Andrew Dykes
Welcome back to the Megawatt Hour, a podcast boxset series brought to you by Energy Voice in paid partnership with BDO.
I’m Andrew Dykes, content editor at Energy Voice where we are leading the global energy conversation, and in this series we are examining how energy storage technologies are reshaping, reinforcing and recharging energy markets.
Over the course of eight episodes so far we have talked a lot about where we are – how energy storage works, the businesses behind it and the current state of technology, the grid, policy and regulation.
Today we are looking at where we are going - fixing our gaze to the horizon to ask what does the future of energy storage look like?
With a net zero 2050 as the guiding star for nearly all policy and energy decisions, how much storage will we need to get there? Where should it be deployed? What stands in the way? And what new technologies and developments might change the speed of that journey.
Gazing into the crystal ball with me is BDO managing director John Strowger.
sitting within BDO’s Natural Resources and Energy team and specialising in restructuring - John’s expertise lies in protecting and realising value in stressed and distressed situations, and he has worked to do that with numerous clients spanning private and listed businesses, financial institutions, regulators and government, with a particular focus on the energy sector.
Joining us is Gerard Reid an expert investment banker and founding partner of Alexa Capital which offers corporate advisory, financing, and asset management solutions across the energy, infrastructure, mobility, and energy technology sectors.
As well as sitting on the Global Future Council on Advanced Energy Technologies at the World Economic Forum, Gerard also hosts the Redefining Energy podcast where he looks to foster deep conversations in decarbonization and technology with co-hosts LAURENT SEGALEN and MICHAEL BARNARD.
Great to have you as on as part of our first podcast collab Gerard.
I'm actually gonna throw our first question to you. We were talking before the call and used a great analogy to articulate this. So I'd like to ask very broadly, where are we with energy storage now and where are we going - what do you see the future looking like?
Gerard Reid
Well, let's be clear: energy storage is all around us. It starts with a very simple thing of a coal bunker, right? You store coal, you put food in the fridge, it's everywhere.
But when people talk today about energy storage, they're actually talking about electricity because we're moving into a world where there are going to be times of the day and maybe even there's going to be multiple days when you have too much electricity and the question is: what do you do with it? Well, the obvious thing to do is to use that electricity, but sometimes you're not able to.
So then the question is, you need to store it. To store or you need to convert it into another form of energy. You can't keep it as electricity. So that means you put it into some chemical form, which is a battery. Or you pump it up a mountain and keep it up there so that when you need it, you can pump it down again and create electricity.
That's where we're going and the reason we need more storage going forward is because of the fact that as I said we've got periods where we have too much energy and sometimes we might even have too little energy and we don't want to be turning on combustion engines and fossil fuel-generated power stations to do that. So we probably use energy storage instead.
Andrew Dykes
You mentioned when we were talking about the state of the market, we were talking a little bit about the nearer term and the longer term, I think you said the fundamental thing was around the bankability of this sector and how that's changed. Could you maybe articulate that?
Gerard Reid
If you think of it like this: we have energy storage within the electricity system at present and it takes the form of pumped hydro. In other words, you pump excess electricity up into the mountains and take it down next day. You do it at night when we're all asleep because you don't want to turn off that nuclear power station or maybe that gas power station is too difficult or too expensive, so rather than switch them off you use that electricity to push water up a mountain.
So we've been doing this for 100 years. It's completely different now and the reason it's completely different now is because we now have volatility in the market. And what volatility in the market means is it's not just about electricity being cheap at night. It could well be it's cheap at the weekend. Why? Because the sun across the whole Europe would generate too much power. So then you say, well, OK, maybe I don't use that pumped hydro because it's not as flexible, so I need something. Ss what's happening is people are using batteries and that's really the big change in the market in the last few years.
It's not that the system needs batteries, it's actually that there's an economic case for batteries that wasn't there before, and that's I think. The big change in the market, I would say in the last in the last five years really.
Andrew Dykes
John to throw that to you, we've talked a lot in the past few episodes about the the development of that market, but obviously you work within the energy team; have you seen that in the assets that you come across and the people that you work with? Have you seen that development out into this huge sector that we see in the UK now?
John Strowger
Absolutely we’ve seen investment in battery tech as being a a huge growth area as Gerard says, it's a solution to an age-old problem, whereas when you looked at gas powered fire stations, nuclear power stations, there's the ability to regulate that flow of energy. Whereas we're now looking at power sources that you can't turn off. The sun doesn't just turn itself off and turn itself back on as and when people want to consume energy.
So we're looking at opportunities to harness the power and then release it when people are demanding supplies of electricity. And Gerard’s also saying that creates - because of energy usage and the supplies of energy - volatility and it's a great opportunity in the market to use batteries to harness the volatility and create profit out of that because during shortages of energy in the market obviously that pushes up prices. If you've got an ability to react to that, to release power into the marketplace, then you can make money from that.
Batteries are here are here to stay. The way that we are moving our our grid away from fossil fuels over the longer term and relying more and more on Mother Nature that's not under our control. Ways of harnessing and regularising that intermittency is going to become more and more key to our energy strategies going forward - and to the original question, investors are becoming more and more sophisticated in that market space and are deploying more and more capital to build larger batteries, invest in different types of technology.
So we are seeing is a very exciting space to be as people with deep pockets start moving into the space.
Andrew Dykes
So you mentioned the market there. I think looking forward from this point and backwards as well, we've had a lot of investment rushing into this. I think that's got us to where we are with this sizable pipeline of projects on the grid and a lot in operation.
Does that market just keep on growing Gerard? Do we just see capital being the the driving force for this or are there other things that are going to affect over the next kind of 20-30 years where we end up with storage being placed?
Gerard Reid
Well, there's a few things. First and foremost, there's a gold rush at present because there's lots of money to be made and I can give a really practical example of that.
There are assets in the UK where you've had a payback period of a year and a half in your investment. So in that type of environment, you go: “shit I'm going to jump into that and I want some of that.”
But of course, that gold rush is going to come to an end and then the question is: what comes after that? And it's a different market and the different market is about risk management now. Where I'm coming from that is that if I'm a generator and there are risks that I sell my power for zero on a windy day I go well: “what am I going to do to actually hedge that risk?”
Well, actually put storage there so rather than have to switch off your CCGT power station, what you do is you store it for the rainy day.
That's sort of where we're going really, this hedging is incredible. And I would say that's even more important not just to the conventional generators but to the renewable generators because again what happens on the sunny day when there's negative power prices across continental Europe? Well, if I'm a solar generator, I'm getting negative prices I have to pay someone just to take my electricity. Well, actually it makes sense to put storage, so I think that's where I think the big next step is
I think the caveat to all of this though is that we are selling every day megawatts and megawatts of batteries in the form of electric cars and they're not being used in the system, but they will be at some point in time. I have 100 kWh battery in my home. I've got a 10 kWh battery in my front room, but the car battery, as I said is 100. This doesn't make sense to integrate that into the system. So you see where I'm coming from.
We’re in the early stages of this. But I think what's also going to be another game changer in all of this is how we integrate the the whole electric car into this. And then in addition, there's other forms of storage that are there that are untapped at present. I can think of a hot water tank. that's really low cost, low energy and cheap so why would I not just heat hot water when there's too much power in the system?
There's a lot of storage that we are not thinking about besides stationary storage But I would say there's a there's enough need for everyone to actually have a good time in the next few years.
Andrew Dykes
I'm. I'm gonna push you a little bit on that. I can see the the end of this gold rush period as we've been talking about and the limit for a market for services. But I wonder then, are you saying kind co-location will become almost a necessary hedge and that if you have a a solar project or a wind project that doesn't have storage, are you going to actually suffer in terms of your bankability?
Gerard Reid
Oh definitely. Without a doubt. And you're seeing this already. You're seeing that anybody who's building a solar installation today are making capacity available there to add storage at some point in the future. All of them are doing this.
Now storage and solar are much easier. Wind is a little bit trickier and the reason that wind is trickier is because what tends to happen with wind is you get a front that comes in and it's there for three days and then it drops away. Now that makes it much more unpredictable in terms of do I fill my battery up now or do I wait for later? When do I do it with solar it's really easy because I know the sun comes up in the morning and goes back down in the evening, right? It's much easier to predict.
And so I'd say there's a little bit more of a challenge in and around wind, but there are alternatives. You would look and say, well, probably wind is going to be much more suited to synthetic fuels, hydrogen and all that type of stuff just because of the fact that, you know, you've got three days of overcapacity rather than three.
Andrew Dykes
So on the on the grid, so far we've seen a lot of these kind of 49.9MW, just below this 50 MW threshold, which I think is to do a lot with policy and planning frameworks. I think we're starting to see more of these sort of multiple-hundred megawatt projects come online now. Does that just keep going? or must there must come a point where we have a kind of saturation point?
Gerard Reid
So normally there is but we have to realise that we've been talking about power market arbitrage. In other words, buy cheap, sell high. But there's another issue, which is there's grid bottlenecks. So you have to take power from Northern Germany to southern Germany, from Scotland to England. There's lots of wind up in Scotland. You can't bring it down, there's losses, you have to switch off power stations up in Scotland and this is a big issue.
You can't build grid quick enough. So why wouldn’t you put batteries in there? Too much wind up in Scotland save that in batteries then you wait until the UK or in England the wind levels fall or whatever. and you pump it down. That's sort of where we're going with this.
where we've got bottlenecks that there's definitely another market for that and you can see that the advantage of this is time, because if we decide we're going to build a grid interconnector from northern Scotland to southern England and we're going to start today, it's going to take us 10 years, right? You can sort of do almost the same with a battery in 10 months.
So that's there's other uses for batteries that we're not thinking and I think that's bottlenecks is a really, really important one. But this requires also, if I may say, requires some regulation change. And by the way, UK is at the forefront of this positive regulatory change to allow batteries in the system. There are other countries in Europe that still don't allow batteries at all to be used by the grid operator and that has to change, right? That has to change.
Andrew Dykes
I mean, John, do you see this in, in obviously in your line of work on more distressed or stress situations with assets, do you see storage playing into any of these just yet or are we a little bit too early in the in the gold rush?
John Strowger
I actually I see it in a slightly different angle when we when we're dealing with distressed assets. I'll step away from the actual construction of batteries as a means to generate a revenue stream actually as a downside protection. A lot of manufacturing businesses obviously got buffeted massively by spikes in energy prices over the last 12 months, 18 months and a lot more interest in co location of batteries and high energy consuming and manufacturing plants to actually have a generation source on site with a battery next to it as creating their own downside hedge against volatile energy prices.
So that tends to be where we're seeing mitigating action from businesses that are seeing their cash flows impacted by energy prices.
Andrew Dykes
This is your advice as always, to look at batteries as an option to start recovering or again hedging that value then is that is that the route that you take?
John Strowger
Yeah, absolutely. So it's slightly a cottage industry, but I think we'll probably explore as we go on that until and I'm very interested to get Gerard's views on this about an overarching policy of exactly what UK energy policy is gonna be over the next 30 years or so.
I see there being lots of lots of small-scale deployments of batteries and other renewables technologies in response to challenges from the central grid.
Gerard Reid
I think that's a really great question because you know, energy always goes back to policy. And if it's not policy LED, what happens is the individual takes it in their own hands, and that's what's exactly happening today, because people are going: “well I'm putting on a battery, because it makes economic sense to me, I'm not waiting for that government or grid operator or regulator to actually put the necessary regulations in place.”
I think the other thing that's happening as well is that people themselves just want change. They go: one is we've got a cost element in terms of what we're paying for energy, and secondly, we also have a climate issue and people are just saying, I wanna do something and how do you do something? You do something by decentralised energy or you buy an electric car
So there's a big consumer change in the market that certainly wasn't around five years ago because if you think of all the offshore wind, solar that has been developed in the UK and other countries, it's all been policy led. And now I think there's a change to customer-led which is industrial and commercial and the retail customer and that means hopefully then the regulators and governments then will actually really begin to make good political decisions that make long term sense. Because if you do get this transition wrong it's not going to be good for the economy, right? That's what I was just saying, because again, energy is geopolitics. So you actually can't get away from it.
Andrew Dykes
Before we move on, I'm going to pick up one more point that you mentioned, which is pumped hydro. So at the moment, I think that's very much a case in point of an industry that is desperately needed and desperately wants to invest and to build, but is slightly lacking that policy framework. I mean, would you agree with that?
Gerard Reid
Oh I would say not fit for the 20th century a lot of these pumped hydro assets.
Andrew Dykes
OK. That's on a structural or a technical level?
Gerard Reid
I say on a technical level. Just think what they were used to doing. They were used to pumping water continually up a mountain for 8 hours of time using excess nuclear during the evening, pump it up and then let it go slowly down during the day. The market has completely changed.
Now the market might need 8 hours of energy and it might well be that there's only one hour when there are 0 prices. So then they have to manage their assets in a different way and there are very, very few of them doing this. And what that requires is they need to put batteries beside their hydro assets.
Andrew Dykes
We're layering storage on storage - I'm intrigued.
Gerard Reid
You have to layer storage in beside it. There's no way around us. You have to make your storage assets more flexible and more fit for the 21st century rather than when I see a lot of the utilities go:.”Oh, no, no. You need to give us capacity payments. You need to do this. You need to do that.” No!”
I think these guys need to rethink how they manage these assets and that thinking I am not seeing among like 90% of European utilities. I'm not seeing it. Now don't get me wrong, I'm not saying that you don't need a regulatory environment going forward to build new, but for the existing ones that are there, I'm sorry, you know you've never seen such volatility in power prices in our lifetime. And I'm thinking: you can't make money? Is it because there's not enough volatility in the market? Do you want more volatility? What do you want?
What they need to do is change their assets and make them more 21st century capable.
Andrew Dykes
Work smarter, not harder.
Gerard Reid
Yes, well said.
Andrew Dykes
So that's really interesting. We're talking about fundamental sort of technical challenges that we're facing. So I'm intrigued by what the barriers that you see for these various different types of storage going forward and what's not going to get us to 2050. You know, based on the sort of trade winds that you see now.
Gerard Reid
OK, so look, I I think the biggest challenge that we have going forward is what in in German they call it dunkelflaute and that means these days in winter where you have no wind, no sun, and what you do, that's the real time. And we do have periods where we have 3 days In a row of that, So that's the biggest challenge.
The question is how do we meet that? Well number one we can do what we do in the past which we do, is use storage called that coal bunker or that gas or oil in the tanker. That's that's what we do, right? We switch them on of those. So you can continue to do that or you can say, well, listen we don’t want to go near those fossil fuels - so then you need some other way of forming or saving electricity.
I don't think that's going to be batteries. If I look at it for those three days that are there, if you really want to just do it through storage, then you're going to need another other way of doing it. Pumped hydro, here's just not enough capabilities in terms of where you can do it. Maybe you could do it offshore, maybe that's a possibility, but I'm not seeing anybody really looking at doing that. And you sort of look and say, well, what are the other alternatives? You could maybe do a little bit of compressed air and stuff like that but I you sort of look at this and you say well, really, if you want to do those three days and you want to do it clean, you're going to move towards synthetic fuels like methane, hydrogen, whatever it is, clean methane. Some form of gas or you can put it in a liquid form if you want, that's sort of where you go.
That means you're taking excess electricity and you're creating a synthetic fuel and that's where you definitely will go if you want to and solve that multi day period, That's where I would sort of be a little bit concerned about is how do you do that? Because really on let's say a January day where it's really really old you need a massive amount of energy t be to stored in those days.
And we need to probably think a little bit outside the box because don't forget we've been talking about electricity, but actually the bigger challenge for the transition going forward and the next stage of the challenge is we're going to decarbonize heat. There's three more energy used for heat than electricity. So that challenge is enormous. We're probably also going to need massive amounts of heat storage, right? Again, I said hot water tanks, but insulation. Just think of it like that at a basic level, but going beyond that there are very interesting heat storage technologies out there. I think we ill look at a mixture of new technologies s we go forward in this transition, there's just no way around it.
Andrew Dykes
I mean, are there any technologies that you see coming forward that you think are real ones to watch or real ones that threaten batteries in terms of the same services that they perform or are we really talking about kind of new markets here again on that consumer side?
Gerard Reid
I look forward and I see we don't need a revolution in terms of technologies. If there is a revolution, great, but we don't and we shouldn't hold out for it. What we need is regulatory environments that incentivize the building out of these assets and you really need to remember - I said to you we're decarbonizing heat now rather than just electricity - so then the question is, how do you think about that?
And you really have to look at the system and look out and say, well: how do I realistically get there and then what type of technologies do I use? And I know governments don't like choosing technologies, but at least you need to have a view of the way the world is going and I wouldn't say take bets because I don't like bets you need to have a view on where things are going. And again, I think we need to talk about China because the Chinese are very good at taking these long-term views and we're not in the West. That's what I would say.
Andrew Dykes
Well, that kind of brings us on to a point around geopolitics which as you said, is central to the energy market. Is the supply chain a risk, something that needs to be fostered, certainly in Europe in terms of when we look the role of storage over these, you know next 20-30 years?
Gerard Reid
Supply chain has always been a risk in energy, right? We've gone to war how many times over energy resources in the last 100 years? I mean the bottom line is resources is why people go to war and it's no different now.
I also say that the wealth of the West it was built on two industrial revolutions - British wealth was built on industrial revolution, which was built around coal and in the United States around the 20th century, you could say is built around oil and gas. Well, we're in the 21st century. What comes next? Renewables and maybe next-generation nuclear.
Who's really leading this? It aint us in Europe or the United States. We aren't building any nuclear plants. We don't have our own technologies when it comes to solar. Batteries you get from Asia. So who leads it? Sure, without a doubt. Now we've woken up and realised because of the whole Ukrainian-Russian situation that: “Oh my God. This is important. We need to have the lights on, if we don't have gas, we are in trouble.”
Well, if you don't have solar panels you're in trouble too. If you don't have batteries you can't electrify the automobile. So it's the same thing as well, the geopolitics of energy are really critical and the Chinese have known this for many, many years and realised that their biggest weakness as a geopolitical power is the fact that they've had to import oil from abroad, gas from abroad, food from abroad. And they say, well, how are we going to counteract that? And they go: well, let's jump on the next revolution.
Andrew Dykes
I think it's really interesting. We talk a lot about energy security and energy independence, but obviously you know the the route to that still involves a lot of these other supply chains that we kind of either take for granted or are slightly overlooked, and I think that's definitely a question. It's clearly informing energy policy today and the next 5 to 10 years, certainly I don't think we'll lose sight of that at all.
John, you were going to mention, I think some some downside risks as well that you perhaps see and and in UK manufacturing.
John Strowger
Absolutely, and I'll apologise. I think we said before the call, restructuring tends to be the ability to see the downside and every opportunity I'll pick up on a couple of things actually that Gerard was talking to there.
Now we're going through a well, let's not be around the bush, probably going through a once in a generation, once in a lifetime shift in energy in general. And you don't tend to do that with a huge group of different people running in different directions. One of the reasons why, I'd speculate, one of the reasons why China has been quite successful in forming a view and then following a particular path is because it's relatively good at towing from the top.
These are national issues, global issues really, but certainly led at the national stage. There needs to be a joined-up policy as to where we're going. And then second to that point, just remaining on the Chinese question, we're talking about batteries being at the heart of heart of the future of our energy policy. But we do still have to look at energy security there and say: where are the resources coming from to create the batteries that we that we need to build out?
My understanding is the technology still sits very much around lithium ion being the technology of choice. Now, where is the the lion's share of lithium in the world controlled where the refining plants, who holds that technology? There’s still got to be a a question mark over our own energy security even if we shift away from oil and gas and rely more and more on EV's and those styles of batteries, so that in my personal view, that does need to be given consideration when we are pushing towards an energy policy for, for UK, for Europe and at the moment is not one that I see an answer for, certainly not from central policy.
Andrew Dykes
I mean we we've already seen some challenges in the UK supply chain around the manufacturing of things like sales. I think thinking of Britishvolt obviously had a high-profile collapse earlier this year and the manufacturer AMTE I believe is kind of looking for some urgent help as well.
This is clearly the the UK players at the moment are unable to keep up with the market that we are in. So how do you, how do you then make sure that these kinds of players are around for the next 10 years to play a role in this transition?
John Strowger
Well, it's a very interesting question. I'll start that with the truism, which is businesses fail when they run out of money and that either happens because they can no longer generate sufficient cash to sustain themselves, or they can't get somebody to give them the money they need to sustain themselves. So at the moment, with a developing new technology, it's all about loss-making businesses finding backers and support for the investment they need to turn their technologies into an exploitable commercial product. So in terms of what we're seeing in the UK at the moment, we have been world leaders and continue to be so around clean tech so your wind, solar, but there are challenges from overseas in that obviously the US is pushing substantial investment into the renewable space as it aims to shift away from oil and gas - well less, less gas at the moment, shipping it all to us - but the Inflation Reduction Act has introduced significant subsidies.
And so investment is starting to move away from the UK in into the US and we're also seeing investment in the UK in things like the offshore wind; wind farmers like Vattenfall walked away from a planned investment off the Norfolk Coast, and that was driven by commerciality around the expected power prices. You've got two things there; the US which is looking to attract investment into its tech development and then on the UK side, we are seeking to keep prices down, which arguably will dissuade investment into the UK because these large investments are not going to generate the sorts of returns that are required and over a sufficient period of time horizon to get the cash through the door.
Andrew Dykes
Gerard, we've got inflation. We have suply chain issues. We have various other problems - are these white noise? Are these kind of blips on the radar at the moment or do you see them enduring throughout this transition?
Gerard Reid
Maybe start with the good news and the good news really is without China, we wouldn't have the low cost we have around solar, I believe, and batteries, wind, electric cars. We can go on and on and on. Really we have to be thankful what they've done on that because that gives us a chance to actually deal with climate change in the world. And I would say you have to ask what is it that the Chinese have done that we haven't done? Well, they do two things: they do more and before. So in other words, more is really big when they go into something and they do it before they deck quicker, right?
We are so slow in Europe and I'm talking not just to you , we're just so slow. So we were the first in solar, we were the first in wind and if I look at the wind industry just for example here, the wind industry is in tatters. You've got Siemens Gamesa on the verge of bankruptcy. I look at Vestas it's not much better. Nordex a German wind turbine maker is a mess as well.
Just incredible difficulties in the whole industry. We don't have the solar industry and now we're talking about trying to catch up in lithium ion. And if you look in the top 10 producers of anything in the lithium ion value chain, there's not one European player. Now, by the way, you talk about the UK, I don't think there's any UK player in the top 100!
So if you're going to go and compete because you say it's strategically important, then you really need a government to go at this big and really look at the whole value chain and say how the hell am I gonna get my hands - John said it - how can I get my hands on the lithium, how can I process the lithium all the way up to the end of the valid chain. What am I gonna do with the product at the end? That's the way you have to do it otherwise do something else with your money, because you're just going to lose. The way I look at it.
I would say and when I was listening to John there talking I was thinking to myself, what's the best way to describe China? Well, it's sort of the Saudi Arabia of renewables and I really mean that in the sense that it’s a fact they've got the low-cost products I want low cost products and it's also high quality. So I want the Chinese product, but what's very different than say Saudi Arabia, they're also the biggest user of renewables in the world, right? So they're doing both. They're manufacturing and the biggest implementer, you know they will sell more electric cars in their own market than Europe and the US altogether, and also installed more solar than Europe and the US together, right?
And again, I say that as a good thing, not as a bad thing. Because the world needs China to be doing when it's doing but I do think we just need to wake up to the fact that this is an opportunity for us. If we don't engage in this opportunity, it is a serious geopolitical threat going forward. It really is because it's again, if it's just a solar panel coming across would be OK, but it's not, it's the controls to go with it; ou go and buy Chinese car it's Chinese controls and it's semiconductors. It's next generation technology. You're going towards autonomous driving. Is it UK technology? No, it's not. It's Chinese. It's that we're missing the growth opportunity of this revolution. And that's for me, the big concern.
Andrew Dykes
So you mentioned there at the beginning of this segment about the wars for resources, so I wanted to expand that out. Do you see any other kind of Black Swan events that you feel are a threat to storage, whether that's a kind of major policy overhaul, whether it is a deterioration in relations between a party like China? You know, is there anything that that keeps you up at night in that regard?
Gerard Reid
Oh no, the the Black Swan event is Taiwan. That's the Black Swan event because suddenly all bets are off, then that really does I think, from a from a climate point of view, it'll push us back 10 years. But I just think it'll create massive difficulties in the West and the east were something like that to happen.
Now I hope it doesn't. But that is the Black Swan event, right?
Andrew Dykes
Yeah, because I presume it then you know your initial reaction is something like tariffs and currencies and all the things that we need to kind of keep as open and as lubricated as possible to make sure that this transition works and we can get what we need.
Gerard Reid
Exactly. And you won't be able to get what you need. So in other words what will happen is you've got great demand for solar and you can't get your hands on your electric car, which you thought was was European you suddenly realise it's Chinese because they can't deliver the car because you can't get your hands on the battery. That would be the black swan event.
John Strowger
I'd agree with that. I mean the last time I was on a podcast with Energy Voice was November 21 and I was talking about the risks of a Russian invasion of Ukraine and what that would do to the energy markets. Now it feels like you're trying to draw too straight a line across to China and Taiwan, but I'm not sure you are. There are number of parallels there about us being dependent upon another country. for supplies that we have a potentially significant difference of opinion, let's wash it down and call it that over a sovereign state.
It feels daft if we were to just put that to one side and say it'll never happen, because I think there's been too many things in the last few years that are sitting in the “this will never happen” box that have sprung out.
We call them Black Swans but I think we might actually be moving into a world where they are, not black Swans anymore. They're common or garden ducks.
Andrew Dykes
Coming home to roost by the sounds of it.
John Strowger
We might be mixing our poultry there.
Gerard Reid
John, I hope. You're wrong, but it does sort of remind me of the period before the First World War, where you really did have a Europe that was very integrated in in terms of economics, also in terms of families and all this type of stuff. And nobody really believed we would go into a First World War. And we sort of fumbled our way into it.
That would be the great risk if something like that happens, that we just fumble our way in because you know the Chinese military is not speaking to the US military, there's some friendly fire event and the whole thing explodes.
So we can just hope that they're really communicating with each other and trying to prevent this type of thing happening because that will be a complete disaster for the world – looking at the Ukrainian Russian situation, I think Taiwan will be a very, very, very big black swan.
Andrew Dykes
I'm I'm going. To move us shortly away from the vagaries of geopolitics. To using energy in our homes and in our vehicles, and we'll be right back after this.
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Andrew Dykes
So Gerard, you mentioned a little bit already about your electric car and electric battery in your home. You strike me as a very informed prosumer. I mean, where do you see those trends emerging for for home users over the next kind of 20 to 30 years?
Gerard Reid
The economics is just going to get better and better and better, right and and what? I mean by. That is, if you think what? What's? The future look. Like the future? Is that my the the the heavy demand devices? In my home like I. Have a heat pump for example, or the electric car, or actually have a sauna as well. Those three things big electricity use. Well, they're going to be connected into the power market in. Other words you know. Why would I? Why would I go? And you know, fuel my car when prices are high. I'll do it when the prices are low, right? But don't forget I'm also have generation in my home and the generation in my home is in the form of a solar panel up there. So I'm going to connect this. All together. So you're going to connect this together. To make it low cost now, now remember they said the key thing is to make it low cost for me to make it low cost for me. You have to digitalize it and you also then have to. Take Me Out. Of the equation because I do not really want to go. Oh God, did you? Charge your car. Oh, you need. To charge this. To I don't want this, but we're not. We're going into a different world where it. Will all be automated and it will be in the form of. Service agreements and stuff like that.
Speaker
And I think that's.
Gerard Reid
Really exciting because that's the opportunity to lower the cost of the customer and that's what the customer wants at the end they they want. To have they. Want to feel good? Feel good. Is, you know you've got the right heat or cooling in your in your in your home and you also want to feel that you're doing something for the. Environment and for the world. And that means it's. Clean and also then make it low cost and. I think that's the world that we're going in.
Andrew Dykes
So that's.
Gerard Reid
Really exciting.
Andrew Dykes
You see this as kind of the flexible demand and the generation. I love the idea that, you know, there's some excess power on the grid and you can make your sauna a few degrees hotter just to soak that up. That's that's a perfect model for me.
Gerard Reid
Exactly. And that's exactly where we're going about it, right? And because again, what you're doing is you're selling, you're selling quality of life to someone, right? That's what you're doing, you know. That you feel good about it I am doing. My bit for the environment. Right. And and and there's again, there's no reason for for for not having these technologies in. Place already today. Except this is a little bit of. Complexity and in and around that. And also there's privacy issues and stuff like that, but they're. All going to be sorted out. In the next few years, right?
Andrew Dykes
And and that's exciting. And you, you've mentioned kind of electric vehicles and and vehicle to grid more generally as kind of the stationary storage killer. I mean, I take it you see that probably in in almost in the short term really do you rather than the long term?
Gerard Reid
Yeah. Well, look, if you just if you look. What cars you? Can do in terms of vehicle to. Grid it's very few, so you've. Got really Nissan and Renault and now the new Volkswagens. Now that's great. But then you need to also have the ability to do 2 way charging. So where do you? Get those charges? Very few of them available these days and those. That are there are not. They're just not intelligent stuff like this. So that technology. Is coming and I think that's going to make a big. Big, big difference. But then you also have to have. Regulatory changes, right? So because then the question is, it's a little bit like if you're solar on your. Roof you might need. Two metres of metre for in the metre coming out. The same thing by the there's. A whole pile of regulatory issues that. Need to be solved. In around the car. But this is gonna be solved pretty quickly. And the reason it's going to be solved. Pretty quickly is because number. 1 Volkswagen because automobile manufacturer in Europe. Is it's a matter of. Life and death for these guys to move into services. If you look what's going on, the Chinese market, whether the big they used to be the biggest player in the market or not anymore, their sales are down 30% year on year. They don't have a good electrical off offering. There, they're sort of going, Oh my God. We need to make sure we don't know to do the exact same thing in Europe, so they're pushing for regulatory changes in around bilateral bidirectional charging. And I think the other thing that's happening. Is that there? Are utilities out there next generation utilities the octopuses of this world that are sort of saying, well, there's a huge opportunity to go in there with smart tariffs in this area. And once you start saving money for the customer. The customer goes hey. Listen, I want more of that. Can you do more? What can you do for me? And that's why I say, you know, there there is this customer that's sort of saying hey. And want change. Please regulate it. Why aren't you doing this? Why? You know, move this quickly. And I would also say from a fleet perspective, think of it like this. You've got a bus fleet. OK, if the buses all come in and they all charge at the same time, you're gonna need a massive. Amount of you know. Huge big grid connection that needs to come into that garage. Well, if you're smart charging, you don't need. That right and that's that as I said. The the the economics of you were push the regulator to make the necessary changes. I think quicker than what most people think and I and. I said that's very, very. Very, very exciting.
Andrew Dykes
John, I know you are pro EV, but have your own kind of policy issue to do with around that. I mean, are we have? Are we having a bit of A2 speed transition according to local authorities, depending on who you know what they're prioritising, do you think?
John Strowger
Yeah, absolutely. So I'll, I'll, I'll, I'll bring my anecdotes, anecdotal evidence to the table here of as I was tracing before, before the call bought, bought a house during lockdown. In the process of doing, doing it up and one thing I wanted to do was was drop the curb and have an buy an electric car, have that sitting on the driveway and in time have the have the two way charging through to the grid. But unfortunately, local planning rules are that development has to be car free, so I'm I'm currently drawing a drawing a blank there and I understand. That in the borough that is, that's the prevailing policy, which is interesting given that the the South Circular is about a mile up the road, that future future housing developments will not have necessary. Really a car option with them so that this two way charging small battery opportunity gets missed and that from the environmental perspective as well I think that's a real shame because going back to the the the the rare earth minerals piece, I do think you want to limit the number of batteries being produced potentially cause it. Sometimes it can be a little bit like the NHS, there's always great we've got free healthcare. It's free at the point of delivery. It's very expensive in the background, so some some some battery technology can be like that, which is it's great. Or the EV's great, that it's clean as you're sitting there driving along. But there's been quite a lot of pollution to to create the battery, to create the vehicle in the background so that the amount of limit that we can. Permit or to turn on its turn it on its head. The way that we can get the most out of the resources that we deploy has got to be the way forward from a from an environmental perspective as well.
Andrew Dykes
This is where the consumer and the market kind of hits up against these much larger macro policies, right? And you know, as much as we're we're trying to allow different horses for different courses. It becomes a point where, like you say, you want to make the decision you want to invest in storage. What may well be a an asset for your house as well in terms of this, this fee to do or to being able to use it as kind of your your own personal battery for various appliances, but you're limited by then the literally the distance to your door or whatever and and as you say it's it's good for a for a a larger mobility perspective and encouraging public transport and things like that. But there are these other benefits that you miss out on to. And I don't know how. We weigh those up going. More, Jared, you know, is that something that you've seen as well?
Gerard Reid
Well, I was going to say, listen, what you're actually saying, John, is that the transition and Andrew Bolton is saying the same thing. This transition is tough because we're taking, we're taking this old infrastructure and replacing it with new infrastructure and you've got a local authority who thinks he's doing the right thing. But if you actually really look in the big. Picture he's not and. And that it asks the question, then how do how? What's the best way to go forward? With this transition and I and I really do believe that we need sort of, I won't call it a ministry, but you need to have an authority that really looks and sort of says. What's the? Best way from an economic point of view. An environmental view to move forward with this transition and sort of coordinates how we do this right. And I don't mean a research think tank that says how many reports we do. It's it's not. It's about how do we do this? But really, looking at it from a systemic level as opposed to John that there's thousands. Of examples of. That local authority. Think they're doing the? Right thing, but actually turned off right? So it's not easy.
Andrew Dykes
It strikes me as that kind of this, this wider shift that we see, I think within the energy sector from, like transport to the concept of mobility and you're almost. This the sharpest end of that John. With that you you know you have this is transport which could end up in a kind of home storage and this other factor, but you're you're butting up against this transfer, this transition to mobility which is that you would want to be using these larger public transports as much as possible, right.
I'm going to move on slightly, so we also want to talk about the technologies that you have your eye on, the technologies that we think we'll see kind of in the next 20 to 30 years. You mentioned. You already know synthetic fuels. I did wonder about some specific kind of battery text, so we're we're looking at sodium ion. We're looking at flow, battery solid-state, any of those exciting new or.
Gerard Reid
Well, listen, listen. I I the best. Way I would describe lithium ion is it's very similar to silicon in the solar space we knew 20 years ago that silicon is probably not the best technology in terms of efficiencies was still around.
Why is it still around? The reason it's still? Around is because every year costs have gone down. And there's been technical improvements, so technical improvements is, you know, less silicon per Watt, which is just and and also efficiency is going up and. And there's no. Other competitive technology out there to silicon? Like no. 28% of solar panels across the world are silicon. We shouldn't be surprised because actually it's exact same thing in semiconductor space right now. What I will say, and if you look at the semiconductor space, it's only after 50 years the semiconductor space is now moving to compound semiconductors, different materials would be the exact same thing as solar. But I I think we're we're probably still another 5-10 years away from moving towards compound materials we do have, we're able to now take so crystalline solar and put peroxide on it and stuff like. So again, these are incremental changes year after year. Now if I. Look at batteries. Lithium ion batteries. There's probably about 600 GW hours of lithium ion batteries that were produced last year. How many flow batteries were produced last year, 5000 megawatts megawatts? Sorry not not gigawatts 100, OK, both technologies have been around for 25 years. Where's your money? I know where my money is. It's not on flow batteries and it's because of the fact that they had their chance and they've missed it and they have blown it because. What's happened is the market has sort of said, yeah, you might have a great technology, but I I'm going to go with the bankability of C ATL or LG Kim or Samsung. I gotta go with safer. Now does that. Sort of say that there's going to be no. Technology development going forward. Of course there is, and so you know the obvious one is cars are one thing, they need high density in terms of batteries, right? You don't need that necessarily in stationary storage. So you know size something like sodium. Again, could be very interesting going. Forward, there's no doubt about that, but I do say there is again like silicon and solar, there are, there's still more improvements to. Come in and around. The lithium batteries. And obviously the first thing is you know you move to silicon on the so-called. Anode side that that, that that will. Have a big impact. And all. So then you will move to solid-state batteries. So I, Still see lithium making? Changes, but I just yeah, I just don't see anybody coming in and beating it in terms of the mass production battery that's out there. And that's despite all the bad press that you see. In and around, fires and. This, that and the other we. Had a car shipped there in the North Sea on fire. And I, you know, and one of my neighbours complaining about all the cars, they're all electric and I go burnt. I've got 300 batteries in my home that are getting my own. OK how many do you have? You probably have the same. I mean, what the hell are you going on about? You know, in terms of electric, so there there's.
Speaker
There's there's a.
Gerard Reid
Lot of blah blah blah. In and. Around this, but the reality of. It is this technology is incredibly safe. Otherwise we wouldn't be using it in our homes. So lately do it right.
Andrew Dykes
It's also probably worth saying that the the market and the structures that we're creating are also kind of picking with you as the winner anyway, right? If you're, if you're setting up an asset for 20 years and that's your, you know your warranty period and your operation period 2025 years kind of takes you almost to that that threshold. So we're kind of already picking the winner right. We don't need the other ones to come along, they're going to be here for that period.
Gerard Reid
And as I said, the technology is cheap enough to be able to and their cost Rd maps are cheap enough to be able to enable us to automise. So to to electrify the automobile. And also just about lots of station that do a lot of storage into the energy system, right. So that would be my view on that. I did say you. Asked me the real. Revolution, for me is in the heat. Space. It's better. Ways to store a cheat and a present. We store heat with hot water, that's what. We do right, we put it in tanks and put. Insulation around it. That's as basic. As it gets, we are going to much better. Storage mediums. In in in the in the in the. Heat space and I. Think that's a really. Really. Really, really exciting area to. Be looking at because again, that's the real crucial one, right? So that's that's, that's the area. I'm really one of. The areas I'm really focusing on.
Andrew Dykes
Do you see that in the consumer space or in the kind of you know, district heating space as well? You know, across the board?
Gerard Reid
I I see it everywhere. I think it's it's it's it's going to be in the consumer space, obviously heat pump. Related but also the industrial level, right? You think of it like. This you've got a big. Any any chemical plant or anything he needs massive amounts of heat. So how do you, you know, what's the best way to actually store that heat and reuse it again so? I I think there's massive developments in that area that we're going to see going forward. And even at a simple daily consumer you asked. Me. Well, let's talk about heat storage. Well, the best form. Of heat storage actually is to buy a modern house. You buy a passive house today. I'm sorry it doesn't let. You out right? It uses the. You know 110th of the say the energy that my own home uses per square metre. That's because of an old house, 150 years old. Compared to a new house, right, new materials. Right. So that's a form of heat storage. So that's why I say to heat store. Which are the massive developments in the material science space? In and around. What you do in terms of storage, right?
Andrew Dykes
We need to remember that you know the the energy unit avoided is as valuable, if not if not more than the the unit generated, right?
Gerard Reid
Exactly, exactly. And by the way, I know that I know the scientist is gonna. Say, Jared, that's not true. It's not really. It's not really what you said in storage, but. You're right, Andrew. You see it, the nail on the. Head, which is storage. Is also energy efficiency for me, right? Because if I can use it. Or use less of it. Well, you know, that's for me. It's like it's it's. It's like a form. Of storage again. I'm thinking from an economics point, not a. Physics point of view, right?
Andrew Dykes
Absolutely, John. I mean, do you see enough focus on these new technologies? As much as we have the ones that we need already, you know this this next stage, do you see that focus from from government and from companies that you interact with as to look into this next stage? And you know, do we have enough available in that regard?
John Strowger
Well, I'll, I'll. I'll start by a a plea because I'm one of these people that has has bought a a draughty old house and and. And trust me, I I felt it when the energy prices are going nuts. So does anyone listening who wants to develop a spray on sort of insulation that I can put on the House on the outside? I don't have to clad it, I'd be I'd be delighted. And I think you'd retire a very. Rich person so, but in terms of is there enough focus that the energy space is it? It feels like it is in every other conversation. Initially it felt like it was a conversation that you had because you were in the sector. I think once people started feeling that in their pocket, actually realising what was going on in the environment, it's become a lot more of a. Just a general topic of conversation, which means lots more minds are turning to it. Lots more focuses on it, so I I do feel that in terms of a will. For there to be improvements, there are enough mines, but I think as we've as we've covered on on on this discussion so far is how do you corral all these really good ideas and focus it down into actually delivering the solution? And that has to come from, I think ultimately the political classes.
Andrew Dykes
In the business of corralling ideas. Then, I'm gonna ask you for. One or two kind of future predictions each as we go forward so that we're thinking about the the big picture future of energy storage, some lines in the sand, Jared, you know what two things that we need to look out for that you think will kind of happen as we as we make this transition.
Gerard Reid
Oh, I think you're just gonna. I think the the heating that we'll have to deal with is storage everywhere. You're going to have storage in your home. You're going to have new buildings. You can have your. Businesses you can have in your. Car. It's everywhere, right? That's that's the. Reality that we're moving into. And I know. You might say, well, we already have. Most people don't realise we already have storage everywhere. As I said to you, but it's just we've got new forms of storage coming our way and they're. Going to be. Much more intelligent. And as I said, that's good. It's good for the customer and it's good. For the environment, so exciting world of storage. I guess I would say.
John Strowger
I'll jump off in the same place as as Gerard I think, which is I think you'll see lots and lots of. Innovation. Lots and lots of progress, but it's going to remain on the sort of the entrepreneurial focus I suspect for the coming years. Alongside that, I would, I would suspect, and I'll come on to something we haven't actually discussed in detail with government announcements recently being a focus on carbon storage. I would suspect the Economist in me would say we'll see more of a focus on. Actually, lengthening the life of the fossil fuel assets but reducing their carbon impact as a stopgap. While there's lots and lots of great innovation is done on a low. Level the grid will have to catch up and there will be consolidation in the sort of medium longer term, but still focus. On on, on. On on small innovation to start with, until we get to a stage where government is able to bring everything together, the grid brings everything together and there is consolidation among market players because. The one bit we haven't talked to is what happens if there is a Big Bang change in energy general. There's an awful lot of money has been lent against against fossil fuels, which are currently we haven't touched on it. Not sure it's the right the right podcast, the right topic of podcast but stranded assets on the North Sea and under various other sea beds around the world. The impact that could have on on the lending. On on the banking system, if if those revenues are ultimately not realised. Could be enormous and certainly a magnitude of several times the the financial crisis. So that's something that's gotta be managed against this backdrop as well is, is, is banking balance sheets.
Andrew Dykes
Definitely. Well, pending the one or two major Black Swan events that we've discussed is somewhat reassuring to know that we have all the technology we need. It sounds like we have all the will that we need and that the future will look very much like the present, but a lot smarter and a lot more efficient seems to be the the takeaway from today. So that brings us to the end of. Our episode thank you to John and to Jared for joining me. And thanks also to you for listening. You can let us know your thoughts through our social media channels or by emailing out loud at energyvoice.com and look out for more podcasts from energy, voice out loud and new episodes of the MW hour coming your way. Very soon. I've been Andrew and thanks for listening.
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