ESG in battery supply chains with Sarah Montgomery (CEO & Co-Founder of Infyos)

What is actually the purpose of the energy transition? We all know there's climate change. We all know we're trying to reduce emissions as quickly as possible, and that's where transition?

Imagine you're a battery owner or an investor. Like, what do you need to transition?

Imagine you're a battery owner or an investor. Like, what do you need to be aware of?

The reality is there are going to be things that you wish weren't in your supply chain some of the time or often. And the key is looking to build relationships with those suppliers as early as possible. That's where where companies that we see on the kind of operator developer side are really bringing this in.

Hello, and welcome back to Transmission. Today's conversation with Infeos CEO and cofounder Sarah Montgomery takes a look at the critical role of environmental, social, and governments considerations in the supply chain for battery energy storage and what this looks like for projects in real life. If you are enjoying the podcast, please hit subscribe and give us a rating wherever you listen. It really helps us to reach a wider audience. Let's jump in.

Hello, and welcome to another episode of Transmission. Today, we are joined by Sarah Montgomery from Infeos to talk about batteries, supply chains, and everything else within. Sarah, welcome on the podcast.

Thanks so much. Exciting to be here.

Yeah. Yeah. Absolutely. And really actually just wanna get straight into this one because, it's a really interesting topic. But I I just wanna put you in this kind of shoes of a battery owner or an investor. So imagine you're a battery owner or an investor. Like, what do you need to be aware of?

Brilliant question to start with. So I think a huge shift that's happened in the last couple of years is that there's been, in battery supply chain specifically, a big wave of supply chain and ESG regulation that has come into place. So you have things like the EU battery regulation that came into place in February. You have forced labor regulation in the US, inflation reduction act in the US, and all of these regulations are putting out requirements on understanding what your supply chain looks like, so where the materials are flowing, but also putting pressure on the developers, operators, manufacturers to have to be able to manage the ESG risks, so the environmental social risks of their supply chains as well.

And so this has kind of moved, I guess, like, sustainability and ESG from very much, you know, a sideline topic that maybe some very responsible companies might be touching on to actually if you want to be owning, operating, particularly, processes in place around your supply chain and particularly from a sustainability responsible sourcing perspective.

Okay. So lots of lots of detail in there. Let's let's start unpacking it. So maybe actually just starting off with the kind of awareness of the supply chain.

So let's say I'm an asset owner. I'm looking to build a battery site. I have I go into the market to procure battery cell battery cells, battery containerized battery systems. Like, what do I have to be aware of in order to kind of be, in line with kind of the latest the latest guidance?

I think from a if you're looking at it from a regulation point of view, a lot of the regulation depends exactly where you're operating the the battery or the battery is being put onto the market. So, you know, the big one that we see is in Europe that what's come into place is the EU battery regulation. And that's a regulation that applies to every single battery being put onto the market or put into service in Europe. And if you don't meet the regulation, then they have the right to block that battery product from being on the market.

And so if you're, say, operator or developer, what that then means is when you are purchasing batteries, you need to make sure that the companies that you're purchasing batteries from are meeting those regulation requirements. The challenge if you don't do that is then you run the risk of having spent however many millions on those batteries, and they get blocked from the market. One of the interesting things as well is that it can also be put into place retrospectively.

So you could say, oh, you know, I managed to make that purchase. It's all good. But then in a few years' time, the if that company gets caught out for not being compliant with the regulations, there's still the existing risk that your batteries that you bought two years ago could potentially be able to be pulled off the market under these new regulations. Okay.

So pretty a pretty serious kind of change that's happened in the market to make sure that that everyone is complying with the new legislation. When you talk about batteries being blocked, like, what what what does that mean?

So that means that, say, you're a battery manufacturer, the EU would be able to pull away your permission to put your battery into being sold into the European market. So if you're an operator and you've agreed to buy batteries from a certain manufacturer, the EU says, nope. That manufacturer is no longer compliant. That would mean that you as the operator would no longer be able to have access to to those batteries.

Okay. And that has all that's kind of all come in from the start of twenty twenty four as part of that wider EU change?

So the regulation fully came into effect from start of twenty twenty four in February, but the interesting thing is that it's a very complex regulation. It's about four hundred and twenty pages. And the requirements actually come into place between the beginning of this year and all the way to in, like, middle of twenty thirties. The reason for that is some of these requirements are exceptionally complex to meet and are going to take companies, you know, some of them a couple years to meet, but some of the requirements that come into place in, say, twenty thirties and beyond are things about recycled content going into batteries, having to meet a minimum threshold of recycled content, about recycling efficiencies and processes there, which are going to require a huge amount of capital investment over the next few years in order for companies to actually get ready for them.

Okay. And before we get into the piece around, like, recycled content and, what the future plans look like, I'm kind of really interested in terms of this kind of concept of how, like, an owner or a developer, like, actually complies with this. So it sounds easy that you should just comply with it. That's great. Yeah.

What does that, like, what does that actually mean in practice?

Like, what do I have to do?

Yeah. Yeah. Yeah. It's a good question. And I think it's also one of the interesting things that we see is a lot of the time, what companies do is they just ask your manufacturer, like, hey. Do you comply with all the relevant regulations?

And all the time, they're gonna say, oh, yeah. Absolutely. I comply.

If you really want to know, do your manufacturers comply? And that's a lot of what we spend our time doing is you need to understand the specific requirements for the exact type of battery that you're putting onto the market relative to the regulation.

And then you need to specifically, based on those requirements, ask for the data from your suppliers as well as the evidence that backs up that data from your suppliers against the requirements. So these are requirements around, for example, you need to have a declaration of the carbon footprint of your a product that you're putting onto the market. You need to have supply chain visibility, traceability systems in place for your battery. You need to have supply chain due diligence and then this kind of circularity recycling requirements as well.

And and I think that's actually kind of a nice point to break away from complying with regulation to actually like, what is the point of the regulation? Like, what are we actually trying to what's it trying to achieve? What are we trying to get rid of within the supply chain? What are we trying to improve about the battery space?

Yeah. Really good question. And I think it's also kind of a very important question to zoom back out from, like, okay. What is actually the purpose of the energy transition?

Obviously, we all know there's climate change. We all know we're trying to reduce emissions as quickly as possible, and that's where batteries have this, like, essential component in the energy system in order to enable that. But then what we've really seen is, okay. Yes.

We want to make this transition as quickly as possible, but also what are the other consequences that we're going to bring about by making this transition? And that's where you see that when you actually look into what goes into a battery, what are the supply chains, you see that you have materials from, you know, lithium, phosphate, cobalt, nickel coming from all over the world. And depending on the specific material, a lot of these are coming from very high risk regions with exposure to modern slavery, forced labor, child labor, deforestation, you know, a long list of environmental social impacts that we kind of wish did not exist, but the reality is in these materials they do.

And so a lot of why this regulation exists, but also I guess as you were saying kind of stepping out aside from the regulation is saying, okay. Yes. We want to make this transition as quickly as possible, but we also want to make it as sustainably as possible. So how do we put pressure on the companies that are leading this energy transition to be able to, yes, make this energy transition quickly, but also make sure that they are being responsible in how they do that to make sure that across their from their suppliers and into their supply chain that they are identifying where they have these red flag risks sitting in their supply chain and then doing what they can to work with their suppliers in order to improve those risks.

Okay. And I think we'll we'll come back on to that kind of how might someone work with their suppliers to make an impact, to make a change. I think I think that's a really interesting part. But perhaps before we go there, I think one of the things that, like, I I can't get my head around is kind of the the supply chain for these batteries.

Right? You have the kind of raw raw mineral to the processing to to then that becoming something that might start to look like it could go into a battery through to kind of the cells, then into a balance of plant, then into something that goes through testing, and then kind of comes to a site. And then we'll go through all of that all over again. So, it feels like there's an enormous amount of data to be tracked, and the traceability of kind of how one bit connects with another bit feels like an enormously difficult problem.

How do you kind of how do you get that traceability from kind of just step one to step two?

Yeah. Yeah. No. It's really, really good point. And I think the really interesting thing that we see is, like, you know, what you just described there, it sounds like it's a kind of linear line of, like, oh, there's the mine, then there's the processing, the refining, the midstream, the cell manufacturing, and to balance a plant, and so on.

But, actually, what you see is that there's this network going on, really. So you could have ten mines going into one refining plant, but, actually, that refining plant is also pulling in material from another set of mines. And then the refining goes into the the midstream manufacturing.

And that midstream manufacturing actually has a relationship with twenty different refineries, all who have pulled in different mined material. And so exactly as you say, what you end up with is this, like, very complex network of where the materials have come from. And so, yeah, that's what we spend a lot of our time doing at Infius is effectively building the underlying dataset of who are all the different companies at all the different stages of the supply chain, what are the material flows between each of these different stages, and then also layering on top, okay, what's the ESG performance, the regulation performance so that it's as easy as possible for that end customer who's, you know, the operator who's saying, okay. I know I'm buying my batteries from this major manufacturer, but, actually, I don't really know anything beyond that.

Because it feels like, like a herculean task, right, to ask. So I'm a battery owner. I've got a ten megawatt project that I built. I've gone through planning.

I've got my grid connection. I've gone through you know, maybe my grid connection's been accelerated. I've been working this for five years. All of a sudden, I now need to map out every single part of a supply chain back to, like, the original source of some of those materials.

It just feels like an enormously difficult thing to do. So that kind of one of the questions that I wanted to go through was sort of how does InphiUS fit into this, and and how do you kind of help to provide that information to people who are kind of looking at the market and now aware that they need to kind of comply with this? But, obviously, it's quite a big it's quite a big challenge.

Yeah. Yeah. Yeah. Yeah. I think the I think the first point is at what time does it make sense to come in.

And I think this is where the in the kind of life cycle of a project, you obviously have the tender process with your supplier where you're assessing multiple different suppliers, assessing typically, it's a lot about, like, the technical performance. Are they going to meet the like, how are they cost competitive and so on? That at that point in time is where increasingly what you now see is this extra step happening, which is ESG due diligence as part of that. And so that's where we would come in and say, okay.

You're selecting between these you know, maybe you've down selected. You have two suppliers that you're trying to decide between. At that point in time, that's when you really want to understand, okay. For each of these suppliers that I'm choosing between, what does their supply chain look like?

Do they have any major red flags in their, supply chain that we need to mitigate against? Are they complying with all the regulation? And that then allows you that before you go into signing contracts with the suppliers that you can identify any of those red flags. But also importantly, you can actually work collaborative collaboratively with the supplier to then mitigate against any of those major kind of red flags, noncompliant that you find and move from, I guess, what often, like, due diligence is kinda seen as this, like, punitive.

We're out to catch you, figure out all the bad stuff you're doing. Whereas, actually, like, the reality is there are going to be things that you wish weren't in your supply chain some of the time or often. And the key is looking to build relationships with those suppliers as early as possible, accepting that, yes, it's not going to be perfect. But as long as you can work with the supplier to make sure that you are, firstly, not breaking any regulation, and then secondly, where it's possible pushing for kind of better practices in terms of responsible sourcing.

Yeah. And so, yeah, that's where on a practical point of view, where companies that we see on the kind of operator developer side are really bringing this in.

Yeah. So that's where you would come in and support those businesses to essentially allow them to have that ESG visibility so they can come have the right conversations.

I think one thing that, like, stands out to me is there's a little bit of, like, David versus Goliath in this. Right? So I know lots of these battery developers, and they are extremely hardworking, and they want to get these batteries through, and they want to do the right things with their projects. I mean, that's why they're in the battery space anyway.

And they will, like, they will be naturally trying to do the right thing. But if they come up against a battery manufacturer who produces multiple gigawatts of batteries every year, and they're buying ten megawatts, like, I they're kind of you were just mentioning all that you'll build a relationship with your supplier, and, hopefully, you can kinda steer them in the right direction.

But, really, like, a ten someone buying a ten megawatt battery from a, sort of a battery giant, that'll be that'll be quite difficult to to push or or you kind of are you finding the opposite that actually, if there's a standardization of data that perhaps it becomes easier Yeah.

Everyone's asking the same questions.

Maybe five or ten years ago, you would have been a hundred percent right in that, like, you know, if you're a tiny little customer and you have a major supplier, they're just gonna be like, nope. We're not gonna do any of this. I think the big one of the big shifts is this regulation that's come into place, which is on you know, a lot of it is on the manufacturers regulation.

And so rather than coming in and say, you know, we have decided this is something that as a company we really want to do, it's actually, step out for a second wider context is there is a lot of new regulation that's come in. We have investors that have come in that have mandates for responsible sourcing or, you know, they're under SFDR regulation and so on. Mhmm. And so using the kind of macro conditions as the, I guess, the underpinning foundations on which companies are then saying, therefore, as a result, we actually are oftentimes a lot of the companies we work with, they're either, like, voluntarily required or mandated by their investors that they have to run these kind of ESG due diligence processes, especially once you become, like, a company of certain size or you're under something like SFDR. It's becoming mandatory.

And so I think that in itself kind of lays the foundations for being able to collaborate even with these major suppliers. Like, most of the suppliers that we're working with are, you know, the major major suppliers. A lot of them based out in in Asia. And so that, I think, has really shifted the kind of perspective of, okay, we understand this is a regulation.

We understand this is what we need to do in order to operate in Europe. And then I think also what I was saying there about making it very clear that, like, you're not there to try and catch out and put on a, you know, a blocked list all these suppliers. You're actually there to say, we know that, you know, the results might not be perfect, but what we really want is to collaborate with you and figure out how to improve on this. And then looking at what is I guess, getting that balance between what is needed for the regulations and needed to make sure you comply.

And that's kind of one end of the spectrum all the way to, like, the other end of the spectrum, which is, like, if I could wave a magic wand and, you know, all of these ESG risks disappeared, what are all the things I could do? And kind of figuring out where is realistic to sit along that spectrum. It might be that you actually initially have to focus a lot on the regulation side of things and making sure everything's compliant there, but depending on the kind of ESG sustainability ambitions of the company, depending on the capacity of the supplier and so on, then that can, like, can move along that scale.

But, also, I guess, the one last thing to add is what we actually see is almost the opposite happening where the suppliers are really, really glad to be able to collaborate with us, with the developers because they've realized, like, okay. This regulation is completely new for you, but it's also completely new for us. Yes. We're actually not a hundred percent ready.

But if you are enabling us to understand what we need to do in order to get ready, It's not just helpful for the customer relationship I have with you. It's helpful for these other fifty or a hundred customers I have who are asking me, like, oh, what are you doing to get ready for the EU battery regulation? And they're still trying to figure out what that actually means for them.

Yeah. Yeah. It feels that so that that part, let's come back to that in a second. SFDR Yeah. Mentioned it. We're gonna have some ESG nuts listening to this who will know exactly what that is, but we'll also have some people who won't know what it is.

Yes. Good. Sorry. All the acronyms are probably throwing out that's, like, in my world, it's probably everybody has their own set of acronyms.

So this is a regulation that came into place under the Europe again. The Europe loves being the first to put ESG regulations. And it's a regulation that came in mostly focused on financial institutions. Mhmm.

And its goal was to make sure that when companies say that they're friendly or sustainable financial products, that they're actually doing that. And so you have things another kind of terms you might have heard is article eight fund, article nine fund, which is, again, another layer of effectively categorizing how sustainable an investment is. Mhmm. And so article nine fund is kind of the top fund.

And so for companies that are being invested in by investors that count as article nine funds, they have a set of ESG requirements that they need to meet in order to be allowed to legally call themselves an SFDR article nine fund.

And so the compliance within with this ESG regulation is what will enable the the funding to come from those funds into these sort of operational businesses. And that's that's the kind of that's the overall link of, like, how will this whole machine turn?

Yes. So they so, effectively, if you, as I say, like, want to be a green pension fund or a green asset manager, you and you want to operate within Europe, in order to do that, you need to be complying with this SFDR regulation.

And I think well, well, one thing I want to come back to, you mentioned or it feels like to do your job, you have to be independent. And you will have to be someone who can kind of access your own data, and kinda make decisions around where areas where the people are noncompliant or there are high risk areas within the supply chain. And at the same time, there's also kind of a little bit of this, or we want to also work with the supply chain, and we also wanna work with manufacturers.

And I suppose that kind of that feels like it's a bit of a challenge. Right? Because on one hand, I think supply chain might say, well, of course, nothing's a problem.

You send me the questionnaire, and I'll just tick all the boxes, and we'll send it back, and it'll all be done.

On the other hand, there must be something that you're doing on like, how how do you kind of get confidence that you're really kinda getting to the the to to the nub of it and you're really kind of both working with manufacturers, but also kind of keeping your independence?

Yeah. That's a really good question. I think the easiest way to answer that is looking at how it's done today.

Well, like, with pre us existing is a lot of the time, you'll have your ESG due diligence questionnaire, which is normally, like, in an Excel spreadsheet that you'll send to your suppliers and with exactly, as you say, your set of questions that they say Everything's at scale at some point. Oh, yeah.

Yeah.

Everything starts at XL.

Okay.

It's the way it's the way it has to be. And so they'll come back and they'll say, oh, yes. You know, I comply with this regulation. Yes.

I, you know, I'm aware of my carbon footprint and so on. And oftentimes or, like, previously, you would maybe just say, okay. I've done the SG due diligence. They said this and that's good.

What are, like, our kind of reality is that there's yes. You want to get this data from the suppliers declaring on, you know, what do they think how do they think they perform. But, also, secondly, you want to get the evidence from them that backs up that. So if they say, yes.

I measure my carbon footprint. It's okay. Can you provide the evidence that shows for the product that I've been curing that you actually are measuring the carbon footprint? Because, yeah, again, it's very easy for if you just have a bunch of boxes ticked for that those to be ticked without actually that kind of verification going behind it.

And then Mhmm. When it comes to the regulation and they say, okay. You need to have your carbon footprint. Well, is it actually really there?

That's when it becomes important.

But also on top of that, that's where, like, one of the big challenge both you have but also your suppliers have is, how do I really know what's going back? You know, three tiers in my supply chain, this kind of huge complex web.

And so that's where a lot of what we're doing is focused on building this kind of underlying database of what the supply chain looks like, but also what the ESG risks are across the supply chain so that if they say, you know, if on one side, it's, you know, we don't have forced labor at our supply chain, but actually on our database, we can see using satellite data that they do have a high likelihood of forced labor Mhmm.

Then that can be flagged as a potential risk that then can be investigated and mitigated against. And so I think what's really important there is, you know, rather than just having one aspect of data collection from the supplier, having kind of yet that plus the evidence plus then additional layers. And that's when, yeah, obviously, it's very complex for a company by themselves to have one, you know, one person on the ESG team or maybe nobody on an ESG team yet doing that type of type of work.

And and, yeah, it's it's really interesting, isn't it? Like, how how someone can actually, like, turn the data that you've got into a kind of a yes, no decision in that in that supply chain process.

Maybe one of the questions that would come from, like, our our listeners would be around asset owners. Like, let's say I've got a fleet of assets already. So this legislation came in in twenty twenty four. As you say, they might have been smaller businesses going back to when they first built battery sites at twenty sixteen maybe.

What what does it look like for existing assets that kind of came before? Is there gonna be a, like, a retrospective review or, like, how how does that work?

There's kind of two sides there. On one side, like, if you've already got your asset, it predates the regulation being enforced. Like, the point that the regulation comes into effect is the point where all of those assets going forward need to make sure that they comply. And so from that perspective, you're kind of in a good place from a from a legal compliance perspective.

Yes. Yes. Then there's obviously looking at, you know, if in the future you're looking to sell the asset or you're looking to make it compliant with, like, ESG financial regulations like SFDR that we mentioned, then there might be an expectation of, okay, have you done ESG due diligence? And that's where, as it's important to say, ideal situation is that you are doing ESG due diligence at the time that you select suppliers because that's when you still have a decision making power.

You still have kind of leverage to collaborate with the supplier and improve things. But, also, what we do see is happening is kind of retrospectively doing ESG due diligence to understand what are the risks that we have in the assets and making us aware of those risks and then to the extent possible, mitigating against those. But, But, obviously, it becomes more difficult if you have the asset already in the ground.

Suppose the the the decision's already made, but that asset, you might have to replace cells on it, and there mightn't be certain types of cells that are compatible with it. So you could find yourself in quite a difficult position of, I I built this thing in twenty twenty. I now need to bring in the next iteration of sales to refresh the system. And, actually, now I'm I'm kind of I'm doing the ESG work in a way that I wasn't doing before, and, actually, I've got a kind of I've got a flag on this. Like, what do I do? Because replacing some of the cells, that might be quite low cost, but replacing the entire system might be extremely high cost. And so I think there would probably be some interesting outcomes in that kind of in that domain as well.

Yeah. Yeah. Yeah. No. A hundred percent. And we have that with some of the asset owners that we operate or working with right now where they have put this system into place post procuring the initial assets. And so they're they're now running due diligence on future if they need to replace sales in a way that they hadn't been when they initially set up the the project.

Okay. Interesting. Maybe maybe let's take a pivot from the EU market and now look at US. So we've talked a lot about EU regulation.

In the US, are we seeing the same picture?

Generally, Europe, globally, tends to be the leader on kind of sustainability and ESG and that side of regulation. That said, the US, I would say, has kind of two major regulations that get a lot of attention, which you might already be familiar with. So one, the inflation reduction act, and that really has a lot of requirements, less on supply chain ESG and more about supply chain localization.

And so having to demonstrate that you have certain aspects of your supply chain being sourced from local local sources or also coming not from foreign entities of concern, which is affecting certain countries are under on a banned list such as China in order to access some of the tax credits. And so there's that side of it under the inflation reduction act, but then the other big regulation that gets a lot of attention is the US forced labor prevention act, which came into force in the last couple of years, but interestingly over in the only in the last year has put batteries into its high risk category.

And that is looking at forced labor risks across the supply chain and interestingly has done I think last year did one point four billion USD of sanctions under the regulation, and already in this year has done one point four billion USD of sanctions. And so it's, yeah, one that gets talked about a lot in renewable space, but initially a lot because of the solar side of things, and only really recently has has battery started to be a priority for it.

I think that's I think that's a really interesting kind of transition where solar this was a major, major talking point for for people who's kind of unfamiliar with it. Perhaps you wanna you you will do it more justice. So perhaps you wanna give a kind of a flavor of what we've seen in the solar space over the last few years and kind of how the emergence of these rules has actually improved what we're seeing on on the solar side.

Yeah. Of course. So it's inter when you look at a solely supply chain, battery supply chain, supply chain, one of the parallels that you tend to see is that there's a lot of regional concentration in certain parts of the supply chain. So in solar, for example, and, from a polysilicon perspective, the raw materials, you have about forty two percent of them coming from this one region in northwest China called Xinjiang, and that is the region that has a huge amount of exposure to forced labor.

And so under the US forced labor regulation, what they've done is say that they do not want an ideally, no polysilicon or solar connected to this region. Or if it is coming from this region, you need to be able to verify that it is not connected to forced labor. And so that's came about in the last couple of years where you saw ton like, the major solar manufacturers being sanctioned and fined under this US regulation. And so it was kind of this overnight wake up call to the renewable industry on the solar side of, okay.

This is a major risk, and there's major financial consequences is the reality of of not having this in place. And so you now see, like, a lot of the renewable energy asset owners, operators having become signatories against having forced labor in their their solar supply chain. And now you're kind of beginning to see a very similar trend beginning to pick up in batteries as well. And so there's definitely a lot of lessons you can kind of learn from what's happened in solar and what's moving towards batteries.

I think there's a lot of kind of good parallels that can be can be drawn. I think maybe last question for me before we get on to my final two questions is around the the nature of the change. So is this like a one like, are we gonna see one legislation come in in twenty twenty four that's gonna kind of change the market, and then we're gonna walk away from it? Or is there some something much more explicit around there being a road map for change and kinda what this is gonna look like come twenty thirty, twenty thirty five?

Broadly, if you look at the kind of ESG sustainability landscape, what you see is, I think, is something like there's a hundred and fifty five percent increase every year in the numb number of regulations around ESG. And so Sorry. Say that again. There's a Hundred and fifty five percent increase in the number of regulations.

That is an incredible number. Every single okay.

Every single year.

That compounds as well. Yeah. That's gonna give a really big number.

Yeah. Yeah.

I can't beat the maths.

Yeah. Yeah. Yeah. I Okay. I don't know the maths. I just know the stats.

Okay. And so what you what you therefore can kinda see is that this is maybe just the beginning of that really is and one of the big, I guess, one of the big shifts is a lot of this kind of ESG regulation initially used to be very focused on your company operations. So, you know, if you're a asset owner, it's like, you know, environmental permits, the sites that you have, and so on. Yeah.

Yeah. Whereas a lot of this new regulation is making companies responsible for their own operations and and company, but also for their entire supply chain. And so I'd say that's one of the big shifts. And then the other big shift that we see is a lot more industry specific regulation coming into place.

And so that's where things like the EU battery regulation are a regulation very much targeting the sustainability risks within the the battery supply chain. And then, yeah, as I was saying on kind of things like the EU battery regulation came into force this year, but it actually has this staggered interval of requirements coming into place where some start next year, some start in the year after, and so on. And so, yeah, you can expect that it's not it's very much not a kind of, okay. We solve it now and then it's completely done.

Yes. So need to worry about it.

Questions. You know? Just just leave it and and and we're done. I we've talked a lot.

I said last question before. I jumped into the last two, and I I lied because there's an extra one, which is that we've talked a lot about, like, the supply chain. So the kind of things that happen prior to your project going live, but we haven't talked a lot about what happens at the end of project life. Mhmm.

So this kind of concept around recycling of battery systems. Like, what the changes look like in that space? What are the standards we expect the industry to hit? Because you could easily look at the Internet and find that five percent of batteries get recycled.

Don't think that's true. But you could also look at the Internet and find out that ninety five percent of batteries go get recycled and kind of, like, where do we fit within that range? It's quite a wide range. And, like, what does the legislation tell us we need to actually get towards?

Yeah. Yeah. Yeah. Good question. So I think there's in the if you look at the UK under on the battery side, there's something called the extended producer responsibility regulation, which effectively applies to the manufacturers of batteries and makes them responsible for making sure once the batteries get to end of life that they do responsibly recycle, the batteries.

That is similar in Europe. You have, under the EU battery regulation, a similar regulation requirement. And so that's kind of one piece that's coming in saying, you know, it's not you can't just send this to landfill and be be done with it.

Mhmm.

And so that's kind of one aspect. But, yeah, the other interesting thing on the EU battery regulation side of things is they have a lot of more kind of granular requirements coming into place around for these batteries when they get to end of life. What is the recycling efficiency of the process needing to be? How much material recovery is happening from that process?

As well as also looking at the new batteries being put into the market in the kind of twenty thirties and beyond. They're going to start setting requirements for the amount of recycled content that has to go into the new batteries being put onto the market to try and kind of encourage this more circular approach to how batteries are are being built and their supply chains operate.

Because that could be that could be quite tricky. Right? So you say, oh, you know, I want a hundred percent recycled content. Well, there might not be a hundred percent recycled content out there to to use.

Right? So Yeah. That's obviously one danger. But just to give people, like, an idea, are we talking five percent, ten percent, fifty percent?

Yeah. It starts as low single digits for recycled content. So, yeah, it's very much because, obviously, you don't want to have that other unintended consequence where you say, yes. Everything needs to be recycled content. And then you're like, well, we're so far away having enough batteries at the end of their life Yeah. Where they would then make sense for recycled content.

So recycle content starts low and builds up.

Yeah.

And then the other part of that, which is the amount that you recycle at the end of life, that presumably has a higher number.

Yeah. Yeah. Yeah. That's in, like, seventy percent, eighty percent kind of numbers. Yeah. Okay.

Wow. Wow. Because that's, like, I think one of the biggest things that we see and we talk about a lot is kind of, like, how much of this gets recycled, and it's nice to be able to kind of of look at the legislation and say, well, look. We're going for seventy or eighty percent. I think that would be quite useful for people listening to this to kind of know where that is.

Yeah. Yeah. And that's where I think that's created quite a lot of incentives for the recyclers that are in the industry or just beginning to get set up in the industry to be able to really move towards hitting those targets in terms of the efficiency of the processes that they have.

Yeah. Alright. Super interesting. Okay. Final two questions. First question, is there anything that you would like to plug?

I guess on the Infia side, one of the things that we see is there's a big question around, okay, what actually are the requirements? Probably a lot of what I've just said is a lot of jargon that people have never heard of and all of that kind of stuff. And so if there is an element that you're like, okay. I need to get my head around the EU regulation, feel free to jump on to the Infius website. So it's Infius dot com and download some of our research. For example, we have a report on what is the EU regulation, which breaks down a kind of road map timeline of the core requirements and what companies need to do in order to get ready. So that's, yeah, the obvious starting point for people who are wanting to dive more into this kind of space.

Yeah. It's a it's a great plug. And then then a contrarian view, something that you believe, but you think that the rest of the market doesn't.

Mhmm. I would say one of the most common myths that we come across is we're buying from a tier one battery manufacturer, so we don't need to worry about any of this stuff.

I would say that is one of the, I guess, the interesting things that we see is, you know, majority of the battery manufacturers are connected to supply chains that have exposure to major ESG risks like forced labor and also are still very much getting ready to comply with some of this regulation that is about to come into force. And so, yeah, I would say that's the interesting, maybe controversial because a lot of people kind of default assume, if I buy from a big player, I'm gonna be fine. And so, yeah, would say maybe that's people don't want to hear this. It's kinda you can't just sit back because you're you're seeing that you're working with one of the the big manufacturers.

Yeah. I think it's, it's always, it's always daunting, right, doing a podcast on, perhaps, as you label it, things people don't want to hear. It's probably not the best topic for a podcast, but I hope people who have listened have got loads of content out of this that has been super useful for their battery projects that they want to they want to build, they want to replace. They're looking to kind of enter the space and understand it.

Sarah, thank you very much for your time. It's been really insightful. I've learned a lot about supply chains. I've learned a lot about ESG.

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

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