40 - Predictions for 2023 with Quentin (CEO) and Alex (Data Science Lead)

This is the prediction podcast.

September.

September? You're joking. September is always when everything falls apart.

Can I change my guess?

No, no, no, no. It's locked in now. Hello and welcome back after a lot of Christmas pudding.

So the year is 2023. Congratulations for making it this far. And it's going to be one hell of a year for Modo, and hopefully for you. So we've got loads coming into products. We're releasing a ton of content, educational videos, and of course, this podcast now.

We're going to do something a little bit different this week. So watch this space, and we hope you like it. And of course, do not forget to like, comment, subscribe. It really does mean the world to us.

[MUSIC PLAYING]

Hello, everybody. This is Quentin and Alex. And we are going to do something we haven't ever done before on this podcast. We are going to say out loud and record it the things that we say in the office, and try and predict what's going to happen for the next year.

So I won't say this is Modo Energy's. This is Quentin and Alex's--

Yeah, this is--

yeah.

QUENTIN: --personal predictions for--

Views do not reflect the views of the company.

QUENTIN: Exactly, yeah. And then at some point in the future, I assume at the end of the year, we'll look back and say, did we get it right or wrong?

I think we'll have gotten them right.

QUENTIN: And we will have gotten them right. And I think a good--

I think if I get one right, I'll be happy. But two, and mic drop.

Yeah. Yeah, let's go for two out of three each.

So do you want to go first, or me?

I'll go after you.

This is a continuation of 2022's theme, which is I think there's going to be a continuation of a massive shift from NMC to LFP. So MC and LFP are different battery chemistries. And most assets in the UK were built as NMC up until now because you get higher energy density. A lot of EVs were built using this chemistry.

OK.

NMC being Nickel, Manganese, Cobalt oxide.

Right. And then LP being--

QUENTIN: Lithium ion Phosphate--

Right, OK.

QUENTIN: --on the cathode.

With you.

So LFP and NMC--

LFP is what a lot of the new assets are being built with. CATL have led the charge on this. You can even buy Teslas with an LFP now, I think.

And it's lower energy density, but it uses less cobalt, I believe, which you get from the Congo. And it uses more nickel that I believe you get from Russia, but I'm going deep down a rabbit hole. I don't know the supply chains very well.

So let's bring it to high level again. NMC is good for high energy density. And LFP is good for what?

What's the--

QUENTIN: Stationary storage, it makes sense more for because it's low energy density. And a lot of the marketing out there says it's better for--

you can supposedly do more cycles and--

You don't have to worry about thermal runaway as much.

You do have to worry, but at a higher temperature.

Right, OK.

Which is a good thing.

But then again, it's very difficult to know what's real and what's marketing because all these cell chemistry companies are so convincing when you see them. Anyway, so my prediction is--

and I don't have the numbers in front of me, but I think we're going to get to majority LFP built this year, which is actually going to be a big change because most of the assets in the UK or Great Britain are NMC so far. So we'll have two different types of assets all playing out against each other.

ALEX: Do you think that's going to change how these assets are operated, or do you think we're going to see the effect in the revenues or whatever?

So yes. But it's like, how do you compare apples to apples?

ALEX: Yeah, OK.

So there's lot of older LFP systems out there which have got limits on state of charge, for example. Or they've got limits on how much you can thermally cycle them. But again, I'm going into an area which I'm sure someone listening will pull me up on here.

But there are operational differences between them. But again, that comes down to how you specify them, how many cells you put in, and how much energy you make available in the capacity. So yeah, I'm not going to go too deep into that, but I just think a lot more LFP are going to get built, partly because it's cheaper and the supply chains are there, and partly just because it's what you can get your hands on.

ALEX: And I guess you don't have the same automotive demand for LFP. Is that the case?

Exactly.

ALEX: Yeah, OK.

Exactly. And the big automakers now are switching from NMC to LFP. So it used to be looked down on to--

not to offend anyone out there--

ALEX: Oh, OK.

It definitely felt like NMC folks were looking down on LFP. And now there's near enough parity.

OK.

So that's one thing to watch.

OK, cool.

So what about you? What's your first prediction?

My first prediction for 2023 is that BM won't be as valuable as maybe people have been expecting it to be. I think it's still going to be basically what we saw in 2022, which is next to nothing.

So this is very upsetting to hear.

ALEX: Yeah. It is.

Because this is something that we've pretty much bet every year for the last four years of working together.

It's what we wanted to--

Which is--

--start Modo on the basis of, right? Yeah.

Which is that we believe batteries will fundamentally change the BM. And they should be getting dispatched loads. And there should be loads of value out there for the BM.

ALEX: Yes.

And every year, we get excited. And we find some sort of data out there that looks like it's getting better.

And then the thing happens.

And the thing happens. So you're saying--

I don't think 2023 is going to be the year where something--

there's not going to be a step change in how much money batteries make in BM.

QUENTIN: Oh, come on.

I know it's annoying. The thing is, there's a big promising light at the end of the tunnel, if you will, which is that in National Grid's control room skip rate conversation they had last year, they said in September of 2023, there's going to be a new IT system. It's going to bring forward loads of new cool functionality.

And hopefully, that's going to help with skip rate. Now that's starting in 2023. And it's going to end--

it's going to be fully finished--

Here's the problem.

--by 2027.

So I want to call you out on this.

Go on.

Is skip rate actually the problem here?

Yes, but also then I'm going to follow up with what do you mean by skip rate? Yeah, it's one of those chicken and egg problems. But at the end of the day, there's not enough data availability.

There's not enough batteries registered as BM units.

That's another thing.

QUENTIN: That's also a thing.

It's also hard to dispatch lots of small distributed technologies, necessarily.

QUENTIN: I can see why they're not--

I'm not calling out anyone who's not BM-registered.

ALEX: I am. There's benefits.

But yeah, we need to get--

ugh. We just need--

it's a hypothesis that if battery assets don't get skipped in a BM, then more of them will register as BM units. And then you'll get more volume in the BM. And it creates--

Yeah, it's a snowball effect. Yeah, yeah, yeah.

But that's not what you're saying because that's not your--

I think that's going to happen later down the timeline.

OK, cool. My number 2 is a little bit depressing, but it is that pretty much all--

look at the IMF, or the World Bank, or all these predictions for this year, it's pretty gloomy for the UK, specifically about us having to hold interest rates higher and inflation not going away as fast, or not being transitory or transitionary, whatever the fed word is.

ALEX: Yeah, yeah, OK.

And so I'm interested to know what the impact is on the energy transition of higher--

I'm not going to say high because it's not the 1980s--

but higher interest rates on banks, lenders, developers, supply chains, the whole shebang.

And my worry is--

and I'm afraid this is my prediction--

that we see asset deployments or deals around asset deployment slowing down as folks are unwilling--

if you believe that interest rates are going to come down again in 2024 back to 2%, 1%, you're going to hang on, right? So I hope it doesn't happen. But I'm really interested to know how higher interest rates and sustained interest rates will impact energy transition investment.

You're right. There is a bit of a gloomy one.

It's upsetting to think, oh, maybe the energy transition will be slower or won't happen at all because of interest rates. That is so upsetting.

Does the energy transition only happen in a world of low interest rates and cheap money? This is not a--

I hope you know, I [INAUDIBLE]

now. [LAUGHS]

I hope it's not true, right?

No, same.

But it's a big question.

It's a huge question, yeah. And it's scary. If you think how much does the cost of that transition increase with every basis point of interest--

every basis point interest rates move. That's a huge question.

How does the cost of the energy transition increase with every basis point?

Yeah.

Yeah, it's a big one.

It's just like, whoa. OK.

So that's a bit of a gloomy one, but that's my prediction. So deployment slows down a little bit. And I guess the knock-on effect of that is less. Well, the existing batteries have got longer before saturation, which is interesting.

OK, cool.

What about you? What's number 2?

So number 2 is similar to yours, but I think it's to do with the deployment of storage.

It's the size of batteries getting deployed. I think we are going to see some big, big batteries coming online. It's going to make the big batteries of yesterday look teeny, teeny, teeny.

Oh, this keeps on happening. I remember when Leighton Buzzard was a big battery. And that's seven milliwatts.

Actually, what I'm going to--

oh. The better prediction here would have been to say how many times are we going to read the phrase, in a press release--

QUENTIN: Oh, yes.

--the biggest battery in Europe or the biggest battery in GB. Yeah.

And also, people are being a little bit naughty about it as well because they're doing it on connection size. They're doing it on installed capacity, not available capacity.

Some people are doing megawatt hours--

QUENTIN: Some people are doing it on megawatt hours.

--which is fair.

So yeah, we're watching you guys out there who are trying to fleece us with your numbers.

Yeah, I think--

QUENTIN: Big batteries are coming online.

Big batteries are coming online. And yeah, I think it's going to be--

I think we could potentially hit 2,800 megawatts, maybe even 3 gigawatts by the end of the year.

OK, you want to put your line in the sand? Is it 3 gigawatts or is it 2.8 gigawatts?

The thing is I want it to be three gigawatts because it's a nice round number. Three gigawatts.

Three gigawatts.

By the end of '23.

You heard it here first.

There you go.

OK, my third one.

Go for it.

I believe that something sensible is going to happen. Yes.

ALEX: Sensible?

Very sensible.

ALEX: And who's--

Around connections. And some people are going to win. And some people are going to lose.

So at the moment, we've got hundreds of gigawatts of connections. And they're all fighting to connect to the transmission network or the distribution network. And then you've got all these little side channels going on, where you've got people connecting at GSPs. And you've got a little idea.

There are things happening to get around this horrible bureaucratic nightmare system we've got. We need to get assets built. We need gigawatts of gigawatts, tens of gigawatts.

And somebody in government, or Ofgem, [INAUDIBLE],, or even at National Grid is going to say right, enough's enough. We're going to triage these connections. We're going to find out who's urgent and who's not.

Yeah, yeah.

And then get things--

Who's made progress? Who's made significant progress? Yeah.

QUENTIN: Well, yeah. I think something needs to be done about that, right? Because you can "make progress." That's inverted commas.

I'm doing a thing around my ears if you're only listening. You can make progress on your connection on paper without actually having to make that much progress.

Right.

I won't say much more than that, but I'm not calling out scandal. But we've got to sort this thing out, right? Because it's the energy transition and all that. So that's my third one. How about you? What's your third?

Well, it would be rude to do a prediction for '23 and not mention revenues for battery energy storage in Great Britain.

Number go up or number go down, Alex?

I'm not going to say either of those things. Or I'm going to say both, actually.

ALEX: Plot twist. I think 2023 will be the year that batteries earn the most money per megawatt in a given month and the least amount of money per megawatt per month in the past, of all time, I'm going to say.

You're going to go of all time.

Yeah, yeah, yeah.

OK. So why?

So I think there's two drivers that have been fighting against each other for the past year, which is the saturation of ancillary markets, which is pushing revenues down, and then just power market chaos, which has been pushing revenues up. And these two things have been fighting. And basically, it's stayed pretty stable for the last year.

It's been pretty high, but I think we're going to see one win out, and then the other win out. And I think the first one we're going to see win out is power market chaos. I think January is going to be--

Power market chaos?

Maybe I'm overstating it a little bit.

This is the most--

this is like GB news stuff.

It is a little bit too--

let me rephrase it. Higher levels of volatility than they're expecting.

[CHUCKLING]

Yeah, OK, that's better.

No. OK. I think January is going to be--

I would like to say no disrespect to GB News, but I can't actually say those words out loud--

Not with a straight face.

Not with a straight--

[LAUGHS]

I actually think we have higher editorial standards than GB News.

Yeah, no. I think--

the ball is here. [LAUGHS]

Yeah, yeah.

Yeah.

Or a garden, maybe one day. Anyway, sorry.

Anyway.

So chaos in the market.

Well, I think I think January is going to be pretty volatile in terms of power prices. And batteries make money on the volatility. If we look back to the Christmas, the Chrimbo limbo between Christmas Day and New Year's day--

The Chrimbo limbo?

Yep, those five days of eating too many mince pies, but also this year of quite a weird period of negative prices on the--

I think it's the 29th. I think we're well poised to make a lot of money in January in the wholesale markets. And I think that's going to trickle through into ancillary services, as it does through opportunity cost.

But?

So that's the high of the year.

Yeah.

The low of the year is, I think, saturation is really going to bite. So we're moving towards--

For the month, right?

ALEX: Month?

This is the prediction podcast.

September.

September? You joking? September is always when everything falls apart.

Can I change my guess?

[LAUGHS]

No, no, no, no. It's locked in now.

Yeah, well I think towards the end of the year, I think.

QUENTIN: Towards the end of the year.

I think when DC volumes start to fall off--

they're already a lot lower this year than they were last year, even the summer months. But I think as they start to peter off towards the end of the year, I think we're going to see revenues fall pretty low. We saw a glimpse of it in 2022.

There was a blip where revenues fell to almost what they did in April '21. But yeah. I think we're going to see the lowest--

Is this legit? Right. So DC volumes are lower in 2023 this year than last year, even in summer when there's going to be tons more--

there's more stuff built this year than last year. Why is that?

My initial response is probably because FFR is being tapered out, right? So the DC has been, for want of a better phrase, bolstering the national credibility to deliver frequency response.

So if I've got you right, you're saying there's going to be a month of the highest earnings ever.

Yeah.

These are big words. Highest earnings ever, batteries--

and a month of the lowest earnings ever.

Yeah. On average across the fleet, of course.

On average. So we could actually see some floor prices coming into play for once.

Yeah. No, I think that's fair. I think revenues could reasonably touch 60k per megawatt annualized in a month, in the next few months, yeah.

QUENTIN: OK, cool.

All right. So I'm going to cheat here a little bit. And I have got a fourth, bonus--

Wild.

Wild, I know. So my bonus prediction is--

and it's actually not for 2023, another cheat. It's actually for 2024.

Breaking all of the rules.

QUENTIN: Breaking the rules. I think by this time next year--

so this time in the beginning of 2024, we're still going to have FFR.

Ooh.

QUENTIN: FFR is--

what's the things you learn at RE at school? It's omnipotent. It's everywhere. It's the thing about God.

It's always going to be there.

ALEX: Right.

It solves all the world's problems. Something else.

No.

It's fair. We've seen a lot of delays to the service being retired, right? It was supposed to be the start of '21, then end of Q1, then summer.

I think signal puts it at Q3 time. So yeah. It's not a million miles away. And if it happened, I wouldn't be blown away by it.

That being said, I think--

QUENTIN: Oh, I think everyone--

--the ESF has to get rid of it.

--to it. Everyone.

They have to get rid of it.

I think the ESO is addicted to it. It's a great service.

Well, let's just let's just clarify.

It does what it's supposed to do.

We're talking dynamic here, right?

Oh, yeah, yeah.

Yeah, OK.

Actually, by the way, we never talked about this. Kudos to whoever invented FFR because two seconds turns out to be a more--

it's a great response time.

So the Goldilocks zone, isn't it?

QUENTIN: Yeah, it is. It's awesome. And the funny thing is most batteries in FFR are responding faster than two seconds anyway, right? Our control systems are really putting a delay on the--

ALEX: Is that even something that can physically happen reliably?

So we looked at it when I was at Kiwi Power. Because technically, if you put a delay on the response--

ALEX: You can get in the system, can't you a little bit?

Well, we never did it, obviously. But you could technically reduce the number of cycles you're doing in FFR.

But then it's one of those things that mathematically, when you're doing a rolling response and you're putting a delay in but you're measuring in real time, but the delay is two seconds, how do you account for that two-second delay in a rolling measurement feedback loop? I can't really explain it without a whiteboard.

It feels like one of those things that's easy to say. Oh, that's a good idea in practice.

And then you try and do it, and it's like, nah.

QUENTIN: And then you're like, is it in the good spirit of the game?

ALEX: It's not in the good spirit of FFR.

But to come back to it, FFR--

mark my words or I will do something silly. I'm not going to eat my hat.

No.

I will be--

I think you should state the punishment. We should state punishments--

I will eat a part of this hat at the end of the year if FFR has gone away by then.

Strong.

No disrespect to anybody. In fact, it's a great service. You know I love it.

Yeah, for sure. I think that wraps it up, doesn't it, really?

I think it does. So I'm going to see you back here in 12 months. And then we'll decide who wins and who loses.

Oh, it's a competition, is it?

Oh, of course.

[LAUGHS]

Let's go.

And thanks, everyone who's listened. Do remember to hit Subscribe, like, and all the other good stuff. And Izzy, our producer, will be so pleased with me.

Thanks very much, guys. See you next time.

See you soon, guys.