Private equity and the future of energy storage with Jim Mills (Managing Director @ Adaptogen Capital)

Hi. Welcome to Transmission. Today we're joined by Jim Mills who is the MD of Adaptation Capital.

Jim has raised and deployed a private equity fund in the space and has extensive experience in the sector. We're gonna look at the last ten years of battery deployment as well as some of the critical changes on the horizon.

We're gonna highlight two really critical trends and I'm not gonna tell you what they are, but let's jump in.

Hello, and welcome to another episode of Transmission. Today, we're joined by Jim Mills. Jim, welcome.

Hi there. Very nice to be here.

And just to get started, we're gonna run through some intros. So who you are, what companies you're linked with, and what do these companies do?

Well, I'm a an energy investor at heart. I've been investing across the energy industries for twenty five years. I'm the managing director of Adaption Capital. We're a specialist battery storage private equity firm. We raised a fund to invest initially in UK transmission connected battery storage assets, and we've also built up an operating platform that's owned by our fund called Varco Energy. So I'm also a director of Varco.

Okay. And in terms of assets live in GB, do you have any assets currently live?

Yes. The first one went live just over Christmas, so that was very exciting for us. We've got another two in construction coming on stream this year. So that's, two hundred and fifty megawatts will be on stream by the end of twenty six and then a similar amount in the pipeline.

Okay. And I was just checking that before I came in. We have it down as native river. So, yeah, good to see it go live.

Yes.

It was a big moment for all of us and particularly for the, the asset management team to get it on just before Christmas.

Superb. It's great to start off with a celebration of that. And just one comment on the fund.

So is that fund fully deployed?

Yes. It's fully committed now. It's perhaps not your classic private equity fund. We've got the original founders of Adoption put a lot of capital into it, and we've got a very broad mix of institutional but industrial family office investors. And I suppose, you know, one of the things that maybe gives us a slightly different flavor to other productivity groups is, you know, we some of our founders, I think, built almost the first ever battery back in twenty fourteen to connect to the grid and certainly built the first large balancing mechanism battery in twenty nineteen. So we've got a long personal investment experience in the industry pretty much from the day it started as well as the more institutional fund experience now.

And I think this is gonna be really central to this conversation where we're gonna start to pull out some of the big themes that are happening within storage and GB because there has been a lot of change. And I think getting the sort of investor view on that change is going to be really important for influencing and trying to steer those changes towards something that's sort of a structurally better future with, for example, lower costs for consumers. And let's start off because I know you want to run through two large themes. So over to you.

I mean, I think in the context of a market that is is recovering from quite a tough year last year, I think the first theme that we're very focused on is just how central the asset class now is to the transition. I think it's now absolutely clear that government, NESO, the system needs to quintuple the size of the fleet from five gigawatts to twenty five gigawatts by twenty thirty. And I think, you know, we've talked about those types of numbers for a while, but but we're now getting to the point where the scale of investment we need over the next five years is very significant. It's a real acceleration in the sector. We think we're looking at between one and a half and two billion a year pounds of capital invested. And I think whilst, as I said, the macro environment for BESS in the UK has started to recover, I think it's a big challenge for all of us to actually enable that scale of industrial flexibility to be deployed by twenty thirty.

And I think what we're seeing one of the things we're seeing in the recovery in the revenue environment for batteries, some of it is obviously cyclical with gas prices going back up, and we had a cold winter for the first time in several winters. But there is a clear structural trend appearing now underneath that, which is that the base load power generation in the UK is disappearing. We are getting a tightening of the underlying power market, but we are also seeing clear empirical evidence of how a high renewable penetration grid behaves.

And the price volatility and sort of congestion implications of that high renewable grid. So I think the importance of BESS is now, I would say, self evident. And really, the question we have to answer is how do we deploy that much capital and how do we strengthen the commercial models around that capital deployment?

So that first theme is just the size of the investment need, which you've kind of highlighted is that one point five to two billion per year, which is frankly an enormous number in commercial I think it's a you know?

I mean, you're doing the numbers. It's about five, six gigawatts a year, and there is a question of what duration that will be. I think we would be in the camp that says we are now two hour duration at a minimum, and we will see the commercial price signals and the commercial incentives for batteries to move to three and four hours coming through in the next couple of years.

Yeah. And I think one one thing that you mentioned just right at the start of that, which is interesting to think about, and you've had the context on this space for long enough for it to not have always been true, and that is that batteries, as part of delivering a low cost system to consumers are very much an inevitable or a very much required part. It felt like if you went back ten years and looked at those first assets in twenty fourteen, it wasn't always the case that it was absolutely going to be batteries that were going to be providing, for example, intraday flexibility. There were other options on the table. And how do you think that investment landscape has changed now that we kind of are in this position where we have gone from it's an option, but we're not sure to it is a fundamental need for the system to get this?

I think there is no doubt that we require storage and flexibility of the full range of durations to get to the hundred percent net zero grid.

But I think it is now very clear we need that twenty five gigawatts of two to four hour duration to get to the twenty thirty sort of ninety five percent.

And there is no way we can operate a very high renewable penetration grid without it. When we look at the price signals, when we look at the commentary coming from NISO, it's clear they are grappling with ever higher levels of physical volatility on the system in terms of congestion and flows, let alone the price volatility we're beginning to see. Obviously, we've had the very high prices in the winter, but I think we would actually be more focused on the duck curve economics and the low prices that are clearly coming as well, perhaps earlier than we might have expected in the UK.

So so I think that rise in physical instability is happening month on month, let alone year on year. So we will need longer duration forms of storage. I personally think lithium will be able to push its duration right up to ten hours. Over time, we will need it all. But I think the conversation has moved on from whether BESS can or can't have a role to play to the fact that we cannot run the net zero grid without very, very large scale deployment of batteries.

Agreed. And you kind of highlighted three things, and so I'll just kinda revisit them. So number one was kind of the scarcity element. So this concept that demand might be high, wind generation might be low, and you need something to turn on.

Historically, that has been gas, but as we move away from gas, perhaps storage is going to be picking up that that scarcity. And we could certainly talk about the winter just gone because there are some lovely examples in there. The second is oversupply, which is when we have more renewables than, let's say, demand, and that can cause near zero or negative prices, particularly when the phenomenon extends into Europe. And then that last was congestion, so this kind of concept that historically we've run off thermal assets where you can link the size of the grid connection and the transmission lines linked to it to the size of that generator.

Now we're adding more and more renewables in certain locations and the trans the size of the transmission lines to connect that to demand haven't always kept pace, which creates this concept where you can't flow all the energy down the transmission lines that you want to. I think just to kind of spend some time on those three, so the kind of scarcity, the oversupply, and the congestion, Which of those problems do you think is kind of is best suited for BESS?

I would say all three, and and I think this is what's so exciting about the unsubsidized investment proposition for battery owners is that we can offer cost competitive solutions to the system for all three of those.

The I think the scarcity side of things that there is a volume duration element there where I do think we will need some kind of backup, baseload, or peaking type solution. I am very worried, though, that that the non best solutions being new nuclear, CCS combined cycle, or pumped storage, even if we actually started construction those today, it's at least five, seven years before they can provide any relief to the system. I think the one that that has been spoken about least or the it's the other two that have been spoken about least. When we look back at the modeling that, say, Imperial did of the twenty thirty system with a lot of wind, what we've seen recently is exactly in line with that model. The problem is the volume of excess renewable energy that needs to be load shifted in time into when and where it's needed in the system, where frankly it's valuable to the system.

And one of those is load shifting over production of renewables even in a perfect transmission grid where you could transport all the power from Scotland or all the power from the south in in solar to where it was needed in the center, you still would have very low prices because there is just too many green megawatts at that point, and it's needed in the peaks. But also with congestion, I think there is a sort of societal question of should we build transmission and make consumers pay for transmission to meet the absolute maximum flow of renewable generation, or should we actually store and load shift it using flexibility assets instead? And I think I think the commercial case for batteries is probably weighted more to the second and third of those themes actually than the first.

Yes. And scarcity, of course, gets such a headline grabber. Right? So there's x gigawatts between the lights going out, will always find its way into the sort of the top of a newspaper.

Oversupply in terms of negative prices is a lot less exciting as a as a kind of news story, but no less valuable for storage because it creates the same spread, which is obviously what storage is after. And I think kind of onto the last one, onto congestion, I think perhaps is the most interesting because the question I the world I'd like to go to with this is as an investor, what how would you like to see the market changed in order to enable you to run the business case that you would like to? And I think within current markets, scarcity and oversupply, you can more or less kind of pick those up in terms of debt ahead markets or interest rate markets.

But congestion is not as obvious.

It's not. And I think this is where some of those themes that a lot of people will be aware of around skipping and whether we whether batteries are allowed to compete on price in the balancing mechanism really come in. I I think it it's very interesting.

As an asset class, we are the almost the only unsubsidized asset class. There obviously is some capacity market revenue, but it's been so heavily derated. It it's not a material amount. And there are lots and lots of players in the green energy sector who have subsidies and want subsidies and demand subsidies.

I think, frankly, you know, the most attractive thing about BESS is they don't need subsidies as long as we are allowed to compete on price against fossil fuel and on price as alternative to some of the congestion problems we see. And so I think the main ask we have as investors is the digitization of the system operation is pushed through and that we are allowed to compete against fossil fuels in particular on duration and not be limited in what in the economic solutions we can offer to the system.

And just to make sure that's kind of tied up for everyone listening, so you've kind of got the scarcity and oversupply side, which is in wholesale markets, and they are very much open and available for anyone to trade. On the congestion side, that's dealt with within the balancing mechanism and actions within the balancing mechanism, which is run by NISO's control room. And in order to be dispatched or to be accepted within that, they need to accept you as a as a as a unit and accept your your bid or your offer. So generally bids to turn down, offers to turn up.

And so in order to help with congestion, you need to make sure that the control room is using you effectively. So when we're talking about skipping, that's effectively when assets are not used as effectively to solve the congestion problem. And so I think that really does bring home that focus around if storage can be effectively used within the control room, then that third bucket of congestion becomes a really important part of how investors see storage solving problems on the net zero system.

Yes. And I might add, you know, that's where this issue of duration comes in. If you look at how the net zero CP twenty thirty grid will operate, we will need to push off gas at huge volumes of sort of, you know, gigawatt hours of power from the system by pricing more cheaply than gas, and therefore, the consumer will pay less to balance the system. And I think, you know, we you know, our first asset came on stream at two point four hour duration, and I remember very well us making that decision to design that system at that scale probably four years ago when we originally went into planning.

There is an element of the battery industry is trying you know, the skating where the puck will be issue. We are trying to design our assets to provide flexibility for the system in three to five years' time. And this volume or duration of operations that we can offer to to relieve congestion and load shift, I think, is a crucial factor. We need to be allowed to respond to price signals about the value of providing two or three or four or five hours of load shifting to the system.

Yeah. And And I think when we talk about duration, often the kind of two to four to eight hour range feels like it sits within something that you can get a good commercial signal for from scarcity, from oversupply, from balancing mechanism instructions. When you go beyond that out to say twenty hours or thirty hours, it really feels like the market doesn't give a really strong signal for that. And so do you think there is a a kind of tipping point that we should have kind of almost like a two tier system where half of the market is subsidized and half the market isn't when it comes to storage, or would that not work?

It's a and half the market isn't when it comes to storage, or would that not work?

It's a very, very difficult question to answer, to be honest. Look. I think it's very clear. There is a natural four hour to six hour duration, one and a half, two cycle a day system operation mode here. You know, we will have the duck curve at massive scale in the UK probably this summer onwards. We will have the overnight lows with the wind capacity and very low demand, and we will naturally have two peaks. So, therefore, I think there's a natural role for batteries to to every single day balance the system on that four, maybe up to six hour duration.

Longer duration is fundamentally insurance policy economics. It's it's very difficult to make it work commercially.

We struggled to make it work in the gas industry twenty years ago, and most long duration gas storage ends up being government funded historically. So I think that part of the system probably does require some subsidy.

But I also think for now, the most important thing is how do we get to twenty thirty, and how many batteries of two to six hours do we need to actually truly enable that that system to operate. And there's an enormous amount of work to be done, not just on on the sort of the system processes, but on digitalization and understanding that that the grid in the UK is becoming a very highly complex beast in real time.

And the I personally don't think there is any other way to keep the lights on and optimize that highly complex net zero grid without using algorithmically controlled batteries cycling very quickly and constantly optimizing against an increasingly variable demand and supply situation that's changing almost minute by minute.

Yeah. Agreed. And so let's come on to that just that just in a moment, we'll come on to that digitization trend. But first, let's just kind of wrap up that point on the subsidy.

Today is second of March. We will have a technical document from Ofgem around Elders soon in terms of what the cap and floor structure might look like for long duration storage. So will it be eight hours? Will it be ten hours?

Where are those cap and floor bands set? And potentially, what volume might even go through that process?

And I think that would be really interesting. There is then a natural concern from short duration storage that if you subsidize long duration storage and you over subsidize it, then that might start to have a missing money problem. So this kind of concept that short duration storage will lose out because long duration storage, although it is long duration, also can do short durations. And so there's kind of there's a bit of a concern that comes through there. I think what I thought was really interesting in your response was provided that long duration is of a limited size and scope, and there is a kind of there is a market in place that allows twenty five gigs to be delivered in short duration storage. As an investor, you're kind of okay if it's all done with a degree of common sense.

Very fair. You know, with all the other regulatory changes going on, it is just one more in the mix. I think it's most important that we allow we don't let LDAS subsidies distort market signals. I really only I really believe the only way to solve for the net zero grid is through price signal constantly optimized. And I think, you know, the perhaps the power industry is not just still not really aware of just how disruptive this change is gonna be and how how digitized and algorithmically driven this industry is going to be in in our opinion.

Yes. And I think we have now been calling for the second trend quite strongly. So let's get on to it. What is the second trend that you see changing markets?

I think there is still a lack of deep understanding about how disruptive battery storage as an asset class is and is going to be. And I think, you know, we've talked already about the digitalization trend. I think we've seen that trend in other markets. We've seen it in financial services. We've seen it in equities and commodities.

And the power industry is almost the last sector to really have that sort of force wave of digital optimization overwhelm it. And it's not a bad thing, but I think the implications are that you can't centrally control a system like that where consumers are constantly changing their profiles, where producers are constantly changing their profiles, where you have the inherent volatility and intermittency of renewable massive renewable generation fleets. The digital system is going to require every player in the green energy sector and the traditional sector to change their modes of behavior, change their revenue models, change the systems they have in place, and change their mindset.

But I think linked to that is a is another form of disruption, which the industry, I think, misses, and I do think government and policymakers miss. And it's the disruptive cost trajectory of the battery storage sector, this relentless cost down.

Obviously, you know, some of that is driven by the maturing of the lithium industry, and and and this is Asian consumer electronics, And we're very much also benefiting from what's happening in the EV sector, but that is a remorseless, disruptive Mhmm.

Cost trend. The second, I think, is slightly more subtle, which is, you know, we are fundamentally a power semiconductor and inverter technology.

And so it's not necessarily Moore's law, but there is an element of this relentless technology development.

And I just think it means that we will see the solutions best can offer in five years and ten years being dramatically more commercially viable and beneficial to consumer cost and the system cost than they are today. And I think a lot of the other technologies in this industry just cannot benefit from that. You know, fundamentally, the cost of concrete has gone up forty percent in the last four years, and many of the very large power generation technologies require a lot of cement.

Many of the technologies involved in process industries are about, you know, compression and and and managing molecules.

And it is very different difficult in those nonelectronic sectors to get that kind of relentless cost down. So I'd I just hope that with some of the regulatory changes we're seeing in place that we don't we've got to allow the technology to compete and to show its true competitiveness.

And I think we're very confident as investors as long as we're allowed to compete fairly and openly that that there's a very attractive medium term financial proposition for battery storage here.

Yeah. And I think there's two there's kind of so there were two buckets to that of which one was the cost trajectory of BES, and the second one was on the data side. But let's let's start off with the cost trajectory. So we ran a survey last year on on BES costs for delivered battery projects. And just the DC component of that best was coming down from twenty twenty four to twenty twenty eight by fifty percent. So, you know, within four year virtual fifty percent reduction for those assets.

The GB system is in some ways moving to something that's more centrally planned with connections reform and the SSEP, the strategic spatial energy plan. And I I think it's a really hard job. If someone said to me, oh, what's the right amount of of storage to put onto the system? Like, how can I answer that? Because it is moving so quickly and the cost is the cost is producing, the power performance is getting better, the warranties are getting longer, the efficiency is improving. How can I say in twenty or maybe there's rather than saying, how can I get the right number in twenty twenty five for two thousand and thirty? If you ask the question the other way around, say, if I had to forecast in twenty twenty what the right number of VES is in twenty twenty five, I absolutely would have got it miles wrong.

Do you think about or what are your thoughts about how, NESO through those planning processes can sort of design a system that allows for some of that that sort of cost competitiveness to come through?

I think it's a a huge risk that we are moving to a sort of five year centrally planned way of looking at at at system build out. You know? If we want to nationalize everything, then I think that's fine. But if we want commercial players and financial capital to invest, then a century plan system, I think, runs the risk of being wrong. In fact, it will be wrong by definition.

You know, this idea of of of duration, we, you know, we have to allow the market to send price signals, and we will respond to those signals. You know, we have more than enough connections in the queue now. That's not the problem. The problem is how do we deploy that capital and how do we allow price signals to show where that capital would be most efficiently deployed and to balance the system in real time. Maybe that's a sort of slightly sort of free market fundamentalist view to take, but I I just don't think full central planning is the way to solve for this highly complex system.

We, you know, we see both ourselves and some of the other sort of sophisticated investors in the sector are really beginning to talk about augmentation.

It's one of the most exciting things about this technology is unlike a gas engine or a gas turbine power plant, which when you build it, that's it, we can add on to our systems. We can augment them. And we are constantly looking at the price signals and to some extent, the regulatory incentives, looking at when and where we might increase our duration going forward.

And so coming back to your point about the CapEx declines, whether or not lithium will be competitive against other storage technologies in twenty thirty at eight hours, no one can know. But I'm pretty confident that lithium will be able to do it much more cheaply than it can today in three to five years' time. And the most important thing is that we don't restrict the fastest moving technology from being able to access that market and that investment opportunity. Yeah.

So we're kind of really calling for kind of the ability for flexibility in those plans so that when something delivers and show that it works, we can add more of it. I think your augmentation example is a lovely one because it's a real central planning versus private investor. The private investor will absolutely look at existing assets and think, can I do better with this asset? Could I augment this asset and go for extra hours of duration?

I don't think a central planner would ever really think about augmentation until it kind of, quote, unquote, reaches end of life. And so it's a lovely example of where they're kind of allowing private enterprise to remain within the system is a really valuable outcome for consumers. Okay. I think we could talk about central planning for a long time, but let's let's go to the the second half of this, which is the data portion.

And so as we add more storage to the system and that storage is trading in day ahead or intraday markets on the balancing mechanism, this will start to bring through more data.

And that data, how do you see that emergence of those data points? How do you see that kind of driving digitization?

I mean, in a past life, I was very involved trading equities in a hedge fund and ran a a European equity team for several years. And I see huge similarities between the way that algorithms and systems trading emerged in the equity markets in the early two thousands with what's happening in the power sector today, and I'm not sure many of the players or systems are remotely set up to cope with this change that's coming.

The just the the scale of data points coming from the assets as we build larger and larger systems with multiple inverters and even down to rack or module level, the scale of or the the rate of change of volatility of prices as we get more and more intermittency on the system, and therefore also the scale of instructions and the constant tweaking of every asset that's distributed around the system.

That, I think, is a massive data volume issue that the industry has to deal with. Then there's the analysis of that data, and then there's the sort of the decision making and the value add that comes on top of it. What I and and I think this spreads across from just grid scale connected batteries. This is coming very soon to behind the meter industrial batteries, to fast charging hubs that are buying energy overnight and putting it into the transport system at different peak periods. It's obviously there in residential batteries. I think the economy at a very broad level is going to also experience this with a bit of lag that we are in the sort of in the large wholesale sector for flexibility.

And, fundamentally, it's a massive digitalized data analytics question.

And the tools and the expertise and the modes of behavior and the financial the financial systems that we set up to to manage that are all going to be a very big change, I think, for the classic energy industry and the way it's historically operated. Now, obviously, we are excited by that as an investor.

We think we can bring understanding and experience from other markets and and and other energy sectors where perhaps volatility is more more well understood.

And we think, you know, there is a great opportunity to apply those learnings as these changes happen.

I think one one area that I think is very fundamental is that we will have to I suppose the phrase would be financialize the value of flexibility between the different players in the market. I think we will need to evolve deeper and deeper financial products to shift that optionality and that flexibility from those that have it to those that need it. And we will see floors and tolls and and load shifting PPAs and and private wire green PPAs becoming very, very sophisticated with a lot of capital behind those products as it were to allow the green energy industry to to integrate all the way through the chain.

You might say, I would say this, but we really believe the value of a green megawatt is moving away from generating it. That's just not what the economic value will be driven by. The value of the green megawatt will be driven by how you shape it and risk transfer it to the consumer in the place and the time that they need it. And that's that under sort of concept of value transfer through a supply chain from from upstream through midstream to downstream is very common in many other industries and sectors.

And I think we'll see a very rapid development of the tools and financial tools to allow that to happen with green energy.

I think it's one of the most underappreciated value streams that potential storage could have. It is the concept of kind of matching a green megawatt or green megawatt hour. In the current system today, you're allowed to take a megawatt hour of green from the middle of summer and apply it to your winter period, and it's kind of, quote, unquote, green. But to anyone actually looking at that can see that it's kind of obviously not true.

And so this concept that actually matching green megawatts of generation to green megawatts of consumption is something that anyone in the storage space should be really excited about. Because as you say, if you're a consumer at five o'clock on a winter peak, you're willing to pay ten, twenty, thirty pounds per megawatt hour to have that green premium. Well, the only thing that can bring it from the middle of the day or the last period of oversupply is storage. And so it's a hugely exciting space.

I think that is, yeah, really underappreciated.

I think to ask a question that I think is to to take you out of your normal stomping ground of battery storage to something if I was all of a sudden to lift you and place you to be in charge of a large fleet of older gas units, nondigitized units that are perhaps currently dispatched by phone call or fax. That's a stretching of truth. I don't think that's still the case. But if you're in charge of a fleet of legacy assets, how would you see this? Do you does this feel like the end game for their business? But yeah.

God. I mean, that that's a slight diversion, but not something I'm unfamiliar with historically. I personally think those assets will be used less and less, but we'll extract economic rent for their insurance qualities of being there when they're needed. You know, I think you look at the last coal plants on the UK system, they actually made decent profits in the last few years of operation.

I think when you look at upstream assets probably as we decarbonize and end up not using fossil fuels, if at all, but certainly much less, it doesn't mean that those last gas fields in the North Sea won't won't make a good return. The way I would look at existing gas peaker fleets, if that's the question, I would say, you know, you you run them very occasionally for high profits, but why not repower them and look at the connections you have, look at the the installed capital you have in the project as a whole and the locations they're in as well. And I think we will hybridize. You know, we will hybridize green peakers, whether it's, I don't know, biofuels or renewable gas with different battery storage technologies.

And we will use different cell technologies for different durations, and we will use vanadium flow when that's commercial and can be project financed.

And we will blend all of these different technologies on one site behind one pipe.

And on a private basis, you know, commercial real estate owners will blend their own generation on-site with storage on-site with perhaps some of those financial instruments, you know, shaped green PPAs.

So I I think, you know, we I do think we will need fossil fuels for that last five, ten percent for some time, But that is not a problem for us as battery storage investors because there's an enormous volume of market share for us to take from gas. And by doing that, we will bring down the cost to consumers of balancing the system, and we will frankly enable the operation of a net zero grid. We can't do it without the twenty five gigs of batteries. I think we already see that evidence today.

Yeah. Agreed. Agreed. Okay. Superb. I think we've gone through our two big, two large themes that we wanted to run through.

So I just wanted to move on to sort of final two questions. The first one is, is there anything you'd like to plug?

I suppose I'd like to plug as Adaptogen, you know, we feel we're at a very interesting point in our evolution as a company. You know, we we've committed the capital of our UK fund. We've got through that sort of, you know, rather like yourselves, that startup phase of a new company over four four years or so. And for us, we're at this very exciting moment where, you know, we see other opportunities in the UK to accelerate investment here, but also increasingly across Europe.

You know, take the learnings, take the experience, both the technology, the project development experience, but also the market regulatory commercial development in the UK, which has been absolutely leading on a global basis and apply those. From our perspective, Europe is a key area. So so we're beginning to to look at that very closely. We've been active in Europe for for, a year or so on project development side of things.

So I think that's, you know, for us, we're at a very interesting moment of what's next for us as a business.

Okay. Well, if you're active in Europe and you'd like to talk to him, then there there is a there's a good plug there. And moving on to the final question, which is on your contrarian view. So is there something that you believe that the majority of the market doesn't?

I think there is a growing political risk for the whole green energy sector that we're being a little blase about.

I think we know now that the high renewable grid creates high cost to consumers from congestion, from balancing the system, which is expressed through National Grid's congestion costs, and requires a very dramatic increase in transmission and therefore in that portion of customer bills.

And I sense that there is a slight historic naivety in the green energy sector's refusal to acknowledge those costs.

I understand that many of the changes that the government is proposing are create uncertainty and therefore hurt the project finance subsidized model of the green energy sector.

But I think we're not listening to the message, which is that politically, from a system point of view, these costs are beginning to get painful.

And I think if we don't acknowledge that and deal with them and work out how to bring those costs to consumers down, I do fear that we run the risk of losing the public as it were, and you and there's a backlash against the entire net zero transition.

So I I hope we'll see some of these slightly sort of contentious battles and issues around regulation and how we change the system begin to resolve themselves one way or the other towards the end of this year. But I think all of us, both renewable generators and battery storage asset owners, I think we need to acknowledge that we have to solve for these cost problems or we will, you know, risk undermining the whole regulatory support and the whole societal support for the transition.

Yeah. I I think this is I think it's a really important point, right, that all of the generation that gets added, all of the billions that get added to the system are all in the interest of consumers. And if they don't serve to bring consumer costs down, but they start seeing very large balancing service costs coming through, then consumers will lose faith with that transition. And it is a it is a really big topic.

I would love to, and I I will ask one more sort of question around that. So gen in general terms about what changes might be made to address that problem. There are many regulatory changes being considered in this space. If you were to kind of just pick out one that you think will bring this problem bring this problem to the fore and help might help address it?

What what do you what do you see as kind of a a good regulatory change? Perhaps good is the wrong word. But what do you see as a positive regulatory change in order to try and address this issue?

It's very difficult to say I support locational marginal pricing because I understand the problems it creates for the generation sector.

But I do think some form of zonal pricing will at least send the signal that for the foreseeable future, the value of a green megawatt in Scotland is not the same as a gray a green megawatt generated in the center of the country or generated connecting into the south. I also think locational pricing deals not just with the transmission issue, but with the time of day issue.

We I suspect we will see very severe duck curve pricing dynamics this summer, and I think that locational pricing will help reinforce the fact that we if we insist on just generating another four, five, seven, eight gigawatts of solar in the middle of the day in the summer, there is no economic value to those megawatts that we will be paying guaranteed subsidized prices to. And so, therefore, we need market signals to show that actually those megawatts need to be shifted in time.

So I I do, you know, for good or for bad, think that getting some form of zone or pricing done is probably the right thing for the efficient running of a net zero grid. But I have to say, I I also, you know, acknowledge that the longer it goes on, the the the more negative a sort of, cost of capital impact it's having.

And so we do just need to get on with it Yeah. One way or the other.

And we should see a decision q two this year.

And if I was to wear a national hat, which would be the opposite of zonal, I would say that there are Cost of capital impact it's having, and so we do just need to get on with it Yeah.

One way or the other.

And we should see a decision q two this year. And if I was to wear a national hat, which would be the opposite of Zonal, I would say that there are market mechanisms that I would try to bring in that sit alongside national to try and bring this out perhaps more convoluted.

But I think they also recognize the the the issue and and are trying to bring forward a reformed national, rather than just the kind of existing status quo, which I think we can all agree is probably not quite fit for purpose.

Yeah. I mean, we we we saw even in the last two or three months, the most difficult days for National Grid were not the peak days to some extent. You know, the sort of articles about the lights going out notwithstanding.

The most difficult days were when the national price was at zero because there was so much green energy being generated. And I think that problem and that cost of balancing using a national price is going to only grow and relentlessly so over the next year or two, at which point it becomes a real political problem. Yeah. So I think we all of us need to sort of be aware that whatever the our own sort of slightly more selfish interests of our particular asset class, I do think as a system, we need to sort this out pretty quickly. Otherwise, we may undermine the whole transition itself.

And that is a fantastic contrarian view to finish with. I think we could have talked about that for another another half an hour. But, Jim, thank you for coming on Transmission. You've been a fantastic guest. And, yeah, looking forward to seeing how those next few projects do when they come online later on this year.

My pleasure. Thank you very much.