44 - Startups and asset development with Chris Morrison (CEO @ Eku Energy)

I mean, the islands, for us, are really the vanguard of this business model. And I do see this decade as to what the last decade was to wind and solar. I see this decade as being the same for battery storage, yes.

Hello, everybody. Quentin here. This week, we've got Chris Morrison on from Eku Energy. And Chris comes on the podcast and tells us all about developing, financing, and building battery assets, not only in Great Britain, but in some other countries, too.

But what I really liked about Chris is this guy has been doing this for years. And the ambition of Eku Energy is massive. So we hope you'll like the conversation. Please do let us know what you think in the comments.

And don't forget to hit Like, Subscribe, and any button that pops up, really.

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Hello, everybody. This is Quentin. And I'm sat here with Chris Morrison, who has been around for a while in this industry. He's done quite a lot of things that we're going to talk about today. Chris, firstly, thank you very much for taking the time to come to Birmingham and be on this with us.

Thank you very much for inviting me, Quentin.

I guess the disclaimer is Chris and I--

there was a bit of crossover when we were both at Centrica, although you you were a few echelons above me. And you have been doing energy stuff for a while. You've been involved in building assets, operating assets, optimizing assets, big stuff, small stuff, financing, everything in between. And so today, we're going to do two things.

Firstly, we want to hear about your journey, so where you started out and where you've ended up, and a few questions along the way to do with those companies. And then the exciting new venture that you're working on, which we'll come to. So firstly, Chris, how long have you been doing energy stuff? And what's the journey been like?

Yeah, you're making me sound quite old there, Quentin.

QUENTIN: I know. Actually, I was very aware, honestly.

I've got quite a long story, so I'll try and keep it brief. I started off my career in investment banking.

And then I moved out in my late 20s to work in a startup, which was turn of the 2000's when the internet boom--

first internet boom was kicking off. And that was focused on looking at the environmental impact of companies for fund managers.

It was probably about 15 or 20 years before its time. Ultimately, it was sold to S&P and now forms part of their core offering for ESG.

But that was what really got me interested in climate change, energy, the impact of that. Went back to banking briefly, then in 2010, actually looking at Centrica and British Gas being one of the leading companies--

ironically, in the UK for the largest gas provider--

the leading companies in energy efficiency and renewable energy. Moved over to work with Centrica, first for financing B2B and B2C renewables as part of the first feed-in tariff.

And then moving into running the first solar business, then a broader B2B energy efficiency and renewables business for them, which is where we crossed paths. And ultimately, ended up a short spell running their CCGT platform as well.

Which was Langage, South Humber Bank--

Well, I say CCGT platform. It was actually all of the old CCGTs that were at that point were OCGTs. It was more of a gas peaker platform.

So Brigg--

Brigg, Barry--

Killingholme was closed down by that point--

and Peterborough. And King's Lynn replant, which was a CCGT being rebuilt. So a portfolio of end-of-life assets that were run as gas peakers at that point.

And so you joined Centrica in the early 2010s, when Centrica was a heavy asset business with lots of CCGTs, big offshore and onshore gas processing, the rough storage facility--

a big asset company, as well as British Gas, which is downstream. And then it went through a bit of a transformation moving to a distributed energy and other types of things. When did you move on from Centrica?

So I moved on in 2018. I moved to Vitol, who were one of the world's largest independent oil and gas traders. They also have a large equity fund within that business with external investors investing in energy infrastructure. That's called VPI.

I was building the gas peaker and battery storage part of that business. It came just as the capacity market was effectively pulled away from battery storage in 2018. So that was a bit of a blow. So my main focus was on gas peakers.

And this is the derating factor, right? This is where--

This is moving from 100%--

what it was--

96% down to 25% or whatever.

So the capacity price was paid a tenner, you'd get 9.60 pounds before for a one-hour battery. And then the rug pull happened, and you ended up with 27 pence on the pound or something like that. So a big, big difference to the investment case.

And it's even worse this year. And we could go into that.

But yeah, just to finish off on my rather lengthy story. And then I got an opportunity to work for the Green Investment Group.

QUENTIN: Known as GIG, right?

GIG, yep, which was acquired by--

originally started as the Green Investment Bank, investing in things like the offshore wind business.

Was that government money?

The initial capital was from the government, yeah, designed to catalyze the particularly things like offshore wind, which was more risky money and catalyze the renewables business in the UK. It did a fantastic job of that and was one of the largest financiers, I believe, of those types of projects in the early days when people were concerned about the risk and brought--

crowded in private money into that sector.

But by 2017, it was seen as successful. And the government sold it on to Macquarie.

And Macquarie have since then taken that UK-focused business and grown it into a sort of a global behemoth, if you like, particularly in renewable energy. And now, I think we're one of the largest renewable energy developers in the world. We've got over 30 gigawatts of assets under development through a number of businesses and platforms.

And so now, you moved to Macquarie. And then there's the new venture, which we'll talk about in a minute. So your new job is running this new firm--

which I think we should call it a platform--

called Eku. And what's the vision? What are you trying to do?

So we are a globally diversified battery energy storage platform. We focus purely on standalone front of the meter battery energy storage systems. We develop, build, and actively manage those assets. So we may or may not retain a long-term stake in those assets. But we'll certainly seek to actively manage those assets on a commercial basis in the long term. And I think there there's, I guess, the two differentiating terms in my mind there in what we're doing in this space is global and diversified.

So we're active currently in the UK, Japan, Taiwan, and Australia.

QUENTIN: Wow. Well, let's do those again. My brain can't handle that many places. So the UK, Australia, Taiwan--

CHRIS MORRISON: And Japan.

And Japan. Wow. Not the US?

No, not the US. We have done some investments in the US as Macquarie into battery energy storage. We've done some early projects with Stem, and AMS, and more recently, esVolta. But we don't currently have a position in the US, although some of our solar platforms are doing that--

doing battery storage.

And why are those countries?

So yeah, a lot of people ask me that. They seem a bit of a random collection of countries. But if you look at each of those countries, they are all large physical islands.

They're large electrical islands in the sense they have very little interconnect with the mainland. They all have a strong policy and existing renewables pipeline that's going out, particularly in solar and wind.

And they all have a strong low-carbon policy as well. So they're effectively--

those four countries, I think. We were talking earlier, I would add Texas to that as an effective electricity island as well. We're not active there. But those five key regions are effectively at the vanguard of the need for battery energy storage systems.

The need for low-carbon flexible generation.

And highly liberalized energy markets as well.

Exactly. And that's the key. So obviously, the UK and Australia are highly liberalized, deregulated markets, which is fundamental to our investment case is that it's great if we've got contracted revenue streams, ancillary services, capacity markets, those sorts of things. And many--

almost all markets that we see do have at least some form of grid services that we can offer as a sale.

But fundamentally, we need that wholesale arbitrage market for a long-term investment case that we know we're going to be able to default to trading in that market. And the volatility of those markets tends to be on the increase, obviously, the more renewables you add into the system.

So if I got the thesis right, the thesis for Eku is go for islands that are making big commitments on renewables. They're going to have the volatility. That isn't a nationalized market where they're open to private investment--

where the macro picture looks like there's a huge need for storage.

And then how do you then--

do you have sites lined up for all these countries? Or do you have to go and buy them? Or what's the what's the mechanism here?

Yeah, so we're not just focused on islands. We're moving into Europe. I mean, the islands, for us, are really the vanguard of this business model. And I do see this decade as to what the last decade was to wind and solar going from almost nothing to what we see now. I see this decade as being the same for battery storage. So we're starting out with the front markets. And we're moving, certainly, into Europe and possibly the US and other parts of Asia as well.

You guys, I can imagine you all sat down at Macquarie. You've got a whiteboard. And you go, right, there's massive opportunity here. We're going to be in these countries. We're going to build, and operate, finance, and manage all these assets. And then how do you actually do it?

Would you have to go--

do you have to buy these sites? Or do you have to get your wellies on and go and look for them? Or what's the process?

There's no simple answer, and it depends on the market that we're looking at.

In the UK, it's a very established market. We've been doing it. You and I, we're looking at Roosecote back with Centrica in 2016, '17.

Yeah, props to Roosecote, the most beautiful battery on the planet still to this day.

So that's where--

and I think it's probably knowledge that we're working with [INAUDIBLE]

and Bluestone Energy. So developers--

so we work with them under a joint development agreement. And they bring us projects, and we develop those projects out.

We're looking to do similar things in Europe, to be honest, with some partners in Europe as well.

And the market in Europe is beginning to establish. And you're seeing solar developers, other developers, moving into the battery space. But it's earlier days there.

Australia is a different market.

Australia, you'll often see that the system operator or the state is looking for specific needs to be met by these very large battery storage systems, which are typically 100 megawatts, 200 megawatt hours-plus, up to 500. We're seeing--

I think we saw a 1.7 gigawatt-hour project recently, didn't we?

So you're seeing that the batteries are there. And there's a system need for them. And you're going into tenders and auctions. We're doing a lot more development ourselves in house there but also working with others.

So that's where the grid operator in Australia says, hey, I really got a problem over here. If you want to help me solve the problem by building a battery, you can. And everyone bids for it. A bit like the old EFR days, but without frequency response, necessarily.

Yeah, exactly. And there's typically a component, which is a contracted service. And then you've got the wholesale market as well. And it's an interesting market in Australia you have a five-minute real-time clearing market.

So that's there. In Japan, it's a very early stage market. Taiwan's even earlier stage. We're really sort of looking to make the market there.

We're going out to people who are active in the market who have the right sort of skill sets to develop assets--

working with them in the market.

What's important, I think, for our business is we have employees and a good footprint in those countries as well. So we're on the ground operating as a local entity.

So you guys are in Taiwan right now?

Yeah.

So I know nothing about Taiwan. See, I know that they make a lot of microchips and--

Bicycles.

Yeah, lots of bicycles. And lots of everything, really. What's the what's the situation like for the power grid over there?

So again, it's an island. They currently have a fair amount of nuclear gas. But they are trying to move towards a renewable system. The semiconductor business is huge and a fundamentally important part of the economy for Taiwan, as you can imagine, and other high-tech industries.

They consume a lot of power. We're increasingly seeing Europe being a leading example of this. Things like carbon tax is being introduced increasingly. The products that are produced by people like Taiwan and other countries that are being imported into Europe or the US or other places will have to have a lower carbon footprint.

That's being demanded by their supply--

by their customers.

So there's a big increase--

there's a big need for renewables in Taiwan.

And that, obviously, then creates the flexibility problems that we've talked about where batteries come in. So it's a different market in Taiwan. The underlying power market is not yet deregulated, although that is planned.

There is frequency regulation services and other things that you can bid into.

So we're just going into that market. We're a bit further down the stage in Japan, where there's some interesting potential contracts coming out from the government.

How's your Japanese?

My Japanese is poor. But we're very lucky to have some fluent speaking Japanese people both in the UK and, obviously, local Japanese people leading our business out there. And Macquarie has a great footprint in those countries as well, which has been very helpful for us.

Awesome. All right, I want to talk about the company now for a second. So you guys--

you realize this is a big opportunity. We're going to get a lot of people from Macquarie and put them together and this new limited company. You guys have got a new office, actually, haven't you? You're just outside the city.

Yeah, we've got new offices in all of those countries I've mentioned plus Singapore.

OK.

CHRIS MORRISON: Anywhere in the world--

I was thinking about London.

CHRIS MORRISON: Give us a call and drop in.

You're in the trendy part of town now, right?

CHRIS MORRISON: We're in Clerkenwell in London.

Very nice. And so you get all these people. You stick them in a room a bit like a startup and say, right, go.

How many people are in Eku? And how many people do you need? Do you have everyone you need now?

No. So do get in touch if you're looking for work with a great entity in any of those countries.

So we started off with around 12 people from Macquarie. And I think we didn't really touch on it too much earlier, but GIG is rather a unique business because it doesn't just have investment bankers. It has a very high proportion of engineers, product developers--

people with all sorts of skills that have ended up going into these platforms. So we brought in a highly skilled group of people into those countries that we've mentioned.

And we've built the team in the last--

I guess, in the last year, we've then recruited people in knowing that we were going to set up this platform. It's only really been going about a year, this initiative. We started at the beginning of last year deciding that we would create this platform--

put it into a fund.

So we had about 12 people. We're now at, I think, about 38 people who have either accepted contracts or are actually working for us already. We'll probably get up to about 45 by the end of March. And that's across those four countries.

Spending a lot of time in interviews then.

Yeah. But we've managed.

If anyone is out there doing something similar in your space. And Quentin, I know you've been doing this, obviously, with your own company.

What you find, I think, is that you can do a lot of executive search. You can go through headhunters and that sort of thing. But actually, the more and more people we get in, the easier and easier it gets. Because people will say, well, I've worked with this [INAUDIBLE].

Then the networks expand.

And the best people--

we've got fantastic people from all sorts of walks of--

well, not from all walks of life. Mostly from batteries. But from all types of--

from across the industry, really good, quality people. And that's really what drives the success of our business. But most of that actually has been through our networks and through people we've known.

And so let's put some numbers around it. What does success look like for you guys? You've got 35 people, which means you've got to build a lot of stuff.

How much are you--

what's the plan? How much do you want to build and where?

Yeah, so I can't give exact numbers, because that's confidential to our investment case. But multiple gigawatt hours in the next five years.

And I see there's probably potential for two or three gigawatt hours in the UK, for example--

similar amounts in Australia. And then beyond that, we'd be looking at European markets. And we can talk a little bit about those. But it's the big electricity markets basically in Europe we think have potential.

And then obviously, I think Japan has huge potential as well in the next five years. And Taiwan.

What's interesting is this feels like--

it feels like vertical integration, like the Centrica model was, which is building, owning, and operating and asset-managing these assets. I guess the bit that I need to ask you about is, are you going to do the next step, which is the market access and optimization? But are you going to do that? Are you going to build your own technology?

Are you going to hire traders? What's the strategy for that? Because we're seeing some other companies--

platforms--

take different approaches to that bit of the problem.

Yeah, we thought about this a lot. The way our business is sort of loosely structured is we have a development team, as you'd imagine, and people who focus on the development of a new pipeline--

financing that pipeline.

We have a construction team. We don't build our own assets. We outsource to EPC companies to do that.

But we have the expertise, the technical expertise, and the construction management expertise to do that. Then we have this team we call technology markets and trading, which I think is quite different from what a renewables company has.

So often, a renewables company, or a power developer, will have those first two elements of the business. And then they'll enter into a PPA, or they'll hand it over. The technology markets and trading team is a combination of skill sets that sits right through the development pipeline and the operational pipeline.

They will look at what's the right technology. Well, first of all, let's just take a market entry situation so we can look at the whole spectrum.

What are the potential revenue opportunities in that market? What sort of technology will we need? Will we need a one-hour system or a four-hour system?

When you say a market, do you mean a country?

Yeah, exactly. Let's say Iberia, or Poland, or whatever it is we're thinking of. So what's the potential revenue streams now in terms of, perhaps, the short-term ancillary services market? What's the long-term fundamental trading market going to look like?

And then we build up that investment case in that team.

What's the right technology to do that? And it's going to be different per country. Although, obviously, there's a huge amount of similarity across markets, which is where we get the economies of scale, if you like.

And then it's, well, OK, now we know what those revenue streams are. We know what technology we're going to use. We're going into the market. How do we actually contract those services?

Something like the UK market--

it's a very mature market now. I can get up to 10 providers that are all going to offer me a competitive offering. And I can get what works for me. Other markets, such as, say, Japan, we've really had to take a lot of our experience and learning from the UK or Australia and bring it over to Japanese counterparts so you can give us market access.

Do they even have--

do they have optimized--

that sounds very--

take the word "even" out of that question. It sounds very--

Well, they don't have a lot of trading batteries in that area.

I was going to say, do they have optimizers?

So there are people--

obviously, they have people who optimize CCGTs and gas peakers.

So the utilities and power producers will have electricity trading desks in a deregulated market. And i think at least 50% of power consumed in Japan, I think, is traded on the JEPX market. So there's obviously trading desks like that. As you know, it's quite a step then from moving to an 800-megawatt CCGT--

trading that, which is a wide variety of revenue streams, a lot of flexibility--

but to moving to trade a 40-megawatts or 100-megawatt battery storage asset.

So there is a transition that needs to be made.

And I think that's where our team has been able to work with parties in Japan about how to understand how to do that and working with them. So we work with a market entry--

a market access company who's used to trading power, perhaps as a retailer or as a power producer. And then we can bring the sort of skills and work with them to develop that capability.

And so you guys--

so you're just batteries. You're not doing wind and solar anymore. That's in separate platforms within Macquarie.

CHRIS MORRISON: Absolutely. Yeah.

And then who owns the company right now?

So the company is owned--

we have two shareholders. So we're owned by a fund that has been set up by Macquarie GIG called Macquarie GIG Energy Transition Solutions Fund.

And we just recently announced a co-investor, which is British Columbia Investment Management. It's a large Canadian pension fund.

Wow. OK. And Canadian pension funds seem to be everywhere at the moment. I don't know. They seem they seem to be buying up everything.

Well, they've long been--

as have some Australian pension funds as well--

have long been sophisticated investors in infrastructure and real assets. And so that has historically been airports, roads, pipelines, those sorts of things. But now, obviously, moving into renewables and battery storage assets.

Couple more questions I want to ask you about the business and then some curveballs at the end. So firstly, how are you finding--

you must be locking in deals with suppliers now. Have you got a partner for who does your EPC and builds these projects? Or are you still deciding who that is? And how are you finding the current environment with prices and CapEx?

I don't want numbers or anything--

nothing sensitive. But what does that feel like to a guy like you, who's got to deliver these gigawatts, and the prices are changing so fast? And how are you managing that?

It is a big challenge.

And the impacts are fairly universal globally. I can say that. That it's not just the UK. We're all being affected in the same way.

We work with--

we've got two projects under construction with two different partners, so Fluence in Australia and g2 Energy and Trainor in the UK.

But as we grow our pipeline, there will be a need for a broader set of EPC counterparts globally. And with a pipeline size I'm talking about, we would want multiple counterparts to be able to provide those services.

In terms of pricing, I mean, we broke ground on the UK project and Australia project about the same time--

December, 2021. And I think we're seeing prices have probably escalated between 35% and 45%

Wow.

Since then, so just in the last year. I would hope that some of the ancillary balance of plant pricing and that sort of thing will come off a bit. A lot of it's energy related.

We're seeing shipping costs have come off. Concrete, steel, those sorts of things are coming off a bit, so some of the component prices. Obviously, the huge impact is lithium carbonate. And that hasn't come off much. And I'm not convinced as to when it will come off in the short term.

Tell me when demand's going to slow down.

Well, exactly. And that's the problem, I think. There's this huge unexpected demand from EVs, really. I don't think it's--

obviously, there's stationary storage as well. But the EV market is driving that huge demand.

I saw this week, I think, Germany sold more EVs last month than they did diesel cars. Germany's always been very petrol focused rather than diesel. But still, it's happening. And the gradient of the change always catches everybody out. So a grid-scale battery costs 35% to 45% more now than it did a couple of years ago. Wow.

And then on top of that, you've got to buy a site. So to get land, planning, connection, a site that's ready to build, those sites cost more now because it's more competitive. So all the upfront costs are getting more expensive, I guess. Let's see where that heads.

And then the last couple of questions I want to ask you about are, well, the first one. So I remember you gave me a book recommendation many years ago, which was The Hard Thing About Hard Things, which is an excellent, excellent book. If you haven't read it and you're listening to this, please do go and buy it. And it's Ben Horowitz talking about [LAUGHS]

what is it? What even is that book? It's a bit like a memoir, talking about how hard it is to build a technology company and some of the hard things about hard things. There is no playbook to do it.

I think that was the key thing for me. It wasn't--

it was sort of an anti-management book in a sense that it didn't tell you how to do anything. It just told you that there were lots of challenges and how you should be--

the mindset you should have in approaching some of those challenges.

Yeah. And it was--

so first of all, to say thank you for recommending that book because we now give it to all of our staff when they join.

And it's got some great--

I think every chapter has got a rapper's verse at the start of it as well, which is a nice bit of punctuation. And so in the zone of management and startup life, what's the approach?

You're back into a startup now. And how are you finding some of the teething problems with getting a lot of people together and working on a problem that is so massive? Delivering gigawatt hours in five years is such a big problem. And then you've gone from 12 to 36 people and probably 45 by March.

Culture, all of that stuff--

how are you thinking about those problems? And what are you putting in place?

Oh, good question.

We've been helped a lot by the fact that we're backed by Macquarie.

And I would extend that to say that we've been helped a lot by the people in Macquarie and the culture in Macquarie. And we take that culture with us.

Now, that's not to say that Macquarie has an agile start up culture. It's a large organization.

And part of the benefit of creating these platforms that we have is that we get some freedom in decision-making, particularly on the smaller investment decisions that we need to make. We don't have to go up through a sort of regulated body chain, if you like.

On our board, we have some fantastic people. We have Greg Coleman, who previously ran the energy systems for Tesla and has a huge amount of experience in our whole--

he built the whole supercharger network and a lot of the new battery systems, such as the big battery in Victoria.

So Greg brings a huge amount of experience from that type of organization as well. And we have some great people from within Macquarie on our board as well and, obviously, the people that we've brought into the organization. And I think that--

so I think that what helps most is the culture.

And I've always thought you can't dictate the way things will work.

You need people to basically operate in their own way. Give them autonomy. But if you want things to work in the right way, you need to create the right culture.

So that's very much the focus of us as a management team is doing that.

It's hard. There's no prescriptive way to do it. It's more than just donuts and ping pong, right?

Yeah. Look, it is. You're absolutely right. It's every action every day that you do needs to be--

you need to be thinking about bringing that culture forward.

And the last question I want to ask you--

well, two, actually. But yeah, anything you want to plug? Or is it that?

Well, yeah, that. I mean, if you're interested in this sector, which you probably are listening to this, then chat me on LinkedIn if you're looking for a change in opportunity.

We're particularly interested at the moment in building out our development team in Europe and so looking for people who have that sort of skill set behind them. But do get in touch with me and the team members if you're interested.

Awesome. And then the last question. This is the Paul Graham question--

the interview question--

which is, what's the thing that you believe that most people don't believe?

Without the risk of sounding too crazy, I think that we're setting up an independent battery storage system focused on battery energy storage. And that's the right thing for us to do right now. I think what you'll see going forward is that, increasingly, battery storage systems are integrated into portfolios with wind and solar. Certainly, when you're out there in the market selling wind and solar PPAs, you're seeing there's an increase in demand saying, I don't want to buy what you generate and when you generate it.

I want to buy what I consume. I want what I consume to be 100% renewables. And all the big players, like the Microsofts or Googles are leading this drive. They can't get that right now. It's just not available, because even if you had huge batteries plus solar plus wind, you're not going to get there straight away. But you can aim towards that. And the fantastic thing about people like Google, Microsoft, Apple, Facebook, et cetera, is that they are driving the industry to try and achieve that and be innovative.

And then they want true green power, not green in inverted commas.

Exactly. I don't want to be able to buy a terawatt hour that next year because that's what I'm going to consume. I want to be able to buy every megawatt hour that I'm consuming when I'm consuming it to be green.

So if I've got this right, you're saying, you guys are building a platform load of assets, and this is the standalone assets and the battery thing being the battery thing. But actually, long-term you believe they'll play a much bigger supporting role in helping buyers buy truly renewable energy from renewable suppliers.

Well, and I think we're already looking at that now, is how do we try--

a lot of the time we will be, by default, using green power to power it, to drive up, to charge our batteries. But how do we try and move to that? And how do we--

and there may well be markets then that are seeking to buy our flexibility to put them into a wind and solar portfolio that then someone can then package that up. And ultimately, you may end up with renewable independent power producers, whereas the old days, we would have people who just had gas peakers or get gas CCGTs as IPPs.

Very cool. So we have just scratched the surface. A lot to do this decade.

Chris, I want to say a massive thank you for coming on. If you're listening to this please, do hit Like, Subscribe. Let us know in the comments what you think. And see next week.

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