Why Germany's Battery Storage Market Is Harder Than It Looks - Terralayr

I'm your host, Ed Porter. Welcome back to Transmission. Germany has over 800 distribution networks, deep intraday markets, and a flexibility gap greater than Great Britain. But unlike GB, Philipp Man thinks Germany's market might saturate in a different way as battery capacity grows. Philipp is a co-founder and CEO of Terralayr, which develops and operates utility scale batteries across Germany's network and runs layer, a platform that lets multiple buyers bid on flexibility capacity so owners aren't locked into one optimizer or offtaker. If you want to dig into German BESS, Ko AI analyst is a great place to start. Link in the description. This episode is about why the commercialization model matters as much as the megawatts and why Germany's flexibility market may be bigger and less fragile than most forecasts suggest. Let's jump in. Hello, Philipp. Welcome to Transmission. Thank you very much for the invite, Ed. Our pleasure. And let's get straight into it. So, what does everyone get wrong about battery storage in Germany? I think people go to Germany and think you have this massive volatility and there's this massive flexibility gap and it's as easy as you find land, you get grid and then once you've done that's a bit painful. The battery is just going to sit there for 15 years and produce boatloads of cash. And I think the reality is that most people fundamentally underestimate the operational complexity of running these assets from a physical perspective. Uh but I would say that's similar to other markets you know auxiliary power consumption air condition is broken all that stuff but I think people underestimate you have you know 866 DSOs redispatch pre-qualification for ancillary services there's so many operational intricacies that when you have this illusion you're just going to buy a couple of assets you're you know fund manager and it's super easy it takes care of itself like solar that's not the case it's a hardcore operating asset you need a very good platform to run it and you need very good people they work very hard to get it done properly. You may have like I think like it is justifiable though that a financier may may just say okay somebody's going to run this well and I can sit back and I can just watch it run. Uh that is doable like you don't have to be in all the sort of very particular bits of detail. And then I want to come back to one thing you mentioned which is kind of a niche part of Germany in a second. Yeah I mean I can just speak from experience. We have a couple of assets now live. We have 13 assets in construction. we've pre-qualified in in different CSO zones. I do think that this asset class is a lot more complicated than people think and I think that's great by the way because I think that creates defensibility but I think this notion that you have kind of in infra private equity which is you have a platform and that's maybe worth a little bit but the majority of the value is in the assets and you just slap a DCF on it. I think that fundamentally misprices the value of platforms in the best space. And the reason I say that is because you know it's an active asset class. If you have a BESS asset and you do nothing with it, it does nothing with it. When you have a solar plant and you do nothing with it, it's still going to produce power when it's sunny. And and I think the reality is especially in a market like Germany, 40s, DSOs, you have different ancillary services. If you just think, you know, I'm an insurance, I'm just going to throw money in it and I'm going to lean back and see the cash coming out every month. That's not the case. So, in theory, possible. In reality, I haven't seen it yet. Yeah. And also, from what we hear in the UK, it's more complicated than that. And I think Germany in a good way is even more complicated. So, let's do the the distribution side of things. So, you just talked a little bit about there being lots of distribution operators. Exactly. How many are there? But also, why the hell does that does that exist? So, there's 866 last time I checked. Okay. Uh, you have four TSO operators, you have 866 DSO operators. So, those are the ones lower voltage, closer to consumers. Exactly. I mean, it's historically been the case that, you know, you had a local town, they owned their own grid, um, and, you know, people just basically had a fully integrated utility and then it was split up over time. But the honest answer is I don't know exactly why that's the case. A lot of them look separate. Many of them are owned by Eon. So the ownership structure I would say is more consolidated than it looks. But yeah, I mean you have DSOs that basically, you know, are a DSO for a town of 30,000 people. That's crazy. That feels that feels so hard to kind of get your head around, but I suppose it's kind of like history has kind of led it to this point. But let's let's then go into like where batteries get located. So you mentioned you had a number of batteries coming through at the moment. You have a pipeline of 8 GW. Where are you playing across the sort of from the transmission level to the distribution level? what sort of sizes and how big is that pipeline? How real is it? Yeah. So, I would say we have roughly 8 gawatt of core development partnerships. You can call it core development partnerships or pipeline. Uh within that we you know I would say we have around 16 core development partnerships. We have an in-house development team. We also recently acquired a developer BBD. Um so we have in-house capabilities as well and more and more of our pipeline is coming inhouse. Now whether you call the eight gigs pipeline or whether you call everything that has binding grid pipeline, I think that's less important. What I would say is because we have these 16 partnerships, we have an in-house development team which was supplemented additionally by a developer. We're developing in 38 DSO zones in all four TSO zones. I would say that we have the most diversified pipeline in Germany to my knowledge. I'm sure many other people have said in this chair and said the same thing. Um I still believe that to be true. Um, and I would say we're the number one probably in Germany in the medium voltage space. Basically, the majority of our assets have historically been 10 to 30 megawatts medium voltage, no substation buildout required. You're typically already in commercial zones, so Gabbit sooner. So, you don't need a full building permit process, faster time to connect. And our hypothesis has always been no one knows what will happen with grid fees. No one knows if there will be some sort of nodal pricing. So if you're distributed across the whole country, not only is that a good hedge, but you will probably benefit when some form of nal pricing will come. That's been what we've done so far. We still very much believe in that. But, you know, we will not be able to get to multiple gigawatts operating over the next, you know, medium to long term. Let's let's put it this way, just by doing small assets. So, we have a couple of 110 and 380 KV projects as well. And I think we will gradually graduate to kind of triple digit megawatts, but we very much love medium voltage. We think it's the superior product. So right now, what's the size of the portfolio right now? And if I say in 3 years in the future, where do you think you might be in terms of portfolio size? So we have roughly operating 100 megawatt hours, 50 megawatt. Okay. Uh tomorrow that's probably going to increase by 17 megawatt. Knock on wood that you know commissioning goes well. Good luck. Uh we have other another 13 assets in construction as of now. There's a couple more coming in the next month. Uh so by the end of the year I would say we're in the low triple low to mid triple digits megawatts life and operating. Yeah, mid triple digits probably in construction plus operating. My hope in 36 months would be that we are either above a gigawatt or very close to a gawatt. Okay. And and you mentioned grid fees and you said sort of like this is all sort of waiting for grid fees to get settled. What's the problem with good freeze in Germany today? Well, I think a lot of uncertainty is the problem. Um, so as I'm sure you know and most of the listeners know, Bess has been free of grid fees until the 4th of August 2029. Uh, the Bundesnetzagentur, the German regulator has said that may be changed retroactively. Now everybody was panicking. Then they said, well, our goal has not been to kill off Bess. Uh, but you know, the moment somebody talks about killing that makes everybody nervous. even if it's the lack of killing. Um, and I think now there's a lot of uncertainty. Will there be grit fees? Um, probably. Will there be a retroactive? My view, probably not, regardless of how the letter of the law is because I think you're just going to kill off investments into infrastructure in Germany as a whole, not just best, you can't have that legal uncertainty. And then C, the question will be, well, A, if there are grid fees and B, they will come, but they won't be that punitive, are they going to be static? Are there going to be dynamic etc. And there's a lot of views on that and I think that's the question that everybody's currently mulling over. Um but the reality is most of it is speculation some more qualified than others but no one knows yet what's going to happen. Yeah, and there's a really interesting there's a couple of really interesting bits in that, right? One is you mentioned zonal and nodal earlier and then dynamic grid fees and maybe we'll get time to come back to that in a second, but actually I think there's a bigger issue than this which is one which you've just started to describe there which is you as a developer in one of your many hats and we'll kind of come on to which other hats you wear in time. Um, but as a developer, you want to build battery projects and you've got financiers that back you and want to put these projects into the ground. And then we have the system the system operators who are building the network and managing the network. I'm actually not sure where they stand on battery storage. They say they don't want to kill battery storage and yet their business model does require them to build out more network and but they also aren't allowed to own battery storage in some of those regions. So that's quite confusing. And then maybe one more thing to add on top of that. You know, we sit right now at the start of April in a time when gas is incredibly volatile and having your own homegrown generation couldn't be more important and trying to break the link with gas pricing is so important. And so like the policy the very top of these system operators and the the governments should be looking at this and thinking, okay, we really need to move fast on this. Yeah. And yet that's not coming through. Yeah. Why why is that? I don't No, I mean to quote Lloyd Blankfein who very unpopular once said former CEO of Goldman Sachs, we're doing God's work. That was obviously not the case for him. I do think we as the BESS industry are doing it to a certain degree. Uh but jokes aside, I might that quote might get me in trouble, but I think the the reality is I mean Europe needs to become sovereign, right, from a energy perspective. We've had our first gas crisis after the invasion of Ukraine. We now have everything stuck in Hormuz again. 20% of the LG capabilities of Qatar, which is 20% of the global LG capabilities have been essentially decimated. We currently have a you know truce or temporary peace in Iran and America and Israel, the current situation there. But the reality is, even if it's resolved today perfectly, and I currently don't think that's the case, we must understand that we cannot be sovereign and we cannot be independent and we cannot have a stable economy anywhere in the European Union or the UK if we don't get our our addiction to fossil down. And that has nothing to do with, you know, being climate friendly or, you know, progress or, you know, woke. The reality is as simple. If you want energy sovereignty, if you want to have a competitive industry, if you want to have a chance at having a relevant stake in AI, you need more renewables and that's not going to work without Bess. So, I don't know why that hasn't had more airtime yet. So, I think politicians get this at a like because it's quite easy to explain, right? I think politicians get that. But how and I think the finance and the battery folk that want to build these projects get it, but the missing bit in the middle is the networks. when does this when does this land for the networks or like how does that get solved? I'm not sure. So I think the so the TSOS first of all I would say the four TSOs in Germany they're very sophisticated. I would say they are neutral to positive on BES. They know they need BES. They know BES can help their redispatch issues and some of them own BES, right? TransnetBW has a grid booster. The thing is they're not allowed to own it to trade it in a merchant way, but they're allowed to have it as best as transmission. So, it can be fully charged and that, you know, is completely fine and Fluence built that for them. Um I would say the DSOs more negative and the reason is not driven per se that they don't believe in the need for storage but they don't understand how it behaves. They don't understand how to model it and there's an abundance of requests and the problem is that they basically do everything by the books and so that's the situation that got us there. people applied for grid connections and they said okay you have this you have this you have this you get a grid connection and then they realized okay they handed out hundreds of gigawatts of grid connections and then go oh woah that's not going to work and now the pendulum swings in the other direction and so then now basically trying to do everything to block it but I would say there's no strategy there it's completely reactive both when they granted the grid connections and now when they're trying to save them off I think ultimately it's it's very simple the regulator needs to say we need best there needs to be a clear framework and there needs to be echoed by secretary of the economy Katherina Reiche I would say the regulator is not doing that sufficiently and Katherina Reiche is still very focused on gas for reasons that I don't understand and I think that's what brings the discourse we have here there's there was still an article in a newspaper in Germany uh this weekend in the Frankfurter Allgemeine Zeitung with a thought piece by Karina advocating for gas I'm not sure if she read the news the last two three weeks but like the you know hormuse is closed Maybe somebody should tell her. Yeah, it's it seems it seems so strange. Let's But let's now tie two of those things together, right? So, one thing you said was actually before I go on, I will say if a TSO or DNO wants to come on from Germany and reply to these things and to say actually this is how we see the world, you're very welcome. Get in touch. I know a couple that might do it and I just want to make it clear. I think they are they're doing the job they're supposed to do. Like for them, there's one thing that is holy above all else, which is grid stability, right? They they will get paid zero for letting on best. Uh as in like there's not going to be extra profits for them to a massive degree. But when they go offline the way Spain did, you know, they're out of a job. So it's a very asymmetric riskreward situation for them. So I understand and some of them are very pragmatic and we have good dialogues with them, but you know, the incentives are different. So, I think it's it's a regulatory issue that can resolve the bridge between what they're solving for and what we're solving for. Yeah, that's really nicely put. And I think that the framing of, you know, they're anti we're pro is too simple. Um, but they didn't say they're anti they're concerned. I did. You said I did. I did. So, you know, throw eggs at me. I'm I'm happy to get egged if that's what happens. Um, right. Let's then go into the one of the things you also said which was around this kind of almost fear of what maybe a battery might do when it connects to the system and an earlier point we were talking about which is around flexible grid tariffs and potentially like nodal pricing. Yeah. So this world of people not being sure what batteries are going to do, it seems so odd to me, right? Like batteries just respond to prices. So when prices are high they discharge and when prices are low they charge. like I don't really see what's so hard to get your head around in terms of that. But if you really wanted like more precise control of those battery storage assets, wouldn't you look to try and get sort of flexible grid tariffs or like a nodal system? I know that I know that's been looked at in Germany late last year and was sort of moved over and now that's moved us into sort of flexible grid tariffs. Where do you think this is all going to end up? I mean if you think about it right Germany has one price zone right now and the major the reason for that is really political because you have the north generating mostly and the south consuming mostly and the south is very powerful with the CSU with their own party they're part of the coalition and they don't want higher power prices so that's basically off the table but the reality is the physics don't make sense you can't have one side generating everything the north and the south you know very exaggerated consuming everything but the price is all the same of course you're going to have you know congestion and I think what the grid fees are and FCAs by the way are doing now flexible connection agreements is that they are in German there's the saying through the back through the chest into the eye so like it doesn't make sense but they're basically kind of trying to reverse engineer nodal prices without calling it nodal prices to actually create local signals to manage congestion better and I think it's inevitable so I think that's good I think it's inevitable and I think if you have a highly distrib distributed best portfolio like we have then you know it's a godsend. I think if you have one asset one location 400 megawatt you know you might be in a great location you might be in a terrible location but I think it makes sense for the country and it makes sense for the BESS industry if it's designed right and I think that's the big if it shouldn't be static it should be dynamic and it should be clear how to you know what do I need to do to help the grit and how as a function of that do I get paid or slash I do not have to pay. Mhm. Um and that that has to happen. I think it's a good thing. Yeah. And we did a whole chunk of work looking at flexible grid tariffs and essentially in every single region, if you bring in that flexibility from grid tariffs, it's good news for battery storage because no surprise to anyone, batteries respond to the price signal they get. So if you give them more price signals, if you tell them what the grid needs, they might change their action and do something that that helps the grid out. Um whereas if you're thinking about say solar or wind and it's a much more sort of weather driven phenomenon, then it's much harder for them to to do that particular thing. Yeah, for sure. But just I don't think I actually answered your question. I mean, if you have one price zone, right, and there's a lot of solar in the in the south, for instance, and none in the north, then you know, the price may say you want to discharge, sorry, you want to charge, but maybe you have local congestion. So, ultimately, the problem is unless the signals are local, you may do something that the price signals you to do, but actually locally, that's not what the grid operator needs. Yeah. Um, and so I do think it makes sense and that's why you need to go more granular in prices. I totally agree. Um, I think that we are in this world of certainly in GB, we've kind of almost moved away from having sort of a nod or zonal price, but we're as you're sort of saying, we're almost trying to do it through the back door. Um, and that's a very convoluted process. Uh, but it is fundamentally needed. We need to have those location signals. And so we're we're sort of trying to work out how to how to juggle those things. But one thing that's quite interesting for me is that somebody might say, "Right, Ed, you invited Philipp on and he's here and he's a developer and look at him just developing projects." But that's not true. Ter do other things. So, so what do you do beyond development? Yeah. So, we are a integrated energy flexibility platform. We have two parts of the business. Like you said, we're a developer owner. So, we develop, finance, and operate grids scale best. Like I said, mostly in the medium voltage so far. currently starting to go to 110 and 380 KV across yeah 38 DSO zones 40SO zones and I would say we're one of the largest in the medium well the largest in the medium voltage one of the largest overall and then we have our flexibility platform layer which essentially enables us to commercialize these assets both for ourselves and other best owner operators now very importantly we're not a trader we don't optimize what our platform do does is a it's a roottomarket platform that enables you to bundle portfolios of BESS assets, virtualize them and then essentially create offtake across a whole portfolio or to take very large assets and split them. And so what that enables you to do is to manage the risks from the revenue side much smarter because historically you would have a BESS asset and you would go either fully merchant or if your asset was big enough fully told and then some people came in and said okay well I can tolerate but I'll also do the merchant or do a floor and we said you shouldn't have to choose between fully contracted or fully merchant and also fully merchant just with one party or finding somebody who's kind of not the best at both worlds. So we said I want the best offtake and I want to have as much as I want or need. So let's say 50% for seven years with RWE or Vattenfall and then 50% merchant but the merchant slice rather than giving it to one optimizer we have a basket of optimizers that are essentially dialed up and down according to performance and then additionally other flex buyers can bid on the capacity and if somebody bids above a certain hurdle price that we set on a daily basis then they can basically get a slice of your portfolio of your asset a little bit like a mini toll for a day a week or a month. Yeah. And so we feel that's the superior way to commercialize flexibility. I think it's really interesting. So the tolling side and doing like a partial toll, I think a lot of industry will go that's that's quite familiar with it's not the same as what we've seen because ultimately people want to try and toll as much as possible so they can kind of bring in debt and they can gear their projects quite highly. You're saying okay we're going to toll a portion of it and I assume that's for the purposes of then gearing those projects. But that 50% that's merchant, it is a it is a funky model to sort of have each optimizer bidding in to try and like win a different slice on a different day. Like why is that the most valuable way of optimizing that sort of 50% of the asset that's that's available? Yeah. I mean, if I look at Moto, right, and I and I see the rankings of the optimizers in the UK, you don't really have anyone always winning. You have a couple that are better performers than others, but the reality is no one structurally outperforms anyone always. So if you are essentially subscribing to one optimizer with a BESS asset, you're doing a concentration bet in an industry where you know no one will continuously outperform. It's not like equities. So I think what makes a lot more sense is to go into like a fund of funds model. So you invest into different parties or like an ETF in the stock market. And so it's very simple to actually say okay I have a book let's say that book is 100 megawatt and I give it to three optimizers and if somebody is performing well then they get more of the book if I now see that the other party is is improving their performance of let's say 5 megawatts of the book I reallocate the capacity to them so why would I want to put all my eggs in one basket and then what we often hear well you know what I think your idea is great but why don't I just give one asset to optimizer X and the other asset to optimizer Y and then I have optimizer Z and then I have a portfolio and I kind of see yeah maybe you can see but you can't change anything about it anymore right so the reality is I think why actually put all your revenues into the basket of one party even if it's one of the better parties don't you want to be diversified dial them up when they're great and dial them down when they're bad and have the ability to have additional optionality from other people who want to procure flexibility who may have a higher willingness to pay that is unique to our platform and I think it's free optionality why wouldn't you do that yeah I mean we I does the company motorway exist in Germany, motorway, motorway, motorway. Okay. It's it's for selling cars, right? So, it used to be that if you tried to sell a car, you'd go to like your local car dealership and you'd say, "Oh, can I sell my car?" And they'd say, they'd lo you, right? They take like 20% off or 10% off and say, "Here it is." The app which we don't we're not affiliated with in any way, but I have used and so I can tell you it's quite fun. Essentially, it takes your car, which is worth say GBP 5,000. It's like a reverse auction. Exactly. And so it sends it out to a thousand local dealerships and then the best dealership or perhaps there's some buyers remorse in there but like the best dealership gives you the highest price and then they come Yeah. It's like auto one we have in Germany. Okay. We buy any car it's called. Yeah. Yeah. So so you just don't get stuck into like one particular relation right. So I really like that. But is it more financable? Does it that I think so. Yeah. I think so. I mean we've done a 160 million euro financing with ABN AMRO and Commerzbank with that structure. So I would say you know these are blue chip names. Yes, we've done a portfolio financing. I think if anything, it's more financable because you don't have single optimizer risk. You don't have single counterparty risk. You have the ability to switch in and out if somebody is not doing a good job. Um, and I think it's a win-win for everyone. I think it's a win for the optimizers. If you're doing a great job, you get more capacity. Um, you get feedback on how you're performing in the market. Now, we won't tell you, okay, optimizer B is doing, you know, x amount of revenues, but you kind of see how much share of the book you have or not. So, I think it's a win-win for everyone. Yeah. Yeah. And we had Lisa McDermott from ABN AMRO her episode comes out in the middle of April. So if you're interested in that then give that a we like ABN a lot and yeah we just did a deal with them. There we go. Hi to Lisa McDermott if you're listening to this. Yeah. Yeah. And option to Commerzbank to come on. Okay. Um we like Commerzbank as well a lot. So yes, we could be here for a long time. Okay. Um, so I want to we've done a bit of a sort of Germany versus UK comparison. And I think one of the sort of not hidden stories, but one of the things that's kind of brewing in Germany is that concept of saturation. So Germany's been a hot market and it's been a hot market for a while. So very good returns. GB was a hot market back in 2022. Some very good news and it is again. Yeah. Yeah. Well, the great the death of GB has been greatly exaggerated. I think I totally agree with you and in fact we can talk about that more. Um, and we should talk about that more, but let's talk about the sort of the concept of what happened. So 2022 to 2023, more batteries came into the GB system. The market got sort of quote unquote saturated and therefore revenues dropped quite quickly. In Germany, that same thing is happening. Yeah. I'm not sure I agree, but yeah. Yes. Okay. So, do you agree? And do you think it will happen at the same speed, the same scale, and if not, why not? Yeah. So I'm not an expert on the UK market but you know what I can say is different from my understanding in Germany is a from a macro perspective Germany is the largest industrial base in the in Europe. Yeah. So there's a much deeper market in the intraday market in the day ahead market we're interconnected into all directions. There are no nukes the coal is being phased out little gas massive solar and huge amount of wind. The UK on the other hand much more base load smaller market not interconnected some nukes and then the reality is the majority of best that was built in the UK was I think dynamic containment reserve and other ancillary services and that is a you know there's there's a bucket and you can take out from the bucket right so x amount of megawatts available people build my best everybody tries to bid into that the thing with Germany is because in a very simple way because it is such a deep market on the intraday and the day ahead any bid that you will do in the in an ancillary services will always reflect the opportunity cost that you have on the merchant side. So there's a natural flaw and I think that is not the same thing in the UK. A B Germany just as a power system has structurally a lot more volatility plus it's a larger market. So I think will we see pockets of saturation in the ancillary services in Germany? We should absolutely we should have seen them already. Um I think it's inevitable but we should have seen them earlier already because you know FCR is like 56 700 megawatts AFR is like 2,000 megawatts or 2 GW and I think so in reality we should see some saturation in that but the reality is if you look at the merchant component intraday day ahead it's much deeper and I think we will not really see saturation and I think also that brings me to my point in general I think most people think about flexibility wrong I People model flexibility curves as a function of historical spreads, maybe some gas futures and look at it in a linear way. But the reality is flexibility is all about convex uh revenue developments or more tail events and I think Germany see we'll see a lot more of those. So I I really don't see structural saturation on the horizon but yeah some pockets like the ancillary services may saturate a bit. Yeah, I think we see something similar. We definitely see the ancillary services saturating. I think to kind of the reflection on GB right is that the ancillary services saturated and when they saturated they saturated to a level where the ancillary services and the wholesale were making sort of equal equal revenue or the opportunity cost of doing both was quite similar and that's where they found their sort of base and that's where they you don't have that situation in Germany ever since 2023 whereas you're saying that right now it's it's already quite tied it's already quite tied to the level of revenue you can make from wholesale markets. Yeah, for sure. And I mean they're very deep. Um they're very volatile. Um and and they will continue to be volatile. So I think we're actually just starting to enter the phase of managing volatility. In Germany we only have roughly 2 and a half gaw I believe of of best there. We have 80 gaw of base load, right? That's nothing. I mean if you think about it, that's like a 40x flexibility gap. Uh all the home storage stuff is not really helping it. Um there's not that much gas. And by the way, I'm not against gas. I just think not too much gas. Um, and so yeah, I think saturation is is not something we see so far. Yeah, I think this is a really it's probably one of the most interesting parts of modeling battery storage is as you start to add more gigawatts of batteries to the system. that sort of volatility that exists in inday markets when people are trying to balance their positions, whatever it might be, we're two gigs short, four gigs long, whatever, you know, wherever the system actually is, how the batteries interact with those positions and what they do to the prices of those positions, I think is really interesting. Um I think that when we look at things like GB, one of the things that probably hasn't been modeled very well is what do the what has been the impact of say battery offering lots of flexibility to the market in our balancing mechanism? What has that done to say how gas prices and are we seeing sort of secondary order effects of there just being much more flexibility in the system? And is that starting to shift what would otherwise have been the case which could have been extremely high gas prices? Yeah, I don't think we have a perfect answer to that. Um, but I'm very interested to see what would happen in Germany as those gigawatts ramp up. Yeah. And I think I mean look the reality is it's it's very speculative to to model what would have happened had you not have had the best and but I mean the the reality is you just have a lot of volatility in Germany. Uh there's a lot more trading activity. I think in 24 there was more trading activity in the German Epic spot market than the rest of Europe combined. So, I really just don't don't that's not something I think about. Okay. I'm just going to recap a little bit where we got to. So, developer Yeah. IP in the in the flexibility space, but also running sort of VBA uh not Excel VBAs, virtual battery auctions. Um, and that to me feels like there's something odd there in that you're not one thing. You're not just a developer. You're not you're not someone who would own the asset, but you're also thinking about like an extra way of distributing the assets that you have out to the market for people to bid on. And so you're almost kind of wearing three hats as a company. Like which one which one are you? We don't think about it this way. I mean the reality is we're an integrated energy flexibility platform. Customers come to us to procure flexibility or to sell flexibility. Whether they want to procure flexibility from us and we own the asset or somebody else owns the asset, they don't care. And and if somebody wants to sell flexibility, you know, they want to go to the best place. So the way that I think about it is we are an operating system for energy flexibility. You can buy or sell that with us. Um, and to me it's the most intuitive way of doing that. I think if you think about flexibility as a whole, I think the the future of the entire energy system will be dominated or will be owned by the party or by the parties that are able to manage flexible dispatch in a system that is dominated by nonflexible generation. And the reality for that is that best is the most intuitive asset class for that. But I think that everyone doing OTC bilateral non-standardized agreements to commercialize it will always leave a lot of value for the whole industry on the table. And the way that we think about it is that somebody needs to build something where you abstract from all the physical realities and you can just procure flexibility in a simple way a little bit like AWS for power and that's essentially what we're trying to build. Um now the analogy may not be perfect for some reasons. Uh but I think the idea is just if you want to have flexibility and you want to buy it, you don't need to worry about, you know, maintaining your asset, owning the asset, operating the asset, financing the asset. You can just do it with us. And so again, to me, I don't think of us a developer or as a software business. The reality is we're an integrated energy flexibility company. Yes, we happen to have factory a development business and an operating business and a software business, but ultimately it's one face to the customer. That's kind of how we think about it. Okay. Yeah. AWS is a really interesting comparison and it's a it's a bold one. Um, one thing that sort of stands out to me, right, if if the VBA is working really well. Yeah. And I think it should, right? I'm I'm a big markets fan. I'm I'm with you on this. Other owners of battery assets who might say toll their asset for say 30%. Would would they want to sort of um bring you in as a third party to run a VBA on their on their asset? So you have nothing to do with the ownership of that, but you're just involved. That's exactly what we do. Yeah, that's exactly what we do. I mean, where is this virtual battery auction concept coming from, right? And we often get challenged on this. I mean, we have the pretty simple hypothesis that you have intrinsic flexibility value and exttrinsic flexibility value. Intrinsic is what the asset can do based on your curve or other providers of curves revenue which is intraday ahead and ancillary services. And the view is that intrinsic value fully captures that. And we say, well, there must be a lot of people out there that want exposure to flexibility because they want to trade it speculatively or they want to hedge balancing costs or they want to do profile shaping or anything else who don't have access to flexibility, physical power of best or or who want more and who have a higher willingness to pay than what the intrinsic view of the market says. Sometimes they will be right, sometimes they will be wrong. So let's say I'm I'm someone who's outside of the VBA. I'm someone who would be buying virtual batteries in the VBA or I could trade on the day ahead market and just buy the prices, right? Why wouldn't I just go to the day ahead market and sell let's say do exactly what a battery does? So so why wouldn't I just go and sell at the peak price and buy sort of the charging price? Well, the reality is the liquidity dries up for instance in the intraday market, right? And the reality is you may at too late a time see that you're on the wrong side of balancing costs and at that point you want to hedge yourself and have the ability to have a physical battery or more of physical batteries or the reality is you you know you want to have more exposure so you can trade more flexibility. I mean there there's a myriad of use cases that people come to us to essentially procure flexibility and I guess it's the same way you know why would you get a tall in the first place if you can just do dayheads why do people want physical batteries in general the way that I think about it it's like a tall just off a short tenor okay we could talk about this for a long time yeah I'm going to move us on to a few other markets and then a little bit of advice so not from Okay. Uh, I'm happy to take advice. No, no, definitely not from me. You don't want it. Um, okay. Uh, if you were going to look outside of Germany, where would you look? What what markets appeal to you? I mean, at the moment, we're very happy in Germany. Um, I think it depends whether we look at it from a asset ownership perspective or from a software perspective. I know I said it's all the same thing but to contradict myself about one and a half minutes later we would probably from a software perspective start looking at more mature markets from layer or for our layer platform such as the UK potentially such as Italy potentially and some of the Nordic markets we get a lot of inbound we have not yet made a decision on the asset development and ownership side I don't think it's an easy case to make I like Spain I think from a regulatory perspective, it's not ready yet, but I think, you know, the lack of inertia that caused the blackout screams for best. Mh. Um, but, you know, I think you want to be early enough there to to have your foot in the door. At the same time, it's not ready for scale yet. So, I struggle to give you an exact flag. Very interesting. Um, I I promised some advice, not from me. Uh, if somebody was saying to you, Philipp, I'm keen to go into the German battery market. Uh we know that the German vacuum battery market has been hot. We know that developer premiums have been quite high. We know there's some sort of question marks around grid fees. What would you say to them? Would you say yeah definitely commit to Germany right now even though you might be at the back of the connection queue or would you say actually wait until sort of later on this year you might know a little bit more? I mean look the way that we see it we're going full throttle. Um, I think the insecurity in the market is great because it means, you know, more conservative players or players that will get their hands dirty are not going as fast. I think that may mean some assets get delayed. We already see that. Um, and that's going to mean that merchant revenues remain higher, tolling prices remain higher for longer. Um, and also, you know, less competition. I think if you want to enter the German market today, you don't have a pipeline, you don't have a team, it's too late. uh I think you need to find existing assets or existing projects or buy an existing platform. Yeah. Uh and I think also the the degrees of quality there varies massively. The second thing that I would say is uh which was you know your first question what do people get wrong about Germany? I think people massively and I cannot stress this enough underestimate the complexity of operating and developing BESS in Germany. If you are just a UK player and you know you want to buy some assets there, honestly, good luck. I think it's not that easy. I think you need people on the ground with domain specific knowledge with the relationships. Uh and it's a hardcore operating business managing these assets, operating these assets, all the regulatory commun communication with the TSOs, with the DSOs. Um, so I think it's a very very attractive market and will continue to be very attractive. But I think you can only make a lot of money there if you get your hands dirty. If your viewers this is just like solar super easy like you know feed and tariff definitely not the case. Yeah. And we had a we had Paul Mason on recently from Harmony Energy who has gone through the process of developing raising money operating and then sort of selling assets with that Harmony portfolio. And I think one of the things he was saying about a reflection over the last 10 years of doing this is people on the ground who understand the markets. Yeah, for sure. I mean the reality is when we started this company November 22, we thought it was much easier. We thought you build a BESS asset 15 years just every month just automatically wires your money. You know, you're somewhere tanning. Life's great. Super easy. I mean, these things are complicated, but the reality also is I think it's great that they're complicated. That creates a mold. If it was as easy as everyone thinks, it would just be a race to the bottom in terms of IR compression and it's definitely not going to be for a very long time because you need platforms to run it and I think there are very few highquality platforms in Germany that actually capable of doing it. I think a lot of people got money who actually don't know what they're doing and I don't think they're going to deliver these assets. I think that is going to happen though. I think there is a like cost of capital shootout. Uh I think people are going to so right now we've got a big range of people who play in the market maybe 50 maybe 100. I think that over the next 5 to 10 years that might that might squeeze. That will squeeze for sure. There'll be consolidation and I think again a lot of people got money right now and they won't deliver assets. They won't operate assets. We've seen multiple developers come to us saying if we want to buy them just in the last quarter alone. Um and so I think there will be two, three, four names. There will be elite at owning, operating and financing these assets. Uh we you know we're very confident and we work very hard to be one of them. Um, and you know there two three other good competitors but I think a lot of these guys will not make it and they will sell their assets for scrap and the platform will not exist because it's an operating hard market. But to answer your question if you want to go to Germany I would say call us. We're happy to help you. Yeah, great plug. Okay, final question. What is a contrarian view you hold about energy markets? Look, I touched upon it briefly. Um, and I think people model flexibility wrong. Uh I think flexibility, demand and revenues are highly convex. Uh they are dominated by tail events that get very fat at the end. And I mean if you look at Texas 2021 winter storm Uri, yeah, you had 9,000 euro megawatt hour prices. Um and the reality is I think people think of it as a linear asset but what you actually are your long volatility and the the good thing with that is well being long volatility means sometimes you will have massive volatility and sometimes the lack of volatility is the function of volatility in itself. So I think what you need to be very aware of when you have a BESS asset is that you will probably have periods of extremely high volatility or very low volatility and the market go will go through these swings and I think nobody really captures this modeling right because people try to impose a linear worldview on a system that by the very definition of it with all the solar is nonlinear and so I would say I'm not sure if it's such a contrarian view but my view is that flex revenue revenues and the best market will be orders of magnitude larger and more profitable than people think, but not in the way that they do think. I love that. That's that's a great contrarian view. Uh Philipp, you've been a wonderful guest. Thank you so much for coming on. Thank you very much and thanks for inviting me.