from farmers. And cited, proximate to a grid connection. And we have sufficient amounts of land to be able to house the energy storage that we need. Also on the site of retired, thermal generators as well. So we have some projects already which are on, on, on that type of land. So there is enough space and without, jocky was not my strongest point in schools, so I won't maybe speak to Germany and other European countries and the extent to which. Population density is a challenge there, but definitely in the GB UK context, we have sufficient space to be able to house these energy storage projects and also to house the onshore wind and the other types of renewable projects that we need to support Net zero. There can be political choices around where we put things and maybe also. The focus on offshore wind to some extent in the England, the wealth context has been a bit of a political choice. But yeah, so a gigawatt scale project is going to probably be, taking up more than a football pitch worth of space. It depends really what chemistry and what type of energy storage solution you're deploying. But I think given the energy density of a lithium ion based, kind technology then Yeah, we're talking about, football pitch plus in terms of the space that will be taken up.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 13:58

I think you're onto something really crucial there as well. The Sam and as, as part of the energy transition and the move to decarbonize the energy system. You have a lot of these sites where you had thermal plants, coal fired plants and to, maybe to a lesser extent some gas fired plants, but certainly some of that fossil fuel infrastructure. Can be can be reconstructed in terms of, providing that kind of storage or those kind of facilities. I think that's quite exciting in many ways. But if you look at Europe and for the, for this year, Sam you mentioned gb a gigawatts storage sites. What, where are the sort of hotspots in Europe would you say for. For flexibility and storage in particular.

Sam Ebohon, Director Flexibility, Baringa Partners: 14:37

Yeah. That we've been getting and supporting clients looking at, projects in lots of different geographies. It's called out a few, I think Poland is, we're seeing lots of developer interest in, in, in Poland. About nine gigawatts. I think you guys had a, an article posted recently about the evolution. Of the battery storage space in Poland, so about nine gigawatts of battery storage. Connections have been secured by police developers. So that's scenario, and there is a mechanism there which is supportive to batteries and capacity in general. In Poland we do get a lot of. Interest in Germany, I think Germany has a need for more flexibility despite being a very well interconnected. Country. And as I mentioned, interconnectors are a form of flexibility and there will be competition between interconnection and batteries and other types of energy storage solution. But Germany does have a need for for batteries as well. Italy is another market where we are expecting to see significant growth in battery storage. There is some. Reforms. So I've probably not pronounced that my Italian pronunciation is not the best, but this is a mechanism which will be supporting the deployment of batteries in in the Italian context as well. And then maybe if I had to choose a, maybe a last country to, to mention, probably Spain as well. And the co-location of batteries with storage would seem to make sense in Spain. And we do our projections show quite a significant increase in storage, capability capacity in Spain over the over going out to 2050. So these are the markets that. I would say most interesting and most excite me, in, in the European context. Of course, great Britain is there as well, and, has been the leader thus far in terms of deployment pace.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 16:47

And that's quite a spread from North right to south in Europe as well, which is also interesting. Yep, yep. In terms of we've seen. Huge prevalence of negative prices in the wholesale markets, speci specifically in, in Northern Europe. Sam does this kind of provide the incentive for battery for building more batteries?'cause it makes more sense if you can take that power when it's negative and feed it back in when, when there's little or no wind than after six o'clock at night when there's little sun as well. Not much. So much sun.

Sam Ebohon, Director Flexibility, Baringa Partners: 17:16

Yeah, no I think negative prices essentially for batteries. You really. I think in the long term it's price spreads in the wholesale market. The thing which is really important and negative prices, being paid to charge would appear to be quite some incentive, right? So yeah, increasing number and frequency of negative pricing is a signal that we need more flexibility. And energy storage in all forms will be able to benefit and boost their business cases by these instances of negative prices. But, it's really the price spread that we need that kind of gap in the within day price to be able to charge relatively low cost and to discharge us a higher cost. That's where the business case in the long term. Will live or die. Live or die. And yeah, negative prices are great, but you can't, build your business case purely on, the instances of negative prices.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 18:19

Are you seeing also, there's been a lot of talk about in, I know you, previously you were very cl you look very closely at power purchase agreements and that kind of sector there, Sam. But in terms of batteries, are you seeing increased prevalence of deals and contracts signed? In terms of hybrid, so batteries in, in combination with wind and solar.

Sam Ebohon, Director Flexibility, Baringa Partners: 18:38

Yeah, I think this is a, an area of opportunity. It's not a space which is, I think facing significant at present. I would say it, does it exist on a power purchase agreement for certain corporate? Buyers who want to, move beyond the traditional power purchase agreement, where you're able to say, look, I've bought a hundred percent of the energy I need on a year I bought from green sources. Whereas now, there's an effort to say I'm matching in a, moment by moment basis as closely as possible. I'm matching my demand with the provision of green energy. And in order to do that you need flexibility. You need energy storage. So there is an opportunity there. For corporate tech buyers to go out and buy match solar and wind and batteries hybridized portfolio hybridized PPAs, if you like. So that is a growth area. I think at the moment it exists. In kind of small pockets, however, with maybe the Googles and a few others buying. But yeah it's definitely an area where we could see more growth. But just speaking a bit further about the power purchase agreements, I think route to market and the. The agreements that enable owners and developers of assets to access the market. Those are incredibly important. And one of the areas of development we've seen over the last few years in Great Britain is the availability of floor based structures. So here an offtaker is guaranteeing a minimum. Revenue for the owner of an asset. They're taking the battery and optimizing it across all of the available markets. And agreeing to share revenue above the floor. So this enables an owner developer to take such an agreement to a bank and say, look, I'm, I'm, I've got this proportion of my revenue guaranteed. Can we have a discussion around debt financing? And this ultimately cheapens the deployment of any storage and flexibility. Not just for that developer, but for all of us.'cause debt at least historically has been cheaper than equity. So yeah, that is one development that wanted to call out, and I think the next push is on the tolling structures. So we expect to see more tolls being extended by off takers where essentially they're. Willing to provide a certainty of revenue much higher than the covered floors. But they will not be, sharing revenues, above this level that is agreed upon. There the owner developer has to ensure. The asset is available as possible.'cause if the asset is not available the, the, these types of contracts can be quite punitive in terms of the penalties that are applied. But yeah, we think this is the next push in terms of these agreements, these route to market agreements that will support. The deployment of of capital and debt in, in, in the battery space and the flexibility space.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 22:02

Very interesting. Sam, what's brought about that sort of change or that sort of push to, to, to that, those kind of routes to market?

Sam Ebohon, Director Flexibility, Baringa Partners: 22:07

I think as the space has become, as the optimizers have understood. The space more and we've built more operational experience with monetizing assets in the marketplace. Then they have greater comfort in making guarantees of on revenues. I think we've seen a number of banks that have become willing to extend debt financing. Projects, and I think they've been waiting to see the project, the, sorry the technology established to see it demonstrated over a number of years. And now they take the view that it is it's ready, it's an investible lendable space. So yeah, I think. The learnings of the optimizers and their comfort, understanding where the natural flaws in, in revenue lie. And also the increased comfort by debt providers who are now looking beyond onshore offshore solar projects that have CFDs or feeding carrier structures and looking at the next kind of. Class of of technologies that are investible, lendable.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 23:22

Hopefully then that will provide that extra push and will it accelerate that move towards green energy. But my my, my final kind of point really is to ask you, Sam, about the policy framework and whether that's providing, whether that's fit for purpose in terms of the flexibility options that you've highlighted. I, maybe we could start off by talking about great Britain and the new review of the electricity market arrangements, which or REMA for short, as what's been the impact of those on investors in in, in the UK?

Sam Ebohon, Director Flexibility, Baringa Partners: 23:50

Yeah. Richard, I have to be careful partly because, we are a good kind of partner with the regulator in. Great Britain oem. Having said that, we also do a lot of work, different teams of people. So I'm more on the kind of in infrastructure investor side, and I have colleagues that are more working on the OSM side and the noise, the conversations that I've been having, at least with the part my partners on the infrastructure investor side is uncertainty. I think REMA has led to a. Fog and uncertainty, which has not necessarily been helpful. I think maintaining the status quo, the power market that we've seen in Great Britain has largely been the same since. The early two thousands. So we had the inclusion of Scotland. I think this was back in 2005 or so now. And then we had the most recent shift was electricity market reform which took place between 2011 and 2015 ish, if I'm not mistaken, but. By and large the framework of the design of the power market has been the same for wellow over 20 years now. And people have been comfortable investing in that space as we've moved from renewable obligation certificates, we've had feeding tariffs, and now we've got the enduring support mechanism for renewables being CSDs. The uncertainty hasn't necessarily been helpful. I can understand academically, I can understand why off GM takes the view that moving more locational price, having sharper locational price signals in the kind of wholesale market space would deliver benefits for consumers. I think the area maybe I would humbly ask them to maybe reconsider and look again is if. Investors are less comfortable or have less certainty that will have an impact on weighted average cost of capital. They would require a higher return to, to counter that uncertainty, which ultimately may, lead to a different answer in terms of the cost the impact to the consumer. So yeah, I think we're expecting. The next signal on how REMA is shaping up potentially by the end of this month. And maybe as part of that, there will be some. Narrowing of options and things will start to become a bit clearer. But the big kind of les dagger, if you like or sword is we are in election year here in Great Britain in the uk. Moving rema forward, you will require the government to enact legislation and I'm not sure it's top of their priority given that we are full blown electionary season now, yeah, there may be, some more uncertainty for longer, longer to come.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 27:01

Sam, I, we're gonna have to invite you back on the podcast 'cause I've only gone through about half the questions that I had for you. But I think the mantra has to be, as Lauren Sigald of Redefining Energy Podcast told me recently when we were chatting says, go long flexibility and short volume. I think that's, I think that could be the mantra here as well. So yeah. Sam, thank you very much for being a guest to on the Montel Weekly podcast.

Sam Ebohon, Director Flexibility, Baringa Partners: 27:25

Thank you, Richard.