BESS development in Australia's NEM with Elias Saba (CTO @ Eku Energy)

Hey, everyone, and welcome back to the Transmission Podcast. I'm Wendell. And in this episode, I'm joined by Elias Saba, chief technology officer at Accu Energy, a major player in the global battery energy storage scene. Accu Energy is active in the British, Italian, and Japanese markets.

But in this episode, we're focusing on their Australian operations and the wider challenges and opportunities for battery energy storage in the NEM. We chat about falling CapEx, duration choices, market returns, and the growing suite of contracting options available to batteries in Australia, plus what it's like running a global best business across very different markets. Elias brings some sharp insights from the frontline of development and deployment, and I really enjoyed this one. If you're enjoying the show, please hit like and subscribe.

It really helps to grow our reach.

Let's jump in.

Hi, Otis. Welcome to the Transmission Podcast.

Hey, Wendell. Glad to be here.

It's great to have you on. And, yeah, I think we're gonna get into a really interesting conversation. Just to start off, can you just give a quick introduction to yourself and, I guess, to Accu Energy as well?

Sure. I'm Elias Saba, the chief technology officer for Accu Energy. I lead a global team of experts across the commercialization of energy storage, energy markets, trading and operations of storage. Primary countries that we're in at the moment, Japan, Italy, the UK, and Australia.

We founded the business almost six years ago in as an incubated business within Macquarie. So as one of the founders of the business, we have been developing Ecu as a standalone storage business for a while, and we stood up the business in twenty twenty two as its own separate entity. And we've been operating as a separate global business since then.

Awesome. And I guess yeah. So across all those markets you discussed, what is the sort of scale of the portfolio that, I guess, you currently have in operation and, I guess, more in development as well?

Yeah. Maybe to begin with AQ Energy is a specialist energy storage developer, owner, and operator across all of these regions that we operate in. We have almost one point five gigawatt hours now of projects that are either under construction or already operational across the global portfolio.

And we've got north of twenty gigawatt hours now in our pipeline across various stages of development across those same regions as well. We're also looking at entering a few new markets this year, which will be exciting, but we'll share more of that as it comes along.

Awesome. Yeah. Excited to see that. And I guess yeah. So we're we're we're gonna mostly focus on the Australian market in this episode. So I guess yeah. Like, what does the, like, equity portfolio look like in Australia, I guess, in the national electricity market more specifically?

Yes. So we have a few operational assets already in Australia. We've got the Hazelwood battery alongside ENGIE, the Cranbourne project, which we're also working with Shell and is an offtaker. Shell is the offtaker to that project. We have a number of active developments across across the country as well, and I think it's been recently made public that we've been awarded an Altesa contract for the eight hour duration storage system we have with the Griffith battery, which is a hundred megawatt, eight hundred megawatt hour system. And we have quite a few developments that are quite close to becoming commercialized and reaching financial investment decisions across the market. I would say that we have our philosophy for how we commercialize in Australia is quite diversified.

So we have some projects that are largely uncontracted, where we opportunistically contract them for highest value contracting opportunities.

Others where we've already physically told the entire asset, similar to the Shell project that we've executed at Cranbourne.

And others like the ACT Big Battery, which we've also have started construction on, which is a revenue swap contract with the ACT government. So that's a two hundred fifty megawatt, five hundred megawatt hour system in the ACT.

Yeah. And I would love to dive into a bit on the, like, offtake space here soon because, yeah, I think coming into the market is really seems to stand alone from what we've seen in terms of being quite sophisticated space for all these different offtake structures for battery energy storage. But I guess zooming out to start with, how would you personally or, like, echo I guess, view the kind of battery space in Australia right now? Do you think things are going well?

Yeah. I do think it's going quite well. I think the need for energy storage in the national electricity market is quite clear. There's a number of indicators you can look at to to validate whether storage is required in the market or not.

The pace of the energy transition in Australia continues to to move at a pretty rapid at a pretty rapid rate. It's clear that the market price signals are indicating that further storage is required to firm up a generation through various parts of the day. So we have increasing levels of renewable penetration across the NEM. We know that the thermal fleet is exiting across the 2030s and twenty thirty five period, but we're also seeing increased, I would say, reliability issues across the thermal fleet, especially as it gets to work towards end of life.

Quite a few of these assets are coming towards end of design life. So really, storage does play a fundamental role at the moment in stabilizing and providing a critical service in the national electricity market. And what we are seeing is that it is quite a competitive market. I think it's it's not a secret anymore that the Australian national electricity market is quite a good market for storage.

It has strong fundamentals.

But the wholesale market is also quite quite a straightforward market to operate and trade your battery within. It also is a relatively simple market in its structure, so it makes contracting as well a little bit easier, and you can be a bit more creative and sophisticated with the type of contracts that you can layer on top.

Awesome. And I guess for your own portfolio yeah. So I guess, yeah, you see the value that's there in the market. You're quite happy with, yeah, continuing to advance these projects, and you have confidence that the market will continue to value storage.

Yeah. Definitely. And I think the part of it is the underlying value of the market and then the pricing rules that come through. But a large component of it is the quality of the contracting and offtake opportunities that are in market and the quality of the counterparts as well that are out there looking for offtakes from storage. A combination of those two gives us for the foreseeable future at the moment. We're quite optimistic and quite bullish for the construction, development, and operations of assets in the NIM.

Yeah. Why don't we just dive straight into those different contracting offtake structures? So, yeah, Ecu have a number, I guess, already in place. Would you be able to just talk through maybe a few of the different structures we see in the market and how it changes from your perspective, like, how you operate these systems or build them?

Yeah. And I think we can probably start with one of the earliest projects in the NEM. Well, the earliest large project in NEM was Hornsdale, and that was under a system security contract with the South Australian government. I think the Hornsdale Battery, Gunawarra, Lake Bonny, some of these early battery projects set some of the initial precedents for the types of contracts that could be made available to help commercialize storage.

And part of those were physical offtake contracts. Some were effectively system security contracts. And so that was really the genesis of some of the early thinking around the structures that could work in the NEM. As the markets evolved, there's been further appetite for physical offtakes and system security contracts of various kinds led by various initiatives, whether it's by the market operator, the state, or transmission and network providers.

So we really now have, I would say, the most diverse set of contract opportunities that we see across the markets that we operate in. Physical offtakes that were quite common previously are a little bit less common now. They are really well suited contracts for vertically integrated parties that have load risk to manage as well as a generation portfolio.

And so we've seen EA, Shell, and others, AGL strike physical offtakes.

The impact of physical offtakes on lease accounting is a topic that has popped up over the last few years.

That's brought forward the concept of virtual offtake structures.

And so the virtual offtake structure is a structure that decouples the physical operation of the asset from the actual financial benefit that the offtaker is trying to extract. That helps deal with some of the financial issues that the physical offtake creates. It is more constraining in some ways because it it really is a physical structure. There is no compulsory requirement to operate a battery in a certain way, but there is effectively a risk risk reward balance between the offtake provider and the and the offtaker in terms of the how that physical offtake works, the allocation of physical risk, and the allocation of market risk. So that's become a much more common product, and we're actively working through a few of those opportunities for some of our projects.

There's also revenue share and revenue swap contracts that have become a lot more common in market. That's very similar to the ACT contract that we have for the Canberra Big Battery.

That effectively aligns both parties. So it is it's a contract where the provider operates the asset in the wholesale market and all of the value that's derived is shared on some percentage basis that's agreed and split between the two parties.

The nice thing about that structure is it's a completely aligned structure, so both parties are incentivized to work together to make sure that the project is extracting as much value as possible, operating as well as it can be, and the risks are largely aligned.

I guess one place to start with is apart from these kind of government contracts that have been a bit bespoke, there hasn't been a sort of government long term source of value, which is what has created the environment for these different offset structures to arise from a from private providers. Is that would you say is that is that right?

I would say the private contracts and the bilateral contracts that have been struck are really on the basis of economics and a need from the counterparty in some way. So whether it is to manage load risk or it's a trading house that has positions that offtaking storage allows for a better portfolio of returns or an ability to manage risk.

The fundamental structure of the market, as I mentioned earlier in terms of the wholesale structure, allows for some of these structures to be layered on top more easily than other regions in the world. And the market is because just by its nature, is more volatile because the volatility is the price signal for investment in the market.

So on a fundamentals basis, there's been enough price signals and value in the market that bilateral and private counterparties have been able to close the commercial gap together. That applies for some projects. It doesn't necessarily apply for every project and every duration as well. So at the moment in the NEM, one, two, our systems are quite economic. And with the right contractual structure and right counterparty, you can make a project work on its own merit, especially with where pricing has moved to for storage at the moment. But for longer duration systems, some level of support is still required to commercialize these projects. As the market continues to evolve, there will be a I do foresee that over time, there will be projects that will stand up on their own merit towards the four hour duration and maybe even longer into the future as the price shape changes.

But at the moment, some level of support is still required to to stand those projects from a commercial perspective.

Yeah. It starts with this kind of concept to a physical toll, which is where you, as the owner, are basically handing over control of this asset to a third party who will trade it, extract the value out of it, but in return, they'll give you a fixed fee that, yeah, provides you basically very long revenue certainty from this asset. Do the other structures you mentioned, so virtual totals, like revenue swaps, how do they differ from what it grants you as the asset owner?

So as the asset owner in a virtual structure, you are the responsible party for trading the asset. So instead of handing over the keys and the operational responsibility of the asset, you hold that operational responsibility.

I think I guess we're using the term virtual offtake. Virtual offtakes can also take many forms.

So there is there's quite a few different forms already out in market for how the virtual offtake operates, how risks are allocated as well. But in general terms, the offtaker is taking a view of market value in some way, whether it's a time of day shape or it's a nomination structure where they would like to nominate dispatch periods throughout the day. And as the provider of the offtake, you are operating the asset, and you are also responsible for determining whether you want to follow the nominations or not. And the delta between that, whether you've made a better decision or a worse decision, is you are financially liable for closing that gap. And there's also some increased risk allocation back onto the offtake provider around physical asset risk. So typically, virtual offtakes are a little a bit more decoupled from the physical asset risk than in a physical offtake structure.

Yeah. It'd be good to just to understand a bit more, like, the kind of lengths of some of these contracts. I guess Tenno is a common term in industry. And also, yeah, when you're going through the development process, at what point do you start, like, engaging on these, like, off takes? Like, how advanced do you get through the development process for a project before you actually have to go to market and get one of these contracts?

It's a really good question. So I I think every developer owner operator probably takes a different approach. Within AQ, we we take what we call a revenue led approach to development. So what we are looking for is to make sure that we're siting projects in the right location in terms of value, but also that we're having early discussions with potential offtakers around the structures, the price points, and the terms that they're looking for our developments in certain locations.

And we typically like to front end as much as possible these discussions and really quite simultaneously increase the development spend and risk simultaneously with increasing certainty around the offtake structure and general agreement with the offtaker to get to a close. So there is always a level of development spend and risk that's required quite early on, and so that that's almost inevitable. But taking a revenue led approach allows you to take that risk with a level of certainty and a level of increased confidence around the value of the project that you're developing.

So I guess the alternative to all of this is you go to market with battery which has no long term revenue guarantee, I guess, what we call, like, a merchant strategy. Is that something that I could also look at? Is that also something you consider?

So our first project, which we've executed with ENGIE, is currently uncontracted as an asset. And they're effectively, the way that we look at our uncontracted assets are that is that they are assets that have an opportunity to contract depending on the value at the time. And across our portfolio, we like to manage our risk of uncontracted asset exposure relative to the contracted exposure. We don't necessarily need every project to look the same in terms of the mix of uncontracted to contracted revenue and risk. We look at it at quite we look at it at effectively a country level than at a at a holistic acute portfolio level. But we do like to increase, generally, the contracting of our assets and manage the risk adjusted return profile of our assets because that also brings forward and brings in infrastructure like returns and investors with lower cost of capital, which also allows us to to build and commercialize these projects at much more competitive rates and offtake contracts.

Within this, you mentioned some of that some of this kind of new long term support that's available from either state or federal governments here. So, yeah, there's a eight hour project which I could have, which is I've got an Altesa agreement. How do you see yeah. So the CIS and Altesa, how do you see these as developers? Are you, yeah, in favor of them? Do you think they're going well?

Yeah. I think the CIS and the Altester opportunities are valuable in market in that, as mentioned earlier, they do, I think, commercial help commercialize longer duration storage.

They provide a level of certainty and underwriting to longer duration where there is additional commercial uncertainty, and it generally will just help with the structuring of the commercial opportunity.

A lot of how these structures are actually written allows for further layering of contracts and bilateral contracts and creation of additional value on top of these projects. So I see them really as an enabler for commercialization, for longer duration storage, and for generally for projects that that that require a bit more creativity in the commercial structure to make them economic.

Yeah. And so I guess to dive in a bit maybe about the kind of eight hour project you have, is the yeah. When you're thinking about that, was the intention always to have that as an eight hour project? And do you see that the kind of technology is there at a good enough cost for you to commit to it?

Yeah. Griffith was purposefully developed as a eight hour project just by nature of that location. It's actually located in a region that has relatively high solar penetration and levels of potential solar congestion and curtailment. So a longer duration system actually makes a lot of sense in that location. And as we'd set up our development portfolio, we like to create a diverse level of projects for different durations in different locations. And we're not always certain exactly how we're going to commercialize them right away, but we're certain that the what we're developing in that location is valuable because of the local requirements.

And then we work through whether it's product, cost downs through OEMs, government processes that might help bridge some of the commercial the commerciality to close the project, or even changing needs and appetite from off takers can help commercialize these projects. And, yeah, that that was intentionally built for eight hours, and how we've commercialized it has just been a good confluence of different opportunities that we've been able to work through.

How much has the global kind of falls in battery costs kind of played into that? Because I guess if we were to have this conversation two years ago, maybe it'd be a very different picture. But yeah. Is that what is the story about the same globe be of these big CapEx tools for battery energy storage, like, coming through to the Australian market, and how is it changing what the projects you are looking at?

Yeah. They're definitely coming through on a global basis, and we do have the benefit of being able to see what pricing looks like across all of the regions that we operate. And we do see that largely there is a consistency in when pricing is dropping. It drops across all of the regions that we're operating in.

It doesn't always drop at exactly the same rate and to the same extent, and there are nuances to it because different countries have different import export tariffing structures and other types of dynamics. So it's not one for one. If you see a ten percent drop in the UK, it doesn't will not necessarily translate to a ten percent drop in Australia. But the general trend is consistent globally.

And the trend has been for the past year is quite strong price and cost reductions in storage. And it's not just a cost reduction because of lithium price reduction. There's general improvements in form factor of storage, in the product structure, efficiencies in hardware, the cell design, the chemistry, improvements in in various aspects that really all come together to to provide those cost savings.

See, yeah, seems quite incredible from the kind of outside looking in just how quickly some of these costs come down. But then when you dig into it, it starts to make sense because, yeah, you have all these different factors which are just improving pretty consistently now. And, yeah, you mentioned those different kind of technologies, I guess, chemistries. Is that something you're looking at all? Or for now, are you pretty set on just, like, lithium ion systems?

Yeah. Lithium ion has been consistently just the best performer in terms of both the characteristics of what we need out of an energy storage system in each of the markets that we're operating, the number of cycles, energy retention, the characteristics of round trip efficiencies.

When you look at lithium ion as a package, it still outperforms most alternatives in the durations that we're looking at. And we're typically looking at between two to four hours in every region that we're currently operating in. We are starting to look more towards eight hours in some duration in some regions. For example, Italy is running a Maxi auction, which is really incentivizing between four to eight hours a duration of storage.

It's actually quite interesting. Our work in Italy has actually helped us with pricing and understanding of product structure because they're quite focused on longer duration, has helped us in our thinking and structures for our projects in Australia. And it's interesting to see that where some regions are pushing harder on different durations of storage, the time that's invested with counterparties and within the business, we can use those learnings and take them to other regions where there isn't as much of a focus on those durations and that that configuration and setup. And it does help us to bring forward more cost effective solutions.

Awesome. And that's a good kind of segue to maybe contrasting a bit of what you're seeing in the Australian market with the other markets that you're praying in. I mean, if we look at the Australian market, is there anything which makes it either easier or harder to deploy new battery energy storage projects than some of these other markets?

Maybe we'll start with what's easier. I think the wholesale electricity market in Australia is easier to actually wrap your head around, though it is it's a five minute market and products trade quite rapidly, which requires a level of algorithmic trading to be able to access the full value stack from an energy storage system. The actual products, the majority of them actually are traded and settled around the same time horizons, much more easy to understand. And it's a relatively simplified structure. And so that and it's a deep and liquid market. So that helps with the commercialization view of storage because it creates a relatively a lower barrier to entry in terms of the market and trading requirement to be able to monetize storage in Australia.

We've also got quite robust and clear processes of how a battery now integrates into the market operator, how it trades, because we've had energy storage systems now since twenty seventeen trading in the market. And there are there's actually quite a good depth of EPC providers and subcontractors that have executed on these projects. And so there's a really deep pool of talent in Australia to be able to commercialize storage and a strong energy market that actually allows the trading and and understanding of the system.

What I think is typically more difficult in Australia is, and this is no secret, our grid process is one of the most stringent in the world, and I think in that's a good thing because we are ensuring that what connects to our grid passes a high bar in terms of its impact understanding.

But what it also does is it actually reduces the pace of new technology coming to market, especially new inverter tech in technology. From a developer perspective, for us to be able to take risk on new inverter technology, we really do need to see it have gone through the process, the GPS process with AMO, because we don't necessarily want to be the first to take the risk on on a new technology that hasn't had the sort of rigor and diligence of going through the process previously.

The issue there is if an issue was to occur or if additional work is required, it can actually extend the development and connection process timeline quite a bit.

That's and that's something we've seen right with some projects maybe deploying new to newer technologies. They have been stuck not being able to get to that final stage of, yeah, you ready to trade the battery in.

It can become a real hurdle. And it's not to say that it can't be done. It just is a it's just a significant risk to take on. And so that has been a feature of Australia. You'll notice that the pool of OEM battery providers in market has actually though we've had more sophisticated contracting and market opportunities, the pool of actual competitive OEM providers hasn't been that large. It started to increase more recently, and I think a lot of competitors are investing a lot of time actually developing grid teams to front end some of this process and to work through this risk, understanding that's critical to be able to enter the Australian market. But if you if we look around for to the UK, for example, there is a much larger variety of technologies connected in the UK, and part of it is because of the difference in the grid connection process.

Awesome. And, yeah, I guess, is there anything in these other markets which, I don't know, you would wanna bring to Australia or that you would maybe pick out as something that kinda stands out as something positive for battery energy storage?

That's a great question. I think it's hard to translate specifics of different markets directly onto Australia. We we fundamentally have quite a different market structure.

And I think our grid process, though it's quite rigorous, it actually works in that it's quite fair in the way it assesses different parties connecting. And I think you can still connect in quite a timely manner if you have all of your ducks in a row. I guess the one aspect in the NEM that's currently missing is that the current market does a great job of providing market price signals for investment for today and into the near term horizon.

But some level of additional certainty around the long term the long term value and horizon of storage is required, I think, as well as increasing increasingly unlocking the full value of storage. So network service contracts, I think some of some other regions have started to develop a bit more rapidly around the opportunity for contracting network services.

I think there's a lot of work going on in Australia to get to the point where storage can access these types of contracts, but it's still not quite there yet. There's still a lot of value that storage can provide that's not quite yet unlocked in those areas. Yeah.

So when we look at some of the individual projects that have come online in the net, there are increasingly systems coming online with, say, their grid forming capabilities or, yeah, ability to provide, yeah, other sorts of inertia response. But, yeah, it's like kind of tends to be a bit ad hoc today and not really it's not really, like, market driven. Is that right?

Yeah. It's driven there there is a need to connect grid forming now to the grid. There are assessment criterias.

But what there isn't clarity on is there value to be paid for that service. How do you provide the service in a clear manner, especially for energy storage inverter based technology. So it's the definitions of what the services are, how they can be provided, and how they're paid for. There's still more work.

I think what the good front ending that has happened is that most of the storage connecting now does have grid forming capability. So all of that latent capability already exists. It's just a matter of unlocking it in an efficient way and in a way that energy storage providers can understand how it interfaces with the market opportunity with the contracts that have now been struck and laid on top. So there's a level of sophistication for everyone to work through to to unlock that full value.

Okay. And, yeah, so some of these questions like, is this kind of thing that's being looked at through yeah. It was like the Nelson reform. Is this yeah. Is that kind of trying to find an answer to some of these questions?

Yeah. Exactly. Exactly. And and I think exactly, firms like the Nelson Reform are doing a great job of actually taking in a lot of industry feedback. The CEC has done the same, has been great at taking in a lot of industry feedback into some of these various requirements and pushing for reforms and and processes that help create a bit more clarity in terms of what the end state needs to look like and how we actually unlock the full value and increase investment certainty as well. I think that's the other element here is that the more clarity that we can create with all of these different products, the more investment certainty there is, the more competitive the more competitively we can build and contract a lot of these projects.

Before I just jump on by, like, final two questions, I guess, one question for you is, we made a note that I see there's a huge pipeline for battery energy storage projects in Australia. Like, beyond the next couple of years, like, how confident are you that, you know, what's needed will actually get built?

Yeah. There there is quite a large pipeline. I think I'm quite confident that the pipeline and the projections for Australia are pretty accurate. The fundamental reason for that is a lot of the pipeline is being commercialized via some level of contracting opportunity, which means the amount of risk each individual party is taking on from an uncontracted basis is lower. There are always going to be projects that might be developed, and every we're a developer owner operator, so our intention is always to hold the assets for the long term and trade them and operate them. Other developers in market that are in this queue of development might be looking to sell those projects to other counterparties.

But I think the fundamental demand for storage is significant. And with the continued exit of some of the coal plants into the future, the the reliability gap and the just the fundamental need for to continue to shift large amounts of energy from solar and wind will require that a lot of these projects actually get built.

That moves us on to my final two questions, which is the questions you always ask. So firstly, Liz, do you have anything you would like to plug?

Just to keep an eye out for some more AQ announcements over the next year. The team is doing some great work across across our global portfolio.

We're looking forward to making a few more announcements in Australia, Japan, and the UK in the near future. And, generally, we're still quite excited about the opportunity that we're pursuing. The energy transition continues to accelerate globally.

The need for storage becomes clearer and clearer every year. I think not just to us, obviously, it's clear to us because we're developing storage, but on a global basis, governments are getting better at structuring the need for different technologies in their roadmaps, the structure for different initiatives, products, and programs. So, yeah, look just looking forward to continuing to deliver on on the ambitions of the business and accelerating the energy transition.

Awesome. Yeah. Yeah. It'd be fascinating actually to hear probably some of, yeah, what you're seeing in other markets as those projects develop. Like, we focused on Australia here, but, yeah, seeing maybe, like, what what's happening in the Japanese space would be super interesting for us to talk about. And then my final question is what is your contrarian view?

The contrarian view. I'm not sure this might be pretty contrary. I'm not sure how contrarian it is, but I do believe that we do need to continually test the the energy solutions that we're deploying in market and the potential alternatives.

I think the reality is that the energy transition requires us to continually evolve our thinking just by nature of that no two years are the same in the transition.

Technology is evolving at a rapid pace across across the board, across all technologies, which means that we do need to, on a merit basis, continually assess the combination and the mixture of different technologies that that we're deploying at any given time. And I think that debate is healthy. I think it's healthy to stress test what what we're doing, how we're doing it, and what the potential alternatives are.

Awesome. I think that's a great way to to wrap things up. So, Ellis, thanks a lot again for coming on the podcast. And, yeah. We hope you all tune in again sometime soon.

Awesome. Thanks, Wendell. Enjoyed it. Thank you.