Inside Alpiq’s Flexibility Strategy with Nadiya Vargola and Lukas Gresnigt (Alpiq)

Hello, and welcome to Transmission. Today, we're joined by Nadia and Lucas from Alpiq, a Swiss utility with a long history in clean power generation and pumped hydro. The conversation explores the complementary roles of pumped hydro and battery storage, how the Swiss energy system works, Alpiq's strategy for acquiring battery projects across European markets, and the challenges they've encountered along the way. I think listeners will be interested in the key stats on bringing Alpiq's latest pumped hydro plant to market, taking twelve years to build but having an eighty to a hundred year lifespan, as well as how they're needing to adapt conventional gas fired generation strategies in Iberia as solar takes over the generation stack. So can Europe's current market rules actually support the massive scale of storage anticipated in the energy transition? Let's jump in.

Hello, both. Welcome to Transmission.

I'm really excited to have you here. As ever, we'd love to get started with just getting a bit of background from you both. Nadia, what is your role in Alpiq?

Yes. So, I have been working in the, energy and financial sector for more than sixteen years, and, actually, I used to work for Alpiq for more than ten years. And I returned last year when Alpiq decided to, implement the flexibility strategy and build up, its best portfolio. So, this is what I have been doing, since last year, building up our best assets in Europe.

Okay. Lucas?

Good. Lucas Gresnigt. I've been with Alpiq for three years, but been in the energy space since the beginning of the century. First for Nuon, which is now part of the Vattenfall Group, then a few years for Macquarie, infrastructure fund here in London, ten years for for StarCraft, five of those years in Brazil. And, now for three years, responsible at Alpiq for the international activities, which from a Swiss company means activities outside Switzerland.

Okay. Great. And I hope that gives our listeners two bits of information. One, we have two guests on, and the second part, which is slightly unusual, and the second part, which is that we have some real expertise in the power sector and also the battery sector on today. So to give a little bit of flavor around who are Alpiq, Lucas, can I come to you?

Yes. Alpiq is a company that's been around since two thousand and nine, but actually the asset base that we have, has assets which are over a century old. The core of the company is our hydro power portfolio, roughly four and a half gigawatts, if you take the equity share of the power plants that we own, a very flexible portfolio, which consists of pump storage, storage reservoir, as well as run of river. And we also have two large stake of large nuclear power plants in Switzerland, one of them that we also have to mandate to operate. And outside Switzerland, we have a portfolio of the combination of flexible increasingly flexible gas fired thermal, renewables, and, we are also active commercially from b to b supply to more structured origination.

Okay. And so just to help, listeners get an idea of the balance between how much is Swiss based and how much is outside of Switzerland, is that sort of a fifty fifty mix?

Yeah. Roughly sixty to sixty five percent of activities are in Switzerland. Okay. If you look at the gen power generation on the commercial side, I would say eighty percent is outside Switzerland and twenty percent inside Switzerland.

Okay. And this is the first company I think we've had on who are Swiss based. And so I think that gives you the right to be able to describe how the Swiss power market works.

So would you like to have a go at just explaining the basics of how the Swiss power market works?

I think the Swiss power market is is quite unique in its in its fuel mix. Roughly sixty percent is hydropower, about a third is nuclear, and the the remainder is, let's say, I would say more than renewables, wind and solar. But wind, I think we can count the number of wind turbines that we have in Switzerland on on a on a few hands. Large scale solar is is nonexistent, but, rooftop solar start to actually kick a reasonable dent in the midday midday demand and is is, like everywhere else in Europe, growing growing quite a lot. Switzerland has a, well, let's say, a complicated and interesting relationship with the EU. So it has been taking part of bits of the EU, but it's not part of the EU. It's part of the European energy market, but hasn't fully adopted the EU energy directives.

But broadly, the energy markets, work very similar as we see in other markets. One big challenge that we have is that the forward market is not very liquid. So, for that, we very much rely on the markets in neighboring neighboring geographies.

And if you look at the the neighbors of of Switzerland, particularly Italy, France, and Germany, we see that we have a very different fuel mix than these markets. And the flexible hydropower that we provide is a very valuable complement to the nuclear in France, to the intermittent energy coming from from the north. And in that way, it it provides a natural balancing function between many of many of these markets and allows us to to monetize the value of flexibility of our hydropower assets.

Super interesting. And I think I read somewhere that, Switzerland has ten percent of the hydropower that exists within Europe, which for a small country is is quite a mighty chunk of the hydropower estate.

Absolutely. Absolutely. And I think it's also among the most flexible. Okay.

Last question on on Switzerland, just on the interconnection, because you mentioned how how connected Switzerland is to those markets. What does that interconnection look like? Is it highly interconnected, or is is that sometimes a kind of critical part of the constraint?

It is highly interconnected. And, actually, our neighboring markets rely on our flexibility, and we also rely on our neighboring markets. And we see that, particularly in the winter, Switzerland would struggle, yeah, to survive without its its neighbors, and there's a a high dependence. And, that there's a I wouldn't be able to quote exactly the amount of gigawatt interconnection that we have, but it's, it is, tightly interconnected.

Okay. And, Lucas, then coming to you with the first question. So as a hydro major Yep. How do you think about the opportunity and challenge within storage?

Well, about two years ago, we started, a discussion about the future strategy of Alpeek, and we realized that that the increasing, amounts of wind and solar, which is, of course, the the big success of the of the energy transition so far, is also causing a number of challenges.

And, we looked at what we are naturally strong at and how we can play a role in the energy transition in line also with our purpose, which we want to contribute to the energy transition and and contribute to the to the security of supply. And what we realized is that not only hydropower is a natural complement, but if you look at the underlying capability that we have as an organization, being able to take the flexibility of hydropower towards the energy system can also be extend expanded towards batteries. And, of course, a battery is technology very, very different than hydropower, but the role it can play in the energy system is very similar. And on the on the commercial side, we see a lot of synergies that we can take advantage of our market analysis and our trading capability to to monetize the value of flexibility.

Okay. Nadia, you're really in the thick of this in terms of those battery assets. So how do you see those pumped hydro and battery assets comparing?

Yeah. I I think it's, very interesting what Lucas mentioned that, actually, they are not competing technologies. They are complementing technologies, and they have quite different characteristics. If we speak about BaaS, I think it's, excellent for the short term energy storage and for handling the intraday peak and wind solar.

Of course, you can also put BESS relatively simply in many locations.

The technology is also quite solid by now. And, the cost, in terms of cost, is also quite competitive.

If we speak about pumped hydro, then, it's quite a different technology. It's very solid, very established. The lifetime for the, plant's operation would be between eighty to one hundred years. Of course, the construction time is much longer, and investment is much bigger. But then if we speak about the operating regime, pumped hydro is perfectly positioned for the, large scale shifting of a lot of energy over the substantial period of time. For example, for the multi day, shifting of energy when we have a lot of clouds and no wind. And there is actually not much alternative to pumped hydro specifically for these situations.

So we actually would like to have more pumped hydro, and we are looking for more opportunities in Europe. The problem is that pumped hydro is geographically constrained. You cannot put it anywhere, and actually the best locations are already very often used. And when we speak about the future, when we talk that we need maybe about two hundred gigawatt additional flexibility assets in Europe until two thousand and thirty, then it's evident that it cannot come from pumped hydro. And here, most probably, BaaS would play a substantial role.

Yeah. I think we have numbers for GB of kind of doing, like, forty to fifty gigawatts of battery build out for a market that is a demand of currently around forty gigawatts ish. So I think that number around two hundred gigawatts, where most of that might be coming from battery storage is is definitely sounds in a similar ballpark. And in terms of where Alpix sees that flexibility coming from, are you looking much more at storage projects in terms of battery storage projects, or is there sort of a balance between battery storage and pumped hydro projects?

No. I think it's quite balanced. So we have, both targets to have postponed Hydro and BaaS. The difference maybe is more that, for BaaS we can look at smaller projects also, you know, distribute the risks much better between different countries. While for Hydro, normally, as I mentioned, I mean, they are quite expensive, they are big, so you would not have too many targets distributed between different countries.

Okay. And would you obviously, you're involved in many pumped hydro projects to date. So would you consider retrofitting BES onto some pumped hydro sites?

I think in general, using existing grid connections makes a lot of sense. Mhmm. We're actually building, a combination of BES and gas engines next to next to one of our terminal assets in in Hungary Interesting. Because we then see that we can provide AFFR that we cannot provide with our currency GT.

So I think the combination of these technologies would make sense. I think the combination of hydropower and BESS is not particularly, more logic than any other combination. There are I think there are there are more logical combinations to combine, but I think the the reuse of existing infrastructure is, is very helpful. Let me just that comment about, you mentioned we are involved in a lot of higher power projects.

We would love to. We own and operate many, but, actually, the last pump storage project that we opened took twelve years to construct. We opened it in twenty twenty two. Nine hundred megawatt, twenty two hours, more than two billion investments.

So regretfully, we not have many of those opportunities around, but, of course, that experience allows us to, to get a seat on the table in many projects that we are discussing. And, hopefully, one of those will materialize, and we would start another similar project like that somewhere across Europe.

And you mentioned that that started life in twenty twenty two. It is. Yeah. Is that correct?

Okay. And just to understand the the time frames around that. So we last built pumped hydro in GB, in nineteen eighty, so a long time ago now, and we are now planning to build pumped hydro. So it's it's kind of back on the the road map.

And for all things that you haven't done for forty years, I imagine you might be a bit rusty. And so I think we will borrow expertise from other places and make sure that we can deliver it. But just for that project in twenty twenty two, what what were the rough time scales on on getting it to market and getting it and getting it built?

So the construction time took fourteen years. Okay. So, that is, that is a lot of time.

I think you could do that shorter, but I think less than five to seven years is not is not realistic. It bit depends, of course, what your starting point is.

If you have existing reservoirs Yeah.

Or even an existing reservoir hydropower and you can install the pump or replace the the generator with a pump that can generate, then it can be it can be done significantly quicker. But, typically, it involves quite a lot of civil civil work.

But, actually, the more challenging part is the getting the the getting it to a ready to build status. I mean, because these projects, of course, depending on your preferences, they I think they look they look amazing and they but not everybody has that view. Yes. We see a lot of resistance against our ambition to build additional, storage capacity in in in Switzerland, and we're working very closely with local local communities to to, show the benefits.

And the benefits are not only in more stored energy, but also in in controlling floods. Because one of the challenges that we see was climate change. And we saw it in Switzerland, last year, is is is severe flooding. Yeah.

And dams can actually be very, helpful in actually, managing these risks. But, obviously, if you can imagine the resistance people have against wind farms or solar projects, similar kind of dynamics we will see around the.

And this is a lot of the the sort of snow and ice in the Alps is melting as you go into summer. It that's really what you're talking about in terms of the, like, flood water.

It's it's that, and you see that, with the more extreme weather Okay. You see that, melting water increases. The intensity of the what the rain in a short period of time also increases.

And, like we've seen that, in many places, and that has an impact also on, on flood risk.

And I think that fourteen year number is also quite interesting. If if your project is an eighty or a hundred year asset, then fourteen years doesn't feel very long to to actually get that constructed. I think we have in GB, we also have some assets that have now run for a hundred years. And, obviously, each component has been amended and swapped out, but we we have had some pumped hydro sites that have run for a hundred years, which is is kind of a crazy statistic.

I know.

And it it the technology has been extremely proven and extremely solid, and you build really something for generations. I mean, the the pumped hydro just referred to is literally built in the mountains. So if you go there, you drive for six kilometers into the mountain, and it's a six hundred meter below ground where the turbines and the pumps are are placed in a in a space which has the size that almost fit in the Notre Dame, in size. So it's amazing engineering, but you can imagine just the civil works to do the tunneling and create the do all civil works linked to that.

You literally are moving mountains to make this happen.

Well, they know. The mountains have not moved, but we we take these out of the mountain. We create we create because from the outside, you don't see anything. That's that's the that's the that's the elegance of it.

Well, can can you see something? So if you go to that site, can you is there a is there ability to see anything around?

What you see on the outside is is like a a tunnel with a gate. Uh-huh. But, of course, if you then take an aerial view, you see an upper lake and a lower lake, which obviously are Mhmm. Are, more visible. But the actual power plant is actually completely, hidden in the in the mountain.

Okay. We could talk about pumped hydro for a long time, but let's let's go outside of, pumped hydro and Switzerland. Mhmm. Lucas, how do you think about those other markets outside of Switzerland? What's attractive in other markets where you're looking to apply some of your knowledge around pumped hydro flexible assets?

Well, I think what we see that the energy transition has been in some elements extremely successful, and at the same time, it also causes a number a number of challenges.

And I think in most markets where we operate, we see that solar has been so successful that it starts to create create challenges in in in the in the shoulder hours. So what is very clear for for us, if you look at the system perspective, that more flexible storage generation is needed to be able to integrate more renewables.

And whether you look at at Finland, where I was earlier this week, or whether you look at at Italy or Spain or France, these challenges are increasingly visible, and you can see them, of course, on a daily basis in how that's reflected in the power prices, where you see zero prices on some markets, only negative prices when the sun shines and and very steep prices when the demand is significant in the morning and the evening. And that, of course, provides, the ideal opportunity for for storage.

In addition, we see that also the grid services market, so the the products that the grid operator procures to make sure that the grid is stable are increasingly needed, and pump storage and batteries are ideally suited to provide these, provide these, these services well.

Which markets are more attractive than others? I mean, the crystal ball of market price forecasting, is a a hobby oh, no. It's a it's a it's a it's a discussion point of everybody in the energy sector all the time. And and I think the only thing that we know for sure is that we're all wrong. We don't know whether we're too low, whether we're too high, but we've been the twenty or twenty five years in the energy sector.

We have seen so many things we didn't see coming, that we should not kid ourselves, that we that we get it that we will get it right this time. But what is very clear is that, with the extension of particularly solar in most European countries, but also wind in Northern Sweden and in Finland, there is a significant additional need for for flexibility.

And markets are are remunerating providing flexibility.

I think the biggest challenge that we see, not whether there's a need for it, but whether the market would eventually saturate. And we've seen, of course, something happening like that in in in in the UK where, yeah, suddenly the the the grid services prices dropped very significantly.

But so we see when we look at the markets, we look which markets would are there today, how these markets are going to evolve. In our view, the early years, we see a lot of revenue coming from grid services, but over time, it will be the the intraday arbitrage, yeah, where you would, we would see most of the money. And if I see how much solar gets built, I think that there's still a lot a need for a lot of short term storage Yeah. Capacity.

So So it's a really good kind of, leading indicators for you is around solar capture rates. For some reasons in Europe, we're seeing capture rates for solar around about fifty percent. So it's fallen really quickly. That view is a really good indicator for this market needs storage as well as negative prices you mentioned as well.

Yeah. So only the percentage is also actually the the the height of the the evening peak. Yes. If you look, for example, in Spain where you have extreme low capture rates, I think we we're approaching negative numbers almost. But the because the relatively high installed capacity of gas to power, you don't see as high prices in the evening peak as we see, for example, in in other markets. So in the end, even though I would definitely see the system need in Spain for battery energy storage, the economics for now don't look that attractive.

Those those gas units have gotta be getting hammered in terms of run hours. You know, you build that gas unit, you take a decision, you say, oh, I'm hoping to run for sort of thirty percent, forty percent of the year, and yet a huge amount of solar is coming in, essentially providing all of the generation needed in the sort of summer periods or sunny periods. Those gas units are having to kind of recoup their money from a very, very small percentage of the year. So how is that not driving prices higher in those peaks?

Well, if you have enough power plants there, the that's competition. But, actually, we we know that market a bit because we we own and operate a CGT in, in Catalonia.

And the the the plant was built to run baseload and maybe to be turned off on the weekends. Last year, we started the plant more than three hundred times.

Now weeks where we start more than ten times are almost, become become the standard. And I talk to the plant operators in the plant. They they feel that we are we're driving the truck like a race car, which is what's not built for. But if I talk to our our our traders, they are, well, they see, of course, the value of that flexibility.

And we we put a lot of effort and we continue to invest in making these assets more flexible to minimize the run rates, to make them ramp up faster. And what you see is that that in Spain there have been a lot of challenging years, but we are very confident that now capacity payments will come into place. The EU has approved the Spanish proposal for that, and we're expecting that to come online. And then, of course, the economics are partly supported by the by the capacity payments that you get.

I think a a fascinating market, and we definitely see parallels in terms of, like, where our capacity market is clearing in GB, and how that's supporting gas units, how they juggle this kind of ability to not be running very many hours, but still be making enough money to stay open. And maybe I'll I'll add one more thing, which is essentially as those gas units get to end of life, they need a major retrofit. Well, actually, how do you, as a government or a system operator, how do you encourage those gas units to stay around for another fifteen years? Because you might need them for those sort of winter periods. I think it's a real challenge. It's probably one of the the most interesting parts to think of how you plan power systems for the next ten, fifteen years.

But you you end up with actually mostly, in my view, a different type of gas to power technology. As as I just earlier mentioned, we are com we're building now a extension next to our Hungarian CGT, which is a combination of gas engines and batteries.

Very old technology and very new technology.

And they have the advantage that they can ramp up really, really fast. And due to the battery, we don't have to run them when they are not needed. Because if you wanna provide flexibility with conventional gas power power plants, you have to run them to be able to to modulate.

And I think you would you would see more of these kind of peak capacity and really focus on a system that can actually run, for these, these hours when needed. But also and that's, of course, why there is still a role for gas to power, also for quite some time when there are periods with no wind and no solar, as the Germans would like to say, We need to be able to run something for multiple days. And Yes. Batteries and also up pump storage will not will struggle to, to to bridge these gaps. So there is indeed a a a role, and then I think the question is how do we decarbonize the last bit for then be a large challenge, or do we maybe accept, not hundred percent? Yeah.

Okay. I I I think that's a really yeah. That is a really interesting topic. Let's say, Lucas, that gives us a really clear steer on the strategy and the thinking behind how Alpaca is, considering European power.

Mhmm.

Nadia, in terms of then executing the desire to get more batteries into the fleet, is this something that you think about as in terms of organic growth? So, developing some of these battery projects from early stage sites, or is this something where you'd look and you'd say, actually, there's a gigawatt of battery assets in this region or there's two hundred megawatts of battery assets in this region. Very happy to come and buy these assets that are already operational.

Yeah. That was the decision that we had to take in the beginning of the last year. And, for Alpiq, it was clear that with all our historical experience with trading flexibility, we want to be the long term owner, operator and optimizer of best assets. We also want to have central capability to procure EPC for all our assets across Europe to achieve economies of scale and better terms.

But developing best projects is not our core competence. We might still consider it in the for example, in Switzerland, in our home market because we have quite many assets where it might make sense. But, if we look at Europe, it was as clear that we would like to acquire projects. And this gives us the opportunity to save a lot of time to bring the assets to the market, so between two to three years.

And also, we could actually handpick the projects that we prefer for different reasons.

And, this is what we did. So, I think within the last twelve months, we closed three transactions. At the moment, we have about two fifty five megawatts in our best, portfolio of projects.

And normally, we focus on ready to build projects.

All these street transactions were for ready to build projects. And it was also interesting to learn, you know, the experience when we were bidding for different projects, how we are perceived as the buyer. And I think that there are basically several aspects how you are assessed by the counterparty.

I think it's about your reputation, that you bring and financial strengths. Then, it's about the offer that you make and the conditions attached to that offer. And then, it's also about the speed of transaction that you can execute.

And I think, especially on the last point, we improved a lot in the last year. And as I can judge from the market, we actually score quite well on all of these three points and very often can be seen as really the favoured buyer for the projects. So, we continue with our scouting work. Like every week, actually, we revise new opportunities. We are trying to identify the best projects based on our criteria. And, yeah, I'm looking forward to even speeding up our transaction speed.

And those three transactions that you did, are you able to say a little bit about the size of each individual one and the the location?

Yes. So the first transaction that we closed was, last June in Finland. It was thirty megawatts. So we really wanted kind of to start small and test the market and run the process.

And it's actually going to be connected to the grid, I think, in July this year. And then fully commercial operation date in autumn. And then second transaction was in Finland. It's one hundred megawatt project.

And third one was again, sorry, the second one was in France, one hundred megawatt and the third one was again in Finland, one hundred twenty five megawatt project.

Okay. And you'll start to see those assets go live this year?

So the Finnish one goes this year, the first transaction that we closed, and the others, too, they are much bigger projects, so it takes also a longer time to, to construct them and bring them to the commercial operation date. So it's rather in, two thousand twenty seven first half of the year.

Okay. And those aren't necessarily conventional battery markets. So you I talk a lot to lots of battery people, in the market. GB is mentioned a lot.

Germany is mentioned a lot. Italy is mentioned a lot. France and Finland, I would say, you don't hear so much. So so what how what's the rationale behind those markets?

Yeah. So, actually, Germany is also one of our focus markets. So far, our experience was that it's relatively complicated market to acquire ready to build projects and maybe a little bit more on that when we talk about the lessons learned.

And, I mean, the choice of the focus markets very much depends not only on the market conditions themselves, but also your presence. We are we have very solid presence in the Nordics and also in France. So those markets, they, you know, we can have synergies and they, you know, combine different operations. So it fully made sense for us to, you know, to step into Nordics, into France, and Germany also take into account the big part of the, you know, merchant exposure that we can have there. And if you speak about Italy, it's an interesting market because, you know, with this Max scheme, it became, very attractive, to people that want to have a guaranteed return, and they would accept lower returns, like, for financial investments, potentially. But this is not particularly interesting for us because we are the, like, we are in the market. We want to have exposure.

Trading capabilities.

So we are checking the Italian market, but outside of the Max's scheme, maybe, you know, after the first auction takes place, then you can also see how the market then looks for the other projects, and maybe more for the northern regions of Italy where only capacity payments potentially will be present.

Okay.

Lucas, once once you bring these assets into the portfolio, is this something that Alpaca are in a position to essentially just fund through equity? Or are you looking at these projects and thinking, oh, we need to do a project finance agreement around this, and so we need to go and get a tolling agreement to back it up to make sure we've got revenue certainty? How how do you think about these projects?

We typically finance these projects on our balance sheet. Of course, project finance has its advantages, but, it also comes at a cost.

And based on my experience with developing rest in in other jobs, a lot a lot of, lawyers and bankers involved do provide valuable project financing, but also take a lot of a lot of time and and puts quite a lot of restrictions, particularly in the construction period. So we are in a lucky position that we can balance sheet finance this. Actually, the that also then takes away the need for for a tolling agreement. So we seek the merchant exposure.

We would look into ways of hedging it, but but not necessarily by a tolling agreement, but thinking about what other exposures can we get commercially in our portfolio to create a a better, balanced portfolio. And, actually, we see ourselves not only as an investor and owner and operator of Vatteries, but we also see ourselves as a counterparty that can provide tolling agreements to other investors. And we would be very eager and we'd be discussing, both in Germany as in the Nordics with a number of developers, the potential to to take a tolling agreement for periods three to five, seven years typically, where we see benefit in extending our exposure to this, to BES also commercially.

Effectively getting that exposure to BES without necessarily having to buy the asset itself, provided you can reach a sort of sensible toning agreement with the with the other party.

Exactly. Yep.

And how how busy is that keeping you on the tolling side?

Well well, that keeps you quite busy because, I remember a year ago at a storage conference, we just have we're talking about best PPAs, and I say, these things didn't even have a name. So I think the people had to invent, invent these contracts and and got got used to it. I think the then at that point, there was still a challenge that people the sellers of the total agreements had price expectations were unrealistic because they were looking back two years into the energy crisis, and they expected revenue levels, which which were not feasible. So you needed to there need to come some realism into that into that market as well.

And then it is not a straightforward product because you you would have to, really think through not only what you agree commercially, but also how you do the the actual operations of these assets because you trade these assets very, very, very actively until very close to delivery. So the the market operations is actually quite, quite complex and need to be thought through. And that's why we also initially say, well, let's focus on the markets where, from that perspective, we decided to focus on, which is the the Nordics, France, and Germany, and, seek to expand that to, to Italy and Switzerland, with time as well.

And why? Well, because that's where the market where we think the the revenue in the next three to five years is most attractive.

Yeah. It's super it's super interesting. I suppose within that totally agreement, you've both got the kind of merchant element, which is that really near term optimization.

We're starting to see some markets, and this is almost linked to the PPA side Mhmm.

In that effectively, your traditional PPA was maybe more around you could get you get a sort of clean power PPA effectively by taking, guarantees of origin, and using those to essentially say this is this is clean energy.

But in reality, some of those, were coming from were were coming from, say, solar in the middle of summer and were being used to apply to a winter period where effectively it was running off gas. Now for someone coming with a Swiss mindset, this would all be quite odd because, essentially, when you've got nuclear and loads of pumped hydro, everything is quite clean. And so twenty four seven, clean PPAs is quite easy to do or are quite easy to do. But BES in other regions, I think they have a potential where effectively they could help to provide, clean power in winter periods. So moving, say, wind generation from when it is windy to when it's not windy, and therefore help people to do a a more genuine sort of twenty four seven green PPA. Do do you think about that at all?

Or We we do, particularly, of course, with the obligations that, that are around green hydrogen.

We have, one hydrogen investment in in in Finland, where we need to guarantee that we are providing, the energy from green sources. We also we're talking to a number of other hydrogen developers, although the number is getting smaller and smaller, to to find find solutions. You see also data centers, being very eager to be able to make that claim. At the same time, I think, gradually, the realism also starts think thinking in that it's it's easy to go to sixty, seventy, eighty percent, but those last twenty percent are, yeah, really increasingly more complicated. And, so I think battery can play a role there.

But the question is, do you want to make sure that one contract gets completely clean or that you could get the system all over cleaner? And I think what my personal view is, and that's also the reason and Alpik's view is it's also the reason why we continue to keep an open mind about, a flexible thermal generation from with with gas is that we need to look at the the system on the the the the overall system carbon footprint.

And, then there is a role to play and I but I think batteries definitely can play a role, to answer your question, in in giving more certainty about the green origin of the energy that customers are using.

Okay. Fascinating. And, Nadia, I have one more question for you before I come back to you with final questions, which is around the the projects that you have been acquiring so far. What would you say the lessons learned are on on those projects?

Yeah. It's a difficult question because there are, in Europe, many geographies, different regulations, different markets. But if I summarize a couple of high level lessons then, the first one is that we see a very wide range of, IRAs that investors expect from best projects. Really, it can be between eight percent to eighteen percent. So, there is the huge gap. And apparently, most of the OPEX, CAPEX are relatively transparent costs. So the majority of this difference comes from the revenue projections.

And it's clear that here we are speaking about, you know, still quite a new asset class. We're speaking about, fifteen to thirty years of projections.

So it's understandable that there is a huge uncertainty, which actually we cannot control today. We will see how it goes. So I think when we evaluate the projects, we try to focus on the things we can control at the moment. And for example, it can be about the choosing the right location with no limitations from the grid operator or, you know, looking at the projects where the local taxes are smaller, or the time to the grid connection is faster.

So some of these elements might not look so important in the beginning, but if we think about all that long term operation and much bigger competition in the market in the future, actually, these details can make a difference between a profitable project and less profitable project over the whole lifetime.

And then, second lesson, I think the common wisdom would be that, you you know, if you came into this market, into the best market earlier, and for example, you already have like, the developer already has the project that is under construction, then they would think they should command the premium when they are selling that project. And it would be correct if the CapEx costs were staying the same. But actually, CapEx costs for bears are falling quite substantially. We can see, I don't know, ten percent to fifteen percent decrease, in the last twelve months.

And this makes the duration of the projects much more complex. You kind of, you try to find, you know, the sweet spot where you capture the good CapEx costs, but at the same time, you are still early enough in the market to also cover those front most profitable years of operation.

And then, the third lesson learned is that, you know, the market is still young and we see a lot of noise in the market. I mean, especially if we speak, for example, about Germany. Germany is a very prominent market. Everybody is telling that, you know, it's huge, it's very, prospective.

And this is true. But if we look at the details, I mean, there is very fragmented regulation, which now I think the German government is trying to kind of to improve a little bit. There are very many announcements of, you know, this large scale blockbuster projects, five hundred megawatt, one thousand megawatt. I mean, the grid is oversubscribed more than ten times compared to what can be connected.

So, like, there is a lot of news. But if you really go and check the actual transactions, you would see that there are not too many at the moment, especially for these large projects. And maybe part of the explanation goes back to, you know, those revenue projections that it's actually I think the market is still young and those mechanisms to transfer risk between different parties is still not established. So, with the toilien agreements or other agreements so that more investors can actually feel comfortable to step in into that market.

And, you know, that ecosystem still has to be built, which probably will take some time so that we go to the actual transactions in the range of, you know, ten to twenty to to forty gigawatt of needed new, basket based in Germany by two thousand and thirty.

Oh, we've got a long way to go to get to two hundred gigawatts. Yes. Okay.

This is super useful explanation of how you're seeing those markets. And I think for many people listening who are kind of thinking about some of those regions, I think they will find those rules around transacting best projects very helpful. I'd like to come on to two final well, one final question, but to both of you, which amounts to two questions. Nadia, maybe I come to you first, asking for your contrarian view. So is there something that you believe that the majority of the market doesn't?

Yeah. Perhaps it's not exactly contrarian, but something that I deeply believe in. You know, I am mostly working in the transactional environment. And you would imagine that, you know, this is really about the tough negotiations, about the performance driven environment, and quite a lot of stress, which, yes, it is present, it is part of this work. But on the other hand, I always try to keep a big picture that, you know, even if we are sitting at the opposite sides of the table, we are eventually still together in the same boat of energy transition. So, if you're a developer or a financial institution or a long term investor, actually, we are working together, you know, to bring these targets and to ensure the security of supply for the future. And I think, actually, this is what, what is making working in this industry presently so exciting.

We have far more in common than we think. Exactly. Yeah. Okay. Lukas, Good.

I joined the energy sector in the in the liberalization phase, and, I think, many people are in the energy sector, see that as an as a given and and the right direction. And, when I spent five years in Brazil, I realized that the regulation that you have is not a law of nature. That is just a a combination of rules set up to challenge the to address the problem at the time. When I went to Brazil, the regulation was set up to address a shortage of power after a a particularly dry period at the beginning of the century.

And the rules were are completely different than they are in Europe. And I think the challenge that we have in Europe is we have the wrong set of rules for the challenge of today. The rules were made to make the energy system more cost efficient. And we split the market rules between the system operator and the and the grid owner and and the and the generation and and the supplier.

And at the moment, we see that all these actors, they play their part. They play largely by the rules, but they should think about collaborating a lot more, and the rules actually prohibit them to collaborate more. And I think, to put it metaphorically, I think the the orchestra of the energy transition misses a conductor to make sure that everybody, plays towards the same tune of the of the energy transition.

And, maybe the clear example that we see now with with solar, of course, the the successful of successful chart the success chart of the energy transition, It kept surprising everybody how cheap it got, and now it keeps surprising how much we have of it and we actually kept start having too much. Yeah. And I think unless we start to see a better orchestration of the orchestra, yeah, we will, we will run into more and more challenges, and we will be inefficient in solving them. And, I don't I believe in entrepreneurialism and finding solutions to, through through the market. But I think in, in building a resilient and sustainable energy system, we need a higher degree of orchestration.

Okay.

Superb. Well, both, thank you very much for your time on Transmission. You've been fantastic guests. We have brought light to many complex areas from Swiss power markets to battery storage in Finland to the need for orchestration. It's been a fantastic episode.

Thank you both for coming on.

Thanks, Fred. Thanks for having us.