Leading the battery storage race

Australia is leading the deployment and thinking about how to optimize the battery case ahead of others and other markets are actually looking to us on how we are using the point and that idea of ancillary services to augment the network. Hello and welcome to the greener way. I'm your host, Michelle Baldesar from FSA Sustainability. Early this month, climate change and energy minister Chris Bowen uses National Press Club address to argue that battery storage is becoming central to Australia's energy security, affordability and decarbonisation goals. He pointed to Australia's growing uptake of batteries and described storage as a critical enabler of the energy transition. So that got us thinking. If governments are creating more favourable policy settings for battery storage, what does that mean for institutional investors? Does it improve the investment case? Is it more likely that more capital will flow into the sector? And what still needs to be done? Joining us today is Sonia Taital, co-managing director of Renewables Australia at Octopus Australia. Sonia has more than two decades of experience across renewable energy, investment and project development and she has helped grow Octopus Australia's portfolio of wind, solar and battery assets. Sonia, welcome to the greener way. Hi Michelle, thank you so much for having me today. Now before we get into batteries and policy, can you give us a sense of Octopus Australia's footprint? For example, what does the business do? What has it achieved so far? Are your superfund clients, for example, and why is Octopus well placed to have a view on where Australia's energy transition is heading? So Octopus Australia has been in the Australian electricity market now for eight years. Over that period, we've grown our fund into total assets of two billion and that's across two operating projects, a wind farm called Delacca in Queensland, a large solar farm in New South Wales called Darlington Point, and two market leading solar hybrids in Victoria and New South Wales. We also have eight gigawatts of development project in our stable that we're looking to roll out over time. Importantly, it's superannuation funds such as Reth, Post-Buth, APG, Australian ethical and others that have supported that growth and continue to support us as we look forward to roll out a portfolio of renewables across the East Coast of Australia. Congratulations, that's a pretty fantastic lineup of investment clients. Now, I've talked about Chris Bowen's speech before, but when governments introduce policies that support battery uptake and energy storage, how does that influence investment decisions? What do institutional investors look for when assessing whether a market is investable? To start with, if we think about the Australian market at a really high level and investing in Australia, say compared with Europe or the US, the first thing that they look at, of course, is that Australia has a political, politically stable environment, a regulatory stable environment, and the underlying somatic of why you would invest in electricity or energy in Australia makes butter sense. So our coal-fired power stations are old and becoming more unreliable, so they're closing down over time. That basically creates a supply shortage. That is the basis for our energy transition, along with the fact that we're looking to become more carbon emissions neutral. That is the planning that the Australian government is doing, putting those policies in place to enable renewables and storage together to replace that aging coal fleet. I didn't know this before this interview, but there's a sense that Australia is punching well above its weight in terms of battery storage. And again, the minister talked about how, despite Europe having a larger population base, we are now the world's third largest utility scale battery market. And to your point, we do have a stable regulatory landscape. Now, for investors, however, who may be familiar with wind and solar projects, but less familiar with batteries, how do battery assets create value exactly? What role can they play within a diversified renewable energy portfolio? When we think about batteries, the very first thing that we think about is how are they actually providing support to renewables to create a firm product? So when you think about the fact that our coal fire palatations are closing down, we actually need to replace that with something similar to base load power, or at least to be able to specifically meet the requirements of our end users. Our end users don't want energy just when the sun is shining or the wind is blowing, they need energy all of the time. So it's that concept that batteries come in and complement a portfolio of both wind and solar. And people pay a premium for that firm element when you think across all of those types of projects working together. So that's kind of step number one. Step number two is simply we already have existing solar and wind generating electricity. And so as you have that resource being intermittent, batteries step in and fill a gap. So they absorb power for example in the middle of the day when there is lots of solar and then they can discharge that power into the evening peak when there is higher demand. The third major category of revenue is what we call network support. So depending on where the battery is located in the transmission network, it can provide and salary services to support the smooth operations of the transmission network. And looking to the overseas experience, are there international markets that Australia should be learning from? Are there any examples overseas where the battery investment and deployment looks like best practice? I would actually say the opposite. I would say that Australia is leading the deployment and thinking about how to optimize the battery case ahead of others and other markets are actually looking to us on how we are going to work together. And that idea of the battery storage market is on how we are using deploying and you know that idea of until the services to augment the network. That's great to hear. So it's not just gold medals at the Olympics were leading in the battery storage market. Absolutely. What are the other key takeaways from Minister Baldwin's speech that you thought would be interesting for perspective institutional investors to know? Obviously when it comes to AI and data centers it goes without saying so along with battery storage, the hyper scalers and data center contractors are actually looking to Australia as the next big market to put those important infrastructure asset coming back to the fact that we're stable political stable regulatory environment. What Minister Bowen alluded to is the fact that there will be regulations in place where data centers are actually going to have to contract with famed renewables in order to get planning approval to get that infrastructure built. So that is a critical item both in order to support the rollout of renewables in Australia but also to ensure that we have enough energy when the data centers actually start operating. And don't increase prices for consumers. That is a great point and he did mention that there is one massive data center that is going to be based in his own local is his own suburb. Now every investment opportunity comes with risk so we've talked about the potential but what do super fun investors maybe underestimate when evaluating a renewable energy and battery project. Or as a fun manager yourself what are the risks and how do you make sure that you you keep an eye on those risks. A couple of things I would point out firstly building any infrastructure has its own nuances I suppose and building like you can imagine large power plant in Australia takes a lot of expertise. I think when investors are looking at where to put their hard and capital it's making sure they invest in a team who has the expertise across all aspects of the industry so that they're building the projects in the right place. So there's an element of particularly in Australia where transmission capacity can be scarce to make sure you've got it in the right place where you're doing the right type of off take contracts that green firm off take off talking about earlier and you understand how to enter into those type of off take. And then actually having the right team of literally technical people to understand how to make the projects. Separate to that, you talked earlier about battery storage. We always think about what portfolio we're investing in, because we are investing in the future of Australian energy industry. So rather than choosing A wind project or A battery project, it's how are you thinking about the portfolio? Because it's through that portfolio that we actually deliver what our customers need and therefore you get a premium return for investors. And I love the name of your fund Oasis. It's very memorable. When you look across the next decade, so you are talking about long-term, where do you see the biggest opportunities are for investors in Australia's energy transition? I would look at fund such as ours, and I know I say that because I work at Octopus, but again, when you think about the next set of projects that are coming through in Australia, a very large project. We really build that scale here in Australia, compared with other countries such as in Europe, where the projects are much smaller. And so you want to be investing in a portfolio where you can take advantage of that scale. The projects are billions and billions of dollars, but actually through doing that, also getting the diversification across states, whether it's Queensland, New South Wales, Victoria, across technologies, and then looking at that, the firming concept that you're meeting the needs of the customers. Because in the end, that's what's going to drive a transfer of investors. Absolutely. And I think everyone understands that this is a long-term play, but ultimately, investors are here for the returns, right? Exactly. Now, finally, is there anything else that you'd like to share with our listeners in terms of what's happening in this space? What will come out of Presbylone speech again? It's a very supportive policy setting for the country. What are the things that, if you were talking directly to a superfund right now, what they should be thinking about or what message would you leave with them? I think at the moment, we have the most, I suppose, the best policy settings that we've had in a really long time, and actually to facilitate the build-out of renewables and the support of investment in the long-term. We also have incredibly poignant fundamentals, coal coming out, AI data centers coming in, that kind of set the thematic for a really, really in the long-term. We're talking 10 to 20 years of growth here, and at the moment, we're not seeing enough renewables being built. So if you come in, kind of now is kind of the opportunity to be part of that transition as everything plays out. I do feel like this is the beginning of a new chapter for the renewable energy sector. Sonja, once again, thank you for joining us. Thank you so much for having me. Thanks for listening to The Greener Way. I'm Michelle Baldesar from F.S. Sustainability, until next time. The Greener Way podcast is a product of F.S. sustainability. All information in this podcast is for education and entertainment purposes only. It is not intended as a substitute for professional, legal, or tax advice. Before making any financial decisions, you should read the product disclosure statement, and if necessary, consult a licensed financial professional. For more information head to the disclaimer page on the F.S. Sustainability website fsustainability.com.au.