Optimizing in ERCOT with Mike Kirschner (US Managing Director @ Habitat Energy)

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- It's complicated because we've got seven ISOs or opportunities to participate in markets. But I think I would say that the history the last 10 years has been really big wind and solar development, mostly wind. But solar has been coming on strong the last few years.

But those are passive assets. You build them. You bring them in. You bring them online.

They're running, and you're in the real-time market. And that's all you need. That plus tax credits, you generally have your business model working.

I think what's happened in the last few years is that people have learned that the battery is a different asset class. It's just not the same as wind and solar. But there hasn't been a service provider that was doing optimization of wind and solar. So the opportunity to find someone to help you commercialize your power plants, to think about your opportunities to participate in the different markets, ancillary services to the extent you can, that was sort of a new mindset.

- Hello, and welcome back to Transmission. Today's conversation is with Habitat Energy's US Managing Director Mike Kirschner. Mike covers the role of the optimizer and what that entails in the US markets. If you're enjoying the podcast, please hit subscribe so you never miss an episode. And it helps others to discover the show. With that, let's jump in.

[ENERGETIC MUSIC]

- Mike, thanks for coming on the podcast.

- Oh, it's my pleasure. Thanks for having me.

- We are in--

we're upstairs at a hotel. And we're in a hotel room, which it's quite nice, in Austin, Texas. We're here for the--

MIKE KIRSCHNER: Beautiful view.

- --Energy Storage--

[LAUGHS]

it is a beautiful view--

Energy Storage Summit for the US in 2024. And, Mike, we've been meaning to have you on the podcast for a while now. So thank you for joining us.

- My pleasure. I really appreciate the invitation. Usually, I don't get these. So I'm pretty excited when someone says, hey, we want to hear you talk. Most people ask me to be quiet, so this is great.

- To set the scene for everybody listening, so Habitat Energy are an optimizer in the UK. Most people listening to this would have heard of Habitat. And you guys are expanding across the US. And Mike is the managing director for that and running, expanding all over North America.

- That would be the hope, right? We want to get all the ISOs as fast as we can, right? But we want to start in Texas.

- All right, and so before we talk about Habitat and what you're doing there, Mike, do you just want to talk about your experience and what you've been doing in energy and how you ended up here, please?

- Oh, yeah, no, it's great. My previous assignment was vice president of Markets and Analytics at Vistra Corp. Vistra is the parent company of Texas Utilities, one of the old regulated entities, one of the largest holders of both load and gen in the ERCOT market. They did an acquisition of Dynegy Corporation, which was my previous employer.

And they put together--

what Dynegy had done was to do an M&A across a lot of the US ISOs--

California, Midwest, MISO, PJM, Northeast--

and effectively built a very big IPP business across the whole US market.

And so my job was fundamentals of power, fundamentals of natural gas as a driver of our power business, and then, of course, all the analytics that support that. And the battery asset class is the last thing that went into our development pipeline. First projects were coming out. We were struggling with them, how to manage them, how to optimize them.

And I got a call from the Habitat team that said, Would you like to give us a go? And I thought, that would be a great idea.

- And so in your chosen--

so you started with ERCOT. We're going to talk about expansion across the US in a minute. But I guess it's worth setting the scene that the market for optimizers, or being an optimizer is quite an unusual thing out here.

So if you're listening from Europe or the UK and you're used to asset owners signing a contract with a third-party optimizer to trade their power, like Habitat do in the UK and many others, that's not so normal over here, right? And so there's a bit of a challenge, a bit of an education and other bits. So do you want to just talk about that? How does the market work here?

- Right, so that's a great question. It's complicated because we've got seven ISOs or opportunities to participate in markets. But I think I would say that the history the last 10 years, it's been really big wind and solar development, mostly wind. But solar has been coming on strong the last few years.

But those are passive assets. You build them. You bring them in. You bring them online.

They're running, and you're in the real-time market. And that's all you need. That plus tax credits, you generally have your business model working.

I think what's happened in the last few years is that people have learned that the battery is a different asset class. It's just not the same as wind and solar. But there hasn't been a service provider that was doing optimization of wind and solar. So the opportunity to find someone to help you commercialize your power plants, to think about your opportunities to participate in the different markets, ancillary services to the extent you can, that was sort of a new mindset.

And because there's so many big players in the US that dominate most of the footprint, I think it reduced the amount of people that would want to acquire those services because they had the ability to do that work in house. I think what's interesting about the development of batteries is that the development cycle is a little bit faster. Real estate requirements are a little bit smaller.

And so I think a lot of people have been able to get the land and make that work. But then they get to the market, and it's like, What do I do now? And that's where I think Habitat's got a real opportunity to provide the commercialization service, from the development and the in-service date back to How do I get full value out of the asset in the marketplace?

- Yeah, I mean, on one hand, it's challenging in that the optimizer market isn't mature here in the US.

MIKE KIRSCHNER: Right.

- On the other hand, there's a massive opportunity, right? Because having an edge in providing those services in an intelligent way could be a real game-changer. Let's talk about Habitat now.

So the company's been going five or six years. Could you give a brief overview of Habitat to date and then where you guys are headed? What's the big vision?

- OK, I'm going to speak for the leadership team, who are my bosses, who founded the company. But going back six, seven years, I think they sat down and looked at the way batteries were being deployed, their fit in the new market development, how the footprint was going to be broken out, and identified the battery as a necessary solution, right? You can't have that much non-dispatchable assets and maintain stability.

So there's an engineering problem that the battery just naturally solves. But how do you get the market mechanics to work is a whole other problem. And I think they saw that in the UK first and built the company from scratch there, and I think in many cases had to follow the exact outline that you laid out, where they have to educate clients, teach them what's possible, demonstrate what kind of capability would deliver that value, and then build it out and build confidence around it.

And I think that track record you see over the first three or four years of Habitat, 2017 to 2020. And then I think they expanded into Australia. They looked at expanding into some of the European markets.

And then around 2021, I believe that's when Quinbrook came in and said, hey, I think we'd like to take this to the US. Your footprint matches our footprint. And I think they took us private, gave us the capital we needed to begin building out our business, particularly the US market. And that's how we got to this point today.

- And so Habitat is fully owned by Quinbrook. Is that right?

MIKE KIRSCHNER: That's correct.

- And probably worth noting, I mean, my experience in the last few years--

the first time I heard the word "optimizer" in this realm was Habitat. They basically coined the phrase, in my mind, back in 2017, 2018.

MIKE KIRSCHNER: Right.

- And now it's just a totally--

a standard thing.

So OK, let's talk about the big vision then. Where are you guys headed? Obviously, the US is a really important market to you. But what's the big picture here?

- So the way I think about it is we want to be a national company. We want to be able to provide these services across the US. A lot of the clients that we are looking to service in ERCOT are planning to build and develop projects in other markets or acquire projects in other markets.

So our goal is to be everywhere. It's hard to do that all at once, though. And so we elected to choose ERCOT as our start point.

I think the opportunity to be in a market that's energy only plays really strongly to the battery capability. Also, the fact that the ORDC structure is a big part of it, it creates a really strong offer cap, $5,000 price cap. Used to be $9,000. But it's a very strong incentive to be opportunistic. And the battery is just really well suited for that.

If we can do this in the--

this market, the Texas market, with its penetration of wind and what we see is the growth in solar, I think the other markets are following suit. Texas is just naturally gifted with wind and solar capability. You look at the maps of where you get the best wind performance, where you get the best solar performance, Texas is like the nexus of those two maps.

PJM not so much for the solar, some wind.

Every market's got a little bit different. But California is great for solar. Wind is OK. Texas is great for everything.

So if we can get good here, I think our sense is that we can be really good everywhere. And the economies of scale that come with expansion, we'd expect to see that we can provide this optimization service for eventually just a small premium over what would be a SaaS model and really improve people's performance. And ultimately, as a business, our mission is to expand how quickly renewables get brought into the system. So maximizing their returns is how we make sure that the system gets greener over time.

- Can we just take stock of where Habitat's at right now? So how many people are working on the company, or in the company? It's a bit like a project, isn't it?

How many people are working on the project? Where are they based? What's the bit that you look after?

So you look after the US. But how many people are--

how many people are doing that? Let's just get some numbers and some idea about who's working on what.

- Right. We're not quite at 100. That's like a milestone. We were having a conversation about we should have a celebration when we get there.

But let's say 90 is sort of where we're sitting at as an organization. Probably maybe a little over half of that is sitting in the UK, spread between Oxford and London, that general area. And then I think in the US, we have about 15 or 20, probably more like 20 now. We keep hiring people, so it's hard to keep track.

I think we're about 20. And then the Australian business has got another 10 or 15 people, something like that. So that's generally, I think, where we're sitting.

And obviously, we intend to continue to grow. And our goal is to have as many people as we need. And as we build out our business, obviously, the demands will go up with it.

- And what's the model? Because you guys are very--

you're technology driven, right? So if I understand your pitch, a lot of it is about forecasting and machine learning and really using data as an advantage in the market.

MIKE KIRSCHNER: Yeah.

- But then also, you have loads of people, right? You've got 90 people. I didn't realize it was that many.

MIKE KIRSCHNER: Right.

- So I know some of them build software. That makes sense. But then what do the other guys do? Are they looking after the software?

Are they--

what's happening?

- No, it's a good question.

The value chain in the commercial organization is front, middle, back office. So you've got to have credit. You've got to be managing the cash flows.

There's a lot of operational risk with managing someone else's asset through the QSE structure that we typically employ with our clients.

- QSE, just for anyone who's not from this market--

MIKE KIRSCHNER: Yes.

- --is Qualifying Scheduling Entity, right?

MIKE KIRSCHNER: Yep.

- That means--

it's basically market access. So that means that you can play in the market.

- Right.

QUENTIN SCRIMSHIRE: Sorry.

- No, no, that's right.

QUENTIN SCRIMSHIRE: Because it's Q-S-E, or QSE.

- And part of that QSE, or Qualified Scheduling Entity structure, is that you have the collateral to participate in the market. ERCOT being one of the more volatile power markets in the world, certainly in our country, there's a lot of reasons to be very careful with how you operate and what risks you take.

Everyone remembers Winter Storm Uri. There's been a couple of winter storms since then that continue to demonstrate how difficult the market is in the wintertime. And then last summer, if you were watching August of 2023, there was a heat dome that sat over the state for about 45 days.

- That's when I'd just moved to Texas. It was brutal.

- Yes, it's hard to want to stay at home--

QUENTIN SCRIMSHIRE: I almost went home.

- --when you've seen that kind of weather, I think. But it's not like that all the time.

QUENTIN SCRIMSHIRE: Yeah, it's beautiful now.

- Yeah, definitely winter peaking for humans, right? We'd like to be there in the wintertime.

- How does that work, just out of interest? So the posting collateral to access ERCOT, is it expensive? Can small players do it? Could Habitat have done this without the backing, the big parent backing? Or, yeah, how does that work?

- I--

there really isn't a choice. You have to do it, so if you're building an asset, that just has to be part of your business plan. The way you do it, though, can be more or less efficient, depending on how you structure your entity.

So partnering with a QSE, partnering with another player that has assets and receivables goes a long way to help alleviate that. When you're a net receiver of cash, you generally don't need a lot of collateral because you're--

in some sense, your receivables are managing that for you. But the minute you have an operating issue, unit goes down, you have to buy back your position, that can invert your cash flows. And you have to make sure that you've got the right balance sheet behind it.

I think we'd be a lot less comfortable with our capabilities without Quinbrook's support. And I think our clients feel the same way. It's just--

it's a natural fit, I think, for what we're able to do and how we want to provide value to have their investment and support for the organization.

- So you've got to have money in your pocket to even play in this market because prices can go so high in ERCOT, right?

- Yeah, that's right. And you think about--

it's not--

I mean, that's true. So for every megawatt, you could lose $5,000 because you could sell it for $50 and have to buy it back for $5,000.

But it's more than that. It's with the batteries, you can stack ancillaries to a head. So I could sell RS for 24 hours. But if I had to buy it back because my unit went down, I'm buying 24 times my one-hour battery's capacity times that $5,000. And that's where the leverage really bites you if you're not careful.

- So you can buy back your ancillary services?

- Yeah, you can. There's bilateral transactions. There's not really a liquid market. And that's something we'll probably touch on as we go through the questions. That's something that I think needs to evolve.

But certainly, we get on the phones during the day. And we get calls during the day from other trading shops that are saying, hey, we need some. Can you give us some? And then find a way to trade.

- All right, well, let's get into that then. Let's--

MIKE KIRSCHNER: All right.

- --another "take stock," if you don't mind. So let's do some numbers. You guys operate a lot of assets around the world. Can you just talk through what those assets--

the customers you work with, what the assets look like? Yeah, just a few numbers to get us ready for the next bit about how you guys actually do it.

- Right. Well, I think--

I know the UK is operating about a gigawatt today, certainly under contract, maybe double that. In the US, we're operating 60 megawatts from a sister company of Quinbrook. But we've got over a gig of sales completed for this year.

- So 60 megawatts online in ERCOT right now through Quinbrook.

- Yeah, and then another gig coming through the remainder of the year, names to be released later.

QUENTIN SCRIMSHIRE: Oh, you can't do it now?

- You know, we--

no, not yet. I--

that's the one thing I was told I have to keep quiet. So I'm going to do my job.

QUENTIN SCRIMSHIRE: All right, OK.

- But it's a good question.

QUENTIN SCRIMSHIRE: Can I name some names, and then you cough at the right time?

- But the UK team, I think we can talk about PULSE. We've got Eel. We've got several, I think, big players.

And then in Australia, we've still got a couple of those players as well. And Quinbrook is obviously one of our--

their investment companies, portfolio companies are also our clients.

- All right, so it's probably worth setting the scene with a bit of a sales pitch from you guys. So when you're trying to sell your optimization services, particularly in the US, in ERCOT--

MIKE KIRSCHNER: Yes.

- --and you're selling it to a market, which has historically done this stuff themselves, you're saying, give us the keys to your asset. And we're going to do it better than you can, right, I think?

MIKE KIRSCHNER: Yes.

- What does that look like? What does that sales pitch actually--

how does it go down?

- Well, I don't think we walk in and say, we're going to do it better than you, just because you don't want to take an adversarial position day one. But I think what we try to do is explain the unique attributes of the battery and the battery class and just say, ERCOT is a market where you have to offer and be accepted before you can participate. So you have to be changing your offer curves every five minutes.

Were you planning on doing that 24 hours a day, 7 days a week, 365 days a year? We build automation for that. That's our software.

You'd asked about the value proposition. And I think that's where we would go to. It's like we built this for you broadly, like the people that have this asset. And we think if you have this capability, it makes your job easier to get that full value out of your platform.

- So every five minutes, you're adjusting your bid and offer curves, your prices that you're submitting to ERCOT--

MIKE KIRSCHNER: Yeah.

- --constantly readjusting and depending on what you're thinking or the software is thinking in the market.

- Exactly, and that's just in the real time. We also have forecasters for the day-ahead market, where we look and we say, What do we think is going to happen tomorrow? What do we think the utilization rates are going to be? How much stacking can we do?

You sell one hour of RS, but the utilization rate is under 1%. Well, then I can afford to sell hours two, three, four, five, all the way through the end of the day. And I don't worry about having state-of-charge compliance issues, right?

But if I don't do that, and I--

and I'm not forecasting utilization, now if utilization goes to 50%, I'll quickly find myself out of energy and no opportunity to buy it back. And then I have to buy back the position and make sure that I've got it covered. And that's where you get yourself in trouble because when you don't show up, that's when ERCOT might find that there's an ORDC event because you're not there when you were supposed to be. And the price were to spike, and now you're buying back and giving a loss.

The term I like to use is, you make your money in day-ahead. You give it back in real time. And our job is to make sure that you keep it, that we make sure that we manage that state of charge actively and ensure that you're getting your full value, without having to be about the risks involved.

QUENTIN SCRIMSHIRE: That's a good phrase. You make your money day ahead. And you give it--

do you think you get to keep it?

- You keep it or, yeah, you try not to give it back in real time.

QUENTIN SCRIMSHIRE: In real time.

- Yeah.

QUENTIN SCRIMSHIRE: All right, you heard it here first. Now, I want to ask you about expansion across the US. And this comes from a position of--

of course, Modo Energy is doing the same thing.

We started in ERCOT. We're launching in California soon. I think if we're honest with ourselves and the company, we underestimated how different each region is and how hard it was going to be.

If you're really going to do a good job at what we do, which is similar to--

it's very different businesses. But we do--

we need the same kind of information and data. And we really believe in understanding it to the hundredth degree, if you like. Well, I think we underestimated how hard it was going to be to understand each region and do it properly, not cut corners.

MIKE KIRSCHNER: Yeah.

- I'm interested to know how you guys are going to expand across the US because for us, we've had to throw way more time, energy, and money at it to get it right.

- It's a great point. I've been trading these ISOs for a long time. And so--

and the benefit of having worked for the big IPPs, I've seen all the ISOs, and I can compare and contrast. I know the difference between MISO and PJM and the Northeast and California and Texas. And you can use that information.

There's probably--

if you've got a Venn diagram--

I'm kind of nerdy, so I like to draw all that stuff out. But if you had a Venn diagram, you could see there's a lot of overlap. But there's--

every ISO is going to have some unique attributes.

So those attributes are not something you can just gloss over. Some of those things are really important. And they need to be captured.

So the first step is just knowing what it is on the ground that's driving value. Second part is figuring out what makes that happen. Like what are the rules? What are the procedures?

What are the processes? What are the client strategic behaviors that make all that possible? And then building out the algorithms and the underpinning tech to be able to tease that information out.

But I think the idea that there's a single answer for every market is just not true. I think you really have to look at the United States more like you would look at Europe. And look at each country in its own isolated view.

There's certainly some interplay between them, the tie lines and things like that. But overall, I think each ISO is really its own market. And it has to be decomposed and analyzed that way.

I think from our purposes, ERCOT is maybe the more--

most complicated because of its reliance on energy to provide full compensation to all of the generator classes. So I think the idea of getting it right here, and particularly with the energy part, which is what the battery controls, it's going to make it easier when we move into markets with capacity.

QUENTIN SCRIMSHIRE: Yeah, I mean, that's a completely different way of operating a fleet, right?

- Yeah.

QUENTIN SCRIMSHIRE: I've got to say, it's just--

I just--

I love this job and what we do at Modo because it's--

you get to learn stuff. And you get to go fast and do lots of new things. But I must say, USA expansion, it's been--

the other regions beyond, we thought we would be way faster. It's been quite humbling. It's good to have humbling moments sometimes.

- [CHUCKLES]

- And, yeah, we're focused now.

- Well, I have the benefit of not being a humble yet because I haven't tried. So I don't know how hard it is exactly. I only know that I've done those other markets before, which gives me a little bit of an advantage.

But again, I think you're absolutely right. And I think it's not obvious where the best markets are, either. As much as you might look at California and say, look at the amount of batteries there. Look at what's going on.

But you're talking about four-hour batteries. So your optimization--

their first hours were valuable. The second, more valuable than the third and fourth. So how much can you add as an optimizer?

The capacity market in California is very strong. So those capacity payments, many times, are 10-, 15-year lock-in deals. So there's not a lot we can do to help those revenues. So our value proposition is going to be smaller in those markets than it's going to be in ones that are more reliant on energy.

So as we think about expansion, we're going to want to go both where the megawatts are being developed but also where we think we can take advantage of our platform. And hopefully, as we get economies of scale, we'll be able to fill out all the other ISOs through time.

QUENTIN SCRIMSHIRE: And how are you guys thinking about co-located assets? Because in California, for example, there's a lot more solar with battery. We're going to have a lot more co-located assets in the future. And it's a fairly complex optimization problem.

- Yeah.

QUENTIN SCRIMSHIRE: How are you guys--

do you have any co-located assets right now? And are you--

do you have any thoughts about how best to optimize those?

- So I--

we don't have any co-located assets in Texas, but we do have some in Australia. And our tech teams have been working very hard on building out the optimization algorithms, where we're optimizing them together. And that part of it is generalizable.

If you can optimize two things, regardless of what they are, then in some sense, you can optimize n things, right? You just have to be able to expand that framework out. And that's where the tech guys give us a lot of advantages.

And so we do have a starting point anyway to pick that up as we bring it in. Where we see portfolio effects first in ERCOT is where we have clients with multiple sites.

And there's some things we can do with portfolio effects in ERCOT now, even without co-located assets, by just thinking optimally about how we would transfer obligations intraday between ancillaries. Ancillaries don't have deliverability requirements.

One of the things they may not--

or--

and I know you'd know, but maybe some of your listeners don't know. The US has LMP, Locational Marginal Pricing, which means every node is different from every other node. And that means there's congestion between those nodes.

And batteries both create and alleviate congestion, depending on direction and where they're located. So there's a lot of interplay between multiple batteries in the system and the opportunities to arbitrate energy versus ancillary prices. So we can make commitments in day ahead that we think are optimal across the fleet. But then we can also move those obligations intraday because the ancillaries can be moved between locations without basis. And that means we can be longer in the places where the basis advantage is bigger.

So we're already finding that portfolio effects are an augmentation to economic performance, as we have multiple sites. As we have multiple asset classes, I think we're going to see even more of that, where we can use the wind or the solar or even load to backstop some of our positions and trade slightly differently that is both profit- and risk-maximizing from the value proposition to the client.

- Now, let's talk about the exciting bit. Let's talk about trading. And Habitat, for many years, have been really at the forefront of talking and educating the market about the merchant opportunity.

And so after ancillary services become saturated, what comes next? Power trading, buy cheap, sell expensive, that kind of stuff. And it's a lot more complicated than that.

But I wanted to ask you about how you actually set that up because you're a software business, but you also have human traders. And how does that actually work in practice?

- I mean, you build a commercial desk. I mean, I think that's where we started from. Again, born in the IPP space, Independent Power Producer space. I've been doing this for 25 years.

The way front office would usually be set up, you'd have your trading groups. You have your cash. You have your short term, medium, long. And then you'd have maybe your fuels books, and then you have your middle and back office.

And so we just started with that. We started with the front office. We need people that can trade these batteries when they're online.

And then we said, OK, we need to be able to manage cash collateral. We need to be able to manage credit. We need to be able to look at trading opportunities with other counterparties. And we started building out those things.

We build our supplier. Who's going to support us? Where are we going to get our information from, forward curves?

And then once you have that, it's like this is the--

I think the secret to what makes Habitat unique, and I think what, ultimately, is part of our value proposition is just the fact that the traders are part of the data science team, that we work together collaboratively. So you have a commercial organization that's bringing an asset to market, making their best call on a human level, augmented by automation and tech that's doing this in real time and updating with the latest data. Those two things together, they lead to sometimes different conclusions.

But it's in that friction that we create new features and new ways of thinking about the market. And they're challenging each other. And that--

I think that interaction is where we get the code where we want it. And our traders get to add value because the market is constantly seeing experiences it's never seen before.

We've never had 20 gigawatts of solar in the system. That's new today. We've never had 7 megawatts or gigawatts of batteries in the system. So it's one thing to say, the backcast looks like we should do this. It's another thing to say, that still makes sense under the circumstances right now.

So I think one of our traders used the term "autopilot." You might use your autopilot to fly the plane 99% of the time. But when things get scary, you want somebody responsible taking over. And that's where our trade team really shines is stepping in when things are hairy.

And we had that issue during summer of last year. And it was--

it worked out really well for our client. It worked out really well for us.

- So on that, has there been--

there must have been times where the software that you guys have built have said, do x. And then human has said, no, I want to do y, which is interesting. But I think the more interesting thing is the other way around, where--

and the human was right.

MIKE KIRSCHNER: Yeah.

- Where the software said, do x. And the human said, no, I think y is better. And the software was actually right. And surely, as the software gets better and better and better, those things will happen more and more.

Do you guys believe that on a longer horizon that automation will win out in the end? Or do you think it will always be a hybrid model? And the reason why I ask that is there's two camps at the moment, aren't there?

There's some folks who are building really sophisticated automated systems for this. And they're going, automation is the future. We're not going to have 24/7 humans. This is about computers, not brains.

And then there's the other camp, the more traditional trading-floor camp, which is like, yeah, we'll take some inputs. And we'll look at some graphs, but this is our game. We're used to this. We've been running gas plants for ages.

And then you guys are somewhere in the middle. I'm just interested about where you are along that--

it's a spectrum--

and whether that changes over time.

MIKE KIRSCHNER: Yeah, it's a great question. I hope I have a good answer. But my view is that it's going to be a hybrid forever.

And the reason I say that is it's not that I don't think that the tech will win, in some sense that if the system is stable, then the tech can learn it and do a great job. And you can displace all the humans. But I've been doing this for 25 years, and the system has never been stable.

We've never had the ORDC curve be the same in Texas for any length of time. We've never had the supply stack remain stable.

- What's the ORDC curve, for folks at home?

- I'm sorry, the Operating Reserve Demand Curve. Yeah, thank you.

- Thanks, [INAUDIBLE].

- I say it as an acronym. But, yeah, but the ORDC curve is the Texas equivalent of a capacity market. It effectively forces prices towards the cap, even when people aren't offering at that price, as a way of creating economic rents that are replacing what would have been paid by a capacity market.

So the ORDC curve is a really important part of getting that credit, of getting that economic rent to make sure your assets stay in the game. And that we've been having to tune it as the grid is changing, as tax subsidies--

I mean, there's just all these things that influence market design. And there's so many players that are all trying to influence it, it's constantly evolving.

And I think that's really where the tension between the data science and the tech and our traders is where the value is, is that the traders know what the implications of policy are and strategic behaviors of other players, whereas data science finds those patterns and can repeat it from all the noise. And I think the join of those two things is where you get the best answer overall. And more to the point, it allows you to continually stay sharp because they're always testing one another.

- Maybe I'm just--

if I was a software engineer working at Habitat, I swear I would just want the software to win it. I'd be like, get those guys out of the way. Let's build software that can do this. But maybe I'm biased.

- Well, I think the internal competition is actually healthy, right? I mean--

- How do you even comp everyone, right? So if you're going to--

if you're going to give people--

it's a deep question. But if you're going to pay bonuses based on performance, which is probably a good thing in this industry, then if you've got the computer telling you one thing and the trader telling you another, how do you sort that out?

- I think we look at it in a holistic way. I mean, the jobs are--

I mean, yes, you want everyone to be incentivized. But you want them to be incentivized for the work that they're doing.

And certainly, traders are aggressive. They--

a lot of times, they have to put in some strange hours to make sure that the client's getting support 24/7, whereas it's not necessarily a requirement for the software guys. Sometimes they choose to do that. But that's self-selection.

But I think, really, it comes down to we want people that want to win. And we want people who are constantly pushing what we understand, what we think we know. And we try to find that in our software people as well as our traders.

Just as a funny anecdote, one of our software guys used to be a professional poker player. And we think he might become a trader someday. I mean, we'd expect to see some bleedover from the types of folks that we're hiring, where they could fill either role over time because the skills are really coming together between the technical and the commercial.

- Awesome, awesome. Well, excited to see how that progresses. And all right, we're going to move to the last two questions now.

So what do you want to plug? Anything you want to announce? You did say there's some big clients in ERCOT that have just signed a gigawatt, right? So this is your chance to let everyone know.

- Yeah, I'd love to reveal their names. And we will. But right now, I think we're waiting on some paperwork to get done, IP stuff.

But practically speaking, the signing is taking place. And we've already started the process of moving those assets into our QSE. But I think the real milestone for us is that they're not Quinbrook companies.

So we've got like third parties that have looked and vetted us against the competition. And we're real excited to take that to the market when we can.

But really, I think we've got so much opportunity in front of us. And these guys are bought into our way of thinking. And I think they're going to be a good spokesman for our organization and help us to get other people on board with the approach that we're taking.

- And on to the last question. Interested to hear your contrarian view. So what do you believe that you reckon most of the people don't believe?

- That's a great question. I don't know if I can say for sure what other people believe. But I've seen enough--

I've seen people scared of building batteries.

And one of the things that I believe, as the power fundamentals kind of person building DCOPF models looking at long-term forecasts, I don't see that problem. I look at the amount of coal and steam gas in the ERCOT system. I see what's going on in the Mid-Continent with some of the Obama-era retirement requirements for some of the coal. I mean, we're talking 40, 50 gigawatts that are going to have to come out of the system of baseload generation.

It's hard for me to see how the system, with wind and solar, is just going to be stable. Fingers crossed. It seems to me that you're going to need these flexible, fast-moving, what I would coin a digital asset, which is how I think about the battery, in these markets, very active and lots of them, like, spread out all over the footprint.

So to me, I'm surprised that it's not happening faster. I'm surprised that the financing is so difficult. I think it has to do with the cash flow expectations and the modeling.

We talked a little bit about liquidity. I think it's hard to know the forward value of volatility in these markets. We have pretty liquid gas markets. We have pretty liquid power markets, at least out one or two years. But volatility is hard to trade, and it's hard to trade locally at LMPs.

So I think as we create other ways of doing bilateral transactions, as we get some structured products into the market, I think that's going to really speed up the development of storage in the United States. And that's, I think, very good for the industry and reliability. But I think it's also very good for Habitat. So I'm really excited to be part of it.

- So which bit's the contrarian bit?

- Well, I don't see people building. I mean, not in the way I would have thought, I mean, given what I think is wrong with the system and the kind of vol we've seen. You think about ERCOT '21, '22, '23. We've seen increasing economic performance for any type of battery anywhere in the system year over year over year.

And while we're seeing growth, I don't think we're seeing the growth that the queue would imply. I don't think we're seeing the same commitment that you might--

people are getting themselves in there to give themselves the option. But I don't see everybody pulling the trigger.

And I'm curious as to why that is because I look at how much room we have to grow. And I look at how fast it's being built. And from a reliability standpoint, there's parts of my analysis. I'm like, hey, that looks bad. I just feel like we need to be moving a little bit faster.

So maybe that's not contrarian, given that we're at a battery conference.

QUENTIN SCRIMSHIRE: Yeah.

- But I do think that there is some sense that the system's OK. ERCOT's telling us we have 40% reserve margins. I'm just not feeling 40% kind of confident.

- At this conference, we just shared some of our work on net load ramps and what next year and the next couple of years looks like. I mean, you--

just following net load ramps, like 30-minute ramps, you've got to think, we're going to have some spiky prices in ERCOT. It is--

and then you're adding 5 gigs a year of demand. It is incredible.

As a European watching ERCOT add 5 gigs of demand every year, I just wonder whether--

I wonder whether with electrification, where the max demand is almost like a proxy for GDP growth now, with moving primary fuel away from fossil into electrification--

I don't know. That's not to--

that's not any diss on Europe. But there is a deindustrialization happening in many countries. But, yeah, so your belief is you can't believe anyone--

you can't believe we're not building batteries faster. It doesn't make sense.

- Yeah, I would say, I'm surprised we're not more bullish, particularly as a--

as the financing side of the house. And I think it really comes down to getting those equity cases, financing cases across the finish line. And I think it comes down to having visibility into the future markets.

So when we get some liquidity there and we start seeing some volume trading, I think--

I'm hoping that'll open up the door to the banks and then open up the money flow. And then we'll start to see that development and, really, accelerate the turnover of the legacy carbon-based tech.

[SOFT POP MUSIC]

- All right, I want to say a massive thank you for coming on the podcast. It's been a delight. And, yeah, really looking forward to seeing how you and the Habitat team get on in the US. Wish you the best of luck. You guys are going to smash it, no doubt.

- Thank you. I really appreciate you having me on.