Andrew
Welcome back to the Megawatt Hour, a podcast boxset series brought to you by Energy Voice in paid partnership with BDO.
I’m Andrew Dykes, content editor here at Energy Voice where we are leading the global energy conversation, and in this series we are examining how energy storage technologies are reshaping, reinforcing and recharging energy markets.
The rapid expansion of energy storage is of course great news for our ability to deploy and use renewable energy – but doing so is not without its own challenges.
Batteries require raw materials from all across the world and an ever more complex supply chain; pumped storage sites require major changes to land use and access; and what can we do with facilities or assets that reach the end of their life – is it better to re-use, recycle or decommission?
Meanwhile, how do developers and investors ensure their commitments meet ever stricter ESG guidance when deciding which projects to pursue? We intend to explore all these questions and more over the course of our episode.
With me to tackle the topic is Professor Simon Pringle, who heads up the newly created Sustainability and ESG Hub at BDO.
An Honorary Professor of Sustainability at the University of Edinburgh Business School, Simon is an expert in the alignment of commercial strategy with sustainability, risk and reputation and brings with him expertise from a storied career across a variety of public companies and not-for-profits.
We are also joined by Peter Kavanagh – the chief executive and founder of Harmony Energy, an independent developer and operator of renewable energy and battery assets.
Peter has over 16 years’ experience in the renewable energy sector across financing and development in support of a more sustainable energy system.
And we are delighted to have him with us today.
As ever I think it’s a good idea to ground us in the basics and for that I’m going to turn first to our resident professor – Simon, what do we mean when we talk about sustainability and how do we think about in relation to energy storage.
Simon
Thanks Andrew and thank you very much for the introduction. Yeah, I think we are faced with lots of definitions at the moment, aren't we in terms of Net Zero, ESG, sustainability and so on.
I think when we look at sustainability we're really talking about the way in which value models and business models can move forwards without being too impactful and ideally get to a place where they're genuinely regenerative. And so, you know, this agenda has evolved through the 30 years I've been involved with it, and we're now in a place where the ability to leverage technologies, supply chains, skill set becomes really exciting.
And so if you ask about what is a “green business”, in five years time we’ll probably talk about a business; what does a “green job” look like in five years time, we talk about a job. You know, we're very much seeing this mainstreaming.
So the sustainability agenda is really about rethinking the way in which businesses create value, protect value and manage risk and do that within planetary boundaries, both social and environment.
Andrew
One of the businesses hopefully looking to do that is of course Harmony Energy - and Peter, can you give us a quick introduction to what it is you do.
Peter
Yeah. Thanks, Andrew. So Harmony is a developer of predominantly very large scale energy storage. So we're technology agnostic. But also onshore wind and large scale solar and so we have main presence in the UK but also presence in France, Germany, Poland and New Zealand. And I guess we're slightly different from others in that we do the origination. So we develop build, own and operate - we take it right the way through the whole chain, from site origination to operation.
Andrew
So obviously we're here to talk about sustainability. One of the big things we obviously we're interested in is kind of what kinds of sustainability or ESG concerns do you see from investors and from your business?
Peter
Yeah, it's a good question and it's very high up now on investors priority list, which is great because the reason we all came into this industry or most of us came into this industry was for that reason, sustainability.
So that's actually a core value of Harmony. But also a core value of many of our investors. We have a listed investment trust called Harmony Energy Income Trust listed on London Stock Exchange. And you know, if you ask most of the investors institutional investors in there, the reason they're invested in harmony is for our sustainability credentials. So we have the green economy mark from London Stock Exchange and we followed the UN principle for responsible investments as well.
So think it's really high up now on investors priority. Yes, which is great to see.
Andrew
You mentioned those two kind of standards there. I mean just briefly, how are they assessed and what do they mean – what do they guarantee from an investor's point of view?
Peter
So the UN one is, you know, relatively new and then we have our own in-house sustainability manager who manages all the work that goes into that process. It's a very lengthy process to go through and the green economy mark is more straightforward and that so long as your business, I think it's something like 50% is generated from low carbon activities, whereas at Harmony naturally all our work is you know well in excess of 50% obviously, but you qualify for that potential to get that green watermark.
Andrew
You're building a solar and wind and energy storage increasingly altogether - is that is that mainly co-located or is it spread out? Is it a mixture of both?
Peter
It's mainly standalone. We've developed a couple and got through planning a couple of sites that are co-located, but predominantly we're better known for our large-scale energy work.
We own and operate the largest battery in Europe and the whole and that's our typical model because you. More freedom and flexibility to operate the battery in in multiple markets. So we find that that model works well. You know, as does Co location, but I think you know our preference is Co location with solar because it's more predictable than wind. But we need a mix of all three really stand alone and collocated wind collocated.
Andrew
Simon we’ve heard what Harmony does and that it can be kind of vetted as an ESG-type investment. What else are developers having to do to make a case for their sustainability credentials- if anything? Are they just taking a box and everyone wants into storage for that reason or is there slightly more complexity to it?
Simon
Well, there is a little bit more to it and I'm sure Peter's fully aware and we can talk about later on but one of the areas where we are now in terms of expectation, we've moved from Scope 1 and Scope 2 into Scope 3 looking at the way in which supply chain works.
So looking at renewable energy and storage organisations and really understanding how they manage their own supply chain, how they manage their own social impacts - making sure that just the very fact that they store energy and are a really critical part of the renewable energy system isn't sufficient on its own terms. What are they actually doing to make sure that they keep their own promises and manage their own system in a way that's really in line with the commitments that are being made to the investor audience and the other stakeholders, as well is key
That's in no way implied to be critical to Peter or anybody else for that matter, but I think the agenda is moving on to that, to say: We need to know what sits behind this really important value proposition at the front end.
Andrew
Yeah, we're going to grill Peter shortly on that
Peter
Yeah, look forward to it!
Andrew
Does that reflect your experience Peter? I mean, you mentioned earlier you have just undergone a recent fundraising, is this something that was on that agenda and what was that process like in terms of that interaction and that focus?
Peter
Yeah I mean, there's a big, big focus on the SG for the last couple of years. You know we did our first big fundraise in November 21 when we IPO’d and there was a very big focus on the ESG and we've developed that ever since.
t's a key focus for us. To give you an example, as I've mentioned, we have full-time sustainability manager Lucy's doing. A great job for us, and we've also developed our own asset management platform, which in terms of measuring data is key, as Simon is alluded to and there's a lot of information out there and sometimes you scratch your head and go: “How did certain companies arrive at this metric”?
We wanted to dig deeper on that. So the Harmonise platform that our own asset management team is developing is feeding into that process and measuring our exact carbon footprint and we hope to be able to publish the raw data next year in our annual report.
I think digging down deeper as well into the supply chain is key for us. So when we IPO’d, we had a clean portfolio of Tesla battery assets. We had a framework agreement with Tesla. And their sustainability credentials do stand out in terms of battery suppliers; they're very transparent. They're by no means the cheapest on the market as you'd expect. But we wanted a quality product that was going to last for as long as possible, and we wanted a business like Tesla with very high sustainability standards standing behind them and more transparency than some of the other players in the market.
Andrew
It's a good point I think to move on to then that further down that supply chain. So you mentioned Tesla, who are supplying kind of battery units. Are there other things that you need to think about in the wider battery supply chain or when you're putting together an asset where you need to source things from - and how does that interact with, you know, your sustainability goals?
Peter
We do think a lot about that – so we're completely technology agnostic. We have used batteries from Tesla. We've recently signed with another company called Envision, who are less well known but fantastic company and the key driver of that again was their sustainability credentials.
So envision manufacture sales through a Net Zero factory facility. It is out of China, but they also have production facilities in the UK and Sunderland, and they're looking at building out gigafactories in Europe as well. We look at that whole chain and try and source where we can locally say take for example our pills wood site and this is moving away from the lithium ion production, which I'll come back to, but on the Pillswood site, we used transformers that came from Leeds - so within half an hour of the actual site, which was fantastic - and we also used the steel platform from Warrington which was an hour away.
Where we can we will utilise local resources, which is all important in trying to reduce the overall carbon chain.
I think we still as an industry have a difficulty in that you know naturally a lot of the components for these products still comes out of the of the Far East. And that's just the reality of the way the industry has developed and I think there is now more emphasis on trying to build out, whether it's gigafactories in Europe or more component manufacturers inside Europe or the UK, I think is really important going forward
Particularly I think when we come on to the point about recycling, particularly when you're looking at end of life of these assets in 15 or 20 years time -,where do those battery cells go to get recycled, how do we try and reduce the carbon emissions from that whole logistics chain? If we can have a recycling facility in the UK, that would be much more our preference than having to ship cells back to the US or China for example.
Andrew
I think it's fair to say there’s a lot of information, a lot of misinformation about kind of batteries and the whole wider battery supply chain, in particular - Simon, are there kind of key facts that we should be thinking about when we look at that whole chain?
Simon
Oh, gosh, I think this is probably a question for both Peter and I actually.
I think if we look at the supply chain of it and the end of life recoverability, recyclability of it as well, things are moving along really very quickly, aren't they?
The efficiency levels that we're gaining and the balance of materials that are being required- so if we look at the amount of copper, for example, that's going into an average EV right now – I know that that's not exactly a battery question, but across the EV as a whole - that's been reduced dramatically generation by generation. And by that I mean probably in two years by two years.
But yes, there are clearly still some really open questions as to the social impact that some of the extractive industries have and there remains a difficult correlation between where we are gaining our cadmium, lithium, even aluminium, copper and so on and where social impacts and wider environmental impacts are happening.
And so we have at the moment one of those transitional trade-off kind of questions where there are there are impacts right now that really need to be managed effectively, but we also know that the work that's being undertaken is designed around a different and lower-carbon future. So it's a complex space.
I think the risk is if we get carbon tunnel vision and ignore all of the social and the biodiversity, the water. the educational - you know, frankly, you know any number of different impacts - and that would be a that would be a tragedy in the making; so keeping that in balance as we go forward is going to be key.
Andrew
Yeah, I think I think it is really interesting like energy storage in general is a very forward-looking, very kind of technologically motivated sector. But obviously it's ultimately reliant on kind of some of the oldest types of extractive industries.
A lot of that tension I find, especially in the coverage around things like electric vehicles, we're talking about kind of rare earth mining. We're talking about sourcing some particular components for or at least the raw materials from places like the DRC or China. Is that something, Peter, that you're aware of in your discussions? You know someone that is using batteries and discussing to investors and to other people about using them. Is that something that comes up a lot?
Peter
Yeah, very much so. And it's really interesting to see how that's evolved.
Harmony was set up in Britain, set up in 2010 as predominantly a wind business and we moved into batteries in 2016. Now in 2016 stationary storage in the UK was fairly limited and it was all using lithium-ion cells which contained cobalt. And for example now, within the short space of time, we've moved to for what we call LFP cells, which don't contain any cobalt which comes out of the Democratic Republic of Congo.
So we can say all the assets we have in our listed vehicle do not contain cobalt, which is a wonderful development that needed to happen. But I think the industry is not just focused on sustainability of the energy, it is the full chain, the full ESG chain and people like ourselves are really pushing for this.
You're seeing the development of sodium ion batteries, which we can come on to touch on later. But I think really that's what the investors are demanding, hat's what the public is demanding and it will drive that change to make the whole chain more sustainable.
When we came into the space, I remember asking one of the first suppliers, a top tier supplier, what they did at the end of life with batteries and their answer wasn't something that I'd want to repeat on this podcast. It wasn't to recycle - put it that way.
Whereas now they are, and that's great progress to see. We need to keep that pressure on to make sure that everyone is acting as responsibly as possible, because once you've mined these elements, why not recycle them? Yes, there is a cost of doing that, but the financial loss is well worth paying above the environmental cost.
Simon
Peter, so are you seeing - as the as the market shifts and certainly as the market for both static and mobile storage moves on very rapidly- that the valuation of recoverable metals and recoverable elements is changing behind that in line with that or ahead of it? How do you see that evolving? Are we seeing a secondary market essentially emerging for the key metals and elements that relate to storage?
Peter
Yeah. I mean, there's definitely an established secondary market now and it will grow exponentially. But I guess we're probably 10 years out from the real volume drive where EV's come off.
Maybe they're used to repurpose for large scale storage, maybe they're straight recycled, but certainly in our large-scale energy storage plants, we've got very long-term warranties on our kit. We're probably looking at sort of 20 years out before we start to recycle and you've already got, some very big players out there doing the recycling at large scale like Redwood Resources for example and others in the UK looking at different recycling technology, which is more environmentally friendly.
There's lots of lots of interest in this space because I mean ultimately people can see the space in EV's, in energy storage generally is going to grow exponentially, particularly over the next 10 years.
Simon
And I guess that links to the duty cycles, of the vehicles which are going to change as they go through their generations, right? Or the static storage for that matter.
Peter
That's right. And I think actually most EVs are probably surprising on the upside as to how many miles they're capable of doing. I mean, Tesla published the numbers last year, for example, were, I think their average fleet where had exceeded 200,000 miles, they'd only degraded the battery by like 12%, which is phenomenal when you compare that against a traditional fossil fuel car, and the materials you have gone through to get to 200,000 miles.
So that's really encouraging to see and that technology is continuously improving.
Andrew
I think the other thing I'm interested in is there's sustainability from a kind of long term, making sure these elements are extracted fairly and equitably and their social impact, but there is also presumably a sustainability impact in terms of your access to them and your access to market and access to a steady supply of them to ensure that you can build a business around that.
Is that a concern as well and are you seeing suppliers change strategies in order to maintain their commitments to you, Peter?
Peter
Yeah. So like I say, we use two suppliers at the moment and Tesla and envision and both have different supply strategies, but they are definitely trying to make those supply chains more integrated so that there's more control on them, which is great because then they can sort of put their core values down onto those supplies and make sure that those suppliers behave responsibly
I think that's the quickest way of cleaning up the supply chain. You know there is more work that needs to be done without question, in terms of water resource in lithium ion mining et cetera. You know there's quite a few issues that can be improved and there's a lot of technology trying to work out solutions around that.
Simon
Listening to what you were saying there, Peter, and just reflecting on how the sector you're leading and really invested in actually reflects other sectors as well.
We have these regulatory drivers, don't we, that are impactful in many areas? But oftentimes the non-regulatory drivers are the most critical and where a primary brand, top of the value chain, can lean down into that value chain and drive change by requirements for its procurement process that can be really very impactful.
I was just feeling encouraged by hearing what you were saying in in terms of battery storage there because it's clearly an area that needs that that change to be driven from the top and it sounds like it is.
Andrew
I think that takes us nicely onto Scope 2 and indeed 1 and 3 emissions, which we'll cover right after the break.
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Andrew
We mentioned there Scope 1-3 emissions. Peter, how does that affect or interact with your businesses and how you think about your investments?
Peter
So with Scope one and two, they're obviously reasonably easy for us to control with our internal policies. We have internal policies on travel arrangements, we have an EV salary sacrifice scheme as you'd probably hope a business like ours does. And we buy renewable energy and try and encourage employees to do that on their personal residence as well.
Scope three is obviously the big one, in terms of the battery cell manufacturing it's the big one that we try and address as best we can say for example on the last contract we signed with envision, those cells come through a. Renewably powered manufacturing facility. I think and we're trying to as I mentioned earlier, we're building a asset management platform called Harmonise where we're trying to track all the carbon emissions throughout the life cycle of a battery. So we try and act as responsibly as we can and be as transparent as we can.
Andrew
Obviously your services are ultimately that these kind of battery or storage assets will provide are in themselves avoiding renewable energy being lost or at least holding on to energy when it's available on the grid?
Does that have kind of any impact is that is that part of your proposition? In terms of in direct relation to emissions.
Peter
Yeah very much. I mean that that's central to what we're doing. So essentially, you know, batteries or energy stories can perform a number of services, but essentially what they're doing is replacing gas requirements on the network, so displacing a huge amount of carbon not only by charging off renewable sources, but making sure that; at the moment if National Grid wants to balance the system through what's called the balancing mechanism, they have to call on gas assets which take longer to warm up. Therefore, they’re burning gas etcetera, whereas batteries can work both ways, right; we can charge and we can discharge.
So we're much more useful longer term, but not only that, we can respond in milliseconds. So we don't have to use energy to warm up and fire up power. We can respond in milliseconds, whereas a gas plant obviously has to warm up to generate power. So there's a lot of emissions in that chain.
People put different statistics out there, so I'm a bit reluctant to put a big number out there, but I'm going to give listeners a bit of a guide, Harmony as a group in terms of our listed vehicle and the private business we're building out within 12 months we'll have 640MW operational - all two-hour generation storage assets. Which is probably the equivalent to replacing circa 900,000 cars on the road each year, for the next 15 to 20 years. So it's a very material number.
I'm using that start using a competitors start. We're actually going to publish our own stats next year, but I just wanted to give a sort of reference point to exactly what kind of level of impact we are having on those direct emissions by effectively displacing requirement to have fossil fuel assets on the network.
Andrew
And you've also mentioned that you're kind of technology agnostic as to what kind of assets that you pursue. I mean, we've mentioned other types of compressed air flow batteries, are all in the mix for Harmony in terms of things you would consider. Do they all bring with them their own kind of emissions profile or is it About the services that they provide to you?
Peter
It's a mixture of both, right? So we looked at flow batteries very early on. We continue to look at them and you know the cost is improving, but it's important to look at it that we need to make it not only environmentally sustainable but also financially sustainable. And at the moment, the costs are challenging. Still on flow batteries, they're getting there and really interesting, but they take a lot of space.
The upside is they last longer, so you get less or next to no degradation, but they're sort of less well proven at a very, very large scale. So that's kind of an issue with flow batteries, but we're continuously looking at different technology.
Lithium-ion works really well because it responds very, very quickly. People understand, you know, it does degrade. But relatively slowly for what we're doing, and it can be recycled and it's just very well understood technology. There's some really interesting ideas out there that we've looked at and without sort of naming names when you sort of dig down into the details, it's things like looking at the efficiency.
So with a lithium ion battery you've got very good efficiency levels in terms of the amount of electricity you use to charge a battery. Most of that is converted into useful energy. With other systems and not necessarily flow batteries, but with other systems you use a lot more energy and you don't get that energy back, so you lose a lot financially, but also energy wise as well. So it's not as useful as it can appear in the headline.
You've got to look at all those metrics to make a decision going forward about what technology is going to have the most impact and what's going to be fundable because without investor support, you can't build out that technology.
Simon
Actually, I think one of the often misunderstood parts about a shift to EV is the links - the way in which the grid's evolving. And we've been used to this 1950s generate and push kind of mindset. And of course we're moving depending on government policy and different investment levels to something that's poly-directional and of course, at that point when we move to an EV heavy sort of personal transport system, we're going to have a lot of networked batteries that just happen to be sitting outside people's houses or offices at the time.
That ability to trade energy backwards and forwards with the grid, I think it's going to be really interesting alongside static storage - and the way in which that might unlock different types of community energy propositions, or more flexible microgrids could be could be really interesting, couldn't.
Peter
Yeah, I think so definitely. I mean it's a huge volume. So even if you've got a very small percentage of that volume that's actually participating in those services, then the more smart technology coming out to make the use of that make use of the network the better.
It's definitely in the interest of the consumer to maximise efficiency across the board. Some people are sort of saying: “Well, I've had a electric vehicle for eight years. Would I have let the grid use the battery at certain times? Yes, certainly not all the time,” so it can be overplayed slightly, but definitely it's going to have an impact in in 10 years.
If you look at the volume of EV's that will be on the road in the UK and elsewhere, it's going to be, you know, an underutilised resource. If we didn't do something with it. So it's great to see, you know, industry pushing that angle as well.
Simon
It really is. And the extent to which vehicles - whether they're ICE or EV – are essentially redundant assets for most of their most of their life, they get used intensively for bursts and then sit around doing nothing for most of their time. If they can be connected and essentially become a trading platform and buy and sell power for the individual, I think there are scenarios, maybe 5 or 10 years in the future where the car can make you money rather than actually cost you money in terms of charging itself up.
Peter
Yeah, definitely. I mean it's not a too dissimilar model to what we're doing on the bigger batteries in terms of you will get those peak periods. You know, during the midday peak where solar is over generating in 10 years time and then during the night when offshore wind is over generating so that that kind of makes sense. And I think the difficult part of that jigsaw is the grid network infrastructure and the investment that needs to go into that, and how long that will take.
We do have EV chargers that work, but they can't go everywhere in terms of city centres et cetera and people's homes there needs to be more sort of thoughts going into that side, but there's some very smart people working on that so I'm sure it will evolve over the next 10 years and in ten years’ time will be here with several gigawatts on the on the system from EVs. I'm sure.
Simon
Yeah. And you're right I mean that kind of DNO-DSO transition piece and the extent to which policy support will be in place and the regulated funding will be allowable and so on - that's the inhibitor to some extent, but the potential is really quite exciting, isn't it in terms of really empowering? Communities to engage with their own energy usage? And flex with different price points and generation points and so on?
Peter
Yeah, definitely. I mean the one thing to sort of flag on it as well is how the car manufacturers treat their battery warranties if customers are “over-using” in those circumstances. But these are all things where there is a solution to all those issues I'm sure. But that's what often gets flagged is well, if you're continuously using your battery and you have an 8-year warranty with your battery, and you're performing grid services, will it cover the warranty on your car? But I think that will evolve as manufacturing changes over time.
Andrew
Does that mean I won't be able to launch my Tesla to 60 miles an hour if I have to go home and run the washing machine later? Is that the problem we're facing?
Peter
Exactly. Andrew, you could be, yeah. You could be needing to rearrange your domestic schedule.
Andrew
I'm going to move us on from that topic onto another important which is the end of life of assets and batteries. In particular, there seem to be kind of a lot of different arguments around recycling, around reuse, disposal. Saying lots of things you know, do we have a waste problem with batteries at the end of their lives or are you kind of seeing more and more solutions spring up to either recycle or reuse them Peter?
Peter
Yeah, we're definitely seeing huge investment in this area. There's announcements almost weekly at the moment, whether it's in China or elsewhere about recycling facilities and it's just it's going to grow because the money is going to be there and that's going to attract people.
When we have a boom in cars coming to end of life in 10 years time or whatever that the peak is and we need those facilities there. I think you know in terms of mandatory recycling that should come in as well and you know it just makes sense because you can recycle circa 92% of a lithium ion battery cell, certainly in the RFP cells we're using. So why wouldn't you use that resource and people are onto that and like I mentioned earlier, there's several startups looking at more efficient recycling technology to the existing recycling technology that's already there and some very smart people working in that space already
Andrew
I think you mentioned kind of 20 year lifespan. I mean what's the typical lifespan of your kind of assets - when are we going to hit this problem in terms of yeah looking at the end of life?
Peter
Harmony assets differ to others, right? So you can't say one big battery in the UK is similar to another big battery. So we were sort of going for a very sort of gold-plated solution when we started building out. So we have long term 20-year warranties with Tesla and yeah, other people might have, I don't know, three or five year warranties because they're pursuing a different strategy, which is all fine.
But in terms of harmony, really, we're looking at sort of 20 years out from now before we will be. Replacing those cells and recycling.
Andrew
Them and you mentioned kind of 92% odd recoverability you know is that is that again difference by manufacturer you think that's a pretty good average that the industry should aim for.
Peter
It differs by whichever technology using and probably by which manufacturer as well. I'm not close enough to all the manufacturers to say what their sort of stats are but it's probably in that region for most.
Simon
It’s really interesting, Peter. I mean, there are some really obvious, obvious examples where regulation has led change but I think oftentimes what happens is that regulation kind of lags along behind and creates some degree of stability in the marketplace.
And I'm thinking about the WEEE Directive, a very simplified version of where we're going to be around this agenda or even before that, with the landfill tax issues back in the late 1990s and the way in which it created an entirely new market because it created a floor price for waste disposal in that instance - or a different type of requirement for recoverability and so on.
So if we're being optimistic and looking at a US, EU, UK, kind of regulatory framework, then it's probably not beyond the realms of ambition to expect something to come in quite quickly behind those recoverability cycles and help a market define itself and really start repricing the value that these components and elements maybe.
Andrew
From a macro perspective Simon, are you worried about the unintended consequences as it were of kind of an upsurge in batteries or batteries being on the market - or are you confident that these are things that are being thought about enough now that when it comes to these kind of end of life problems that we will have solutions?
Simon
I'm worried about one element of it. I don't mean that in a kind of chemical sense. I mean in, in terms, if we have a peak of demand that exceeds the ability to create governance around the supply chain, then that is troublesome because that's where we can create these unintended social impacts and wider environmental impacts.
I know everyone on this call is super focused on trying to transition into a much more efficient clean economy and protect the boundaries that we're trying to work within, both environmentally and socially. But if the if there's an acceleration that exceeds the governance, then we could end up with really quite negative sort of natural resource, biodiversity, social consequences as a rush for minerals in order to supply that demand.
On the other side of the equation, am I concerned about how we recover the benefit of the minerals and the components that have been sort of used in iteration one and two - no, because I think in that instance the market will respond and perhaps regulation will respond as well. But certainly the market will respond.
It's going to be a lot easier to recover lithium from a bunch of batteries that have come out of a car that's reached the end of its useful life than it will be to actually go get it. In the first instance, so there's a there's a pretty simple linear reason why that's going to be prioritised as long as those things can be aggregated.
My fear is about a governance failure in the short term, as we go through this transitional phase.
Andrew
I'm going to move us on to other technologies outside of batteries. So again we think about battery storage as fairly limited in terms of their physical footprint. But we have other technologies in the mix and we've flywheels. We have liquid air, compressed air, are you aware of kind of a greater or worse environmental kind of benefit when you see these projects evaluated, Peter, again from your technology agnostic point of view?
Peter
So I think in terms of manufacturing process, there's kind of no way around it. The lithium ion manufacturing has the most negative impact. But you've got to look at these things in the life cycle. And if your lithium ion battery is going to be on, say, two-hour duration called the whole time by National Grid, therefore continuously displacing gas assets over a 20-year period - that's going to have a very material impact on the overall chain.
So you need to look at it from cradle to grave really, in terms of what is the net impact of mining to producing to operational stage - what is it able to displace. And if you look at it in the whole life cycle, batteries and renewables in general, the footprints a lot smaller than some people say it is.
Tesla by example published a report recently that was just confirming that I think they were sort of stating that actually the land used to get to net zero will be something like 0.2% of the overall land mass globally. And so yes, it has an impact, but the net benefit is huge. And if you compare lithium ion to whether it's a flow battery or other liquid air or flywheels. Like I say, it's really difficult measuring because flywheels for example, or liquid air hasn't scaled to the same degree as lithium-ion, so there's no sort of accurate data points now.
I mean, definitely no flywheels, liquid air are really good technologies in certain situations and we will see, I hope we see more of it. And I hope we see more of it at scale because we need more data to really prove out certain theories in terms of how these assets are actually utilised when they're online. And until you've got that data, it's really hard to come out with a sort of solid statement about what the overall impact of that technology is on the environment.
Andrew
Sure. And when you're looking at your projects and interacting with the communities and where they're based, you know, do you see acceptance, do you see opposition? Is there a social aspect to how you build out your projects that people also need to be aware of?
Peter
Yeah, definitely. So you always get objectors, normally in batteries less so on solar. You do get objections because you taking up land. But it's always a case of looking at proportionately and who does it benefit most?
Every single one of our developments does have benefit to most of the Community in terms of what we're doing is ultimately driving down consumer costs. If you speak to National Grid, they will say: bring us more batteries because we're driving down consumer balancing cost massively.
In terms of solar, we're building that without a penny of taxpayer support. So again, it's driving down consumer costs and obviously it's doing a lot in terms of the impact of carbon emissions from other generation sources. It's also allowing the land to rejuvenate over time and on every one of our projects we increase biodiversity hugely.
For example on our big Pillswood battery project, we've planted over a mile of hedgerow on our solar projects, biodiversity is increasing by sort of over 100% on some of those projects and we're doing one in New Zealand where we've got, I think it's about 30 hectares of rewilding, rebogging of land we're doing out there as well.
So we're really very passionate about doing the right thing, trying to increase biodiversity where we can. And it's really about how much land we can secure in certain locations to do that because it doesn't cost an awful lot to do the planting and it's a wonderful thing to do. It's a wonderful thing for the next generation to see happening. It also acts as a great screening around the site if you can plant trees and hedgerows. Personally, I've always been passionate about wildlife so for me it's a pleasure to be able to see it come into fruition on our sites.
And then in terms of wider communities, because we're doing everything without taxpayer subsidy, we've actually no legal requirement to put in place community funding like you do on subsidised projects, but we actually do that. On our Pillswood project, for example, we're giving £10,000 a year to local community projects. We've just actually announced we are backing 7 projects in the local area which ranges from, you know, gardening projects to children's educational projects in the Cottingham region, which is just north of Hull.
We're really keen on doing that on all our projects and supporting local schemes and then inside the main business outside of the project SPVs, we also back local charities. So we backed Henshaws, which is a local nursery charity. We've backed Candlelighters, which is a children's council charity in Leeds, and we also back the Brownlee Foundation, which is Alistair and Jonny Brownlee's Foundation, they put through about 10,000 children go through a sort of triathlon event every year, which is a wonderful event to get children more active. So it's not only environmental, but it's also socially responsible as well. And we like to get involved across the board where we can.
Andrew
Simon do you do you see those kinds of concerns, I suppose, having an impact on investors, are they looking for those kinds of things or is it a case of just Harmony playing its part and that's Harmony's role in society as a business.
Simon
Well, I think it's back to what we were talking about at the at the top of the conversation actually that's fantastic to hear, Peter. And that's a really impactful range of interventions that you're making and so yeah, investors would hope to see that. I'm absolutely sure they would.
Where is that going to be sitting in the investment hierarchy? I don't know at the moment. But I think we are in a place where just being a renewables business, just being a storage business, just being, you know, a network or generation business that's enabling the transition, is that sufficient anymore? No, because it's only one part of one part of the agenda.
I don't in any way chop across what Peter’s describing I think what he's described is a super combination of interventions that are all positively linked to what the business is trying to achieve. So I know that sounds a little bit of a plug for Harmony wasn't intended to be, but it's a really good example of what people need to look for in terms of a joined up story.
I think investors are really wary of greenwashing and its different guises and one of those is kind of initiatives-driven greenwash: “here's the core business, here's something shiny. Look at the shiny thing, we’ll just carry on with what we're doing.”
Actually getting a joint narrative where there are where we sort of avoid any integrity gaps where there are no missing parts to that story is really key. And that comes down to the integrity of the value proposition.
Andrew
I'm glad you said the “G word” Simon. I mean, Peter, do you think there is a danger of that within batteries because of the kind of innate benefits that they provide and at least the story you're telling? Is there a danger that we kind of believe a little bit too much.
Peter
No, I think the net benefit for batteries is exceptionally clear. I think if you wanted an independent view, just speak to someone very high up at National Grid and they'll tell you what an amazing job they're doing in displacing the requirement for fossil fuel assets on the network.
And then if you recalculate the carbon offset benefit, it's huge, right? So I think quite quickly get to an independent view that yeah, there are some firms that that greenwash things. But batteries in themselves they are having a massive impact towards the transition to net zero without any question and I think it comes down to your firm beliefs and your core values in the firm like Simon was alluding to.
From Harmony’s side, you're speaking to our side. We've always only been focused on renewables since 2010 so relatively early stage. We were offered multiple times to come into gas peakers and diesel gensets and we just said no, we want to stay 100% renewable and that's what our core focus has always been.
Andrew
You mentioned the wider net benefits of energy storage as a whole, Peter. How do we think about and measure those benefits versus any kind of smaller scale negative benefits either in the supply chain or, you know to local communities where projects might be based? How do you make that case?
Peter
In terms of taking local communities to start with, you have to follow strict planning procedure, with batteries in terms of separation distances for things like noise.
You do get light noise off the batteries when the fans are working and you have to win the support of the community. Now most communities on battery projects it's not really a huge issue. You will get certain cases where you do get extreme groups forming social media groups, putting misinformation out there about what batteries are etcetera, which is not helpful.
But it comes down to a very democratic process, with the planners, where you have to go through evidence-based which kind of derails those campaigns and supports what we're doing because we have to present the facts. I think on that point it comes back to evidence based; using responsible suppliers is key. Harmony will only use suppliers where we've got transparency on supply chain. We will only use suppliers that are making the right steps towards a fully sustainable system, say Envision, for example, net zero manufacturing; Tesla, extremely strong ESG credentials.
It comes down to that developer or the owner-operators' ethos on how much they want to pay to make that supply chain more sustainable. And I guess we've set out a very high level to start with that we will only go for the best solutions on the market and there's multiple really good suppliers on the market now. It's a very competitive space and they're all aware that they, you know ESG is front and foremost of investors and developers mindsets now and that's really driven by the investors and communities.
People want to see responsible supply chains and you will get criticised if you have a weak link in there, if you're using a very cheap supplier, or the batteries aren't been recycled, you will get criticised. And your business in the long term won't be success.
Maybe there are short term gains in there and I don't know how you deal with that, but we're in this for the very long term and so for us it's very important we have transparency on supply chain.
Simon
Yeah, and that moves on to where corporate appetite is as well. So, you wouldn't in any way diverge from what Peter has been saying. You know, there is a there's an expectation of transparency isn't there? And there's a lack of tolerance for anything that would look like greenwash, or any of the variants that that you might bring forwards in that respect.
We're seeing that come through in terms of corporate appetite and investor appetite and the regulatory expectations around non-financial assurance as well as the requirements in pure audits are changing and changing very quickly and for good reasons too - and they lean into really supporting claims, showing you're working in terms of the claims that are being made.
I think that's really important, and particularly in the way that consumers and community investor and stakeholder expectations shift, the type of information that want to see - I don't think renewables or storage are in any way immune from that.
We probably saw it first in food, drink, apparel, vehicles, whatever it might be, but it's certainly there right now in, in renewables and storage and it's going to become more prominent. So firms like Harmony that are doing this for the right reasons, in the right way, in the right order right from the start – great. I think others might find themselves under a bit more scrutiny in the months or years to come.
Andrew
I think Peter has definitely made his case, but I did want to ask you, Simon, you know, do you think energy storage assets are making the case for their own kind of long term sustainability and their role in the transition to net zero versus these short term or medium term concerns around things like supply chain, things like local impact? Are they winning the argument?
Simon
I think they're essential. And I think it's essential that we do it in the right way for the right reasons, as just mentioned. So can we just write ourselves a blank cheque in terms of saying we can ignore the supply chain because the immediacy of the impact is so great? No, we can't do that.
But you know, if we are really focusing on that supply chain and really trying to drive out malpractice, ensure good governance, make sure we don't create negative social impacts particularly amongst vulnerable communities and vulnerable people in complex parts of the world - make sure that we don't have knock-on effects from a biodiversity ecosystem point of view.
As long as we're making a real effort to reach down that supply chain and manage it as effectively as possible, then yes, absolutely we need to be focusing on this. Because as we talked about at the top of the call and as Peter is really articulately said, this is this is one of the keys to unlock the renewable energy system. So we can't really have one without the other.
My fear is that we pay too high a price in terms of other people's social impacts and the wider environmental concerns that we could actually unfold, but as long as we manage that effectively, then I think that's the right way to go.
Andrew
I think that's a great point to end this episode on. Thanks to Peter and to Simon for joining us and thanks also to you for listening.