48 - Building Gore Street Capital with Paula Travesso (Principal @ Gore Street Capital)

A very interesting asset class because you have more complexity.

You've got a unique lens because you've worked with so many different routes and market providers.

This is exactly the upside of diversification. Revenue diversification, geographical diversification. We very intentionally don't have 90% of our revenue coming from National Grid, for instance.

Then you think, oh, this is not the same, right? What are those sort of things?

Our job really starts when we're screening those opportunities without doing anything. Without being offline for a second.

Hello, everybody. Quentin here. And this week, we're bringing a live conversation between me and Paula from Gore Street Capital. Now of course, if you're listening to this podcast, I hope you know who Gore Street Capital is. But if not, please Google them straight away. They're one of the biggest funds in the energy storage space. And you just got to know about them.

Now Paula was employee number one or near enough and has seen the company from the inside go from nothing to what it is today. And so in this conversation, we talk through that journey, some of the challenges, and some of the things that you only see if you're working at one of the biggest funds in this space. So I really hope you enjoy this conversation. I did. Paula is always great to talk to and has got lots of great stories. And do let us know what you think about this in the comments and hit like, subscribe, and all of those great buttons. See you soon.

Good morning, everybody. Good morning. Good morning. Good morning.

So we've never done this before, and we're going to try and get a bit of audience participation for the first time ever. So I'm not going to ask everyone to woo, but if you did woo, it would be great.

And so at the end, I'm going to do Q&A. We will have a bit of a chat first.

And so for those who aren't here live in the studio or live at the Energy Storage Summit, and you're listening and we're in your AirPods right now, we're here with Paula from Gore Street Capital. And we're going to find out all about Gore Street Capital's background, their journey, their vision, and what's coming next.

But first, Paula, thank you very much for coming and joining us on the podcast. It's a delight. We've known each other for many years. And I'm sure you're going to tell us loads of things we don't know already. So Paula, before we get started, what do you do at Gore Street Capital, and what is Gore Street Capital?

Sure. I'm part of the investment team of Gore Street Capital.

Gore Street is an energy investment house. And we're not only supporting low carbon transition, but we're actually providing profitable investment options to our investors while we support the low carbon transition as well.

Interestingly, when we started, we were a traditional PE, private equity house. Really back in 2016, when I joined, we were still looking at energy storage investment opportunities, but really like an investor, purely investor role. As we progressed, we understood that energy storage is such a unique asset class, we needed to get our hands dirty a bit more. So we became an energy house.

Today, Gore Street has the investment team, of which I'm part of. But we also have an energy business unit with asset management guys that have the view of the ownership of our portfolio construction, operational risk as well, as much as we have all supporting activities to support from the investments to the actual operational stage of our portfolio.

And so of course, we probably should start with a disclaimer, which is that Gore Street Capital, the structure would be more complex than what I'm about to say, but it's a fund, right? It's a public listed fund. And that means there's certain things that you can say and some things you can't say publicly without telling the rest of the market first. So there may be some things that I ask Paula here that she says, I can't really answer that here, and we'll figure out a way to get a different answer within the rules of the game.

And so what's the Gore Street Fund? What does it mean to be a fund in energy storage?

Yeah.

And that's right. So just to go back to your first point. So Gore Street Capital. We are the managers.

We're a PE house. And this is the company I work for, right? But we are the managers of this investment trust, Gore Street Energy Storage Funds. And this is indeed a list of eco.

So we have shares that are traded in the market LSC. And Gore Street Capital provide services to GSF, Gore Street Energy Storage Funds.

Because this is a listed company, there are certain things of which we can still consider inside information. But everything that is material, it's out there. And this is why we publish interims, annual reports, and the likes. And any time that we sort of have a milestone completed, we announce it to the market, just like we've been doing the recent months and weeks.

We're going to talk about some of those milestones in a moment.

So I probably should have done this at the intro as well. You've been involved in Gore Street pretty much since--

you're like a day zero Gore Street person, right? And it's essentially gone from being a start up to something much, much bigger. And I want to talk about that journey at some point. I'm sure it's going be fascinating.

But before we get there, what does Wall Street Capital believe? What's the vision that you guys had in 2015-16, when you, wherever it was in the pub, decided to do this? And what is that vision now?

I think when we kicked off, and you're right, the company was actually launched in 2015, but activities started in 2016 when I joined. And when I joined, we were three people. The CEO, the CIO, and myself.

Honestly, not much, but great people with good ideas, to be honest. And it's like I said. We wanted to support the energy transition. But at that time we still didn't know how. We were still looking at assets, sort of the traditional generator of renewable energy assets, right? So wind, solar farms, and the likes.

But then we identified energy storage as a very interesting asset class because you have more complexity to what we were seeing in the sort of traditional generators. But it was also new. So it would provide to investors sort of sustainable profitability through this complexity that we were just learning how to do it. And we were pioneers. At that time, I think that this is when we met, when we were kind of looking at Port of Tilbury or Lower Road, right? It's sort of our seed assets at that point.

It was still very new. We focused in the GB market.

Obviously, the sort of GB--

and I say oddly GB because Ireland is part of a different grid as we all know. But it was one of the pioneer grids in terms of organizing this market and making it available to monetise energy storage assets. And this is what really kind of drove us to focus on this asset class.

And once we understood how the macropillars really played within this market specifically, we enable ourselves to also replicate that investment thesis across different grids. So today, obviously, we have a large portfolio operation in construction in the GB market as well. In 2019, we entered the Irish market, both northern and republic as well.

We have operational assets in Germany. And we're now in Texas and California. So every market that kind of is shaped like an island, it does have the macropillars that really sustains the need for energy storage and flexible assets like the ones in our portfolio.

When we talk about the portfolio, what are we talking about here? How big is it in the different countries? It's a lot to manage, right?

It is. It is. So we are currently circa 1.2 gig across the five grids we're in. Very recently, we entered California last week.

And we've got operational assets in four grids, but California, the one that we just entered. And indeed, although we are selling the same service across each one of the grids, while we're supporting the grid operators with our flexible assets, we're supporting the grid operators to stabilize the grid second by second really.

I guess the difference is regulation. You have to understand the contracts in each one of those places we're in. Procurement process really. So the way you're procuring the sort of frequency response services in GB will not be the way that we do in Ireland. But other than that, we're dealing with the same technology we have with nine across the board. We're dealing with the same supply chain and really the same manufacturers and EPC contractors, right?

So we can manage to centralize all our operation in London with our team in London, not only to build those sites, to bring those sites to operation, but also centralizing sort of our operation management and our operational risk as well, as much as we're centralizing commercial activity. So the way we monetize those assets and the way we're stacking the revenues really, we're also kind of centralizing that intel in-house. So like I said, same service, same technology, same supply chain. It does allow us to sort of unlock a lot of value across this 1.2 gigawatt that we have across the five grids.

Now, a majority of our operational sites are in GB, but we have 40% that is located in Ireland as well. We've got a 30-megawatt that is in Texas. But we've got lots coming online. 150-megawatt in Texas. 200-megawatt in California that we're building and expecting it to be operational next year as well. There's lots going on, not only with what we're sort of already generating cash flow, but also with what we have in construction. Just in the GB market, we're expecting 190 megawatts to become operational still this year.

So let's get an idea about scale here.

So there's a lot to manage there across lots of different countries. How many people are there at Gore Street Capital who are running the fund, and building the assets, and buying the assets, and all the reporting, all that. How many people do you need to do that?

Yeah. So we're currently 35 people. And we're actually hiring.

Like I said, we started very small because we started very focused on the investment activities. And we still are focused on the investment activities. But now, we have circa 20 engineers of which they're focused in sort of construction, asset management, and the likes. But like I said, we've got many partners across the board.

When I talk about having an asset management team in-house, of which we have four people, this is always with sort of asset management contractors that are on site as well, sort of boots on the ground.

We now have people in Texas because of the size of our portfolio in Texas, the size of what we're building there. And we're hiring in California, just as a response of the announcement that we've done last week. The 200-megawatt that is in construction.

So growing, 35 people. It's still sort of a lean team, but it's a brilliant group of people. Most of them have been working in energy storage for seven or eight years, which is, for such a new asset class, those are the guys that--

Wonderful. Wonderful.

Exactly. And it's very interesting because when we've met, obviously, we bought our very first site, Boulby.

One that we still own. It's up in Yorkshire, right?

I'm gonna talk about that. Let's do it, right?

Yeah. It's a six-megawatt. Can you believe it? And at that time, when we commissioned that site, it was the largest providing EFR, that sort of old frequency contract with National Grid. The four-year contract.

It doesn't exist anymore. We're now talking about 200 meg in California. Actually two-hour durations, so 400-megawatt hour.

It's a total different scale. But the way we do it and what we've learned to get here was so key, right? Because our job really starts when we're screening those opportunities. We're not developers per se. So when we acquire something, we need to have the planning permission. The interconnection needs to be there and the secured land, obviously.

But all the work that we do to understand planning, how much it's going to cost for each one of the points that we've got within our planning permission, to understand the interconnection, to understand how much land we need to secure if we need to augment that system. That will unlock value to our investors because it means that I can minimize CapEx by building it.

Just the fact that I have a construction team that can look at all the points if I'm buying something that for whatever reason already have sort of like battery cell contract, for instance. Just the fact that those guys can check all the warranties, they can participate on negotiating those warranties as well, really makes a difference when I'm talking about returns for investors.

Because we learn that in energy storage, the decisions that you make in the early days, they really have an impact on how you can operate those sites, right? It will really unlock value. And I say this just as an example. Again, Boulby, Port of Tilbury, all those kind of old sides of back of 2016, 2017, that got commissioned, some in 2017 and 2018. They are now providing I don't know DC, for instance.

DC is a service that came after they were already online. And actually, they need to dispatch quicker than they were doing when they were doing EFR, FFR, right? And this is because when we were looking at those sort of interconnections back then, we understood that this could be a trend that National Grid would require in the future. So somehow, we were sort of future-proofing those sites.

It's this sort of learning curve that really adds value when we are not only looking at new opportunities, but when we're building those sites and operating them once they're sort of up and running, right?

Absolutely. So let's talk about--

So yeah, when we first met, we bought a couple of sites.

NEC site, of course, up north. A couple of Tesla systems that we worked on behind the meter. You've got NEC, Tesla. You've got some BYD systems. You've got systems with Fluence.

Fluence, NIDAC.

So you've got fingers in lots of different OEM pies.

Yeah.

And doesn't that create a lot of complexity for a fund or you guys? Surely the thing to do is to work out who is the best OEM and go with them forever.

I think, and that's a fair point. But the same way with sort of EPCs, and O&Ms, and RTMs, they're not always the best performing, always sort of top chart, right? And that's a fair game. What we do is we always run a procurement process. And then we look at the warranties that we have, that can be offered, and how much risk we want to take with that given site.

So we absolutely love our partners, the ones that we have in portfolio. It's working absolutely well.

Most of our contractors, we do more than one site with them. That was the case with NEC, with Fluence, and the likes. But we have an obligation with our investors to really run a procurement process every six months to understand how the market is and what's going on.

And we also see different manufacturers, they can go in different routes. So some of them can go for longer duration, and their prices can have that sort of impact depending on where they want to go. And some other guys are still trying to work with sort of warranties that we'd very much like.

So just for instance, if we look at our portfolio in Ireland, right? They're all providing services under DS3, which is basically sort of a bundle of frequency services, sort of equivalent to FFR and the likes.

The DS3, it has really specific ways to sort of quantify how you're providing that service to EirGrid, the National Grid equivalent, the grid operator.

We actually mirrored all the warranty of our O&M based on those sort of performance scalars of the DS3, right? That's very specific.

You just give it to someone else. Hand off the risk to someone else.

In a way. In a way. Yes. But we're paying for it. But the point is this is very specific way to design those sort of warranties, right?

So we try. We're always open to work with sort of many manufacturers. We run the procurement process. We're explaining what we're going for.

And then we go with sort of best prices and best guarantees. And this does result in a good mix of different suppliers, which to us, it means diversification. So this is a good thing. This is something that we always go for.

So when we think about diversification, we don't think about just having different partners, which is very important. Like I said, we need guarantees. We need balance sheets and the likes. But we also think about revenue diversification, geographical diversification. We very intentionally don't have 90% of our revenue coming from National Grid, for instance.

I mean, obviously, our RGB portfolio is doing well. We appreciate it. And we do have sort of 90% coming from grid balancing services. But we very intentionally want to make sure that we have a diversified revenue platform and a diversified sort of EPC platform as well. EPC and O&M platform.

OK.

I want to talk about, there's some people who are listening to this podcast or in the audience, who perhaps are involved in the other news of the industry, or they haven't--

you've got a unique lens because you've worked with so many different routes and market providers. And choosing a route to market providers is a very tricky thing to do. There's some incredible innovations happening out there in optimizers with new algorithms, and pricing, and forecasting.

And Gore Street has had experience across most, I would think, of those optimizers. So when you're choosing partners like that, what are you looking for? And what are some of the things you've learned--

don't mention any names here, of course.

You would have learned some lessons, right? What are those lessons? And I didn't prep you for this question. So this is straight off the bat.

Tricky one.

No, look.

And again, we've seen on the RTMs as well, we've seen different players performing differently at different points of time, right? So if you look at the last maybe 24 months, of which it was kind of, I'll say, an easier game for the GB market just because of the prices around FFR and DC. But you see guys performing differently really.

But there's no consistency, as in you have one that's better all the time, right? And this is why you want to be exposed to sort of multiple partners.

And just having conversations. And some of those guys, our commercial team, has to have weekly conversations with them because stacking revenue or understanding our revenue strategy goes way beyond pricing. This is degradation. This is what systems you have?

Sort of what's your duration? What are you trying to achieve? How can you diversify that revenue stream, so you can secure sort of a specific price level here and then kind of be a bit more aggressive on another stake of your portfolio? So there's way more than just looking at individual assets.

That intel we hold in-house. And what we do is we partner with multiple sort of players, RTM players, to understand what can they bring to us in terms of intel as well, so we can build that overall diversified portfolio, right?

So what does a great optimizer look like then? What does the best optimizer out there look like from your perspective as the customer?

I think they need to be agile. They need to be quick. They need to be on top of what's going on in communication. We really like the guys that are always sort of communicating to us what's going on. So we can have a sort of a forehand decision around our individual assets in the overall portfolio.

We've seen that sometimes. Like I said, it's not going to be sort of steady one player being the best at all times. But the ones that wants to keep informed, wants you understand what's going on, they look at all the trials that's happening, and they're informing back to us, is definitely the players that we want to stick around.

OK.

Now let's go beyond GB now because we have a very unique chance to learn about what it's like building assets internationally. And you guys, I think you're in four countries operational now and will be five soon. Four regions, will be five. Although you can think about the US as different countries, especially Texas.

So what's it been like doing this internationally? I'd imagine it's harder because you have to learn more stuff.

What are some of the challenges, and what have you learned along the way? And what's the strategy about how are you going to get this right or at least right a few times after learning lessons?

Right. Right.

I think, well, with ERCOT, what we've done was--

and I mean, we're looking at this market for two years really. Maybe like a year and a half before we made our acquisition last year.

And what we've done is we bought this portfolio, which had 30 meg that was operational, so we can learn. We hired boots on the ground, so we have people that are there to kind of build the sort of 100 and something megawatts that we have in construction as well.

And ERCOT is absolutely different, right? It's an incredibly volatile market. Initially, when we started, we're doing pretty great in terms of revenue level with that portfolio.

And it was all about, oh, weather conditions. The grid operator when it's under stress, that's what happens and all of that. But when you see weather conditions not being a one-off, that's just how the weather is, right? And this really kind of plays off. But there's a lot of volatility. Definitely more volatility than what we see in GB, but this was understood since day one.

I think, like I said, we're still kind of dealing with very similar partners. We've got sort of our four sites that are operational. We've got O&Ms. We've got our RTM, the asset managers that are local guys.

We've got our team sort of coordinating all those stakeholders. So this is all very similar. What we needed to understand is that we're also doing grid balancing the majority of our time. We needed to understand, was that volatility, and our expectation around how could we sort of procure that revenue now.

California is completely different. And also, Texas is way, way deregulated, right? Which is completely different than other markets we're in. So when we buy a new asset and when we're trying to look at the timeline, the interconnection, and the likes, all that sort of, when you build a construction program, is really all about the EPC. There is no constraint with an interconnection, like what we normally see around here, around Ireland and the likes.

Now California is, again, a bit more similar than GB. It is a more regulated industry really. But what we see is that you have way more sort of revenue stability because of the resource adequacy, capacity market equivalent contract. It's more sort of around 40%.

In GB, we're seeing that capacity market contracts. Although great--

It will change this week.

Yeah. It will. Last year, it was something like 5%. We're definitely expecting this to increase this year.

So about 5% of the annual revenues for battery came from capacity market. It's going a bit higher now with the auction results this week and last week. And you're saying in case of California, that number is much higher, nearer 30% or 40% sort of revenue certainty--

Predictability.

Predictability. Certainty is a strong word. Predictable, yeah.

But it is contractual income, right? So when you're looking as an investor on a portfolio level, that's exactly what you want.

So if you have 40% predictability within your revenue, you should expect lower returns than Ireland, for instance, that you sort of fully merchant, completely exposed to scalars, which is just a reflection of wind penetration within the grid, right? So you have a different risk exposure. And therefore, you should expect a different return.

But this is exactly how we wanted to build our overall portfolio. This is exactly the upside of diversification. And I think 2023 will be a very interesting year for us to finally illustrate that because, well, GB prices will, I won't say collapse, but they will be at a different level that they were in 2021 and 2022. It already is really.

So not having that 100% exposure to assets, only here, really allows us to sort of bring a more solid overall revenue portfolio. And we understood that. I think it was back in 2018 when FFR prices really collapsed from like maybe 6 or 7 pounds per megawatt.

The first winter of FFR.

Yes. Exactly. That was when we understood, OK, we can't have a full portfolio that is exposed to this, right? What if there are any changes on procurement that prices are sort of will suffer quite a lot. What will happen? So this is when we made the decision, OK, we need to start looking at other grids. So we started with Ireland, Germany, and Texas, and California.

And how much of the funds--

I'm not an expert, but I understand there's lots of rules around what funds can and can't do. And in the fund rules, you have to say how much of your assets are going to be in certain places, right?

Right.

So what's it like for Gore street How much can you how much can you have in America? How much can you have in the UK of the percentage of the fund?

So we have something called an investment policy. So we basically go to the market, and we say, we're going to follow those rules. Those are actually rules that we set up. And we can change them. We can go back to the investors and say, guys, can you approve a change here and there? We've done that before.

So when we started, I think we said, OK, minimum 60% of our portfolio we will be focused in the GB market.

And then after 2018, we said, wait a minute. Let us do GB in Ireland. They're very similar. EirGrid's literally following National Grid.

DS3 was exciting at that point in time. It is now. It's kind of paying off. So we said, 60% in UK and Ireland.

And then after a few years, we said, OK, now we're ready. We learned. We've done our homework. We know exactly how it works here.

Let's replicate it to other grids that has sort of similar macropillars than what we see here in GB and Ireland. So then we said, 40% UK and Ireland. We can diversify OECD nations 60% of our portfolio. We're kind of there.

We're 50/50.

And we've been saying for the past maybe year, a year and a half, that we did believe the US would be the sort of growth pillar of GSF for this sort of next year and a half. And it was.

Most of our latest acquisitions were in the US and in California in ERCOT and CAISO.

We did make an acquisition that was quite sort of good and opportunistic in the GB. That was a 200-megawatt--

The Kona deal.

Yeah. The Kona deal.

But this is a project that we expect to commission in a couple of years' time.

It was just good pricing and sort of goods, sort of key components in terms of interconnection, land and planning. So other than that, yeah. Most of our acquisitions, and pipeline as well, which is something that we always publish--

About pipeline, right? Is it getting more difficult to secure a pipeline, or has it always been really hard? There's just more people doing it and talking about it because back in 2017, '18, '19, it was so hard to do to get pipeline because it just wasn't out there.

So yes, things have been pushed out. Grid connections have been pushed out. But from what you're seeing, and you guys are buying up sites, doing all sorts.

How has that changed? Is it really that much harder now, or do you just have to think differently?

I think pipeline for us, when we screen deals, we really screen deals.

We do a whole sort of screening process around what are those key components of a project. I think today, you have more projects available. But when you actually get your hands dirty and you do your DD, lots of them are not there. We actually have seen sites in the past of which we realize how expensive it will be to build that site based on a given planning or how that interconnection had sort of, I don't know, many components that wouldn't really allow you to dispatch that site. And we've seen those projects being bought sort of by different guys, right?

So I think you have in number definitely many more projects than what we used to see back in 2017 and 2018 for obvious reasons. Energy storage sort of became large. You can kind of now read it on the news.

But I think in terms of quality of projects, it's still hard. We have a big chunk of work. We probably look at 10 projects to get one to exclusivity. To maybe 50% of the ones that are--

since we actually acquired them, right? So it's a long process until we get to this portfolio that we build and we acquired.

So yeah. More projects in numbers. But in terms of quality, it's quite similar to what we used to see in the past.

So not all sites are created equal as it were. What are some of the things that you can look out for in sites? What are some things that, the site looks great.

We want to transact. We want to make it happen. And then you think, oh, this is not the same, right? What are those sort of things?

Interconnection costs. Timeline. Who's the D&O?

Planning conditions, what's there? What do you need to do? How much is going to cost for you to do that? Land. Who are you dealing with?

Off the tip of the tongue here.

I mean, it's a lot, right? Because I guess when you look at a project, you're like, oh, that's fine. I'm just going to build this. It's not. Like everything that you don't look or you don't sort of understand on day one, you're going to have to pay a price literally. Your investment will have to be higher for you to generate probably same revenue if you manage to unlock everything that you have to at that stage.

So again, the decisions that you make in early days, they will really have an impact on how you can operate that site. So this is why for us, being around this market and understanding this market for seven, eight years really pays off, like having an experience understanding that project and why is that better, x is better than y, really pays off in terms of minimizing CapEx when building those sites. Yeah.

How big are you guys going?

Because zero to here, it's been pretty fast.

And then we trawl through your public accounts and all the things, all your reports. And there's a lot of pipeline to build there, right? So where's Gore Street going?

Look. We're pretty ambitious. And we think scaling the portfolio sort of make sense in terms of we now understand how to do it, how to build, how to manage, how to buy, and how to operate those sites, right? So scale for us is huge. Yeah. We want to be a couple of gigawatts in a couple of years' time.

But we also, we're conscious that every grid that we go in, we then have to really get our hands dirty. We have to understand any specificity of that grid. So somehow, we're really cautious because when you look, oh, wait. You just entered Texas last year, and now you enter California.

But if you look, from the first time that we announced a pipe deal in a project to when we actually acquire, it's probably a couple of years already. So we really take time sort of understanding that given grid.

We're really ambitious. But we did announce a couple of acquisitions in the past couple of months. I think this year, we want to bring sites to commission. We have a lot going on in the GB. We have larger assets to deliver in the US now.

300 meg between Texas and California. 200 meg here in GB. So we're focused on that.

These are big projects to build with only 35 people. And all the other stuff you have to do as a fund.

Yeah, it definitely is.

But we've done it before, right? Our operational capacity is also now close to 400 meg.

And again, it's potentially different. But if you're building a 2-megawatt or if you're building a 200-megawatt, you're not going to scale your team based on a capacity, right? It's still a project. And you're going to have a dedicated team for that.

Do you only look at projects over a certain size? Do you go, Gore Street Capital will only look at projects over 10-megawatt, 20-megawatt, 100-megawatt now.

I think, now, yes. Now we're at a point of which, depending on the market you're in, and we're just talking about it. If you go to sort of Germany, France, or sort of Italy, they won't be as large as in California or in Texas, right? So for each grid we're in, we do have like a threshold of a minimum capacity simply because yeah.

For us, if you think about it, I have to have an asset manager for Boulby, six megawatts. And I have an asset manager for like 100-megawatt site, right? It's still a person that has to look and manage everything from that asset, every stakeholder, from sort of insurance contract to the RTM, to all the financials, BNLs and the likes, and report back on that asset. So it makes sense for us to have a minimum. In GB, I wouldn't expect us to buy anything smaller than 50.

50. 50 in GB.

Yeah. I think so.

In Ireland, same, to be honest.

When we kicked off, we kicked off with 2 of 30, and we have 2 of 50 that's also operational. Now in Texas, we bought these sort of 70-megawatt last year, but those are 7 of 10. But we wanted to make sure that we had operational capacity, so we could learn how to operate as well.

So yeah. It really depend on the grid we're in. In Germany, we have a 22.

Tat's a sizeable project for Germany. We would go for similar projects as well.

So it changes depending on the country.

Right.

And we're going to get the audience involved in a second and do some Q&A. So do get thinking of your questions, guys. But the last question I want to ask you is what's the contrarian view that you guys have? What do you believe that perhaps other people don't believe? And how does that drive your decision making? It can be a small thing or a big thing.

I think an obvious one that comes to mind is really duration of systems for GB market, right? And again, it's something that we're not super caught on because we've got portfolio in so many grids. And we don't really believe in one size fits all duration. So each one of our grids, we have kind of an optimal duration.

But for GB, we always have this discussion with other asset owners because we believe in an hour duration, and we've seen some other guys really sort of getting ready for a two-hour duration very early on. And this is because there were market rumors around trading opportunities becoming the sort of primarily revenue stream for energy storage assets. But this since 2019, right? Since 2018 that we hear that. Since that sort of price collapse of FFR in 2018 that people will say, well, now it's going to be trading all and all that.

We all became the wolf of Wall Street in the summer of 2019.

Exactly.

But it didn't really happen.

It didn't really happen. So the point is as much as people think, oh, you have a controversial view because you have an hour duration. Ours is the opposite of controversial, right? We just act on facts. So we had an hour duration because if you had an asset in GB since 2017 like we do, anything over an hour, because 90% of our time we're doing grid balancing services, ancillary services, anything over an hour is just a waste of CapEx that's sitting there.

So we were actually right. It's not controversial anymore in the sense that as of today, when you look at the annual, like the 2022 results, everybody secured majority of their revenue by doing grid balancing, which means that we've made the right choice. But every time we discuss with other asset owners and maybe the investor community, they do expect us to have sort of longer duration systems, but we didn't really see the market there yet.

Not to say that we're not ready to secure longer duration systems when the time comes. Actually, in Germany, back in the days, we kind of looked at flow machines, different technology that was actually four-hour duration. Sort of tackled the secondary market there. We don't have an obligation with a certain technology or a certain duration. We're just very pragmatic and objective on the way we sort of make those decisions.

We look at the market. We look at what's available to us. And then we make a decision on how can we minimize CapEx just to secure that revenue, right? So that's what we've done. And somehow, it sounds very controversial because everybody's talking about the two hours. But so far, we've been proven right, and we managed to literally deploy half of their CapEx and secure the same revenue. So to me, that's a win-win, isn't it?

As long as you can turn your one hours into two hours at some point in the future if you need to, right?

That is true. But actually, to be honest, if you think about it, right? So if I have a 50-megawatt that's an hour system, and for whatever miracle reason, we're actually seeing that two-hour duration is securing more than 2x revenue, fine. I'll make it a 25-megawatt, and I'll deliver two hours tomorrow without doing anything, without being offline for a second. So the options are always there.

The point is if when you look at the CapEx side, if the CapEx for you to deploy a two-hour system is 2x an hour system, objectively, just build two sides of an hour system. Deliver a half of its power. And that's it. Just from a financial point of view, you can't just compare revenues but don't understand how much CapEx had to deploy to secure that revenue.

It's really easy for guys that actually secured a two-hour duration say, oh, you know what? I'm now securing 30% more revenue than the other guys that actually have an hour system. Yeah. But deployed 2x.

So it's really not apples to apples, right? Not to get too much into it because we believe that the sort of number should speak--

The problem is this discussion, it sounds like Gore Street's a one hour shop, right?

That's not true.

What you're saying is we'll do what we think is right. And at the moment and until now, we've believed that based on CapEx and where the revenues is going to come from, one-hours made sense. And we'll change it if we need to.

Yeah, absolutely. Actually, our Texas portfolio is a two-hour, right? Our German assets, an hour and a half. So by no means we're sort of committed to an hour, right?

Incredibly controversial. And so now, we're going to go to the audience. I want to give you guys a chance to get involved. My watch has run out of batteries. I've got no idea whether we've gone over or under.

Where are we with time?

Have we gone over?

We do questions. Yeah, we're OK. So who's got a question?

CHARLES: So apparently, you probably got one of the most complete views of all the stakeholders in this industry. Regulators, debt providers, consultants, equipment manufacturers, optimizers. Which stakeholder group do you think is struggling most to keep pace with the development of the industry?

Pass.

I'm kidding.

Look, we all came a long way since we started looking at energy storage in 2016. If you look at the difference of our sort of EPC and O&M contracts, how much we improve, how much we understood what was required from us and our partners, debt providers are the same, right?

Today, if you look at the banks and the whole debt market, they're backing up merchant risk as well, which back in 2018 was a no-go.

They were still so stuck within the EFR contract, four-year contract. And everything was just around this sort of full visibility. And when that went away, they completely freaked out. So not reality anymore. They're all sort of backing up merchant risk as well.

RTMs. Look at the difference of RTM, the reporting, the tracking from when we started and what can be done with batteries. So I think everybody really came a long way in energy storage, which is absolutely fair. And regulators parts as well of every grid we're in. We're seeing how that is sort of progressing.

And even when you talk about things such as like grid connections and how National Grid is getting pressure from all over, those are really complex issues, right? We're not just talking about energy storage here. This is actually pressure for interconnection for everybody else.

So I honestly think, and this is not a political answer, but I honestly think we're doing a good job. We learned a lot. And when I say we, as in the sort of whole group of stakeholders here.

We did a good job understanding a very complex asset class that is not just sitting on long term PPAs anymore, but really understanding how can we and what is needed from those flexible assets. So to be honest, I don't really have a group to point out now.

Name and shame. Name and shame.

Pitchforks. No, no, no.

OK. Thanks, Charles. Who else got a question? Anyone else?

And if you do ask a question, please do say what your name is and where you come from. That'd be great.

And if you don't have a question, I've got one. So what do you think of floor prices?

That's so interesting because you actually asked that as well to the panel that we've done a month ago I think.

This is not news. I told you this. We've seen floor prices.

I'll just go then, shall I?

We've seen floor prices since maybe 2018, 2019. Actually, the first time we saw it was for our Irish portfolios, kind of when we secured the DS3 uncapped, which different than the sort of capped contract. There were no fixed tariffs, right?

It could be an option.

If we were GB-focused only and you have no revenue diversification, you're fully exposed to sort of one stakeholder, and you want to make sure that there is a stake of your portfolio that is somehow secured differently, yes. Maybe. That's an option, right?

But we understood that by diversifying our revenue streams and by having exposure to multiple grids, we could have that sort of required secured revenue in different forms. So we've got fixed tariffs with assets in Ireland. We're now going to have California as well. We've got capacity market in multiple contracts. So this is the way we do things.

I'm not saying we don't look at it, although some of my colleagues have different opinions. They don't think it's worth to look at it. But for the time being, we don't need to.

We think that the market's there in different ways. And what we've done in terms of trying to protect our portfolio is really just being exposed to different revenue streams.

So you say you can get lower cost of capital and all the benefits of that without a floor price, and you're comfortable doing that?

For now, yes.

And I'm getting a sign saying we're out of time. So thanks, everybody, for coming along. And thank you for an open, honest discussion about lots of different topics. And yeah. See you next time.

Yeah. Thanks.

Thank you very much.