Building a global energy storage fund with Alex O'Cinneide (Founder & CEO @ Gore Street Capital)

What we could see was a defined marketplace coming into being. We could see a an asset class which was underpinned by a technology was well grounded with good manufacturers who were able to guarantee performance and a need that the marketplace was defining. And we said that makes sense. Right?

Let's go and raise some money and go and do some of those deals. The investor community is like, where's my twenty year PPA? Where's my twenty year government guarantee? And fortunate enough to go to, you know, an old investor of mine who kind of trust our track record.

We delivered in the past, Nippon Koi, very big engineering company. And basically, we had conversations and saying you need to be in energy storage because you need to build build assets. You're a big energy builder and and engineering company out of Japan multinational. And so then they made the capital available to us for our first deals.

Hi, everyone, and welcome back to Transmission.

This week, Q is joined by Alex O'Cinneida, founder and CEO of Gore Street Capital. During their conversation, Alex talks through the story behind the founding of Gore Street Capital, the choice to diversify into new regional markets, his views on what is happening with battery energy storage in Great Britain, and much more.

So let's jump in.

Alex, thanks for joining us on the podcast.

Oh, no. Thank you for having me.

This one's been in diary for a long time and you flew all the way to Austin just to come on our podcast.

Just for this. Just for this.

So let's jump straight in. Gore Street Capital. Why is it called Gore Street?

So it's called there is in the west of Ireland, a very, very small town called Callalla. And on that Callalla, there's a street called Gore Street, which my parents live on. And so when we set the firm up back in twenty fifteen, though we were in action twenty sixteen, I think it was pretty there wasn't much going on. Looking and thinking about a name, I wanted a name the firm set up to look at our energy transition. That's what we're about. We wanted to be material in our transition. But I also didn't feel comfortable locking in a name.

You know, everybody's called climate something or, you know, they're right. You know, our energy something. We wanted to have something which meant something to me as the founder, to be honest with you, but also gave us room to be able to think about things and different things and put it in. So, obviously, the street where my parents live is important to me.

And when we set the firm up Hopefully, it's not the password for all of your banking.

A hundred percent everything. Right? And when we there was when we announced the firm, there was some press. We're lucky enough to get some press.

And there was an article in the Feet, I think. And I'm I'm ringing my dad and I'm saying, oh, dad, you know, we're in the Feet. And he's like, if only the readers of the Feet could look out at what I'm looking out at now, which is Gore Street, right, which had no one on it. Right?

You know? So, yeah, it comes from that.

So we're gonna talk a lot about Gore Street, the fund, the the vision, you you guys progress, all of that. But before we get started, I just wanna ask you about your journey before starting this because you've been doing stuff in energy for a long time. I'd be interested to know how you cut your teeth and where this all started and how did you get here?

Yeah. You know, I think a lot of things happen by accident. Right? I mean, no matter what people say. Right? There's a great quote about, you know, we shouldn't berate ourselves too much for our failures ourselves too much for our failures or congratulate ourselves too much for our successes because a lot of it is luck.

Mhmm.

Right? And so I'm very happy where we are today and what we built. And I look at that journey, look at my own personal journey in it. I've been investing. I was in private equity. I've been in private equity for a long time, right? Probably twenty five years because I'm old.

But I've been investing in renewables since two thousand six. And in two thousand six, I was a, you know, a generalist investor. And at some point in your invest as an investment professional, you need to start specializing. It's very few people that can maintain a kind of I'll do anything because you need to know stuff.

Right you know and the stuff you need to know is complex well your edge is is that knowledge I guess you you need to be an investor Right?

You need to have the investment understanding, but you also need to overlay that with understanding how your investment in its sector is going to work. An opportunity came up in two thousand six in in renewables, in clean tech, and that opportunity was out in Abu Dhabi. And they were looking for they were looking for a head of investment on a brand new setup vehicle for the government of Abu Dhabi and I was approached by a headhunter and and talked to those guys out there and went for it. Right? So as an investor, I want to do something I thought was interesting and important.

But also, that interest coincided with a headhunter ringing me. Right. And saying, well, there's opportunity here in Abu Dhabi. And so I went for that opportunity and I was lucky enough to get that job.

And so I've been investing in renewables kind of at scale. It was, you know, the Mazda is a is a big vehicle. It was fifteen billion dollar vehicle since two thousand six, and it's been amazing. I mean, we've gone through the cycles.

I've gone through these cycles in renewables and there's, you know, there's a roller coaster in these cycles in in the sector. But I wanted to get into renewables, but I was lucky enough that something came up at the right time.

So when you moved to Mazda, and you did you move out to Abu Dhabi?

Yeah.

Yeah. And so I might get my timing wrong here, but that was still quite early in the s curve of adoption of PV. Right? Prices were still much higher. We hadn't really got these mega factories in in particularly in the Far East producing PV. So the reason why I bring that up is your journey for the last few years in batteries is quite similar, but just in a different, realm.

Well, I think one of the reasons, you know, I'm sure we'll get into this. One of the reasons in Gore Street that we looked and thought about being an investor in energy storage, and we think we're one of the first movers in energy storage. Right? Our first asset, which you know well, Quentin.

Right? We, you know, we bought two assets, basically in construction, really. Right? We're going into construction.

Bulby and Seinen, that was twenty seventeen when that was commissioned. When it was commissioned, that six megawatt asset asset was the largest privately owned in GB. We were one of the largest in the world doing grid bouncing.

Wow.

Our our latest acquisition here in Gore Street is four hundred megawatt hours, right, in California. So it's a huge progression. But to your question, what I'd seen so I was an investor in both c b PB manufacturing, so actually building the manufacturing out, and manufacturing capacity, but also the assets is incredible cost reduction coming out of the Asian manufacturers. Right?

And not so much technology advancement. Right? They scaled pretty bog standard technology. Right? Poly polysilicon technology, but just put really good manufacturing process around it and built out tube capacity.

And what we saw in twenty sixteen was the start of large rollout of capacity in lithium ion, therefore making lithium ion a cost effective solution to the needs of the energy system.

Which was a massive contrarian bet at the time. Right? Well, actually we're gonna come back to that in a second. Let's let's go back. So you're in Abu Dhabi, you're doing investing in all these different technology types. It's two thousand six. What's the how do we get from two thousand and six where you moved to Abu Dhabi to Gore Street Capital in London?

So out of Abu Dhabi two thousand six end of two thousand six to end of two thousand twelve to twenty thirteen.

So through a cycle. Right? So, obviously, there's a global financial crisis in in the middle of that. Right?

Renewables it's a different crisis. Not the crisis we're in now in renewables. Interest rates are obviously very difficult for renewables across the board right now. We didn't have that then.

We had a low interest rate environment in response to to the crisis. But we had really interesting geopolitical moves. Right? Coming back to solar PV, we called it wrong and I called it wrong.

So, solar PV manufacturing is an investment. Right? We had a range of investments in solar PV manufacturing. One year, actually, in Austin.

A brand new way to make solar panels. One in Silicon Valley. One in in Germany. And what we didn't realize when we were making those investments was how much China wanted to own the PV manufacturing base supply chain.

Right? And so we made a range of investments in really interesting technology companies to build up new manufacturing with that really interesting technology, which gave a very interesting cost per watt at the right level of scale. But we couldn't compete with scale with the manufacturers coming out of China. I'd say just put so much money into the manufacturing base which is great for the environment.

Right? Really, you know, amazing. So investing through that cycle in Abu Dhabi, the successful period, built had a really great team. We did a range of really interesting investments.

Also, you know, difficult investments. We were heavy into Spain and solar when they changed the the the feed in tariffs retroactively.

But so, you know very successful period we deployed money we made money we did some really interesting deals.

But by the end of twenty twelve twenty thirteen given where my family was at and things like that seemed like a good opportunity to move back. So came back into, you know, into Europe kind of professionally out of London and did the kind of things that, you know, guys like us do in these situations. I took a few portfolio positions. So I went on the the advisory board for Climate Pension Bank.

I joined the investment committee of a few funds and kinda said, okay. What should what would be a good thing to get into? I have a very strong track record in deploying capital renewables. Fine.

I I know there's capital available. I know some interesting strategies. We actually in Gore Street, the first things we looked at was not storage. First things we looked at was looking at buying operational solar and wind in Spain, Portugal, and Italy Mhmm.

Where we thought the the rates of return of those will go to what Germany and France and UK are getting. So there would be a yield compression. Therefore, we we have a good uplift. We were right.

We were a little late. So we were shortlisted by ETFs assets initially. One of the big funds made in a significant amount of capital available for us to do that. But once we missed that, then we kinda took a step back and said, what do we wanna be in?

Right? How do we build the franchise here?

Before we get that there, though, can I just ask? So the Gore Street's is that just you in a coffee shop at this point?

Or who who else is involved at this place?

Originally, it was me in a coffee shop and then but getting our original investment as soon as we had some original investment and basically the day we were in operation. So we raised, you know, one point five million to to set up the set up the firm not to do investments.

The one point five is to actually to actually build Get going.

Get going and have staff and stuff like that. So Sumi, my chief investment officer and CFO, I'm working with who was in Climate Benson, where I was on the advisory board. He was a managing director in Ripplewood, which owned Climate Benson. So we'd worked together since, I think, twenty thirteen and worked together on the strategy and all about stuff. So Sumi, myself. And so we started the firm then. Yeah.

And so you guys are looking at you're looking at Iberian solar. You're looking at you know, how how does that turn into this this battery thesis?

So because so we looked at we so the if the yeah. We're we're running around Portugal and Spain initially, and we're thinking about deals. And there was this very big deal, EDF selling huge chunk of their operational portfolio. Initially.

It would have been a five hundred million dollar investment. And we knew we had the capital, and we knew we could we we could make money out of it. But it was competitive auction, and we missed. Then.

It's okay. So then you're like, they're all going to be competitive auctions, right? And we think we know what we're doing. We have trust of the investor community.

But, you know, what's the what's the additionality? Again, does the world need another solar wind investor? Right. What are we doing differently?

And we took the position that we want we want it to be different. Right? We wanted to offer something different to the investor community. We wanted to be able to look at an asset class which was going to be material.

Right? And so there's a whole range of embryonic asset class, especially at the time. You could have looked at biogas, for instance. Right?

Or, you know, a year ago, what people were talking about hydrogen. Right? I'm not talking about it anymore, but, you know, a year ago, they were talking about hydrogen. And we said, we think we think storage.

Right? And we think storage because of the cost declines from lithium ion and the pressures on the grid. And we also knew after some investigation that the National Grid, which, you know, I think is an amazingly forward thinking organization and people kind of seem to complain about the National Grid. I I mean, I think they do No.

We've got we basically got a veto on bashing National Grid on this podcast because it's just insane. Yeah. People can you can go do that in the pub, but let's celebrate some of the stuff.

So no. I mean, absolutely. Right? I think they created the energy storage market in GB, and the energy storage market in GB was the most important market in the world up to twenty nineteen. Right? The way that the the National Grid designed a series of auctions which incrementally allowed asset owners such as ourselves get more and more confidence to deploy more and more capital against a set of short term revenue streams was really well done.

EFR was a masterpiece. It doesn't matter which from an operability point of view, a technology readiness point of view, the design even of the frequency bands, the cost they got it down to for the end consumer, EFR was incredible, I think.

Absolutely. So and, yeah, EFR going to FFR going to the you know? Brilliant. Brilliant. Brilliant.

What we could see was a defined marketplace coming into being. We could see a an asset class which was underpinned by a technology was well grounded with good manufacturers who were able to guarantee performance and a need that the marketplace was defining. And we said that makes sense. Right?

Let's go and raise some money and go and do some of those deals. And as you say then, that wasn't easy. Right? I mean, we're walking around and we're I think we were the first.

Right? And the kind of investor community is like, where's my twenty year PPA? Where's my twenty year government guarantee? You're like, well, no.

There's none of those things. Right?

So this is you and Sumi with the Gore Street t shirt on going around. At this point, are you trying to raise money to deploy and buy and develop assets? Or have you already got assets in mind? Have you have you already got sites in mind?

Oh, no. We got we yeah. Yeah. We had to have something, right? So we built pipeline and fortunate enough to go to, you know, an old investor of mine who kind of trust our track record.

We delivered in the past and that was also strategic. Right? So Nippon Koi a very big engineering company and basically we had conversations and saying you need to be in energy storage because you need to build assets you're a big energy builder and engineering company out of Japan, multinational. And so then they made the capital available to us for our first deals, and those first deals were Bowlby and Sennin.

I wanna use this time to ask you a crucial question, which is could you please articulate the thesis of Gore Street Capital?

And also how has that changed over time, or is it not? Is it just the same as as it was back then?

It's the same as it was back then. Right? We want to be material to the energy transition.

We are and it's I'm, you know, constantly amazed by my colleagues. They're so great. Right? We we, we look at a group of people who we understand the crisis that we're in, and I really do think we're in crisis. And we're sitting here in Austin today. Right? It's hot outside.

Be warm.

It's middle of April. It's hot. Hot. So we wanted to be material to the biggest challenge facing us. Right? We wanted energy transition is a huge part of our solution.

We wanted to find the critical asset class that would help that and the storage we think we we have. So that's what we want to be. We also recognize that to do so, one needs to be able to unlock complexity. Right? We need to be able to to take care of a of a difficult problem. And energy storage, amazing asset class, but it's complex.

But it's problems. Yeah.

It's not even because it's problems. It's complex. And if you don't approach it with the right set of knowledge about energy and investing, you're going to go into get into trouble. Right?

So but that complexity also allows us to unlock good returns for our investors. So investment thesis hasn't changed. We want to bring together the right group of people to unlock a complex problem, which is material to our energy transition. And that's, I think, what we're doing.

Are you looking at other asset classes beyond batteries?

Is that part of the vision?

So we are we're a storage investor. Right? Now whether it's lithium ion or a different form of solution, we don't pick a technology. Right?

We want to pick a solution that we believe the market requires to provide to. Right? So basically if it's lithium ion or its flow or something else, we don't mind as long as there's manufacturer quality behind it. Right?

We don't want to take the operational risk. We want to take the market risk. But we are a storage player and but we're a storage player across the value chain. One of the things that we we realized quite early on back in in twenty seventeen is that we didn't particularly like, sounds bad because I was working with you at your company, but we didn't quite like some of the companies that we're involved in.

We thought we could do better. Mhmm. Right? And so, you know, Dolby probably, you know, just fifty plus folks in Gore Street now.

Right? That's big for a private equity manager, but it's because, actually, most we have a procurement group, a construction group, an asset management group. It's a whole load of things that we are doing to give us tight control over these assets. And so that's a kind of a full service business approach to this very, very fast growing asset class.

So we don't think we need we think this investment strategy we're only at the start of this investment strategy. The amount of storage that's needed on our grids is really considerable because the amount of renewables that's needed on our grids is really considerable. And so we've looked at other things. I mean, I'm kind of joking about I had we had a hard look at hydrogen a year and a half ago trying to get our heads around.

Everybody's talking about hydrogen. Hydrogen's amazing. We really need hydrogen for particular applications, I'm sure. For making ammonia, for various different things, fertilizers like yeah.

But for part of the energy transition, we couldn't get there. So we have looked at other things adjacent to what storage brings to the to the energy transition story. But then, you know, look, we're we're one of the first movers in the British market. When the first movers in the Irish market, I think we're a fast follower in the German market, fast follower in Texas, in California, and now first mover in the Japanese market.

All of those there's so much growth in those markets. Right? And so much complexity for on to for us to unlock, which we have a very strong track record and now doing so. So, yeah, no.

We'll continue this play.

So a big thing about you guys at Gore Street has been the fact that you went early and fast into different regions, which with hindsight was, a very wise move because of, we're gonna talk about what's happening in Great Britain, later on in the podcast, but, it was a it was a it was an excellent move. Now how did he decide to do that? Because how do you decide which regions? What's attractive to you? And then how do you make sure you have the right number of chips in each part of the board?

Yeah. So I don't think it was a wise move.

Right? That sounds odd, But because it was it is, of course, the only move you could make if you're an energy storage investor. It's it's not it's not the positive. It's the negative if you don't do it.

Right?

And this is what I you know, I said earlier, to be active in the energy storage market, you need to be have strong investment expertise and strong energy expertise. So let's just talk about the investment expertise that goes into thinking about a multi market strategy.

You look at the GB market, you look at the Irish market, Texas market, California market, Japanese market, Germany market, they are all uncorrelated markets.

They're correlated by climate change, and they're correlated by our transition to a low carbon society. But they're not correlated in terms of revenue.

Okay. Great.

We look at the supply chain, and we go, all our supply chain and we have very deep relationships in the supply chain. It's a very important part of our business. You know, several of them are investors in our vehicles, for instance. Right?

So we work very closely with our supply chain. But if we're building an asset in Texas or California or Germany around, we'll choose from the same players. Right? So it's the same supply chain.

And we know we're gonna be doing more or less the same type of things in those markets right those markets are all driven by decommissioning coal gas and nuclear rise of intermittent power Same investment thesis.

Therefore, you have no choice as a good investor but to diversify.

That's it. But it's not that we were wise.

We did what was right as an investor to to take because you have same supply, same same investment thesis, same type of activity. So you're derisked. You need to know your markets and that takes years. It does.

Right? Moving we moved into the Irish market in twenty nineteen. We moved into the US market at the start of twenty twenty two in in Texas. But we were looking at the US market for three or four years.

You can't. It takes you time to build it up. But you have to do it as a good investor. Diversification is one of the first good rules.

And so that is absolutely it's absolutely delivered. I think delivered for We have not only and Sumi did a did a great presentation on this in the capital's day. We had a day we had recently talked you know, did a regression analysis, really got into it in terms of, you know, how much volatility we reduce by being in multiple markets and we reduce our volatility by fifty percent. We've also increased our revenues absolutely against people who would have a sole market strategy.

So we should we're we are happy to take we're happy, of course, for the benefits that seem to come down to our investors from implementing that strategy.

We're not gonna take the credit for that strategy because that's what we're paid to do.

Another another thing that's been

core to Gore Street over the last few years, and you might correct me on this, but it has been so Gore Street historically has built there's lots of different asset types and different OEMs, and you've you've diversified in that way. But also, you guys bought a fairly sizable one hour portfolio, the WEDI portfolio, a few years ago. And that was just around the time when the folks producing power curves and and whatnot were saying, you know, two hours best. You gotta be building two hour right now.

And what actually happened in the years since and we can talk about what's happened with the, you know, the the the battery index and what whatnot since in in Great Britain. But, actually, the, you know, the less CapEx upfront and just taking part in FFR had legs in it for a lot longer than what a lot of the market thought. But now in a more merchant market, of course, you know, two hours sort of makes a bit more sense, in in some circumstances. How how are you guys thinking about well, can you just talk talk through that decision a few years ago and how you're thinking about it?

And how are you thinking about that duration problem now?

The duration thing is it's I find quite strange that the whole there was a lot of focus about duration. It was like duration duration. It's like we're kind of in the reformation or something.

I think just to come in on that, well part of that was because, of course, harmony what they were they were purely two hours and then there was a lot of consultants who were pushing one thing or the other.

It felt like the big divider. Right? And you guys were going, you know, you had the one hour assets, which made sense because other type of assets that you bought that were built by BYD, the the one point two five systems. So, we just felt like this big thing and you're right. It's totally bizarre.

It's totally ridiculous because we just went, what does my spreadsheet say? Right? If I you know, half an hour and we are the only player. Right?

So we have half in our systems in Northern Ireland. We have majority one hour in GB. We have two hours here in Texas. We're building four hours in in California, and we have ninety minutes in in Germany.

So you're not the one hour company?

Not the one hour company. We're the company that minimizes CapEx for them for the market opportunity.

That's what it comes down to. This you know, I want two hours.

Why? Once you spend the money, you can't get the money back. Right? So when we looked in in the GB market, people were people were talking about revenue streams that didn't exist at scale.

Right? Why do you want two hours? You want two hours, really, if you're gonna do wholesale trading because you wanna sell power for longer or if there's contracts available to you, capacity market contract like contracts like in California, the RA contract requires you to have longer duration or your market, Germany, requires you to have a certain amount of duration. Other than that, you need to look at where you're making money today, have a viewpoint about where you're gonna be making money in the future, and minimize your CapEx for that market opportunity.

So we're comfortable owning any type of duration. What we're not comfortable on is making a decision based on some kind of religious view about what duration should be. So we built half of our systems in Northern Ireland because under d s three, which is the grid balancing construct contract on the island of Ireland, you don't need long duration.

Fine. So you build short duration.

In in GB, we had shorter duration, but we're also building we bought a yeah. We bought operational one hour in GB. It was timed very well retrospectively looking at that it was just before the whole d suite of contracts came on We immediately put all those assets into into those and did very, very well. What we've also know, you know, folks that have bought and built to our systems over the last three years have bought and built their systems at the top price. Probably the top price that will ever be there for energy storage systems.

What do you mean by that? So on on one hand so I guess if you believe the curve this is a question about do you believe curves or the curves at the time, but if you believe the curves two or three years ago, you would have thought that right now in year two or year three, there would be the spreads that you need for a two hour battery to make a lot of sense. Right? And then so just just wanted to put that as a footnote, but then the second part is you're saying that those assets got bought at the top price. What what do you mean by that?

Built. Right. So, you know, about a year and a half ago, two hour system would cost you two x with a one hour system would. Right? So say it to our system is costing to have built, new built, all the in with inverters and transformers like maybe seven hundred fifty thousand sterling per megawatt.

Okay. Now it's four hundred fifty thousand sterling Right. Three hundred and fifty thousand sterling will buy you first are a hundred by your second are now. Then it was three hundred fifty to buy your second hour.

Okay. So everybody who built two hours a year and a half ago has spent three x the money on their second hour of duration than they should have. And they haven't made the money in the in the immediate in in the time since. So it's not just about what your curves say about what the future.

You also need to manage the risk of the CapEx, which, again, you cannot get back. Once you spend the money, you can't get it back. Right? So what what was our decision?

Our decision was where are we making money today? Why do we see it over the short term? What do we think the curve will be on CapEx reduction? How do we build optionality into our systems to be able to extend and augment and build more duration?

So for instance, our one hour systems in GB, we can now turn them into two hours. Right? Thirty percent of the cost would have been a year and a half ago.

Ask you about that.

So at that part of the strategy, you're gonna augment these Yeah.

For sure. If the if, again if the maths works. Right? It's it's I think where the conversation got really weird about one or two are things because it become a religious thing. Right? Because people kind of tie themselves to things.

Well and also there was the I mean, two years ago, everybody was running around shouting the word supply chain because suddenly we're in this massive inflationary environment. Even though you had, you know if you if you just look at Solo or any of these other technology curves where you just have depreciating CapEx over time and aggressive depreciation in CapEx. At the time, we had a jump in, you know, we couldn't you couldn't you couldn't get or you couldn't order assets, you know, the the factories were all spoken for, all the EV, you know, Germany manufacturers were buying all these batteries, and it's so it's so interesting how the mark the the market's totally switched now.

That was always gonna happen. Right? So if you look back on solar PV manufacturing, coming back to kind of being through the cycles and and things. So there was a there was a spike in solar PV manufacturing costs there two thousand eleven to twenty twelve, twenty thirteen, driven by raw material price given by the cost of poly, basically.

Supply chain worked it out. More capacity came on stream. Of course, it was going to happen. So when we look at the the maths for us needs to work against a set of conservative assumptions.

And I get a set of assumptions where we're not thinking that there's some white knight revenue stream that's gonna come in and, you know, make everything good. Right? We're here to deliver a return for our investors based on our judgment about how the market would develop, but also what's happened in the market. And we also have to minimize the risk.

So if you put more money upfront today, you've increased the risk for your portfolio on having to deliver against a future outcome.

Right? So energy storage is part of the renewables asset class. Renewables is really defined by a large CapEx on day one. You can run your system as, you know, quite efficiently.

Right? It's got a low you know, your operating costs are usually a low percentage of revenue. Right? So it's all about your CapEx.

Manage your CapEx down. Have optionality to increase CapEx against the market opportunity. So one hour more duration. What's our incremental return on spending that capex and when do we spend it? You owning two hours in the last two years in GB has not delivered a return for you. Right? It's been a bad investment decision.

So far. Yeah. Fine. And when it changes at the right time, we'll build the moderation. But now we can do it at a third of the price.

This is a question that probably comes up the most.

If you're new to this industry or you're young or even, like, I don't understand everything by a long way.

What is net asset valuation?

Or what is net asset value?

I mean, in general, in the world of finance or in energy storage?

In in our in our world because, yeah, I feel like we need to explain this. And you, of all the people in our whole industry, I expect understand this more than anybody else because you be you understand the ins and outs of it and how it's calculated and why you might want it to change and all of that. So could I just ask you It's a what is it and how does it work in our industry?

So it is a a number which is driven by a set of assumptions on future value.

Right? So for us, it's looking at the assets we have and looking at the how long those assets will last, working with third parties on how much money is going to be made in each of the different revenue streams that we're engaged in and discounting that back by the appropriate number to get to the number today.

But that means it's a future looking number. It's based on assumptions. Right? And I think Gore Street, we've been very I think we've been appropriately careful in how we look at that NAV.

Right. We've consistently said I think the the the mid level case is the right level case. Don't use a high level case. Don't value things you're not doing today.

Right? But other people can have a judgment about it. Right? And people get paid to have that judgment about it.

So for us, NAV is a guide to our investors on what is the value of the portfolio. Right? There's absolutely other ways to look at value in the portfolio. Like, how much EBITDA are you generating?

Right? This year, next year? Right? What's the replacement cost? What's your what is your cost base?

All of those things. But NAV in the world of, for instance, the investment trust world is a very key metric which people spend a lot of time on rightly. We spend a lot of time on working with, you know our external valuers as well as our auditors and then a range of energy research houses who are producing all these curves but it's looking at all the cash flows from each of our individual assets, discounting them back.

And off the back of that, so we're speaking it's it's April twenty twenty four And pretty much the whole investment trust community has just been battered.

Even not not just in energy storage, but everywhere. And could you just talk a little bit about what's going on with with within that world? Yeah. I understand that I understand that you guys are public, you know, it's public fund, and there's some things you can and can't say.

So Yeah. Yeah. For sure. But please say what you can if you if you wouldn't mind.

So I think what we have in the investment trust world is we have and it's worth recognizing what what has been built there for renewables for the UK. Right? So the investment trust listed sector has delivered a significant amount of capital to build out renewables in the UK. Right?

So you look at Greencoat and, you know, these type of players, these are multi multibillion verging on FTSE one hundred companies vehicles which have, you know, spurred an enormous growth. Green coat, I think, is amazing. Right? Amazing investment trust.

Two thousand twelve, I think Richard put it together. Right? Mobilized huge amount of capital. And so a really big success story across the board, all these different types of, renewable investment trusts.

And when we when we were thinking back in twenty seventeen when we wanted to move out of, you know, to have a a more diversified funding vehicle, we could have put together a private vehicle, like a normal GPLP vehicle. Right? Very kind of private equity type fund, infrastructure private fund. But we saw what what had been achieved in the investment trust world with, you know, really interesting way to to bring on capital.

But also we believe that our asset class was a was a good and we still, of course, believe it is a good vehicle for for investors to get long term cash flows of critical asset class. But what we see in the investment trust world really since you know really since the president prime minister Liz Truss, which was, you know, mind bogglingly bad. That those movements under that short lived administration, though it probably would have happened anyway because inflation was really high. They created difficulties in the interest rate environment, then straight environment has, you know, moved up incredibly high relative to where we were.

It's still not actually that high if you think back about some periods in history, but it's relatively high to basically it was zero.

And, you know, all of the renewables investment trusts in essence provide a an operational risk dividend at a certain level, if investors can receive a risk free payment at a level which is not far off that through government bonds, they're going to sell the investment trust and buy a government bond so across the across across the the the universe investment trust that's what you've seen Just so I understand you.

So what you're saying is the yeah. The spread between the interest rate from the Bank of England and what you get from interest, income trust needs to be high enough so that it's worth taking it. You know, who wouldn't take sovereign risk versus any any other risk is probably bigger than the Bank of England's risk.

Yeah. There's a reason. You know, the worldwide risk free rate is the US government ten year bond. That is regarded as risk free. Right? And so the spread is not big enough.

That's changing. Right. And so if what you see is people selling the investment trust stocks till I get to a share price level where the actual real yield on it is high enough.

Right? Because share price has gone down. So you can buy in a certain share price and you'll receive if it's seven p at a hundred p Yeah. Dividend, seven p at seventy p is nine, ten p.

So that's that's then becomes the acceptable yields that they want that that they require for owning that stock against a government yield. Right? So that's what's happened. And that, of course, will change as interest rate changes.

Right?

But it does give a difficult situation where all of the investment trusts are trading below nav which means they can't raise money I mean that's an issue if we think about UK policy around building out renewables Can you just explain that for a second?

So and that's something that often gets cited, but it'd be good to just hear it. So if you're if you're trading for less than your nav Mhmm. It's the the implications you can't raise money. Yes. What what does that mean you can't raise money?

It is it is that is a structure of the investment trust world. You can't issue shares below NAV.

Okay. So it's actually a rule?

It is actually a rule.

Wow. Okay. I'm sorry. I cut across you.

So I think the other thing I was going to say is that in terms of very low interest rate environments, there is a lot of excitement in the marketplace about various different types of activities.

And some of those activities in terms of new ideas for investment trusts got created, did okay for a while and then have proved themselves to be a more challenging asset class or manager than the investors thought. And so you had vehicles, which I think will, you know, go away, basically. Right? You know?

So There's the two questions.

Right? It says, there's the fundamentals of the business. Is this a good business? Is this a good a good idea?

And is this is this capital managed effectively? And then there's the market. What's outside of our control is what happens with interest rates. It is important to separate those two things.

Yeah. Can we talk about we're gonna talk about international in a minute. K. But let's just while we're talking about Great Britain, what do you think about what's happened in the last couple of years

with revenues for batteries?

Yeah. I mean, it's what we thought would happen. Alright? So and this comes back to, you know, diversification. We don't take credit for diversification.

It's what we what investors should have done. People seem to have actually surprised that if your revenues are determined by a defined marketplace, grid balancing, and you add more and more capacity into that marketplace, that revenues will go down.

Right?

We underwrite our assets to declining revenues. We do so because we believe an economically rational actor such as ourselves investing in the future, right, probably at a lower CapEx, We'll compete with our assets in the future for that contract, and therefore, there'll be less value. Right? So we, I think, were surprised in twenty twenty three how much operational capacity came on. So another way to put that is we were surprised that some of our peers and betters just kept building in one marketplace. Right?

Because it's clear the three x operational capacity that came on at twenty twenty three in storage and GB, The the amount of renewables on the grid didn't need that much storage. Now that will change because renewables is getting built out at a much, you know, very steady state linear because it's a much bigger asset class. Right?

Bigger steps as well.

Yeah. Bigger steps. But so storage, because there's a smaller it's kind of a more embryonic gas class. It's a big chunk came on in twenty twenty three. Boom. Right? There wasn't enough need from grid balancing to deal with all of those assets at the revenues that were there before.

That's absolutely what we said would happen. And we were surprised how fast it came off. I think it's getting a little bit better now. But no.

Absolutely. A hundred percent what was going to happen. And again, coming back to the appropriate behavior from an investor is not to hope and pray that there's some white knight revenue stream coming down the down the path, but to plan for the eventuality about how much capacity is going to build, at what price, about what revenues are there. So it is absolutely to the benefit of GB.

And actually medium and long term it is to the benefit of investors that the storage has been built because the net renewables that GB is building is really considerable. Offshore wind, solar, onshore wind. And that storage will provide that critical function and will provide it at value to investors. But investors in energy storage in it's a twenty year asset, which is gonna have volatility quarter by quarter, year by year.

The way to deal with that volatility is by correctly diversification and engaging in hike in single market concentration with potentially high leverage, we didn't think it was the way to go.

One of the things that I must say I was surprised on the other side, which is that I always heard that in mining there's this idea that mines will keep on producing even below the cost of production. Even though it feels well back from economics days when I was at university, there's this idea, this phenomenon.

I'm I'm not an economic You're an economist. I'm not an economist.

No. No. I'm an engineer. We did some power systems economics.

No. No. I wasn't saying you're not an economist. No. No. No.

No. I'm absolutely not an economist. But I remember being taught that in mining or commodities, you will producers will continue producing below the cost of production for a period because of the sunk cost, and that goes beyond that's often not in models because people thinks the the models assume that when your profit goes to negative you you turn off, and that and in real in real world that doesn't really happen.

I get that for you. Is it because of some cost, or is it because your cost of transitioning from operation to not operation to, not operating to operation has a cost associated with itself. Yeah.

It's like ramping cost.

Yeah. So, therefore, you you will keep going until it's clear that actually you're still not making money, and that is the not making money is a bigger driver than the ramp up, ramp ramp down cost. Yes.

I think that's that's probably more of the reason why I probably got that wrong. But what surprised me is that there is no ramping cost for storage, right? But some of the prices that storage assets have been willing to take in ancillary services have been below what I would think is the opportunity cost or the zero cost. And so I've been surprised to see some of the some of the prices being accepted in ancillary services being as low as they were and have been.

And I I don't I I I I can't understand it. I don't it doesn't make sense to me. I wonder whether it's lack of sophistication of some pricing algorithms or something. So I don't know.

But that has that certainly surprised me.

I mean, assets will have a set of fixed costs as well. Right? They're gonna have to pay lease. Well, they're gonna pay rates. Right? So, you know, people will look to to to cover those costs to the best of their extent. Otherwise, they have an asset which is potentially in in distress.

But even when there's more opportunity in the wholesale market, even in a tiny spread, you in some cases, you would have been better to take the spread. But Oh, yeah.

But that comes out that comes out to sophistication. For sure, it comes down to sophistication. When I look at our colleagues on the on the commercial team, you know, we're running twenty four different types of contracts that are in multiple markets. Right?

But, you know, my colleagues will make decisions, you know, day by day about which market we're going to be in and even look at changing them, for instance, intraday.

So and that comes back to an approach to energy storage. It is a complex asset class. Right? It's an asset class which produces, I think, you know, very strong returns for long range infrastructure.

You know, our public returns are, you know, thirteen percent IRR. Right? We did twenty percent cash yield since inception. Right?

So these, I think, are strong numbers. But they require a level of control.

Right? All aspects of it from, you know, the investment, origination, execution to procurement, to construction, to asset management, to optimization that without which you're just not going to make the acceptable rate of return, I don't believe.

Now let's talk about international. I know you you've been banging the drum about outside GB for a long time. Which markets are you really excited about? Well let's start with we haven't done this already in the podcast, how many megawatts have you guys got? Where are they all? How many you said you got about fifty people? Could you just do the top Trump's card of Gore Street Capital for a second and then we'll dig into the regions and what gets you excited about them?

Yep. So one point two gigs in the portfolio. We have I think we're quite unique in that we have operational and assets in construction in GB, Ireland, Texas, California, and Germany. Soon to be Japan.

So that that's pretty unique. It's a big portfolio, one point two gigs.

One point two to be fair.

One point two actually operational.

No. Point two in operation and construction. By the end of the year, like, eight hundred and fifty, so next seven months.

Alright. Okay.

Yeah. We have so Big Rock in California is four hundred megawatt hours, two hundred megawatts. I mean, so that's a big project. This week, obviously, I came to see you, of course, to Austin, but also visiting one of our facilities out here, Dogfish, which is also a a big construction site.

How big is that one, Dogfish?

It'll it'll be a hundred and fifty megawatt hours as we think about extension of duration. Initial initial construction, seventy five megawatts. Yeah? This is funny. We were talking we're talking today about you know, when we would think we would we would add in more duration.

And then you you got the Irish portfolio has been well, let's talk about that for a second. So s three came out. You guys built you went early into Ireland, and your revenues are linked to performance and penetration of renewables, essentially, and that's worked out to be a fairly fairly good bet for you guys in from what I've read in your reports.

Yeah. So, you know, you ask questions to our favorite markets like that, you know, like, do you have a favorite child?

Do you tell your other children that they're favorite? That's the question.

No. So I think, for us, we're in markets we want to be in. Obviously, we made a conscious decision about which markets we will be in. GB, very important market, still remains a very important market, was the most important storage market in the world. And GB should congratulate itself for that. We looked and said, Ireland, another island nation, poor interconnectors into mainland Europe, just like g Britain has poor interconnectors to the mainland as well. Very high growth penetration on renewables.

And we said Irish market is going to follow exactly the same pattern. Right? Where it needs to build storage. And we also could see market signals. The market signal was air grid which is the national grid equivalent except so owned by the Irish government. It's not it's not a not a private company.

Ireland is one market. Right? Northern Ireland and the Republic, the island of Ireland market. And we could see a market signal coming from air grade going, we're gonna put in place d s three, the grid balancing contract. Not similar really to EFR because there's other things wrapped into it, but kinda doing the same thing, basically.

Although, a hundred and fifty milliseconds are not Most technically, it's just rebuffed to them. Our could and to to my and to my colleagues on the on the procurement and construction side because our assets in Northern Ireland are some of the technically advanced assets in the world because that the the response time needs to be unbelievable.

We went into that market knowing that the policy signal was there. It's just very simple to how we we saw the the British market. Right? A policy signal coming through from National Grid, really coming through from Ofgem through the National Grid, but a market that a market design that we could participate in.

Right. And so we acquired a range of of assets, old pre construction. So we like to build them ourselves. Right.

And that has been a very, very good market for us.

Put it in context and these are all published out, of course. So, you know, we've been making, for instance, about forty five pounds per megawatt for every hour in operation we have in, in Northern Ireland.

In Britain, over the same time period, you're probably making six to eight.

Right? For similar asset. Actually, our assets in Northern Ireland because it's it's twenty six minute duration asset. We haven't spent they're much cheaper CapEx than a one hour systems. We don't need that that that duration.

So it's been very pro very good for us. We're providing a critical service to the island of Ireland, helping to drive renewables penetration.

And the interesting point of the contract is really interesting. I think it's really, really clever what they've done.

They basically said we'll pay for value what does that mean so air grid the air grid the national grid or air car of Ireland yes I said we'll pay for value under the d s three I if you're up and running and you have to do this very high specification asset and has to have very good performance and continue to be up and running, of course, the more wind on the island we will pay a scaler to

your revenue for.

So they're paying for value because the more renewables, the more intermittent problem, the more the bigger problem for the energy system to cope with. So we're paying for value.

That's great. And what we've seen is now this is where I've urgent. I'm not a client climate scientist by any means, but there is overall wind generation is increasing in Ireland because we're building more wind in Ireland but it seems that Ireland is windier.

Right? And the models and the models show high temperatures in North Atlantic drive higher wind. And so a very seasonal contract. So usually we get paid much more money in winter because it's much stormier.

I didn't notice that as a kid in Ireland to be honest seemed wet and windy all the time to me as a child but we'd we'd earn less in the summer.

Not we're really experiencing. Summer winds are very high. So we're so we're so we're we have very strong revenues, but it's seasonal just like ERCOT, except in reverse. Right? Here in ERCOT, we make most of our money in the summer because this heat picks up. There's an aging gas infrastructure which can't cope with the heat, so it falls over.

Well, you've had a pretty good spring as well, I'd imagine.

Yeah. We're doing well. We're doing well. And, again, for us doing well means we're solving problems in the energy system. Right? Of course, we're here to generate good returns for our investors, but our assets are there to solve the problems the energy system has. And as Texas gets hotter over summer, the gas infrastructure will find it harder to cope.

There'll be a lot of solar generators. People will run their air conditioning, you know, high.

And, you know, we we will do we will do wells, you know, helping to balance the system. I think when we started in twenty sixteen, we were said we're driven by climate change because the energy transition. People want to we want we need the energy transition. We're driven by climate change.

We look at Ireland and Texas literally by trade pace. Right? We could see higher winds. We see higher temperatures, and that means that our assets are working harder and generating more value.

So that's working well for us. California will be a little bit different. Our asset there again, big assets, our biggest investment, four hundred megawatt hours.

Your biggest investment of the fund so far, period.

Yeah. Yeah.

Wow It adds into our portfolio something which is not available in other markets big chunk of revenue locked in at a good level we know what it's going to be put it to one side and manage the more volatile revenue on the other side so that's coming on stream at q four q one a great project can you talk to us about Japan you announced that you guys are making big moves in Japan.

That's a it's a long way from Europe. Not not that many European companies go that far. And what what drew you to Japan?

So island nation.

Right? Poor interconnectors to other zones of generation, aging, gas and nuclear infrastructure, high build out of renewables, and then an electricity reform market. Right? So looking at that so policy signals. So very similar. So GB also market constructs. We understand a lot of the electricity market has been, you know, designed and thought about in the same way that British regulators designed and thought about the British market.

We also have a you know a very strong investor base out of Japan and have to have that traditionally. And so we're very we we formed a partnership. And to your point, it's a long way away. So Gore Street Capital formed a partnership, fifty fifty partnership with one of the largest Japanese companies, a tattoo, massive energy trading.

And we've we raised our first fund, Right? Which it should close. We've already done one close. We'll do another close.

So that'll be fifty sterling and then we'll we'll we'll get that deployed and then and then look at the next one. I'd hope reasonably soon. And it is a market which is just about to start for storage. Right?

The energy research has they're talking about it needing ten gigs in the next ten years. Right? So again, we're a first mover. We have done that with a local partner and a part of a partner which we couldn't be happier with in terms of presence and expertise.

And we're excited to have some of the first energy storage facilities up and running very soon there.

Alright. One more question. Then we'll go to the last two. I think it would be a missed opportunity to have you on the podcast and not ask

you about how you guys use optimizers.

You've got a lot of different optimization partners. Your strategy is to, again, it's diversification.

Use different optimizers. Sometimes you do it yourself or you don't use one at all. In the past, Gore Street has had a bit of a reputation for being quite hands on with optimizers and at times even defining prices that you're submitting into markets, which is quite unusual. So how how are you thinking about how you work with optimizers in the market and how does that scale as you guys scale the business?

These are critical partners for us, right? So that kind of, you know, that both expertise and channel into the market is critical for us. Right? We we're in five different energy systems about to be six.

And so we we need each of those operate in different types of regulations, right, with different conditions around it etcetera etcetera. So we have in Texas, we have, I think, two two two optimizers we've been working with. In Ireland, we we have one. In GB, which is obviously the most kind of mature market, I think, for for optimizers.

We have a range of partners we work with. But, yeah, we set prices. Right? We set some we set strategy, and we want to do that.

We we anything that's material to our investments, we want to be in control of where my colleagues on the commercial side and and then also someone on the investment team. Investment team is more origination and managing the assets in terms of financing and the like. But also get involved with our commercial team which is actually managing them hands on in terms of different revenue strategies for sure. That each of the markets we're in we have I think in-depth knowledge of that and we'll work with our optimizers about setting those prices and those strategies which to be in.

Should we be in GB in the BM market? Should we be you know in the day ahead? Well the interesting things we're doing in Ireland on this is in the Irish market as I said you get paid if there's more wind on the system. Right.

So we can look at a forecast and know how much wind there might be tomorrow.

And so if there's low wind we know that we're not gonna get paid as much under the d s three the grid balancing contract. So we'll drop out of d s three.

We'll buy electricity at two AM, and we'll sell it at the peak the next day when we know there isn't that much wind on the systems. Prices should be higher as well. Right? So it's a strategy they've been working with with StarCraft on on the bond and that gives a smoother profile to our revenue there. Right? So things like that we are very engaged in and, yeah, we'll be more and more engaged in it. So our our our, you know, going forward, it's about making sure that we have the right level of expertise to support our relationships with the optimizers, but also be able to make sure that for our investors, we're the ones making the material decisions about these strategies.

Well, that's why I wanted to ask you whether because being part of these conversations with all these optimizers, you would have learned a great deal.

And so I wonder whether now you've learned what you need to learn, whether you would now and and the optimizer sophistication, I think, by any standard in Great Britain, the the amount of competition in that market has driven so much innovation. I just wondered whether you in the future, you might take a step back from it and say, you know, here's the keys. We trust you. Or whether your strategy is to is, as you say, we're gonna we're gonna be hands on.

So I I think we also think we've added value to the optimizers. Right? I think we're good partners for them. Right? Engaging in in ideas about different tactics, different strategies. But, no, we're not moving to a more hands off position on these assets. We're moving to a more hands on position.

Interesting. Alright. Now the last two questions. Firstly, is there anything you want to plug? So anything that Allison has the energy storage community, you want you wanna you wanna tell them about any announcement, any site, anything like that?

No. I thought we're we're communicating to the market pretty regularly. Right? We put out a monthly fact sheet.

We talk about what we're saying. We try and have the highest level of disclosure. We think our investors should require that and do require that. So now it didn't come here to plug.

I am constantly impressed about what you guys have built in Moto. Right? You know? And, you know, as you're saying, right, you you and I have known each other for a while.

I think did did was your did we have a meeting when you first met me and I was annoyed? Was that the was there something? I think I seem to remember.

Dude, you put me through the absolute I did.

Did I? Yeah. Yeah.

Yeah. Yeah.

But, it's alright.

It's been Sorry.

It's fine.

It's fine.

So no. Nothing to push. Again, you know, love what Moto is doing. It's really interesting the way you're you're you're, you know, parsing the content and getting it out there.

I'm excited to see what you're gonna be doing next. That's great. But from our side, we are try we are doing as we said we're gonna do. Right?

We'll keep control of our assets, keep generating the kind of best in class revenue of best in class CapEx. And it's an asset class which I think is continues to show its importance to our transition, but also continues to show its importance to the investor universe.

Alright. And then now for everybody's favorite question. Alex, what is your contrarian view?

So it's I I was thinking about you. So I'm like, what what what do you mean? What what am I gonna talk about? You know there's an interesting thing in energy transition. Right? Everybody talks about the transition.

Right? Like, we had to have a transition. Right? Society needs to have this transition. We need to take this at pace.

We need we you know, we can't do this too fast, but we have to do this over here fast. And it's not and there's lots of people who, you know, who who who who agree with me, but they're kind of you would regard them more you wouldn't guard them as private equity executives. Right. I think what COVID taught us is that we have the ability to do things much faster as a society than we realize.

Everybody for two years went back to their basement.

Right? And our society still functioned for sure. I think we all have PTSD. And I kinda think it's weird that people don't really talk about that period. Right?

I mean Locked out.

It's mad. Right? I don't it's like when I had a history undergrad. Right?

I didn't really learn much about the Spanish flu. So maybe there's a humanity thing that we don't pestilence, we kind of, like, forget about or something. I think it's weird we don't talk about COVID because lots of people died. It was terrible and everybody went home.

But to me, my one of the things I think about when I think about COVID, I think about our energy transition is we can do much. We can do things much, much faster. We need to stop using oil and gas now.

Right. Forget about this transition. The transition is going to kill us. Alright. So and I know you got a boycott guys.

They all agree with me. Probably it's probably a little bit more controversial than private equity executive saying, I don't think we need the transition. What we need is the will that we showed in COVID. We're able to keep our society going under extreme events, and that's what needs to happen now.

Alright. You heard it here first. Alex, we could talk for hours. I wanna say a massive thanks for your good on the podcast.

This is the second time we've had someone from Gore Street on, and it is always a blast. Wanna wish you the best of luck learning all the new languages you gotta learn and flying around the world and, building all these assets. It's always a pleasure. Thank you.

Thank you.

Thank you for listening to Transmission, a Moto Energy podcast.

Transmission delivers conversations from industry leaders and experts exploring energy markets and the operations and technologies related to grid scale battery energy storage. Check out our other episodes by searching transmission wherever you get your podcasts. Check out the Energy Academy, a video crash course on how markets in Great Britain and ERCOT work, or head to motoenergy dot com to see our written research. Thanks for listening.