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Optimizing Trading around Battery Storage

todayApril 11, 2024 507 1

Background

PANEL DISCUSSION

  • Asset configuration: What options are available?
  • What is the impact of battery sizing and cycles on the revenue capture in the markets?
  • How much will the asset degrade? How do you limit degradation?
  • Robert vs robot: The intricacies of manual and automated storage optimization
  • Cross-market optimization: How does that work?

SPEAKERS:

Guy Holding, Sales Lead at enspired
Howard Walper, CEO, Americas at Commodities People
Jazib Hasan, Managing Director at EIG Global Energy Partners
Michael Longson, Gore Street Capital
William “Bull” Flaherty II, CEO at Eligius Power

Transcript

HOWARD WALPER, CEO AMERICAS, COMMODITIES PEOPLE
All right, we are back with our final installment of this webinar series for today. This one is going to be around optimizing trading around battery storage. Definitely a hot topic and definitely something we're hearing a lot about at our conferences and from a lot of our clients. And for those of you who weren't in the earlier sessions, my name is Howard Walper. I'm CEO of the Americas for Commodities People. Really excited about this panel, and I'm very excited to turn it over to our moderator, Flaherty from allegiance power. Bo, I'm going to drop off now and hand the floor over to you. Looking forward to listening in on this discussion. Of course, for everybody out there in the audience, if you want to ask a question, once again, the Q and a button at the bottom of your Zoom screen, that's the one to use. Don't use the chat one, use the Q and one. And I'm sure this panel will get to as many questions as they can in the time allotted. So with that bull, over to you.

WILLIAM “BULL” FLAHERTY II, CEO AT ELIGIUS POWER
Thanks, Howard. Appreciate everyone being on today. Overall, just the utility scale storage market has been growing by leaps and bounds. Put on 11.9 gigawatts worth of storage in 22, we exceeded 14 gigawatts of overall storage capacity, or should I say 14 gigawatts hours in 2023. And we're seeing commensurate growth with expanded durations. What was normally one to 2 hours is obviously now at two, four, and 6 hours in terms of overall deployment. And we want to talk about optimization and essentially, what are the optimization strategies that are out there now, and how is the financial community perceiving those strategies? And I thought that overall, the best place for us to start is to take a look and do a comparison and contrast, at least initially. And first, talk about the European markets overall. There's a great little social media account that puts up information with no context. And they had a chart of Europe and european pricing, and it showed Germany at €83 and France at a low €17. So, guy, maybe you could kick us off and talk about that european market and essentially what you're seeing now and different optimization strategies they're using for all those price differentials.

GUY HOLDING, SALES LEAD AT ENSPIRED
Yeah, of course. Thanks, Paul. Hi to everybody. My name is Guy Holding. I'm the head of sales here and inspired a bit of background on us. For those that don't know us, we are an Austrian based company, in fact, where we provide fully digital energy trading services for the global power markets. That's the plan? Main market at the moment is Germany, of course, where we provide route to market services and optimization for various flexible assets. And battery storage is of course filling up a large part of our pipeline where we do things differently. Here at Inspired, we are fully automated, so no manual trading takes place on our side. It's fully digital there. As you know, for Germany, it's quite a hot market at the moment. There's a lot of interest from a lot of our investor clients for the market itself. What we have seen over the years is that the old legacy battery storage systems were mainly designed for the frequency reserve FCR market. There you're seeing the saturation taking place in that market. So where 1 hour systems were viable to provide sufficient revenue for that, you're seeing more dimensioning taking place at two hour systems, two cycles per day to really capture revenue. One thing that we're seeing is you really need access to all available revenue streams. It's one thing that we believe in. So we optimize against their head intraday id, continuous FCR and AFTER in both directions as well. So yep, hand over to Yasib.

WILLIAM “BULL” FLAHERTY II, CEO AT ELIGIUS POWER
And I'm sorry, maybe we can run through. And we didn't introduce ourselves. I'm William Flaherty, I'm CEO of Eligius Power, which is a developer and operator of best storage in ErcoT. Guy introduced himself and Jazeeb, you want to go ahead and introduce yourself?

JAZIB HASAN, MANAGING DIRECTOR AT EIG GLOBAL ENERGY PARTNERS
Yeah. Jazib Hasan, managing director at EIG Global Managing Partners is a private equity and private credit energy energy infrastructure fund. We've been around for 40 years and because we look at investments across the capital structure, we work with all types of energy companies globally.

WILLIAM “BULL” FLAHERTY II, CEO AT ELIGIUS POWER
Thanks, Yazeem , guys. I guess on the heels of that, a lot has been made in terms of use case overall and in terms of whether you're going to have something that's purpose built for storage or purpose built for ancillary services. And there are some which we'll discuss later in this conversation about regulatory issues around state of charge and also around mandatory kind of power supply for period of time. But obviously prior to a lot has been made of use case in terms of what will be the use case, will it be to optimize a generating facility that is solar wind, will it be used for true storage? And what would be the allocations on that? Initially out of Casio with the duck curve and moving to the canyon curve, we'd see that in a 60-40 split that 60% of your batteries were used for true storage, 40% of that allocation was used for ancillary services, and that was kind of the best use case overall. But now it seems to have become much more dynamic and also variable by geography. And so on that side, we could look at definitively, even within a single RTO or ISO, that you would have different geographies with different use cases and different hours in terms of that overall optimization. And so maybe we can kind of kick off there and maybe move into some of the US markets and talk about what we're seeing there and how that's being handled.

GUY HOLDING, SALES LEAD AT ENSPIRED
Yeah, of course. I mean, I'll focus on Germany, but I'll mention some other European markets as well. Of course. So, I mean, one thing that we tell our clients when we're in the early discovery stages of a project is you really have to plan for the future as well. You have to bear that in mind. A battery storage asset, you know, you're planning for a ten to 15 year life plan, so a lot can change in that time. So you really want a system that's dimensioned to be able to capture those changes in the market as well. And we can go on to the importance of an optimizer and their flexibility in the future, but let's stick to battery storage. So now for Germany, as I briefly mentioned, we're seeing systems come online, two hour duration systems. This seems to be the sweet spot. We've done a lot of data analytics behind that to see where the revenue capture can be for that. So two hour systems, two cycles per day being used on various markets. Whereas FCR before was the main revenue capture there for a market, low cycle rates between 0.80.6 cycles per day, you're seeing usage of 1.8 cycles now to capture as much revenue from the market as possible. And that's across intraday, that's across FCR, and that's across AFTER as well for Germany. So one thing that I think you need to bear in mind is to have a system that's going to be able to capture those changes in the market and also the swings in the market as well. So yep, there were spikes in FCR towards the end of last year that gave good revenue capture there, but now you're seeing a cross market optimization with SoC management done on wholesales, but also capturing revenue from AFAR. So it's important to have the flexibility to be able to capture that now and the adaptability to capture any spikes in revenue or changes in the market and regulatory in the future. Also, if we look at places like Italy, north of Italy, of course, you've got the north south divide there. You might require a longer duration system to compete with the hydro that's there as well. So some of the projects that are going on in Italy you're talking about four hour duration plus, whereas in southern Italy 2 hours could suffice because you can take advantage of the capacity market as well. So it's always doing analysis on the market, the changing conditions. But for Germany, definitely 2 hours with the ability to go up to four cycles per day if needed to capture some of the pv penetration that you have in the summer months as well.

WILLIAM “BULL” FLAHERTY II, CEO AT ELIGIUS POWER
Okay. And so obviously we're accelerating the overall kind of lifespan for a lot of these systems overall. And obviously revenue stacking is kind of where we were all headed with this and kind of taking a look to take a look at the algorithmic platforms and a lot of the optimization that's being done there. And so I would say that that is essentially what we're seeing in the US, obviously Caisa and ERCOT being the two most predominant players in this overall storage market that is becoming much more dynamic. And I know that initially we had taken a look at being on average in terms of cycles per day, at least one and a half. And now we're seeing revenue stacking in terms of going from frequency regulation to contingent reserve to true storage or arbitrage in the market for time shifting that has increased that amount. Where we could see, as we could see more than two cycles a day overall on a 6000 cycle life battery at 20 years. We're seeing overall termination on that side for years. Let's say eleven to twelve. Now we're seeing good arbitrage for the first two to three years in terms of time shifting. But that does narrow as we get past it and get out of that two to three years. So it truly depends on that revenue stacking. And so maybe we could take a look overall at the algorithmic platforms and the EMS strategies that are out there. And maybe first, Josib, maybe you could comment on how the financial markets are looking at that now and then guy, you and I can talk about essentially how those are being implemented and what the thoughts are for day ahead in real time markets.

JAZIB HASAN, MANAGING DIRECTOR AT EIG GLOBAL ENERGY PARTNERS
Yeah, the financial markets are getting a lot more sophisticated. I mean obviously the storage market, particularly standalone storage, has been far newer. And so there's been a learning curve associated with all the different financial players. In the early days we were sort of seeing a lot more of the commodity trading shops going in and looking at and saying hey, we have this natural knowledge on the trading side, we should be natural holders of these assets. And we were seeing more of that. And they would come to the various players to try to optimize capital and financing, but they wanted to have their rights around being the natural information knowledge owners of those assets. That's more material. We're seeing a lot of different financial players in the marketplace, and the level of sort has increased materially. So, for example, recently we saw one of the acquisitions for a standalone battery company in ERCoT, and the analysis was pretty robust in terms of looking at that revenue stacking, looking at how that degradation would take place over time. A couple of years ago, it wasn't as sophisticated, the data wasn't available. Now we are seeing people looking at what a theoretical perfect foresight, revenue optimized looks like, and how our different operators in ErCot, for example, are capturing. That is, are you capturing, and you're seeing a very wide range, like 40% to 90% of that perfect foresight. If you had perfect foresight in both energy prices and ancillaries. And so you're seeing different companies with different strategies, and the financial players are going and stacking these guys up and saying, okay, XYZ was able to capture 90% and you're only capturing 40%. How do we think about you and how do we think about your optimization strategy? How do we think about it from a valuation perspective? It might be the same asset, but location matters a lot. That ability to forecast for those locations is changing. So we're seeing all those things. The harder part, of course, is it's easier to take a view over the first couple of years. But post that, ancillary margins, revenues are going to compress materially and the optimization strategies are going to change in three, four years time. What does that look like? What does that mean from a degradation and renewed capex on these assets? It's super interesting times and the financial markets are racking up. We are putting a lot of time, effort, energy in terms of making sure we not only look at it from a theoretical perspective, but the investments that we already have, how they are performing, and spending a lot of time understanding and comparing different companies that we have investments in, and make sure we are taking advantage of those learnings.

WILLIAM “BULL” FLAHERTY II, CEO AT ELIGIUS POWER
So from that standpoint, if youve got an existing facility, obviously you can take a look at what's been done there and essentially what's been used to forecast and optimize. However, maybe in projects that are going to get done in terms of forecasting, have you looked at anything that would be proposed on a manual basis or are you only looking at those that are on a kind of strict ems and have a algorithmic or let's say ETRM based optimizational forecasts?

JAZIB HASAN, MANAGING DIRECTOR AT EIG GLOBAL ENERGY PARTNERS
Yeah, most of the companies we talk to have some kind of automated process. That's the largest number of people that we see. We do see some situations where people override it on a manual basis. Especially when you see things like a solar eclipse is going to happen and ERCOT prices went up to 5000 yesterday when the sun was blocked out. Maybe some of the systems were capturing it but you knew about it and so people could manually override it if the system wasn't set up. So we do see manual overrides, but by and large everybody's using pretty sophisticated tools.

WILLIAM “BULL” FLAHERTY II, CEO AT ELIGIUS POWER
Absolutely. We all survived the eclipse. So traders rule of thumb by 2 hours on either side of the peak of that eclipse, I think is what we take away from the pricing from yesterday, at least out of where we got. Guy, what are your thoughts here? Oh, and guy, before you start, please, if you have any questions, just go ahead and put them into the q and a. Go ahead. I'm sorry.

GUY HOLDING, SALES LEAD AT ENSPIRED
Yeah, of course. I mean, I think with regard to the optimization strategy there, I mean, we use about 8 billion data points there for our short term forecasts for the markets. I mean they're very good, sufficient people out there and companies out there, they're doing long term forecasts there that we obviously can use externally for that. But I think you need the model to adapt to the daily and the weekly changes in the market there as well. So with regards to revenue stacking, you just can't allocate power on a day ahead basis. I would say some people do that, they trade it manually, they're doing very well. But I think as more flexibility is coming into the market, then technology is really going to help solve that problem there. And it's what technology is needed to provide the return of investment that the clients need to invest into more battery storage into the various countries as well. So we make a decision, let's say a day ahead, where to allocate power. But on the day of trading, we are constantly re optimizing, fully automated. Our models are using deep learning AI to let's say, you know, change their behavior throughout the trading data. So we can not necessarily hit the spikes when you're talking let's say wholesales, but there a lot more revenue can be earned around these spikes as well. So I mean, to give you an idea? We are probably for a battery in Germany just on wholesales alone. We are seeing between two to 3000 trades a day just on wholesales there. So optimization speed is key to that.

WILLIAM “BULL” FLAHERTY II, CEO AT ELIGIUS POWER
I hear you clearly on the flexibility side, and maybe we can run through this quickly. Obviously, from a standpoint of what we're looking at right now, you've seen saturation in Germany, and obviously, I think overall, northern european states as a whole have seen that type of saturation come in, where it's changed from a overall response driven balance market to something that's got to be wider in terms of use and allocation. We've been seeing that in ERCOT, especially recently, given the fact that we have a great deal of generation from the wind and solar side. And obviously we've had a very mild winter overall. You know, I wouldn't say that there's been anything that's been challenging about what we've seen. We had a couple of freezes that I wouldn't necessarily call problematic on that front. So we have seen off peak and we have seen a number of days where we've had multiple hours during traditional peak where we've seen sub $10 on that side. And so if we've got a weak winter and we've seen normal to weak shoulder seasons on the overall, a lot of pricing seems to peak or seems to be done to peak. And so that peak is extremely important in terms of that optimization. And overall, I would say that looking at that, it makes it more important from a standpoint to make your revenue stack as diverse as possible in those shoulder seasons and during those weaker periods that have been out there. You've got so many dynamics before we kind of launch into this, because this is going to be involved in terms of the flexibility that's out there and the dynamics in the market from a regulatory standpoint as well as a market standpoint. So we've got a few questions in, and so let me kind of go through those quickly. So our first question guy, this is for you.

HOWARD WALPER, CEO AMERICAS, COMMODITIES PEOPLE
Yeah.

WILLIAM “BULL” FLAHERTY II, CEO AT ELIGIUS POWER
Which is more lucrative for battery FCR or an After? And how do you deal with the situation?

GUY HOLDING, SALES LEAD AT ENSPIRED
Okay, well, I mean, if you look, if you look at the different markets, so FCR in Germany, I think, tops out around about 650 to 700 mw. If you look at the pipeline of battery storage and you're already seeing it's having a cannibalization effect on FCR, where about, whereas AFR has two gigawatts in either direction. So plenty of capacity to absorb the projects that are coming online. Again, if you're looking at long term revenue capture, if you were just participating in FCR, then you would probably miss out on a lot of the revenue capture. And I think this is the advantage of optimizing against all available revenue streams, if you're able to capture the peaks in one market. Why one market is performing slightly lower to really maximize your gains. So I wouldn't say which is more lucrative. I would say it's wise to have access and be prequalified for both markets so you're able to capture the maximum revenue that you can from both of these throughout the year.

WILLIAM “BULL” FLAHERTY II, CEO AT ELIGIUS POWER
And I'd agree with that completely from a standpoint that for using sports terminology, it's becoming a game of golf where I want to use every club in the bag or every arrow that I have in the quiver in order to meet my end goal. We've got a second question. Considering location signals for battery assets is more important. Is the panel seen as optimizing the revenue stack at the portfolio level to hedge forecasting errors? Or is optimization at asset level the industry norm? I would say that from my experience, you want to optimize at the asset level, obviously.

GUY HOLDING, SALES LEAD AT ENSPIRED
Yes, I agree.

WILLIAM “BULL” FLAHERTY II, CEO AT ELIGIUS POWER
At the asset level, you take care of the overall portfolio. And while that is more work from a standpoint of overall forecasting and production simulation at site, the market, and this is kind of the next stage we're getting into, is so dynamic and changing so quickly. I don't know if we've seen and jazzed, maybe you can weigh in here if you've seen an industry that has been so nascent and changed so dramatically over such a short period of time. I mean, if we had this discussion two years ago, this was entirely arbitrary and it was a 1 hour battery, and we've moved from 1 hour to two hours. Now we're burning out with a lot of, let's call it beta and a lot of thought process around four to six hour duration of deployment. And that kind of leads in. There's one more question that's out there that says, what kind of AI models are being more successful in terms of optimization of best actions? And I will say, just from my point of view, we have not been necessarily using AI models as we've been using production simulation at every location that we're at, we're constantly changing the variables. And I would imagine that we could probably plug some AI on top of that overall production simulation. But overall, for the amount of information that's out there, I mean, if we take a look at ERCOT as a whole, I have 160 gigawatts worth of proposed storage that's out there now, out of that overall queue for interconnection of 160 gigawatts with a gift. I would think that on historical standards, and this is just pulling numbers out of the air, but historically, you probably have twelve to 15% of that that would make it actually into service and into commissioning. I think with such a large number, though, that we're now looking at that number probably dropping below 10% overall in terms of actual deployment. And that's for a variable number of reasons. But I would say that I think if there's anything that I could point to, and, jazz, maybe you can weigh in terms of what you've seen for a project not to get funded or for a project to be, let's say, questionable out there, it's because this production simulation and it's because this forecasting has not been robust at node and at location. And I'll open up there. Joseph?

JAZIB HASAN, MANAGING DIRECTOR AT EIG GLOBAL ENERGY PARTNERS
Yeah, no, well, a couple of different threads I'll pull on that you sort of touched on. Just starting with this market is really new and it's very dynamic and changing. And if I look back at the last 30 years of my own experience and participating in all different markets, battery storage is definitely one of the most dynamic markets I have seen. And what's evolved and is evolving is really, really exciting. I think it creates very interesting opportunities that we normally don't see. But just the advent of how much renewables is going on the stack makes an asset like a battery storage that can react immediately so much powerful. That option value is so powerful. And as we think about broader market trends, even when you were talking about the weak prices, the volatility is still there. And this is like a volatility game. So an asset that can really help you capture that makes it really interesting. So we've been looking at it from that perspective, and I sort of go in and look at the merchant pricing and how people are looking to invest in it, and what they are requiring of what we and others are requiring the companies to do. It sort of varies. Like, your natural equity owner wants to have all the upside, right? That's why they believe in that, and they don't want it to be hedged, they want to keep that. And the primary driver is like, look, you want to get some debt? And the lenders are saying, look, we need some stabilized cash flows, so put some offtakes on and put some hedging on. But what we have seen is a lot of that value that can get extracted by the hedge or offtake provider in terms of that upside. So that, particularly in ERCOT, a lot of people would rather own merchant assets than these contracted assets. So then you have to manage that. Okay, what is the minimum amount of hedging we need to do to be able to optimize the capital structure and the debt? And that's been changing. Like, two years ago, we saw a number of the banks were willing to go do standalone storage financings on a merchant basis, giving value to merchants. It was easier for storage plus solar plus storage. That had come much easier to have a merchant storage piece to it, because you were getting some contracts. On the solar side, we are, on our direct lending, private credit side, are looking actively at these merchants, particularly in ERCOT, where we think, hey, at a certain LTV, it does make a lot of sense. Why have that been? And then you can size it by looking at conservative scenarios as to what that cash flow could look like. And so that's been an interesting driver from the debt perspective. The other interesting driver is the tax equity side. And historically, tax equity was the biggest driver for people needing to put on hedges or off takes, because the tax equity was demanding what was needed, almost the binding constraint in terms of how much hedging was done. And now, with transferability, we're sort of seeing some of that evolve where people are saying, you know, if you're not doing a traditional flip structure and you're looking at these more hybrid things, where you're going into these transferability pieces, suddenly the hedging requirement becomes a little bit less, because now you're less reliant on traditional tax equity. So it's all evolving, but very exciting times.

WILLIAM “BULL” FLAHERTY II, CEO AT ELIGIUS POWER
And we had two more questions, but I think we can probably address this one. Now, the question is, do you use some type of backtest or p and l in your dispatch models? And, guy, we'll start with you.

GUY HOLDING, SALES LEAD AT ENSPIRED
So, I mean, we're able to provide backtesting. We provide it to our clients, of course, particularly when we're involved in discussions regarding the perfect dimensioning of a battery and how it would have performed on the market so they can build up their investment case for the financing party, of course, as well. With regards to live trading, we are using short term internal forecasts that we've built, as well as external forecasts to make those, let's say, trading decisions, and hence dispatch models as well.

WILLIAM “BULL” FLAHERTY II, CEO AT ELIGIUS POWER
To back you up on that, I would say that overall, we can provide back testing, but historicals are not going to necessarily reflect at all what you can expect out of these batteries because your cue is changing so quickly and, you know, dependent upon what you follow, that's kind of your baseline. I don't want to get into a big theoretical discussion on this, but, obviously congestion persistence theory is what drives a lot of this overall. And for those of you that aren't familiar with congestion persistence theory, essentially what it says is that anywhere where you have over 30% renewables in your generation stack, where rather than renewables, I should say intermittents, it's going to drive congestion, which of course, congestion will drive volatility. And so once that takes place, you've got, I heard someone refer to congestion as hidden power plants within the grid. And so you're looking to unlock these hidden power plants and time shift them to more advantageous pricing. And so because of that, and because of this dynamic kind of change and portion going forward, you have to take a look at your forward models, you have to take a look at your forward curves. And I would say that if there's anything that obviously this is normally a form that speaks to traders. So I'm not speaking any strange language. From a standpoint of the financial community, we stay away from merchant curves, that is, curves that linearly move up into the right. And we normally deal only with backward dated curves that slope down over time. And we find that this more conservative view is a much better view. And some people will take a look at the middle market, which is a blend of the two. But I know that on our desk and in terms of what we look for overall, that we look at backward data curves and we do have a question out there that says how many years before battery storage prices itself, battery prices itself out. That is enough batteries to kill volatility across different markets such as Texas, Spain, Germany, UK and Italy. And so I'll take the first stab at this. Essentially, it was about two years ago, and I don't know if we were an infocast or re plus, but I was having discussion with a battery executive at a standalone battery company that's PE backed, no names. And we were discussing this exact question two years ago. And his answer on that, and one that I agree with is that this has a tendency to be like a game of whack a mole, where we're going to solve an issue and we're going to normalize pricing and you're going to narrow pricing in one area and it's going to create a problem in another. And so this kind of leads into what I was speaking about in congestion persistence theory, in that you've got these hidden power plants and you've got this volatility that's out there, and so you're going to move that. And so if I could bring a case in point for ERCOT, they're going forward with their lower Rio Grande Valley transmission upgrade, which is going to essentially move a lot of power over 345 kv lines in areas where previously there were a lot of 69 kv bottlenecks. And so that area will be able to move around south Texas in a triangular fashion. However, creating that transmission solution overall, for basically being able to radially dispatch that power farther than they had before, they've created three new general transmission constraints in the south. And so that is going to drive volatility during peak periods or high use times. And so, I mean, I don't want to say that it's moving it down to a weather bet, but obviously, if there's high h vac load, it's going to become an issue in those places. So from a standpoint of overall killing complete volatility, I don't know if you ever get there, due to the changing nature of intermittence and the changing nature of weather overall, solar is going to be great one day, wind's going to be great another. And that doesn't necessarily follow season to season. And so unless there is some sort of baseload generation that they bring in and put in mass, I would say, in this case, the only one that I know out there would be nuke power to bring that baseload generation in. That overall parity that you're looking for in terms of killing volatility and normalizing in pricing is going to be farther out with intermittence than it is going to be in some sort of dispatchable baseload. And I'll open that to jazz and guys, if they've got any comments here.

JAZIB HASAN, MANAGING DIRECTOR AT EIG GLOBAL ENERGY PARTNERS
No. First order, consistent with how I think about it, costs will be coming down. You believe in technology and you believe in costs coming down. So batteries five years from now, ten years from now, will be more efficient than where we are today and cheaper. So what is that marginal revenue required to make those new technologies work? I think a great example is we think about the wind experience and the early turbines and how inefficient they were relative to today's turbines and the size and stuff. So there's a life cycle, things might get redundant and you might need to upgrade them. But as Bill was saying, there's so many different things that are happening that we weren't even talking about right now. One of the hottest topics in data centers. Two years ago, nobody was really talking about data centers and what that means to the grid and demand, or even if you have massive EV use all over the US and what that would mean from a demand perspective. So things are changing. Different things will create different types of opportunities. The world will. All we do know is the world will not look exactly the same way it does today. Smart, bright people will keep figuring out business models to sort of extract value.

GUY HOLDING, SALES LEAD AT ENSPIRED
Yeah, no, I agree with both of you, actually. And Paul, I very much liked your description of whack a mole. I think it's a problem we'll be constantly chasing as the markets evolve, especially when we talk about use cases for behind the meter as well for storage and renewables. I think that's going to bring a lot more volatility into the markets. I see the question where they're looking at Texas, Spain, Germany, UK. I mean, you just got to look at the build out for renewables that are entering the market there as well. Also the closure. Some European countries are still using coal, they're phasing that out. Then the gas will phase out. And I think for a long time to come that the markets will be evolving. So I think that's why I believe that technology will be key to providing this long term guaranteed revenue.

WILLIAM “BULL” FLAHERTY II, CEO AT ELIGIUS POWER
Absolutely. And we have a couple of the questions out there that I'd like to maybe address as we go through. And this kind of feeds into what we were talking about before about the dynamic nature of this overall market. And first is load growth. Traditionally, when we saw data centers come into the market, traditionally those are. Historically, those were normally at 100, you'd have 100 megawatt data centers. We have seen data centers proposed that have been anywhere from 300 with load offset on site, but obviously not enough to offset that completely. And so if you were to add, let's say you were to add a gigawatt of worth of load at a data center in West Texas, you would be adding one and a half percent of peak in one location. And so that is a tremendous driver for pricing, for volatility, and a tremendous driver for generation overall. And that's not to speak. And there was a question about EV's, that's not speaking EV demand. And if the EV market were to take off the EV market, and this is for the US grid as a whole, is forecast to essentially create 4% growth in load per annum for 20 years. And so coupling those two together, let's say, over the next three to five years. That is a tremendous amount of load growth that still does not inculcate manufacturing. And what the IRA of 2022 has done to incentivize or reshore manufacturing to the US, which will be an additional load. And now there have been some questions about overall using load as a resource, whether it be with a bitcoin mine, a virtual power plant, or EV's. In terms of bringing that back onto the market, I think that that plays a role overall if we take a look at deregulated markets. So I think that they play an exceptional role in PJM, ERcOt and Caiso. What we would need for that to be ubiquitous amongst the grid, is for a lot of your capacity markets, or your traditional monopoly, utility markets, that are currently constrained on price by pics. They will have to let that price float to create an incentive. You need an overall price marketplace. And whether that is a $3,000 cap, a $5,000 cap, or a $9,000 cap, you need to let that price float in order to incentivize them to sell their power back in. Because when you lower the overall rate for net metering to the highest wholesale price in the day, rather than one for one retail rate on that, you're having your. You're essentially your VPP, or the people you're taking the power from, they're having to write checks. And so, that's not a great incentive overall. And, you know, we haven't really even touched the regulatory portion on this in terms of ancillary services. One big thing in ERCOT is protocols coming out for state of charge, where you'll have to basically report your state of charge on an hourly basis. And if you do not have sufficient reserve capacity, capacity in the ancillary service markets, you will have to charge in the open markets at that point in time. And that's something that obviously will affect optimization overall. But just another part to play. I know we're running short on time here. We did have another question out there from a standpoint of degradation, and says, from your experience, how accurate were your model degradation costs compared to actual asset performance post five, six years? And I would say that from a five, six year standard, I don't have a five to six year standard that I compared against, because a lot of these haven't been deployed. Now, what I can say is that for some chemistries, particularly your lithium chemistries that are out there right now, and your oldest lithium chemistries, we have seen degradation, acceleration with the increase of usage overall. And so your LFP batteries, I think, have made some, some definitive headway in terms of trying to curb that degradation overall. But I think you're going to need to see alternative chemistries kind of move to the fore, specifically given if you're, if you're having more use cycles in a given day. And guy, I know you had said that sometimes in Germany you were looking at overall that there may be cases for three to four cycles in a given day. And so maybe you can speak a little bit about what you saw around that.

GUY HOLDING, SALES LEAD AT ENSPIRED
Yeah, so, I mean, I think it emphasizes the importance of having a good long standing relationship, an open and transparent relationship with your optimizer. So you can actually talk about the degradation curve. I mean, this is why we get involved with our clients really at discovery phases of their projects, because we can provide a lot of data with regards to warranty terms and conditions, degradation curves, for example, as well. But it's sitting down with the asset owner and talking about what are the desired SOH curves, for example, over five, six years of the project. So I think that's very valuable because then if you want to keep the asset live for a lifetime of 15 years compared to ten years, but you capture more revenue over the ten year period, then it's something to have a discussion about, I would say for sure, Howard.

WILLIAM “BULL” FLAHERTY II, CEO AT ELIGIUS POWER
I know we're coming in time and frankly, we still have to go over regulatory issues, flexibility and hedging as in regards to optimization. But let me go ahead and turn it over to you.

HOWARD WALPER, CEO AMERICAS, COMMODITIES PEOPLE
I appreciate that this is one of those topics you probably could talk all day long about. We will be focusing on this topic quite a bit at our upcoming energy trading week. Europe and Energy Trading Week America is taking place later in the fall, so keep your eyes open for that. I'm sure we'll see some familiar faces at that conference that comes up. If you do have any questions or you want to reach out to any of the speakers, I put my email address right here under my face. Howard, milespeople.com dot shoot me an email and I'll forward it along to the speakers. I want to thank everybody who joined us today. First of all, let me thank our HOWARD WALPER, CEO AMERICAS, COMMODITIES PEOPLEs a full guy in Jazz that really provides us with a lot of insight and interesting information. I'd also like to thank our sponsors for this event who were inspired by our partner, Seqwant IO, as well as our sponsor. We also have our education and association partners up there as well. Thank you. Thank you to the audience for joining us today. We had a great audience from all around the world. And this will be posted online in a few weeks as part of our energy trading insider content portfolio. So keep an eye open for that as well. So with that, thank you very much, everybody, and you all have a wonderful day.

Written by: Commodities People

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