26 - Views from a venture capital investor with Lloyd Butterworth (Investment Manager @ Fred Olsen)

[MUSIC PLAYING]

Hello, Lloyd.

Hello.

Welcome to Modo. Welcome to the podcast. It's very good to have you on, and thanks for coming all the way down to Birmingham from somewhere up north, I think.

Yes, great to be here. Great to be here. Yeah, I've come down from Yorkshire today.

Very nice.

Yeah.

So we're obviously delighted to have Lloyd on to talk about investing, so venture investing in this space, what's happening in clean tech, what's happening in energy, and also some bigger picture stuff around wind and some other things. And, Lloyd, we already know each other pretty well. So the disclosure here is Lloyd is on the Modo board. So Lloyd works for Fred Olsen--

we'll talk about that in a second--

who invested in Modo earlier this year.

So we already know each other pretty well, but now I get to ask you all the difficult questions. So yeah, thanks for coming on. And do you want to maybe give a bit about your background, what you did until here, that kind of thing?

Sure, yeah. So my background is that I started out at Deloitte. I was there for several years. I chartered as an accountant, did a fairly classic route on a grad scheme.

I then went into corporate finance. And I worked in unloved company divestitures, which is FTSE 100 businesses selling divisions, either to trade--

Is that how they describe it, unloved?

LLOYD BUTTENWORTH: That's how I would describe it. That was how I would describe it.

That's not a technical term.

I don't think the industry would describe it that way. So generally that was what it was. And then, thereafter, my true passion was to get involved in clean tech and renewable energy. So I joined a fund in Switzerland, and we did lots of different things from anaerobic digestion to onshore wind, a bit of residential solar, and also fiber broadband as well.

OK. And now since you joined Fred Olsen a couple of years ago right?

LLOYD BUTTENWORTH: Yeah, 2020.

And what does Fred Olsen do, and what do you do there?

Yeah, sure. So Fred Olsen, Bonheur. There's two names there. I can explain a bit about that. But it's really a conglomerate. I mean, there's lots of different business divisions, and they are doing different things.

However, most of the business is aligned in some way to the wind industry.

So Bonheur is the listed vehicle, which is listed on the Oslo Stock Exchange. It's been listed for a very long time since the beginning of the 20th century. And it's part owned in free flow and part owned by the Olsen family, which is where the Fred Olsen name comes from.

And so anybody can go and buy shares in Bonheur.

LLOYD BUTTENWORTH: Correct.

But there's also a chunk of shares that are exclusively for the Olsen family.

LLOYD BUTTENWORTH: Correct. That's right. And within the business there's some broad divisions, but I mean, in sort of simplest terms, one of them is the generating business, the renewable energy business.

That's mostly onshore wind, but there's a significant pipeline of offshore wind as well. There's nearly a gigawatt of onshore, and then several gigawatts of offshore and onshore wind in the pipeline.

And that is spread between Scotland, Norway, Sweden, and then the North Sea, the Irish Sea, et cetera. And global wind service, which is an installation technicians' business in and around Scandinavia.

And then the other business, which is worth mentioning, is wind carry, which is jackup vessels. So these are the vessels which install offshore wind turbines.

QUENTIN SCRIMSHIRE: So this is ships on legs, right?

Correct.

QUENTIN SCRIMSHIRE: Ships on legs.

That's exactly it. So they say long. They put four legs down. They bring themselves out of the water. That gives the boat the stability to then do these precise movements, crane-based movements, to actually install the pile and then the cell and the blades on top. So it's an amazing, amazing thing. And that business has actually installed 20% of all of the wind turbines outside China to date.

Wow. Yeah, and so how many vessels, boats do they--

I know boat's the wrong word. Ships, vessels. Whatever.

LLOYD BUTTENWORTH: Vessels is fine.

Vessel's fine. How many do they have?

So they've got three vessels, and they've been through an upgrade program. So they are now upgraded with the largest cranes such that they are able to deliver the biggest turbines out there.

QUENTIN SCRIMSHIRE: So it was 10 megawatt plus?

Well, 10 megawatt was the biggest turbine, but now both GE and Siemens are producing turbines that are 15 megawatt, and they're looking for bigger turbines. So they're aiming to get to even bigger than that by the end of this decade.

QUENTIN SCRIMSHIRE: OK, cool. I guess we're talking about jackup vessels now, but they're pretty crazy. So you can only do jackup vessel stuff in fairly shallow seas, right? So you're looking at sort of continental shelf style installations.

Correct.

Yeah, so there is that. And we also have an innovations business as well, which is Fred Olsen 1848, and they are developing floating wind technology as well. So we're addressing that part of the market. But certainly for the jackup vessels, and the offshore wind market as it is now, you are looking at shallower waters, so sub 50 meters, something like that.

QUENTIN SCRIMSHIRE: But there's plenty of it around.

Yeah.

And what about--

so what's the history of Fred Olsen? Who is, was Fred Olsen? And what does that mean for the company and also for the push for renewables?

Sure. So the business has been around since 1848.

It was set up by the Olsen brothers in Norway.

It's now in I think the sixth generation, and the business has been through lots of different life cycles. So initially it was sailboats moving ice to the UK.

And that's transitioned through shipping, through bulk, and various other products, fruit, airlines, offshore drilling. So one of the first businesses to drill offshore off the Norwegian shelf, and thereafter pivoted into renewable energy.

So I mean, the business consented to the first wind farm in the UK back in the '90s, and then has continued that transition to the point where we've divested everything that was associated with drilling, exploration oil and gas earlier in the 2010 decade. So that the transition is now complete. And as I said, those business verticals that you see now are pointing fully towards the energy transition.

And so what do you do at the company?

So amongst my team, I'm here in the UK. The rest of the team is over in Norway. We are fulfilling a corporate venture capital and also a corporate development role.

Most of the things that we look at are fitting in with the energy transition. So we're looking for the gaps that are left by being a pure play renewables generator on the renewables side and also a consultant aligned to the industry.

So one of the things that we spend most of our time talking about, of course, is storage, but also when we think about the industry itself, the supply chain of that. Now, that might not be just the manufacturer of particular components, but when I talk about supply chain, I mean things like consulting services, data, software, et cetera. All these things that need to come together and mesh to make it work. That's what we're looking at.

The corporate development side of things is more supporting the other business verticals. So that might be helping them with capital projects. It might be helping them with business cases, whether it be adding two forms of generation together, adding storage to an existing site, and things like that.

And you guys have had some pretty big success in wind recently. Do you want to talk about that?

Yeah, sure. So I think the biggest project that we have at the moment, stand alone, is the Codling Bank project in the Irish sea.

That's a 1 and 1/2 gigawatt project, which is in a joint venture. And that at the moment is--

QUENTIN SCRIMSHIRE: Who's the other party?

It is EDF.

And that project is relatively progressed. There is the Irish RS bidding going on at the moment I think this year.

But that's going to be huge if that goes ahead, which we hope it will. The other one, which was in the headlines earlier this year was the Scotwind leasing round, which we entered into a JV with Vattenfall. And that's an 800 megawatt floating wind project.

So we've touched on floating wind. There's a lot that needs to happen to get a floating wind project up running, connected, and operational by the end of the decade, but we're confident that that's going to happen. And certainly these areas of high wind resource are not conducive to piling the seabed. So this technology solution, which is now being brought online, we are very confident and also bullish that that is going to be realized.

So all systems go to build 800 megawatts of floating offshore wind. And I think--

we had Kerry came on recently to talk about floating wind, but I think the biggest we've got in the UK is less than 100 megawatts at the moment, right? So a lot of work to do there. How far offshore is it?

It's a long way off Aberdeenshire. I mean, it's a long way, but I think probably 100 miles offshore.

QUENTIN SCRIMSHIRE: Wow, OK. And so I want to talk a little bit--

we talked a little about corporate development. So I guess that's you and your team supporting the rest of the Fred Olsen business to identify opportunities. Today, I want to pick your brains on the venture world.

You and your team make venture investments, which is investing in startups like Modo but also in other stuff. So let's start with what you're looking for.

So when we think about different cases, we're looking for an identifiable niche. That's a fairly common requirement. But it's looking for a technology or a business which properly addresses the problem. There's plenty of businesses that create a strawman problem, and then their technology miraculously addresses that--

but real problems that people are faced with, whether that's overcoming a technological hurdle, whether it's making an efficiency gain, whether it's decarbonizing or electrifying something.

So that's one part of it. The other thing we're looking for is some demonstration of commercial.

I think that that's because we're not trying to finance R&D. So we would hope that it's through an R&D cycle and has managed to demonstrate some degree of commercial success in the market.

And then the other thing is really that meaningful impact. So does it does it fit with the business's ethics as a whole? Does it fit with the energy transition? Does it make a meaningful impact? Is it something that we can be proud to stand up and say, this is making a difference?

OK, and what about--

so you guys made quite a few investments. Do you want to talk through some of the companies? I know you're on a few boards. What do those companies do, what's the opportunity, and why do Fred Olsen invest?

Sure. So one of the ones we invested in last year based in Winnersh, which is near Reading, is tepeo.

Tepeo is a zero emissions boiler. So that's what they've created.

Do they call it ZEB?

LLOYD BUTTENWORTH: ZEB. That's the acronym. Yeah, but if I said the ZEB.

QUENTIN SCRIMSHIRE: No, I've seen I've seen the ZEB around places. I've seen the ZEB before.

OK, so they've got zero emissions boiler. And how big is the company and what's the opportunity?

So the company they are mid-thirties people now from memory. And their opportunity is massive that is decarbonizing heat. So he is a huge issue in the UK we heat most of our homes with gas, and that's actually the same in Western Europe. Not in northern Europe.

Our Norwegian neighbors Swedish, Finnish neighbors. They found the heat pump. They backed it. And they've got it in all the homes, but for some reason the uptake of heat pumps in the rest of Western Europe hasn't been great.

I think it's bonkers.

Do you have to explain like, OK, we've got this business because in the UK we burn gas for heat. And they say, what? You guys still do that.

There is an education piece when I first presented renewable heat as a sort of an idea.

There was a bit of this flabbergasted reaction. Why is this an issue? One of the consumer concerns in the UK by heat pumps is they don't work in cold temperatures. But none of these people have obviously spent a January in Norway because if you're hitting your house in January in Norway with a heat pump, you can do it in the UK. Frankly, there's no issues there.

So is it mostly heat pump in Norway?

LLOYD BUTTENWORTH: Yes. That's right. So they've got the highest uptake in Europe. We have the lowest uptake here.

So you know and that's for lots of different reasons.

I would say one of them is a scrambled subsidy regimen. The other one is customer inertia, and sort of it's not a dynamic industry, the heat industry. So people only think about this when they have an issue or they need to make a change.

But what tepeo is doing, which is really interesting is, firstly, they're electrifying heat. So is the heat pump, but what heat pump doesn't do and our housing stock, which is very leaky. It leaks a lot of heat and hasn't been properly insulated. Is it turns heat into a flexible load, and that's the interesting bit. Because with a heat pump can retrofit a heat pump to most properties, but at great cost, and it will be running all the time in the winter months because of the building fabric. And what tepeo is doing is saying, here's the 40 kilowatt hours of thermal storage in a thermal core within your house, and you can charge it when you like, and you can discharge it through the day, so that you get a whole day's worth of heat.

It's be like old storage heat.

LLOYD BUTTENWORTH: Sorry?

It's be like old storage heaters.

LLOYD BUTTENWORTH: Correct. But just way better insulated, much higher thermal capacity, and with all the smart technology to make use of your AGL tariffs, so that you're charging optimum times and discharging when it's expensive. And that's really the crux of this is it's turning that asset into a flexible load, rather than saying electrify everything, but everyone's using heat at the same time because people use heat at the same time because they're cold at the same time.

So let's talk about each company in detail because you and I have never really done this so this is. So tepeo, what does it cost to get one of these boilers? It's for domestic right, or is it also--

LLOYD BUTTENWORTH: It's for domestic. Yeah so that boiler will is effectively sized for the median house.

So it's not going to do the mansion.

And similarly in a flat it might be a bit too big, but it's for the median house. It's a mass market product. And cost wise, I mean it's somewhere in the region of 6 and 1/2 to 7,000 pounds.

So not far off a normal boiler. I say normal boiler. You know what I mean. I mean Worcester boiler or--

LLOYD BUTTENWORTH: Correct, so it's a bit more than a gas boiler. It's less than a retrofitted heat pump for sure. I mean, I just had a heat pump fitted. I got the subsidy, but mine still costs 13 grand in a terraced house.

So that gives you an idea of the scale of the marker.

After the subsidy.

LLOYD BUTTENWORTH: Well, I was in the renewable heat incentive subsidy, which is a seven year payback over the life of the running of the thing. So I will get most of that back, but having the money upfront to be able to do that is what put a huge amount of people off heat pumps because it is a significant capital investment. So they sit somewhere in between.

Oh, is that index linked?

Yes it is. Yes it is. And that's the reason why that's now been shut down. So that's been replaced by something called the boiler upgrade scheme, which is a 5,000 upfront capital subsidy. But even still, if you've still got to find another seven or eight grand it's a lot of money, especially when the reason you're going to change is perhaps because you're getting hammered with energy bills.

And we've got the whole cost of living crisis. So someone finding a 10 grand down the back of the sofa, it's fairly nice. All right, so that's tepeo. Are they just mainly UK based? I guess, the market's big enough in the UK.

The market is plenty big enough here. I mean, they are they will be addressing Europe as well. But at the moment, it's about really demonstrating the scale in the UK. And they've got the manufacturing the device in Winnersh Triangle. And there'll be they're going through a growth phase at the moment.

There's a lot of really good businesses in Winnersh. Winnersh keeps on coming up.

Exactly. Yeah, I mean it's not--

you can't just think of "The Office" and Ricky Gervais. It's moved on a lot since the early 2000s.

Yeah. What about the other ones. So we've done tepeo, which other companies are you involved with?

LLOYD BUTTENWORTH: So we invest in Measurable Energy last year, which is a smart--

Measurable energy.

LLOYD BUTTENWORTH: Yeah measurable energy, so a measurable.energy as URL, and they're a smart plug socket.

And a software platform that sits behind that. And imagine a plug socket as it is, but behind it just there, yeah one of those. But behind it is a PCB, and that is measuring power. It's also doing machine learning, and it's also doing control of the socket. So when you plug that lamp in the socket is able to know from the power signal that lamp that it is a lamp, and therefore it's a discretionary device, a discretionary load. It can be turned off. So you walk out of here at night, and you don't turn it off, the socket will the office is finished and turn it off.

Because there's no power converter, like you have on a laptop or something like that or a TV.

LLOYD BUTTENWORTH: Correct.

It's not digital system. It's just--

It's all. Yeah. Exactly. It's all analog. So most of the things that we plug-in sockets aren't smart.

So there are some smart devices out there, but they're also dumb if you don't connect them to the system when you bought them right? So this is taking the human out of it, and that's the first thing.

The other thing is to have a light on the front, which indicates different metrics that can indicate the carbon intensity grid at the time. So you can then discretionary--

you can make a discretion decision about when to take power.

Oh, so if I'm about to plug-in my phone to charge here, I look at the front plate and it says red, I assume.

LLOYD BUTTENWORTH: Red.

Yeah. It goes red, and I go, oh, that's not very good for the environment.

LLOYD BUTTERWORTH: It's pretty coaly, pretty gassy.

Yeah, yeah. That's cool.

LLOYD BUTTERWORTH: And then--

exactly, and then you can do it later. Or you can actually have the app do that for you. So you can leave it plugged in. And then, it takes--

it charges or puts the power in when it's best to do so. But it also can do that for price.

So if you think about a time view tariff, it's going green and red throughout the day because you can actually see, oh it's cheap now, it's expensive. So I am or I'm not going to do that. I'm going to leave my 2,000 watt vacuum clean until 10:00 tonight. Annoy the neighbors, but save some money.

LLOYD BUTTERWORTH: So that type of thing. And it's envisaged--

it is a B2B product, so it's for commercial buildings more than it is for domestic properties. I've used it in my own house, and I've used it as an extension leaf on my laptop. I can see how much power I've used in relation to my work.

So I can make a tax deduction off that if I liked, which is a nice little use case in itself. But it's really for commercial offices. And what they can get is about 20%--

15% to 20% overall power reduction for the building, which is incredibly meaningful.

That's very cool.

Yeah.

I am surprised how slow smart plugs have taken--

smart plugs. I'm talking

about-- I know we're talking about sockets here. But smart plugs, and stuff like that has been to really grab a hold. And I can't work out what it is. Because I don't think it's cost.

I don't think it's technology. What is it?

Because we had Hive, and we had the Amazon stuff. And the Google--

it just hasn't really happened.

I've got all of my--

I'm kind of into home automation. There's a lot of weird guys like me are into it. And I really, really like it. But I just can't believe how it just hasn't taken off.

I think you're absolutely right. 10 years ago, we were talking about Industry 4.0. We were talking about internet of things taking over the world. It was going to be the future. It hasn't really got there.

I think the reasons are--

there's a few. One is concerns over cyber security, which is always the big one.

The way that Measurable have made a difference is that each of their sockets is air-gapped from the system. So you can't get into one and then shut everything down.

QUENTIN SCRIMSHIRE: Yeah.

You can only get into one if you really manage to break in over Wi-Fi.

And I think the other thing is that the benefits.

A lot of the benefits of these things are gimmicky or tangential. Right? I mean, how--

QUENTIN SCRIMSHIRE: I love the gimmicky ones.

Well, this is it, but--

New Year's Eve at midnight when all your lights go crazy. That's what I live for.

LLOYD BUTTERWORTH: Well, and that's fine.

Obviously, I'm--

what I mean was there's no way I was at home. I was at Rave.

[LAUGHTER]

LLOYD BUTTERWORTH: Exactly. No, it was just you on your own.

Just me and [INAUDIBLE],, I guess.

LLOYD BUTTERWORTH: In the living room.

LLOYD BUTTENWORTH: Yeah, exactly.

So that's part of it is the tangential benefits. And we were waiting for something which has got a meaningful benefit.

Changing a plug socket is not an everyday decision. It's not something we think about. It's just there. And it works when it works, it doesn't work when it doesn't.

So you have to have something meaningful. You have to say, can I really save carbon? And are the energy savings big enough? And are the cost savings big enough to justify me getting a screwdriver out, risking electrocuting myself, and changing the socket or putting that extension in.

QUENTIN SCRIMSHIRE: How do you make it sexy? Yeah. I don't know.

Yeah.

I guess the carbon thing is sexy to--

I would think carbon's cool, reducing carbon. But maybe most people don't care.

LLOYD BUTTERWORTH: Yeah.

And the other thing is, so sockets it really matters what they look like.

LLOYD BUTTERWORTH: Yes.

I guess for B2B it's not so bad. But for consumers, if it doesn't look nice, you're not going to put it in your house.

LLOYD BUTTERWORTH: Yeah, well, they look better than that one, I'll say that.

[LAUGHTER]

They've got--

QUENTIN SCRIMSHIRE: [INAUDIBLE]

I mean, yeah, exactly. And that was it.

It wasn't your decision.

Wasn't your decision. But they have a strip light. And then, the light sort of cap--

it casts down on the socket. So it's like the whole thing is illuminated, but it really isn't.

QUENTIN SCRIMSHIRE: Very nice.

And that reduces the standby wattage, of course. Because you can't have a smart socket in there that's actually a vampire device.

Yeah.

Because that's what it was there to do in the first place to save the power.

So that company's called Measurable Energy, or Measurable.Energy.

LLOYD BUTTERWORTH: Yeah.

And what kind of size company is that?

So they are about 15 people. They are in Reading as well. So they're in the M4--

--corridor. Yeah.

And yeah, and they've got about, well, they've got a big basket now of commercial customers. They've got channel partners who are then distributing the devices onto their tenants in buildings, so real estate companies.

Do you have to pay a subscription?

LLOYD BUTTERWORTH: Yes.

You have to?

LLOYD BUTTERWORTH: Yeah, you do.

So there's cap costs and all of that.

LLOYD BUTTERWORTH: Yeah.

The control--

then there's an overhead to that, right?

LLOYD BUTTERWORTH: Exactly. So there's the capital cost of the device, which is not big. It's cheap for a smart socket. And then, there's an ongoing subscription

of-- it's a fairly nominal sum. And that's all priced around being less than the cost savings from the device itself, of course.

So the idea is that the big benefit is the cost saving, a chunk of that goes to subscription, and then everyone shares in the impact of the device being installed.

I can't believe how long we've just spent talking about plug sockets--

LLOYD BUTTERWORTH: I agree.

--if I'm absolutely honest.

LLOYD BUTTERWORTH: I think this every day.

[LAUGHS]

What about the other guys? So we've done Measurable Energy, tepeo. What other investments has Fred Olsen made that are interesting or that you are on the board of?

So on the board of--

we set up a logistics business as well, which is fairly fledgling out of Felixstowe doing green logistics, so to help with scope for emissions. But that's fairly early stages. And then, on the--

so my colleagues have invested in a business called New Power Partners, which is an offshore wind consultancy out of Denmark.

We also invested in a battery technology company in Norway called Cenate, which is silicone anode coating. It was a mouthful. But it's to increase the energy density of lithium ion battery.

Of the cell?

LLOYD BUTTERWORTH: Of the cell. Correct. Yeah. So that's another one that we're in as well.

Cenate spelt not S?

LLOYD BUTTERWORTH: C-E-N-A-T-E.

Yeah.

LLOYD BUTTERWORTH: Cool.

So all over the place. And what about--

well, the trends in a lot of what you do is venture capitalist stuff. So what are the key trends in venture capital, what--

for to companies and startups in the energy space need to consider? What's happening out there at the moment?

I guess the first thing to talk about is, there's a bit of a bloodbath in America in valuations in the stock market in general, but also in particularly later stage startups. So startups that have been around for a long time that are raising shed loads of cash are finding it more difficult, less so for earlier stage. Is that right?

LLOYD BUTTERWORTH: Yeah. I mean, that's absolutely spot on. 20--

I'll ask another quick.

No, I'm only joking. I was just answering my own questions here.

LLOYD BUTTERWORTH: [LAUGHS]

So 2020 and 2021 really defined as being this very hot market, lots of heady valuations. And a lot of it was in the US. I mean, Europe wasn't entirely insulated, but generally was from a lot of the valuation excesses.

And there were some mantras which were going around.

You heard a lot, it was this kind of market share at all cost, growth at all costs. That was the most important thing. If you can beat the competition, you can monopolize the market, and then you can get your free cash flow.

But actually, that's a really expensive way to do it. And it sometimes ignores some key business fundamentals, which are never going away. There is always going to be the need to eventually get to profitability, to self-sustaining, and you can only do so many fundraising rounds.

And so, the one that's been in news recently is Klarna. So Klarna raised a huge amount of money. It's now taking--

Klarna the sort of buy--

LLOYD BUTTERWORTH: Buy now, pay later.

Buy a t-shirt now, pay for it in three months time, however it works.

LLOYD BUTTERWORTH: Correct. So they fundraised. And then, they've just done another--

in 2020, I think, or 2021, they've just done another fundraise--

80%, 87% down on the previous fundraisers, right? So a huge haircut.

And then, there's lots of this in the public markets as well. Everything from Lemonade the insurance business, to Lyft the ride sharing, Energy Vault, Nikola the vehicle company, they've seen massive adjustments in valuation. And a lot of this comes back to people actually really scrutinize those business models and looking for that self-sustaining feature.

So where we sit as a European-focused investor is that we're quite happy that Europe is generally insulated from a lot of this.

What do you mean by insulated? As in we didn't have the froth in the same kind of way--

LLOYD BUTTERWORTH: We didn't have as much. Yeah.

--as in America.

LLOYD BUTTERWORTH: There was SPACs, and there were fundraisers, but nothing--

SPACs?

LLOYD BUTTERWORTH: A special purpose acquisition company. So this is where you've got another company that's already listed on the stock market. And you do a reverse merger, so you put the new company into that, and it takes over it. Like the praying mantis, it's sort of consumes it and--

QUENTIN SCRIMSHIRE: This is nuts, right? So just a bit of an--

this is how I understand it. So you can have a 100-year-old father and son business in America that got in the stock market in 1950 or whatever. And then they make widgets and they've been doing that forever. But that business has kind of gone down the pan.

And then someone else comes in and goes, I'm going to buy that, because you've already passed all the tests to get on the stock market. Get rid of the widget business. And now I've got an empty shell. And I'm going to go and acquire I don't know, a startup that isn't yet making revenue.

LLOYD BUTTERWORTH: Correct.

And then, I've got them onto the stock market without having to go through all the rigmarole of all of the legal and all of the stuff you have to do to get on the stock market, as in float.

LLOYD BUTTERWORTH: Yeah. And that's really what it comes down to. I mean, it's a regulation-light way of raising public capital on a stock market listing.

Everything--

when you do a main market listing and you go IPO for the first time, the rigmarole is one way of putting it. I mean, I think that's a euphemism. It's a big process.

QUENTIN SCRIMSHIRE: Yeah.

And so, this way of doing it is quicker.

Probably you could argue, say, cheaper. But more over the scrutiny around the investment isn't there. So that was a big boom. And there were funds, SPAC funds, or funds of funds, that were created to invest in SPACs that didn't actually have any assets.

So you can see that there's this hungry capital looking for businesses. And the focus is on deployment. It's not on, necessarily, the quality of business or the portfolio. It's actually, we need to get this out the door, because we're sat on this huge amount of capital. We're charging management fees for it.

We need it to go somewhere. It needs a home.

And so, that--

and this is--

some of this is--

there's an element of exaggeration and anecdote. But this is really what happened in the last couple of years. So there was a lot of that.

A lot of it went into green, green tech, or green stocks as well. And that was an element of frustration for me. Because from my point of view, I don't want the green transition to be hampered by a capital downturn because money's being thrown at things that it shouldn't have.

There is a lot to be said about sharing of the success. I hope this business does well because it's good for all of us. But there's also a lot to be said for I hope this business doesn't raise money, because that money could be better deployed somewhere else and can be better put to use elsewhere.

QUENTIN SCRIMSHIRE: Yeah.

So anyway, so that happened in the US. And it was clearly lots of people looking at traditional financial metrics like price to earning ratios, PE ratios. And they are off the scale of historical norms. And it partly has to end at some point.

So companies are valued way more than their bottom. So the bottom line, so revenue in, minus your expenses--

sales minus expenses equals a business. And companies were valued their stock price was way higher on multiples of that bottom line than really we'd seen before.

Yeah. And of course, when the bottom line didn't exist, so when there was no profitability or earnings before interest tax to talk about, they used the revenue multiple, which was a new thing. That's not really been a thing of the past. Yes, software businesses have been valued off annual recurring revenues. But using just a revenue multiple as a comparator, it's ignoring everything that's going on beneath that.

If I go back to being an accountant, I'm thinking, all that stuff that's happening underneath revenue, you're effectively casting aside and saying, we value this business just on that. Well, it's not a sustainable way to do it. And you're ignoring too much about the business from a financial point of view on that. So that, as a valuation metric, it's kind of died I think. I don't hear people talk about that anymore.

So if I've got this right--

and you'll know better than me--

but the focus has changed from how much revenue do you make to are you cash-flow positive, or if not--

as in, do you make money, you're profitable, or if not, when? If not now, then what's the plan for it?

LLOYD BUTTERWORTH: Yeah. There feels to be a push towards when do you get to free cash flow. Yeah, so free cash flow positive. So when we think about a business that has a heavy working capital demand, so like a manufacturing business, the free cash flow is when they're not only profitable, but they're also managing that procurement and sales cycle such that more money is coming in than going out.

And that's really an indicator of we don't want to be constantly propping this up with new fundraisers. Because the problem with fundraising is, is that when you have to do it, it's not always the optimum time to do it.

And you're beholden to market conditions. You're beholden to macroeconomics, venture cycles, whatever it may be. There is a good time and a bad time. And that is not in your gift. So that's definitely been a focus.

But as I said, US has definitely been worse affected by it. It's been seen in the public markets, and also in the venture markets. You won't see it straight away, because, of course, these venture capital investments were held privately.

So at the moment, they're held by the venture investor at book value, which is what they're invested at. And until there's a capital call, so until they actually need more money to go in, there is no markdown in that. So no one sees this until someone actually says, we need the money.

So we've got a lot of companies out there. So we're talking specifically about the US. But in some European companies too.

You got companies out there that are still the last liquidity event, the last pricing of that. Because they're not--

they haven't floated on the stock market. The last pricing was super high. And then, when they next need to raise some capital, that's when the adjustment happens. But we're not quite there yet.

LLOYD BUTTERWORTH: Yeah.

So the trend is that 2020, 2021 there was a lot of money sloshing around, and some of that wasn't allocated in the most efficient way.

And then, that's having a knock-on effect with valuations and startups in general. So it's changed the world a little bit. But I think you're saying mainly in the US, but some over here. And I think we didn't have the kind of excesses over here.

LLOYD BUTTERWORTH: Correct.

I don't think.

LLOYD BUTTERWORTH: Correct.

I don't know what's normal. I'm only 31 years old. But it didn't feel like we had the kind of excesses over here that they did over there.

LLOYD BUTTERWORTH: That's right.

And what are the trends that are happening, particularly in VC and in clean tech? What's happening?

LLOYD BUTTERWORTH: Sure. And I, just think it's worth mentioning as well that a lot of this is driven by the interest rate environment as well. So having zero negative interest rates forces money into high returning assets.

So when you think about institutional investors, they're putting more of their portfolio into venture capital than they have in the past, which is, again, driving this. Now we're in a changing interest rate environment. That obviously has an effect on the market as well. And it has an effect on how people view long-term returns.

But how--

where we're at now, one of the things that I said to you before is that we're in an industry which isn't discretionary, it's necessary. So there are fundraisers and companies going to market at the moment, which are in sectors which you would say are discretionary. They are improving something or providing a market niche.

But there's not necessarily the drive as there is in clean tech that it has to happen. It has to happen or we're all cooked, that type of thing. So clean tech in Europe certainly has been, in part, insulated, I think.

And there is not just the market pressure for something like an energy efficiency innovation like Measurable Energy. We know that EPCs in commercial buildings are going to be really important, such that you won't actually be able to lease a space unless it meets a particular requirement.

That's a green to red rating you have when you rent a place, right?

LLOYD BUTTERWORTH: Correct. So any of these efficiency technology businesses will help that.

And those are the kind of wider market conditions. So we've seen what's happened last couple of years with interest. But we don't think that it's going to necessarily knock us off course to where we're going.

So you and your team see a lot of companies, a lot of slide decks, I'd imagine, a lot of pitches, slide decks, offers. What kind of companies do you--

I don't want to say admire here, not necessarily ones in your portfolio. But what kind of companies are out there that you think are really cool and why.

LLOYD BUTTERWORTH: Yeah.

I'll give you some time to think about it if you want some.

No, I mean, it's fine. I mean, yeah, you're right, we see a lot of things all the time.

I think that I'll mentioned two for very different reasons. So one is a German business called Enpal. And they--

QUENTIN SCRIMSHIRE: How do you spell that?

It's E-N-P-A-L.

QUENTIN SCRIMSHIRE: N-P-A-L?

P-A-L. Yeah.

QUENTIN SCRIMSHIRE: Enpal.

Enpal. I was made aware of this business a little while ago. They just did a big Series C with SoftBank and some others.

QUENTIN SCRIMSHIRE: Wow, OK. And I think they're a unicorn now based on the last valuation round.

Unicorn meaning?

LLOYD BUTTERWORTH: Worth over a billion euros in this case.

Why it's interesting is what they're doing is really simple. They are an insulation business. So they are going round residential properties and sticking solar on, and a battery on, if you want it, and also an EV charger. But--

Cool. In Germany.

LLOYD BUTTERWORTH: In Germany. And I think they're going elsewhere as well. But the reason why I like it is because it's a really slick model. So if you think about the UK market now, if you want solar panels, you've got to go to a local installation business or a regional one at best.

You've got long lead times.

It's such a nightmare.

LLOYD BUTTERWORTH: You've got to get someone to come around for a quote. And then, they won't also do the battery, and they won't also do the EV charger.

LLOYD BUTTERWORTH: So it's all designed by--

And I end up going to someone else like Octopus. And I don't--

they don't know, and do they--

are they going to talk to each other properly?

LLOYD BUTTERWORTH: Exactly. And it's like, unless you're in the industry, you don't know whether to ask for the EV charger, does it solar match? So if the solar is on, does it charge my car?

Because I could get a dumb EV charger that doesn't charge my car from the solar. And then, I think, well, actually, all I can do with it is dump it in the hot water tank or hopefully the tepeo, or whatever it is in the house at the time.

QUENTIN SCRIMSHIRE: Yeah.

LLOYD BUTTERWORTH: But what this business is doing is they're trying to turn it into a very slick turnaround. So you inquire. You get a quote, which is fixed or as near as it can be. And then you get an installation team that comes out.

They put a commoditized solar panel on the roof, which they've got stock of, so they can do it in very short turnaround times. Drop a wire through the house, the electrician comes out, wires up to the inverter, to the home battery if you want, and to the EV charger, and that's it.

And you've got--

and you can do it as a leasing option or you can do it as a capital payment option. So you don't have the upfront cost. And there's asset financing available for that.

And I just think that that's the type of solution that we need to roll out disaggregated generation, because I'm a massive believer in disaggregated generation everywhere. Everyone should have solar. Everyone should have that capability.

Not necessarily a home battery, because if we all get EVs, why would I get an eight kilowatt hour home battery if I've got a 64 kilowatt hour. And I like to believe that companies like Indra, which is a bidirectional charging business, they will be in a lot home, so that you can do both, and you can take it and--

QUENTIN SCRIMSHIRE: That, by the way, that whole--

the battery math there, it doesn't get talked about enough. So this whole four kilowatt solar on the roof, or whatever it is. Home, the Tesla powerpack, whatever it is in your--

what do you call them? The one for your--

Powerwall.

QUENTIN SCRIMSHIRE: Powerwall, right. I think a Powerwall is like five kilowatt hours, something like that.

Yeah.

And then you've got a 100 kilowatt hour Tesla outside. You need 20 Powerwalls to charge your Tesla.

LLOYD BUTTERWORTH: Yeah.

So I think we should just identify--

I think it's a great idea. But you need a very big battery to match your car at home if you want a fast charge.

LLOYD BUTTERWORTH: Correct.

Anyway, yeah.

LLOYD BUTTERWORTH: Correct. And this is the thing. I mean, this--

I don't want it to be like the Daily Mail answer, like, it's not going to work.

LLOYD BUTTERWORTH: Yeah.

But also--

There's a little bit that needs to happen in the vehicle to--

QUENTIN SCRIMSHIRE: Yes.

--home or vehicle to x, whatever you want to call it. I mean, I saw on LinkedIn someone using electric mower off his Hyundai, which is just blew my mind. I was like, that's brilliant. You could take your lawnmower around and cut the lawn on the neighbor, anyway.

So there's a bit that needs to happen there. There is a bit that needs to happen.

Part of it is around sharing the benefits. Who gets the benefits from what you're doing. And how do you actually get that into--

if you're playing in the balancing mechanism, so you're getting revenues from that by offering up your battery for flexibility services, how do you actually get paid off that? Kind of has to be through your energy provider, it has to be through the utility, and the utility has to be on board with that.

And let's be honest, some of them are able to do that. Some of them are not at the moment. So there's things that need to happen. But at the same time, just looking at those raw economics, or those raw physical storage sizes in a home battery versus a vehicle, I would like to see an EV, a charger, and solar on every home.

QUENTIN SCRIMSHIRE: So this company, Enpal, in Germany, they're worth more than a billion euros.

Mm-hmm.

And they just go--

and just what--

they've just nailed this process?

Just nailed it. It's just a slick operational exercise. And if--

so if, like I said, if I go through that process now, and I want to do it for my own house--

QUENTIN SCRIMSHIRE: In the UK.

--it is painful.

Oh, it's horrible.

In the UK, it is painful.

Forget it. Apart from being expensive.

If you're going to spend that much money, at least it should be easy to do.

Correct.

But it's very difficult to do.

Correct.

Well, you said you had another one.

Yes

Before we get lost.

So the other one is another German business, which is now owned by Shell called Next Kraftwerk.

QUENTIN SCRIMSHIRE: Yeah.

I think you know them.

I've been to some--

so they always do good parties. [LAUGHS]

Do they?

So I think I went to that--

they had like a stand party in E World in Essen, I think, about four years ago.

Yeah.

And it was off the chain, right? [LAUGHS]

But they're massive, right?

We need to get to Germany then for that.

We need to. Yeah.

Do some VPP parties.

Yeah. They are a really cool business. I was with KiWi Power at the time. And they're an aggregator. But they have got such scale.

Yeah.

And they've done so many different countries in one go.

Correct.

And centralized it. And they've got a great brand. They've got a great management.

Yeah.

And they do good parties.

Yeah. So when--

so I mean, I was looking at it when Shell bought it. And it probably would have been out of our reach. But at the time, but I mean, I think that it's a really interesting business. They are a virtual power plant, or VPP for short.

What they're doing is they are bringing together flexible loads, flexible generation, and energy trading. So it's this vertical integration where you're managing both the generation and the load at the same time.

And it's kind of--

I like to think of it like a synthetic PPA, which I know you know what that is. But so the idea that you're selling power to an offtake or a customer on the other side of the grid. You have to transport it over the grid. But it's as if--

the transaction works as if you were next door and it was over a private wire from a solar panel to a factory.

Just lobbing a cable over the the fence.

Correct. And it's just a very elegant solution. Now, they now--

I looked today. They've got now 10 gigawatts under management.

Yes, oh, it's incredible.

Just absolutely massive scale. And by using that in an intelligent way, so actually managing those loads and generations holistically, aggregating it, and then offering up to the grid, you are an invaluable resource to the German grid net.

For reference, I'm pretty sure that in the UK, the biggest aggregator--

I'm going to get shot down for this. But getting above a gigawatt is tough for aggregators?

Yeah.

And I think the biggest one was Lime Jump at one point, they had a couple of gigawatts, or something like that. And then you got a question, how you counting that. Because some of it's just capacity markets and bits of the stuff. So these guys have got 10 gigawatts, not in one country, but probably 10 countries in Europe.

Yeah.

With all these different TSOs, and different rules, and regulatory systems, billing, payments, all of it. Very, very cool.

Yes, it's cool. And look, you can really see the value of that. Rather than all these things working, all these different assets, generating assets, and loads working independently, doing what they want, by bringing it all together and trading it as one, it's of huge value. And it's really a big part of the future.

So when we think about this kind of discussion with how much do you need to put into the grid? How much you need to invest in the grid? How much you need to invest in education? And then how much can you alleviate those investments with smart technology?

This is one of the businesses I look at and think, this is an alleviation which actually negates some of the capital investment in the grid that you need and perhaps negates some of those other investments in electrification.

Well, we've both got a crush on Next Kraftwerk. And how do you say it? Next Kraftwerk?

"Kraft-verk," I think.

"Kraft-verk." It's just great to say as well.

Yeah.

All right.

What else is going on? Trends, trends, trends. So what's going on in the battery world? What are you seeing and what are you thinking about?

I know you have--

What's a battery?

What?

What is a battery.

What is a battery.

What is a battery.

Yeah.

Yeah.

You guys do some pumped hydro stuff, I think?

So we are looking at that the moment. Yeah, we are looking at pumped hydro. I think, when we think about storage, we are trying to take a really broad view. What you're doing in lithium ion storage is fantastic.

And we are obviously a great admirer of your work. We're also great admirer of--

That's very kind of you, Lloyd.

That's all right. That's all right. I was paid to say that. But don't forget that when we look at what--

the research you're putting out, when we look at the dispatch durations, we're talking one to two hour assets at the moment, right?

At the moment.

At the moment. Right?

We're going to have a showdown in a second. I know where you're going with this.

I know. Well, look, all I'm looking at now, I'm looking at that intraday generation. And I'm looking every day at the gas peak. And I'm saying, how do we displace that peak?

How do we displace that hump in the day? And it's not--

It's not one or two hours, right?

Right. And if we think about a day in the life of the UK's grid--

take the UK, for example, 24, 25 gigawatts at night, and 40 in the peak of the day or something like that. And sometimes it rises higher as we saw in the heat wave the other week.

Yeah. Mad that that's an example now, by the way, because the example should be the third Wednesday after Christmas or whatever is the national grid [INAUDIBLE]..

Yeah.

And now we've got these crazy events. But--

Well, especially in a country without really air conditioning, of course as well, and especially in domestic properties.

QUENTIN SCRIMSHIRE: Yeah.

But I think a lot of that was due to infrastructure strain more than necessarily the demand cycle. But anyway.

QUENTIN SCRIMSHIRE: Anyway.

So you look at that hump. That's what we're trying to get away. How do we get rid of that? I'm not necessarily worried about the two weeks in the year where we have to draw on a gas storage system to power the grid in the dunkel flaute, as the Germans call it, the dark doldrums, they're not sunny, they're not windy bit.

But I am worried about the 50 weeks of the year, the fact that every day we're drawing on this these combined cycles, these CCGTs, combined cycle gas turbines. And they are filling in the grid. That's what I'm worried about. And I know that batteries have a massive role to play, or lithium ion batteries.

But we also think about things like pumped hydro as a really interesting flexible resource in that space. We're also looking at thermal storage, as you know. But thermal storage can also just be not in the residential setting, it can be in the grid setting as well.

Now, the caveat I would add about thermal storage is that where we like it, is where it's electricity to heat, and it stays as heat.

I've got to say, to be clear about thermal storage, we mean turning electricity--

getting something hot and turning that heat back to electricity later?

No. Well, you could mean that.

Or--

yeah, or do you mean using the heat?

I mean using the heat. Because--

Because only one--

OK.

Of course. Because if we think about heat as a load, as a energy consuming end use, is somewhere around a quarter of our use at the moment. So if you do that, say if you do electricity to heat and then convert it back to electricity, the cases that I've seen, the losses are great.

QUENTIN SCRIMSHIRE: Massive, large inefficiencies.

They're huge. So your round trip efficiency is very poor. And that undermines a business case.

By the way, some guys were doing it into cold as well. Turn electricity into cold, and cold--

and I'm not using engineering parlance here. But get things cold, store it as cold.

Oh yeah, cold storage. Yeah, sure. Sure.

Yeah.

Yeah. So there's a few of them as well.

I was just talking about the hot side now.

Yes. Exactly. But all it is it's the delta, the temperature delta between the ambient. And where it's interesting, I think, is where it stays as heat.

And there's plenty of areas where if you can use thermal storage for a heat end use, so you're displacing the gas, the local gas generation, or the electric--

direct electricity generation from that point, that's really interesting. And there's a business called Energy Nest, actually, which is out of Norway.

QUENTIN SCRIMSHIRE: Yeah.

They are doing that for industrial processes. I think that's a great concept. Because what they're effectively doing is they're storing the heat, and then they're using it as usually as high temperature processed steam in a bottling plant or in pharmaceutical applications, and displacing gas. So they're displacing gas locally.

But when we think about the grid as a whole, thermal storage, I don't see that as being a way to displace the intraday. Because you've obviously got to convert back.

What material do you store it? So you need something with--

going back to the engineering days--

but something with a high latent heat capacity, right?

Correct.

So what kind of material suits that?

We need Tim here, who's a mechanical engineer. He can probably tell us.

Yeah. You're asking the wrong person. But the ones that I've seen, the ones that I've seen, they're either in some solid medium, so it's either a rock, or a concrete base.

QUENTIN SCRIMSHIRE: Hot rocks, yeah.

Hot rocks. Or a mixture of rocks and metals. So aluminum, for example, has got a very high latent heat.

What about gravity? Let's talk gravity for a second. Have you guys looked at--

I haven't managed to make the numbers work, personally. You need a vet. So Gravitricity?

Gravitricity is one, yeah.

There's a few of them that are doing this gravity storage thing, where you roll something up a hill and get it down again. Or you make a big hole in the ground and then lift it out. You guys are looking at those kind of companies?

Well, gravitational storage--

By the way, this feels like it's a bit of a people's front of Judea conversation. Because all energy storage is good. And I don't want to start disrespecting energy storage technologies. I just don't get the round-trip efficiency thing on these.

No. Yeah, I hear you. So gravitational storage, for just to be clear, does include pumped hydro.

Oh, of course.

So from my perspective, the best gravitational storage is pumped hydro. And let's not forget, if you look at global storage at the moment, that's pretty much all done with pumped hydro in some form. And just, again, to be clear, pumped hydro is moving water between a lower tail pond and upper tail pond.

And so, when you've got the excess power, you're pumping it up. And when you don't have it, you're letting it come back downhill. And that as a roundtrip efficiency is somewhere around the 75% to 80%. And we've got four or five--

Is it as high as 80%? I thought it went as high--

someone told me the highest it goes is 76%.

OK. Well--

But that was--

Well, that's still in my range of 75 to 80.

[LAUGHS]

It was It was. Because that was--

I think Dinorwig is somewhere around that. Someone can tell us better. But it's an old site.

Right. And there's Dinorwig. There's Cruachan in Scotland as well, which is another one, which is actually in a planning phase to get increased capacity. So I think it's about 400 megawatt flexibility asset now, so pretty big. It's going to be a gigawatt if they get consented.

Awesome.

So it's a huge asset. And when pumped hydro's sized, it's sized around generally a six to 10 hour duration cycle. So again, thinking about relinquishing that bit of intraday gas generation, that seems to me like it could solve the problem alongside some interconnector flexibility. Right?

But when we think about the other--

Agreed. We don't disagree yet.

Right. So when we think about the other gravitational storage businesses, Gravitricity is one. I understand they're based out of Scotland.

I don't want to single them out. Actually, sorry, Gravi--

Gravitricity.

Gravitricity. I didn't want to single you out. There's many other ones.

There are many others. Yeah.

So they're doing it, as I understand, in abandoned mineshafts. So they're moving a weight up and down the abandoned mine shaft. I think that the most high profile one is Energy Vault.

QUENTIN SCRIMSHIRE: That's the one, yeah.

Which has attracted huge amounts of money from different high-profile investors. And their concept is to construct a tower which has got a series of pulleys and weights. And they move these weights, which are concrete blocks, effectively, up and down.

QUENTIN SCRIMSHIRE: Yeah.

And the latent energy, the inertia, it's stored in that gravitational--

the gravitational potential energy of that rock being up high, as it comes back down to Earth is released. Now, the whole premise of it, as I understand, is that they are unbreakable. There is minimal maintenance. And it's a very easy solution.

It's mechanically easy.

What goes up must come down, it's like they always say in the book, right?

Yeah. But will it go up again?

[LAUGHTER]

Yeah, exactly.

So yeah. So I think there's general concerns. I think there's concerns from the actual amount of energy you can store. I mean, when we think about--

They're big, big slabs, right?

Right. And when we think about pumped hydro, all we're looking at is, in very simple terms, we're looking at the volumetric amount of water.

We're looking at the gravitational constant, 9.8, and then we're looking at the head, so the distance.

QUENTIN SCRIMSHIRE: Yeah.

But the big difference between something like pumped hydro and something like moving blocks around is that you're never going to be able to store as much weight as you could in water in a reservoir in blocks. So that's going to be an order of magnitude differential.

Unless you're lifting a city up and down.

Correct. And then, the other thing is, well, how far can you actually move it up and down? So the pumped hydro sites, most of them are above 200 meters head. So 200 meters height difference between the top pond and the bottom.

Wow. I didn't realize it was that high.

So it's big, right? Whereas something like Energy Vault, you can't really realistically expect a 200 meter structure. So the structures are going to be 50, 60 meters tall. So your head, effectively, is drastically less.

QUENTIN SCRIMSHIRE: So you discount your storage by three or four times, because it's 50, 60 versus 200.

Correct. And obviously, then if you did have a 200-meter tower, structurally, what does that look like? Where you going to build it.

They must--

so this basic maths we're talking through here. These gravity companies must also be able to do this basic math. So they must something that we don't.

Correct. And you know, I--

I don't know what it is.

And I don't know. I mean, that's just my humble opinion.

I would always rather the storage medium as water being moved up and down then blocks on pulleys. But that is just my opinion. And the fact is, is that we have not built any pumped hydro in this country for 40 years.

Yeah, because the planning regime, that's just the thing. It's so, so slow.

There's planning, there's the getting the right topography. And obviously, if you're flooding something, and building massive dam walls. So it's all well and good saying, we could do this. But it's actually what's achievable.

QUENTIN SCRIMSHIRE: Yeah.

And maybe in the case of the ones that we've aforementioned, maybe they are achievably built, whereas pumped hydro is a bit more difficult to get away. And of course, the construction cycle of something like pumped hydro is very long.

QUENTIN SCRIMSHIRE: Yeah.

So you're looking at seven to 10 years, which obviously then has a huge effect on how it's viewed from a capital perspective. Because it's money and upfront. And it's a long time until you get anything back. But still, as a technology, I still think it's the tried, trusted, and scalable method.

You're spending CapEx over that seven years of building something. So you've lost money. You're already down by year eight, quite a long way. It's not like building a battery, where it takes you six months to build and you're making money.

That's the idea, of course.

Correct. Yeah.

Interesting. Yeah.

I want to talk about a couple more things. We've got a bit more time, if that's all right.

Yeah.

Interconnectors. I know you have a very big passion for interconnectors.

I love an interconnector.

What's going on with interconnectors, Lloyd?

Well, I mean, I was looking--

so I was looking at the wholesale market yesterday. And the wholesale market in the UK, their head price was about 282 pounds a megawatt hour.

QUENTIN SCRIMSHIRE: Yep.

France? 400 euros a megawatt hour. So even if you adjust for exchange rate, that's pretty good. Because what that means is that until now, the interconnector with France has been reliably supplying the UK with 8% to 10% of its power needs almost 24 hours a day.

QUENTIN SCRIMSHIRE: Because the French nuc's supplying us, because we need the power. And so, it's almost happening consistently one way from France to the UK.

Correct. And it was like 23 hours a day. And then, because of the difference between GMT and CET, the French peak happens slightly earlier than the UK. So the interconnectors were switched for 30, 45 minutes in the morning, in the evening, send power back to France. And then for the rest of the day, we were just a net importer, right?

QUENTIN SCRIMSHIRE: Yep.

But now, a lot of the maintenance is overrun. So it's--

they were expected to be back online. They're not. And what that's meaning is that we're actually using that interconnector to sell power into France. And that's actually subsidizing the huge power prices that we're paying at the moment.

And you're also seeing the other European countries doing this as well. So for example--

QUENTIN SCRIMSHIRE: Hold on. What does that mean, "subsidizing the power prices"?

Well, so I'm thinking about the energy system as a whole. So if we're exporting power to France, we're generating at the strike price of, let's say, 280 pounds a megawatt hour. And we're exporting to France and selling into their market 440.

So we're blaming the French for our higher power prices in this conversation. [LAUGHS]

Correct. Well, it's kind of similar. So the NordLink cable with Norway, this has become a hot political topic in Norway. Because Norwegian power prices historically been very low.

Yeah.

They've started to go up significantly, because Norway has been exporting at max capacity to the UK.

Because we're the bid.

Because we're the bid. And they've got low water reserves in the hydro, because most of their grid--

almost all their grid is hydro.

So the Norwegian consumer is complaining that their power prices are going up. Why are we shipping this power over to the UK?

But in reality, they are benefiting. I know that they don't feel the economics in their monthly bill. But they are benefiting. Because the government is collecting all that bank and then passing it back down through the municipality. So they are doing it.

But if you look at the European markets, again, with France, I saw that Switzerland was importing from Germany and then selling over its interconnector to France, again, to profit from this arbitrage. Because so, interconnectors are great.

I love interconnectors. Interconnectors need to be built thick and fast. The main premise for them is, firstly, is the geopolitical unity. So you obviously need that there. You need to not threaten to turn off someone's interconnector. You need to remain friends for the duration of time.

But the reason why it really works is because you get different peaks and troughs in wind generation as depressions move across Europe. So you need the ability to move that peak power around. And that's what the interconnectors enable.

But of course, they don't work just on their own. Because everyone has power needs. And you can't always rely on your neighbors to supply your needs when you really need it.

Yeah.

But we saw in the heat wave that nearly 10,000 pounds of megawatt hours paid by the UK grid from Belgium to import power in an emergency situation, because otherwise, you're going to have a blackout in the South. So that's also the cost of it, is that--

the blockade.

QUENTIN SCRIMSHIRE: It's funny, though. Because the newspaper, all the media around that was, we're paying the Belgians all this money. But it didn't take into account that if we didn't, we wouldn't have enough generation. That would be bad.

Yeah.

That would cost way, way more.

Yeah.

The problem isn't the Belgians.

No.

The problem is, we have completely under-invested in our electricity system for too, too long.

Correct.

All right. I've got one more thing I want to talk to you about--

e-fuels.

Actually, I've got two more things to talk about, if we've got time. I look at the producer, we're OK. Getting nods. E-fuels, talk to me.

So e-fuels, they are going to be part of the transition. It's just how big and where they play a role. So an e-fuel or a synthetic fuel effectively is starting with what we're going to call biogenic carbon dioxide. So something that's captured from a carbon dioxide waste stream as something that's being burnt.

And then adding--

Bio, sorry, let's stop. Biogene- biogeneric? Bio--

Biogenic.

--genic.

Biogenic.

And that means?

As in it was a fossil.

Yeah.

It's being burnt. It's then being captured.

QUENTIN SCRIMSHIRE: Yeah.

And then you're using that--

QUENTIN SCRIMSHIRE: Got ya.

--in this. Yeah, right. So that, and that is added to hydrogen. So you're reversing thermodynamics.

So you're making a molecule from bringing these two things together.

QUENTIN SCRIMSHIRE: Yep.

Now, where would you see it? I mean, the real obvious one is in the aviation industry. Sustainable aviation fuel is one of the things--

Holy grail, so we can all still go on lovely holidays to wherever we go.

Correct. It's like having your cake and eating it. Now, the problem is the cost. It is prohibitively expensive, because there is the price of kerosene does not account for its negative externality, which is burning and producing CO2, and also doing it at 38,000 feet. And that also having a radiative forcing effect.

So that's the obvious one. But there are others out there.

The roundtrip efficiency is very poor. But the proponents of it are saying, well, if we're capturing the CO2, and we're making hydrogen, this is not only a way to decarbonize these hard to abate areas, like aviation, it's also a medium in which it can be stored long, for a long time.

I mean, you think about when we store energy chemically in batteries, if you leave it charged up, you're not going to just leave it charged up for a week. You're going to be dispatching it. But could you have an e-fuel sat in e-tank--

e-tank--

sat in tanks. Well--

E-tanks, that's good.

We can call them e-tanks. They're clever tanks.

[LAUGHS]

But could you have that's stored in tanks for weeks, And it's, of course you could. I mean, that's what we've been used to doing. So that part of it feels good. The cost of it's high. So we hope that there's going to be a subsidy regimen for this.

And that looks like direction that is being pursued by governments. And we hope that there's volume enough for the off-takers to actually rely on that. So sustainable aviation fuel companies are signing off take agreements with airlines.

But the other one, of course, is shipping. So shipping is really tough.

Yeah, massive.

Really tough.

But the good thing about shipping is you don't have to get it all that way in the air. You can just put it on a big ship.

True.

So there's a physics benefit to being in the water than the air.

Of course, because you're not--

yeah, exactly. You're not actually creating the upwards thrust and then having to keep it airborne.

And the carbon cost of doing that, which is crazy.

But the downside is--

But shipping's filthy, isn't it?

Shipping is filthy. Right. So the big improvement in shipping was moving off bunker, which is heavy sulfur fuel, so fuel oil.

QUENTIN SCRIMSHIRE: Yeah.

And ships that bought bunker still continue to do so. But they have to have scrubbers on board which takes this off-content out, or they've gone on to marine diesel effectively, low sulfur diesel. Now, so that was a big change. That was--

and we were all thinking we were electrifying. Well, the ships have just moved off heavy sulfur onto sort of a cleaner diesel.

The difficulty is, is ship ships move a long way without refueling. So most ships will have 20 or 30 days of fuel in them. Which from a electrification point of view is pretty much impossible.

QUENTIN SCRIMSHIRE: Yes.

So there has to be another method. And when we think about a ship as well, when it's built and financed, you want it to run for 25 or 30 years. So you've got to think about the ships that are being built now, at scale, which are still being built to burn diesel--

QUENTIN SCRIMSHIRE: Until 2050.

Can you have a compatible fuel with that?

Because they are going to be run. They're not going to be scrapped. And realistically, the drive trains of them aren't going to be retrofit. It's very difficult to do.

QUENTIN SCRIMSHIRE: Of course.

So it's not like you can put a massive hydrogen tank in and say, we'll take half the capacity as a container vessel to store hydrogen. It's not going to happen. But you could--

You'd have to retrofit your tank.

Yeah, exactly.

For water.

But you could see a future where you've got the existing combustion engine, but you're burning something else. And there are alternatives now.

Or abating. Or capturing--

Well, there is on-board carbon capture. So we've seen a couple of products for that, which is one way of doing it. But particularly if you burn impure oxygen, so that you can capture a more concentrated CO2 waste stream as opposed to just burning clean--

normal air.

But there are options out there now. So there's drop-in green diesel fuel, which is a biofuel produced.

There's obviously the e-fuels. And then there's things like methanol and ammonia, which are being talked about as well. All with their different positives and negatives.

Methanol, for example, well, it's still a carbon-based fuel, so it's still going to produce CO2. Ammonia is a horribly poisonous explosive chemical. If a ship ran aground and dumped ammonia everywhere, that would be way worse than the worst oil spill you've ever seen.

QUENTIN SCRIMSHIRE: Oh, yeah.

So there's lots of different things going around there that people are talking about. But for me, it's always about being pragmatic and realistic. If you're building a ship now, you have to think about a fuel which is going to be compatible with the ships that are being built now. Otherwise, if you design another solution for a ship built in 20 years time, we've already failed.

QUENTIN SCRIMSHIRE: Yeah, exactly. Yeah. So still lots of work. I would love to have a separate conversation about shipping, as well.

And I know you and the team are looking at it in detail.

The words green diesel always make me feel a little bit scared. But of course, there's a pragmatism to it.

So is there anything else we should cover? I usually say, is there anything you want to plug? But we've covered a lot of bases here. Anything that Fred Olsen or one of the portfolio companies is working on that we haven't covered that you feel like got to get out there? Now's your chance.

There's nothing that I could particularly think of. I would do a shameless plug. That's always nice, and thanks for the offer. But I think we've covered it all, really.

All right, cool.

Well, thanks for coming on.

Yeah.

And we've talked about a lot of stuff which we'll put in the show notes. So if you're interested in any of these companies or finding out more, please do check the show notes at the bottom, on Spotify, or however you're listening.

And then, remember to subscribe.

We've been told that we need to say this more. So please, please, please do hit the subscribe button, because it makes our numbers go up, and that's really important. All right. Thanks very much. Cheers, guys.

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