Modo Selects - How to develop a storage project with Andy Willis (Founder & CEO @ Kona Energy)

If we think about those operational projects, they all start somewhere, and that's the kind of role of the developer. And generally, you kinda negotiate on it, on a pounds per acre or a pounds per kind of megawatt lease. Then he goes to the grid, the grid operator, and what do you have to do with them? And how do you How do you get planning permission for a big hundred megawatts site?

So, for example, if we were looking to do a hundred megawatts project on an eleven KB substation, you'd simply kind of blur out that substation. It's kind of what issue do you have when looking at the the UK kind of market to invest your money and grid was the first thing he said in terms of grid capacity, grid connections. And Who sort of thought that this is the thing that was gonna get tripped up? Like, Hello, everybody.

Welcome back for another installment of our Moto select series where we revisit some of our earlier episodes. This episode is with Andy Willis, founder and CEO of Kona Energy. If you're enjoying the podcast, please hit like and subscribe on Spotify or wherever you listen to your podcasts. And if you want to see more content from Modo, follow us on LinkedIn at modo Energy.

Let's jump in.

Okay, Andy. First thing to say is congratulations.

You guys closed a pretty big deal recently, and I am looking forward to unpacking that.

So Firstly, hopefully you've got some sleep since I know these things can can be pretty hectic.

Yeah, who who are you, Andy? And what are you doing on our podcast? Yeah. Firstly, thank you for having me on Quentin.

So Andy Willis, founder and CEO at Kona Energy. So we're an energy storage development company. And, yeah, as you alluded to, we've recently, completed a set of our first project, up in Middleton in the northwest of England, with Gore Street, Energy Storage Fund. Cool.

So Go Street bought a site from you guys, and they're gonna build it, are they? Or are you gonna build it? And they're how how does that work? Correct.

So we're the we're the development company. So basically, we've kind of put together the project, but we haven't constructed it. So we're getting it to a stage where it's construction ready, and that's what we've been doing over the last year or so. And then Gore Street will be responsible for investing the money to construct that project.

And then they'll be operating it for the the life of the project going forward. Awesome. Okay. We're gonna get right into the details on that in a minute.

But before we get started, Let's just find out a bit of about you before this. So you've been out on your own doing cone energy for a while now. Scary stuff. I'm looking forward to hearing about that.

And before Kono Energy, you were also doing battery stuff. Right? So do you wanna do you wanna start from the start?

Yeah. So I left university in twenty fifteen, and it was always kind of, a motivation and a passion to work in the clean energy space.

I initially joined a renewable heating company back in kind of twenty fifteen, and we were focused on it. Before it was cool, by the way. Before it was cool, so this was the early days. It's obviously still a very kind of hard to decarbonize sector of the economy, but incredibly important.

Yeah. So I joined a renewable heating company in the day, and we were looking to kinda roll out heat pumps on a domestic scale across the UK.

There was a government subsidy, the the HI, which could have stimulated the growth of that market. But back then, and I think it's probably fair to say. Even now, it's still a very difficult area of the economy to decarbonize and kind of multiple governments are really trying hard to work out how do we do this on a large scale How do we make it fair? How do we do it in a cost effective manner?

So that was kind of my first four a into kind of the clean energy sector. Once you do a unit, you I see economists. I'm not. I studied, human geography, so there was a very kind of big energy focus within that core separate Durham University, but it was very much it was quite a broad degree.

So it was kind of sociopolitical touches on the economics as well. But, I'm I'm not an engineer by trade. So I'm kind of I've always been more involved in the kind of policy side and the commercial side of, of the renewables industry. Cool.

But yeah, I was always very interested in moving into energy storage. And I think back in twenty fifteen or sixteen, bayes at the time after bayes kind of took over from the department for climate change, and they they put out a statement that said the UK wants to be great in eight technologies, and one of them was DSR and one of them was energy storage. And at that time, obviously, there weren't any kind of batteries on the grid.

Tesla was around kinda rolling out his first cars, and it was clear Within the economy, it was going to be a big sector going forward, but no one really knew how that was going to play out going forward. So I was very fortunate to join a company called Orenco back in about kind of twenty sixteen, early twenty seventeen.

Right at the start of the kind of UK industry for energy storage. So kind of around the time of the enhanced frequency response tender, run by national grid, and Yeah. I managed to get into Rerenko quite early. I was one of the first kind of ten employees.

They had four senior managers at the time. Rupert knewlin was the CEO. And, yeah, they hired a lot of people kind of fresh out of university, basically, who obviously with being a new industry weren't perhaps experts in the space, but were willing to really work hard and try and kind of unpick that industry. So that was my first, well, that was how I started within the the UK is void space.

And Irenco did something very different back then. Right? Irenco was a different kind of company and business model. Exactly.

So when I joined, we were in effect, a project development company, looking to develop projects and build out those projects as well. And I joined yet on the back of EFR, which I reckon were unsuccessful in. And as we saw that kind of market, that first tender cleared kind of had a very low price. What was your price?

But anyway, I was at Centrico and we we submitted it. I think it's thirteen pounds ten, and I think the highest accepted was twelve ish. And in the and EDF was seven, I think. It's crazy looking back on it, isn't it?

Well, what are you guys putting? I I don't know exactly, and I probably can't say exactly what number we put in, but it was it was higher than that. And then, clearly, we were unsuccessful at that tender. And it was a bit of a sign of things to come actually with this kind of how natural grids around those tenders and then what those kind of market prices were clear at.

So suddenly, the company are kinda kind of thought, you know, what do we do next? Because, you know, the finance community, the investors were kind of focused on winning the CFR contract, but Arenko are in a good place that they were always kind of very nimble, very pragmatic, very forward thinking. And so we continue to develop projects. And actually built out one of the first kind of big batteries back in the day in about twenty seventeen, which was a project called Blockwitch.

I've never heard of it. What's blocked? Never heard of it. Forty one megawatt project in the West Midlands.

I'm sure all over the Modi leader board Well, we love Block switch because it was, I would say this. I mean, they did it. I think we did a year in the BM just hammering away at it before it was even profitable. Oh, and honestly before it's profitable, but it it didn't make sense to do that financially, but it did make sense to do that strategically for them.

And, you know, they they sort of battered down the door at the BM. So big kudos to them. Anyway Yeah. A hundred and a hundred percent and just the engineering of that project as well was kind of so complex.

It was actually, it wasn't one of these kind of early containerized systems. It was actually retrofitted into an existing warehouse.

So looks very different to a lot of the batteries kind of within the UK, and that board is solo engineering challenges, which Arinko worked with, German Electric on that project. And, yeah, built a really interesting and kind of first of its kind project.

And as you said, Quintin, the the kind of the markets were very different then. There wasn't, dynamic containment. The FFR market was around, but it was kind of slightly boom and bust. We had some very high prices and then some very low prices.

And Arenko as a company thought, actually, you know, we built this first project. It's very impressive, but new players are entering the markets who potentially have lower kind of cost of capital than we do and a kind of their businesses is funding projects and building things. Our expertise is probably more on the software side and and operating these batteries. So they've kind of already performed in the frequency of response markets.

They knew what they were doing there and thought what's the net big thing for four batteries and moved into the balancing mechanism as kind of one of those very early kind of battery players within that.

Obviously potentially very kind of deep, kind of liquid markets, and as the kind of markets of, wouldn't say last resort, but that kind of last step before real time settlement, very relevant to batteries because of that kind of speed of response as well.

So renko performed well in the early market, and that's you know, well considering they could have made more money perhaps in the the frequency response markets. And that's what really drove them to become more of a kind of a software player rather than thinking let's develop projects, build them out. Actually, from a business perspective, their view is that we can we can do better kind of rolling out our software platform and kind of operating other people's assets because we've got that expertise where the first moving the markets and everything like that. So when did you leave Orenko and go out go out on your own?

So how did you make that choice? So there was actually a gap at, one other company in between Zenobi Energy in Arrenko and Kona.

So as Zarenka kinda made that pivot, at the time, I was working mainly on the development of their projects. So blocks with got sold to Gretchen House eventually, some of our development portfolio, which I was working on at the time, that got sold as well, and as much as I I enjoyed my time at Arrenko. I was personally a lot more interested in the development of these assets, the funding of these assets. It's slightly less on the kind of software side.

So I I had ambitions to set up a company at that point in time, but COVID came along. I knew the guys at Zenobi very well. And they offered me they offered me a role in their team. And so I joined Zenobi, who again are kind of, I guess, one of those early players in the market, they've done incredibly well, both on the, the grid scale side of things, but also on the, the EV and the kind of, electrification of transport on the other side of the business as well. Also quite unusual because they they develop their own sites as well. They're not just buying sites. I'm not saying it's really wrong with that.

But If anyone knows how to develop sites, it's a there's an obie and cutting your teeth there as well as a well, I a great experience. No doubt. Yeah. A hundred percent.

They've got a great team there. Yeah, my kind of manager at the time, Demiostrovert, he came from, Waltzilla, a very smart guy, They both had the kind of development expertise, the construction expertise, the funding expertise, and the operational expertise kinda going forward as well. So I was only at Zenobi for just over a year, but, we, at the time, we were looking at some of the kind of national grid pathfinder projects. So obviously all in the public domain, but Zenobi built a project in Capeenhurst, which was a hundred megawatt project one of the biggest at the time to be built, and that secured a a reactive power contract with national grid to basically absorb vase from the system.

So not only providing kind of frequency services or trading in the wholesale energy markets, but also providing reactive power services, a very kind of stack cool service. I'm really interested in that. Like, when I asked one as a nobody, but maybe you know about how many cycles that voucher has to do to do that kind of, it's a cross between. Yeah.

It's it's it's sucking up vase or voltage support. How have you wanna describe it? And how many cycles do you have to do for that? I'll be interested to know whether the business case and the actuals are where they thought they were gonna be.

Yeah. It's a great question. I think one of the the benefits of providing a reactive power service or reactive power absorption is it's very stackable with providing other services such as frequency response or trading in the wholesale markets or operating in the balancing mechanism. So you can't quite do a hundred percent of your active power compared to reactive power, but you can get very close.

So what I mean by that is you can provide a reactive power service for, let's say, eight hours of the day while still pretty much being able to do your full active power service on top of that. So It's a very stackable service for batteries, and doesn't really impact your cycling much. It has kind of wear and tear on the inverters, but, it is a you know, batteries can provide that service at very low cost.

And they can do it kind of independently or simultaneously to active power services, which means for say the master grid running the system, if they were gonna get those services from a synchronous generator, a gas powered power station or something like that, they'd have to physically instruct them to turn on and produce active power, but the beauty of batteries is that they can just do that service kind of instantaneously instantaneously without potentially distorting the energy markets on the other side. So, yeah, it didn't actually have a huge, impacts on the cycling to to answer your original quest quentin.

Okay. Cool. And then let's talk let's talk Kona. Right? So, Uni, then, then Arrenko during the early days, then Zenobi, during the COVID year.

And then at this point, you'd you'd got itchy feet because you were thinking about starting your own business anyway. And once you get that in your head, there's no turning it off. Man, what? I mean, it's just it's it's it's great.

And so, when did you decide to jump and what what's the vision for Kona?

Yeah. So I set up the company in in about June twenty twenty one, so about a a year and a year and a quarter old now. So it's still a fairly young company.

And we're in any destroyed development company. So I kind of felt over the last few years, I'd really kind of built up a bit of an expertise and kind of developing these projects and being able to deliver projects that would kind of receive investment and get built and and provide a long term service to both the national grid and the kind of end investors.

Probably similar to you, I think when you get that that kind of buzz and drive to start a business, it's very hard to to shut that down. So obviously, I was at just gets louder in in between your ears. It just gets louder. Exactly. I was at two great companies beforehand who are doing very well, and the the temptation is to to stay and kind of see them grow, which they're both very much doing, but, I had that kind of buzz and that kind of that bite, I guess, yeah, and set up Kona. So, yeah, Renenity Storage's development business. What what does that mean?

To to folks who don't know, people know developers as software engineers who who write stuff on on screens with a lot of black on it. So what is the developer? Good question.

So in the UK, obviously, we've got about one point five gigawatts of projects. Operational at the minute with a huge pipeline behind that. And if we think about those operational projects, they all start somewhere, and that's the kind of role of the developer. So the development company traditionally will start by in very simple terms securing kind of land to actually build the site physically, these batteries, of course, located somewhere.

They'll secure the planning permission, and secure the grid connection with the relevant, DNO or kind of TEO. And what they're fundamentally doing is kind of setting the, I guess, base business case and kind of getting all the consents and rights for a project to be built going forward. So there's three things. Somewhere to put it, a bit of land, a grid connection that makes sense, and planning permission.

You're gonna get those three things together. They're the kind of fundamentals of the, yeah, of what a developer puts together. And so let's go through each one in a sec, in in in its own way. So getting land.

You have to buy the land. You have to have a promise from someone that you can rent it. How how does all that work? You have to go around in fields and knocking on people's door.

How do you find the land Yeah. So I I guess to state to take a step back, how we start our development cycle is actually kind of from the the business case angle first. So we kind of work out where on the grid if you were saying national grid would you actually put a battery? Or and we try to think about it from a kind of systems perspective, once we work that out and I'm sure we can come onto that in a minute, then it's a case of kind of physically finding land.

In terms of that kind of land negotiation, you'll go and speak to a land owner, and you'll negotiate what's called an option to lease. So generally, with batteries to dates, you lease land rather than kind of buying, say, the freehold land underneath it.

Why is that?

I think You can. You can buy. And I think it's kind of how it's been done traditionally to date. Potentially, you know, in investors feel, at least as a kind of safer option. You're not taking on kind of a land for a lot more money, which could theoretically be a liability going forward.

It's not to say one's better than the other. It's just kind of the way it's been done to date, basically. And how long do you need to lease the land for? So, yeah, the way it works is generally you'd have an option period first, which might be a a few years, basically, where you say to the land owner, we we have an option to lease your land.

And in that time, we'll undertake our development process. Obviously, all at risk that you're trying to get your planning permission and everything like that. And the reason you don't lease it at day one is, of course, if you lease it at day one and then planning gets, say, rejected after twelve months, you're stuck with a long term lease, which you can't do anything with. So that's the kind of, reason for the option period.

Once the actual lease is generally kind of thirty to maybe forty years in length, and that generally coincides with kind of, the asset life of these projects or kind of what they're expected to do, going forward. That's interesting. So it used to be twenty, twenty five years. Right?

In the solar days, it was twenty five years because I think the idea well, twenty five to thirty years, I can't remember now, but it's because of the feeding tariff and how long that lasted for. And then the design life of the inverters was usually twenty five years. And now it's getting longer to thirty and forty years. And what do you have to pay for a lease?

You know, how how does the lender get paid? Does he does he or she get a cut of the money you make, or do you pay them a fixed amount? How do you figure that all out? It's it's generally kind of a fixed amount.

So we might negotiate that ourselves or you might get agents to do it.

Generally, you kinda negotiate on a on a pounds per acre or a pounds per kind of megawatt lease.

So I could do megawatt's acres. Wow. You lose them on acres. Because it's, yeah, interesting interesting one.

And and it it really depends on where the market is at the kind of moment in time. So do you do pounds for megawatt? Because if you're gonna put a one or so you could put a one or two hour system in now, but you're leasing for forty years, and let's say, ten years time you're gonna put a three or four hour system in, You does the land owner just have to give you that and you, you know, the the megawatt thing feels like it's Yeah. That's that's pros and cons of each, isn't it?

There are pros and cons of each, and I think acreage is far simpler to do. And on the megawatts, it's more proportional to the size of the project you're building. And then, but theoretically, you could build a four hour duration system, but then on the inverse, Those batteries are, of course, degrading over time as well. So should the land owner be getting paid less each year as the batteries degrade and theoretically you make less money?

And it's It's really swings in roundabouts. Well, what else can the land owner use that land for? I guess for them, it's an opportunity cost question. Right?

So what are you competing with? If you if you're going to land owner and saying, I want to build a battery on your land. Let's get let's get an option agreement. And the land owner, which might be a farmer, let's say, says, well, I can make x pounds doing whatever a farmer does, growing stuff or rewilding.

What's the what what's the trade off for them? Yeah. Good question. It it depends on, you know, where the land is, kind of what land is being used for traditionally. So farmers are often the the people you deal with when negotiating this agreement So they might be using that land for agricultural purposes for for crops or, you know, whatever it may be.

So naturally, they're thinking I'm getting x amount from for my crop yield each year, I need to justify a high return, through a battery lease or a solar lease or whatever technology it may be.

And and of course, batteries can provide a much higher cost on a per acre acre per acre basis than what you might get through perhaps a crop yield, for example. So if you're a farmer, it's actually a very good way of kind of diversifying your income because you have a fixed asset on your land, which will sit there for, you know, thirty to forty years, and you're getting kind of a fixed, income over that time period whereas, of course, crops, for example, you know, you could be impacted by commodity cycles or weather cycles.

So perhaps they're kind of risk there. It's fundamentally more uncertain. So And you might have been screwed by Brexit. Right? Yeah. Because you used to get these subsidies and now you'd I don't understand it. I'd I live in a city.

But what I know is that some guys have got less money now than they used to. Exactly that, Quintin. So it is a good way of kind of diversifying your income, bringing in that kind of solid baseline which they can then spend on other things on the farm, you know, other kind of innovations to, improve the rest of their farm, for example. Cool.

Alright. So we don't land. And then let's do a good connection and then planning permission planning permission is probably the most, contentious one, isn't it? Because you're relying on humans to make a decision.

So grid connections. You've you've you've you've gone to your farmer, you've got a lease, you want an option to lease, and the option lasts what, two, three years, something like that. Yeah. Two, three, four years.

Okay. So you've got that piece of paper, one third of the way there. You're already spending spending the money in your head. Then you go to the grid the grid operator to the DNO that perhaps And you what do you have to do with them?

So generally, once you've identified, yeah, where you want to build the site, it will be ideally in close proximity to a substation, whether that's owned by the DNO or or the T. O. So the national grid or Scottish power transmission, whoever that that may be. And then it's likely you've had some kind of dialogue with them to dates of, you know, if we applied for a battery connection here, firstly, is there capacity on the network? What's that you go to cost to connect into their network, and you kind of have to work that all out in tandem to doing the kind of property side.

Don't really like rules of thumb. So if there is a, I don't know, a transformer that looks like x, don't go near it. Or is there if it's longer than two miles for the substay and don't go near it. Is there some things you can share with the people who are listening or share all your wisdom? Come on. Give away all the secrets of the Give away all the secrets. Yeah.

So with at Kona Energy, we're kind of firm believers in in scale. So the market's really matured in recent years. There's a lot more kind of money being invested into this asset class. So we generally target kind of projects of a hundred megawatt Okay.

So that immediately kind of reduces where we can place these assets on the grid. And for example, you're going to connect, let's say a minimum voltage of a hundred and thirty two KV, which is the kind of top end of the the DNOs. That's kind of the top end of their voltage level. All the transmission network where the voltage levels are two seven five k v or four hundred k v, which is with national grid here.

So big stuff big stuff. And and very simple, and I'm I'm not an engineer. So this this is incredibly simplistic, but the higher the voltage level, basically, the the more megawatts you can put on to into that substation.

So for example, if we were looking to do a hundred megawatts project on an eleven KV substation, you'd simply kind of block that substation. So if you applied for a connection of that kind of scale, the DNA or the national grid would come back to you and say, Sorry, guys. That physically doesn't work. If you want to make it work, they're kind of obliged to give you a license offer.

They'd say, they might say we have to build a new substation for you, which could cost tens or hundreds of millions, which clearly, you know, it's gonna ruin the economics right away. Yeah. We'll we'll do it for you, but we're gonna financially ruin you in doing it. Yeah.

It's funny actually over the years because ten years ago, solar developers wanted eleven and thirty three k v connections, and all the best ones got snapped up. This is for smaller sites. And as we've gone bigger, we've gone for these higher voltage connections. And it there was a a dash for tertiary windings at one point.

Pivot power got a lot of those. A lot of the fifty megawatt standard sites have gone now. And so we're we're going further up the chain. And I'd imagine that Trump National grid, they've got a lot more connection requests from batteries than they've ever had before because the the DNOs are well, the whole system's got a bit awry, hasn't it?

Let's talk about that for a second. What on earth is going on? We're gonna come back to a planning mission. What's going on connections?

You know this because you're on the ground. It's it sounds like it's nonsense. Yeah. So it's it's a very interesting time in the kind of connections industry at the minute.

And, An anecdotally, you know, we're hearing that development companies are putting in, grid applications to connect, let's say, the national grid network, and it might get a connection offer back in the kind of three months statutory time period, which says you can't connect it until twenty thirty five or twenty thirty seven. And, of course, if you take that to investors, they're going to they're going to laugh at you because, you know, they're not gonna wait fifteen years for a project to be built in a fundamentally uncertain market. And that zero will not wait until twenty thirty five either.

Exactly. So it it it is a big issue and NASAwood are looking to address this. I think the issue they've got at the minute is that a lot of technologies are trying to connect to the network. We've got obviously the fifty gigawatts of offshore wind by twenty thirty, a huge amount of solar that's planned to be built over the coming years.

A lot of batteries, So And now we've got all the hydrogen bobs turning up, and they wanna connect as well. Hydrogen. Still a few unfortunately kind of big gas plants in the mix as well. So what that means is that when national grid model your connection onto their system, they're not only modeling, say your battery, they're modeling everything else in the area that's looking to connect.

And what that means is that they say actually, let's, for simple terms, say we've got one gigawatts of capacity in this particular area, we've actually got ten gigawatts capacity looking to connect into that. So then they do a modeling exercise where they say to get you online.

Actually, we're gonna have to rebuild overhead line or put in a new overhead line, and that's obviously a long time in regards to project. And that's kind of what's causing these very much these very delayed connection dates. And it it is an issue. You know, I think if you go to a lot of big conferences where, even with the likes of kind of Aurora, you know, I think the CEO of Shell was there. And he was asked kind of what issue, do you have when looking at the UK kind of market to invest your money, and grid was the first thing he said in terms of grid capacity with connections, being able to build assets quickly.

And who would have thought that this is the thing that was gonna get us tripped up? Like, I don't know, three, four years ago, when everyone was running around shouting never gonna work. It was all about the business case. And then it was all about funding.

And then it was all about it was about financing. All these complicated things And then the thing that's holding us up is peace of y. Yeah. It's it's fascinating.

And as you say, I think the funding community has got a lot more comfortable with battery technology over the last few years. We've got the kind of proven track record in a lot of these assets on the grid. So those kind of questions will be I wouldn't say solved, but kind of mostly mitigated.

But now we've got an issue where you can't actually connect to the grid, often in kind of reasonable time frames. So What's reasonable?

So you said two I can I can I can I can sense that two thousand thirty five is unreasonable?

But what does good look like? If I'm, say, Gresham House or Gore Street, and I'm looking oh, you don't work for those guys, but you must speak to them all. And we wanna we wanna deploy a load of megawatts.

Is you know, I'd I'd imagine a lot of twenty twenty three connect twenty twenty three connections have already been bought up. Twenty twenty four, twenty twenty five, twenty twenty six. You know, what kind of sites are on the market and what does good look like right now? Generally, the sooner. There's there's times done this. This is Monday the seventh of November twenty twenty two. Generally, the sooner the better.

So, obviously, whatever site you have gonna take time to build. So let's say as a rule of thumb, it's gonna take you kind of twelve months to build a project from, first kind of spade in the ground.

So if you can kind of secure a, say, a late twenty twenty three connection or an early twenty twenty four connection, that generally kind of the most attractive for these big investors because they want to deploy that capital they've raised and see a return on it as soon as possible.

I won't I'll caveat the kind of answer to that slightly because obviously, sell prices are kind of very high at the moment. So some investors are actually thinking should we hold on and would say a twenty twenty five connection actually be more optimal because we'll wait for those kind of sale prices. What is very high mean?

I don't have the kind of numbers to hand, but you know, we've seen in the kind of last two years that prices have increased massively due to, supply chain issues, So it used to be two, three years ago, it used to be after biocide for thirty thirty five grand a megawatt. And spade ready, ready to build. And I'm assuming the thirty five grand a megawatt doesn't exist anymore. So are we fifty, seventy, hundred, hundred and fifty, two hundred, two fifty?

How what what kind of range are we in these days? The premiums have definitely gone up. I think the the point on on sale prices is that that's the physical batch of sales, which means obviously impacts that kind of whole project or what, rather than kind of the money that a connection might cost you. But, yeah, premiums have shot up and we, you know, when we ran our process, we we did that all kind of internally.

But, you know, there's a lot of kind of bespoke kind of M and A advisors that run transactions, and we are hearing numbers of, you know, a hundred k plus a megawatts, a very kind of high figure for. So, yeah, three times plus what it was two or three years ago. Yeah. And that is directly impacting the IRRs of these projects.

Because we've got the the CapEx has gone up because sales cost more because supply chains and inflation and all of that. Plus premiums on sites. I mean, there is a point where you gotta think where yes. The cost of capital is going down.

You in a low interest environment, by the way, not necessarily right now? There is a there is a point where this doesn't really make sense anymore. Right? Yeah.

And and I think one of the really interesting things at the moment to bring it back to that kind of, grid connection, position is A lot of people are trying to develop projects all over the network. And we've seen kind of numbers that the pipeline in the UK is in gigawatts and gigawatts. You'd expect a lot of, you know, the investors would be in a strong position. And, you know, some investors have bought kind of lots and lots of sites, on good terms, I'm sure.

But there is still this kind of scarcity value within the market that you, if if you have a a project with a kind of quicker grid connection date, that is kind of valuable. Yeah. The so on on the the top trumps cards, it looks like a buyer's market. But then it's not if you want good sites and sites now.

Which most people do. Alright. Let's go back to the, you were explaining very well how the whole process worked. Last thing, planning permission.

Is it difficult to get planning permission for a battery?

Good question. And and it's kind of how long's a piece of string question because it really depends obviously where you cite these batteries and the kind of local conditions and everything like that.

I think again, Kona, we're looking at scalable projects kind of generally a hundred megawatts plus. And we've benefited from some very kind of forward thinking policy back in think it was November twenty twenty. So there used to be a a fifty megawatt cap on batteries.

And just, yeah, provide a bit more information on that. So if you are below fifty megawatts, you could apply for planning through the kind of town and country planning apps, the basically the local designation. And if you went above fifty megawatts, you'd have to go through the kind of DCO route, which is a very long process. You see how it stands for.

Development consent order. And So that's big power station stuff. It's the same national level as opposed to just a faster normal planning mission. Exactly that.

It's the same process as, say, the offshore wind farms or a new CCTT might have to go through. And I think the government kinda rightly thought that actually even though the megawatts might be a hundred megawatts, that sounds like a huge amount of power, which it is. Actually, these batteries are probably in a couple of acres and a field -- Yeah. -- from a kind of a planning policy perspective, they're not having kind of huge detrimental impacts.

So So if you so before, if you wanted to go above fifty megawatts, you have to go down this long painful DCO route, which is is a couple of years, wasn't it? I don't need the secretary of state to sign off on it. It's that big. Exactly.

It's that big. So you had this, again, this interesting conundrum in the market where everyone would try and go for forty nine point nine megabytes. Forty nine point nines. Yeah.

Keep keep below that cap. So, which And again, fair play to the government that they rightly saw this as an issue. We need a policy change to amend this. And basically, they relaxed that kind of megawatt cap But you also got if you're less less than fifty, you could be in the gray area where you, you can have a generation license.

So you're a licensed Abaul.

But also license exempt and a license holder at the same time, which, there's a Venn diagram somewhere that'll blow my mind. Yeah. Which meant you got embedded benefits, but you also didn't pay all the non commodity costs, which is insane, which is why you got these types of generation licenses. Anyways, there's a few reasons why they are forty nine point nines, but Again, what an odd situation.

So you want an odd situation, and I think one of the science mining where there's it's a hundred megawatt plant technically split into two projects with two different SPVs and two separate planning applications. And two different SPVs. So that's two different companies, special purpose vehicles. Limited companies that own half each.

Exactly. Bancres, isn't it? Yeah. It's the same overall kind of end investor, and everyone could see it was pragmatic puts, say, I had to megawatts on that site, but they had to they couldn't just put in one planning application.

It technically had to be two, which, you know, is very see it is his bunkers as he says. That's gotta be efficient. Anyway, so coming back to getting plumbing permission. So you focus on the big stuff, and now you can do the big stuff through a normal planning application, not the DCO, which is great.

And how do you how do you get planning permission for a big hundred megawatt site? Let's start let's start with some examples. How many containers is it for a hundred megawatt site? And let's start backwards from there.

Yeah. So as you say, these batteries predominantly are kind of containerized system on kind of greenfield or brownfield sites. And for a hundred megawatt again, it depends on your duration, but, there'll there'll be a lot of containers probably probably a hundred plus, for for that kind of site. So how they actually look is you'll kind of have your transformer, your substation, your balance of plants, and then often it's just kind of lots of these containers.

In a field in effect.

They're normally kind of around two point four meters high. So from a visual kind of impact, you're taking up a few acres of land, but they're not, say, anywhere near as big as their CCCT or or anything like that. So they are kind of intrusive than than a lot of big infrastructure that's kinda built in the UK.

So what you would would initially do is that you'd apply to the local authorities so that the kind of council where you're looking to build this battery, and you would, say we're gonna build a system of this size and these are kind of all our, this is these are our plans. This is how big it is. These are how many containers. You'd have to do a lot of studies, psychology studies, visual impact studies.

Check for some newts. Check for newts. That's always a big one. Take for bats. Take for bats, badgers.

You'd what else would you just do? A noise studies, of course, especially if you're kind of within, an area that's close to where people are living, and eventually you submit this kind of big part of information. Yeah. So you got this big folder that you submit, and then you've got you've ticked all the boxes. And then what the chances that it gets rejected?

This, and it's a difficult question. It is. Yeah. If you had to put a number on it.

I'd I'd say probably about seventy to eighty percent are getting approved at the moment. Okay. Which is good. It's it's it's fairly high number.

And a lot of kind of councils in the UK have declared climate emergencies. So they are very aware that, you know, we need a lot more clean energy, renewables, batteries to really help us decarbonize as quickly as possible. So they are aware of that, and that factors into all their decision making. I think naturally, you need to cite these batteries in the right locations, but if you're in a community where, people are potentially living close to the battery, then there is going to be more kickback because, not many people want the battery in there, in that back garden realistically.

So as a developer, you'd often run a kind of I would love one.

You'd run a consultation process where you'd actually go out and kind of, run a an event where you'd actually speak to a lot of the locals, you'd address their concerns, everything like that. You'd explain to them the technology because you know, we're obviously pretty familiar with batteries, but to a lot of people, it is very new and it's still very nascent.

So you you'd explain that to them kind of explain the benefits, how the construction process works and everything like that and and try to get them comfortable with what's actually happening on these sites. Okay. Cool. So those are the three things you have to put to that title there.

Sounds easy. Right? Very easy. Development always get this. They get told that what they do is easy and it's very, very difficult.

And so you get all these sites together. Let's talk about the deal you just closed. So, this is, where to start? This is this is this is huge because I think this is your first one that you sold, and not only did you sell, a big site or multiple sites.

You sold it to one of the biggest funds in the UK, one of the biggest funds in Europe. Gore Street who I'd imagine go through everything with a fine tooth comb because they're professionals. So, what was that like? What what what what was the deal?

What did you sell? What did they buy? And what was the process like?

Just before we we get on to that process, I'll I'll give you a bit on that. A bit more information on the project as well. And again, I'm probably sidetracking slightly here, Quincy, but In in the UK market to date, the kind of business case for batteries has been governed by the frequency response markets. Yep. So EFR, FFR, dynamic containment more recently.

And and ultimately those markets are quite shallow. So when enough batteries are built, the price of those markets will and I think a lot of investors have moved into the markets. On the back of these kind of quite lucrative frequency response markets, So when we develop when we develop our projects, we try to look beyond those markets and really kind of locate areas of the grid where we can connect where you're solving not just, you're not just gonna be delivering a frequency response issue. You're going to kind of solve a a local constraint as well. So our first project that we've recently sold to to Gore Street, any destroyed fund is in it's in the northwest of England.

The substation would connect into is the it's the landing point for, six offshore wind farms. So obviously, they're putting in kind of a lot of energy to the system.

So when we started developing this project, we looked at kind of how much those projects are, those offshore wind farms getting paid. And some of them are, or one of them, in particular, is on one of the very early CFT contracts. So round one, it's on an index linked contract. So the price it's receiving per megawatt hour is about a hundred and eighty pound now, which is very high, potentially not actually at the minute, considering everything that's happened in the last kind of to nine months with energy markets.

But it's receiving a lot of money for each megawatt hour it produces. And rightly so, I think the CFT has It's a great, policy in all, but naturally the first. A hundred and eighty quid, they're probably still giving some back to the government. I think they are now exactly to say. And and as we know, the the recent price of the CFD Oxtons is forty pound, and it just shows how quickly the price of offshore wind has come down.

But what we also looked at was the curtailment of these assets. So what that means is how often these wind farms were asked to basically turn off when perhaps there was an oversupply of energy, and the local grid infrastructure couldn't take that energy. And we actually realized that in that part of the network, it was very, very high. So there was a lot of curtailment at these offshore wind farms.

And when they get curtailed, because they've got a CFT, they have to get paid to curtail. Right? Exactly. Because, you know, for the offshore wind farm operator, they're thinking, we've done our part of the job.

We we're producing kind of clean free energy when it's windy. It's not our problem, you know, that we're being curtailed. That's a that's a network issue further down the line. So they still need to have that that CFT paid to them so they can justify and kind of pay off their initial investments.

So our kind of very simple logic thinking about the offshore wind is if you have a large scale battery out of a facility like that, rather than curtailing the wind and kind of bidding off those wind farms, you can use that battery to store when there's an excess of energy, hold it and obviously give it back to the grid kind of at times of need later in the day. If I understand this correctly, your thesis is develop battery sites in places located where there is a benefit. And one of those examples is where those offshore wind that's getting paid to switch off, that something's broken there.

So let's put a battery there. And hopefully some of that rather than paying them to switch off, we can pay to use the battery instead, and then we're still keeping the renewable energy from the wind. Is that right? Correct.

And that's, yeah, that's one of the kind of local constraints we identified in the northwest of England at this place called Haitian, where we're connecting. Haitian that also has a very large nuclear station. Right? Yes.

And that's another very interesting point because there's two, EDF nuclear plants next door to each other there. Haitian one and Haitian two. I used to work in Haitian, by the way. It's outside point.

I spent a year, almost a year living in in Lancaster, working patiently when I worked in offshore oil and gas. And if you stand from the West Coast, if you look out sea, you can see some offshore, gas platforms that owned and operated by Centrica. So I used to, play with those. It's a fascinating part of the world.

Energy perspective. Yeah. Yeah. You've got the nuclear plants, the offshore wind, the the kind of gas as well.

So and for us, both those nuclear facilities are coming offline and I think Haitian one is meant to be twenty twenty four and Haitian two is twenty twenty eight. Yeah. And they those parts obviously provide kind of base load, energy to the system. And there's so much power infrastructure around there.

There's overhead lines everywhere. There's massive subs there's just it just feels like somewhere, which is is is is asking for more generation and more more electrical stuff. Exactly. And then one of the things we did was we looked at kind of what what else are these nuclear power stations, these nuclear plants doing, and what's gonna be the impact when they when they come offline?

And Haitian one and Haitian two through the kind of merchant reactive power markets that NASA could offer.

They get paid more than any other on the system to absorb vase from the system. So again, predominantly caused by the kind of, increase in renewables in the local area. So one of our kind of, hypothesis was, you know, what happens when those nuclear plants come off in the next few years? There's, there's, again, gonna be a big hole for say reactive power absorption, which again is a service the battery can offer.

So when we were taking this project out to market, the likes of Gore Street, we weren't pitching it as a a frequency response battery. This was a battery that could manage kind of multiple, grid constraints in terms of those energy constraints from the wind, but also solving some of those more kind of system issues through reactive power issues, lack of inertia when the big, thermal plant comes offline. This is smart. So you're saying, I don't know what future looks like, but there's some big, almost macro y impacts on this local area with the new wind and the nuclear coming off.

And all this power and structure. I don't know what the future looks like in revenues, but I do know that if we put a battery here, it's gonna be top of the pile to access those revenues.

Correct. And and again, it's it's an interesting sell to the investors because some people would ask us, okay, that sounds great. And we totally agree with the hypothesis. Not put it in a spreadsheet.

Yeah. Give it. Give us the contract that lines with that. So you get the guaranteed income.

And and you and you can't ultimately because there isn't a long term contract to provide those services. So we would do a lot of analysis on the kind of, the Orbus market, reactor power market, what the price is to date, what theoretically it's gonna be going forward. It's a murky market, isn't it? It's a murky market.

And you you show that that, you know, you show that the investors. And I guess you wanna work with people that hold that same belief that these batteries can provide multiple services and kind of manage multiple system issues. But again, we so we try and look at the market as holistically as possible to, to use batteries to manage multiple multiple areas of grid. As an aside, my hope is with all this wind, because because the wind is connected behind an inverter, that the wind will be able to address power facts themselves.

So we don't have as many reactive power issues on the network. It's my idea. Yeah. It will take a lot of coordination from National Grid.

I don't know. This kinda goes against what you've we're just saying in batteries. We'll play play a role in it too. My hope is that We've got so much power electronics connected to the grid through wind and solar.

Do we manage it a bit better? And we're just not we're not stuck at, you know, unity power factor or four point nine five, and that's it. Anyway, that's on the side. No.

I I agree. It's an optimization problem. We need to solve, really. Is an optimization problem, and National Grid ran a another kind of pathfinder contracts about a year ago for voltage managements.

And one of the winners of that contract was an off tow. So an off shore kind of transmission owner which connects wind farms into the the mainland grid. So they can use those kind of power electronics to provide that service as well as, batteries or whatever the other technology may be. And ultimately, it's about managing this in the cheapest way possible for the end consumer, whether it's batteries or or wind farm in effect.

Absolutely. And then let's talk about the deal. Right? Let's finish up on the deal. What does it what's it what's it like to to finally sell the project?

Who's involved? I imagine there's lots and lots of smart people who come in and say, that's not right. Or you know, you when you first in involved in a deal, you're both looking at each other and you're saying, you know, I I really like the site. You're very pretty.

Everything's wonderful. And then you get into it. I mean, the game is to say, well, that bit's not right. That bit's not right.

We're gonna adjust this. So what what's that like and what's the emotions of doing Like Yes. It's you run a process where you speak to a few different investors who are interested in the site and ultimately they want to buy it.

Obviously, it's public that we've gone with Wall Street Energy Storage Fund for this first transaction. And, you know, they they were the first kind of UK energy storage fund they've been around in the market quite a few years. They own quite a few assets in the UK, but also assets in the US and in Europe as well. So they're kind of a very good credible counterparty that really know how to build these projects to finance them to operate them.

And so naturally, they're a great party to go with, but they're going to kind of really scrutinize and review all the documents you're putting forward to them. So these processes take a long time because they're kind of putting their technical advisors to really scrutinize what's in grid docs, what's in the planning docs, what's in the land docs, and as a developer, we need to make sure all those documents are are kind of in tip top condition that, there's nothing the project's going to fall over on. So how it works in very simple terms is Once, once the the fund, the buyer are kind of comfortable from a due diligence perspective, they'll produce a number of reports confirming they're happy and what the potential risks are in pitfalls and everything like that, then you kind of physically draw out the legal documents and Gorsebery are buying a subsidiary company owned by Kona Energy Limited, which holds all the rights to the project.

So then they will kind of be responsible for ultimately building that project out going forward. So the product's in a in its own limited company, and you're just gonna sell that lit all the rights and everything's in the in the, call it an SPV, right, special potential purpose vehicle. And then you that they buy that company from you, and that's it. You're done.

Your baby's gone. So so we have a role kind of going forward with Gore Street.

In in a form of services agreement where it's mainly kind of stakeholder management through to construction of the project. But for all intents and purposes, you know, they're the they're the party with the kind of big money to actually build out this project, and they'll obviously kind of reap the rewards of the the long time revenue that the project makes. And starting out, it's that kind of temptation of, you know, do you look to raise the money to to try and build out the project yourself, but especially our scaling at this point in time, I thought we don't wanna reinvent the wheel.

There's there's people who know this stuff a lot better than we do have much cheaper cost of capital. So it makes sense to to work with a party like like Wall Street. Well, I guess you've got some money in the bank now that you're gonna invest in the company and do more stuff. Is that right?

That's correct, Quintin. In the end, thank you. So we've got a pipeline in development. So we've we've got a few sites, again, all of kind of similar scale across the grid, about one gigawatts and all.

So we're developing objects across the grid, we'll be looking to kind of accelerate those in the in the coming months, and grow the team, as you say, because I I've been doing a lot of the work kind of various consultants in the last few months, but it'll be great to get some sleep. Get to sleep. Go on holiday, maybe. No.

You gotta wait a few more years before you can go on holiday. But it'd be nice to bring in kind of a team as well to, initially focus in the UK, and we will be looking at some kind of international markets going forward as well. Awesome. Awesome.

So, last thing to ask, have you got anything you wanna plug? So I guess if anyone's listening and you're looking for sites, they should probably get in touch with you or is is it too early for that or should it? No. How how how does that work?

And secondly, is there anything you wanna plug that you're working on that you think we should talk about?

In terms of plugging, we're we're working on a couple of actual joint ventures with other development companies, some kind of trusted partners there are always willing to work with other development companies looking to develop our projects.

In terms of Yeah. What what what needs changing, perhaps. I think NASA Grid is doing a good job looking to introduce, a form of queue management.

In the kind of connections register. So they're looking to management.

So going back to that kind of grid connection issues where people are getting, say, late twenty, thirty connection dates One of the issue is that a lot of people are contracted to connect, but theoretically they might not be doing anything with those sites, but those sites are holding up. Also, like, holding tech or holding capacity, which means if you're, say, a battery or a solar project behind them, you can't connect until kind of those projects work out what they're doing. Yep. And at the minute, the way the kind of market works in contracting structure is that those projects can modify that application and and kind of push back year on year until you know, they might be waiting on planning to come through a funding, which might have taken a few years.

And that's the grid of trying to incentivize projects that can be built quickly to get online as quickly as possible. So they've kinda be jumped up the queue, basically, or the projects in front of them would be, downgrade or perhaps terminated if they've been sitting there for a number of years. Not doing anything. So a bit of intelligence looking at the queue of people trying to connect saying, alright, who's actually gonna do it in the near term?

And let's prioritize those guys. In in effect, so that's no good. We'll say to those projects that are at the front of the the cube, but perhaps not doing anything.

You have to hit certain milestones certain dates. I get your planning permission, start construction, everything like that. And if those projects don't hit those milestones, They'll in effect be kind of removed from that queue, which will mean projects behind that will be able to come online more quickly. Cool.

How do we read about this? This is it sounds wholly pragmatic and sensible yet I imagine can cause quite a lot of, I imagine it's fairly contentious when you start kicking people out of queues. Right? So How do we read read read read more about this and learn more about that?

So I believe it's going through a cask mod called c m p three seven six. Very there we go. And use of system code. Yeah.

I think ten. You would have to get someone to check that one, but So that's a modification which goes through that code, which NASA is trying to introduce, which I believe is three m p three seven six. Three seven six. So they are running a consultation on that or they will be in the kind of coming month or two where industry participants can write in kind of supporting or or not supporting it.

Naturally with all these things, it's people that perhaps have a load of connections ready to go now, but aren't building them will be kind of potentially annoyed that they're getting shunted back. But I think we have to look about the bigger picture. Yeah. Yeah.

Yeah. We need assets, whoever they are, solar wind batches that can be built quickly in the current environment should be online in getting built. It's gonna get moving. Exactly.

So frustrating. That's great that that's I'm all about on the DNO side. Is there any is is there any move to do the same kind of thing for DNOs?

It's it's kind of all tied together and the DNS have already been already been kind of very pragmatic with their kind of active network management scheme. So if there is a constraint in the local area to work with, say, the provided to try and get them online more quickly.

So it's that they're on top of it as well. And I think everyone, both the TOs and the DNOs are aware that customers wanna get things online as quickly as possible. The government does investors. So they need to need to try and solve it as quickly as they can.

So But it all relies on national grid anyway, doesn't it? Because of the statement of works process and all that. I mean, the DNOs are just to further down the chain, but we need to go right to the top. Exactly.

And you've heard a few stories where the the statement of processes are taking kind of a very long time to get through. And then again, you might have the same issue where you can't connect into We should do a competition to see who's had the longest connection dates. Yeah. I would like to see if anyone's listening to this and you've got, like, a twenty you said twenty thirty five.

Anything after twenty thirty five, let's see it. Post below. Let's see it. Let's let's frame it and see where that actually built.

Alright. Cool. I think we've we've gone well over time, but, I love that conversation. I wanna say thanks for coming on.

It's been a blast. And we'll put a link to the notes, in in the notes to your website and all the stuff you're working on. And once again, huge kudos and getting the project over the line, and we wanna see you do many, many more. So, awesome.

Thank you for having me. Thanks for coming on.