What European Banks Need to Finance Battery Storage - ABN AMRO

I'm your host, Ed Porter. Welcome back to Transmission. A battery storage asset is a simple piece of kit. Steel containers charge when prices are low, discharge when they're high. So why is financing one so complicated? Because underneath that simplicity is a trading position with volatile returns, competing risk appetites, and a growing menu of contractual choices. Full tolls, virtual tolls, floors, day-ahead swaps. Each one shifts the risk. Each one changes what the bank will lend. My guest today is Lisa McDermott, managing director, head of energy transition project financing, ABN AMRO. Lisa has been financing battery storage since 2020. And this episode is a look inside the room where those decisions get made. What gets a deal over the line and what quietly stops it. For episodes like this, we often get follow-up questions perfect for asking to Ko, Modo Energy's AI analyst. Check that out today. Link in the description. Then back to the episode. Let's jump in. Lisa, welcome to Transmission. Thank you for having me. Our pleasure. And let's jump straight into it. So, what's one thing that people always get wrong about financing battery storage? Well, hopefully they don't always get it wrong, but one mistake you definitely shouldn't make is thinking that financing battery storage is the same as financing renewables like wind and solar. It's tempting to see it as a similar asset class. It's obviously in an adjacent sector. It's complimentary. Um, similar players getting involved in developing these assets. Sometimes you come across similar risks, regulatory, power market risks, and of course the grid connected assets. Plus, the banks don't make it that easy to distinguish because we're borrowing some techniques from the merchant renewables market when we're structuring these deals. But very different asset with wind and solar. It's essentially linear revenues correlated to absolute power prices. Batteries, what you're what you're doing is financing a trader. Uh convex revenues, it's kind of like a put option. you put it in place, you can exercise it to create value. Uh, and obviously a long volatility asset. So, it's important to understand the difference and don't be fooled by translating that asset um into more of an infrastructure stream by contracting it because when that contract ends or the contract's terminated, what you're going to be financing is still a battery asset. Yeah. So, you're fundamentally saying they're very different. I I think um in part people this is kind of it's really interesting part of the conversation right so in part people will go ah look solar we financed that for a long time it's very straightforward it's very standard and I would say yes the solar panel is technically very straightforward and very standard but actually one of the biggest risks that we have seen emerging over the last few years is the solar what we have seen is quite a lot of solar come to the system and so what was a sort of an asset that maybe got you 90% of the base load price has at times in certain regions been getting much less s and so I'd say there's this kind of you're absolutely right to call out that a storage asset and a and a renewables asset let's say solar are very different but um it's not it's not that say the battery asset is way more risky than the solar asset because solar has all of a sudden got some risk coming into it because of the revenues we're seeing coming through absolutely and and the battery asset is not complex from a technology perspective nor is a solar panel but there are different risks and how you generate your revenue is different um so I think it's important to appreciate that I think we're going to see similar saturation of course in the battery markets like we've seen with capture uh capture discounts widening. Yeah, I mean that's probably one of the top questions we're asked which is if another 10 GW of battery gets built what does that do to the revenue numbers up or down? Obviously it's supply and demand. Uh but that's a sort of a very frequently asked question and I think maybe to add one more thing onto that right uh something that we think about quite often in this space is if we had say 30 GW or 40 GW of batteries already built and then you built extra then all of the existing battery fleet would would suffer right because you have an overbuild but because right now let's say in Great Britain we have six and we're moving towards say 30 or 40 if we overbuild slightly in the short term it's not such a bad issue because the overall trend is to build more and more every year. So you might have some times when you go too fast and sometimes when you go too slow, but hopefully it should kind of course correct over time. That's kind of how we think a little bit about the sort of overbuild side. I totally agree. And of course, you know, you have to balance that against the increasing renewable penetration. So if batteries were all to come on tomorrow, that would be a really bad effect. So hopefully the comparison between renewables coming on and batteries will give the right price signals for how much extra battery capacity needs to be built out. I think we could we could talk about this for a very long time, but let's let's do some more scene setting before we go too too much further. So, ABN AMRO, you're more of a structuring bank than uh say relying on balance sheet alone. Um so, firstly, sort of what does that mean? But also, when a developer walks through the door and says I'm looking for financing, um what does a what does a structuring bank what can a structuring bank do that's slightly different? And then lastly, sort of what deals would you walk away from? Okay. No, you're right that we don't have the balance sheet of some of the biggest um peers in the market. So, we have to find another niche, another strength to get ourselves in the leading role in these deals, which we we like to be in the MLA role um and help ourselves. So, we've got a great team. Um I think how we try and distinguish ourselves is we really try and think deeply about the sectors we're involved in. We challenge ourselves to think multi-dimensionally. We engage with a very broad cross-section in the market. Um and also we're quite flexible. So we're risk um alert but we don't have to get to an end solution in one particular way. We always think um well we if we get to the end result there's different ways of achieving that. So we're quite engaged um and and all of that means that when a developer approaches us with a concept um we're ready to roll up our sleeves. We love the sector. We get very excited about it. So we work together to mold that concept into something we think we can bank and and where we can bank it, it's fine. We there are reasons why we would walk away. For instance, maybe the deal's too small. It's in a geography that we haven't entered yet. That's fine. Or or we see a feature of it that we think that's not for us. We're often quite um I think we're quite generous with our time and knowhow. So we're often giving bankability workshops. We will also say no but maybe come up with a few snippets of bankability advice or tips or tricks. So that way we feel we get very good engagement from the clients. Um and um yeah they know that they can reach out to us and we'll have uh given given the structures and the sector a great deal of thought and I think that's how we get positioned as more of a structuring bank. Okay. And then on the on the breadth of technologies that you cover, how do you achieve that breadth? Is that something where there is a uh as you say it's kind of sector specific so you know very very much sort of what the various options look like or is that something where you have ways and means that you can get comfortable with different types of technologies that are coming through. Yeah we do finance quite a broad spectrum of technologies. So that's probably for a few different reasons. So first of all portfolio diversification is important. we don't want to be overconcentrated in say solar or wind or one other sector. So it's it's more of a sensible portfolio management approach. Secondly, um actually staying versatile on which technologies you can finance means that you can pick the most robust deals across the market. Mhm. So that's definitely a driver. But the third one, maybe the most important one is that when we rethought our energy transition strategy in 2020, we decided we wanted to be a front runner in this market and not just a follower. So if if you want to be a front runner, it means you have to push yourself a bit on those technologies that are still scaling up. So what we decided is we'll give ourselves a little bit more room um to finance technologies that are not commercialized. Maybe not all banks would be comfortable giving non-recourse financing to them and that's a bit of a challenge because non-recourse financing really depends on technology working and normally we work on a a technology readiness scale so one to nine most project finance deals are for technologies at TRL 9 so think of solar PV battery storage lithium ion will be there for instance iron air not yet um so how do you squeeze that into a non-recourse financing mold well what we say is we still need proven technology energy, but we're prepared to take a bit more commercialization risk. So then you drop down a TRL level to TRL 8 or so. Um we have to take all the boxes for project finance, but essentially we're taking that commercialization risk and scale up risk. And by doing that, it enables us to finance um those technologies that need a bit more of a push to really get into that TRL 9 bucket. So carbon capture um the e- fuels synthetic fuels and those sort of business models where the operating track record on large scale is still a bit limited. So so what would you say is the is the kind of the secret sauce to being able to take on those technology readiness level the TRL 8 or TRL 7s? Yeah, I mean obviously we can't u we can't uh we need to we need to make a bit more of an effort on that. So we need to spend a lot more time with the technology analyzing it from an internal perspective. We have to put certain limits around the the technologies that go into let's say a bucket and of course there's increased monitoring in terms of how you go about it. One particular challenge is these models are not developed enough to have a single EPC covering the works for instance. So um when it requires a lot lot of thought on the multicontracting approach we sometimes see um and also we're taking a view on whether this is the first uh or not the first maybe a next of its kind and and whether it is on the path to commercialization we don't want to be financing these technologies on a one-off basis something that's never going to make it right. Exactly. And and that EPC essentially that's the group that will bring that asset to market. Right. Make sure it is uh engineered procured and and constructed. Yeah. spoiled in, for instance, solar with fully wrapped EPCs engineering procurement and construction contract banks like that of course because it's it's often date certain and and fixed price but when you're dealing with split technologies so a lot of the parts have you know a bit of this a bit of that there's not one party that can wrap all that confidently so you get into a split contracting model and then you have to have a higher attention to the uh interface management so I think this is all pretty positive in terms of how you get behind and you support certain technologies And definitely some of those earlier technologies do need the support, but what's what are the things that kill a project when they get into that credit committee? Well, what are the things you look at and you go, "Oh, look, I'm this this just doesn't work." I think it really depends on the institution. We find that certain institutions have certain uh sensitivities. From our point of view, if if I can take batteries as an example, uh the top things that will kill it where we'll decline it is um the percentage of merchant revenues is too high to state an obvious one without suitable risk mitigations in place to compensate for that. And to to give people a sort of context of that, right? So merchant revenues could be very high could also be very low from a banking point of view. You really want to make sure that you're getting your debt back in each year. And so if the merchant revenues come too low, then all of a sudden that's a problem for you. That's that's what you're saying yeah correct. So essentially when I'm talking about merchant revenues I'm talking about fully variable revenues. So you take a high risk on the level of revenue uh it's going to come in. Most project financing concepts are based on stable revenue uh or stable cash flow coming in so you can cover your debt service. So that's why fully merchant is quite a departure for a project finance lender. And so that's the the the revenue side which is sort of one element. What else would be something that would kind of give you a bit of a a warning sign if somebody came through the door and said, "Oh, look, Lisa, would you would you mind could I have 100 million tomorrow? Uh what would give you sort of the the alarm bell?" Yeah. Another one is what banks love to talk about. It's skin in the game. Okay. So, again, it's bit of linked to gearing. So, how much debt is going in, but it's not just about that. um you could have a decent level of equity, but if that equity is not coming from the party that's really developing the project, the sponsor, you can get all sorts of third party equity in sort of bridge lo junior loans. But but what's the skin in the game that you're bringing when you're asking me to put a lot of debt in as well? That's that's a key point that lenders will look at quite carefully. Yeah, I that that makes sense. And then I suppose also the technical side that we were just talking about as well. So I imagine you're looking for sort of track record or that they've got context as well in terms of the space. They understand what they're they're deploying. Um and they they've done this for a while. They have they have an understanding of kind of which part of the market they're getting into. Absolutely. So I mean to obviously there's a technical optimization of the asset. We're looking for a party that's got solid track record and can show some sort of performance. Um our risk team loves to ask about you know backcasting, back testing. Of course that's really important. So you want someone who knows what they're doing. Um, but also on the battery technical side, we've seen warranties for batteries extend from, well, when I first started looking at it in 2020, maybe eight years, and now we're regularly saying up to 20 years in warranty. So, you mean that shows you that the OEMs themselves are becoming more confident with their own technology and that they can warrant longer long-term performance. That's very important that we're looking if we're asked for debt for let's say 15 years that the warranty is not only 12. you know, we want to have a tail an extra buffer period over our debt where the warranty is in place just to guarantee the lifetime and uh essentially you're financing a finite number of cycles as we always say it. So cycling rate is important as well to make sure that you don't shorten that warranty beyond expectations. So I really wanted to then sort of go into tips for people coming through for financing. I feel like we've covered lots of those. I'm not going to ask the same question again, but it's making sure that you're not too merchant or at least there's a there's a structured return that covers the debt portion, the team that you've got together is uh understanding of the market, the technical aspects of the system. We can prove they work and we've got we've got sort of track record of of them doing it. The the team itself has skin in the game. There's there's four I think straight away for someone coming through. Is there is there one that I've missed or is there one that you would add for people? actually it's more holistic sometimes you know we look at a deal and we look at it in the round and we say is is the risk uh reward or the are they out of kilter the risks and rewards are or do we feel that they're fairly distributed the one thing that if I look more generically that will kill a deal is if um someone comes and tries to push all the levers or too many levers they want this this this this way to get cheap financing from a project finance bank is to present a fair deal. So my advice would be think about which lever or levers are the most important to you. Is it to go fully merchant? Is it to have the highest level of gearing? Or maybe you haven't even you can stump up with the equity day one. Yeah. So then come with a solid credit support package to cover it or raise an equity bridge loan and try and cover that as well. So think what's important, come with that, insist on that and tailor the other parts of your structure in order to get what you want. And uh ultimately, you know, we're going to be looking for a fair risk balance. Okay, that makes sense. On in battery storage, you have done lots of contracted projects. You've also done some that are are more merchant. What would you say the comfort zone is and what do you need to see if you're going to sort of move outside of that comfort zone? Yeah, we've done the full spectrum indeed. So, from fully merchant, small contracted percentages up to fully contracted. Comfort zone. I would say in general we're not actively looking for fully merchant deals. Um mainly especially not when we're asked to finance long-term. So medium to long-term financing and fully merchant is not um is not what we're looking for actively. Um mainly because I do feel we're still rather at the start of this market and there's a lot of uncertainty. So um also to be honest there's a lot of deals coming down the pipeline. So it's not like we have to do those sorts of deals. I would say the genuine comfort zone or or is partly contracted, partly fixed, partly floating. We can do up to 100% fixed, but I'm going to say that's not my preference for two reasons. One, um I think it's it's I mean this is a battery that trades on volatility, right? You should have um it's nice to actually let it do what it's meant to do and profit from the upside in the short term, but from a financing point of view, that also provides a bit more buffer in case things go wrong. Um, fully contracted often means low debt buffers, but you still have operational risks that need to be covered. So, that's one reason. The other reason is when you get to fully 100% contracted, there's all sorts of liquidity that can come into this market and then I don't have such a right to play. I, you know, if for a bank that can take a bit more risk and have a bit more merchant as we can, that's where I want to play. I think that's actually a really sort of underappreciated point in all of these battery markets and that is that if everything was 100% contracted then we really are in a pure sort of cost of capital shootout kind of territory and that means for lots of players in the market today who want say mid- teen returns. It's not a market for them anymore. There's not the risk that requires someone to be coming in and trying to sort of seek higher returns. And so I always sometimes think when people say I'd love to have like a fully contracted uh revenue stream. I think well hold on that's not actually compatible with kind of who you are and your cost of capital that's much more a utility corporate financing type structure or it is a very big infrastructure fund type play. We're we're seeing both actually. We're seeing conscious decisions being made to derisk the asset completely um and go for those lower returns. Maybe you compensate through a higher debt quantum but that's a conscious decision from some parties that um then then are sort of asset managers. I guess they put the risk but also a lot of the reward as you say with the tolling party, the other party who's then really getting the full value stack from the battery and others um take a different route. They're not doing that or or they choose to to go partly merchant partly. So I think we're seeing all all sorts but you're right. I mean this is just like with wind and solar uh a lot of parties do choose to stay fully merchant and try and capture some of the upside. Okay. And and when it comes to structuring that battery deal, so going away from being sort of fully merchant and having some options to give some security around what that revenue level will look like, there's a growing menu of choices out there. Uh ranging from your sort of full physical toll, we then have a virtual toll and then we have things like floors that exist to name three. uh which of so maybe let's talk a little bit about what those are and then also which of those do you see as gaining traction right now? Yeah, you're right. There's a growing menu and I must say the parties in this market are very inventive, very creative. There's always another combination of of both or so I try to keep up but my background is in structured finance so I find it incredibly exciting. Uh the offtake side I mean the three main ones let's talk about tolls. So physical toll what I'm doing for to break it down into a simplest form is I'm giving the rights to the battery to someone else in return for a fixed fee per megawatt. So that party which is normally a utility will just take over literally take over the energy management software of my battery. It will control all the dispatch decisions and it will get the returns from the battery. It can also use it for balancing or whatever it wants. effectively um it's a long lease and you're not you haven't got the right to enter the house um and there's a fixed payment coming back in return. A virtual toll is a variation on that but instead of giving the keys to the battery you're giving capacity a certain part of capacity is contracted away for a fixed uh price and the offtaker has the right to control the dispatch decisions but they're not physically executing those um on the battery. So what they'll do is send nominations through an API interface and the asset owner will carry those out and then either physically settle with the virtual offtaker it's normally a utility as well or financially settle some positions. Now in a financial toll um the asset owner retains the full rights to dispatch the battery they're controlling or or an optimizer that they've they've um outsourced that to and then the financial party is really making a bet against battery performance. So they'll be separated. Um they'll have a contract where they give some form of fixed price or floor price and in return they'll share in the performance of the battery. Um maybe two models that we've seen is a floor done through a put option and then the call is where you call um a profit share back. Mhm. Um and another way you can think of it is potentially um um a total revenue swap on part of the battery. So you contract let's say 50% of your battery for a fixed fee and you get 50% of the return. So those are the kind of tolling models that we we've come across. And which one which one would you say you're seeing sort of gaining traction uh right now in the market? I think I think the if I can say generally across Europe the more the most mature market started with more the optimizer guaranteed floor and upside structure but since tolling has been unlocked which and I could say unlocked because we really saw utilities waking up to the value of this battery so they're coming into this market quite um in abundant numbers let's say I think the tolling model is prevailing even in the UK we're seeing that uh done but the the the thing that's really in vogue and particularly in Germany is the partial toll where you know you do have to give away quite a bit of upside to fully toll your asset or or give it away fully. So the offtakers or tolling parties have said okay well um I won't give you 100% fixed fee you can have part fix and I'll give you uh 30% reference to merchant either an index or the performance of the battery so partial toll and maybe this is is easiest to understand from the asset owner's perspective which is they've got debt commitments that they have to repay in all circumstances right and so they're looking to make sure that they can always repay those debt commitments and so a toll that gets them to that point should enough of a toll and anything that comes in above that is upside is is it makes the project interesting that's kind of equity type returns and so I think that's sort of part of the reason that that pushes us towards the sort of partial toll structure maybe one thing that's quite interesting on the tolls is that they they do just take quite a long time to organize and to execute these aren't sort of deals that you can do in a week um it always makes me think that there is perhaps like a slowing down of the market when a lot of it's relying on tolls. Uh so I'm I maybe they sort of harking back for those early days of just sort of profit shares and and flaws coming in where you know take that to a credit committee you can get it through in a not too long period of time but those tolls they are chunky pieces of work. Yeah. And I think they are more complex. So indeed the sort of optimizer you've got your optimizer anyway. They'll calculate a floor that they're willing to settle at uh or guarantee. It feels easier. It's also easier from a bank perspective. Tolls may be more secure because you've got a higher percentage of fixed revenue typically, but they are more complex for a few reasons. First of all, the asset owner, your borrower is actually giving some warranties to the toller. You don't have that in an optimization with swap. I mean, you have to keep availability at a certain level, but you really you can be paying liquidated damages to a tolling party. Um, so there's a lot going on. And also when you look at grid constraints and similar there's a lot of topics that need to be covered in the toll. How do you calculate the termination value? Are there any caps on that? What's the agreement on cycling? If you overcycled you have to pay a compensation payment. Yeah, I mean luckily we come in probably at the end of that negotiation when that's all happened. Um but we do hear it's quite involved. It is it is quite involved. You sort of when stuff goes wrong, how do things get settled? How much gets paid to each party? All of that has to get defined up front which just means it takes it takes time. So So then we we've talked a full tolls, physical tolls, virtual tolls, floors, uh uh the menu as it were. Um which of these sort of options worries you a bit? Well, the one that I think is which I didn't touch on actually because I don't consider it at all myself is um what's known as a day ahead swap. And the reason I think that's uh it it's trickier than the others for various reasons. Let's start off with what a day head swap is. Yeah. Okay. Yeah. So, let's start with the fixed floating swap on interest rates. I think that's a fairly vanilla product that everyone understands. In that case, you'll have a fixed paying counterparty um who has calculated what they're prepared to pay. And how they're doing that is they're looking at forward interest rates and discounting them and that's the fixed payment and they'll take the actual interest rate going forward. So, very common way to lock in floating rate interest that you're paying to the banks. Now, this is the same concept but applied to the day ahead wholesale market and the spreads that can be achieved on that. So, you'll have a counterparty that's um it can be the same party as the optimizer, but it can also be a separate party that just wants to make a financial bet. Mhm. They'll calculate their fixed payment capacity fee for that particular battery and then um they'll get paid a floating rate. Now the rub here is that the payment under the floating leg is actually uh completely separate for how the battery performs. Now there's there's various types of this product. There's various flavors of how you do it. But the one that's trickiest I think is called the perfect foresight model. So essentially it's also the simplest. You just the floating leg will pay based on the outcome of the day ahead market. So the top and bottom uh and that's your spread that you take if it's a 1 hour battery or two top two bottom if it's a two-hour battery. And what that introduces is uh a form of basis risk. So spread capture risk I call it. Yeah. Because of course for sort of someone on the street listening to this essentially that the the product itself the difference in the highest price in the day market and the lowest price in their head market doesn't actually match with what the asset is making in terms of its performance. Correct. It may not match. It may not match. Um, and you need to look at this product from a few different perspectives. Okay? So, it's not a perfect hedge. Everyone appreciates it's more of a proxy hedge and it's a downside hedge on day ahead spreads. That's that's how it's written. The theory goes that the optimizer will always trade in day ahead and they'll only trade away from that position if they can improve upon the return. Mhm. So, essentially, you shouldn't be making a loss on this trade. If you look at the fixed floating swap in isolation, of course, the fixed leg will be set by with a bit of a counterparty um and and credit risk discount. So, it probably will start slightly out of the money, but going forward, you should be able to make at least what you're paying away under the floating leg. Yeah. But we've no guarantee that that's the case. And so, in that respect, and given that you're always swapping payments, instead of having a guaranteed fixed payment, you've got a differential payment flow happening. and we don't know what it's going to be from a bank perspective. So when we like to carve up revenue stacks into fix and floating, it's a bit harder to identify what should be fixed in this case. Um so that presents you're putting um you're putting a high trust in the optimizer to get it right. But if conceptually they were to miss a really big day ahead spread, the point is you'd still have to pay that full spread under the floating leg in this model. So Mhm. that's why it introduces a few um additional could be um not only have you not sort of captured the best revenue but also it's the the big spread that you've missed you then have to pay out. So the sort of entity becomes sort of down or loss loss making from that perspective. Exactly. And it can take a while. I mean hopefully they wouldn't miss such a big spread because it's quite the reason this is done is this is the easiest part of the revenue stack to predict. Yeah. And it offers quite a bit of flexibility for asset owners to separate the optimizer from the financial counterparty. They can switch them out and economically they get both uh a higher value for the day ahead revenue stack. So they're not penalized as as much under the toll. They capture most of that value through this product and also the optimizer fee would be a bit lower than a floor and upside. So there are advantages for it but it's important to understand that it's not the equivalent of a fixed payment. Yes. Yes. And when you understand those risks, then you can introduce the appropriate miticans to structure around it and make it bankable. Yeah, it's it's really interesting. So, um it's definitely something where we are seeing a few more of them coming through. As you say, they're not as fixed as say your your tolls or your flaws. And so, from a financing perspective, that is harder. I think one interesting thing that I've seen around it is the sort of duration of the assets as well. So it um if I look at sort of all batteries that we would track over many years, I think nearly all batteries always capture the day ahead spread. That's is pretty true to be to be to be fair. Um it is however possible that you could miss a day spread in theory. Um and in some markets this might happen. So imagine a world where the forecast suggests that tomorrow is going to be um a really tight and a really sort of scary day for power markets. And then we get into tomorrow and all of a sudden these gas units or this nuclear unit that was that were off um are actually back online sooner than expected or the solar that was predicted to be bad actually happens to have a sunny day or a wind front comes through sooner or an interconnector that was down turns back on. There's a whole list of things why it might change. All of a sudden you had a really big spread of the day ahead and then you go intraday and actually that spread has has vanished. Oh yeah, that spread has vanished and so all of a sudden the market is much more stable. So in theory it could happen. In reality I think the the the batteries missing those big spreads is quite unlikely. Um but I don't think that gets us away from the problem which you were sort of describing which is that there's still a sort of floating element to it. Yeah. and and and you make a good point in that you should be able to capture the spread. But the question is, have you matched your hedge in terms of volume with the amount of revenues you're going to get from the day ahead market? If you think, well, 50% 60% of my revenue stack will come from day ahead and you put a hedge on 100% of your capacity, that's mismatched potentially. Or so we we say, you know, there's a few mitigans you can introduce. First of all, have a have it as a conservative hedge strategy. try and match those things. And you mentioned duration. So, um the perfect foresight assumes the battery starts uh it needs to charge fully. So, obviously you can improve upon that if you already start the day charged and you can get upside. But if you've used the battery earlier in the day, you may not be able to get uh the full um the full value. So, then you're a bit, you know, out of the money on that one. And um the other thing we're seeing with that is sometimes in an effort to make these simple offte structures the battery specifics such as um run trip efficiency and degradation are not being built into the hedge itself which means you also don't correlate it with the actual battery performance in terms of you know how quickly it's going to uh charge and things like that. So I think getting those matched and and those are easy drisks. I mean, not easy in that you've got a more complex negotiation on the day ahead swap, but the closer you can bring it to the reality, then the more you're de-risking it. Okay. And maybe maybe to to sort of wrap this up, I suppose with a sort of full toll of an asset, you might be able to bring in a lot of debt into your project. So, you might be able to have quite a high gearing for your battery project. What is what I or how I think about this is there's a sliding scale. Yeah. Right. So your sort of your the amount of debt that you bring into a merchant project might be down in the 30% range. Your debt that you bring up into a fully told project might be 85% the sort of top end of the range just sort of ballpark numbers right and then things are a sliding scale between that. So if your day ahead swap is in place then maybe that offers you some additional security to get you away from a sort of fully merchant structure. Uh but it's not the same as a top. Correct. And I agree it's a sliding scale and it is project specific. So you can't always pick a number of or pick an amount of debt. It does depend on everything. But yeah, I mean I would put it somewhere between a sort of real guaranteed floor and fully merchant. It's somewhere in between and and there's different versions of it that are more derisked. Um but I think there are economic upsides. On the other hand, if you um you mitigate as much as you can, you have another look at the product, it may be that you need to take extra haircuts maybe from your merchant stack to cover that spread capture risk for instance. So um so that will play in how much debt you can actually put in overall for that product. I think it's really interesting just for just sort of the transmission listener at home who's kind of going like I um how does this all work? Like a batteries a 20 foot shipping container has gone into a field and it's sort of charging and discharging helping to balance the grid. seems all quite vanilla, doesn't it? It all seems quite straightforward. I think the the really interesting thing and part of like what's really interesting about batteries as a sector is is kind of these types of conversations which is there's so much nuance in like structuring things in the right way to make sure that the the risk is appropriately balanced between parties and then we we actually have a successful project that we bring forward. It you know we you often I often trivialize batteries that they're sort of like Lego and you kind of plug them in and then off it goes. In reality, I think listeners have just had a a bit of an insight into what it's like in a in a bank's credit committee to be going through and stress testing which route to market agreement to go with. How do we make sure that this is actually financed and in a way that we can sort of all get behind and support? Yeah. Simple technology luckily um but the structuring around it is can be quite complex but that makes it exciting as well, right? It keeps us work to do. Yeah. Yeah. Exactly. We'll we'll we'll we'll take any work that's given given our way. Um Okay. So, so you've been active in a number of markets. So, just moving on from the structuring onto the location. So, Netherlands, France, Italy, Germany, uh to name a few. Which markets have been a positive surprise for you? Yeah, it is interesting because we've been in quite a few markets. Um and you would think that there's a lot of differences because the power market makeup is different. Uh the revenue stack makeup is different, different environment, different levels of maturity. But it's actually more similar than you think because the types of revenues that a battery is trading or or trying to trying to um optimize to receive are relatively similar. They might have different names. There might be different um you know the grid operator has decided they've got different uh things that they want to to procure capacity for but it's quite similar. I would say the big variable is grid. Okay. And when I talk about grid, I mean these are grid connected assets, whether you're on the TSO network or the DSO network. Well, you could be behind the meter, but still transmission or distribution. So like high voltage or low voltage, mid uh yeah, mid voltage. Um so what are the considerations from grid? The first of all is um are you going to get a grid connection? When are you going to get a grid connection? What's that going to look like? Are you going to be able to charge and discharge um on an without any limitations? And probably most importantly for financing, when are you going to have certainty about all of that and how much are you going to pay in the way of grid fees? That also very important for financing. Now um we're seeing a a big spectrum of um um how grid operators go about this. So some countries give a full exemption for batteries for a certain number of years. Some of them were talking about pulling that back which bit of a hot topic in Germany. very well I was going to come on to Germany because maybe you start with a less pleasant surprise. So Germany looked initially like a very attractive market 20 years exemption and it is still obviously the fundamentals are very attractive fundamental exemption from the grid fee from the grid fee um but now there's a new grid reform coming but what's I mean let's see how that pans out I think probably there a lot of countries are going to go the same way which we can talk about but there it's a little bit different to other countries in other countries you're financing once you've got your grid connection secured and in Germany developers were relying upon a grid reservation offer or or you know reservation agreement with conditions or or you know that that was meant to be what you could rely upon. But what's happened and particularly at the distribution level is that when you get your actual grid agreement which can be as late as COOD the commercial operations date it contains restrictions that you weren't expecting. Now that is very bad for a battery that needs to ramp up very quickly to capture uh top spreads and prices. So this has caused a bit of cont concernation and actually we're wondering well okay when is a suitable time to to actually put financing in or even from an equity point of view make uh take a a final investment decision. So that's in a bit of um flux at the moment I would say if you contrast it to the Netherlands now counterintuitively um I would say it's better in the Netherlands because I say counterintuitively because we do have grid fees which are quite high. So why would I say that's better than a full exemption? The reason is um high levels of congestion in the Netherlands has forced the TSO tenant to really think about how they're going to tackle this. So most batteries go and get a time dependent transportation rights agreement. That's a lot of letters, but what it effectively means is you have an agreement where a tenant can cretail you a certain percentage of the time. Mh. Now that's not great, but it gives you certainty. You've got a cap to work towards and you get it early. So you can sign up if you can sign it. um if you can sign that you've got um you can model it. Mhm. So it means the impact on the battery can be known. It's that transparency and risk as long as it's clear what the interruption might be even if it is say a two or 5% reduction. If you've got uncertainty there might there might be some other larger impact coming down the line. You think oh god I actually it's then very difficult to back that project. But as long as you know what it is up front and somebody says look there there there is going to be a congestion problem and it's going to look like this. As long as you can model that, well, we we we love that type of information. You can model it. Yeah. Exactly. But then we can tell you what that what that might mean. So, um and offtakers, you know, it's quite important when you're agreeing a tolling contract as well because there will be technical uh agreements that you're making on operation of the battery. So, you need to know that you can deliver it. So, I mean, certainty upfront is fundamental. And the second thing that the Netherlands does uh quite well is they've started to reward flexibility. Mhm. So you might start with a high notional grid fee, but if you accept this um flexible agreement, Yeah. you get a full exemption from your capacity fee and then you'll be on a time of use tariff, which a battery should be able to ensure that they exploit to the fullest. Exactly. And we've done a lot of work on Germany looking at uh dynamic tariffs and flexible tariffs for network connections. It's something we're very excited about. We think it's a good solution. If you give batteries an incentive to either charge or discharge to help the system, they love to do that. That is something that they are inherently flexibility, right? So when you add them to the system and ask them to be flexible, they want to do it because well, a they're being paid for it, but also this just making full use of where they are in the system and and what they're able to do. So yeah, really really interesting. I think we um it's always interesting to see to hear which grid have done well on connections of form because every grid's trying to move at uh 100 miles an hour and they're creaking all over the place. But yeah, great to hear that the Netherlands is one that we we like. It's one model that you can actually you know gives you certainty and I think in Belgium, Elia is uh starting its consultation for the period post 2027. It's not inconceivable they move to a similar model because I think flexible connections are really how how all grids are going to have to end up. Agree. Agree. Okay. Uh final question for me. So uh if uh you were to take off the financing hat and move towards being in charge of the entire European power system uh tomorrow, what's the one change that you'd make? Um is it battery related or you it can be any change. Yeah. So, I was thinking I don't think we need much more incentive for batteries now because everyone's decided that there's there's plenty coming down the pipeline. So, it's obviously not that difficult. I'm sure your listeners are say calling going Lisa say say a binding regulatory rule book for for DSOs. What I would actually say because it needs to be grid friendly uh but but what I would say what I would change and it's kind of a bug bear is I would make grid operators I would ensure grid operators and the way they're remunerated change and I think in in they should be remunerated for how efficiently a grid operates. You might know that most grid operators are, you know, they work on a sort of RAB model and typically historically it's been, you know, build out a transmission line, spend capex, get paid on a return based on your capex. So the more you build, provided it's within these rules, the more you'll get paid. Exactly. Now, I don't think that gives much incentive to use the grid more efficiently. Now, some models are moving more towards totex. So it's OPEX and uh capex and occasionally you get a few sweeteners or a few extra points for innovation and efficiency but is very far from the model I have in mind. Yeah. And I think forcing Yeah. It has certain advantages. So you force the grid oper operators to make the most of what they have before building it out because that's going to take forever. Yes. Uh, and on top of that, give them congestion penalties because um if if they're allowed to do um well, if they're allowed to buy in battery capacity, let's say uh but they're also penalized for congestion, I think that way it will force the grid to be more efficient and they can actually uh the business model would open up and they can actually contract that capacity from batteries. Um it's a it's a big risk, right? So, if you're a battery owner and all of a sudden the connection goes down, you don't get paid uh that money. You don't get paid back by the grid. It's just a risk you have to bear. So, being able to sort of create some sort of penalty scheme, you know, you show me the incentive and I'll show you the outcome um is is the system that you see. Yeah. But to be fair to a lot of them, they're not allowed to uh buy batteries or use them at the moment. So, let's enable that use because we all know what batteries can do. M um and um yeah, first of all, make the grid that you have more efficient and only when that happens, then go and spend money to build it up further. Grid more efficient, yes. Incentives, yes. System operators owning batteries. Oh, we might have to disagree there. Contracting capacity. Contracting capacity. Okay. Okay. Uh Lisa, thank you for coming on. You've been a fantastic guest and uh look forward to seeing that roll out across Europe. Thank you very much.