Why Germany's Battery Storage Market Is Harder Than It Looks - Terralayr

Summary

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Podcast Summary: "Why Germany's Battery Storage Market Is Harder Than It Looks"

Podcast: Transmission
Host: Ed Porter (Modo Energy)
Guest: Philipp Mann (Co-founder & CEO, Terralayr)
Date: May 12, 2026

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Episode Overview

In this episode, Ed Porter interviews Philipp Mann, co-founder and CEO of Terralayr, a company that develops and operates utility-scale battery storage projects across Germany and also runs Lair, a platform for battery flexibility commercialization. The conversation explores why Germany’s battery storage market is uniquely challenging, the operational and regulatory complexities, and how Terralayr’s business model addresses these realities. Core themes include operational complexity, the diverse landscape of German network operators, uncertainties in grid tariffs, project finance, and the future of flexibility markets.

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Key Discussion Points & Insights

1. The Real Challenges of Battery Storage in Germany

• Most newcomers to the market underestimate the operational complexity of battery storage in Germany.
  • Quote: “People go to Germany and think... it's as easy as you find land, you get grids... the battery is just going to sit there for 15 years and produce boatloads of cash. And I think the reality is that most people fundamentally underestimate the operational complexity...”
    — Philipp Mann [01:08]
• With 866 Distribution System Operators (DSOs) and 4 TSOs (Transmission System Operators), navigating the grid is considerably more complex than in markets like Great Britain.
  "[...] there’s so many operational intricacies... it's a hardcore operating asset. You need a very good platform to run it and you need very good people that work very hard to get it done properly." — Philipp Mann [01:37]

2. Germany’s Fragmented Grid Structure

• Germany has an unusually high number of DSOs (866), each with its own rules, processes, and varying sophistication.
  • Quote: “You have DSOs that basically are a DSO for a town of 30,000 people.” — Philipp Mann [03:58]
• While ownership appears fragmented, many DSOs are actually owned by larger utilities, e.g., E.ON.

3. Terralayr’s Approach: Diversified Medium-Voltage Portfolio

• Terralayr boasts an 8 GW pipeline across Germany, mainly medium-voltage assets (10-30 MW), with plans to scale to larger projects.
  • “We’re developing in 38 DSO zones in all four TSO zones... I would say we have the most diversified pipeline in Germany.” — Philipp Mann [05:14]
• Medium-voltage assets favored for faster connection, fewer permits, and resilience to regulatory change.
• Portfolio status: ~100 MWh operating, 13 assets under construction, aiming for ≥1 GW in 3 years [06:48].

4. The Grid Fee Uncertainty

• Battery storage is exempt from grid fees until August 2029, but retrospective changes remain a threat.
  • “Everybody was panicking... their goal has not been to kill off BESS, but you know, the moment somebody talks about killing, that makes everybody nervous...” — Philipp Mann [07:29]
• The main risk is the unpredictability—whether grid fees will be imposed retroactively, if at all, and whether they’ll be static or dynamic.

5. Network Operators, Regulation, and Industry Dynamics

• TSOs are generally “neutral to positive” about batteries, recognizing their value for grid balancing.
  • "They know they need BESS. They know BESS can help their redispatch issues. Some of them own BESS..." — Philipp Mann [11:41]
• DSOs are often negative or skeptical, mostly due to lack of understanding and being overwhelmed by requests—resulting in reactive rather than strategic management.
  • “...the DSOs are more negative... they don’t understand how it behaves, they don’t understand how to model it." — Philipp Mann [12:15]
• Incentives misaligned: “There’s one thing that is holy above all else, which is grid stability ... when they go offline the way Spain did, they’re out of a job. So it’s a very asymmetric risk reward situation for them.” — Philipp Mann [13:54]

6. Local vs. National Pricing — The Nodal Pricing Debate

• German power prices are uniform for political reasons, masking physical grid congestion.
• Move towards local, flexible grid tariffs—a quasi-nodal approach—favored for efficiency.
  • “...they’re basically trying to reverse engineer nodal prices without calling it nodal prices to actually create local signals to manage congestion better. And I think it’s inevitable.” — Philipp Mann [15:41]
• Batteries benefit from granular pricing signals. Diversification across zones helps mitigate risk.

7. Terralayr’s Flexibility Platform Model

• Terralayr is not just a developer/owner; the Lair platform bundles storage assets, offers flexible offtake, and allows multiple buyers/optimizers to bid for flexibility dynamically.
  • “We’re an integrated energy flexibility platform... develop, finance and operate grid scale BESS...” — Philipp Mann [18:42]
• Innovations include “virtual battery auctions” (VBAs), where various optimizers and buyers can dynamically access or bid for market slices.
  • “...rather than giving it to an optimizer, we have a basket of optimizers that are essentially dialed up and down according to performance...” — Philipp Mann [19:43]
• Partial tolling: Owners can contract out part, operate part merchant, and diversify optimizer risk.
• This approach is more financeable; it spreads risk among several trading partners.
  • “We’ve done a €160 million financing... with that structure.” — Philipp Mann [23:34]

8. Comparing Germany and GB's Storage Markets

• GB saw rapid “saturation” of ancillary services in 2022–2023, with falling storage revenues; this is less likely in Germany due to a deeper, more volatile market.
  • “In Germany, any bid that you will do in the ancillary services will always reflect the opportunity cost that you have on the merchant side. So there’s a natural floor and I think that is not the same thing in the UK.” — Philipp Mann [25:27]
• German market volatility and interconnectedness provide greater revenue spread and tail event exposure, so saturation less likely in near term.

9. Advice for Would-Be Entrants

• Germany’s market is attractive but not for the faint of heart: high complexity, operational intensity, and the need for domain expertise and on-ground presence.
  • “If you want to enter the German market today, you don’t have a pipeline, you don’t have a team, it’s too late. I think you need to find existing assets or existing projects or buy an existing platform... people massively ... underestimate the complexity of operating and developing BESS in Germany.” — Philipp Mann [37:00]
• There will be consolidation; only a few elite platforms will survive as owners and operators.

10. A Contrarian View on Modeling Flexibility

• Flexibility markets are mis-modeled: most models are linear, but real-world value comes from extreme tail events (high volatility).
  • “Flexibility, demand and revenues are highly convex. They are dominated by tail events that get very fat at the end... what you actually are, your long volatility.”
    — Philipp Mann [40:25]

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Notable Quotes & Memorable Moments

• On Operational Complexity:
  "It's a hardcore operating asset. You need a very good platform to run it and you need very good people that work very hard to get it done properly." — Philipp Mann [01:40]

• On Regulatory Uncertainty:
  “You can’t have that legal uncertainty. And then see, the question will be, well, if they are grid fees ... are they going to be static, are they going to be dynamic, etc. ... but no one knows yet what's going to happen.” — Philipp Mann [07:29]

• On Building a Platform:
  “We are an operating system for energy flexibility. You can buy or sell that with us. ... I think the future... will be owned by the party... able to manage flexible dispatch in a system that is dominated by non flexible generation.” — Philipp Mann [31:03]

• On the Future of Flexibility Revenues:
  “Flexibility, demand and revenues are highly convex. ... You’re long volatility. ... Flex revenues and the BESS market will be orders of magnitude larger and more profitable than people think, but not in the way that they do think.” — Philipp Mann [40:25]

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Important Timestamps

• 00:00 – Introduction: The German battery storage context
• 01:08 – Why people misunderstand the operational complexity
• 03:48 – Explaining Germany’s vast number of DSOs
• 05:14 – Terralayr’s diversified approach and pipeline details
• 06:48 – Current portfolio and future scale targets
• 07:29 – The regulatory uncertainty over grid fees
• 12:15 – DSO skepticism and bottleneck effects
• 15:41 – The shift towards flexible, location-based grid pricing
• 18:42 – Terralayr’s integrated platform and “virtual battery auction” model explained
• 23:34 – Platform model’s financeability and portfolio examples
• 25:27 – Germany vs. GB: will market saturation occur?
• 31:03 – Terralayr’s identity as a flexibility “operating system”
• 37:00 – Advice for market entrants and the need for operational expertise
• 40:25 – Contrarian view: Flex markets are ruled by nonlinear, tail events

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Final Thoughts

This episode provides a candid, in-depth look at the realities facing battery storage players in Germany — from intricate grid structures and dynamic regulatory risk to the evolving tools and strategies for commercializing flexibility. Philipp Mann’s contrarian take on the nature of volatility, together with Terralayr’s focus on diversification and platform integration, highlight both the promise and the pitfalls of this fast-evolving part of the energy transition.

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Further Listening

• For a financier’s view: Lisa from ABN Amro, mid-April episode
• For operator insights: Paul Mason from Harmony, recent episode
• Terralayr/Lair contact suggested for those considering market entry

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Transcript

[A]

Ed, I'm your host, ed porter. Welcome back to transmission. Germany has over 800 distribution networks, deep intraday markets and a flexibility gap greater than Great Britain. But unlike gb, Philipp Mann thinks Germany's market might saturate in a different way as battery capacity grows. Philipp is a co founder and CEO of TerraLAIR, which develops and operates utility scale batteries across Germany's network and runs Lair, a platform that lets multiple buyers bid on flexibility capacity so owners aren't locked into one optimizer or off taker. If you want to dig into German, Bess Co Motoeng's AI analyst is a great place to start. Link in the description. This episode is about why the commercialization model matters as much as the megawatts and why Germany's flexibility market may be bigger and less fragile than most forecasts suggest. Let's jump in. Hello, Philip, welcome to Transmission.

[B]

Thank you very much for the invite, Ed.

[A]

Our pleasure. And let's get straight into it. So what does everyone get wrong about battery storage in Germany?

[B]

I think people go to Germany and think you have this massive volatility and there's this massive flexibility gap and it's as easy as you find land, you get grids and then once you've done that, that's a bit painful, the battery is just going to sit there for 15 years and produce boatloads of cash. And I think the reality is that most people fundamentally underestimate the operational complexity of running these assets from a physical perspective. But I would say that's similar to other markets. You know, auxiliary power consumption, air conditioners broken, all that stuff. But I think people underestimate. You have, you know, 866DSOs redispatch pre qualification for ancillary services. There's so many operational intricacies that when you have this illusion, you're just going to buy a couple of assets, you're, you know, fund manager and it's super easy and it takes care of itself, like solar. That's not the case. It's a hardcore operating asset. You need a very good platform to run it and you need very good people that work very hard to get it done properly.

[A]

You may have like, I think like it is. It is justifiable though that a financier may, may just say, okay, somebody's going to run this well and I can sit back and I can just watch it run. That is doable. Like you don't have to be in all the sort of very particular bits of detail. And then I want to come back to one thing you mentioned, which is kind of a niche part of Germany in a second.

[B]

Yeah, I mean I can just speak from experience. We have a couple of assets now live, we have 13 assets in construction, we've pre qualified in different CSO zones. I do think that this asset class is a lot more complicated than people think. And I think that's great by the way, because I think that creates defensibility. But I think this notion that you have kind of an infra private equity which is you have a platform and that's maybe worth a little bit, but the majority of the value is in the assets and you just slap a DCF on it. I think that fundamentally mis prices the value of platforms in the best space. And the reason I say that is because, you know, it's an active asset class. If you have a best asset and you do nothing with it, it does nothing with it. When you have a solar plant and you do nothing with it, it's still going to produce power when it's sunny. And I think the reality is especially market like Germany, four TSOs, 860sos, you have different ancillary services. If you just think, you know, I'm an insurance, I'm just going to throw money in it and I'm going to lean back and see the cash coming out every, every month, that's not the case. So in theory, possible. In reality, I haven't seen it yet.

[A]

Yeah.

[B]

And also from what we hear in the uk it's more complicated than that. And I think Germany in a good way is even more complicated.

[A]

So let's do the distribution side of things. So you just talked a little bit about there being lots of distribution operators. Exactly how many are there? But also why the hell does that, does that ex?

[B]

So there's 866, last time I checked. Okay, you have four TSO operators. You have 866 TSO operators.

[A]

So this one's lower voltage close to consumers.

[B]

Exactly. I mean it's historically been the case that, you know, you had a local town, they owned their own grids and you know, people just basically had a fully integrated utility and then it was split up over time. But the honest answer is I don't know exactly why that's the case. A lot of them look separate. Many of them are owned by E On. So the ownership structure I would say is more consolidated than it looks. But yeah, I mean you have DSOs that basically, you know, are a DSO for a town of 30,000 people.

[A]

That's crazy. That feels, that feels so hard to kind of get your head around. But I suppose it's kind of like history has kind of led it to this point. But let's, let's then go into like where batteries get located. So you mentioned you had a number of batteries coming through at the moment. You have a pipeline of 8 gigawatts. Where are you playing across the sort of from the transmission level to the distribution level. What sort of sizes and how big is that pipeline? How real is it?

[B]

Yeah, so I would say we have roughly 8 gigawatts of CO development partnerships. You can call it co development partnerships or pipeline. Within that we, you know I would say we have around 16 co development partnerships. We have an in house development team. We also recently acquired a developer bbd. So we have in house capabilities as well. And more and more of our pipeline is coming in house. Now whether you call the 8 gigs pipeline or whether you call everything that has binding grid pipeline, I think that's less important. What I would say is because we have these 16 partnerships, we have an in house development team which was supplemented additionally by a developer. We're developing in 38 DSO zones in all four TSO zones. I would say that we have the most diversified pipeline in Germany to my knowledge. I'm sure many other people have said in this chair and said the same thing. I still believe that to be true. And I would say we're the number one probably in Germany in the medium voltage space. Basically the majority of our assets have historically been 10 to 30 megawatts medium voltage, no substation build out required. You're typically already in commercial zones so gewerbetsona so you don't need a full building permit process, faster time to connect. And our hypothesis has always been no one knows what will happen with grid fees. No one knows if there will be some sort of nodal pricing. So if you're distributed across the whole country, not only is that a good hedge, but you will probably benefit when some form of nodal pricing will come. That's been what we've done so far. We still very much believe in that. But you know we will not be able to get to multiple gigawatts operating over the next, you know, medium to long term. Let's, let's put it this way just by doing small assets. So we have a couple of hundred ten and three hundred eighty kv projects as well and I think we will gradually graduate to kind of triple digit megawatts. But we very much love medium voltage. We think it's the superior product.

[A]

So Right now, What's the size of the portfolio right now? And if I say in three years in the future, where do you think you might be in terms of portfolio size?

[B]

So we have roughly operating 100 megawatt hours, 50 megawatts tomorrow, that's probably going to increase by 17 megawatts. Knock on wood. That, you know, commissioning goes well, good luck. We have another 13 assets in construction as of now. There's a couple more coming in the next month. So by the end of the year, I would say we're in the low, triple. Low to mid triple digits. Megawatts life and operating. Yeah, mid triple digits, probably in construction plus operating. My hope in 36 months would be that we are either above a gigawatt or very close to a gigawatt.

[A]

Okay, and, and you mentioned grid fees and you said sort of like this is all sort of waiting for grid fees to get settled. What's the problem with good freeze in Germany today?

[B]

Well, I think a lot of uncertainty is the problem. So as I'm sure you know and most of the listeners know best has been free of grid fees until the 4th of August 2029. The Bundesnetz, I can tour. The German regulator has said that that may be changed retroactively. Now, everybody was panicking then they said, well, our goal has not been to kill off Bess, but you know, the moment somebody talks about killing, that makes everybody nervous, even if it's the lack of killing. And I think now there's a lot of uncertainty. Will there be grid fees? Probably. Will there be a retroactive? My view, probably not, regardless of how the letter of the law is, because I think you're just going to kill off investments into infrastructure in Germany as a whole, not just best. You can't have that legal uncertainty. And then see, the question will be, well, A, if they are grid fees and B, they will come, but they won't be that punitive. Are they going to be static, are they going to be dynamic, etc. And there's a lot of views on that. And I think that's the question that everybody's currently mulling over. Yeah, but the reality is most of it is speculation, some more qualified than others, but no one knows yet what's going to happen.

[A]

Yeah, and there's a really interesting, there's a couple of really interesting bits in that. Right. One is you mentioned zonal and nodal earlier and then dynamic grid fees. And maybe we'll, maybe we'll get time to come back to that in a second. But actually I think there's a bigger issue than this, which is one which you've just started to describe there, which is you as a developer in one of your many hats, and we'll kind of come on to which other hats you wear in time. But as a developer, you want to build battery projects and you've got financiers that back you and want to put these projects into the ground. And then we have the system, the system operators who are building the network and managing the network. I'm actually not sure where they stand on battery storage. They say they don't want to kill battery storage and yet their business model does require them to build out more network, but they also aren't allowed to own battery storage in some of those regions. So that's quite confusing. And then maybe one more thing to add on top of that. We sit right now at the start of April in a time when gas is incredibly volatile and having your own homegrown generation couldn't be more important. And trying to break the link with gas pricing is so important. And so the policy, the very top of these system operators and the governments should be looking at this and thinking, okay, we really need to move fast on this. And yet that's not coming through.

[B]

Yeah.

[A]

Why is that?

[B]

I don't know. I mean, to, to quote Lloyd Blankfein, who very unpopular, once said, the former CEO of Goldman Sachs, we're doing God's work. That was obviously not the case for him. I do think we as the best industry are doing it to a certain degree. But jokes aside, that quote might get me in trouble. But I think the, the reality is, I mean, Europe needs to become sovereign, right? From a energy perspective. We've had our first gas crisis after the invasion of Ukraine. We now have everything stuck in Hormuz again. 20% of the LNG capabilities of Qatar, which is 20% of the global LNG capabilities, have been essentially decimated. We currently have a, you know, truce or temporary peace in Iran and America and Israel, the, the current situation there. But the reality is, even if it's resolved today perfectly, and I, I currently don't think that's the case, we must understand that we cannot be sovereign and we cannot be independent and we cannot have a stable economy anywhere in the European Union or the UK if we don't get our, our, our addiction to fossil down. And that has nothing to do with, you know, being climate friendly or, you know, progress atoneberg or, you know, woke. The reality is as simple. If you want energy sovereignty, if you want to Have a competitive environment, industry, if you want to have a chance at having a relevant stake in AI, you, you need more renewables. And that's not going to work without Bess. So I don't know why that hasn't had more airtime yet.

[A]

So I think politicians get this at a like, because it's quite easy to explain, right? I think politicians get that, but how. And I think the financiers and the battery folk that want to build these projects get it. But the missing bit in the middle is the networks. When, when does this, when does this land for the networks? Or like, like how, how does that get solved?

[B]

I'm not sure. So I think the. So the TSOs, first of all, I would say the four TSO's in Germany, they're very sophisticated. I would say they are neutral to positive on Bess. They know they need Bess. They know best can help their redispatch issues. And some of them own Bess, right? Transnet BV has a grid booster. The thing is, they're not allowed to own it, to trade it in a merchant way, but they're allowed to have it as best as transmission. So it can be fully charged and, and that, you know, is completely fine and fluent built that for them. I would say the DSOs are more negative and the reason is not driven per se, that they don't believe in the need for storage, but they don't understand how it behaves, they don't understand how to model it. And there's an abundance of requests. And the problem is that they basically do everything by the books. And so that's the situation that got us there. People applied for grid connections and they said, okay, you have this, you have this, you have this, you get a grid connection. And then they realized, okay, they handed out hundreds of gigawatts of grid connections and they go, oh, that's not going to work. And now the pendulum swings in the other direction. And so they're now basically trying to do everything to block it. But I would say there's no strategy there. It's completely reactive, both when they granted the grid connections and now when they're trying to stave them off. I think ultimately it's very simple. The regulator needs to say, we need Bess. There needs to be a clear framework. And that needs to be echoed by the Secretary of the Economy, Katharina Reiche. I would say the regulator is not doing that sufficiently. And Katarina Reiche is still very focused on gas for reasons that I don't understand. And I think that's what brings the discourse we have here. There was still an article in the newspaper in Germany this weekend in the Frankfurtageitung with a thought piece by Katharina Reiche advocating for gas. I'm not sure if she read the news the last two, three weeks, but like the, you know, Hormuz is close. Maybe somebody should tell her.

[A]

Yeah, it seems so strange, but let's now tie two of those things together. Right. So one thing you said was, actually before I go on, I will say if a TSO or DNO wants to come on from Germany and reply to these things and to say, actually, this is how we see the world, you're very welcome. Get in touch.

[B]

I know a couple that might do it and I just want to make it clear I think they're doing the job they're supposed to do for them. There's one thing that is holy above all else, which is grid stability. Right. They, they will get paid zero for letting on best, as in, like, there's not going to be extra profits for them to a massive degree, but when they go offline the way Spain did, you know, they're out of a job. So it's a very asymmetric risk reward situation for them. So I understand. And some of them are very pragmatic and we have good dialogues of them, but, you know, the incentives are different. So I think it's a regulatory issue that can resolve the bridge between what they're solving for and what we're solving for.

[A]

Yeah, that's really nicely put. And I think that the framing of, you know, they're anti, we're pro is too simple.

[B]

But if they didn't say they're anti, so they're concerned. You said that.

[A]

I did, I did. So, you know, throw eggs at me. I'm happy to get egged if that's what happens. Right. Let's then go into one of the things you also said, which was around this kind of almost fear of what maybe a battery might do when it connects to the system. And an earlier point we were talking about, which is around flexible graph grid tariffs and potentially nodal pricing. So this world of people not being sure what batteries are going to do, it seems so odd to me. Right. Like batteries just respond to prices, so when prices are high, they discharge and when prices are low, they charge. I don't really see what's so hard to get your head around in terms of that. But if you really wanted more precise control of those battery storage assets, wouldn't you look to try and get sort of flexible grid tariffs or like a nodal system. I know that's been looked at in Germany. Yeah. Late last year and was sort of, sort of moved over and now that's moved us into sort of flexible grid tariffs.

[B]

Yeah.

[A]

Where do you think this is all going to end up?

[B]

I mean, if you think about it, right, Germany has one price on right now and the majority. The reason for that is really political because you have the north generating mostly and the south consuming mostly. And the south is very powerful with the csu, with their own party, they're part of the coalition and they don't want higher power prices. So that's basically off the table. But the reality is the physics don't make sense. You can't have one side generating everything, the north and the south, you know, very exaggerated, consuming everything, but the price is all the same. Of course you're going to have, you know, congestion. And I think what the Grid Visa and FCAs, by the way, are doing now, flexible connection agreements, is that they. In German, there's the saying through the back, through the chest, into the eye. So like, it doesn't make sense, but they're basically kind of trying to reverse engineer nodal prices without calling it nodal prices to actually create local signals to manage congestion better. And I think it's inevitable. So I think that's good. I think it's inevitable and I think if you have a highly distributed best portfolio like we have, then, you know, it's a godsend. I think if you have one asset, one location, 400 megawatts, you know, you might be in a great location, you might be in a terrible location. But I think it makes sense for the country and it makes sense for the best industry if it's designed right. And I think that's the big if. It shouldn't be static, it should be dynamic and it should be clear how to, you know, what do I need to do to help the grid and how, as a function of that, do I get paid or slash, I do not have to pay. And that, that, that has to happen. I think it's a good thing. Yeah.

[A]

And we did a whole chunk of work looking at flexible grid tariffs and essentially in every single region, if you bring in that flexibility from grid tariffs, it's good news for battery storage because no surprise to anyone, batteries respond to the price signal they get. So if you give them more price, if you tell them what the grid needs, they might change their action and do something that helps the grid out. Whereas if you're Thinking about say solar or wind and it's a much more sort of weather driven phenomenon then it's much harder for them to do that particular thing.

[B]

Yeah, for sure. But just I don't think I actually answered your question. I mean if you have one price zone, right. And there's a lot of solar in the, in the south for instance and none in the north, then you know, the price may say you want to discharge, sorry, you want to charge, but maybe you have local congestion. So ultimately the problem is unless the signals are local, you may do something that the price signals you to do. But actually locally that's not what the grid operator needs. Yeah. And so I do think it makes sense and that's why you need to go more granular in prices.

[A]

I totally agree. I think that we are in this world of certainly in gb we've kind of almost moved away from having sort of a nodal or zonal price. But we're as, as you're sort of saying, we almost try and do it through the back door. Yeah. And that's a very convoluted process but it is fundamentally needed. We need to have those locational signals. So we're sort of trying to work out how to, how to juggle those things. But one thing that's quite interesting for me is that somebody might say, right Ed, you invited Philip on and he's here and he's a developer and look at him just developing projects. But that's not true. Terral Air do other things. So what do you do beyond development?

[B]

Yeah. So we are a integrated energy flexibility platform with two parts of the business. Like you said, we're a developer owner. So we develop, finance and operate grid scale best. Like I said, mostly in the medium voltage. So far currently starting to go to 110 and 380kv across. Yeah. 38 DSO zones, four TSO zones. And I would say we are one of the largest in the medium. Well the largest in the medium voltage, one of the largest overall. And then we have our flexibility platform layer which essentially enables us to commercialize these assets both for ourselves and other best owner operators. Now very importantly, we're not a trader. We don't optimize. What our platform do is, does is a, it's a route to market platform that enables you to bundle portfolios of best assets, virtualize them and then essentially create offtake across a whole portfolio or to take very large assets and split them. And so what that enables you to do is to manage the risks from the revenue side much smarter because Historically, you would have a best asset and you would go either fully merchant or, if your asset was big enough, fully told. And then some people came in and said, okay, well, I can tolerate, but I'll also do the merchant or do a floor. And we said, you shouldn't have to choose between fully contracted or fully merchant, and also fully merchant just with one party or finding somebody who's kind of not the best at both worlds. So we said, I want the best offtake and I want to have as much as I want or needs. So let's say 50% for seven years with RWE or Vatten file, and then 50% merchant. But the merchant slice, rather than giving it to an optimizer, we have a basket of optimizers that are essentially dialed up and down according to performance. And then additionally, other flex buyers can bid on the capacity. And if somebody bids above a certain hurdle price that we set on a daily basis, then they can basically get a slice of your portfolio, of your asset. A little bit like a mini toll for a day, a week, or a month. Yeah. And so we feel that that's the superior way to commercialize flexibility.

[A]

I think it's really interesting. So the tolling side and doing like a partial toll, I think a lot of industry will go that's quite familiar with. It's not the same as what we've seen, because ultimately people want to try and toll as much as possible so they can kind of bring in debt and they can gear their projects quite highly. You're saying, okay, we're going to toll a portion of it, and I assume that's for the purposes of then gearing those projects. But that 50%, that's merchant, it is a funky model to sort of have each optimizer bidding in to try and, like, win a different slice on a different day. Like, why. Why is that the most valuable way of optimizing that sort of 50% of the asset that's. That's available?

[B]

Yeah. I mean, if I look at Moto, right. And I. And I see the. The rankings of the optimizers in the uk, you don't really have anyone always winning. You have a couple that are better performers than others. But the reality is no one structurally outperforms anyone always. So if you are essentially subscribing to one optimizer with a best asset, you're doing a concentration bet in an industry where, you know, no one will continuously outperform. It's not like equities. So I think what makes a lot more sense is to Go into like a fund of funds model. So you invest into different parties or like an ETF in the stock market. And so it's very simple to actually say, okay, I have a book. Let's say that book is 100 megawatts and I give it to three optimizers. And if somebody is performing well, then they get more of the book. If I now see that the other party is, is. Is improving their performance of, let's say, 5 megawatts of the book, I reallocate the capacity to them. So why would I want to put all my X in one basket? And then what we often hear, well, you know what, I think your idea is great, but why don't I just give one asset, Optimizer X and the other asset to optimize a Y, and then I have Optimizer Z, and then I have a portfolio and I can kind of see. Yeah, maybe you can see, but you can't change anything about it anymore. Right. So the reality is, I think, why actually put all your revenues into the basket of one party, even if it's one of the better parties? Don't you want to be diversified? Dial them up when they're great and dial them down when they're bad and have the ability to have additional optionality from other people who want to procure flexibility, who may have a higher willingness to pay. That is unique to our platform. And I think it's free optionality. Why wouldn't you do that?

[A]

Yeah, I mean, we. Does the company Motorway exist in Germany? Motor Motorway. Motorway, okay. It's for selling cars. Right. So it used to be that if you tried to sell a car, you'd go to like your local car dealership and you'd say, oh, can I sell my car? And they'd say, they'd lowball you. Right. They take like 20% off or 10% off and say, here it is, the app, which we don't. We're not affiliated with in any way, but I have used. And so I can tell you it's quite, it's quite fun. Essentially it takes your car, which is worth, say, £5,000.

[B]

Like a reverse auction.

[A]

Exactly. And so it sends it out to a thousand local dealerships and then the best dealership, or perhaps there's some buyer's remorse in there. But like the best dealership gives you the highest price and then they come.

[B]

Yeah, it's like Auto One we have in Germany.

[A]

Okay.

[B]

We buy any car. It's called.

[A]

Yeah, yeah.

[B]

So.

[A]

So you just don't get stuck into like, One particular relationship.

[B]

Right.

[A]

So I really like that. But is it more financeable? Does it?

[B]

Yeah, I think so. I mean, We've done a 160 million euros financing with ABN AMRO and Commerzbank with that structure. So I would say, you know, these are blue chip names.

[A]

Yes.

[B]

And we've done a portfolio financing. I think if anything it's more financeable because you don't have single optimizer risk, you don't have single counterparty risk. You have the ability to switch in and out if somebody is not doing a good job. And I think it's a win, win for everyone. I think it's a win for the optimizers. If you're doing a great job, you get more capacity, you get feedback on how you're performing in the market. Now, we won't tell you. Okay. Optimizer B is doing, you know, X amount of revenues, but you kind of see how much share of the book you have or not. So I think it's a win, win for everyone.

[A]

Yeah, yeah. And we had Lisa from ABN Amro. Her episode comes out in the middle of April. So if you're interested in that, then give that a listen.

[B]

We like ABN a lot. And yeah, we just did a deal with him.

[A]

There we go.

[B]

Hi to Lisa. If you're listening to this.

[A]

Yeah. And options at Commerce bank to come on. Okay.

[B]

We like Commerzbank as well.

[A]

Yes. We could be here for a long time. Okay. So I want to. We've done a bit of a sort of Germany versus UK comparison.

[B]

Yeah.

[A]

And I think one of the sort of not hidden stories, but one of the things that's kind of brewing in Germany is that concept of saturation. So Germany's been a hot market and it's been a hot market for a while. So very good returns. GB was a hot market back in 2022. Some very, very good.

[B]

It is.

[A]

And it is again. Yeah. Yeah.

[B]

Well, the great. The death of GB has been greatly exaggerated, I think.

[A]

I totally agree with you. In fact, we can talk about that more and we should talk about that more. But let's talk about the. The sort of. The concept of what happened. So 2022 to 2023 more batteries came into the GB system. The market got sort of quote unquote saturated and therefore revenues dropped quite quickly. Yeah. In Germany that same thing is happening.

[B]

Yeah. I'm not sure I agree, but yes.

[A]

Okay. So do you agree and do you think it will happen at the same speed to the same scale? And if not, why not?

[B]

Yeah. So I'm not an expert on the UK markets, but you know, what I can say is different from my understanding in Germany is a, from a macro perspective, Germany is the largest industrial base in the, in Europe.

[A]

Yeah.

[B]

So there's a much deeper market in the intraday market. In the day ahead market, we're interconnected into all directions. There are no nukes, the coal is being phased out, little gas, massive solar and huge amount of wind. The UK on the other hand, much more baseload, smaller market, not interconnected, some nukes. And then the reality is the majority of best that was built in the UK was I think dynamic containment reserve and other ancillary services. And that is a, you know, there's, there's a bucket and you can take out from the bucket. Right. So the X amount of megawatts available, people build my best, everybody tries to bid into that. The thing with Germany is because in a very simple way, because it is such a deep market on the intraday and the day ahead, any bid that you will do in the ancillary services will always reflect the opportunity cost that you have on the merchant side. So there's a natural flaw and I think that is not the same thing in the uk A B Germany, just as a power system has structurally a lot more volatility, plus it's a larger market. So I think will we see pockets of saturation in the ancillary services in Germany? We should, absolutely. We should have seen them already. I think it's inevitable. But we should have seen them earlier already because, you know, FCR is like 5, 6, 700 megawatts, AFR is like 202,000, 2,000 megawatts or 2 gigawatts and I think so. So in reality we should see some saturation in that. But the reality is if you look at the merchant component intraday ahead, it's much deeper and I think we will not really see saturation. And I think also that brings me to my point. In general, I think most people think about flexibility wrong. I think people model flexibility curves as a function of historical spreads, maybe some gas futures and look at it in a linear way. But the reality is flexibility is all about convex revenue developments or more tail events. And I think Germany will see a lot more of those. So I really don't see structural saturation on the horizon. But yeah, some pockets like the ancillary services may saturate a bit.

[A]

Yeah, I think we, we see something similar. We definitely see the ancillary services saturating. I think to kind of the reflection on gb. Right. Is that the ancillary service is saturated and when they saturated, they saturated to a level where the ancillary services and the wholesale were, were making sort of equal. Equal revenue or the opportunity cost of doing both was quite similar. And that's where they found their sort of base and that's where they don't

[B]

have that situation in Germany ever since 2023.

[A]

Whereas you're saying that right now it's, it's already quite tied. It's already quite tied to the level of revenue you can make from wholesale markets.

[B]

Yeah, for sure. And, and I mean they're very deep, they're very volatile and. And they will continue to be volatile. So I think we're actually just starting to enter the phase of managing volatility. In Germany we only have roughly two and a half gigawatts, I believe of. Of best there we have 80 gigawatts of baseload. Right. That's nothing. I mean, if you think about it, it's like a 40x flexibility gap. All the home storage stuff is not really helping it. There's not that much gas. And by the way, I'm not against gas. I just think not too much gas. And so, yeah, I think saturation is, is not something we see so far.

[A]

Yeah, I think this is a really. It's probably one of the most interesting parts of modeling battery storage is as you start to add more gigawatts of batteries to the system, that sort of volatility that exists in intraday markets when people are trying to balance their positions, whatever it might be, we're two gigs short, four gigs long, whatever, you know, wherever the system actually is, how the batteries interact with those positions and what they do to the prices of those positions I think is really interesting. And I think that when we look at things like gb, one of the things that probably hasn't been modeled very well is what do the. What. What has been the impact of, say, battery offering lots of flexibility to the market in our balancing mechanism? What has that done to say how gas prices and are we seeing sort of secondary order effects of there just being much more flexibility in the system and is that starting to shift what would otherwise have been the case, which could have been extremely high gas prices? Yeah, I don't think we have a perfect answer to that, but I'm very interested to see what would happen in Germany as those gigawatts ramp up.

[B]

Yeah. And I think, I mean, look, the reality is it's very speculative to model what would have happened had you not have had the best. But I mean the reality is you just have a lot of volatility. In Germany there's a lot more trading activity. I think in 24 there was more trading activity in the German FX spot market than the rest of Europe combined. So I really just don't. That's not something I think about.

[A]

Okay, I'm just going to recap a little bit where we got to so developer IPP in the flexibility space, but also running sort of VBAs, not Excel VBAs, virtual battery auctions.

[B]

Yes.

[A]

And that to me feels like there's something odd there in that you're not one thing, you're not just a developer, you're not, you're not someone who would own the asset, but you're also thinking about like an extra way of distributing the assets that you have out to the market for people to bid on. And so you're almost kind of wearing three hats as a company. Like which one, which one are you?

[B]

We don't think about it this way. I mean, the reality is we're an integrated energy flexibility platform. Customers come to us to procure flexibility or to sell flexibility. Whether they want to procure flexibility from us and we own the asset or somebody else owns the asset, they don't care. And if somebody wants to sell flexibility, you know, they want to go to the best place. So the way that I think about it is we are an operating system for energy flexibility. You can buy or sell that with us. And to me it's the most intuitive way of doing that. I think if you think about flexibility as a whole, I think the, the, the future of the entire energy system will be dominated or will be owned by the party or by the parties that are able to manage flexible dispatch in a system that is dominated by non flexible generation. And the reality for that is that best is the most intuitive asset class for that. But I think that everyone doing otc, bilateral, non standardized agreements to commercialize it will always leave a lot of value for the whole industry on the table. And the way that we think about it is that somebody needs to build something where you abstract from all the physical realities and you can just procure flexibility in a simple way. A little bit like AWS for power. And that's essentially what we're trying to build. Now the analogy may not be perfect for some reasons, but I think the idea is just if you want to have flexibility and you want to buy it, you don't need to worry about, you know, maintaining your asset, owning the asset, operating the asset, financing the asset, you can just do it with us. And so again, to me, I don't think of us a developer or as a software business. The reality is we're an integrated energy flexibility company. Yes. We happen to have actually a development business and an operating business and a software business. But ultimately it's one face to the customer. That's kind of how we think about it.

[A]

Okay. Yeah. AWS is a really interesting comparison and it's a bold one. One thing that sort of stands out to me. Right. If the VBA is working really well, and I think it should. Right. I'm a big markets fan. I'm with you on this. Other owners of battery assets who might say tore their asset for say 30%, would they want to sort of bring you in as a third party to run a VBA on their assets? So you have nothing to do with the ownership of that, but you're just involved?

[B]

That's exactly what we're doing. Yeah, that's exactly what we do. I mean, where is this virtual battery auction concept coming from? Right. And we often get challenged on this. I mean, we have the pretty simple hypothesis that you have intrinsic flexibility value and extrinsic flexibility value. Intrinsic is what the asset can do based on your Curve or other providers of Curve's revenue, which is intraday, they had ancillary services and the view is that intrinsic value fully captures that. And we say, well, there must be a lot of people out there that want exposure to flexibility because they want to trade it speculatively or they want to hedge balancing costs or they want to do profile shaping or anything else who don't have access to flexibility, physical power of best or, or who want more and who have a higher willingness to pay than what the intrinsic view of the market says. Sometimes they will be right, sometimes they will be wrong.

[A]

So let's say I'm, I'm someone who's outside of the vba. I'm someone who'd be buying virtual batteries in the vba.

[B]

Yeah.

[A]

Or I could trade on the day ahead market and just, just buy the prices, right?

[B]

Yeah.

[A]

Why wouldn't I just go to the day ahead market and sell, let's say, do exactly what a battery does. So, so why wouldn't I just go and sell at the peak price and buy sort of the, the charging price?

[B]

Well, the reality is the liquidity dries up, for instance, in the intraday market. Right. And the reality is you may add too late a time, see that you're on the wrong side of, of balancing costs. And, and that point you want to hedge yourself and have the ability to have a physical battery or more of physical batteries. Or the reality is you, you know, you want to have more exposure so you can trade more flexibility. I mean, there, there, there's a myriad of use cases that people come to us to essentially procure flexibility and I guess it's the same way, you know, why would you get it all in the first place if you can just do day heads? Why do people want physical batteries in general? The way that I think about it, it's like a tall, just off a short tenor.

[A]

Okay, we could talk about this for a long time. Yeah, I'm going to move us on to a few other markets and then a little bit of advice. So not for me.

[B]

I'm happy to take advice.

[A]

No, definitely not for me. You don't want it. Okay. If you were going to look outside of Germany, where would you look? What markets appeal to you?

[B]

I mean, at the moment we're very happy in Germany. I think it depends whether we look at it from a asset ownership perspective or from a software perspective. I know I said it's all the same thing, but to contradict myself, about one and a half minutes later, we would probably, from a software perspective start looking at more mature markets from layer or for our layer platform, such as the uk, potentially, such as Italy potential and some of the Nordic markets, we get a lot of inbound. We have not yet made a decision on the asset development and ownership side. I don't think it's an easy case to make. I like Spain. I think from a regulatory perspective it's not ready yet, but I think, you know, the lack of inertia that caused the blackout screams for Bess. But, you know, I think you want to be early enough there to, to, to have your foot in the door. At the same time, it's not ready for scale yet. So I, I struggle to give you an exact flag.

[A]

Very interesting. I, I, I, I promised some advice. Not from me. If somebody was saying to you, philip, I'm keen to go into the German battery market, we know that the German battery battery market has been hot. We know that developer premiums have been quite high. We know there's some, some sort of question marks around grid fees, what would you say to them? Would you say, yeah, definitely commit to Germany right now, even though you might be at the back of the connection queue, or would you say, actually wait until sort of later on this year? You might know a little bit more.

[B]

I mean, look the way that we see it, we're going full throttle. I think the insecurity in the market is great because it means, you know, more conservative players or players that will get their hands dirty are not going as fast. I think that may mean some assets get delayed. We already see that. And that's going to mean that merchant revenues remain higher, tolling prices remain higher for longer and also, you know, less competition. I think if you want to enter the German market today, you don't have a pipeline, you don't have a team, it's too late. I think you need to find existing assets or existing projects or buy an existing platform. And I think also the, the, the degrees of quality there varies massively. The second thing that I would say is, which was, you know, your first question, what do people get wrong about Germany? I think people massively, and I cannot stress this enough, underestimate the complexity of operating and developing best in Germany. If you are just a UK player and you know you want to buy some assets there, honestly, good luck. I think it's not that easy. I think you need people on the ground with domain specific knowledge, with the relationships and it's a hardcore operating business managing these assets, operating these assets, all the regulatory communication with the TSO, with the DSOs. So I think it's a very, very, very attractive market and will continue to be very attractive. But I think you can only make a lot of money there if you get your hands dirty. If your viewers. This is just like solar, super easy. Like, you know, feed in tariff. Definitely not the case.

[A]

Yeah, and we had a, we had Paul Mason on recently from Harmony who has gone through the process of developing, raising money, operating and then sort of selling assets with that, that Harmony portfolio. And I think one of the things he was saying about a reflection over the last 10 years is people on the ground who understand the market.

[B]

Yeah, for sure. I mean the reality is when we started this company November 22nd, we thought it was much easier. We thought you build the best asset 15 years every month just automatically wires your money, you know you're somewhere tanning, life's great, super easy. I mean these things are complicated. But the reality also is I think it's great that they're complicated. That creates a moat. If it was as easy as everyone thinks, it would just be a race to the bottom in terms of IRR compression. And it's definitely not going to be for a very long time because you need platforms to run it. And I think there are very few high quality platforms in Germany. They're actually capable of doing it. I think a lot of people got money who actually don't know what they're doing and I don't think they're going to deliver these assets.

[A]

I think that that is going to happen though. I think there is a like cost of capital shootout. I think people are going to. So right now we've got a big range of people who play in the market. Maybe 50, maybe 100. I think that over the next five to 10 years that might, that might squeeze.

[B]

There will squeeze for sure. There'll be consolidation. And I think again, a lot of people got money right now and they won't deliver assets, they won't operate assets. We've seen multiple developers come to us saying if we want to buy them just in the last quarter alone. And so I think there will be two, three, four names that will be elite at owning, operating and financing these assets. We're very confident and we work very hard to be one of them. And there are two, three other good competitors. But I think a lot of these guys will not make it and they will sell their assets for scrap and the platform will not exist because it's an operating hot market. But to answer your question, if you want to go to Germany, I would say call us, we're happy to help.

[A]

Yeah, great plug. Okay, final question. What is a contrarian view you hold about energy markets?

[B]

Look, I touched upon it briefly and I think people model flexibility wrong. I think flexibility, demand and revenues are highly convex. They are dominated by tail events that get very fat at the end. And I mean if you look at Texas 2021, Winter Storm Yuri. Yeah. You had €9,000 megawatt hour prices. And the reality is, I think people think of it as a linear asset, but what you actually are, your long volatility. And the good thing with that is, well, being long volatility means sometimes you will have massive volatility and sometimes the lack of volatility is the function of volatility in itself. So I think what you need to be very aware of when you have a best asset is that you will probably have periods of extremely high volatility or very low volatility and the market will go through these swings. And I think nobody really captures this modeling right because people try to impose a linear worldview on a system that by the very definition of it with all the solar is nonlinear. And so I would say I'm not sure if it's such a contrarian view, but my view is that flex revenues and the best market will be orders of magnitude larger and more profitable than people think, but not in the way that they do think.

[A]

I love that. That's a. That's a great contrarian view. Philip, you've been a wonderful guest. Thank you so much for coming on.

[B]

Thank you very much. And thanks for inviting.