The Rise of Big Batteries in Australia's Energy Markets - Neoen

Think about a hospital generator. It's its idol most of the time, not because it's a bad investment, but because the cost of being unprepared is catastrophic.

It's pure insurance. It has one job, and that job is to wait. Now imagine that generator also had to earn a profit every single day that it wasn't needed. Suddenly, the whole logic changes.

That's the situation grid scale batteries are in. They need to be ready when the grid is stressed, but they also need to be trading cleverly around the clock to make the economics work. Those two jobs pull in different directions, and working out how to do both profitably at scale across a fast changing market, it's harder than it looks. Australia has moved faster than almost anywhere in the world on large scale batteries.

What started as an experiment in South Australia in twenty seventeen has grown into one of the most competitive storage markets on the planet.

And that success has created a new problem. More batteries chasing the same opportunities with margins getting thinner every year. Our guest today has been on the inside of this transition as it happens. Jeremy Yvonne leads the energy management team at Niowen in Australia, one of the country's largest renewable energy companies with wind, solar, and battery assets on both the East and West Coast. His team's job is to make sure those assets perform every day in markets that never sit still.

This episode isn't about whether batteries are good for the energy transition. It's about what happens to the business case when everyone else has the same idea.

Welcome back to transmission. Let's jump in.

Hi, Jeremy. Welcome to the Transmission Podcast.

Hi, Wendell. Thank you very much for having me.

Yeah. It's great to have you here. I think, yeah, we've got a lot to talk about. Very briefly, could you just introduce yourself for our listeners and also maybe what NEO N do?

Yeah. Sure. So I'm Jeremy Ivan. I'm leading the energy management team here in Australia for NEO N.

So I'm originally from France, so maybe you will notice an accent, very subtle.

But, yeah, I've been working in Australia for the past three years. And before that, I've developed my career for more than ten years, mostly in European electricity electricity markets. So NEON in Australia. So we are one of the largest renewable energy companies here in Australia. As we speak, we have four gigawatt of assets either in operations or under construction.

We do three technologies, wind, solar, and battery storage, and we have a portfolio that is balanced across those three technologies. And then we have a we have a business model. Basically, we develop the assets. We build them, and then we operate them as well for for the long term. In term of activity in Australia, we operate both in the national electricity market, so on the East Coast and in the wholesale electricity market, which is in Western Australia on the on the west side of of the country. And when it comes to my role, so as a head of energy management, so I get to lead a team of in house expert, really, like, extremely smart and passionate people with different type of backgrounds, so market analysts, quantitative engineers, software engineers.

And, basically, what we do is we analyze the market. We analyze the dynamics in the revenues. We identify ways in which Neon can maximize the value of its portfolio now, like in the market today, but also in the future for assets that are under under assessment for future investments and all that while managing our risks. And eventually, we'll also build the tools in house that will help us capture that value in the market.

Awesome. And, I mean, yeah, you mentioned it in there.

And it's actually one of things I really wanted to focus on is you're kinda in a unique position as, like, I guess, the only operator of battery energy storage in both the the NEM and the WEM. And so I kinda just wanted to start with that. I mean, where would you see if we were to look at the state the the role that battery energy storage is playing in both markets today, like, where do you see that? And how would you compare it across those two markets?

Yeah. As it's a that's a that's a that's a very good question. I mean, I think there is a bit two part in that question. As a state of the market, that's an interesting one.

Think, I mean, as well from from my from my perspective with that international, I mean, the European experience, I mean, I think one of the first things that is important to note is that, clearly, Australia is one of the most major markets in the world when it comes to to a grid scale batteries. I mean, clearly, in in Australia, batteries went from proof of concept, experimental assets at the very beginning to now clearly a core pieces of the of the system. So and it's it's quite interesting to to understand how this how this happened. I think it's interesting to look at that under with with our lens, with new lens given our experience and also because we have been there from the very beginning of that battery adventure in Australia.

I mean and we we are very proud that we contributed to that, not alone alongside many other players in the in the industry. But, yeah, I mean, I think in terms of journey, if we want to kind of recap roughly what happened. So it started with a kind of, as I said, a proof of concept back in twenty seventeen, Onsdale Power Reserve.

And a pretty big proof of concept for the time.

Exactly. So at the time, the largest, the first big battery in the world that we built in South Australia with Tesla and the South Australia government. So was really a proof of concept demonstrating that battery could be built quickly first, but also, like, bring value, bring flexibility, bring deliver stability services to the grid and all that while providing cost savings to to the system as well. So that's that was quite an important demonstration.

I think once you have a proof of concept, a prototype, you need to demonstrate that you can scale on it.

And basically for batteries, I think the idea was to demonstrate that they were able to also provide security services, which is quite important. If you want to have an asset that is growing in a system, you must demonstrate that the system is perfectly able to to keep the system stable and deliver, well, basically all type of services the system may need. And again, it started with Armsdale, I think in twenty nineteen. We introduced the concept of system integrity protection schemes, which is basically an insurance.

So essentially you reserve part of your battery in MW and in MW hour. And that fraction is reserved at all time for the benefits of the market operator, which may use it at times when the grid is in specific conditions and needs support. So that's something we we demonstrated with Arnsdale. And the other thing I think that was quite fundamental as way as as well in the ways the name, the national electricity market in Australia, thoughts, things about grid security and and system strengths is the demonstration of thin static inertia capability still by Onsdale, like with the introduction of the implementation of a different technology of inverters or what we call grid forming inverters.

But this this is quite important because basically inertia is a service that is key for the system stability and that traditionally was only provided by thermal generators, basically spinning machines. And we demonstrated that with the proper inverter technologies, the proper electronics technologies, batteries are able to replicate that service.

So that was quite important. And then I think we are in the state of the market as of today, which is clearly a state of scale and integration. Scale, I mean, I think, clearly, we are seeing more and more projects coming online, bigger and bigger projects in terms of megawatt, large longer and longer durations as well. I mean, Onsdale started as a one hour battery.

System quickly moved to two hour. As of today, I think we can I mean, four hour is is a standard investment case now, but we start to see six hour battery, eight hour battery, ten hour battery in the pipeline? So, yeah, clearly scaling there. And integration also because on that side, more like, I would say, commercial integration.

I mean, we see battery in our portfolio delivering firming services typically to bring to the market renewable baseload baseload contracts. So that's what we did a couple of times already in in South Australia where basically battery are integrated in a larger solution and provide firming services and risk management services so that we can provide supply energy from renewable generation around the clock. And another I think another good example as well of commercial integration is is like the new new generation of structured products around batteries. So with our virtual battery, for example, which again is is bringing a range of new new contracting contracting options.

For for many developed market, they'll kind of look at batteries in the in the NEM maybe, and they'll look at kind of FCAS, the frequency response, and energy trading in the five minute spot market. But then, you know, it seems like for for near end, that's not just how you look at batteries. Kind of how do you across your fleet batteries, like, do you decide what the best application is? Has it kind of been based on, I guess, just what has been, like, ready at the time? What commercial application has been there at the time?

So first, I think, well, you have to build a business case that is aligned with the market you are participating in participating in.

And maybe that's the part I missed in the previous question. It's actually what are the key differences between the name as a national electricity market and the wholesale electricity market in WA. And that's quite important to understand because basically then the, at least, the business case, the approach will slightly differ. So, I mean, if you start with the national electricity market, I mean, especially for if if we have listeners that are not very familiar with the with the Australian markets, but the the the the on the East Coast, the national electricity market is is is much an energy only market.

So you have, like, a very high price market price cap sitting above twenty thousand dollars per megawatt hour. You have a deeply negative price floor at the minus thousand dollars. You have five minute trading granularity with virtually no gate closure time. So that's all those components are creating structural volatility.

And batteries, of course, are are very very well suited to to to to capture that.

But it comes as well with some challenges in the way you operate, of course. Volatility also means that your revenues are a bit uncertain, and that's something you have to manage. And it also means that it's a market with a very intense competition. So it's an everyday battle and everyday care to generate your revenues.

And it also means for operators, like, to constantly improve their optimization capabilities to be able to continue to perform and and capture value. So that's that's on the name side. If you go to Western Australia, the design is different. I mean, the volatility is much lower because first, the market price cap is is basically twenty times lower.

So you don't have that volatility that that's going to justify a business case by itself. So in the in in Western Australia, what's was a key element is really the capacity revenues, capacity market. And that part of revenue will account roughly for two third of of of of the revenue for for for your battery. So that came in two phases a little bit in in Western Australia because early on, basically, the regulators and the government attracted investors with like a specific type of contracts, very short term contracts that were designed to address short term reliability issues.

And that's really what opened up the WEM market to batteries and gave to investors as ourselves the confidence to go there. That's how we started the COLI battery, which is contracted with IMO.

And again, I mean, in terms of scaler, which is I mean, it's a five hundred sixty megawatt asset forward duration. So that's roughly capable to charge or discharge twenty percent of the average Swiss peak demand just by itself.

Yeah. I was gonna say, because, I mean, it'll be useful probably just to give the context of how big the WEM is in comparison to them. I guess it is a lot smaller market. Yeah. But then we've seen the batteries come in at very, you know, sizes, like, equal to or even above the batteries that we have operating in the NEM.

Yeah.

Yeah. That's a clear that's a that's that's was that's a clear fact because there were also, like, these contracts, the volume needed were quite important. So the solutions to put in front of that were directly large scale batteries large scale batteries.

But I mean, even after those contracts, if you if you look at the market, no. I mean, those contracts, no. The the cornerstone is a long term capacity market designed at so the reserve capacity mechanism in the WEM, which is more long term. It's going to which is working on it every year or setting a price, giving a signal for investment.

But that remains the cornerstone in the investment.

But, I mean, the interesting I mean, that gives a higher certainty

In your revenues.

But at the end of the day, still have to operate as well your battery in the market on a daily basis and exactly providing essential services, ancillary services, and energy arbitrage, charging during solar hours, discharging on the peak. And that's yeah. That remains so you can have different type of contractual structures, but at the end of the day, you still have to operate your battery in the market on a daily basis.

Yeah. And I think so I think maybe come back to you kinda mentioned it was around the kind of contracting, things like virtual towers. But I guess then in the Western Australia context, the need for that is kind of negated somewhat by this capacity mechanism. Is that right?

So is the need for what?

Sorry. So, like, guess long term off take contracts. So you would typically just contract I guess the contract is essentially with the the government?

Yeah. I mean, it's not a long term contract. I mean, capacity, it's a it's an annual cycle. So every year, the system is going to reassess the supply demand in capacity, and and that's going to drive the direct the price in a direction on in in in another.

So it's it's revenues are a bit more certain but not locked for for a long period of time. And, yeah, I mean, I think it's also but that's the web market is still still relatively new. So you went through a major reform not that far ago. It was in twenty twenty three.

So, yeah, mean, clearly, are also observing and, like, for the off take market to take off in the web, which is something that happened clearly in in in the in on the East Coast, but not yet not yet in in in WA, in Western Australia.

If we're gonna look back eighteen months ago, eighteen months, twenty four months ago, and think about the realities of, you know, developing, operating batteries then compared to today, you know, what stands out as the key differences?

Well, if you look back at, yeah, the last year or two, clearly, what we clearly notice is a is a step change in in deployment in of battery projects in in Australia.

So maybe just a few figures to to get a feeling of that. I mean, I think in twenty twenty five, we went above the threshold of five gigawatt of battery storage in operations in the national electricity market on the East Coast.

And just based on confirmed projects, so basically projects that are on either already under commissioning or under construction, we expect that figure to exceed fourteen gigawatt by twenty twenty eight. So that's that's a huge number. I mean, just to understand the scale, again, if we put that in front of the of the peak demand. So in the national electricity electricity market, the peak demand is thirty five gigawatt.

We are talking about nearly forty percent of the peak demand as batteries. So that's that's obviously that's that's massive. I mean, on new end, we are also working the direction. Like, if we look at just the last six months, we progressed not far of seven hundred megawatt of batteries, almost three gigawatt hour in the in the name and in in the WEM. And we have a strong pipeline of batteries in under development.

So obviously, but that step change comes with consequences and impacts. And clearly, we see impacts in the prices in the market.

If you take, for example, services. Ancillary services used to be the primary source of revenues in in for a battery. So that's the markets now are completely saturated. FKS, FKS market are completely saturated.

And even in the energy market where the volume are are more important compared to the relatively smaller ancillary services market, even in the energy market, we start to see very clear very clear effects. So if we go to Western Australia, the commissioning of some of the big batteries have a significant impact on the negative prices. So if you look if you compare twenty four to to twenty five, you you do see much less negative prices in the name, and that's partly an effect of the battery.

And on the other side as well, on the discharge side, I mean, more batteries means more competition.

And batteries are more and more setting the price on the evening peaks. And by setting the price, they are also suppressing the price. So we start to see basically a reduction in the spread. The spread being what how the battery makes their value.

So that's also implication then for the business case. I think the first business case is is the first implication is all those fundamentals are changing very quickly. And that means that basically the business cases we build today are radically different from the one we are building just three years ago. So that's that's that's important.

And that's significantly increasing the complexity as well of the business cases.

It also significantly increase the complexity of operating batteries. And that's probably that's something that we it's very important to be to be to acknowledge that batteries are very complex objects to operate and to optimise. Because things are moving constantly, because our competition is intense, you need to constantly improve your trading capabilities. You need to learn constantly from the market.

And that requires to have the right structure, the right organization, the right agility with your teams and to have skilled teams, highly skilled teams that are capable to understand those changes and adapt adapt the business case of of your batteries. The other thing that you need to understand is also we need to understand batteries, no runs for twenty years or twenty five years. So it's not just a short term commitment. It's a long term commitment in terms of agility, in terms of investing in your capabilities to improve your optimization solutions.

And that requires to have yeah, highly skilled and trained team on the operation side with energy management but also on the commercial and origination aspects so that you can extract the knowledge from the market, adapt your solutions to maintain your performances, but also understand how the needs of your customers are going to evolve so that you can keep proposing the right options, the right structures. And that's something at New End that we have invested a lot in.

So we have an operational control center that has been running for almost a decade now. So that's gold mine, a poor house of information, market knowledge, market experiences that my team then is able to absorb and use to design our solutions, improve them, and develop the software solutions that we need to operate the market. And again, also, that's knowledge that goes to our commercial and origination team to keep working on on the contractual structures we are able to bring to the market to make sure there is this market fit, to make sure that we are proposing something that is going to match the customer needs.

Actually, just just on that. I mean so yeah. Because that's one the things which knew when I guess, I don't know when, yeah, when it was a few years ago bought in house was that kind of optimization, auto bidding. Like, what have been the kind of biggest challenges you saw in that in that kind of bringing house of that service?

Yeah. I mean, the biggest challenge is that that capability to constantly invest in that solution, to constantly invest resources, time, team to understand the market, understand the dynamics, understand how our solution can be improved. It's absolutely the biggest change. I mean, with battery optimization, it cannot be a set and forget type of of of strategy.

It's everyday care. It's it's everyday a battle to understand where are the market what are the market conditions and how do I operate my asset to to be able to capture the value that the market is that the market is offering. And that's a challenge because it's again, it's it's it's going it's a long term commitment. It's it's something you you have to do every day for the life for the for the lifetime of your of your battery.

And I mean, just to bring it back to what you were just saying about the the business case. I mean, if you were to kind of from your perspective, how would you frame like, what is the, like, ideal business case for battery now? So I guess coming online in two years' time, three years' time, like, how do you piece that together?

How to frame that? So I think the idea I mean, if given the uncertainty ahead of us, I think the idea is to have an approach that is balanced and that can be balanced in terms of technologies. So that's first element from our perspective as new one is we don't consider battery as standalone storage. I mean, Battery storage is coming as part of a wider portfolio that is that has also generation.

And that's always something that is really at the core of our approach. So there is always this aspect of considering a portfolio. And that can translate into commercial opportunities. That's exactly what we achieved with the baseload contracts that we signed with our customer BHP in South Australia.

So basically we integrate batteries and wind into a single portfolio to be able to deliver a firm supply. And that firm supply is going to bring additional certainty in our revenues. So that's another example, a first example. The other aspect is also like basically also to to have a so how do you address this merchant risk?

It's also to have basically a a contracting approach. I mean, the contracting batteries has also always been at the core of of new approach in in Australia. So with baseload and farming services that we just discussed, I mean, have other contracts historically that are also examples like those short term contracts we just discussed in Western Australia for grid capacity services.

The system integrity protection schemes on HPR. So that's different examples. But also another example of so that's very important to have that contracting approach. And another tool we have is also like the new generation of virtual virtual batteries that we are able to that basically are flexible options that are going to meet flexibly like the customer needs. And that's also an asset we are using to to back our our portfolio.

I mean, so, yeah, Nirin, I think, agreed some of the first maybe the first virtual tolls that we saw in the Australian market, maybe even globally.

Like, how does that actually work in practice? And kind of what does it mean for the asset?

In very simple terms, what is a virtual battery? Let's let's take it very simply. So it's essentially, it's a financial product. So it's your custom our customer pays a fixed fee.

And for that fixed fee, he has access to a virtual battery, which is replicating a physical battery but in a very much in very much simple way. So it has the main characteristic of a battery. So it has SOC. It has a megawatt capacity, a megawatt hour capacity, round trip efficiency, charge cycling constraints.

So that's a simplified battery. But it's virtual. And the customer can charge and discharge his virtual asset.

And the virtual dispatch is settled against the real price.

And in exchange of the fixed fees, customer is paying. So customer received the floating settlements. So, basically, the the the trading value the virtual trading the value of the virtual trading he he performed. So that's that's the structure of the of the product. The interesting bit is that, basically, it allows a customer to either like, can use that to trade itself, like trying to capture the volatility of the market or use it to edge its other actions in the market. So that's the discretion of the customer.

So that's the concept. And what we provide on top of that is we also developed in house a software application and an interface that the customer can use to monitor in live, its virtual battery, at all time and submit either automatically or manually through the interface. It's a dispatch charge or discharge orders.

So that's how it works. And then all that is is backed by a physical asset that we operate continuously in the market to to support the the structure product. The virtual battery is is a concept we brought to the market in twenty twenty two. That's when we started to market it. And I don't know if we were the absolute first to do that, but clearly, we are among it was among the first product in that new generation of derivative structural products around batteries.

Yeah. And so that's something we are we are very, very, very proud about.

So as of today, we have been able to contract virtual batteries with multiple customers across multiple states, multiple projects.

And, anyway, we yeah. We really think it it found its market fit. We are very happy as well to see some existing customers coming back with new interest for for for additional contracts of that type. So clearly, have multiple signals showing that we found a good market fit with that.

I guess, yeah, you've near end. So we need to physically deliver against those profiles in order to kind of back that financial transaction. And I guess one of the things that has been discussed is then also having the flexibility where I guess you could deviate from that. Like in practice, is that something you see happening frequently? Is that something you'd wanna do? I don't know. I guess it come comes into risk risk appetite.

Yeah. I mean, a few. I mean, obviously, we are constantly learning as well from from those product, but I think a few key messages already. When you start operating with film product or structured products like that, I think the first thing is, as we discussed, so you have your product, but at the end, you still need to operate your your battery in the physical in the physical market, in the in the spot market.

And that's true either for with the base of the battery. And what is key is the operational excellence. So because with those kind of products, like if you have a price pack in the market, if you just have a battery that if you miss it, it's a missed opportunity. It's bad, but it's not luck.

But it's it's just a missed opportunity. If you have a firm product on top, it can become a loss. And that's what you need to that's what you need to manage. And that comes, yeah, with operational excellence as as a requirement. So it means having a strong resilient twenty four seven capabilities, constant monitoring of your performances, of your operations, constant monitoring of your software solutions, behaviors, of your trading strategies, adjusting to the market conditions. So that requires to be constantly adapting to the market conditions and to to to to to just to be able to, yeah, to operate very efficiently your your asset.

The second thing is and and when you deal with derivatives, is essential is to have very clear risk management frameworks as well. Monitor your risk, measure it, and have mitigation plans, basically, been depending on the different scenarios that that can happen.

You sort of discussed, yeah, I guess, the way that you see the battery storage as a part of a wider portfolio. I'll be interested to kind of go back into that point because, I mean, it's quite common that we'd see discussions about batteries, I guess, working alongside solar, that kind relationship. But then you mentioned the projects which are actually working alongside wind to help kind of provide a firming solution.

Like, what are the key differences between those two applications?

Like, yeah, like, different is it from what you can get out the battery, I guess, firming a wind asset compared to solar?

Do you mean they are, like, firming in a portfolio a wind or solar or co locating with because very often we could Well see batteries being co located with solar.

Yeah. Well, I guess, first, I mean, do you do you actually see the need to, like, directly co locate, or can it just be part of a portfolio? Like, how important is the actual co locating itself?

All those question at the end, they they they they get back to same clear market driver that we observe in Australia, and that is fundamental and that's driving a lot of things. It's basically the curtailment of renewable generation, which is a core key element here in Australia. So, I mean, the in I think in the latest quarterly energy dynamics published by the by the IMO, it was, like, highlighted that December quarter was the the quarter with the highest level of curtailed renewable generation that we ever observed in in the names of clearly with, like, percentage that are that are crazy.

Like, if if you look at solar in a grid scale solar in South Australia, it's above fifty percent in this in the December quarter of the available generation that was not injected due due to And is that is that a good curtailment or economic curtailment, both?

It's it's always a mix of both. What we call grid curtailment is basically generations that you would have liked to inject because the prices were interesting, but you were you were not able because of grid construct. And economic curtailment is basically generation you didn't want to inject because it was not at a profitable price. So that's the two the two buckets, but it's it's impossible to to to to completely split the two aspects.

I mean, they are a bit interconnected. Because most of the time when there are grid constraints, it's also because you have a lot of solar generation, for example. And when you have a lot of solar generation, usually, you have an impact on prices. So it's it's a bit mixed aspect.

But clearly, a key component. And just saying, I mean, it's not impacting only wind and solar. I mean, batteries are not immune to grid curtailment. Yeah.

That's something we see. Yeah.

It's something that is very important. And what means all that is that, obviously, more than ever, location matters.

But those assessments are very complex because the grid is a very complex thing with a lot of projects, a lot of uncertainty as well around the transmission augmentation and everything around the pipeline of competition. So that's a very difficult assessment, but that's quite key to to look at that.

Location matters to understand your risk, but also to understand what type of contract structure you can you can apply on your asset. That's that's also very important to understand. But, yeah, I mean, indeed batteries are also like very efficient hedge against those curtailments. I mean, so if you take the angle of the colocation with solar. So here, I mean, basically, the battery is going to act as a physical hedge.

So you are on-site. You are going to have a bit of synergies because you will be able to put in command some equipment. So that's probably going to improve a little bit the picture on the cost side of your of your investment. And, yeah, basically, you will be able to charge energy that otherwise would have been spilled and to discharge that energy either when the grid constraints have lifted or when the prices are higher. So that's the first option. But that's not the only one because the economic curtailment, you you are still facing that that aspect.

And that's where I think the other approach of having a portfolio approach and integration where basically because you mix different technologies, because you mix generation sources that are either anti correlated or because the batteries are providing firming services that are very much complementary to your portfolio, then you are able to firm your supply, which is basically eventually decorating your revenues from the actual megawatt hour you are going to generate. And that's a very efficient edge against the risk of negative prices and increased economic curtailment. And that's very much an approach that we have been taking here in Australia, again, with our different base load contracts that we that we signed and started to deliver in South Australia.

Yeah. On the contracts that you're able to provide to these assets, I think there's been a couple announced basically supporting my mining operations in South Australia. Like, what are those contracts? And, yeah, I guess, what's the Volder Battery really is doing there?

Yeah. So the first one actually started on July first last year.

So that's a seventy megawatt base load contract that is delivered by two assets. So first, the Goyder South wind farm in in in South Australia combined with the with the Blaise battery as well in South Australia. So that's the first one. This one is is is running live already, and we recently announced as well the finalization of a second contract with our customer BHP for this time an amount of a volume of one hundred megawatt baseload supply. So then that this one will start in a few years. At the moment, we continue to work to progress projects that will support the contract towards the different stages of development to and bring them to the market in a in a in a few years. Awesome.

And is the idea then those contracts are delivering, like, a hundred percent renewable energy to, like, those operations?

Yeah. Exactly. So that's a hundred percent renewable supply contract.

All the contract volume is also combined with delivery of of LGCs to the benefits of of our customer.

Well, yeah, mean, I think that's kind of like, yeah, one of the more unique applications we've seen, like, today because you had I mentioned you were discussing the different contracts. And I think to date, that's the only operational firm PPA kind of contract we have, I think, in the NEM.

That nine, though, of anyway.

That's a good question.

At least it's it's a it's a clearly, it's the only one we have in our in our portfolio as of today.

I think going back, I mean, we recently saw actually just like last week, recording this in the beginning of February. Just last week, we saw results of the recent Altessa tender announced.

In that, you've received, yeah, tender for what is a very, very big long duration battery. I mean, what is the role you see in that kind of idealized business case, I guess, of these kind of government support schemes? So I guess there's the capacity investment scheme, but in this in this case, South Wales is El Tessa.

Clearly, recently, over the last year, we saw multiple forms of governmental underwritings to support the transition, support generation, but also support farming capacity and and and battery storage. So that's something that obviously is is supporting the industry and and the the supporting the amount of investment that is required to to to to be successful in this energy transition in Australia.

So indeed, as you noticed, we got awarded last week our Great Western Battery in the New South Wales LTSA tender. So that's that's so we are very, I mean, very proud that the quality of this project has convinced the New South Wales government to award us LTSA contract. And, I mean, in the very short term, I mean, we are continuing to work **** ** the development steps for that project to bring it forward and then go to the to the next step of of of the of the development. And, yes, I mean, looking forward to to the next step. Stay tuned.

Well well And I mean, I think, yeah, the key headlines are, I guess, focused on the duration of those assets.

So, like, what actually is that for the Great Western Battery and how then what's, like, yet different in the development pipeline of that?

I think the key role I mean, indeed, we are we are seeing there is a trend of longer and longer duration batteries connecting I mean, not connecting yet, but at least being awarded, entering construction. And that's the case in on both sides as well, again, of of Australia. That's something we are observing in in in on the on the East Coast and something also we are seeing in in in Western Australia with progressively the capacity market that is attracting that is requesting longer and longer durations. And then the battery adapts to that. So we build longer duration. I think the interesting part is that longer duration are required by the system to to to to to achieve that that that energy transition.

But the market as of today, I mean, the market itself is not yet sending the price signals that are necessary to justify those durations. So that's where really those underwriting are are playing a key role because that's the level of support that is required to give the investors the confidence needed to invest in those amount of in those durations, which, I mean, as at least in the market as it is today, does not naturally I mean, does not support by itself as a project.

Okay. And, yeah, and anything about those longer durations. I mean, I know, yeah, so in WA, there's a six hour battery. And then I guess, is up to maybe, like, ten hours. Like, how does that is it just a case of, yeah, just putting in more energy capacity, or kind of is there any practical, like, differences from for your, like, development team to think about?

I think in terms of practical terms, what it means for the team is to keep the flexibility. It's something that we observe we are observing on the project. Keeping that flexibility to adjust the duration of of the battery is is quite is quite important because, well, those opportunities like the LTASA, the change in the change the rule changes in in in the capacity market in in Western Australia. Sometimes you have very little bit of you don't have a lot of time to adjust and to be able to to to build something that is going to match the requirements, what is expected, either in the tender or either by the market.

And keeping that flexibility at the development level is clearly something that is that is very important today. With having that flexibility to quickly change the duration, that's clearly a key element to be able to as soon as we get a contract and award some certainty that we have the right design to be able immediately to to go to the next step and start basically the construction. So that's that's exactly, I think, what happened with our project in in Western Australia. So that's going to be the first six hour battery in our in our portfolio.

And because we had that flexibility around design, we were, like, able to be very reactive also after the CIS awards, CIS tenders that awarded a contract to Moucher to be able to have and also after we had the right level of understanding of what's going to be the duration requirement in the WEM because that's an information that got published by the IMO in the that was published by the IMO approximately at the same time. So with all that once we have all that information in our hands, we are able to quickly take your decisions and move to the next step for a project. And that's, yeah, being able to be reactive.

Awesome. I guess, yeah, the final thing I actually wanted to kind of touch on is you mentioned that kind of role of, like, forming, like, Hornsdale providing these sort of inertia, virtual inertia services, synthetic inertia. I don't know what the best term would be. Do you yet see, like, those kind of any sort of contracts or provision of those services having a kind of solid role in the business case today? Is that something you think will come in the future? I'm just interested to hear how you think know, what kind of role Batch is actually gonna play on that system strength Yeah. Side of things.

I think the way we see it at New End is that, basically, batteries so they used to demonstrate the hybrid services capabilities with a project. And then other projects, we are more like trading, more on a energy arbitrage, more merchant type of of business case. I think the way we where the things are moving forward is that, basically, we can't make a distinction anymore. I mean, what matters is that batteries are completely integrated assets that are capable to provide everything the system needs. So it's more like backbone assets, literally.

You you really need those assets to be able, on one side, to keep flexible operations to react to market signals, but at the same time as well to provide grid security services. The way the changes we see is that, I mean, security services, those type of services used to be either a demonstration or a side benefit.

The way we approach that is that now it must be at the core of the design of the project from the very beginning. That's something that all our batteries, all the services, all the batteries should be able to provide them. So for example, indeed, you mentioned the synthetic inertia and the grid farming in the ATOS technology that we started to demonstrate with the project some years ago. But that's something we are now rolling out on our portfolio and very lately with the West Down Downs batteries in Queensland that also have that capability. So the idea is really to see batteries as an integrated asset and all those grid security services, all the technologies behind it for this ability to deliver that must be taken as a primary input in the design of your solution, in the design of your project.

And is that exactly the same both in when you think about projects in NEM and Western Australia? Yes. The same approach?

Same approach. I mean, in Australia, I think the same approach.

We are pursuing the same goals.

If you go to Western Australia, I mean, obviously, batteries are obviously are already playing a key role there.

And it's clearly already a very central asset. I mean, a very good example, think, currently the reference technology in the capacity market in the in in in WA is six hour battery storage. So what it means is that currently, a battery is the most cost effective technology to provide the flexible capacity and the peak capacities that the system needs.

So that's clearly batteries are in the core of the system. As an example, batteries are already providing a vast majority of the essential services, so the ancillary services.

And we are also working to continue expanding the range of services that battery in WA. We note that at the moment, there is a the WA government is leading a review of the essential system services frameworks.

And as part of that, we advocate here at for for that for batteries to have a larger consideration for the ability for batteries to provide rate of frequency rate of change of frequency services. So which is kind of inertial like type of services. So that's something today is not open to batteries. And that's something that's a discussion we are trying to push.

Because I mean, the good thing in the the interesting thing in the in the in Western Australia is that the the regulation is quite dynamic. I mean, are introduced relatively frequently. And basically, regulation is is flexible. So obviously, at times, it can be little bit challenging, but it's also an opportunity because it means also that the systems regulation can can quickly adapt when there is good technologies that can be incorporated in the system.

Yeah. I mean, the the the benchmark, yeah, capacity reserve price change is actually really interesting. I mean, it was is it right? So, yeah, before last year, it was always based on, I guess, gas a gas generation asset. And so I guess, yeah, that switch reflects, yeah, the fact that batteries are now the most cost effective option of providing that service ahead of gas.

Yeah. Exactly. So that change happened, I don't remember again, yeah, maybe two years ago. It used to be an open cycle gas turbine, and then it moved to a four hour battery.

And for the next, it's a and it's a it's a six hour six hour battery.

Awesome. Well, we can kind of move towards wrapping up there. I mean, we've got two questions left. So firstly, is there anything you would like to plug?

Yeah. I think I'll I'll go back to my team maybe and more globally, like people. So over the last three years, we have built here at New England Australia, like, and grown a great team of of passionate, very skilled, talented people with different backgrounds. And I think that that's really important also because the energy transition is clearly a very complex challenge that we have to address. And the more we progress, the more complex this challenge is becoming because being successful in the transition is no longer just about constructing assets and bringing them to the system.

More and more challenges arise on the operation side. So how do you operate them? How do you optimize them? How do you integrate them into the system?

And that's that's really a highly complex environment, and and that's going to continue. And that the trend is going to continue. It's going to be more and more complex. So I think more broadly, I would like to say that I would really encourage young engineers, young data scientists, young software engineers to consider entering the to consider entering the energy industry because we will we will really need brains to to navigate successfully through that through that energy energy transition.

I mean, yeah, a hundred percent. That's something we would we would agree with and and support. I think, yeah, there's always gonna be a growing role for kind of talented people coming into the energy sector. And finally, I guess, yeah, what is your contrarian view, Jeremy?

Alright. Let's try this.

So we discussed previously, like, that the competition is becoming intense.

Market conditions become complex because with the addition of batteries. I think my contrarian view is that the risk of battery oversupply is real. I'm not saying that there will be too much battery for the system, but there is scenarios where there is an oversupply of battery in the market. So the market is not exactly the so the needs of the market is not are not exactly the needs of the system.

And and, yeah, I mean, the question is not really whether when it will happen because, I mean, we are in an industry that is facing a lot of uncertainties. I mean, we are working with fundamentals with a lot of uncertainty. So demand, penetration of EVs, penetration of data centers. There is a lot of things that are going to define if that's going to happen or not.

I think my view is that the risk is credible. There is credible scenarios where you would have an oversupply of battery in the market. Not forever, not permanently, but punctually and possibly repeatedly.

And then the key question, if you consider that that is a possible scenario or a procedure that you're worth being considered, the key question is, as a battery owner or as a battery operator, are you prepared for this? Do you have the right portfolio? Do you have the right structure to navigate through those cycles? And I think that's where our approach at NEON with an integrated approach, a diversified portfolio really matters and is really critical to because a battery within a portfolio will be able to navigate through those cycles. But if you have a battery that is on a standalone asset on a single kind of business model, it's it's it's possible that you that the battery will will struggle.

Yeah. I mean, I think we would definitely agree with, like, that chance of risk. I mean, it's something we just need to look at like ERCOT right now, and you can kinda see that wave of battery investment and how it's surpassed the market. But, yeah, clearly, like, uncertainties on the demand side are are enormous, which is makes it makes life challenging for you to do it. And, yeah, we'll we'll leave it there. So, yeah, thanks a lot, Jeremy. Thanks for joining us on the podcast.

Thanks again. It was a real pleasure.