Grid Fees and Saturation: Germany's Battery Outlook - Modo Energy

**Ed Porter** (0:00)
I'm your host, Ed Porter, and welcome back to Transmission.
Germany's battery storage market continues to grow quickly. But what are the bumps in the road that are coming? And how can investors get confidence in the market? Whilst we love to get external guests on Transmission, it's a pleasure to bring you conversations with the experts at Modo Energy. If you're active in Germany, you can run a trial German forecast for free on the Modo Energy Terminal or search for the German benchmark to see battery revenues today. My guests are Till, our German research analyst, and Cosima from the Advisory Services Team at Modo Energy. Let's jump in.
Hello, Cosima. Hello, Till. Welcome to Transmission.

**Till Stehr** (0:48)
Great to be here.

**Ed Porter** (0:50)
Let's get straight into it. So what is the one thing that everyone gets wrong about Germany? Cosima.

**Cosima** (0:57)
So I think one that internationally people get wrong a lot is that Germany is not GB. And I don't mean that from a power system perspective so much, although there's also significant differences. But I actually mean it more from a political and regulatory culture perspective. So I think that then directly translates into how large infrastructure is developed and built.
How is it different? So I think when you look historically at Germany, it's developed much more right from a bottom-up approach. You have the Bundesländer, they all have their own constitution that creates much more local stakeholders, local rules that you need to comply with. And it's much more decentralized. Of course, you have that to some extent in GB, but I would say the general principle is much more top-down. So things are more centralized. And if you go into Germany without knowing that, you can run into a lot of delays, issues and additional costs during the development process.
And I think that's really a key thing stakeholders need to understand when they enter the market and one that is not necessarily understand all the time.

**Ed Porter** (2:13)
Because you would expect it to be a very central process, but actually there are lots of specifics for each individual region, let's say.

**Cosima** (2:19)
Yeah, exactly.

**Ed Porter** (2:20)
Till, what does everyone get wrong?

**Till Stehr** (2:23)
I think just coming more from a perspective of people who are already active in Germany and maybe are German. I think one thing that people are getting wrong is how quickly ancillary services will saturate. So that's still one kind of service that battery provide to the grid and that's still one of the main revenue sources for batteries right now. But we've seen in markets all over the world that those are quite shallow services. I think we're going to talk about that a little bit more. But and then all over the world, we've seen those revenues crash as batteries flood the market. So that's something that I think a lot of people in Germany aren't quite prepared for. I think a lot of people are saying, well, it will happen. Of course, that's an actual way. But I think as Modo, we've seen it in markets all over the world that things happen much quicker than everyone thinks. Before it happens, people saying, yeah, it will happen. It will be slow and then it crashes within a year or two and people are surprised.

**Ed Porter** (3:18)
It's almost nice to be a market like Germany because you can look at other regions. You can look at GB, Texas, California, Australia, and you can see how it's happened before and you can get this data-driven approach to it.
So we shouldn't be surprised. But I imagine that as it happens, I imagine people will still be surprised.

**Till Stehr** (3:38)
Exactly.

**Ed Porter** (3:39)
That is kind of consistent. Okay. So sticking with the revenue theme, Modo Energy have just released a German virtual battery that is tracking revenues over the course of last year, for example. And those revenues are around 200,000 euros per megawatt per year for a two-hour system and an undergraded system.
So how much of that is the structural setup of Germany? And how much is it the timing that the market is sort of pre-saturation?

**Till Stehr** (4:09)
I think a large portion of it is actually timing. So I think we, it's always interesting to kind of assess European markets based on current revenues, right? Because obviously there's tiny markets like, let's say the Baltics or something where you can make a massive amount of revenue at the moment, but those revenues will disappear pretty quickly because those markets are quite small and you basically build one big battery and it's gone.
But I think, so a lot of it is timing, but that doesn't mean that the structural base behind it is actually not supporting batteries. So let's say 200K right now, maybe in previous years it was 300K, but that doesn't mean that once these ancillaries saturate, especially with a market like Germany, more than 100 gigs of solar right now is only growing. All that needs to be shifted and massively deep intraday market. So I don't think that means that we're going to be at revenue levels where it doesn't make sense anymore to build a battery. It just means that these extremely outsourced returns are going to disappear.