Speaker 1I'm your host, Ed Porter, and welcome back to Transmission. Now, regular viewers will notice we're not in our regular studio, and that's because we're in Berlin. And what we've done is we've come here to record some special episodes with some fantastic energy experts, and we're going to be bringing those to you over the next couple of months, so watch this space. But no more about that. Let's go to this episode. Poland's battery market is ramping fast. No pilot 3 megawatt projects, no long process of scaling up the sector. They're starting off with big 200 megawatt projects, a size that it took Germany five years to get to. And because Poland runs a central dispatch system, two identical batteries in different locations can earn vastly different revenues. My guests today are Alexandra and Jan from Entrix. This episode isn't about the theory. It's about what happens when a market is being asked to scale this fast. If you want to take a look at battery assets in Poland, MODO's forecast and benchmark are live. Head to the terminal or ask CO. Let's jump in. Alexandra, Jan, welcome to Transmission.
Speaker 2Thank you very much for the invitation. Pleasure to be here.
Speaker 1And looking forward to this as ever. Let's get straight into it. So what is one thing people consistently get wrong about battery optimisation in Poland?
Speaker 2I think that especially in such a new market like in Poland, people still think that all batteries are created equal and they should be measured with the same KPIs, which obviously is not true, especially when you think about how batteries are different from each other, how different constraints, cycling limits, technical limitations, ramping rates they have. But also this is what we knew from, for example, the German market, right? But Poland is even more peculiar because Poland is a central dispatch system. So the two batteries that are standing in different regions of Poland, different, let's say, grid connections, can be treated in a different way or can behave in a different way because the TSO, the transmission system operator and the distribution systems operator are solving, in fact, two problems at the same time. So they are not only looking at the system balance, but the power balance and keeping the frequency at 50 Hz, but they also take care in the same step about power flows within the grid. So you can end up in a situation where having exactly the same batteries, one standing next to Wrocław, which is south-west, and the other one next to Białystok, which is north-east, and they would be used in a completely different way in a dispatch on their whole lifetime.
Speaker 1So even if the duration and the cycling and the warranty all looks very similar and they both went live at the same time, just because of that location, you're going to get very different outcomes.
Speaker 2They can be different, right? This is something that we cannot observe on historical data so far, right? Batteries are only starting in Poland, but this is what we knew. It's just the feature of the system that we have, the central dispatch system that we have in Poland. And therefore, what we are very much in favour of is not measuring the batteries with the same exact benchmark or the same exact KPIs, right? We always have to look at the individual opportunity space of each battery, what it really can achieve in such conditions that are given to it, and then measure its performance against what's the environment around it.
Speaker 1I'm really excited to get into this. We're going to be talking about central dispatch a little bit more. We're going to be talking about some of the trends that drive these splits in terms of why certain assets make different amounts. But maybe let's just start off this story with the optimizers themselves, because I think that's a nice way to get into what the topic is. Every firm that's bidding for Polish mandates, Polish projects, calls itself a credible optimizer, right? Because you have to. On a live asset, what is actually separating your credible optimizers, so the people who are doing it really well, versus just a good pitch deck?
Speaker 3Well, I would say the companies who pitch themselves as optimizers are usually either traders or companies that develop the algorithm. I would say a good credible optimizer is both and neither, because we are right now at the stage of the market where the batteries are going live, and the process of getting especially into the ancillary services is much more complicated than what people are used to in Germany and other markets. It's not a walk in the park. Generally, it's a long protracted process, which requires you not only to fill in papers, but also to perform actual tests on communication with the TSO, et cetera, et cetera. So at this moment, I would say the credible optimizer is somebody who not. It's not a plug and play situation. So a credible optimizer is somebody who can take you by the hand and lead you through this process, because you as a developer, you're not necessarily well versed in how the TSO is working, and this is actually the job of your optimizer.
Speaker 2I would add one sentence to it, that battery managing is not only about trading, right? Like I can be purchasing and selling electricity, but it's also important to know that you're managing a real physical asset that has a real physical impact on the grid. And this is what separates the good pitch deck from good managers of this physical infrastructure.
Speaker 3I think this is what many developers get wrong, because they're used to developing PV or wind assets, yes? And getting a trader is pretty simple, and getting into an off-take contract is pretty simple. In case of battery, you need much more hands-on presence of the optimizer on the battery, plus, of course, the full stack optimization, which is, I would say, a given.
Speaker 1So as you said, you have this credible optimizer, someone who can really bring through a project very well, and can qualify it for the entity services. And that's true in lots of markets, and I think it's a really good point. And then you've kind of got this other point you raised earlier, which is that two assets in different locations can make very different amounts of money because of the central dispatch dynamics, as well as like power flows as well. And so let's say I'm an asset owner, and I've got sort of five assets in my portfolio, and I give them, say, to different optimizers. How do I know if you're doing like a good job? It feels like that question is coming.
Speaker 3It's actually a very fair question. As Ola mentioned, every asset requires to be treated a bit separately. So I would say you would need to develop a separate benchmark for each asset, taking into account the constraints that are applicable locally, and also the constraints of a given asset. And then, of course, you don't compare against other assets. You compare against the theoretical results that you could receive from the market. Obviously, all the information about the prices that you get, how the battery was dispatched, should be made available to you. So therefore, in other words, you would not pitch one optimizer against the other. You would rather see how each optimizer is doing against the market.
Speaker 1Okay, so with a set of rules, with the transparency there, then you think that's enough to give owners. And for what it's worth, I agree with that approach. I think it makes sense.
Speaker 2This is already within the trading performance, right? But our job actually starts even before that. So we do not start our cooperation with the client from the first trading day, and then we compare the results, right? Like it's a very long process of preparation, of bringing the asset on board, agreeing on the dispatch and how we are going to run with it. So you can also kind of judge by the behavior, the attitude of the people that are representing optimizer, how they are handling you, how they are solving your problems. Are they proactively informing you about regulatory changes? Are they kind of on good terms with the system operators applicable to your assets? This is super important and it can prolong or speed up the road to revenue. I think this is also very crucial.
Speaker 1Yes, I agree. Like this kind of setting of the right expectations at the start of these agreements is really important, because at that point, these asset owners are working out sort of debt levels that they may be trying to hit. And so provided you kind of got good expectation setting and you hit those expectations, you can be in a good place. But let's turn this into like a more tangible example, right? So you said that getting into ancillary services takes longer in Poland in comparison to like the experience people get from Germany. And apologies, we're having to make that comparison a lot. But I think people in industry do make that comparison a lot. So we're going to stick with it. But why is it different getting an asset online into ancillary services in Poland?
Speaker 2I think the first and fundamental problem and mistake that collectively the industry is doing is comparing a mature industry with 17 years of collective knowledge, recipes, playbooks and rules with an industry that is right now getting started. Polish ancillary service market opened or started to be even a market two years ago. We have as an industry collective experience of of maybe one year, and it means developers, optimizers, traders, even the DSO and TSO employees to do that. So you just should not expect the same level of expertise within the industry in a market that is right now being established, right now is developing, to the market that has so much of history and tweaked and improved procedures. This is one thing. The other thing is that the employees of the TSO's transmission system operators, distribution system operators, they have a recipe, but sometimes they are interpreting this recipe for the first time. And your asset is the first one that is undergoing the pre-qualification to ancillary services in that very region. So obviously, you have to have a lot of patience and goodwill and cooperation so that it actually works. And the second, the other factor I would say is that in Poland, we pay a lot of attention to system security, to security in general. And we have a lot of respect towards the fact that we are working with physical infrastructure that has a real impact on a grid, especially for some of the clients that we are now bringing on board as entries. They are 200 megawatt batteries. They have a huge impact on the grid itself. So that's why I think people want to be extra cautious. They don't want to rush through the procedure, make mistakes, and cause problems. They rather prefer to be prepared and do it in a thorough, good manner.
Speaker 3Yes, but that's all true. But there's a third very important thing, which is that the process itself is very detailed and very long. And it consists of steps, which have sub-steps. So it can take you from anywhere between almost a year or over half a year to just go through the process, just because this is so detailed. And it entails not only, as I said, procedural things, but also technical tests. You have to set up your own sort of like a communication node with the transmission system operator. But then it has to be compliant with all the requirements of the transmission system operator, and so on, and so on, and so on. So in general, I would say it's a pretty baroque certification process, so to speak. And on top of this, everybody's learning on the go.
Speaker 1And I think a lot of these processes are quite slow to happen. I do agree with you around this kind of-- if the first assets you bring on are 100 megawatts or 200 megawatts, that is asking a lot of your system operators. Like if you think to say GB or Germany, those first assets coming online, they were two, three megawatts. So you had a lovely sandbox to play around with and sort of go, does this work? Does this not work? And you scaled it up nicely. You had a three megawatt, then a 10, then a 20, then a 50, then a 100. And five years has gone by of testing this out. And you're saying, actually, the first time we're jumping into this pool, we're jumping into the deep end. Yeah, we're laughing in intrigues
Speaker 3that we have the biggest pilot project in Europe.
Speaker 1Yes, I think that's a good claim. And it's not just the answer to your services that are a bit different, right? So when people think about Germany-- and again, we're going to make this comparison-- they were thinking about intraday markets being a critical part of how batteries make money. In Poland, for those who don't know, the intraday market's not huge. And the amount of revenue from the intraday market and the amount of trading is very thin. So do you see that as a market where, as an optimizer, you're expecting to add real value, or is the main money in the day ahead and central dispatch?
Speaker 3Both your statements are true. So first of all, obviously, the main money right now is in ancillary services and day ahead. However, especially with smaller clients, we already see real value in the intraday. So we did not neglect that market. We see the value from day one. And also, I would say, for the last years, first of all, Polish especially renewable assets and their route to market representatives were a bit lax about balancing. That's one thing. And this is going to change, because the TSO, the Transmission System Operator, has been cracking down on them starting this year. And we hear very, I would say, very firm statements from the TSO that this will only continue. That's one thing. And also, when you trade on intraday, you need to have somebody on the other side of the table. If you sell, you want somebody to buy. If you buy, you need somebody to sell. So that's, I think, where battery will also make a difference. So the entry of batteries into the system, combined with the crackdown from the TSO on the, I would say, more relaxed balancing market participants will, in effect, bring higher-- Intraday volumes. Yeah,
Speaker 1volumes and liquidity on the intraday market. And we've seen another market. So I think it's a well-trodden path. I suppose, to point out one more difference-- and maybe this is just to the wider European market as well. So the wholesale market in Poland is still shaped by a few very large, vertically integrated players. And as an optimizer, sort of coming into the market, how do you expect to kind of break some of those trading patterns? Because it's kind of been working for a long time. But obviously, you're coming into the market because you think you can do something that's going to add value to the way that it works. So as Entrix, how do you do that?
Speaker 2I would say that some of the revolution, a part of the revolution has already happened. So I started my professional career in energy trading in 2019. That was at times when the curve of the day had price was almost flat with a tiny belly in the middle of the day. And then I only heard about exotic terms, such as duck curve from California. Now, I have been observing in the last seven years the duck curve developing in front of my own eyes. So all of this revolution already has happened, especially due to a very big rollout of solar and prosumer solar that is not so much controllable. So we already see the impact of decentralized small investors, small assets onto the power market in Poland. And we do not have this monopoly or oligopoly of the incumbent coal-based state-owned utilities. So some of the revolution already has happened. Now, what we see? We see a huge need for balancing of the power system. We have a huge problem with a non-market redispatch. So turning off, not due to economic reasons, but due to great reasons, especially of renewable assets PV in the middle of the day, in summer or late spring. And also, what is quite important is that batteries really have a big impact to make here to prevent non-market redispatch, but also to balance out the wholesale market. And as Jan said before, to also improve system balancing as such, because Polish transmission system operator is really right now paying more attention to balancing of the balancing responsible parties, which means that if you would like to balance out your positions, you need to make certain transactions. But in order to make these transactions, you need the other side. And I think that here, batteries will really bring an impact and change these trading patterns.
Speaker 3Also, we have to be aware that the first wave of batteries in Poland is pretty large. And it's happening right now. So if we meet here in one year's time, the landscape is going to be different. So I believe that the trading patterns will also
Speaker 1evolve naturally. Give people a sense of the size of the wave. So are we talking 100 megawatts? Are we talking a gigawatt?
Speaker 3No, we're talking above a gigawatt. Certainly above a gigawatt. Of course, we have to take into account possible delays, because these are early days. But generally, in a year's time, by 2028, we will have over 2 gigawatts of batteries.
Speaker 2Should be. Should be.
Speaker 3So that's a huge change for the market of the Polish market
Speaker 1size. And just to help people to understand Polish markets, what's the peak demand on the system?
Speaker 225 gigawatt max. That's the peak demand.
Speaker 1So in a couple of years, you're getting sort of 10% of the peak demand. So it's moving quite quickly.
Speaker 3Exactly. But just to be clear, we do not see ourselves breaking anything. The patterns will break by themselves. We as Entrix, I think we're pretty proud of talking to everybody in the market, both in Germany and in Poland. So we're also cooperating very closely with the TSO and the DSOs. And also incumbent companies, who are pretty apprehensive. But that's normal, because they are naturally quite conservative. And everybody's feeling their way through what the optimizer actually does. So we're making sure that we are working alongside them, because they have their role to do. they have the job to do. And that's my belief that we'll have our job to do. And this will not sort of will not be pitched against one another.
Speaker 1Okay. And understood. And let's say I'm one of these entrepreneurial asset owners that wants to come into Poland, right? I want to build a battery. And I'm then thinking about like, how do I like, how do I sort out my route to market agreement? So I've got a few options. I could do a profit share agreements. And so we could share profits as the name means, we could do a floor so I could sort of lock in a floor return, or we could do like a full toll, right? And so effectively you could guarantee me the revenues and that would be lovely for me because I can go and sort of raise debt against my project. How do you see like those off take agreements coming forward in Poland? Do you do you expect sort of one to be more popular? What's what's your take?
Speaker 3My take is that there will be a need for all three and even more because we we already are talking about more innovative structures. There will be those who will prefer merchant, they will be in the minority in my view, and especially smaller, smaller assets. So because generally with the size grows your need for capital, which means you need to take a loan, you need to take some sort of a leverage. And then usually the counterparty that provides you with the leverage requires some sort of a surety or guarantee of fixed revenues. Yes. What we can see, we can we can see both I would say both types of clients asking us for for our services. However, the big clients almost always need some sort of a fixed revenue. And here we can see both flaws and tolls. And there are also partial tolls which are already being discussed in Poland. And we've seen already some like really advanced can disclose right now. But maybe in the next few months, we'll have a we'll have a we'll
Speaker 1have a scoop. So we'll have to come back and have a second conversation when the when the
Speaker 3news breaks. Yeah, but just just coming back from coming back to the to to where the market is. What we see in the market is that there's a great need for for capital for especially for fixed revenues. Yeah. Which means that this is an opportunity for counterparts parties who can provide this sort of surety. We as entries, we're just an optimizer. We're not we're not a utility. So we don't do it ourselves. However, we also see ourselves as a as a counterparty democratizing access to the batteries to the capital providers, which means there are companies who can do optimisation themselves and provide capital fair play. But no single company and no five companies will satiate the hunger for capital that is in Poland right now in the battery storage, which means there's plenty of companies who are either utilities or other sort of capital providers who do not have their own sort of optimization arm or they for some for whatever reason are not specializing this. And this is where we come in. We partner up with them and we sort of provide optimization while they're providing the the the structure.
Speaker 1I think I hear you and like these big projects, they need debts and they need the kind of the backing to come through. I've looked at that Polish market and the kind of the combination of like non flexible coal and rapidly emerging solar. I don't know, it creates some quite nice spreads in the market. And so I kind of I feel like although I hear you on the debt side, I kind of I also feel like if I was to sort of bet some money, if I was to distribute some money all across Europe, I'd probably put some some money on Poland. I'd put some money on France and inflexible French nuclear and a bit on GP.
Speaker 3Oh, absolutely. Absolutely. And we also like especially with small or smaller clients who do not have this capital need. We can see them just betting on the market and going for merchant. And I mean, if I had my own battery, I would do the same.
Speaker 1Okay, interesting. Alexandra, coming back to you. So maybe with a more technical question. So outside of sort of the route to market, getting down into the sort of the detail of those grid connections. So we're starting to see sort of asymmetric grid connections coming through and ramping limits being applied on your connections, as they have done in Germany. And again, I promised that I would bring that and that sort of comparison back in. And here it is. Does that does that give an edge to an optimizer who's been active in these markets? And they kind of understand how best to use these sort of flexible connections?
Speaker 2Yeah, it certainly does. And it has very practical practical reasons, right? So we are in fact, capitalizing on the experience of our colleagues who've worked already with asymmetric assets or with assets that have flexible grid constraints in Germany. And as a kind of company that combines energy trading and being a technological company, we just have a head start, we do not have to think one month or a quarter about a solution. Certain solutions are already worked upon at Entrix. And we can choose from a catalog of ready to use ideas to implement them in Poland or at least be a competent party in a dialogue with the grid operators to suggest the ideas that might not be very intuitive from the first place, but are really beneficial for all of the parties. So as a person who is bringing certain service to the market, right? Like Entrix is a service company, we serve our clients. I'm, in fact, feeling that we are having a very comfortable position of being able to capitalize on the ideas that are already created and suggest them and really have a head start when working with more exotic or more complicated assets. This is really a big advantage. And I think one of the
Speaker 1things that I find, had a few of these conversations with optimizers and think about sort of like, where does that value go? And I do agree that it goes into the asset owner or the benefits from it, but like in a broader picture, if you can get your flexible assets to be behaving sort of optimally around grid connections, that's also good for consumers as well. So that for me is kind of, is one of the things that gets me out of bed, right?
Speaker 2It certainly is true. And sometimes a grid connection is just like, you either have a flexible grid connection or you have none. So sometimes it's just better to have a flexible grid connection, still commit your investments, still have this battery operating and benefiting the system and benefiting you, right? Instead of not having anything. Yeah. So we, as Entrix, we view it, obviously it's not the perfect solution, but it's a better to know solution. And we acknowledge the fact that system operators have their priorities, have their constraints. And if we are to build out renewables and batteries, we have to cooperate with each other and find solutions to really implement it.
Speaker 1Absolutely. So we've been in the technical here, where we've been talking about sort of flexible grid connections and offtake agreements and like a lot of theory. Let's turn it back to the reality, right? So you've had assets that have just come online. What's something that surprised you about that process? What have you learned in getting these assets online?
Speaker 3I would say the new thing for us, because as Ola mentioned, we already have some experience with Germany, but I think it's a nice sum up of the topics that we've mentioned here. In Germany, we started out with small assets and we had our sort of, we had our sandbox, so to speak, to play. And we were learning on the go. In Poland, we are starting with, I would say with a very diversified portfolio, which also includes like really, really big behemoths. So for us, it's required developing a whole new procedure to bring it safe online, because your first asset is first, and then when it's huge, you have to take into account many more stakeholders. So we're holding discussions with the TSO because they also are trying to understand what will be the impact on the grid, on the flows. We have plenty of discussions around how to do ramping about nominations, whatever. So I would say we have the whole plan for bringing these big assets online in such a way not to cause a big shockwave through the system. So I would say that was a totally
Speaker 1new thing for us. That takes me to my final question. So what is a contrarian view you have about the Polish energy market? Jan, maybe I'll
Speaker 3come to you first. So my contrarian view about the Polish energy market is that I would say we have two different realities. One is the financial market, so to speak, the other one is the physical side. I think this is not contrarian by itself, but I do feel that the stretch between these two sort of realities is widening. And what we observe is that while battery storage does not sort of put this spotlight on this big elephant in the room yet, but it brings us closer to understanding that the system of having one national prize or having everything, treating the grid like a copper plate, while at the same time dealing with increasing number of constraints. This is something that batteries might solve, but this requires everybody to understand that the problem is there. And this is, I would say, the problem that everybody is sort of pushing away, because it's too difficult to make a decision. We're all used to uh. to grid working 24/7. And if we want to remodel a living organism, it's going to be extremely difficult.
Speaker 1This is the same conversation in nearly every single grid. We're going from large transmission units in particular places to lots of distributed flexible assets in lots of places. And if you give all of those distributed flexible assets a boring sort of vanilla signal, they don't do the things that you'd want them to do. And so if you want to make the most of your networks, then you've got to have things like locational signals working really well. It keeps on coming up. And what you described is people are really nervous about putting it into practice. They kind of know what the economic solution is, but they get nervous about it. So I love that. I think it's right at the heart of what makes power markets really difficult at the moment. So Alexandra, sorry, you've got a difficult job to follow, but what's the contrarian view you hold on the Polish electricity market?
Speaker 2My contrarian view. So I think that in general, in Poland, people like to complain. And if you look at Poland and for example, like a side topic, what kind of economic and wealth progress the country has done within the last 30 years, you would be amazed and people still complain. And people also complain in the energy sector, especially in the renewable space. They like to complain, indulge themselves in complaining about grid operators. And I really believe this is a dead end. This is really not a way to go because I haven't heard about a situation or an industry that came to a conclusion and constructive collaboration by complaining on each other. So my really dogmatic idea and fundamental idea is that we really should start being open to each other's problems and each other's constraints, environment, and understand what needs and what drivers are dictating behavior of certain organizations and collectively come to a table and start solving them in a constructive dialogue. And this is exactly what we also do at Entrix, right? Like we could be offended or sad that there are flexible grid connections, as you mentioned, or for example, that the TSO, Transmission System Operator, is requiring certain procedures in order to access the ancillary services market. But this would lead us to nothing, right? So we are really open to dialogue. We are entering into the rooms. We are asking for consultations, questions, like really person to person contact to come together and to start talking about solutions and not close each other into separate caves, indulging ourselves in complaining. And I really believe this shouldn't be the way to go. People have to start looking at each other and really overcome this attitude.
Speaker 1This tendency, yeah. I really think both views are spot on. I'm not going to pick a winner. All I'm going to say is thank you very much for coming on. You've been wonderful guests, and I'm very glad that Heathrow's mistakes didn't stop you from coming over. So thank you very much.
Speaker 2Thank you very much.
Speaker 1It was a pleasure. Thank you.
PodcastTranscript AI