The role of the Optimiser in GB with Chris McLeod (Head of trading @ Habitat Energy)

Obviously, the main job that we have as an optimizer is to maximize earnings potential of the assets under our management, but that earnings potential differs How do you decide what markets put your battery in? And when do you do that? That is the million dollar passion for it. It's So it's really the flexibility of not having that to tell them an hour ahead of time.

Do you think that's what's driving most of that decisioning? Because it's very you. Right? That non VM strategy.

It can be your dealing with the last available market, pretty much. It's the market of last resort. If I And you wouldn't think it would boil down to like the the day to day decision making of of a storage operator or a storage optimizer making sort of one hour, two hour spread trades. But it really does because you need to know that as new markets come to before, as we start to trade further out on the curve and we start to see more liquidity of, like, these hitherto illiquid products as a result of the fat that the GB best market is growing exponentially.

Hello, everybody. Welcome back to Modo the podcast for our second installment in our mini series focusing on battery energy storage and energy markets in Great Britain. This instalment is guest hosted by Robin, and she's chatting to Chris McCloud head of trading at Habitat Energy. As always, if you're enjoying the podcast, please give it a like and hit subscribe. It really means the world to us. And if you're enjoying the content, head over to Modo Energy on LinkedIn, let's jump in.

Hello, everybody. Welcome to the Moto Podcast. For those of you expecting the dulcet tones of Quentin, I'm afraid you've got the dulcet tones of Robin instead. I'm here joined by Chris MCloud from Habitat Energy, and we are gonna talk about the role of the optimizer in the GB market right now.

So, Chris, thank you so much for joining us on the podcast. Maybe you could start off with telling us a little bit about you, who you are, and how you got here. Awesome. Thank you.

Thank you very much for having me, Robin. I've been wanting to come on the show for a while and, avidly listen to the podcast, so it's very nice to be here in in person. Good have you. It's been a while since we've had the the optimizer on the other side of this table.

So it's been good to get, like, a latest view of what's happening in the markets. From your perspective. And I'd love to get it. So, yeah, thank you for introducing me.

Yep. Chris McCloud, I'm the head of trading at Habitat Energy. Formally, I've been in the industry for about ten years or so now. Before Habitat, I was a power trader at Centrica Energy Marketing and Trading.

Where I was mostly trading a large thermal portfolio of gas power stations.

So it's been a bit of a seismic shift going from sort of a three gigawatt portfolio of CCTs to itty bitty but vastly growing portfolio of battery storage. So how big was the Habitat portfolio when you joined compared to now? Technically zero because we didn't have any commercial contracts. So I I joined in in twenty nineteen. We were piloting our software. So we we were founded in twenty seventeen.

And then we spent our sort of early years just building up that software based in our optimization algorithms.

And so when I joined, we were, we found a couple of, friendly generators who were willing to loan us their sites to test our sort of trading algorithms.

And that gave us a real wealth of, of information.

And basically from point myself and and Ellie, who is our operations director basically built up our trading capability. And so in to in January twenty twenty, we, signed our first commercial contracts with Gresham House and have been optimizing, assets since then. Awesome. So how many should we talk about braggawatts?

How many braggawatts are you at now? Yeah. We can talk about braggawatts. Sure. Been, slow and steady progress.

So currently, our operational portfolio is about three hundred and sixty megawatts. And about four hundred ten megawatt hours. So average portfolio duration is about one point two hours. But within that, we've got a real range of of assets sizes.

So we've got some old, X Efr sites that are about thirty, forty minutes, and then we've got some longer duration one and a half hour sites, which soon to get our first two hour duration site, which is gonna be very exciting. Awesome. And in terms of pipeline, operational and under contract, we've, we're at nine hundred and fifty. So pushing the the big one gigawatt.

Have a gigawatt party when you get there. I think we definitely should have a gigawatt party. Yeah. So to put that in perspective, that's roughly ten percent ish just over of the of the UK fleet right now.

Mhmm. On the habitat operation. Awesome. So within that portfolio, there's obviously quite a lot of diversity.

If you've got your old EFR assets that are pretty short duration in comp comparison to say the new ones the two hours coming online, is that difficult to manage when you've got a lot of difference within the portfolio using things like automated software? It is challenging in order to, obviously, the main job that we have as an optimizer is to maximize the earnings potential of the assets under our management, but that earnings potential differs depending on the type of technology, the duration, how old it is, how much it's degraded, what its warranty looks like. Mhmm. And so all of those decisions and considerations have to come into play when you're deciding which market to operate excited.

Yeah. I guess that's a nice leeway to kind of talk about the markets for batteries at the moment. Maybe you could give us like a a quick overview of what all the different acronyms mean right now. And I know it's an ever changing picture.

Right. Yeah. There are quite a lot of markets that batteries can participate in. I guess if I was to boil it down, I'd say they they largely look.

There are response markets. There's energy trading. There are reserve markets and there are stability markets. Okay.

Let's Potentially, a lot of a lot of different, ways of trading within those that some are more of a of a proper market or a more liquid market than than others. Like a functioning economic market. Exactly. Exactly.

So response, what does response mean? Response is it's been around for a while. In fact, if you're transmission connected in, GB, you have to provide mandatory frequency response.

And it's a way for the system operator to control the the system frequency. So, in GB, we have a fifty hertz system, in the US, it's sixty hertz. So response is a thing that's keeping frequency ticking over close to its operational. Because national grid has to balance plan demand in real time.

It's trying to keep that system frequency nice and stable at fifty hertz. So these are ones like f f r, DC DRDM, those all come under this umbrella of response. If we talk quickly about reserve, because that's maybe something people are less familiar with? Are there any, like, functioning markets for reserve that your assets participate in?

I think it's gonna be quite interesting going forward looking at some of the new reserve markets. So we've got a quick reserve, flow reserve, balancing reserves. So these are when batteries will discharge over a slightly longer period. So rather than these, like, sub second response times for response, we're looking at kind of the thing that National Grid have in their arsenal to balance supply and demand.

That's it. National Grid are having to look at. They're they're looking at their demand forecast They're looking at the renewables generation forecast and and they're looking at what the largest loss of load is and they're trying to make sure that they've got adequate headroom and foot room for any point in time be able to manage that. I think the problem is that batteries because they are so quick at responding have historically provided this reserve for free.

Yeah. Now it's something they're very good at doing. We've had the reserve from storage trials, which we participated in, which proved that batteries could do this, and they could do it quite competitively.

And a a lower cost to the end consumer, but in practice on those scare stays, national grid tends to go to established generators, also generators whose dynamics are not as quick. And they have to do that, in order to secure, make sure that that reserve is there. And unfortunately, what that tends to mean is that at the point where that reserve would otherwise be needed, there is maybe no longer a requirement. And so batteries have kind of given that reserve for free.

And so the way in which we can get around that is by having, you know, multiple frequent auctions, transparent auctions, competitive auctions with which, battery assets can be paid in availability we think that we'll we'll see those with the quick reserve and the slow reserve products that are coming down the line. Believe so. Yeah. I think it was due to be sort of end of this year.

It's been pushed out but, I think that is gonna be an interesting new marketplace for various participants. And then the final one was talking about stability. Mhmm.

So a lot of the stability market. So stability is things like synthetic inertia, voltage control, and and and reactive power, provision, black start, short circuit, a lot of a lot of buzz words. Most of these are being looked at at the moment through pathfinder. So these are pretty locational contracts usually where the grid is particularly constrained or Britney to procure a particular service. So they're not kind of something you would look to participate in. Like, the data head basis is not part of your consideration.

Not it's, yeah, it's it's exactly that. It's not part of your data day optimization, decision making. But this is what National Good tends to do in terms of it gets a lot of learning from these path finder projects. Assets get revenue certainty and they get billed.

This is exactly what happened with the first, FFR contracts and importantly EFR in twenty in that had about two hundred megawatts of assets built off of the back of that and really kick started the the battery industry. So it's foreseeable that these will become more functioning places going forward and in the future. But today, right here and now, it's mostly the, new suite of response services and energy trading that makes up the bulk of battery revenues. Awesome.

Thank you for that. So looping back around to those kind of real time markets are probably more efficient markets.

How do you decide what markets put your battery in? And when do you do that? That is the million dollar question on it. It's the answer is quite complicated because there's a number of different markets and time horizons that we can operate in.

Fundamentally, we're operating an energy limited, asset class. So batteries are duration limiters. And as a result of that, if it's dependent on whether you're marketing your flexibility for, an ancillary service where you're paid on your power and you're paid an availability fee or depending on whether you're looking at, using that intrinsic value of you of your battery and and what people commonly refer to as time shifting, buying in the lower holding on to that until your forecast point to a more optimal period where you can obtain a higher price and you discharge the battery. So charge up in the middle of the day.

There's lots of solar spilling off the system -- Exactly. -- maybe prices even go negative -- Yep. -- discharging later on. And how do you make that decision between say, at day ahead, going into one of the response markets, DCDM, or holding back that flexibility and and trying to sell it intraday or day ahead on those those wholesale markets.

The short answer is that ultimately it depends on the quality of your forecasts.

So we process a wide variety of data, system data, market data, weather data, and we have to and we use that to formulate price forecasts for the various markets in which we operate in. So a bunch of super clever machine learning algorithms they're constantly sort of refining their predictions to give you the best the best, success, meaning the most money for your asset. That's it. It's it's such a combination of forecasts.

So what we we do at Habitat is we try and have for for every machine learning model that we've got, we it's also backed by a a fundamental model or a more rules based explicit. Okay. And not only does this give the trader this allows the traders to play the two forecasts against each other, see where one's performing well, obviously, if both forecasts are pointing in the same direction. That should give you a lot of confidence as a trader, but it also allows us to continually refine, the ML models based on what we're seeing from the the fundamental ones as well.

Yeah. Yeah. Nice to have the complement of the two. One of the issues with developing lots of machine learning forecast in this space is the past doesn't necessarily look that much like the future.

So you have to be quite careful how you train those models. I guess one of the things I'm kind of interested in unpacking is at Habitat, how you blend having the traders that you have with, you know, those decisions that the algorithms might suggest. Is it is it quite clear cut or, you know, how has that kind of journey changed over time with using humans versus computers? It's not always clear cut.

No. In fact, it's it's it's quite it's quite a difficult one to unpack. We have I think when we were first founded, we were founded with the belief that, you know, the ancillary markets, whilst they've been the mainstay of battery revenues and indeed in recent years, they've been a boon for factories.

They're inherently shallow. Right? They're prone to saturation national grid. It's got a finite requirement for it.

We're already at almost think three gigawatts of installed capacity -- Yeah. -- in the GB. Very much saturated. We've probably got, like, two months ago.

Maybe two two and a half gigs of, maximum procurement of the response services.

So when we were founded, we that we knew that the long term revenue source for batteries would be in the wholesale markets. These are your deep liquid markets. The fact that in most cases, energy can't be stored, means that it needs to be used in real time, means that its value is dictated by what people will pay for it in real time, and and that balance in supply and demand. So having the right tools to be able to forecast that across markets, so the main wholesale markets in in GB you've obviously got the curve and forward markets, but a lot of these are, you know, the further out you go in time, the the more liquid they come.

They're not necessarily the type of products that battery storage would be looking at act, executing on. These are base load contracts, peak contracts, whereas we're looking at sort of one to our spreads. Yep. But as you get closer to real time, you get more granularity in those products, more liquidity as as people get more confident the the weather models get better, the depend models get better.

And ultimately, you've got the day ahead auctions themselves, which, they're very, they're very liquid. They're quite predictable in terms of the the price tends to follow the demand shape, but they don't necessarily always guarantee the best price. And in fact, some of the the most volatility is seen in the intraday and balancing in in real time markets, the system imbalance price. Right.

So we've got that kind of fairly predictable day ahead price shape. And then if you go closer and closer to real time, as your wind forecast essentially gets better and better and better, where you're you've got a shortfall or a long fall that has a much bigger effect on the volatility of that price, which is essentially what you're trying to capture with batteries. Yep. So having the the models and the forecasts that point to, what is what's my expected range of out turns because actually there's not just a single.

You might have a central case. You might have like a a a mean value, but there are there's so many factors in terms of like the day to day running of the GB system, which can influence the imbalance on the system and therefore the, eventual price you've got all of these market participants that are betting on that price. You've got generators. You've got utilities.

You've got proprietary traders. And they're all taking views and bets on, how national grid is going to balance the system. Which in turn can then flip the system the other way, which makes it. If they yeah.

It might be more on the computer. I'm sorry. Yes. Exactly. And that that can happen sometimes, like, particularly if you've got an more and more battery storage, importantly, more and more or non diem, battery storage.

This because there are two types of of batteries on the system. If you ignore things like age and duration, There are those registered for the balancing mechanism. Mhmm. And this is when you tell National Grid what you're gonna do ahead of time and they use that information to balance the system.

And then and, you know, there's quite a lot of red tape in getting into the BM. It can take a while. We've got a whole thing about battery skit rates, which we'll come on to. And then there's the non BM units, which can follow a strategy that we called Niv chasing.

It's net imbalance volume. So when that system flips from long to short. And Habitat do very well with their non bm registered assets, and we've seen a number of big sites actually turn from BM into nonBM. And so, yeah, really keen to hear how you, like, assess the probabilities and forecast that those those in balanced positions.

I mean, I think that was an excellent summary of the the the main distinctions between the two there. So of our current portfolio. We've got about fifteen assets. Two of them, Red Skye and Cali are both BM registered.

The the restaurant. Oh, I didn't realize it was such a big split big difference. I know. The next tranche of, sites that we onboard, a lot of them are gonna be BM registered in that I think, you know, the owners taking bets on the market becoming more efficient.

And it and it should be, you know, batteries are, like, really well placed to provide, fast response in the balancing mechanism should they be called on, and they can do it more competitively than, other technology types. And with less carbon emitted. And importantly with less carbon emitted, exactly. So that said, why why has isn't more of your portfolio in the BM?

Right now?

I think it's in part due to so as as you said, you've got these non VM registered sites, and the important distinction between BM and nonBM is that these these non VM sites, they don't get to participate in the balancing mechanism. So the balancing mechanism is where you as a a generator can provide the system operator with prices at which they can utilize your flexibility. So for a battery that's both upwards and downwards. Mhmm.

And that's great because what that you can potentially get taken at a price that's not seen in the in the wholesale markets in the traded markets. So it's put and and You've potentially got much bigger spreads. Exactly. You can well, you can get paid to charge more often than you might in those wholesale markets.

Exactly. But the the caveat of that is that in order to participate, you have to, tell the system operator of your intended dispatch profile via your physical notification an hour ahead of real time. And then you can't deviate from that. If you deviate from that, it means that your asset isn't performing as it should and you should show that through your melon mill reading process.

If if all of the balancing mechanism registered units didn't do what they said they were gonna do or what, then we would be in trouble as system. I think so. National grid are very good at balancing the system. In fact, I think the last time we saw a blackout was August twenty eighteen when system frequency went away from where it should have.

And that was a, you know, one of those freak events I think that was an unplanned trip of both. That was lightning hitting -- That -- some kind of trip to a wind farm. Offshore wind farm. I think, points, Hornsey too, and a medium sized CC GT little bar for both tripping within seconds of each other and then taking off a bunch of embedded generation in the process.

So that's the thing that we're trying to avoid in all in all of this. That that left people stranded on the tube.

That was brought up in prime minister's questions. That's what National Grid wants to That's a strange time hearing about frequency response on the radio and reading in the papers. Oh, my little world has suddenly been exposed.

Sorry to go back to your point around, like, what what are those differences? Why why is so much of our portfolio currently non VM?

Whilst these non bm sites, they can't participate in a balance of mechanism, neither do they have to tell a national grid of unintended design? So it's really the flexibility of not having that to tell them an hour ahead of time, do you think that's what's driving most of that decisioning? They are much more flexible. So as a result, they are better able to capture the imbalance spread. So that's the you mentioned Niv net imbalance volume.

The imbalance price is dictated by the the marginal one megawatt hour or the price average reference as it's also called, of -- Anyone who's dealt with the BSC code? Have fun figuring act exactly how the, the system price is calculated.

But, yeah, so they they essentially access the flip side of the BM.

By chasing if a system is long or short, and that turns out to be a more profitable because it's very risky, right, that non VM strategy.

Yeah. It it it can be. So you're dealing with the last available market pretty much. It's the market of last resort.

So if I choose to dispatch my battery and I don't contract it, a prior wholesale market, I get the imbalance price. I pay or receive that price. And that can be beneficial to you, and that's the whole point of NIP chasing. If you can predict the direction and importantly the the price of of like how national grid is going to balance that period of time.

But in doing so, you've potentially foregone a bunch of other markets that have come ahead of you. You you have to price you have to be quite confident with how you're pricing that opportunity. Mhmm. Exactly.

That's So we go back to quality of Then we go back to those forecasts.

Fine. So it sounds like all of the data scientists have hap a habitat have got their work out. Abs absolutely. No. Definitely hold them to account.

Awesome. So how do you think the market has changed since you've been a habitat? So if we go back to kind of twenty nineteen, twenty twenty with the first commercial assets, we're very much kind of DC FFO, whereas now Those markets are saturated. That must be it's quite a journey to have been on as a trader.

But, yeah, that's one way that's one way of putting it. I think if I had one word to explain it, it would the probably saturation. If I had two words, let's say, volatility and saturation, we've gone through an impress an unprecedented time in both the the GB power markets but so like across Europe. So we've gone through a couple of very tight winters.

We've obviously had, we've we've gone COVID and the very low demand periods of time where National Group had to bring on new services like, ODFM, optional downward flexibility management. Yeah. Where they had to find a quickly find a way of turning off renewables, to to to balance, a a GB that was, using a lot less demands than previously ever. Very windy and very sunny.

I'm very just demand. Yeah. Yep. And then we've gone through a period of, like, fairly dramatic uncertainty in the gas markets sparked by the Russia Ukraine crisis and that's led to some, like, historically unprecedented levels of price volatility and we just have to look at last winter going into this first quarter of this year where the forward markets were predicting prices to be at and some of the levels that So the the scarcity premium that people were pricing into those forward markets were, were They were huge.

They were they were based on the fact that we weren't gonna have enough. We we genuinely thought there might be out last week. We were gonna have to compete with France and France had all of their nuclear problems. And National Good was gonna have to run everything in its arsenal at new, prices, six thousand pounds per megawatt hour, which we did see on the twelfth of December last year, didn't set the imbalance price, but we did see units run that.

So it was well founded that risk, but ultimately, we had a much milder winter than forecast, and all of the EU wide response to basically wean ourselves off of a dependence on Russian gas meant that, gas storage inventories going into winter where it's fullest they've ever been. And then because of the mild winter, we've actually not drawn down on them by nearly as much. So because we've not had a whole heap of renewables volatility either, more often than not the the marginal price and that'd be that in the day power options or or imbalanced in real time is being set by CCTs in a now depressed gas market.

So we're obviously even near those volatilities and daily spreads. We've gone from massive, massive spreads, to, spreads reminiscent of sort of twenty twenty again. It's very difficult to forecast.

When you've got such scarcity pricing. And I think that is why we have what we call that Habitat, this human in the loop as well. So we put a great reliance in our forecast and our optimization algorithms, but we also have a really, savvy commercial team which I have the pleasure of managing, that are overseeing that and making those value decisions. And so I don't think we'd have been, nearly as successful as we have been without that you know, you can't predict something that you never seen before.

Yeah. And so, Apex, the European power exchange, had to increase the market cap after twenty twenty one where the the previous intraday, price cap was three thousand pounds. There were units running at four thousand terms in the balancing mechanism. And for the first time ever, and I've never seen this in my my entire trading career, there was people clamoring to buy on the bid side at three thousand pounds and no one willing to sell on the offer side because in balance, they couldn't sell at a market reflected price because offer offer prices in the in the BM and the imbalance price was likely gonna be a thousand pounds higher.

And as a result of that National Grid had to increase the market cap. So it's now six thousand pounds. Feedback. Yeah.

So it's it's That's crazy to think to think back up when you were in very calm times that that that's that's where And it's it's a reversal from where we see ourselves now, but I think it's that kind of systemic volatility structurally things aren't things are unchanged. I think we still have we still have got a very dependent, GB system and European system on weather patterns, on now global LNG flows more than anything. Mhmm. I mean, I think last week we just saw a twenty five percent hike in TTF and MVP gas.

As a result of, threatened strike action in Australia. Yep. So we're now competing with Asia for, all of the UK power traders to get them heads heads round, really. And you wouldn't think it would boil down to, like, the the day to day decision making of of a storage operator or storage optimizer, making sort of one hour, two hour spread trades.

But it really does because you need to know that as new markets come to before, as we start to trade further out on the curve and we and we start to see more liquidity of, like, these hitherto illiquid products as a result of the fact that the g b best market is growing exponentially. Yeah. This is I was gonna come round to this. So we we when we talk about batteries, as as we've been discussing, it's really usually about day ahead, intraday, the BM or NIP chasing, but there's this whole other part of the electricity market, which we don't really talk about, which is the forwards markets.

And I know we've touched on that. Do you see that there will be more kind of traded products over a shorter period of time, so maybe one hour or two hours, half an E for Block? Which would be more suited to batteries going out further, or do you have any kind of, forward trades that are specifically, like, they're quite different from the the market traded products? I think I'm questioning this is gonna be a thing.

I think this is really gonna grow going forwards that the market needs liquidity providers. And so with you know, we've got three gigawatts at best now. I think there's twenty five gigawatts planned by twenty thirty. There's going to be a lot of new flexible assets that are looking for new ways to monetize, and lock in both the intrinsic and exit extrinsic value of of these what essentially physical options, that means that there's gonna be new sources of liquidity in the market there's gonna be more people willing to offer it.

So we've set ourselves up to be able to do this as well, seeing the future and seeing the the the market need for this.

There's not a lot going on at the moment, but I don't think. And if you indeed, if you look at the forward curve for this winter, there's not a lot of of of of value there for for stories. Volatility just isn't there right now. Exactly.

Exactly. You had locked that in sort of December last year when you had intrinsic, like, five hundred pounds spread. You won of this year. Yeah.

You would have been laughing your way to the bank. So I think that is absolutely gonna grow, and it's gonna become a requirement for asset owners of their optimizers to be able to to access these markets in the same way that, you need to be able to access dynamic containment and the and the wholesale gets to that. Do you think that's got a different set of challenges for optimizers to get their heads around? I believe so.

Yeah. It's it doesn't as easily play to sort of algorithmic optimization and instantaneous sort of dispatch as everyone is geared up to to be able to provide today.

Because we're we're also used to operating in this sort of day ahead to intra day horizon. But I still think it plays fundamentally to the quality of your your price forecasts. It's the same type of data. It's just you're looking at it over longer horizons.

What's my demand uncertainty? What's my wind uncertainty? What's my underlying fuel complex? Like, what's the price of gas?

Cause that's gonna impact the near term price of power and and where I can expect the new updated products, to move towards. I was also thinking of things like credit lines and risk and being able to participate in those really long trades where the the markets can swing quite so much. It's a very different risk game to, like, day ahead and being able to manage that risk appropriately and price it in and have a balance book which can support it. I think Ultimately, it comes down to the type of discussions that you're optimizes having with with the asset owner.

You're gonna get as as you have across this industry a range of risk appetite. You know, an asset that is maybe backed more by pension money is gonna have a different risk profile. Yep. For example.

And I think some of these opportunities are gonna be very bespoke is gonna be a conversation around the market opportunity with an asset owner and whether or not they want to access some of that. How much of their autonomy, do they wanna seed as well? Because, you know, forward products are one thing, but we've also, you know, there's there's other ways of monetizing that sort of forward value and gaining some element of revenue certainty, you know, right the way down to sort of tolling agreements where you basically hand the keys over to someone else and you let them take the risk and you take the payoff.

Yeah.

Do you see do you see more though of those tolling agreements or I'm thinking with the flattening of prices and saturation hitting the the frequency response markets are we gonna see more optimizers paying out on a floor? Do you think do you think we're at risk of getting to that this summer? I mean, with course of this year.

I'd I would hope not. Obviously, the market this summer has been low by comparison to the last two, three years. I think that's but it's it's in line with what we were expecting when we were making our revenue forecast back in twenty nineteen. Yeah. And that volatility is still present in the market structurally.

We would expect volatility to increase. You know, we're gonna see we're already seeing the retirement of coal. We're seeing aging nuclear come off of the system as well, and some of the older cc GTs are eventually gonna go as well not competitive, that's gonna be replaced by renewables and short flexibility.

And what that means is there's gonna be more periods of prolonged oversupply, followed by very tight periods of of undersupply, and that's gonna that's that's gonna blow out the spreads that storage needs to be able to capitalize on to make the investment choice work. The fundamentals are all there, to make us believe that we need twenty five gigawatts of storage on the system. I guess it's it's quite challenging at the moment with really high interest rates and debt costing maybe ten percent to be able to get the IRR on your battery business case.

To make that make sense. Mhmm. But the fundamentals are driving it, and we we should all sleep safe at this at night, is that what you're saying? Yeah. That's what I'm saying.

Okay. So coming on to what does success look like for the future of habitat? Are you looking at new markets, new geographies, maybe?

Absolutely. Absolutely. In fact, we've got some exciting news in terms of, we're we're currently in three distinct geographies at the moment. So we're, GB is our home market.

Australia, the NEM, National Lexusty Market. We're about to go live with our first decolocated solar and storage, I set that. And then more recently, in Ercot, we've just gone live with our first sixty megawatts of battery storage there. Congratulations.

Sixty megs. Sixty megs. Small small start, but it's a very big market. And I think there's a lot of interest in, well, across the US more broadly, probably the the two big markets to be looking at in a moment, and Kaaiso, the California market, we've plumped for Ecot to begin with.

Yep. And the traders, and data scientists there have picked one hell of a time to to go live with our first operational assets because I was having a chat with them the other day.

Tech this is undergoing something called a heat dome at the moment. Wow. I think Quentin has actually been probably feeling the effects of that heat dome. I think so.

Yeah. Definitely shorts and t shirts weather. And a lot of AC. So unlike GB, there's a lot of cooling demands there.

And so when You get you get your AC in your car before you turn the car on. So the car is, you know, habitable when you get there. Exactly. Exactly.

So, when that that solar trough, when when the solar goes away at the end of the day, you get some real severe demand ramps there. And so I think our initial batteries are are really thrown into the thick of it and are earning some revenues which are sad to say as a as the GB market lead outperforming our our GB batteries. But I mean, that's the I guess that's the point of having a diverse portfolio across markets because it's not just the different type of markets that you can operate in within a single geography, but it's the different type of structures that those different geographies bring to Yeah.

Obviously, Ercot's got a completely different market set up as opposed compared to GP. We've got no door pricing, much more granular, settlement. There's a day ahead market and then a real time market. There's no kind of intra day picture -- Mhmm.

-- and something like Alex will Alex will know the exact number, but a very high percentage of revenue is made on a very small number of days in Ercot historically. That's exactly. Yeah. I think it's ninety percent of revenue across the top fifty days of the year.

Yeah. Yeah. Yeah. It's more like that. And you can believe it actually seeing the revenue figures coming out of these assets just over the last week.

You can absolutely understand why that's the case. I think being in these three geographies in particular sets sets us up well for any form of market reform, which might some GB's way. Yep. So we're operating in that part.

We're operating nodal. We're operating five minute settlement, five minute dispatch, and we're operating self dispatch in in GB. So Hopefully, we're ready for whatever regulatory and market changes come our way. But in terms of success more broadly as a company, obviously, the underlying revenue, being able to deliver on those revenue expectations.

That's pretty paramount, you know, your we're being entrusted. By an asset owner to manage a multi million pound asset, and we need to deliver on that. But I think there is a lot more to being a good optimizer than just the day to day, value maximization.

So you've got to be very careful looking after these assets, making sure you know discharge them too heavily, respect warranties, make sure temperature is maintained at a reasonable level, and cycling is appropriate. Warranty management looking after the batteries is a really big part of it, but it goes like end to end. So we operate roundfield sites. We also operate.

Greenfield sites, so sites that are coming online may be undergoing site acceptance testing at the moment. And so we're advising And we can advise that every step of the way. So there's like pre commissioning guidance, optimal warranty design in the first place. Yeah.

Yeah. So you know, the early, you know, the the I guess asset owners come to you saying how much is my asset gonna be cycling so that I can get the appropriate warranty and get the appropriate sized system to begin with. Exactly. And but the the battery manufacturers, the cell manufacturers in the first place didn't necessarily really know how when they were building their batteries and providing warranties for a largely FFR -- Mhmm.

-- world. They didn't know how that world was gonna evolve. Yeah. And we see he's sort of surprised.

I'm sure you can't tell us exactly, but in some of the older assets, which do have a very much FFR type warranty. So one cycle a day, four hundred cycles a year, keep within sort of fifty percent state of charge.

Have you seen those batteries cope well or badly in an era, which looks quite different. I say that thinking that DC has basically meant a lot of the fleet does essentially nothing for two years. So now we're in kind of more of a traded trading world. Thankfully, there aren't any one cycle warranties in our portfolio, but we do often talk with asset owners who are looking at getting an optimal warranty and they might have, negotiated something with this, with the cell manufacturer or the original equipment manufacturer that say, they they come to habitat and they say, we've got three cycles a day.

That's great for you guys. Right? And then we'll have a look at the warranty and we'll say, you've got three cycles a day, but actually, you've got, like, mandated periods, or you've got, like, really restrictive temperature limits. And actually, what, in practice, you don't have three cycles a day because another warranted parameter is gonna come in and constrain you And so being able to have those discussions really early on allows for sort of optimal warranty delivery.

Yeah. But your point, yes, some of the more constraint the sites that have got more constraining warranties, you have to take that into account in your optimization decision making. So you're right. Like, DC is a good market for some of those sites because they, you know, in a low spread environment, they can't cycle three times a day.

They're gonna capped out and one cycle a day is not gonna outperform dynamic containment. So in some respects, it makes some of the optimization decision making easier. It's the assets that have got very flexible warranties that are registered for all markets.

They're the ones that are challenging because there are so many different ways in which you can optimize the value for that asset. And so you're looking at the opportunity cost of participating not only across all the wholesale markets, but across the suite of the new suite of DFR markets soon to be the reserve markets as well. You've got the enduring auction platform changes, which thankfully means that we no longer have to pick winners. So I I don't have to think make it easier, but DR is DR is gonna be a good market for me, and then I realized that actually no DR was worse than I thought, and DC was the market to be in, but I had to choose to put my volume in DR.

With the enduring auction changes, we're now gonna be able to place a basket of orders -- Yeah. -- across all of these markets. And that is from an articulation site. First bit of kind of central dispatch than choosing which one -- Yeah.

Well -- that you've got in the central The optimization algorithm and, and insight the the people that are are doing it have got a good track record of of producing, quality algorithms because they also did the euphemia algorithm, which that's the the day ahead market coupling.

You mean the one that we're no longer part of? Yes. Exactly that. So it's a sore spot.

But it, I guess, having all of this, having these changes to the with that come with the enduring auction capability, makes picking winners a thing of the past, but it does make the optimization decision making more complex because you you're now placing baskets of orders, valuing multiple different markets, potentially valuing the stacking opportunity of multiple different markets And whilst I don't think it's a day one thing, but national grid have, intended that these markets can be, these DFR markets can also be stacked in the same direction. So you could be doing, some element of dynamic containment with some element of dynamic regulation as well.

So the optimization complexity is is getting more complex. And the operational complexity of getting all that all those ducks in a row and actually dispatching the batteries in your ten megawatts of DC plus five megawatts of DR -- Exactly. -- with DM in the other direction. We're gonna get some, yeah, the the amount of, the state of energy management, the envelopes that you're gonna have to work within, the ramp rate requirements, performance requirements, performance penalties, And so all of that needs to be taken in at the point where you're bidding.

You need to be able to to think. Do I do I wanna operate solely in one market wholesale or DFR, or is there a benefit to stacking those services? Do I think I can outperform either or by doing some combination of both. Yeah.

Super interesting times ahead. I can't make see what all of this EAC stuff looks like on the leaderboard. It's amazing. And when we look at our kind of asset operations pages, you look a couple of years ago and asset are doing like one or two colors, one or two markets.

And now a single asset can be doing five or six different markets on the same day. And that's just gonna get more fun.

Well, we'll be we'll be ready for, I think, and it was you guys that pointed out that our Red Sky asset did one of the most diverse trading strategies of of last year doing a mix of, the majority of markets. Yeah. So we're looking forward to seeing what we can deliver in a in a world where there's even more opportunity. Well, we will be we will be watching.

We will we'll nearly wrap up. I give you your opportunity, Chris, to do a plug and then I would really like to know your contrarian view. Oh, okay. Can I have two plugs stropping?

Would that be okay? I feel like I really should plug the the habitat optimization platform. I think Ralph, head of business development would probably slap me around the head if, I didn't. So for any asset owners out there with current operational assets or or anyone that is, looking to invest stories in in the process of developing, battery storage or indeed renewables.

If you're not already speaking with us, come and have a chat, and we'd be really grateful to talk you through the markets as we see them and and the habitat offering. My my second plug is actually one for you guys and and, for your colleague, Neil, in, producing the, energy academy.

It's such a wonderful, informational resource. Like, every new new joiner that we have at Habitat, I get them to look at the energy academy because you've got this just. Neil has a really great way of of decomplexifying some quite difficult issues and and turning them into bite sized pieces. And I think it's it's something that should be applauded and probably doesn't get enough Chris. Thank you very much. We'll give you some, energy academy stashed for the back of that. Awesome.

And your contrarian view?

I knew you were gonna ask this one. It's a very good way to end the podcast question. I think with, asking the contrarian view, Okay. So we've talked a lot about battery skip rates. It's a very hot topic at the moment. BM utilization.

Yeah. There was a there was a letter from the storage network a couple of weeks ago, National Grid posted a response. There's been all manner of noise week about a lot of BM analysis as well in the last couple of weeks. It's a big thing at the moment.

It is a big thing. And rightly so, because batteries should be utilized in the BM as we've already discussed they can do this more competitively than other tech types and at a lower carbon cost. And anything which doesn't enable that, efficient utilization is detrimental to the investment case for storage. So it's rightly getting the attention it deserves.

I think my contrarian view is that most fingers at the moment seem to be pointing to national grid. And not a lot is being said about, the wider infrastructure, in particular, Alexa's infrastructure.

Interesting. So, yeah, National Good, I think, get the the sort of the blame quite a lot of the time for their systems, and there are system problems in the control room, which is why you see a lot of batteries and other assets being skipped, but the wider environment. So yesterday, don't fall last week. There was a notice in the operational forum that, there was a huge delay in male data coming out. Mhmm. And obviously, that is quite fundamental for traders, knowing what's going on in real time in the markets having up to date information about, maximum export limits, how much power you can, you can dispatch.

And that that's at the fault of Alexa, not national grid. Yes. Yeah. That's the case.

So I think there's a bandwidth issue in terms of Alexon's ability to process all this market data. So, you know, credit where credit's due, national grid have listened to industry, and they are reforming their systems. So I've been to a number of the flexibility forums, I've spoken to Kyholam, who's the chief architect for what will be the bulk dispatch optimizer. It's the one that will give smaller assets at much fairer chance.

Exactly. So All of the changes they're making to, like, EDT, DL to have state of charge. So there's the Bdo is There are six going is gonna I think it's everything that the storage industry has been asking for. It is an algorithmic solution.

It's gonna be managed by the balancing engineers in the control room. So again, human in the loop. So it needs to be utilized by those engineers. But, theoretically, in this, we've seen this in the demo.

It should be capable of running six to eight times an hour, and dispatching up to three hundred instructions per run. So, really, if you're a storage asset and you're available, you're priced in merit and you're not in a constrained area, you should get taken. You should get taken, which will be, like, seismic in terms of what we see from BM revenues across the fleet at the moment. Exactly.

Whether it's not gonna be out until twenty twenty seven in his in full glory. Not in full glory. I mean, at the moment, I think the addition of the BM, of the battery zones is considered a stretch case for them. So we're all hoping it's gonna be end of this year for the inclusion of batteries.

But the the problem with this is you know, if national national grid are, honoring their word, they're they're making, they're building the infrastructure. And, you know, they've got the unenviable task of having to do this whilst balancing the system thirty four percent. Lights on. Yep.

So they they can't afford to take, six month outage whilst they get rid of all their legacy system. Even have any downside for, like, a single second. Exactly. So they have to do all of this in parallel, this, co development but they're giving the industry what we're asking for.

The problem is if we see more efficient, BM dispatch of storage, we're gonna see more on mail and mail redecorations. There'll be a lot more data. A lot more data. And so just in the last couple of days, we've seen a number of market circulars saying that Alexa is struggling with this.

We've had, you know, Habitat has had an email from National Grid on behalf of Alexa requesting us kindly to reduce the frequency of our Melamir redecorations.

So I think the whole industry is pointing at national grid and improvement of their systems. And whilst there are conversations around EDL and EDT infrastructure. Not a lot of people are talking about Alexa's infrastructure, and the whole market relies on it. From trader and generator to modo here. Yep. We all need that data to make accurate decisions.

So as a trader, what I fear is that national grid are gonna come good, and this is gonna get deployed at year end or perhaps beginning of next year. But then the brakes are gonna be put on it because Alexa's architecture is not going to be ready for the volume of data.

And I hope that I'm wrong. I'm used to being wrong. I make, risk based decisions for a living, so I don't mind being wrong. And I hope once this podcast is aired, if someone from Alexa comes to me.

I'm sure they'll tell us this by. You're you're you're you're wrong. They're absolutely ready for this. Have faith.

I would like nothing more than that. But I fear we're gonna see some delays in our, hope for a more efficient VM dispatch of storage, but it's not gonna be down to national grid. Interesting.

Thank you very much for that, Chris. Leave us all something to ponder there. And anyone from Alexa, if you'd like to re reach out, we'd be very happy to hear from you. Tell us that Chris is indeed wrong.

Yeah. Thanks very much for coming on the poor car. Super interesting conversation, and, we'll catch you soon. Oh, and if you want to If you like what you're hearing, please like, comment, and subscribe.

Easy's nodding at me. Alright. Thanks very much. Bye. Thank you, guys. Take care.