Interview: Hassen Bali, co-founder, Ion Ventures

BY BEN COOK:

  • Ion Ventures’ new storage business, Flexion Energy, has secured £150m of investment
  • Renewables investors are wary of storage due to perceived lack of security, says Bali
  • But storage is reaching an ‘inflection point’ and more institutional investors will enter market

Convincing investors to take the plunge into energy storage can be challenging.

But newly launched energy storage infrastructure specialist Flexion Energy recently achieved this feat when it secured £150m of investment from GLIL Infrastructure.

Flexion – which is owned by Ion Ventures – will use the funds to develop, build and manage energy storage systems in the UK. Specifically, it will focus on large-scale batteries connected to the grid.

The investment will enable Flexion to construct and make operational an established pipeline of up to 300MW of grid-connected battery storage systems within the next two years. In the longer term, the company has an objective to deliver 1GW of operational storage systems within five years.

Energy Storage Report spoke to Ion Ventures co-founder Hassen Bali about why he thought Flexion was particularly appealing to investors in a market that he says is underserved in terms of financing.

What are Flexion Energy’s priorities?

Hassen Bali: UK grid-connected energy storage. No more than about 15 to 20MW initially and then we’ll get bigger from there. The prevailing trends have been to stop at 50MW on an individual site – mainly due to planning and grid voltage – but there’s always scope to go bigger, though that will be a decision we make as we see opportunities.

We’ve got well over 1GW in the development pipeline and that’s dozens of sites. It’s about identifying loads of sites and then systematically working through them until you get those that can actually be built. We have an initial target of 300MW and it makes sense to do that in as few sites as possible. There’ll be no more than about eight or nine sites for the immediate 150MW to 200MW.

There’s a little bit of fluidity when we get further down the line. If we keep going towards a bigger target we might choose to do that in fewer, much larger projects or we may feel it’s better to carry on doing it with similarly sized projects.

What exactly will the £150m of investment be used for?

HB: The vast majority is capital expenditure on assets: we have maintained that we want to deliver more operational megawatts per pound invested. It’s about running a tight ship and having the right people involved, so you can get to delivery in the most cost effective way. Then it’s about having the right supply chain to deliver the appropriate technological solution at a commercially competitive level.

What was key to Flexion securing funding?

HB: The challenge has been how to get the investment world to understand the nature of the revenue opportunity this presents and how that differs to what people have historically invested in.

If you look at the private infrastructure world, they have typically been involved in renewables large-scale, wind and solar, off the back of a long-standing level of subsidy or counterparty PPA and that provides a level of comfort that you’ve got a solid counterparty that means your investment is pretty secure.

Storage isn’t like that, it never has been, and I don’t anticipate that it will be in the UK because it is about a merchant opportunity. Certainly, there are counterparty agreements. You can have contracts with National Grid to deliver services as part of the toolkit that National Grid procures and they’re great contracts and they provide a good revenue, but what they’re not are long-term contracts.

Likewise, if you’re saying the impact of more renewables on the system is reflected through volatility – because you have windier spells and daylight hours and then you’ve got changing demand – that volatility needs to be addressed by having the dispatchable assets that can support that. Energy storage is one of those and we think it’s a really important tool.

But you’re relying on a revenue stream that’s based on a merchant trading model, and so, ultimately, if you look at these two pieces of the revenue model, then yes, we’re very comfortable that you can deliver on that by putting the right assets in the right place, because the fundamentals of the market demand more storage. Renewables are growing very rapidly, they’re probably outstripping the projections that have been made historically.

We’re also talking about the growth of EVs, which add a level of volatility to the system so volatility is happening, whether we like it or not. So ultimately storage has to be part of the toolkit that addresses that.

The challenge, then, is getting both sides of the equation to say, ‘Okay, we see the market fundamentals, we know the direction of travel, we see the maturity of the technology and the commercial viability, we now get comfortable with the revenue and the financial model that gives us the ability to make a long-term investment decision’.

And I think that’s where we’ve been able to identify in GLIL, and they in us, two sides of that equation that understand both of those sides really well. We understand doing development from scratch, we understand the market dynamics and how to build assets that can play into that. What they [GLIL] understand is the long term need for this type of infrastructure.

You’ve said the storage sector is underserved in terms of financing. Why do you think this is and will the situation change?

HB: In broad terms, if you have conversations with the renewable energy investment community about storage, most people will say it’s absolutely essential, it has to happen. And that’s all of the big fund managers, it’s all the infra investors, it’s private equity, anybody that spends time looking at energy will say, yes, storage is an essential part of our evolution.

We then have to go from that to real granularity, and a lot of the investment community has a risk appetite that is quite strongly geared towards long term PPAs, but you just don’t get that with storage.

You need a groundswell of participants taking the step. Why hasn’t it happened until now? I think it’s just really a combination of knowledge, education, and also risk comfort in understanding that you have to make the step, knowing that you don’t get a long-term PPA but that the fundamentals of the market support the investment decision.

As people say there are always inflection points in markets and I think we’re getting towards that for storage where enough different participants are making fairly bold moves.

I think we will now start to see a bit of a momentum as everybody understands that you have to be in this space if you want to be an investor in and around the energy transition and support renewables. You’ve got to take a view on storage and there are opportunities to make good returns. I think more institutions will consequently come in as a result.

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