01 - How to IPO a new energy storage fund and raise £186.5m with Paul Mason (CIO @ Harmony Energy)

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Hi, guys, Quentin here from Modo. We're here at Modo HQ in Birmingham, and we've got Paul Mason with us from Harmony Energy, here to talk about all things batteries, Harmony Energy's recent IPO, and the opportunity for energy storage in GB. So let's get to it, Paul.

Great to have you on, and welcome back to Birmingham. You're a Brummie by nature.

Yeah, Black Country, but close enough. Great to be here. Thanks for having me.

Oh, of course, you're more than welcome. So let's get straight to it.

Before Harmony, what's your background? Why are you in energy?

What have you done until now? And then we'll talk more about Harmony Energy, but who is Paul Mason?

Well, I've been in the energy sector for around 12 years starting in energy from waste and then moving through various technologies, solar, hydro. Pumped hydro, which is where the whole storage side of things came from, and really captured the imagination of what potential that storage generally had, before the relatively easy transition into battery storage at that point. So yeah, it's been a bit of a journey, but I've been really exclusively focused on energy storage in one form or another since 2015.

OK, so you're a dinosaur by energy storage--

Exactly, it's been quite a journey, yeah.

Yeah, and then what have you done? So you were at a company called REmap, right, for a while. What did REmap do?

So yeah, I was at a firm called Long Harbour originally. So Long Harbour is a bit of a real estate firm, but really was looking to get into more interesting energy side of things. So the solar and the wind thing had really passed them by, but they wanted to look out for new opportunities, which is where we started looking at those various technologies and pumped hydro in particular. It was really back then we started looking around at how you monetize these things and the whole industry around aggregation, optimizers, didn't exist. So we spoke to a lot of the traditional players who were helping gas peakers to make money, and talked about how you would vary that for battery storage.

Who is this back then? So I think gas peak, which market providers? Are we talking utility--

Yeah, we're talking about Centrica, Gazprom, SmartestEnergy, all of those guys, and we talked to everyone. And we never really felt that any of them got it in terms of the way that we saw the opportunity and the way we would like to manage things.

So we did a lot of analysis, and that analysis spiraled and spiraled until we almost by accident created a revenue optimization algorithm which was really exciting, but then we were trying to go out and raise money for a bunch of projects. And that's when I first met Peter and the Harmony team.

So Long Harbour, we structured a joint venture with Harmony we have three projects which we were trying to raise some money for.

These batteries or windmills?

These were batteries, yeah, these are the first three--

And what year is this? So this is 2016.

OK, right.

Still pretty early.

Yeah, yeah.

With class-to-market contracts?

We didn't, we put deposits down for the auction.

That particular auction cleared too low for what we were looking for, so we pulled out. I can't remember exactly what clearing price that was, but it was lower than we were looking for. So we pulled out, but we did put the money into the deposits, which was pre-D rating, so it was put about a million pounds into deposits. So yeah, it was pretty big, but we were out trying to raise money on the one hand for the projects, but on the other hand to commercialize this algorithm which we'd knocked up. So that was a difficult sell to investors back then.

What did this algorithm do? Was it BM?

It was balancing mechanism focused, yeah. So that's where we really saw, and to some extent still do see, the opportunity in the long term. I think National Group takes us on various different roads.

We're very confident the value will be there, and I think we probably, naively, thought that more value would come through the BM, but actually what we see is that grid pop up with different products to take that value out of the BM and put it somewhere else. And that's fine.

That's absolutely fine right now, right?

Exactly, and I think that's part of the learning over the years, is really flexibility in every sense of the word. You know the values there, you just got to make sure you're ready to respond quickly to whatever it is and wherever it pops up.

Yeah.

So yeah.

So you guys had an algorithm, which was sort of BM dispatch, was it, for batteries?

Yes, it was all about pricing your actions in the BM, and ultimately after a while of trying, we couldn't find a sensible home for both projects and algorithms. So the projects went back to Harmony and the algorithm was sold off to a large utility who then used it as the basis of their revenue optimization offering in the UK. And at that time I spun out with Long Harbor and set up REmap which was a dedicated consultancy trying to build on what we've learned, actually supporting that utility in pushing forward their offering in the UK, so trying to get third party customers for them. But

most of our business was really about helping developers and investors to understand what's going on, the more granular level than you could get out of either the market commentators--

say your Beringers, Auroras, Cornwalls--

but with a bit more in-depth granularity also than the aggregators would offer. So most battery developers would go to one of the aggregators and say, "How much money am I going to make?" And they might get a pounds per megawatt per year figure, which is fine.

The good old days, right? Where the sell was one company is going to make you more money based on some back tested thing with perfect foresight.

Yes.

I'm glad we've moved on from those days.

We have moved on from those days.

Very tricky.

Well, track record has helped.

Yeah, yeah.

Track record's helped a lot.

I was at an aggregator during those years and it was tricky because that's the only thing you could do, right? Because this BM thing, there was less opportunity in the BM. We had no empirical data of how much assets could make in it. Anyway, we're digressing.

The opportunity was very clear, the value is clearly there. The big question was always partially the perfect foresight in terms of how you set your pricing, and we dealt with that because we built our pricing algorithm. The second part of it was how does National Grid treat you?

Because it's not a perfect market in terms of you can be in merit and attractive from a price perspective, but you're not guaranteed to be called. And what we've now seen in the track record was really vital, and have to say at the same time as we were doing, the sort of people like Aramco moving through that same journey. We owe a lot to Aramco in terms of actually sticking with it and really getting that data out of National Grid.

Couldn't agree more. I mean, those guys move really fast. They believed in the BM they took an asset through the BM for pretty much 12 months, even though they could make more money in the markets, to prove the case and to build the technology.

Yeah, all kudos to those guys. So coming back to it, how do we end up at Harmony?

Because I really want to talk about Harmony a lot today, right? Because you guys are all over the news, you've done some awesome stuff with your IPO, you've raised--

I don't know how much money--

a few hundred million. Let's talk about the future, but Harmony, how did you end up there?

Yeah, so a few years of consulting, working with Harmony continuously through the REmap phase, but then really Peter and the Harmony team were looking at this IPO journey. So actually listing a fund to buy some of their projects and build them out, and when they called up and said, "Would you and my business partner Max want to come on board full time to run this thing?" We really jumped at it because we worked with a lot of developers over the years, and Harmony was by far the best we've come across, so we were delighted to move about the huge pipeline that they've got behind them.

So it's just a really fantastic opportunity to put together all of the pieces you need. So Harmony has been in batteries since the beginning in terms of development and building up this pipeline, and they've built out two projects already. They've got two more in construction. So that track record was very strong. The pipeline was very strong, and bringing in us on the commercial side and understanding really how you monetize these things with the last piece of the puzzle, to allow us to then go out and talk to investors at this sort of scale. And the IPO, as you said, it's been hugely successful, and we're really proud of what we've achieved there.

No doubt. So we're going to talk about the IPO in a second, but before we get there, for anybody who's watching, so what is Harmony Energy, and where does Harmony Energy fit? Because we've got Gresham House, Gore Street, you were doing the fund route, and you guys are going down the fund route. You've got folks like Eelpower who are more an asset ownership, and their approach is very different. Where does Harmony Energy fit in, and what's Harmony Energy's vision?

Yeah, so Harmony Energy is first and foremost a developer of projects, and what do we mean by that? It's the classic, getting planning permission, getting grid connections, and getting land options sorted out. So you've got the ability to connect to the grid, you've got somewhere to put your site, and you've got all the permissions that allow you to build it.

Harmony has typically taken things a little bit further and gone into the construction side of things. So a classic developer model would be, you get to that stage and you sell out, and somebody buys the project and then pays to build it out.

All right, then you develop to shovel-ready and then you sell the site.

Exactly, yeah, that's the classic developer model. But Harmony has for years believed that these assets are fundamentally undervalued and wanted to stay in the picture for the long term, really believing in the story back when it was a pretty hard sell, all those years ago, when there was no track record, and we were desperately running around trying to find buyers for these things.

So Harmony has always retained minority stakes and projects rather than selling outright, and they've done that on a piecemeal basis over the years. So with partners like FRV, and more recently, just in last week, TAG Energy. So we've got a couple of big partners, very credible partners, who have built out individual projects. And that's great, but Harmony's got a two gigawatt pipeline of projects, mostly battery, some solar, some co-located and the fund route--

In the UK? All in GB?

All in GB.

That's huge. So the UK has got 1 and 1/2 gigawatts right now of installed energy storage, and you're saying the pipeline is two gigawatts of Harmony energy alone.

Yeah, at various stages of development, but the funds that we've just raised, that's 300 megawatts, just over 300 megawatts behind that really good visibility over the next 700, and behind that stuff that we've already gotten control. Yes, over a gigawatt. So you ask, why join Harmony? That's a big piece of it, that huge pipeline, and the reason they've got that is because they've been in this game for so long.

But it's not easy and not straightforward to keep hold of these projects. The grid connections are becoming under more and more pressure. You've got to use them or lose them, and if you can't keep raising the money to build out the projects, those grid connections come under real pressure. So to have a stable offtaker of these projects in the fund is a really attractive strategic move for Harmony, and the way we've structured things that really allows us to continue to have that continued ownership. So it's almost an owner-operator model, albeit the fund is obviously a separate entity and Harmony doesn't have ultimate control over the way those assets are managed and run once it sold them, but Harmony is retaining a significant equity stake in the fund overall.

So if I got this right, Harmony Energy develops the sites and then sells them to the fund, which is the asset owner and operator, and who builds them? Out is it still Harmony Energy, or is that the fund?

The fund will build them out, but my primary role at Harmony Energy is to lead the investment advisor company, and that's effectively the management team of the fund. It's the way that funds are structured, you have a non-executive board who has oversight and makes sure that everything we said we were going to do to investors is what we are doing, and we as the investment advisor effectively act as the executive team. So we monitor all the contracts, we monitor the performance of everyone who's supposed to be delivering for us, and we negotiate those positions, and we have to make sure that we're doing what we said we were going to do. And that's policed by a non-executive board. So that's sort of my primary role, is to make sure that the things are being built out on time, and once they're built out and operating, that they're performing in the best way possible, and that way we're managing the costs and maximizing the revenues.

So if I've got this right, Harmony Energy developed a lot of sites over the last few years and now has just raised some money in a fund, so launched a fund, which is Harmony Energy Income Trust, a sort of video of you guys all in London Stock Exchange. There was no bell, I didn't see a bell being rung.

Sadly, yeah, so the fundraising landscape got so congested over the last couple of months that we were actually the second reserve for the opening ceremony of the Stock Exchange, and I think the actual bell has even gone from the opening ceremony these days. But the Stock Exchange has now invented the closing ceremony, so we did the closing ceremony, which was great fun and a bit more suitable for going out for drinks instead of going out to 8:30 in the morning. You go out at a more civilized time.

No, it looked awesome.

Fair play to all of you for making it happen. So I'm really interested about the journey between deciding you deciding you want to earn some money, choosing IPO of the route, and then doing the IPO. Of course we're talking now as if the IPO is--

don't get me wrong, is a great achievement, but in the IPO you've taken on additional capital and you've now got to deliver on that. So it's probably like you woke up the day after the IPO with a banging headache thinking, "Yes, everyone's congratulating us, but actually the work starts now." Right?

Exactly right.

But let's just talk about from saying you want to raise some money, looking at, I assume, private options, and then went public, and how did you make that decision, and what do you need to do in the process? I imagine most people watching this have not done the IPO before. I imagine that most people that do an IPO only do it once. So let's talk about that.

Yeah, so it restarted probably over a year ago, within the Harmony ping moment of this is a good idea, and we might actually manage to do it.

And there were, I'd say in the spring time, a number of initial meetings with potential investors just sounding out the idea that this is a listed fund, but we're actually going to build assets. The traditional route has been that you sell them into a fund once they're operating and there's revenue coming out, so this was a slightly different approach. So sounding out the market at that point, and then through the summer continuing that, but actually starting to once we got really positive feedback from all those investors we spoke to, starting to put together all of the documentation that's required to do an IPO.

So to do an IPO you have to produce this prospectus, where you write down what you're going to do. It's sort of like an investment memorandum that you would do for a raising private money, but you go through the rather painful experience of legally verifying every single statement in your prospectus. So to make sure that you can source it and prove that you're not making it up.

Yeah.

So it's a couple of hundred pages, a document setting out what's the market opportunity, what are we going to do, which projects are we buying, and what are all the risks?

Yeah.

So that's a pretty big exercise in itself, but at the same time, we're also then acquiring five projects at IPO. So we're simultaneously doing five big M&A transactions at the same time as we're putting together this documentation, and trying to talk to people about it and make sure that what we're saying is what's written in the prospectus. So it's a long journey, lots of lots of paperwork, and ultimately you start your marketing process once you've got all your ducks in a row and you start talking to investors and trying to get people signed up, and you're giving the same presentation six or seven times a day back to back these days on Zoom, which is a challenging thing.

Exhausting, yeah. So if I got this right, I'm thinking you say, "I'm going to raise some money from the public market so I can do an IPO," and then you have to go and get some investors, but I assume you don't say--

how much did you raise in the end?

So we raised 186.5 million.

186 million, right. You don't get that just completely randomly on the day by investors, right? You have to get a lot of that committed, subscribed upfront, and so as long as I'm doing all the legal stuff about doing an IPO and all of that fun, you've then got to go and drum up support. And I guess you need quite a lot committed before that day.

Yeah, well we had about a month, just over a month long marketing period. So once the prospectus was launched and the books were open so we were able to actually take orders, we had about a month, and as I say, we were doing these presentations and hoping that off the back of these presentations we'd get commitment.

It built over that month period. We got some commitments in the first week, but a lot of it was quite late, and I think you give someone a deadline, they like to they like to use all the time they've got. So it sort of it ramped up and we thought, first week, that's all right. Second week, not a lot extra got added. Third week, a bit, and we were getting one week out and thinking, well, this is a bit hairy.

But then the last few days it really took off and went crazy for us. So it was really, really good, but a bit nerve-wracking towards the end.

Sure.

But yeah, we got there and it's a really different experience because we're used to trying to raise big tickets out of one or two investors, and at that point you're asking someone to put in a really big chunk of their own allocation of capital into your projects, and it's a whole level of detail that people get into. And I think this is what has held back private investment in the space because it's a really complex area, as you know. Can keep digging, and digging, and digging, and you'd never feel like all of it. And I think if you're asking someone for 100 million pounds, they really want to know all of it.

Yeah.

But when through the IPO process you're asking lots of people for 3, 4, 5 million pounds out of 1 billion or 2 billion that they manage, and that they're much more able to take a view of the--

the overall picture is obviously very positive for battery storage.

I mean the timing, though, you guys.

I mean there is some luck involved in this as well, I mean, all kudos to you, but the timing with batteries making more than they've ever made before, and then also the two hour story, right? Because you guys doubled down on the two hour story, and quite rightly I think. So do you want to just talk about the two hour thing?

Well, we believed in the two hour story, I suppose right from the very beginning.

The two hour story, we mean, just to be exact--

what do we mean by the two hour story?

So batteries, we talked about megawatts, so I said about our portfolio being 300 megawatts, and when we say two hours we mean, we can produce 300 megawatts for two hours continuously. Most batteries in the UK now are one hour. There are some 1 and 1/4, 1 and 1/2, but Harmony is the only operator today of two hours.

There are some others under construction, but we're the only operators today, and effectively that means that when we get crazy market conditions, like we saw in September where the peak power price, because we were firing up coal fired power for a couple of hours, went to 3,000 or 4,000 pounds per megawatt hour, it means we could buy much cheaper power in the morning, sell it in the evening. And we can buy twice as much of the cheap power and then sell twice as much of the expensive power in the evening, which is a real advantage compared to the shorter duration batteries. And this all happened within a couple of days of starting that marketing roadshow, so we had live examples to talk about, which always helps when you're talking.

You can say, "You saw the news yesterday? Well, this is what our batteries were doing," in response to that news that you saw yesterday, and thanks to Modo at the end of the month, we were able to say, "Hey, look at this leaderboard" and out to our batteries are looking pretty good on a per-megawatt basis compared to the shorter duration battery. So it really helped to sort of tell the story and explain where we're coming from in terms of making the most of this sort of opportunity.

And that's where we see the growth because as we get more renewables, we get more periods of cheap power, but we're still going to rely on fossil fuel power for the peak. So you get that opportunity to buy the cheap stuff earlier in the day. When the peak, you're firing up gas or coal, you can then displace some of that. So we can help the environment, but we can also make a good spread by not doing it.

OK you've been out doing the roadshow, speaking to investors the last few months, I guess as much as anybody has in this game. So what's the investor appetite like for energy storage?

Well, can you talk through the type of investors you've been speaking to and how they've been receiving the--

I don't want to say the word story because it sounds made up, right, but you've got investors who are institutional investors or people who invest in infrastructure. They might be used to normal power projects or bridges, and you're presenting something very different. They need to understand the macro picture. So how are investors finding that?

How are they receiving this?

I think really well, right now. I mean, we've said we've been on this journey for a long time. and I think the big picture has always been easy to sell in terms of we all know we're moving on that journey towards more renewables. I think no one's questioning that side of the story.

The question was always, well, does that really equate to greater revenue opportunity for batteries? And it's that track record that we've now got and, as I say, the live example while we were doing it, really has allowed people to visualize what we mean and what we're talking about. And when we're saying you're seeing electricity suppliers going bust because of huge power price spikes, and you're saying--

And the price gap.

And the price gap, yeah. Yeah, exactly. It's a separate topic.

Yeah, we could go down it.

That's a separate point.

Just because of Bulb yesterday, it's hit us quite hard in this office. We're very--

Oh, it's just so sad. It's going to go down a rabbit hole now, but yeah, anyway.

Exactly, there were a whole bunch of little suppliers that probably weren't necessarily managing risk properly, but I don't put Bulb in that category, so once it starts to hit them, you can see something's not working.

Yeah.

But we were talking to investors about this sort of thing exactly, and saying, well, if you had more storage, the price wouldn't be 4,000 pounds, because you wouldn't be firing up that coal-fired power station. You still have expensive gas that you're using for that period that still be a spread, but it wouldn't be so great. So the story is there and it's there for the long term because it's pretty clear that renewable growth is going to really, really accelerate, and battery growth and flexibility growth is going to lag behind that, because it doesn't have government subsidies.

It's just a smaller scale thing, so you don't have the same investors pumping billions of pounds into this market, and you're constrained by grid connections. You can't just throw more money at it and connect more quickly, and so there's all those macro things which we really focused on, and I think the public markets have sort of got that for a while. You've seen Gresham and Gore Street doing this for a while very successfully, and the public markets have latched onto that, and I think that's to do with the ticket size that I was talking about earlier.

But you see it in the private markets, now, you've got new startups of private funds. Eelpower, attracting more money, they've been around for as long as Harmony have in the space, and that starting to pick up on the private investment side. What have they name themselves now, Amit from Bulb?

Field, yeah. Those guys are moving so fast.

Yeah, so they've got money in.

So you've got more announcements about people intending to pump private money into this, so I think the combination of track record and seeing real world examples of what going on has really just got people thinking, yes, we need to do it, and we need to do it now. So the last 12 months have been pretty crazy. I think it probably would have been earlier if it wasn't for COVID.

Yeah, it's been really interesting to watch. So you've got some folks going on the IPO route.

Gore Street, they've got a lot of retail investors, came on for the last one, which is innovative, really.

The Gresham house with their model which is tried and tested, and they've been doing it from the Hazel Capital days. We've got private companies like Field and Eelpower, exactly, who have gone down that route. It's really interesting to see all these different ways to make these projects happen.

So what's Harmony energy going to do now, right? So say you've got money in the bank, but you've probably spent most of it on projects, or you've probably committed most of it. So what have you told your investors you're going to do, and how are you going to make that happen? What's the vision?

Yeah, so the income trust has acquired the projects from Harmony, so we've got 5 projects under ownership already, one more to follow in the next couple of months.

How big are those projects?

So ranging the smallest ones, 11 megawatts, the biggest ones, 99, so a big range, but the whole industry is trending towards the bigger one. So going forward you'll see most of them being 50 plus, I would suggest.

All with Tesla?

So this initial this initial portfolio is all with Tesla, so we've contracted with Tesla under a framework agreement that locks in pricing for those projects, but crucially from the fund perspective, it locks in delivery dates, and that's the really big thing that we needed to be able to look investors in the eye, and say, "We can deliver this money at this time, going forward." So we're really cracking on and making sure that we meet those timelines and do everything we need to do to make sure Tesla are ready to go on site and start building things.

And are you guys going EPC, or are you going multi-contract?

So we're going full EPC with Tesla.

So you've got one supplier, so it's one supplier of the whole wrap for each project, and across your whole portfolio of assets, which kind of makes sense if you've got spare parts, O&M, managing this portfolio if you've got the same units everywhere. That does make sense.

There's efficiencies.

There's efficiencies.

There are definitely efficiencies. We're very happy with the commercials we've got out of Tesla for a portfolio of that size, and it means that from a contracting perspective, it's easy for us and it's easy for Tesla, because we've got that form of contract locked down so we're not trying to go out and negotiate six different EPC contracts to build these things out. We've got contracts already negotiated. We've just got to fill in the blobs for the project specifics. So that's great, and Tesla are also doing the revenue optimization for us.

Of course, yes you're doing a bit of market too.

We've got a single point of accountability right the way through construction and into operations.

So the same company builds it, operates it, gets it into the market, does the O&M as well?

Yes, O&M as well.

So it's a funny one because you'd think on a project-by-project basis, there is a premium associated with handing all the rest to one party, but I guess because you're doing it at scale with so many megawatts in one go then you've been able to, one would think, hammer down a little bit, in a fair way, cost, and get some efficiencies there.

Yeah, I think I'll say we're happy with the commercials, and we could probably have saved a little bit of money by going multi-contract, but if you think about it from the fund perspective, the fund is paying a total price which includes those costs payable to Tesla. It includes all the grid connection costs, but it also includes payments to Harmony for buying the projects, and the fund doesn't really mind which of those three things, which bucket it's going into. They are buying a future revenue stream for the sum of those three parts.

So if we save a bit of money on EPC contracting, that doesn't go to the fund. That increases the premium that Harmony is getting. So we could have shaved a bit more off but that would have just been to the benefit of Harmony, but it would have increased risk for the fund, and what we have always said is right back from 2016, the revenue side of things is uncertain. It's still moving in terms of investors' appetite, and whilst it's very easy for us feeling confident in it because we're in the detail of this day-in, day-out.

We can't take that risk away. So where there are risks we can take away, we want to take them all the way and make it as easy as possible so that when you buy into the big picture, you can really just focus on that side of things and not worry about whether there's an interface risk between your balance of plan and your battery supplier and the communication side of things, because it sounds it sounds quite easy.

They're not the most complicated products to build. You look at energy from waste, that's much more complicated, but there's still interface risk between all of those parts where you have to manage it. So all the time you spend managing that, you're not doing something else.

Absolutely, and of course we've been looking at the market now for a few years, and we've seen folks get this really right in multi-contract, and the savings are real, and we've seen folks get it wrong, and those savings weren't real savings, right? I wouldn't say badly managed, but things have come up, right? And they couldn't push that onto someone else, and then the savings sort of diminished, and diminished, and diminished, later, and later, and later.

So yeah, I completely understand why you've gone down that route.

So you guys are buying a lot of batteries in one go. I wanted to just ask you about supply chains, because this is what everybody is talking about. Connections are the bottleneck, and then supply chains are the bottleneck. So how have you found securing, what do you say, like 600 megawatt hours?

Yeah 625 megawatt hours.

How does one buy 625 megawatt hours of energy storage right now, considering everything that's going on with the supply chain crisis globally?

Yeah, so we're delivering this over the next two years. So the products that come on latest will be energizing towards the end of 2023, and that's really the sort of time scale you're looking at. If you were to pick up the phone to any battery supplier now, I'd be pretty surprised if they're giving you any sort of significant supply before late '23.

Wow, wow.

It really has gone crazy. You might find some, but certainly the conversations we've had with a range of suppliers have been that, certainly in the next 18 months is pretty booked up.

Why is that? What's the reason they're giving?

Well, demand for lithium ion-based. We're not just talking about the sort of battery storage we're talking about, EVs as well as stationary storage, I think most of the global supply of lithium ion is going to EVs. So we're really lower down the food chain when it comes to when they're allocating supply of batteries, that they'd rather put it into EVs than into stationary storage. So it's a hot market.

And so Tesla have managed to commit to getting you these batteries when you need them?

Yes, that's right, and we've obviously aligned that with our energization date on the grid connection. So, as we say, that's the key bottleneck. There's no point in having your batteries arrive before you can before you can plug them in and start making money out of them. So we've aligned the construction programs to our reconnection date, so we're cracking on with those grid connections now.

So you guys, you've got 300 megawatts now with Tesla, and then you're going to build up to 1.7 gigawatts after that. So you're not out of the woods yet, right?

[INTERPOSING VOICES]

Yeah, yeah, so the next 1.7 gigawatts, I mean, how long is this supply chain thing going to be a problem? What are you going to do about it at Harmony?

Well I think there are new gigafactories being built by battery suppliers all over the world, so I think supply will increase, and we're obviously taking a very active management approach to looking for what we know what's coming through the pipeline, when it's coming through. So as long as we've got our next couple of years of projects sorted now, we can start to look into that 2024, '25, and start to make a judgment about when we lock those down, and we have a great relationship with Tesla. We want to keep working with Tesla, but if we need it to, the fund is able to go elsewhere. So that's not something necessarily we want to do, but we will obviously be looking around to make sure that we're getting the right commercials and the right commitments out of that supply.

It's funny, though. I remember back in the day when we used to build FFR projects, right? And you found out six months ahead of delivery that you had to go live in FFR, and so you'd get all your contracts lined up, wait for National Grid to announce the results, and if you've got a contract six months out, you'd be like, right, it's go time. In six months, we've got to get connected, we're going to get built, we're going to be commissioned, we're going to be tested.

So you had to be tested by National Grid a month before commissioning, before going live, so you actually had five months to build this thing. And now we're talking about like, maybe end of '22, maybe the end of '23. The whole game has changed. I know there's a bigger scale, but some folks like Statera, for example, they were doing 50 megawatt projects in less than six months, two or three years ago, Anesco were doing some, Eelpower.

It's funny seeing how this world is. We're growing up. The industry is maturing, but there are some problems with that too.

Yeah, absolutely, I think you'll see that actually more supply comes online, and probably there will be more supply available before that point. It's just no one will commit to it now because it's reliant on new factory output capacity coming online.

So I think it's just there's always a lag in these things. Demand has to be there before people commit to building new factory output capacity. So yeah, but the projects we built with Harmony, they were both built in six to 6 and 1/2 months.

Almost in time. You could have just about made your FFR contract.

Everything was structured because we've been talking to Tesla since 2016, '17, so everything structured around that six month window back then, and then by the time we were building them that time pressure was a little bit relieved.

Incredible. One last question, right? So what's the state of the market right now?

You've got a unique view of the market. Let's talk specifically about the revenue streams for energy storage, and then what's your vision for 2030? You guys are here for the long run, right? So what do you think is going to happen in a decade's time?

Right, well, let's start with the easier question of what's going on now.

So we're seeing really great opportunities in wholesale markets right now. So very much focused on blending dynamic containment with wholesale, a bit of balancing mechanism, but predominantly the wholesale opportunity is there, so why not lock that in? And the ether block changes to dynamic containment, so you're not committing to 24 hours service anymore, has really opened up more opportunities to buy a block of power on the wholesale markets, do some dynamic containment, sell that block later on.

So that as a stacking opportunity has really been working very well for us, particularly with the two hour duration batteries. So I think that will continue for a while, but I suspect we'll be becoming more reliant on balancing mechanism going forwards, and I think National Grid has done a really good job of getting much more automated and transparent the way they were operating the balancing mechanism. So I think whilst the spread's running now in the wholesale markets there, I think that will always be the case, and at that point you'll be looking to markets like the balancing mechanism, alongside ancillary services to maintain that level of spread and make the best use of the longer duration that we've got.

How will it change through to 2030? I mean, we're going to continue building out, so we're going to have a bigger pipeline revenue-wise.

It's difficult to say, I mean, we've talked about it already a little bit, but the value is there, and in my mind, that we always looked at this saying the value is all in the balancing mechanism. National Grid could solve all of their problems just through the balancing mechanism, but that's not the route they've chosen to go down. They very much have said, well, we're going to create some new products, look at the reserve from storage, trials they did, which is translating into the new reserve suite of products which are coming out next year.

So new products pop up to take some of that value which could be in the BM elsewhere. So I think that will continue to happen, and I think there'll be a huge range of products which battery storage can help with, and the key is going to be making sure you're flexible enough to jump in and out of those at the right time.

But we're going to have double the amount of renewables we've got now by 2030. So I think the opportunities for wholesale, for BM, for ancillary services, all of that requirement increases, so the macro picture is just really, really strong for us right now.

So the story is renewables are intermittent, they drive volatility, and it's very difficult to forecast in some cases, which means you're going to see lots of movement in extreme prices, and then who else but batteries can take advantage of that, I guess?

Yeah, I think batteries are definitely a really important part of the solution. I'm not going to sit here and say you know they're going to solve everything. I think we'll definitely have other technologies.

We wouldn't kick you out if you said that, by the way. We do generally say things like that.

So batteries are just such a flexible tool, and they help with most of the problems that are created by renewable energy in terms of lack of inertia, intermittency. So the story is just so positive, and that's what we found when we were out on the roadshow, that everyone got that. So yeah, I think we're in a good place.

Awesome, so that's it, Paul. I just want to say, thank you for coming on and having this conversation with me.

If you want to find out more about Harmony you can go find them online.

I know you guys have got a social account too, so you can find these guys on LinkedIn and whatnot, and yeah, stay tuned for more Modo podcast videos. Thanks.

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