Ep100 Building Harmony Energy with Peter Kavanagh (CEO & Founder @ Harmony Energy)

The story for energy storage is still very, very strong. You know, we are long term investors and want our investors to be long term. We're looking at the long term picture, which is very much a growth market.

Let's talk about the biggest battery in Europe and what's different about doing things at scale.

To go from seven and a half meg to nearly a hundred meg is a big jump.

And the revenue environment in Great Britain for batteries has been very tricky. And I'm interested to get your thoughts.

So whilst it's been very painful to see the share price decline, you just have to play the cards you dealt and, you know, play to our strengths and continue to accelerate the development piece, which we've done very well on, and try and, you know, manage the assets as best we can to position them for growth.

Hello, and welcome back to a very special episode of Transmission.

This is our one hundredth episode, and we are coming full circle with an interview with Peter Kavanagh, CEO and founder of Harmony Energy.

Longtime listeners may remember that episode one featured Paul Mason, chief investment officer at Harmony, where Paul talked through taking the company to IPO. In this episode, Peter discusses the rest of the Harmony story, from founding to future.

To celebrate this milestone, we are also running a giveaway where you can bag yourself a limited edition, one hundredth episode transmission t shirt. For your chance to enter, go to the show notes and enter via the link.

And with that, let's jump in.

Peter, welcome to the podcast.

Thank you very much, Quentin. Great to be here.

This is a very special one because we are recording this. This is this is episode one hundred, and we've gone full circle. I can't believe in the last two and a half years we've done so many of these. And our first ever episode was with Paul your your colleague, Paul Paul Mason from Harmony NG, who talked to us about the journey to take Harmony NG public.

And now a hundred episodes on, a lot has changed. It feels like everything's changed, the the market, the technology, and you come your company's growing so fast. We've got a lot to talk a lot to talk about. But a hundred episodes in, it's a real privilege to have you on, Peter.

Thanks for joining us.

Oh, it's a pleasure, and many congrats on the, hundredth episode. It's an honor to be on the slot.

Yeah. We didn't pre warn you about this. So, yeah, insert some fanfare here.

So I'm sure most of us know who you are, but, let's get stuck into Harmony Energy and your your background, Peter. How did you come up with the idea to start Harmony Energy?

So the original Harmony Energy, I founded in two thousand ten, and it was really off the back of I've been in finance, and we've been involved in funding large scale wind farms. And so really the initial focus was funding UK onshore wind, and we built, owned, and operated fifteen sites in the UK.

And then the storage side really came about in two thousand sixteen, and we cofounded a separate business branded Harmony Energy with my colleague, our operations director, Alex Thornton.

And me and Alex had worked together on turbines over the course of the previous five years. He had done the sort of the balance of plant for our wind farms. So there's a good relationship there, and we'd always talked about the next big thing. And at the time, that was storage. And, you know, in hindsight, we were a little early into the space. That obviously led on to, ultimately, to to where we are today.

And, yeah, the rest the rest is history.

And didn't didn't you guys do an EFR bid back in the day? Is that how you got started with storage?

We didn't. No. We had sort of six hundred megawatts of sites early on that were shovel ready quite quickly, but we weren't quick enough for for EFR. And we kind of saw it at the time as, you know, it turned out to be a very low clearing price and we were more focused on straight FFR. And, you know, we were doing our fundraising rounds in London through BDO on the the typical financial model at that time was pricing in FFR. If I remember rightly, it's sort of eighteen pounds for the first two years and dropping very aggressively down to twelve.

EFR was so the prices of EFR were between I think it was seven quid EDF came in at, and the highest one the highest awarded contract was, like, twelve for EFR, which was, like, half a second response. And then FFR was still getting eighteen to twenty quid.

Yeah. It was, kind of crazy early days. Yeah. I mean, it and it was it was it was painful in the early days as well as you probably remember.

I think, you know, time when you were at, Kiwi Power, those are the sort of numbers been been used at the time because no one I mean, obviously, it was new technology, new markets. No one really knew how things were gonna pan out. You had to be sort of relatively conservative in in what you were forecasting. And I think at the time, you know, I'd come from a wind space where we were getting twenty year subsidies inflation linked, which were very attractive contracts and revenue streams, to then moving into a space where you're getting, you know, effectively merchant risk on an asset.

It's a very in-depth different investor mindset that we had to do a lot of, you know, education to investors.

And, you know, there's so many conversations where we'd have sort of three or four round of meetings, and then they would go, but we're not sure about merchant risk, even though you've been very clear about, you know, this is merchant risk from the outset.

So, yeah, there was a lot of expanded energy on educating investors at a very early stage back in two thousand sixteen.

And Harmony Energy has been, it's it's got a lot of attention for a range of reasons. So you're one of the big listed vehicles in the UK that owns assets.

You famously, built a lot of Tesla assets, which have got the whole Tesla name has got a bit of magic dust around it, which got people excited. So Harmony Energy appear got I saw lots of Twitter threads from Tesla, you know, fan folks that were talking about Harmony Energy, which was awesome. And then, of course, while the rest of the market was was building or procuring one one and a half hour systems, you guys went hard at two hour systems early doors. And there's a few other, things to do with you guys as well. Lots of first, biggest battery in x, Lots of really innovative stuff.

So before we do the overview of Harmony Energy, could you just explain the the fund structure for people who don't know? There's an income trust, and then there's a company and manager. And before we talk about the megawatts, can you just explain how the company fits together?

Yeah. Of course. It's it's quite a complex structure. So there's Harmony Energy Limited, which is private co. Then we have the listed vehicle, Harmony Energy Income Trust listed on the London Stock Exchange.

And sat in between, we have Harmony NG Advisors Limited Advisors Limited, which is myself and three colleagues that's, and that company is wholly owned by Harmony Engine Limited.

And we then advise the five nonexecutive directors of the listed vehicle on how to run the listed vehicle in terms of sites they acquire from Harmony Energy Limited, with which it has exclusive rights on the first gigawatt of sites coming through development.

Yeah. Harmony Energy Limited is focused on, and we will come onto it later, no doubt, but other markets outside the UK, whereas the listed vehicle at the present time is purely focused on the UK battery market.

So Harmony Energy Limited feeds the income trust with sites and assets to build. Is that right?

That's right. Yeah. So we've at the moment, we've fed it over sort of half a gigawatt. So in in megawatt hour terms, that's over sorry, a a gigawatt hour in terms of assets that that are in there. That's, you know, roughly two hundred and seventy seven that are operational and hundred and seventeen that are in construction.

And then we sold one ninety nine megawatts that went into the fund, then was sold, separately to Pulse Clean Energy because we couldn't raise sufficient funds to build it.

And so let's talk about the fund for a second. So Harmony Energy Income Trust.

How how long has the fund been going? Well, actually, we already know this. It was just before, Modu Energy podcast number one, you guys, floated on the stock exchange in London. What was that like?

It was amazing experience. Obviously, new to us all, and all happened relatively quickly in the end. You know, I think what we had was a great pipeline, a great team. And, yeah, essentially, we floated November twenty twenty one.

So the timing was good because, obviously, investment environment and interest rates in particular at the time were low. So it was a very different environment to to what it is today. But But it was a relatively smooth process. You know, we did you do what you call the early look investor rounds, which we did in June, July of twenty twenty one.

Those went really well. The investors we spoke to, all institutional investors, were very enthusiastic about what we were doing and why we were different. You know, this new clean Tesla technology we were using to our duration with long term warranties. And, you know, we had a very low management charging structure as well, very clean charging structure, and investors like that story.

So it was well received and, you know, we were raised just shy of two hundred million sterling to get it kickstarted. So, you know, we're really pleased with that. Been the first sort of major funding round we've done. And the idea was always to go back to market to raise more, to continue to build out the the wonderful pipeline that we have.

And we're gonna talk about the the current state of the market because a lot's changed since then. And all of the income well, all of the public listed funds are trading at discount to NAV at the moment. And the revenue environment in Great Britain for batteries has been very tricky. We talked a little bit with Alex from Gore Street a few weeks ago about this, and I'm interested to get your thoughts later on in the podcast. But before we get there, the the current state of Harmony Harmony Energy Income Trust, what what does the portfolio look like right now? You touched on it a minute ago, but how many megawatts have you got in the ground? How many megawatts are you building?

And what does Harmony Energy look like beyond the UK?

So in the income trust alone, I'll just deal with that first. We have two hundred and seventy seven megawatts, and all these are two hour systems. So I'll just give you the megawatt nameplate.

That's operational today.

We have another hundred and seventeen megawatts, which is in the very late stages of construction. So all batteries are on-site, virtually done, and we announced that those three sites will be coming online shortly.

So that's inside the income trust.

Outside of the income trust, we have a further just shy of two hundred and fifty megawatts, half a gigawatt hour, which is split across essentially five sites. And those are joint ventures that we agreed before we IPO'd with FRV and Tagg Energy. Outside of that, we have a construction financing facility we're looking to complete with inside the next month that will enable us to build our first French asset and three assets in the UK and one in Poland. So that that part is about five hundred and ten megawatts that will go into construction, I'd hope, within the next six to twelve months. And the reason there's a lag on that is that they all have different energization dates, so you need to stagger it in accordance to those energization dates.

Outside of that, we have and it sounds like a scarily big number, but about thirteen gigawatts in our global pipeline, of which about twelve gigawatts is purely battery energy storage split across the UK, France, Poland, Germany.

We've recently gone into Italy, but we don't have any sites in Italy yet.

And then we have about a gigawatt of sites in New Zealand, but New Zealand is all solar. So we're building our first solar farm in New Zealand in q three, and that's very exciting. It's gonna be New Zealand's biggest solar farm, but New Zealand is, at the moment, predominantly a solar market. So we've been purely focused on solar there for the last three years.

So if you've got a capital structure for raising money and deploying money into assets, you then have to go and find those assets or go and find developed sites. And one of the unusual things or unique things, if you like, about Harmony Energy is you decided to go really far down that road. So putting on your Wellington boots and, going into farmer's fields and trying to find sites even before good connections or planning. And, so developing sites is in Harmony Energy's DNA. And can you just talk a little bit about that?

That that's right. And we we've always done that from the very outset. You know, when I started out, Harmony, it was just me, and I was going around the countryside knocking on farmers' doors and saying, hey. Do you fancy having a a wind turbine here? And, you know, you build up a reputation for delivering.

And I think that's why we've been able to expand rapidly into Europe because people have seen what we've done so quickly in the UK, and they want to be with someone that will take it through from the origination and build it out and operate. And that's a really key thing that we're keen on rolling out across the piece. And I'm not saying we'll go to every nation within Europe. We're very selective about where we go and we go with trusted parties who are experienced developers.

But, yeah, we've got an excellent team throughout the development team, but also on the delivery side as well. There's obviously a lot of work goes into delivering these projects and trying to get the projects through on time and in budget is not an easy task, particularly given the last, you know, four years we've had when we've been building and operating.

But, yeah, I mean, you know, when you control the development process from the the origination, you know what you're getting with the site, warts and all. And, you know, we've like I said, we've got a really slick process. And I think that's sort of you know, you can see that through the the volume we've accumulated. When I'm talking about thirteen gigawatts, those are sites where they've got, you know, extremely high probability of coming through to construction, not within the next year, but, you know, over the course of the next four, five years, there's a very strong probability of those coming through because what we've been very good at historically is identifying sites with grid.

And if you're going into, say, France or Germany now or Poland, you're going to see that the grid is very heavily constrained. So most people recognize that within the UK, but they probably don't expect to see the same level of constraints, for example, in France, where, you know, batteries are nowhere near the scale they are in the UK. It's a relatively new market.

But these markets have all got relatively hot from what people have seen in the UK.

People are going into Europe trying to secure good connections.

And whether some of those sites from others will actually get developed or not is a question that remains to be seen. Because you do, you know, as you do in the UK, you see highly speculative projects that are miles away from the grid connection point. And it's slightly frustrating because you think, well, we know that won't get developed because it can't be cost competitive, but it's kind of blocking up the grid queue.

Let's talk about the biggest battery in Europe.

You guys are building or have built the biggest battery in Europe. Can you just talk about that for a second? And what's different about doing things at scale to smaller sites? And there will be a lot of benefits too. Can you talk about the benefits for your cost structure and, delivery timelines and all that?

Yeah. No. Sure. So we've got the the biggest battery in Europe is actually joint between Bumpers Farm, which is held in a listed vehicle, Harmony Engine Control, and also Claytai Farm, which is held privately in a joint venture we have with with FRV.

So they're both the same size. They're ninety nine meg, hundred and ninety eight megawatt hours, both using Tesla Megapack system. And, yeah, you know, I think dealing with each one in turn, they were roughly originated around the same time, say, two thousand sixteen, two thousand seventeen, where we found the land and started the Hilli planning work. So that, you know, the planning phase is obviously different challenges in it.

I think the main one we had on on bumpers, by example, was the access route and and getting the local community on-site to to enable the access route, which took a longer than expected.

In terms of the the procurement, where you're going, you know, much larger sites than where we started off. So our first site, Holes Bay, which is the first two hour system in Europe in a joint venture with FRV.

Just quick shout to Holes Bay. That was that was pretty special when it came online.

It was. It was it was a very proud moment for us. You know, first to our system in Europe, first to use Tesla Autobidder system.

And yeah. So to to go from seven and a half meg to nearly a hundred meg is a big jump. But your technical challenges are, you know, similar in terms of what you need to deliver. I think, you know, our project team, by the time we delivered bumpers, had a wealth of experience of dealing with grid issues, dealing with Tesla, who've been great throughout the process.

So it was a relatively smooth process, but ensuring you had project managers allocated to projects and you were regularly liaising with liaising with Grid and Tesla in terms of the contracting is is absolutely crucial.

You know, we saw the value of that across all our sites. I think where you can lose time is where you have delays with the grid, which sometimes can't be helped. But managing those and building those personal relationships is absolutely key to successful execution on the project.

And, yeah, I mean, in terms of the economics, obviously, scale massively helps as well when you're procuring, you know, large amounts of kits. It's much better than trying to procure, you know, a seven or a ten megawatt kit, which is where we started out. And you're able to drive the economics that way, which I think is is really important, not only for your initial CapEx, but also for your your operational you know, your OpEx costs going forward as well.

I'm gonna touch on the GB market now for a second. It's been a really rough six months to a year, if you like, for income trusts. All the public listed fund funds are down.

Battery revenues are down by sixty, seventy percent.

And this creates real problems for those funds of which you run one of them. Can you talk about what's happened in the GB market? And did you expect it to happen to play out this way? And how has it changed how you guys do business?

So no. I mean, we didn't we didn't expect it to play out this way. I think, you know, we had a very strong year, in two thousand twenty two on our private assets, and that set a very high sort of almost unrealistic expectation of where revenues might be.

And then obviously, you know, twenty twenty three played out to be a pretty weak year. And this year to date, okay, it's been, you know, higher revenues this month and in April. But overall, it's not played out to be as high as we or anyone else had hoped. I think what what I come back to is that the overall picture that we stressed at IPO is very much still intact. Okay? The long term revenue picture is still very much intact from where it was in November twenty twenty one.

And we, as a listed fund, along with other listed funds, have to use market forecast to be independent.

So if those market forecasts vary, which, for example, they have done recently and they've come down, we have to insert those into our model. And then we have to say to the stock market, we've updated our forecast and the net asset value, so the future cash flows, are lower than we were expecting. And then we update the market and say that is now what our revised net asset value is. So I e what the value of the assets would be on the open market.

I do feel it's it's frustrating because the the market the revenues have been volatile and, you know, it's been well documented as to the reasons for that, lower gas price volatility, but also the balancing mechanism not being used as efficiently as we'd hoped.

And, you know, we have always built our business case off the back of ancillary revenues almost going to zero very early on, which has, you know, has happened that markets become very saturated.

Whilst they haven't gone to zero, they've become very low and unprofitable.

I mean, some of them some of them have gone subzero.

Well, yes. Some of them don't. Yeah. You're about right.

There's a bit of double negative in there. Yeah.

Yeah. Yeah. There is. And, you know, but we sort of built our business case very much on going to the BM and wholesale markets.

Now I firmly believe in the next twelve months, we're gonna see that BM case proven out when the market is used more and more efficiently. And we are seeing a big jump from, you know, the start of the year to to where we are now, and we're seeing some super attractive days on our assets, which is is great. It's just all happened a little bit too late.

And, you know, we nobody is in control of that process. It is, you know, driven by the control room.

And, you know, if you speak to the managers in the control room, they're really, really keen to use more of our batteries, very complimentary in what we're doing. It's just, you know, it takes time for them to be utilized in the most efficient manner.

And that will be driven by, you know, consumer interest. You know, The control room has to act, a, for energy security, but b, for consumer interest. And on that second point, that is where the work needs to happen. Assets need to be called a merit order. And, obviously, you know, we are the lowest form of carbon available as well. So I do believe this revenue environment will improve throughout this year going into next year, but it's it takes time.

Could I ask you about what it's like to run a fund that takes such a big drawdown? That was price reduces so fast. There must have had a huge impact on you as a as a leader of that fund.

And, yeah, I just wanna know what's that been like? I I can't I can't imagine. I mean, there's there are things that within your control and things outside your control, and many of these things that affected you, were outside of your control and anyone's control. But what's it like to run the business when so much of the business is is tied to that share price.

So for example, for Modo Energy, we're a private company. There is no share price. Well, there is a share price, but we there's no mark to market every day if you like. And there are funding events every now and again, and everyone says, oh, the number's gone up.

That's great. But we're it's not so much in our psyche about valuation. We don't really care that much about valuation when we're we're focused on, we don't do we just don't have the data on it. So what's it like running a business which is so linked to valuation, performance is linked to valuation in an environment like this?

So the the thing that's linked between the listed business and the private business is the management fee. And we set out to be give investors the best deal, basically.

We linked our management fee to the share price, not the net asset value. So that has been painful, but it's given investors the best transparency and the best sort of, you know, alignment.

In addition to that, you know, we are the second biggest Harmony Energy Limited is the second biggest shareholder of the investment trust, and management personally, including me, have significant personal stakes. So we're fully aligned, and there's no getting around the pain the sort of double whammy in pain because you have that personal share in there. But I honestly believe from outset that's the right thing to do. I wouldn't invest personally in stuff people aren't also invested in.

If they come to me with, you know, business idea and say, hey. Come and invest, but I haven't put a penny in. I'll be you know, that's my first sort of turn off. So, yeah, it has been painful.

There's no getting away from it. But the private business in terms of how we've grown our development pipeline has given us lots of optionality costs. Right? We can do what we like with the overseas entities.

We've got lots of stuff happening that's been hugely value accretive to our business outside of the listed trust. So it hasn't probably hasn't impacted as much as people may think. It's really just the management fee, but the value in in in Harmony as a business is much more on the development side. You know, given the progress we've made made across the development piece, it's hugely exciting.

So whilst it's been very painful to see the share price decline because the intention was always to try and raise more and more money, You just have to play the cards you're dealt and, you know, play to our strengths and continue to accelerate the development piece, which we've done very well on, and try and, you know, manage the assets as best we can to position them for growth. And, you know, the assets in line with market have continued to perform well. It's just the market has been there's no getting around with it. It has been weak, but the asset performance has been and peer group, has been encouraging.

And what are your options if so all the funds are trading at discount, which means all the funds can't raise more money, from the public markets until the that flips.

So what are your options as a as somebody running the fund to raise more capital to build more assets? I mean, how how does that work?

So, basically, if you have a fund, and this applies to all sort of green infrastructure funds at the moment, they're all trading at a, what we call, a discount, and that that means the share price is lower than the net asset value. So, for example, with Harmony, our share price as I speak today is about fifty one p and our net asset value is ninety six p. So roughly roughly half.

And what that means is, in theory, you could sell shares on the in the private market at ninety six p, but in the public market, you're only getting fifty one p. So we have to question what is in the best interest for shareholders.

You know, when we know there are transactions happening in the private space at around our NAV or above our NAV, is it in the best of interest that shareholders could continue to hold in this structure?

And that's why we've announced last week we were looking to consider an asset sale or several asset sales to to really test the market because we do believe there is a scarcity value for to our quality assets with long term warranties.

And and sometimes you have to acknowledge sometimes the public market isn't the best place to hold certain assets. And, you know, we know we are continuously approached by private investors looking at what we can do elsewhere.

So, you know, France, Germany, Poland, for example, are all hot markets that sit outside the listed vehicle. There's an awful lot of appetite because fundamentally, the story for energy storage is still very, very strong. You know, we're not looking at this on the very short term. We're looking, you know, we are long term investors and want our investors to be long term. We're looking at the long term picture, which is very much a growth market. Yes. There has been a blip this year for the the reasons I've mentioned, But we really believe in, you know, a year's time, for example, the balancing mechanism will be operating much more efficiently.

We may well have lower global interest rates. In fact, you've seen European Central Bank cut rates marginally at the end of last week. So you're already starting to see that track, and that will push up infrastructure investment pricing if interest rates continue to fall.

It's fascinating what you said about the that you guys are considering an asset sale. And it will be really interesting to see what happens when the public markets say one of those assets sells for much higher than the inferred valuation from public markets with doing a bit of kind of nap napkin maths.

You it'll be interesting to see what happens then because there's clearly a difference between what private markets value things as and public markets value things as.

Yeah. It'll be fascinating. And, you know, we thought this before when we sold a shovel ready site called Ry Common, which was actually sort of above our nav, but the market didn't react. So the market is a is a funny thing.

Sometimes it reacts the way you think it will do, and other times it just doesn't react at all, and it's illogical. But, yeah, I mean, for sure, you would expect that if we sell an asset for above an AV, you you would expect that the the shares react accordingly. But I would just caveat that sometimes the market isn't isn't fully rational. Well, that's, you know, that's essentially why we're doing what we're doing because we believe it is in shareholders' best interest given the position we're in.

Because, you know, unfortunately, raising money on the public markets when you're trading at such a heavy discount is just simply not not realistic.

And what you mentioned earlier about having skin in the game, I mean, it's well known that you and Alex and Ben, so the the fund managers and CEOs of the the three primary energy storage funds have got lots of skin in the game, personal skin in the game in your funds, and that makes a huge, huge difference.

Who else owns Harmony Energy? Who are your other, shareholders?

So it's predominantly large institutions.

So, you know, I mean, you can have a look at this sort of the share register online without going through it, but it's there's a there is crossover between all green funds because a lot of them want to have exposures to the sector in terms of, you know, the the the wider ESG benefits, but also the correlation returns to other renewable energy classes. So it's a very broad spread, but it's predominantly re it's predominantly institutional, not retail.

And you therefore get a, I guess, a more educated audience when it's predominantly institution.

And, you know, you can be a retail investor in in harmony, but you need to be as classified as a sophisticated retail investor.

Let's talk about international now. We've we've done, Great Britain and the current environment.

You're obviously very bullish about lots of international markets. Could you just talk through the the thinking and the thesis around international markets and how you and the Harmony Energy team are approaching that problem.

Yeah. Sure. I mean, it's essential essentially that, you know, we see renewables becoming most cost efficient form of generation, and I'm talking about particularly solar and onshore wind in multiple jurisdictions around the globe.

And the higher penetration you get, the more requirement you'll need for storage. And it extends just a case of looking at the individual markets and looking at the depth of those markets and the regulations within those markets.

And, you know, we are at the moment, we're in France, Poland, Germany, Italy, and New Zealand.

And those are all democratic nations. And you've got, you know, a very large market to get out. Right? We don't need to be a massive number to make an impact on the market.

It's not gonna get saturated very, very quickly. And so we look at it, and this is just our personal view, we need at least a runway to three hundred megawatts within the next three years in each market to justify a position in that market. And we only go in where we know people on the ground. So, you know, in each nation, we've known at least one of the individuals on the initial management teams for a long period of time.

And they've all got a great track record, very senior people with not, you know, not taking any shortcuts. And it goes back to that thing that really we wanted to be originating sites from green or brownfield, if you like, right the way through to operation. And having that strong management team in country to do that is, you know, we've been very lucky with the individuals we've got.

We didn't want to be going in acquiring sites and then putting people into territory. We wanted it the other way around so we can develop it steady.

Because if you take France, for example, when we went in two years ago, people thought we were a bit crazy because there wasn't really a market there. And there wasn't, you know, but we could see it evolving. We could say, okay. With a good wind in two or three years' time, that will be a super interesting market. And it's transpired to be that way.

So you do take a little bit of risk, but that's the time to take risk is in the early development stage rather than later on.

So now I wanna ask you about a couple of your biggest suppliers. You famously went, hard into a partnership with Tesla early doors and built some two hour systems with Tesla, which have, over the last couple of years, have had remarkably high availability, must be said, some of those Tesla assets.

And but but now you're looking beyond Tesla. Can you just talk about that decision and how you think about choosing a supplier for battery assets, especially when you already have experience working with Tesla and the availability has been so high?

Yeah. I mean, to start with, I mean, Tesla had been a great partner, and that sort of partnership goes back to the early days when I first met them in two thousand sixteen.

A lot of people were writing them off back then, but, you know, it had a buzz within the company like no other. And the the pushback we were getting from trying to raise funds in London at that time from private investors was, well, we like Tesla technology, but aren't they close to going bust? And, obviously, they've evolved a lot since then. And, you know, I personally went out to Palo Alto and saw, you know, what was the PowerPack at the time, like a bit like a fridge outside the back of the office.

And to see the the leaps in in progression at such speed they've made since then is is incredible.

So, you know, we we always want to have a good partnership with Tesla.

The reason we diversified, was there comes a point in any business where it makes sense to diversify your supply chain. So we tended out to, I think it was, eight different battery suppliers on two projects within the listed vehicle. And we ended up going with Envision batteries, who've also been fantastic. And hopefully, those two battery assets come online soon.

The batteries are already on the ground. They look great. But we will always keep the door open for more supplies to come in. And, you know, I think it's it's healthy to have a batch of suppliers rather than than just one, but it's simply for that reason.

As as you've already mentioned, the the availability of the Tesla fleet has been great. The performance has been great. You know, and we've got a really strong relationship with our team as well that we we very much enjoy working with. So, you know, we we would like to do more with them across the piece and with others.

Like I say, we'd like to keep the door open because it also helps create that commercial competitive tension, which you need to con you know, to make sure all supplies have been cost competitive and we're getting the best deal on the supply chain.

And, you know, also from key other things we look at is is long long term warranties and also ESG metrics in the supply chain is also very important to us when we are procuring as well.

Well, we can't wait to see the data on the Envision batteries, in the ground when those those ones would go live. And congrats on that deal. We saw the press release. It was pretty big.

The second supplier that I wanna talk about is optimizers, and it's a similar story.

Originally, Harmony Energy was, two feet in with the Tesla auto bidder system. Again, had some excellent performance to say the least. But now you guys are looking further afield.

How do you go about making a decision like that, and how do you choose?

Well, you know, what are you looking for from an optimizer?

So, I mean, we're we're spoiled for choice. We've been honest in the UK. There's some fantastic optimizers out there. And, you know, for for reference on those two sites where we we tended, you know, eight suppliers on the battery, I think it was thirteen involved in the optimizer tender, and it's for exactly the same reasons. We wanted to diversify.

And, you know, Tesla Auto Bidder has been fantastic, but it's simply for that reason. We wanted to diversify. Competition was strong.

Pricing was very strong, and we wanted to drive some competitive tension in the two hour battery space.

So, you know, that was really the driver behind it. You know, like you say, you can't really fault Auto Bed on performance today. It's been fantastic, and the team have been great and pleasure to work with. So it's really trying to, you know, squeeze out more competitive tension between the providers. And like I said, you know, we're spoilt for toys, and I hope that competition continues.

How do you go about choosing an optimizer? You're absolutely right. We are the UK is sport for choice. There's some fantastic optimizers out there in the market, many of them.

And, yeah, how with the you guys are serious. You've got serious megawatts to deploy. You've got you've got a you got pipeline to let's say you're serious about the future as well. How do you go about choosing an optimizer?

What what are you looking for?

We're looking for someone that's, a, gonna be very stable and gonna be around for a long time. Although we don't sign hugely long term contracts because if they underperform, we want to be able to move. We're looking for someone you can build a a working relationship with because, you know, our team has regular comms with Tesla Automotive, better team by example, in terms of helping try and shape the overall trading strategy. As you know, Paul was the first guy on the the Modo podcast. You know you know Paul well. His background was sort of right in the algorithm that was ultimately sold to to Orsted.

So he's much better better positioned to talk about this than I am. But, you know, he's able to help shape that strategy and and build on on that relationship.

And it's difficult when you're looking normally, in five years' time, I think there'll be much more about, okay, let's look at all the optimizers and see who's performed best on different durations of batteries.

At the moment, it's quite difficult to do that because, you know, when we IPO'd, for example, it was all on ancillary services.

It's very hard to choose because there were, you know, much shorter duration batteries as well. There's no, apart from Holes Bay, there weren't any other two hour batteries in the market at that stage.

So as the market evolves, you know, we want to keep flexible and choose the most appropriate optimizer at that point in time and not not close the door on on anyone. There's been obviously some interesting movements in in the market recently, different products coming to market, which again is is super interesting for the sector and really gives a a vote of confidence for where people see the the the sort of bottom of the market as well.

Do you have any comments on that? Yeah. I mean, for listeners, sure, I imagine everyone's already read about this somewhere. If you haven't, go and watch, Ed from Modo's video about it.

But Gresham House and Octopus just signed a huge deal, which is half a gigawatt roughly of batteries in a in a totally agreement with Octopus where, essentially, they give them the keys, and they get a guaranteed payment. This is a huge development for the industry because it shows well, it demonstrates maturing sector. You've got two very large bankable passes on each side of a transaction using storage assets like traditional financial instruments instruments, options, and swaps, that kind of thing. And it really is a step change in the market, the market for asset owners and also market for optimizers.

Do you have any comments on that deal? Yeah.

I mean, look, personally, I think it's great to see because it kinda puts a bottom in the market, you know, certainly over the next two years as to where people really think it's gonna go. You know, Octopus wouldn't sign that deal if if they didn't believe it was of good value. And and Gresham, you know, likewise, you know, congratulations to to both parties. I think, you know, it's been very well received by the market.

Great to see that sort of, you know, that innovation coming through. For us, we wouldn't wanna sort of tie ourselves in. We think there's more upside to come through, but, you know, definitely different financial structures, it definitely works well and opens up the market. You know, that type of structure will attract more debt into the market, particularly if you're able to lengthen the term on it.

And that will mean more batteries being built, which will better for the consumer, better for the UK energy system. So it's definitely a welcome development, and, huge congratulations to both parties.

Absolutely.

Massive kudos to them. Would have been a lot of work in late nights to get that thing over the line. The last couple of questions, we're gonna ask you about your hopes for the future and also if there's anything you'd like to plug or promote. We're gonna skip the contrarian view question this time because we discussed you run a public, fund. You're very limited on what you're allowed to say. So we're gonna skip that one. But the finishing questions are, what are your hopes for the future, and is there anything you wanna announce right now?

So hopes for the future, in terms of harmony, I hope we grow into you know, I think we're the second biggest battery developer operator in in Europe. I hope we can retain and and build on that position. I think we've got a really strong foothold, certainly in terms of the credible development pipeline.

So super excited about that space and then growing beyond there as well. The vague hopes of the future. In terms of anything I want to plug, nothing really that I want to plug. You know, we are we are growing. We are interested in, you know, further expansion, but not getting too carried away. And, you know, huge credit to the amazing team we've got to enable us to do what we've done to date, and we're very, very excited about the next five, ten years because, you know, as you know better than most, Hugh, that there's huge potential across storage, you know, not only in the UK, but but globally. It's a huge, huge market, and we're super excited about what the next five years holds for us.

And you talked about sustainable growth there. Of course, there is a limit to how many different continents you can have your face in operationally and working on different time zones at once. And, yeah, you gotta take it year by year. It's been amazing to see all the the progress that you and the team have made at Harmony Energy since, well, pre and since the IPO.

It's been a hell of a emotional journey, I'd imagine, for you and the team. We're excited to see what comes next. We're gonna have a close eye on this asset sale if you do choose to do that, and we'd like to have you back, at some point in the next hundred episodes as well. Peter, thanks for coming on the podcast, and it's been a pleasure.

Absolute pleasure, Keith. Look forward to episode number two hundred in a couple of years' time.

Thanks.

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