A (3:03)

Yeah. And it's amazing to think of where I was 10, 15 years ago and starting in battery storage, that there was a point in time where for grid applications, we were looking at lead acid or lithium titanate type of battery chemistries for grid interactions and ancillary service applications to then moving to NMC to now lfp. And I think the market's really settled on LFP as being the great tie between technological advancements, reliability, resiliency and cost. And it really is costs and innovation that has led us there. And that, as you mentioned, generally speaking, the cost curve has fallen when you look back over the course of a decade. But along that path, it's been a bit of a roller coaster. You've seen sharp spikes. We are exposed to commodity price changes. We're obviously exposed to international trade and tariffs and importing goods, and both finished goods and work in progress. So there's been a lot of movement in the cost of battery storage. I do anticipate that it'll start to level out and be a little bit more predictable at this phase. But along the way, those changes in costs for us have been driven by changes and advancements in the technology. One of the reasons that storage becomes cheaper over time is that energy density improves. And as energy density improves, you need less batteries to achieve the same number of megawatt hours or megawatts. And that means less containers and less steel and less wire and less copper and less inverters and kind of so on and so forth. And so that evolution continues to happen where your vendors, your OEMs are improving the product every year.

B (4:59)

How has the moving beyond the cost piece, how has the reliability like the availability of them? There have been a few fires, There have been issues that people are always concerned about. Oh, do I need some type of reserve to ensure that if the batteries degrade quicker than people thought, an augmentation reserve to, to protect themselves, how has that changed over time?

A (5:23)

Well, two things that are really interesting. I think you mentioned, you know, reliability. I think safety is the first word that comes to mind for me. And the safety is improved just tenfold. You've got better rules in place, better testing, better quality assurance in the manufacturing process, better integration, better controls, better data quality and monitoring. The system. So all of that has improved just immensely. And the result is, while the focus has been on safety, that the benefit has been in reliability and predictability of the operations system. So when I think about augmentation reserves, the other thing is that as we've been an operator in this space, and before I joined Fullmark Energy, I was also an operator in the battery storage space. People have been pleasantly surprised that the batteries have not degraded as far as fast as they were anticipating or as they were modeling. You got to remember that at the end of the day, engineers do the independent engineer reports, they do the calculations, they inform the pro formas. And engineers have a tendency to be conservative, right? If you take a manufacturer's specification on one thing and then you add another specification on another thing, and pretty soon you have a compounding calculation of worst case scenario. People have been doing that with degradation analysis for years now. And that as the systems operate and as you as an owner become better informed, you can better inform the pro forma and reduce the amount of reserve that you need and your augmentation reserve and operate the project the way, you know, the way it would expect to operate, not necessarily just the worst case scenario that's calculated.

B (7:04)

So as the technology's gotten cheaper, as people become more comfortable with it, as availability has improved, how has that changed the way you think about at Fullmark, deploying the technology and where it makes the most sense, where you can still be profitable? What's changed now and where do you see it, let's say in two, three years?

A (7:26)

I think it's just fitting with the evolution of the industry as things have gotten, you know, bluntly cheaper and more reliable, the lowest hanging fruit, the opportunities that are no brainers have been taken up, right? And so the competition for good nodes has increased. The availability for interconnection capacity on the grid is becoming more and more sparse and more and more expensive. The competition for lender financing, for deals is becoming more competitive. So I think it's just fitting for the industry that as things get better on the supply side of the equation, they also get more challenging on the demand side of the equation. And so for us, it just means working harder to develop the right projects, put them in the right spots and build them the right way.

B (8:16)

What do you think then are the biggest misconceptions that the financial community has about developing and owning successful energy storage projects?

A (8:25)

I think the biggest misconception, and I'll go expand that a little bit to other, you know, to developers that don't own and operate is that the systems are just to set it and forget it. This is where I go back to some of the emphasis on focusing on being a battery storage only operator is that this isn't P times Q that you would find in wind or solar or even thermal facilities that you are taking into consideration. When is the right time to charge a facility? When's the right time to discharge it? When do you participate in ancillary services versus energy? What do you do day ahead versus real time? It really becomes a complex equation of not just where do you capture these market moments, but also when is it worth it to cycle the battery, when is it worth it to kind of put that mileage on the tire, so to speak. And you can't just sign that over to somebody and trust that to them. Or you can't just assume that you're going to capture every dip and every peak. That really being forward looking and responsive and sophisticated about how you dispatch the system is a full time set of jobs and that you become better the more you operate and the more you understand these things that you can't just like I said, you just can't set it and forget it.

B (9:50)

So this is a question I've asked many people that have come on the podcast. My uneducated guesstimate or prediction, I guess would be that as energy storage already has become fairly commonplace and is becoming more and more commonplace, the penetration is higher and higher that what will happen is the price spikes in energy will decline. Right? Because there'll be more basically energy available to meet that demand. When price goes up above whatever you tell people in your dispatch team, hey, look or use your software, whatever it says, hey, if we get to this price, start bidding as much as we can. So if that is true, one do.

A (10:34)

You think it's true?

B (10:36)

If it is true, does it make energy storage less competitive over the long term than it is today? Because it's not going to be able to capture those big price movements. And how do you think about that in terms of evolving and changing your strategy?

A (10:54)

Yeah, and I think it's a great question and I think it's a great. Your textbook question right on just the existence of arbitrage. To me, I look at that and I take a few steps back and think, well, that means batteries are doing their job right. That really is ultimately the goal of battery storage is to enhance reliability and resiliency and to squeeze the price spreads that exist in the market. I'm okay with that. If I didn't believe that that was ultimately the Goal we wouldn't be developing battery storage, we would be looking to do something else. And, and so you got to work that into the plan is if you are effective at capturing those major spikes, then they will eventually erode. That being said, you are never going to have flat base load looking price in the energy markets. They're naturally going to rise and fall. And so you got to understand what is the projection of just natural rise and fall of power prices, what is the demand side of the equation look like and what else could battery storage be doing to help the grid? I think the energy markets is almost a balloon that when you push down on one part, another part pops up. And sometimes what we've seen in certain markets is that ancillary services were the natural first place for battery storage is to participate in because it's just better at supplying ancillary services than any other technology that's out there. And so it captured a lot of those ancillary service revenues until a point where more and more batteries come online and then ancillary revenues decrease over time just naturally and you focus more on energy arbitrage or you know, buying the spreads here. The other thing that battery storage does, and you see this in markets like pjm, is that it provides capacity resources. Obviously Texas is not a capacity market, but California is and PJM is and my so and you see capacity prices rising throughout the country where it exists because demand is rising. Demand forecasts are rising well beyond any load growth we've seen over the last two decades. And as demand rises, the market's trying to anticipate what signals need to be there for the lights to stay hot. At the end of the day, storage helps keep the lights on by enabling more intermittent resources, enabling more just even intermediate resources, enabling more demand response. The flexibility the battery storage provides the grid can be borne out in any number of these market opportunities. So being nimble as an operator to being able to capture those different revenue streams is what makes or breaks companies like ours.

B (13:51)

Okay, last big picture question that I can think of, at least for now, how pleased or displeased were you with the reconciliation bill that just passed in terms of how it treats energy storage.

A (14:07)

Specifically with the treatment for energy storage, it could have been a lot worse. It's there are concerns in the reconciliation bill, you know, maintaining viability through the fiac, parts of it and the energy that foreign concern pieces of it. But on the other hand, this, the industry has already been moving to onshore supply chain. There, there are pieces of the IRA that put A carrot out in front of us that would incentivize people like us to onshore supply chain and battery supply. And vendors were already starting to build these facilities out. This, this reconciliation bill is going to attempt to expedite that on shoring. At the same time, it's also applying, you know, there's, there's tariffs being applied to the manufacturing equipment that's necessary to build out the supply chain and it is extremely complex. But at the end of the day, storage really, I would say, came through largely unscathed. And I think that's a testament to the fact that there should be bipartisan support for energy storage. It is, at the end of the day, a reliability resource that helps the transmission and distribution grid keep the lights on. It helps cap price spikes so that ratepayers aren't being charged for outrageous price spikes, and it just balances the grid out. It's sort of the medicine you have to take and everybody understands that. And you can't solve everything with a, you know, eight year lead time on a CCGT or anything like that. That you need storage to get through this massive load growth period that we're about to see. And that's why it got through largely unscathed.

B (15:58)

So you don't view the fiat restrictions as being so burdensome that they'll either significantly slow development or significantly increase the price that you're able to deliver power for, such that energy storage is less competitive.

A (16:15)

I think it's manageable for companies like ours that are deep into the industry and know what we're doing, it will be a challenge for some. It will be too hard for some to overcome. But for folks that were already looking at onshore options in the supply chain, that have active engagement with vendors and OEMs that are close to the supply chain, are close to the finance community, it will become more challenging. And certainly there's an increased administrative burden and there's a lot more bureaucratic elements to actually executing on projects. But it's manageable and we'll survive and it'll be a good thing.

B (16:58)

All right, well, let's get to full market. Been patient. We've been recording for quite a while now without getting into Fullmark itself. So you're in this era where storage now is, I would say, very mainstream, when it wasn't just maybe a few years ago and you were doing it earlier. What role does Fullmark Energy plan to play and how do you go about screening your own investments given that there's so many opportunities for energy storage developers right now?

A (17:31)

Yeah, there are so many opportunities. I like using the word capital allocation here internally and with our investors of making sure that everything doesn't look so attractive that we just spread ourselves too thin. We're heavily focused in deploying batteries in California and we've been participating in CAISO for a number of years to date and in a variety of different ways and have a few projects that are coming online here over the course of the summer. We have more projects that we're going to build in California. Got projects that are coming to the NTP phase and lowest to proceed phase here soon in ERCOT as well and nmpjm obviously markets I've mentioned earlier today, but we view this as we want to expand our footprint carefully. We are effectively in the risk management business. I mentioned earlier that it's not a set it and forget it type of operations. That being careful about how we deploy the batteries once we're operational plays into how we deploy our capital as we move to operations and picking our vendors carefully working with our BOP partners, carefully making sure that we have the right staff in house to be able to operate the facilities safely and predictably go a long way to making sure that we grow the right way. That's really important in this industry and it's really important to fulmar.

B (19:00)

Are your contracts, do you have off take contracts for everything you're doing or resource adequacy agreements, tolling arrangements for everything you do or do you build merchant or partially merchant? How do you look at that in terms of controlling your risk?

A (19:16)

All of the above. I would say that if you were to put a point on it, we operate mostly contracted but partially merchant. I think that provides a great, great return for our stakeholders in that we can lock down risks and pay somebody to take risks effectively to allow us to maximize the capital that we have and find the right cost of capital for deploying projects while maintaining some exposure to merchant pieces of the market that allows some upside and some uncapped upside for our equity investors. So it's a good balance of. You mentioned a number of contract structures. We've got just about one of everything in place already. So you know, we're pretty well versed in commercializing these facilities. Both, both from flexible offtake arrangements to RA to tolling agreements. We're really excited about it and I think, I like that we aren't fully contracted because it allows for some of that, some of that upside participation and maximizing our dispatch optimization tools that we have in house as well.

B (20:21)

And are there specific regulatory reforms that you guys are particularly interested in seeing implemented either in Caiso or wherever, any places where you're developing.

A (20:32)

Yes, but the list may be too long for the podcast. I think that's, that's what's really interesting that if for those of us that have been doing this for a while, the pace of regulatory reform that's happening right now is quicker than I've ever seen. I think we've seen the ancillary service market and ERCOT change four times in the last five years and once the 18 years before that. So you see a lot of change right now and making sure that we're both putting our 2 cents into some of these processes that are open to comments, to tracking things closely and understanding how to dynamically respond when the rules get changed.

B (21:11)

On us switching to how you own and finance your assets, maybe you can share a little bit about your business model and why you chose it in particular.

A (21:23)

Yeah, so we've got a great sponsor and Infrared Capital Partners, they've been with us for a number of years now as our really our sponsor equity behind the business. But we, we've worked in a variety of ways. So we have portfolio financing across multiple projects including our one of our operating assets that has a series of lenders that have been really good to work with and really, really worked with us over the last couple of years. As those projects have moved to now coming online this summer, we've gotten letter of credit facility that's enabled us to do some really great things from a development perspective that allows us to get maybe a little bit further along in development than other competitors would have having, you know, they would have a need to post cash collateral against different connections and offtake agreements and those kind of things. So it's been a really nice balance of finding the right capital for the right, right opportunities. We're actually out in the market right now for the senior facility on our next project. So I think we're pretty excited about that. It's a good time to be hitting the market with a project that has a pretty well tied up plan on how to execute. And I think the lenders are seeing that, pretty excited to keep that moving forward and hopefully have some stuff to announce over the course of the year as that progresses.

B (22:44)

How many hour batteries do you guys typically build and do you see that changing over time?

A (22:50)

I'll answer the last question first. Yes, that definitely is changing over time. We've actually just been having a debate even about how ERCOT will play out over time. And do you used to be strictly A one year or one hour market, then it's a two hour market and at what point does it change to most projects being built out at four hours? And as I mentioned, I like to think of this as a risk management business. And if you are looking at energy arbitrage opportunities and price bike opportunities, it really becomes a calculation that a four hour battery in ERCOT may not look like it models out or may not, you know, simply model as a higher return than a two hour project. But you have to do some probabilistic analysis. So can you catch more spikes that way over a two hour project? And what is your, what is your risk management policy around trading around the asset and how do you manage that? Can you manage that with more duration on your batteries and attract a lower cost of capital? I think that's where the math is moving versus chasing. Just what is the minimum requirement for a particular ancillary service in terms of.

B (24:06)

The markets that you think are fertile, let's say for, for development. I know most of the batteries have been built in ercot, I think because it's probably easier to get things done there than most of the other big markets. And a lot has been done in California because of the need. Do you think that trend is going to continue or do you think that there are.

A (24:28)

That the.

B (24:29)

Basically the energy storage market in some of these other markets could provide better opportunities for you?

A (24:35)

I think there's a lot of opportunity in some of the other markets. PGM is the world's largest power market and you still, even after you see RPM results hitting the market cap across the entire footprint, you still don't hear a lot of people talking about battery storage in pgm. And it's a challenging place to develop. It's been a challenging interconnection and I was able to participate in a previous employer in a lot of early stage PGM projects with a very thin ancillary service market. I think PJM capacity based battery storage projects might be a way of the future. You also see a lot of bilateral opportunities in wec. You see, you hear a lot of people talking about MISO and spp but you really haven't seen the build out that tracks to what I would say are the announcements. The kind of construction per announcement seems to be a pretty low ratio in SPP and miso and I'm excited to see what happens there. I don't think those are bad markets. I just think people still want to wait and see how things are going to play out in those markets.

B (25:43)

Well, let me as we get towards the end of this talk here ask you to make some predictions. How do you see Fullmark specifically playing a role in designing building out the energy storage market across the US as we've got increasing demand from AI, from EVs. You know, people say the electrification of everything. Where do you see full mark let's say in two, three years from now?

A (26:11)

I really see us having argue two distinct business lines. A wholesale front of the meter business that is focused on or describing as just raw market opportunities and then a more collaborative side of the business that is focused on customer based opportunities where we work kind of arm in arm with a certain subsection of the our consumer and find ways for them to both save money or take advantage of wholesale markets as well. I'm really excited about that side of the business. It's something that we've been working on, I would say a little bit behind the scenes for some time now and I hope to be able to publicly announce some successes there shortly, shortly as well.

B (27:00)

All right, well, we're wishing you continued success. Thanks for joining us today.

A (27:04)

Thanks for having me, Todd.

B (27:08)

You can find us online at www.projectfinance.law or send us an email at currentsordonrosefullbright.com Please rate, review and subscribe on Apple Podcasts, Spotify or your preferred podcast app. Our show today was produced by Emily Rogers. Stay ahead of the Currents.

A (27:30)

Sam.