Multi-market battery development with Erik Strømsø (CEO @ BW ESS)

Welcome to Transmission, the podcast exploring the energy transition. Today, Q is joined by Eric Stromso from BWESS, the energy storage arm of the BW Group that's rapidly scaling battery projects across Europe. In this episode, they dive into two major themes. First, BWESS's strategic approach to international expansion, starting with the UK's advanced energy storage ecosystem, before moving into Sweden, Germany, Italy, and Australia. And second, the contrarian view that grid queues and regulatory complexity are actually blessings in disguise for the battery storage industry. One thing I found particularly interesting was Eric's point that finding people with over ten years of experience in battery energy storage systems is as rare as finding unicorns.

Also, their battle scars from early market mistakes are invaluable. If you're enjoying Transmission, please like and follow wherever you get your podcasts.

And a reminder, ninety percent of our audience is subscribed. So, if you want to join the crew, hit that button. Now, let's jump in.

Hello, Eric, and welcome to the podcast.

Hi, Quentin. Nice to be here. Thanks for for having me. Big fans of the podcast and really big fans of what you guys are doing at, Modo. So great to be talking to you.

Thank you very much. That's very kind. Okay. We're gonna talk about your business, BW ESS, for this episode.

And for our listeners, I mean, you've been in the news a lot recently. I'm gonna ask you about what whether that is a concerted effort. But for our listeners, they've probably come across some of your fairly enormous assets and also the fact that BWESS has teamed up with Penso Power. So before we get started, can you just explain the vision for BW ESS and and how it fits within the wider BW Group?

Yeah. Sure. No. Happy to do that. So we, are, as you say, we're a part of BW Group, which is a family owned, industrial company, which has its roots in the maritime and energy infrastructure space.

It's a seventy year old company. It's got around fifteen thousand employees. And so in many ways, it's, you know, it's a lot more mature than us at BWESS, but, it's, a great, strong, and supportive shareholder to have, to have behind us.

You know, we started, the company back in twenty twenty one, and I was essentially tasked with finding ways that BW Group could become much more actively involved in the energy transition on a much more meaningful scale to deploy, sizable amounts of of its balance sheet into the energy transition.

And, you know, we looked at a number of different sectors at the time, obviously, solar and wind, like like everybody else. And that was probably the biggest issue we found with it was that there was just too many others looking at it at the same time. And frankly, we were late to the party. But we did believe in the promise of wind and solar that you would have a massive build out of these asset classes and that frankly, generating the clean energy wouldn't be the biggest issue if you looked at the growth rates.

But what we, at the same time, didn't see a consensus forming around was the enormous need for energy storage that would have to follow such large investments and intermittent, renewable energy generation.

So we started looking very closely at, energy storage and, because this was fairly overlooked, we found that it was a really ideal place for a large industrial company to start taking meaningful bets and to move with speed and conviction because there weren't really other companies doing that at the time. There were certainly pioneers and there were, some smaller operators, but there weren't that any sizable companies taking those types of bets. So then we started focusing on, on energy storage. We established, BW, ESS. We've we've since built a platform that has, you know, a little over five hundred megawatt hours under operation and presence in five countries, and it's been it's been a great journey.

Well, let's talk about those countries then for a moment because you decided to go global fairly early.

So why did you choose those countries? Why were they attractive?

And what do you look for in a region for it to make sense? As especially as we're gonna come to it later in that you run a very lean team. I think, clearly, that's on purpose, so we can talk about why that is. But if you're if you are, you know, twenty or thirty headcount, how do you spread across, all the regions you're in, and how do you choose the right ones to to place your chips on the table at the right place at the right time?

So so we didn't actually go global that early. Our our first investment was, in in in the UK, and I'll I'll come back to the reasons for that.

The second country we entered, was Sweden in twenty twenty three and then Australia and Italy and Germany in twenty twenty four. So it's happened over time, but I think that the main purposeful choice of market entry was UK.

And the reason why we chose UK is because it was just by far the most experienced and most advanced energy storage ecosystem that we could find anywhere in the world, not just when it comes to the market itself, which I thought was very interesting also just due to the, all the different sources of revenue and stacking, that was available in the country. But the ecosystem around that, whether it's optimizers or companies like Modo or asset managers, it just had created a very attractive and interesting ecosystem, which we were convinced that we could learn a lot from if we entered that market.

And so we started in the UK, we, invested in Penso Power, which was then one of the pioneers in the UK market and one of the most experienced players in the market. So we felt like we, were investing in one of the most advanced markets, one of the most experienced players in that market, which then created a platform through which we could really leverage that experience and enter other markets with that knowledge. And that's what we've done since. And we've seen that, you know, the benefits of, having that type of experience from an established market are quite significant when you're entering new markets. Obviously, there are big differences between, you know, say Italy and the UK or Germany for that matter. But there's also a lot of similarities, not least when it comes to, you know, the best technology and, the project design and equipment selection itself, but also when it comes to things like even planning regulations, there's a lot of similarities.

And, and so having that in our our back pocket has been really helpful as we've scaled internationally.

It's something that doesn't get talked about much, really, but the energy energy storage industry is actually a a great export from the UK. It makes me very proud to be a Brit. The UK has got, as you say, some incredible capabilities in in making these projects make sense. Can I ask you about the the merger or acquisition of of PensoPower?

PensoPower, many of our listeners will know as the well, at the time, they built the biggest battery in Europe, right, Minoty.

And you joined forces a couple of years ago. So could you could you just talk about how you made that decision and and what the business looked like after, merging two companies?

Yes. So ever since we invested in Intensive Power, in twenty twenty one, we've been working really closely with them. And, whenever we've been entering, new markets, it it's always been clear to us that the experience and and expertise that we, had in in the team, at Tensor and, which is also a result of the the UCO ecosystem that we discussed was just, unmatched when it comes to especially, you know, experience with, with the batteries and the the systems themselves. So we ended up working really closely with them, regardless of which market we were looking at.

At one point, it just made sense to actually make that more formal and and merge the two companies and, get the teams, really working together full time. So, you know, the great thing about that is that we we've got some of the most experienced people in the best industry, working, with us, whichever market, that we're in. And we have some people, I'll tell you sort of, if you find people in the best industry with more than ten years experience, they're like unicorns. And, you know, you really have to take that experience and use it for what it's worth because those battle scars are so valuable.

There are so many mistakes that anybody with ten years in this industry has done that they can avoid doing again as they are entering new markets. And ten years of experience is just impossible to replicate. And a lot of the markets that we're in, the whole market doesn't even have two years of experience to it. And so it's been great to have that expertise in house.

The teams are working really well together. I think it's made us, a much stronger and unified platform than, than we were before.

So BW ESS joins forces with PenSo, and then you're looking at all these international markets, and you're trying to figure out which market makes makes the most sense. So how how do you figure out which markets make sense for you to operate in and to to make investments into?

So our starting position is that we think the energy storage opportunity in every country in Europe is attractive. That hasn't always been, you know, something you could, discern in a business case analysis because some of the some of the boxes weren't ticked yet. But I boil that down to basically just being very convinced about the value of energy storage, seeing the arbitrage and the ancillary services that can be, supplied by energy storage, and then having conviction that if there are regulatory hurdles, if there are policy hurdles or, you know, grid fees or connection queues or other things, given the massive amount of value that this asset class can bring to the system, those things will sort themselves out.

And so with that conviction, we've just moved early into a lot of markets. And so when a market is all the rage, we've typically been focusing on it for a while, already and have entered some of the more interesting markets before they became, very hot. So that's kind of the first part is just conviction. And then secondly, we obviously need to have markets where we can, get a bit of scale. And so that's where markets like, you know, Germany and and Italy make a lot of, sense. Markets like, you know, Germany and and Italy make a lot of, sense.

And then we have our our partnership strategy. And so we don't believe that sitting in, London, you know, where many of our colleagues sit or or in Zurich where I sit, that you can be the best developer in Italy and Germany and Sweden and all of these other markets. You need to work with with local experts. And so that's what we'd we've done. And looking for those local experts has actually been a great due diligence exercise. Because if your PowerPoint tells you that a market is great, but there are no, you know, young entrepreneurial companies already seizing that opportunity, then your analysis is probably wrong, right? Whereas if you see a market and actually you can't really tick all the boxes, but there's five companies that have know, been started by people who quit their jobs because they see a big opportunity, then that's probably the best due diligence you can ever do.

That's absolutely fascinating.

You you mentioned earlier you're looking for markets where you can get to scale. Could we just take stock of where you guys are at in scale right now? What kind of assets have you got built and operational already? And then what's the big vision?

So we, currently are operating a little over five hundred megawatt hours, and that's, across a portfolio of smaller sites that we have, in Sweden.

And then it's, the Bramley project that we, brought to COD in the UK, earlier this year.

By early twenty twenty seven, that portfolio of operating assets is going to be around five gigawatt hours, just based on identified projects where we have either contracts or in preconstruction.

So ten x in two years? Yes.

It's ten x in in two years. But obviously, these are, you know, many of these are just bigger projects. Right? It's it's like, my colleague, Roberto, always says, you know, big projects, big problems, small projects, big problems. So, you know, we're we're scaling we're scaling with different type of projects.

Okay. So we've got many gigawatt hours to build. And then the size of the assets that you're going after are much larger. Can you just put some numbers around that? Because I think you're getting a name for yourselves for going really big.

Yes.

Well, I mean, part of this is, again, going back to the starting point with Penso where they had a philosophy of going for larger sites and also going for longer duration. So all of our sites tend to be a hundred megawatts plus.

Of the ones that we are currently building, they are anywhere between a hundred and four hundred megawatt of connection capacity, typically more than, three hours duration.

The largest project that we have in our pipeline is a gigawatt connection capacity.

That pipeline in total is about seven gigawatts. So there's a fairly sort of meaningful additional pipeline beyond the five gigawatt hours, which we also need to get working on.

And and so I've got to ask, BW ESS seems to be coming up everywhere now, in the news. You've made, some big announcements about the the size of your your your projects that you're working on and various other things. So has there been a a an an effort to get your name out there a lot more? It feels like certainly, Penso, they did some incredible things almost in stealth mode. And then you guys merged, and then certainly in the last twelve months, it feels like there's a lot of news about you. So is is that on purpose?

No. It's not on purpose. I think what what what basically listen, we've we've just been really busy, and a lot of the stuff that we've been busy with has been maybe a little bit more foundational. And so it doesn't necessarily show up in in press releases.

But then once we start announcing some of these partnerships, which are the result of several years of focusing on various markets and, trying to find the best possible entry points and trying to find the best possible projects, etcetera, A lot of things start happening at the same time. And some of them are very meaningful, like Bramley when we brought that to COD, that was the largest project in the UK. I think it had that title for about two weeks, but nevertheless, it's something we felt like celebrating. So, you know, that that's a press release for us.

But one of our partnerships we we we entered into, and I don't think we got around to the press release for another year. So we probably want to just strike the right balance, but I think it's more random. This just happens to be a lot of stuff that's been happening at the same time. It certainly feels like it.

Now let me ask you about, the size of the team. So you're at five hundred megawatts roughly, five hundred megawatt hours right now, and you're gonna ten x that in two years. But one of the things that struck me about Pencil and also now now you've merged about BWESS is the fact that you're doing this with a a relatively lean team. There are many ways to play this this this game. Right? And you can you can really go aggressively into hiring.

And that can be very seductive, running a business for sure. But but it seems from the outside that you've been very measured in in growing the team. So firstly, I I assume that's that's a decision you've made. And and can you talk to that decision on how you scale to where you are right now with what I think is, you know, twenty twenty folks or less. And then how does that change in the next couple of years when you've got a ten x megawatt hours deployed? I mean, does that approach change?

Yes. So it's it's definitely been on on purpose.

We we started BWSS with an ambition of being very, lean.

Pentel had the same philosophy. So that was one of the great things about the merger is you you bring these companies together. And because we're both running really lean, actually, because we started growing faster, we have to hire after that. It's not like we had any overlap or anything.

But it's been a philosophy where I think what makes us fast and what makes us efficient, which I think in this industry are two very key success factors, is the fact that, we are lean. We believe in having lean teams and high talent density and, giving everybody more opportunities and more responsibility.

And it means that we can have less bureaucracy, we can have less processes, and we can just work more seamlessly together.

I'm I'm a big believer in the the notion that, you know, the best performers are easily ten times your average performers.

And certainly in an industry like this, I mean, if if you're dealing with the best taxi driver out there, he's not gonna get you across town ten times faster than an average taxi driver. But if you look at the best industry where you need creativity, where you need ingenuity, you need experience, expertise, tenacity, these are traits that are not that easy to find. And so if we find some of the best people, they are easily ten times the value of sort of your average.

And if we can staff a team with those types of people, we can we can stay much leaner. It's more fun for everybody that's there. High performers wanna work with other, high performers.

We just think it, creates more opportunity for everyone, basically.

It feels like sometimes in this industry, what you really need is people who like who who enjoy banging their head against the wall every day, and just keeps going every day. So you're gonna get to five gigawatts in the next couple of years. I imagine that you're gonna that there's some there's some buying power there, right, from the when when you're procuring assets, when you're procuring systems.

So how how do you think about leveraging the the buying power without giving too much away? You know, is your strategy to have one ESS provider? Is there some, is there a manufacturer that you particularly work with? Or do you run you're looking for a framework for tenders, or you're gonna do each project separately? How when you're gonna go out and buy five gigawatt hours, how do you make sure that you get best bang for buck?

Well, I think, you know, the the benefit of of having a a large portfolio is that you can get deeper relationships with, with some of your suppliers with repeat orders, and you can also afford to do that with more than one supplier. And so we're working with with different suppliers in different markets because, you know, some of them are stronger in one market and, whereas others have established a better position in another one. So we're definitely mindful of that too.

It's also really important just to have those, relationships and, the efficiency that you get from that. I mean, it's not just about price and and and things like that, but it's also about being able to work really efficiently together. And you look at Bramley when we brought that from energization to COD in two weeks, I think it was a new record in the UK. And that's because the teams have worked together for a really long time on other projects and know how to work seamlessly together. So that has value. So there's lots of different ways that this manifests itself and is, is bringing value to the business.

Okay. So you you use multiple different providers of cells and systems, and that makes sense when you're ordering the components and you're ordering the systems. But what about route to market? How how do you think about taking, right now, half a gigawatt hour to market and in two years' time, five gigawatt hours to market? Are you gonna do this yourselves? Are you gonna use third parties?

And, of course, you're in lots of different markets. So it's not a straightforward answer, I know, but that must come up a lot. How how how are you thinking about about that?

Well, I'd say when we think about revenue optimization, we think about that in sort of the more strategic, higher level sense of the word. So we're looking at how do we optimize the revenue of our asset using both, you know, an optimizer, but also various contract structures and, and then hybrids of these, and and there will be differences between strategies and different markets.

With Mindy, you know, our our team managed to pioneer the first four contracts in the UK. And, with, Shell, we did the largest, toll, in Europe, last year. And so we have pioneered some of these large, you know, revenue structures. And there's a lot of work in those as anybody that's worked on one will tell you. And there's a big, big sort of interface between technical, commercial, and legal that's required to make the most out of those types of opportunities.

And we overlay that with route to market optimizers.

For instance, if we if we establish a floor or if we are split contracting on an asset where we have fifty percent tolled out, for instance, and then keeping fifty percent to to get that optimized.

The technical know how of how to do that, the the technical know how of how to set that up and be able to monitor it and manage those assets and benchmark the different route to market providers, etcetera. That's what we are laser focused on being just the best at. If we see an opportunity where we could optimize even further by doing some of this in house, we would certainly do so, but it would be driven by, you know, an actual quantifiable opportunity to make more money as opposed to some strategic desire to absolutely have to have an optimizing team in house because, I I think that only makes sense at a you know, once you get to a very significant scale and then probably in one market.

And you you mentioned that, of course, right, the miner t Penso's asset famously did the first hole or the first floor. It was a it was a first big contract with Shell as the offtaker, and that got loads of press at the time.

Yeah. Floor.

A floor sorry. A a floor contract. And it got loads of press at the at the time, rightly so. My my question and you did one last year.

My question is, is your strategy to focus on floor contracts? And is that something that comes from your your board, or is that because the type of capital that's investing, or is it because the the the bank's requesting that? Am I right in saying that you're you kinda lean towards contracted revenues one way or another? And, could you talk a bit about why that is?

Yeah. I mean, you you could say that, but if if so first of all, the first project, Mindy, that's been sold to other investors, and so it was never really driven by our revenue strategy. But if you look at, Bramley, the way I would frame it is, you know, Bramley is a three thirty megawatt hour, asset.

And, following that now we have Hamsol and Bergstal, which are two projects that we are building, and those are one point five gigawatt hours. And we have started construction on both of those on a fully merchant basis. So our exposure in the UK towards the UK market remains pretty intact, so to speak. So we are comfortable with the UK market. We like the UK market. We like the revenue stack the way it looks like currently.

And then we also need to preserve some of that risk capital for when we want to build more assets. And we have a pipeline, as I mentioned. And so the strategy we have is essentially, don't let contracting and and trying to sort of secure financing, through a contracting strategy, slow us down because speed is so valuable. But once we are building projects, we very often do explore the opportunities to find contracts for them.

And, once we have contracts for them, obviously financing becomes easier. There's also more interest from equity investors and and other sources of capital. And at that point, you know, we de risk things. We can recycle some of that capital, and then we can go and build, other projects with no contract coverage.

And, you know, that is part of the the strategy. So we we need to sort of we need to recycle our our risk capital. Otherwise, we can't keep moving at the pace that we're moving.

How do you think about that? So how do you think about returns and managing risk and the expectations of your investor being part of such a a bigger group, which as you described it as a as a family business, how does that affect the decisions that you're making?

So, you know, it's an it's an industrial group, and that means that there is certainly a return requirement, that is higher than, let's say, your average pension fund. But at the same time, there is also a risk tolerance and also a DNA of focusing on risk mitigation through the building of, expertise and capabilities, which is very much in line with our business strategy. And so when we are investing our capital, obviously, we're looking to get an attractive risk reward profile.

And again, I mean, we we start with something which to us is a diamond in the rough. You know, it's a it's a field in the middle of nowhere next to a substation, which to me looks like a big BESS project. Right? And maybe a couple of years later, maybe four years later, that really is a BESS project.

You know, we brought it to through development. We've procured everything. We've, managed to energize it and then perhaps get some contracts and some financing on it. And that at that point in time, everybody can recognize that, you know, this is energy infrastructure and it's been derisked and there's volumes of capital available for something like that.

And again, then we're back to de risking, and sort of re recycling.

And this is kind of what we mean. We our mission is to unlock the value of energy storage, and that's exactly what we feel like we're doing. We're taking a field like that and turning it into an opportunity that, you know, lower risk tolerance capital can can invest in.

So now is your opportunity to plug something. So do you have any news or anything that you think our audience should hear? And then I'm gonna ask you about your Conchaio interview.

Listen, I don't really have, that much that we we want to plug. We're having, a fun time building best projects, and, we are, hoping to start doing that in a few more markets within the not too distant future. We have, as you say, quite a substantial portfolio to work with. Listen, I haven't we haven't had a proper business plan in the company, ever, probably things are moving so quickly and we are trying to be nimble and agile and fast and move with the markets and go where the opportunity lies. And we're going to continue doing that. And if I was going to say anything, you know, we'll probably have more scale, maybe a little bit more breadth. Like I mentioned, there's a couple of countries we're looking at and that's, that's what I think you'll see from us.

Now for the contrarian view. So what Eric do you believe that not a lot of other people believe?

I think that if you wanted me to say something controversial, that it would be the fact that, grid queues and, red tape for planning is really a blessing in disguise for the best industry. What I mean by that is that, obviously there are downsides to having a grid cube because there's a lot of projects that could come to the market that could help bring prices down, stabilize the grid, etcetera.

But there are also some benefits to that in the sense that, obviously, the DSOs are trying to manage the phasing in of more assets on the electrical grid, I mean, at a at a at a multiple of a hundred x anything that they've done in history. So that complexity is, the grid queue is a sign of that complexity being taken seriously. So in that sense, it's positive and hopefully it will lead to, some of these reforms that people are working on will lead to the right assets being prioritized.

But I think that the big reason is just that energy storage has been very attractive. The returns of energy storage have been very attractive. At times, they've been so attractive that if there were no natural restrictions to capital, we would have over investment in these markets.

And we've seen it in some markets. I mean, Sweden went from eighty megawatts to six hundred megawatts in one year. And so that level of saturation is probably seven times faster than anything we saw in in the UK.

And so having this type of, grid queue slow things down a little bit is a way of avoiding the boom and bust, which can also be very damaging for the industry longer term. So it keeps things a little bit more stable. It avoids overbuild and unexpected saturation.

And I think that will lead to more battery deployment, more investor appetite, over time.

That is a hell of a silver lining in what is a incredibly tricky situation.

But it's a it's a good thesis. I guess in other earlier booms, there haven't been those guardrails. If you look at there's there's, various regions of Europe that have had overbuild out of solar. I mean, Australia, for example, is a great example, overbuild out of solar without without those guardrails.

Yeah. It's it's led to a complete pullback in in money going in. I I imagine that the the average of that sine wave is probably lower than if there were some guardrails there. So okay.

You heard it here first. Eric and EWBSS are, pro interconnection cues. Thank you very much for joining us on the podcast. Really enjoyed that one.

Always a pleasure to speak with you. If you're listening to this and you wanna find out more about BWESS, go check out some of the news about them in the last year, as mentioned, and also watch out for some absolutely enormous assets coming online.

Great. Thanks for having me, Akhut.

Thank you.