Understanding How Regulation, Politics, & Markets Actually Impact Solar and BESS Projects in the EU | Soliverse Ep. 38

Is Europe’s solar market hitting a wall, or entering its next phase? In this episode of Soliverse | The Future of Solar, host Peter Pongracz speaks with Antonio Arruebo Lacleta, Market Analyst at SolarPower Europe and the Battery Storage Europe Platform, about why solar installations are slowing, what negative power prices are telling us, and why battery storage is becoming essential for the future of the energy transition.

Antonio explains how curtailment, grid congestion, permitting delays, and weak flexibility markets are starting to drag on solar growth across Europe. He also breaks down why hybrid solar plus storage is quickly becoming the new default, which battery markets are moving fastest, where Europe still lacks manufacturing depth, and what policymakers need to fix to unlock the next wave of deployment. This is a grounded conversation for anyone working in utility scale solar, battery storage, project development, policy, or energy finance.

About this episode:
Learn more about Battery Storage Europe
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Read the EU Battery Storage Market Review 2025
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Battery Storage Europe, policy and action plans
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Transcript

Coming up...

Antonio Arruebo Lacleta 0:00

Solar, for the first time last year, registered a decline in annual installations, and this is a worrying indicator that markets are not performing as well as they were.

Peter Pongracz 0:09

That is Antonio Aruebo Lacleta, market analyst at Solar Power Europe and the newly established battery storage euro platform. He's seeing a real warning signal. The solar market is producing more power than ever, but installations are slowing, and that points to deeper market and policy friction.

Antonio Arruebo Lacleta 0:26

More than half of them emerge on a daily basis, and that's driven by the enormous generation that solar is able to achieve, especially during the midday, and batteries in there are a main flexibility contributor.

Peter Pongracz 0:38

He explains what happens when midday solar floods the grid and why batteries are becoming more essential to keeping the projects financially viable than ever.

Antonio Arruebo Lacleta 0:47

It's the Swiss army knife of the energy transition. And yeah, it's really the priority for the solar industry now to fully hybridize with storage.

Why storage is now central to solar growth

Peter Pongracz 0:55

Today he outlines what flexibility actually means in the real market and why hybrid solar plus storage is quickly becoming the default. By the end of this conversation, you will learn what is slowing solar down, what batteries can solve first, and what needs to change next. I'm Peter Pongratz and this is Soliverse, the future of solar. I'm actually discussing with people from the Middle East, from the US as well. I mean, I think if I had to bet money on it, the Middle East is going to be probably the biggest growth in the world, probably even before China this year, both in terms of BES and also solar as well. But clearly people understand the value of flexibility. And if you break down flexibility into two parts, the kind of daily flexibility that you already mentioned, and the second part would be the kind of longer-term flexibility where we have some technology already in the pipeline. But if we manage to scale those types of technologies, such as the thermal storage in sand, et cetera, then maybe we are able to bridge the gap between summer and winter as well, where most of Europe is uh struggling a little bit. And I think that's why people and also investors are looking into this direction that we need to have a sort of future-proof solution for the whole uh energy transition, right?

Antonio Arruebo Lacleta 2:14

Absolutely, absolutely. And I think it's a really positive sign because uh we've seen a tremendous shift in how markets and policy uh are uh working. And we I think at the European level we've managed to really at least put batteries and energy storage and flexibility close to the top priorities of uh of the energy policy making. And that's a really good sign because it's not only um a change that is coming within the industry that markets are really shifting to hybrid solar and storage, but then we also see that this is being recognized more and more at the EU level, uh, but also at the national level with clear strategies. For example, Spain, I think there was a quick reaction from the government on how to make storage a strategic priority for the industry transition, because they recognize that it's it's not gonna happen without uh without storage.

The three priorities of Battery Storage Europe

Peter Pongracz 3:06

Yeah, and and you guys are also highlighting this at the battery uh storage platform as well, right? So 10x by 2030, so that's a huge number and a huge growth as well. But uh if we manage to unlock all of these bottlenecks and uh blocking points that we have faced so far, um I think it's possible to get there. You know, the appetite is there, it's just uh a question of being able to put the train on the right tracks, right?

Antonio Arruebo Lacleta 3:31

Yeah, absolutely. And so this is a newly created um platform that uh we launched uh last year with all our partners from the from the industry. And as you said, it's really having a unified political voice so we can push for the same messages. And if I go into the three main uh priorities that we have in the platform is to first accelerate the deployment of batteries, and in there there is a suite of policy actions that are required in terms of permitting, grid tariffs, um, you know, also the risk in investments and cybersecurity and unlocking market access. Then we also, uh and this is something that we've included as well in the new report that we published uh yesterday, the um fact that we are building the battery fleet so rapidly also has some consequences on the supply chains. And I think Europe also needs to needs to think more um about um supply chain affordability, but also resiliency. So, how can you bring both uh so you don't slow down deployment that is so critical at the moment, but also building some resiliency uh into the into the supply chains. And then also another key topic uh of attention for the industry is quality, safety, and sustainability. Uh, these are the three key elements as well uh when we're looking at the the kind of batteries that we're putting into the market and how all these standards are gonna be set uh and should be harmonized. And I see that this is also um becoming part of um companies' strategies when they're coming into the European market because there is a lot of regulation now, like the EU batteries regulation, that are looking at this very, very closely. And I think it's also essential if we want to deploy this technology very fast, we also need to have high levels of public acceptance. And if we don't set very strict requirements on quality and safety, this is not gonna happen. And we we need to be able to communicate this properly to the public. Uh but without um all our societies accepting the fact that we're gonna have this new technology that is gonna bring so many benefits, it's not gonna happen. And it has to do with quality and safety, so we and sustainability, so we avoid uh damages.

Peter Pongracz 5:49

Yeah, but it also rolls back to the education of the public in general, right? So, you know, you as an industry, you're focused on a specific uh technology such as bus. But I think it's probably going to be the hardware manufacturer's job as well to educate the public a little bit on uh not having misconceptions like, oh, my Tesla car burned down because it's uh battery and batteries burn. And you know, this is the only thing that gets picked up in the news, even though it happens uh one out of a million or billion, but but this is 99% of the chatter. And if we want to have a sustainable battery storage uh uh policy and strategy as well, we need to kind of educate the public as well that if you have a battery storage next to your house or next to your field, you're not going to grow a further arm, right?

Which EU policies matter most for battery developers

Antonio Arruebo Lacleta 6:40

No, absolutely. And actually, this is something that we've been working on uh over the past uh years uh because in Spain, for example, there has been some issues uh in the north that um uh we had uh some funds coming in from the European Union, and that was uh there was a capital um subsidy for many projects uh in the north of Spain. And um and this was a multifactori, but uh in the end the local authorities decided to uh postpone and even cancel many of these projects because there was a uh there was some rejection from the from the from the local population, and this was uh mainly due because uh, of course, on the one hand, populism and you know it was a local government that was very much opposed to renewables, but also it's uh on the side of the industry to communicate all the benefits that these projects can bring uh to these local populations. And um, you know, there were complaints about uh how much noise it would uh it would create, on how these batteries have exploded worldwide so many times. So it was purely based on fake news, but it's really on the company side, as you were saying, to communicate all these benefits and uh make sure that the people are uh aware of the fact that these things are completely safe and there are and in case there are problems, there are always safety measures that can be put in place. And um this is gonna continue this this will continue to happen unless uh we we have some strict measures on this, uh not only on on regulations, but also on how we on how we talk about it. And um just to briefly mention, because this is also a topic that I've been uh um diving into because I had to participate in a conference uh last year. Uh there is a study from the Aachen University that looks at uh all the number of incidents that we've had in Germany uh on residential batteries. And in incidents, it can be a fire, it can be um you know just an explosion as well, something that can create a lot of uh a lot of problems, a lot of harm. And they looked at all the incidents that had happened over the past three years in Germany and compare that to the level of installations. Uh and you know in Germany they've installed millions of uh residential batteries, and the probability that you would have an incident was uh equal to the to the dryer, to the probability that your dryer in your house would explode, which is 0.0001 or something like this, so incredibly low. Uh and this is truly showing that this is absolutely safe, but it's just that every time that there is a problem, it jumps into the news, as you're saying, because it's very clickbaity, and then it feels like it's completely unsafe.

Peter Pongracz 9:24

And speaking on the policy and regulation side, can you can you give us a high-level explanation of what are the main sort of documents or policies that we should focus on? Let's say if I'm a developer who's going to dive deeper into best development, etc., what are the clear guidelines from the euro, at least on the European level? Because I appreciate most of these things will get passed on to the member state level later on. Um, but where where should we find this data? Where should we refer to?

Antonio Arruebo Lacleta 9:53

I think, for example, we had the grids package uh adopted already in December of last year. And really investors and people from the industry should be looking at this because it's supposed to streamline permitting for battery projects in Europe. And we've been asking for this for a really long time. And we have um we have a positive stand and we think that it should improve the situation on the ground because permitting it's still one of the key barriers for deployment in many, many regions across Europe, because uh local authorities are completely overburdened with um an increasing number of projects that want to to connect to the local grid. And it's it can be because they are understaffed and there is not enough people working in there to handle the incredible amount of uh of permits that are being um that are being asked for, or that they lack the skills because this is also a new technology that requires you some know-how on how it's gonna work and how the different uh permits need to be need to be provided. And for example, in Germany, it's one of the lengthiest permitting procedures in Europe, more than eight months for every project, which is absolutely insane. And this is time and uh and money that is costing uh all these companies that need to be waiting. And the fact that you have to go to places in Poland and deal bilaterally and create the regulation yourself with the with the local administrator, uh, you know, this is just delaying the entire the entire procedure. And we do think that um the yeah the grids package will uh tackle this to some extent, and we can see finally an acceleration of all these uh of all these uh permits. There are many other packages that I think the industry should be looking at, for example, the EU batteries regulation as well, uh the carbon footprint assessment. Um I think it's being rolled out already uh in February. And as you know, this is a gradual process of uh of adoption, so it will happen until 2032. Uh but this is setting all the standards that I was uh briefly discussing uh about the safety, about quality and sustainability. And these are really the guidelines that all the manufacturers need to follow if they want to sell their batteries uh in Europe. And it's also about recycling, uh, which is a whole new topic. Uh but uh but yeah, I mean there are these are two examples of the many policy, policy packages that we have in in Europe that will affect the industry, and that yeah, those are definitely important.

Why grid queues are becoming a serious bottleneck

Peter Pongracz 12:29

Uh perfect, thank you. And we will link to those in the show notes below. Uh, but you mentioned two keywords that I I wanna double click on. The first one was uh curtailment, and the other one is grid cues. So um I've been talking to a lot of developers and EPCs in the industry as well. Uh, you know, we have a huge contrast between different countries within Europe, right? The as you mentioned, the grid grid queue in in Germany is eight months. And uh I was actually talking to these guys about why that might be, and most people just say that it's it's a combination of factors, as you mentioned, you know, lack of administrative uh workers or knowledge on the on the local level as well. But uh on the other hand, you know, just such a small, small piece of thing as uh the paper when you're actually writing your per application to the permit and you actually don't need to put any money down. So basically everybody is just you know applying for a permit, but you know, you have no skin in the game. So then you're just blocking up the queue, and 80% of these projects will actually fall through, will never materialize, and but you actually block the way for the 20% who would actually be uh building a legitimate project. So is there any sort of view on this on the European level of uh how we could streamline this or some guidance from from the European level?

Antonio Arruebo Lacleta 13:49

Yes, this is very much on the public debate at the moment. Uh, and this is something that uh like many entities are involved in the conversation from grid operators, energy regulators, then national authorities, also at the EU level, the industry itself. Because indeed, this the system that we had, it's definitely not working at the moment. This first come, first serve uh system is allowing many companies to be in the queue blocking and be in the bottleneck with projects that will never come through, as you said, or they're just um speculative. And the fact that we have so many hundreds of gigawatts in the in the queue in Germany, uh I don't think it's uh it's a healthy sign of how the system uh it's working. Uh on the one hand, I understand that all these administrations want to make sure that projects uh are uh reliable and they are they're serious uh developers, and but also it it signals that the market is moving faster than regulation and uh there is clearly a mismatch uh in between. So this uh system of first come, first served that needs to be changed, and this is part of the of the battery action plan that we're proposing to the commission, is that we instead favor the projects that are strategic that will bring body to the system. So, for example, if you are if you have an existing PV plant at the ground, like at the utility scale level and you want to retrofit it, this is not gonna only gonna privately uh benefit the PV plant, but it's also gonna have an impact on how it relates to the grid and um how flexibility is enhanced in there and how congestion can be mitigated. So these are projects that should be favored. Uh or if you're bringing a storage asset into an area that is very congested, that has problems um with the transmission lines, or it's a grid booster, for example. So this these projects are really indeed strategic that should be uh you know put forward in the in the queue. And I think uh there are many positive signs on this regard. So I think Elia, for example, they're doing great efforts in changing this uh system. In the UK some months ago, they made a complete cleanup of the pipeline. So only those projects that are serious that will bring value to the system are are gonna be uh in there. So I think this is really moving into the right direction, and I expect 2026 to be the year when we really address the issue of the of these normous pipelines uh into the into the grid connection queue because it's again one of the major bottlenecks.

Peter Pongracz 16:23

So so basically the the message summed up is it's time to clean it up a little bit and uh it's going to be better next year, or hopefully this year as well.

Antonio Arruebo Lacleta 16:32

Absolutely, absolutely. It's time to really analyze all these pipelines and see exactly what projects are are positive uh and are serious enough to go through.

The European battery markets are moving fastest

Peter Pongracz 16:41

And speaking of pipelines, um maybe let's talk a little bit more about the markets in Europe. Like uh you guys mentioned the top three to five markets on the report and on the webinar as well. How do you see that? Which markets could be the the most, the fastest advancing this year within Europe?

Antonio Arruebo Lacleta 16:59

So to reveal the top five of last year, now that the report is out, uh we had Germany, we have Italy, we had Bulgaria, we had Spain, and we had the Netherlands. Well, Spain came in uh Spain came in fifth uh place and then the Netherlands. And it was interesting because it was the first time since we've been elaborating all the numbers for the battery storage market, uh, that we had 10 markets uh in the European Union that reached the gigawatt hour scale. So more installing more than one gigawatt hour uh in the same year. So 10 markets, that's absolutely astonishing because in the previous edition we just had five markets that reach the gigawatt hour scale. So it's a doubling of countries that are installing more than one gigawatt hour. And the other element that it's interesting is that if you look at the countries that uh make the top five and top ten, you do not get there unless you have a very, very significant contribution from the utility scale segment. Uh, we're seeing that uh installations are now dominated in terms of capacity by the utility scale segment. And before it was the other way around, it was really residential. Um, the segment that that was driving the market that was coming from the energy crisis and the existence of support schemes, and also rooftop solar was growing very, very quickly. But now the the change the the dynamics are completely are completely different. And this is truly what excites me about this industry. And uh I don't I'm not sure how about how you feel, but it is changing so rapidly, it is so difficult to keep track of all the of all the dynamics. Uh and then Bulgaria, for example, just emerged uh channeling funds from the European Union and mobilizing capital into the into the utility scale segment with 2.5 gigawatt hours. And this is truly a success story. It's it's insane. And it's gonna happen the same in many other eastern uh countries like Romania, for example, they're also doing great things uh with European funds. And um yeah, also Spain, the Netherlands, uh, these are really interesting markets uh with strong fundamentals. Uh and this this is just the beginning.

How batteries should be rewarded for grid services

Peter Pongracz 19:57

Yeah, as you said, it's just the beginning, but it it it can be scaling exponentially from year on year. And uh coming back to your point of how fast things are changing, yes, I mean I I really agree that by the time a report actually gets published, you know, the things might have changed again already, but at least we have a retrospect of what actually happened in the particular quarter or a year. And uh for me, the the biggest learning point doing this show is that uh the more people I speak to, the more you understand the kind of um uh the feeling through the grapevine, you know, that what is happening in the industry and what gets written down are two different things. And that's why it's super important that uh that good quality data gets uh published, such as you guys are doing on the Solar Power Europe reports, and also now with the battery storage uh reports as well. So I think it's going to really help the industry understand where we are going, what we are doing right now, maybe the lessons of what we shouldn't be doing in the future as well. And uh speaking of what we shouldn't be doing, uh yesterday they it uh it was mentioned a couple of times. You know, we even if we put another 100 gigawatt hours of storage out today, we actually need to be a little bit more selective and we need to harmonize that with the the current grid. Uh so what's what's the approach from that angle? How how do we speak to DSOs, TSOs, and how do we actually harmonize that the system is actually almost working as uh uh one unit and like it was produced in a factory and it could be an efficient machine?

Antonio Arruebo Lacleta 21:30

Yeah, I would I would encourage you to talk with my colleague Katarina because she's directly involved in all the conversations with grid operators and uh and regulators. So it's uh it's a careful conversation that you need to be um having with uh with all of them, of course. And I think it's very clear that batteries can provide many benefits to the system, but it has to be done in a proper manner because uh if that's not the case, then in some cases it may even worsen problems like congestion at the local level. And this is rarely the case, um, but it has to do with the incentives, the incentives that you're giving the batteries to behave in one manner or another. And I think we want to build here um sort of uh different layers of uh of services that batteries can provide, and it can be at the local level. So, first of all, you need to be, for example, fixing congestion and you need to be give uh give the batteries the right incentives through price signals, then uh you want them to trade into the wholesale market, of course, just doing energy shifting and uh arbitrage operations. And then the third layer has to be that it brings system wide flexibility benefits and adequacy as well. Um, so you want to bring in these three different layers that operate through different uh incentives. And batteries and operators will behave accordingly. But for that, you need to build this framework that essentially channels behavior towards what's most uh uh sort of positive for the grid, right? And going into the policy recommendations that we have in the report, one of them is how you need to procure via markets uh these uh different grid services. So you need to create a market for batteries to be remunerated, for example, for doing voltage control or doing um Black Start services. Um so these are essential grid services that need to be provided, and batteries are very well suited to do so. But for that, they need to be rewarded. And if you start building up all these different uh markets that are essential for the grid that provide the right signals, then it also benefits battery deployment because then the revenue stack looks uh much more diversified, um there is less risk. Um if you build a capacity market that is uh encouraging batteries to participate, then it's uh it's phasing out gas, then you have more guaranteed revenue. So it's a cycle that can benefit everybody, but for that we need to regulate. So you you cannot say, for example, that batteries are are harming the grid operations. If you have the conditions that are exactly leading them to do that, you need to change the conditions and then everybody will behave accordingly. And batteries uh are there to just provide everything that we need for the energy transition.

Peter Pongracz 24:28

Indeed. And I mean, if if you are only looking at in both you mentioned regulation and also um perhaps the the better word to use is incentives. So if if the incentives are aligned and if the inf incentive structure for the whole ecosystem is uh well presented, then of course the the rest will take care of itself because you will have the right incentives for the right actors to build the right projects. And this is much easier said than done. But I think this is this is the direction that we should focus on going to. Indeed.

The biggest battery storage data gaps in Europe

Antonio Arruebo Lacleta 24:57

Uh it sounds very easy and uh simple when you when you talk it, but then it's really a long process to design all these uh incentive structures. But I think again, we're on the right track. And uh the conversations that we're having with the industry and regulators and grid operators are very, very constructive. And we already we have seen many uh positive developments on this regard. And I think it's just gonna continue on this on this track because it's it's just a recognition, it's recognized, it's uh widely accepted that batteries are absolutely essential for for the transition to renewables.

Peter Pongracz 25:32

It's good to hear good news, you know. And uh last year wasn't the year of good news, but hopefully this year will be. And on that note, uh I actually wanted to dig a little bit deeper into the the data side of things. So uh we mentioned why the work of what you guys are doing is super important. And where do you see the kind of gaps in terms of data that enables all these investment decisions into BES and storage solutions? That's a good question.

Antonio Arruebo Lacleta 25:56

I think the the first one that I directly identified when I started working on the report on battery storage is that there is no publicly accessible data for installations. There are only two countries that are doing that at the national level, Germany and Italy. And for the rest, is uh completely hidden. And in many occasions, not even grid operators know exactly how much has been installed, especially and particularly behind the meter. What we do at SARPA Europe is a very fundamental exercise, which is consulting with the entire industry, talking to all the countries, to all the grid operators with the help of our national associations. So, first of all, at the installation level, that's a clear gap that I see, and that's why I think uh our reports are so valuable. Not only the reports that we have publicly accessible for everybody, but also all the data that our members are able to access. We have now built a new navigator, it's a platform that will be accessible to everybody that is part of uh SolarPower Europe. And in there, they can access all the data related to solar on installations, batteries, and then in the future, also options and PPAs, and then also all the policy work that we're doing. That's also something that is not easily uh accessible because doing all the analysis of all these policies that are coming from uh Europe that are 500 pages documents, uh, we have an excellent team that is doing all the analysis on that, and we we're happy to provide that to our members. I mean, we publish a lot for free, but also we need to leave some uh some benefits for for our members. So that's probably the the first uh that I would uh highlight. Then also in terms of the maybe another example, the revenues to be attained in each market. That's also something that is very valuable piece of information. That's going to move the needle. Indeed. Uh, and there is a lot of crappy analysis out there uh that I've seen. So in here, there are only few trusted agents that you can really source your information from because uh in the end, uh it's a very complicated exercise. Not only when it comes to historical data, but also the modeling, which is another completely different story. That uh you know, many times all these forecasts, uh, even though I don't really like the word forecast or predictions, because uh it's so difficult to talk about the future and have uh I prefer to call them estimations because you you're trying to sensibly talk about what's gonna happen, but uh you you're you're always gonna have surprises. Um then also I don't know, another that comes to mind is the state of the grid. It's uh it's something that uh we're pushing for the grid operators to have grid cap the grid hosting capacity maps for developers to be able to directly uh assess where the project uh could be located and where it's gonna bring the highest uh range of benefits and where it's more profitable as well. So and this will help in giving locational signals uh to really uh locate all these projects where they are more favorable. Uh, you know, in the I mean you're also in the in the data industry and the information uh and insights, and uh of course you're an expert as well on transactions, that's another uh key dimension of uh that companies need to be aware if they want to really understand how the industry is behaving and who's doing deals with uh with who and uh you know which markets are the hottest and so on. So yeah, I could go on and on. Uh I'm sure you also have yours in mind as well.

Peter Pongracz 29:28

Yeah, small comment on that note. It's it's quite tricky, and I'm trying to understand and kind of connect the the two two sides of the coin. Like the first one is the the projects which are about to be built, or RTB, or really early stage, and then the projects which are established, and and what is the kind of correlation between each other's have? If we build more early stage projects, then in principle we should have more projects to sell at a later stage and at a higher uh profit margin as well. But it's it's not so linear. So uh from the data I've seen in terms of transactions, you know, the top five markets in Europe were quite similar to what you guys have seen. But first one was UK, uh UK, Germany, Italy, Spain, and um I'm blanking on the fifth one. So there you see a little bit of correlation. But uh, when you mentioned Bulgaria, and I think Romania is going to be quite uh quite close to them as well. Uh, those are probably like more early stage markets, which which will come into fruition a little bit later. So it really depends on how investments and and investor strategies are shifting and uh where the the money is uh trying to find its its way. Uh what I've seen in the last year and a bit is that uh money is looking for safety. So uh there is this huge paradox of uh flight to safety. So that's why we are going for more mature projects. It doesn't matter, even though the returns are lower as well. But but investors are looking for established track record, um good conditions, you know, uh already PPA signed and secured, uh preferably even already connected. So so that's kind of the the bull that's going to be balancing the next couple of years as well. That I think uh we will see this boom and bust of new and established projects, and somehow we will find an equilibrium as well. That's very interesting.

Can Europe realistically build its own battery supply chain

Antonio Arruebo Lacleta 31:28

I I take good note of that. And I think that's also something that's um yeah, it relates to the as well, I guess, to the um revenue models that are shifting from um models that were very centered on ancillary markets to now more arbitrage operations, which of course entail more risk. Uh, it's uncertain, it's volatile, and this poses some problems in terms of investment. Um, and this is changing so rapidly that in many markets, many assets have been just stranded in there with a completely different revenue stack because there was a rapid cannibalization event in the frequency control market, for example, and they're sitting with an Excel file that is not looking as good as it was one year or even some months ago. So I think that's probably also related to the fact that all these investors are looking for mature projects that have as stable uh as you can uh with the with the dynamics and uh and the revenue stack and the different markets that these batteries can can tap into. And talking about that and really uh emphasizing that, I think one one dimension is the numbers and the revenue models models that you can do. But then also developers and investors have seen it in the industry that in the end they just go with intuition. You can look at as many presentations and as many modelings of revenues that you can. And then um you just have to go with your gut feeling. And if you think that this market in Bulgaria or Romania or any other, uh they have a supportive government that they're gonna uh diversify the revenue streams and they're gonna create markets for all these grid services, which will improve your revenues, then you just have to go with it. And you know, I'd rather do, for example, a two-hour duration battery instead of a one-hour duration battery, because if you only do one hour, then you can just do frequency regulation and not much more. But then if you do two hours, then you can tap into more markets and into more, you can do different things. And that's really what's uh what's interesting, I think.

Peter Pongracz 33:27

We mentioned a little bit at the beginning as well, the the state of manufacturing as well. So uh can we speak to that within Europe? What are the kind of priorities where where we are in terms of what we can manufacture? I know that uh on on the module level we have some capacity running, but it's uh far from enough. And maybe the inverters are a little bit further along the line. But uh, what is going to be the the kind of next steps that we can we need to a little bit uh re-shore to Europe? So in terms of components, both on the battery side.

Antonio Arruebo Lacleta 34:00

Yeah, thanks for the question. Um I'm really happy to be able to talk about uh the state of manufacturing. This is something that we've uh just included in our in our report, and we've been collecting data and information about the industry for for a really long time now, and we're excited to be publishing it for the first time. So we have three maps. We decided to focus on the midst uh midstream uh segment. We have a content box on extraction and processing in the European Union and what's the what's the status there? But the three maps are on the battery cell components, then the battery cell production, and then the module and packs assembly. And if we first start with the battery cell components, uh we can divide them into electrolytes, separators, cathode and anode materials. Uh, there is um very much um, let's say, developed industry for electrolytes and separators, and that's a very positive uh sign. But then we have very clear gaps uh when it comes to cathode and anode uh materials uh production. This requires a very high level of expertise. Uh, you need to have very low costs of operation, and uh that's uh that's not the case at the moment. There are a few companies that are doing uh very yeah, let's say courageous um operations in this in this segment, and they they're struggling to survive, but they're they're making it, and I think it's really uh an inspiring story that uh that we need to be looking at to take care of all these manufacturers and then increase the capacity. Um being realistic, of course, because at the same time we need to uh keep the trade flows uh open with uh with other other countries that are doing great things on on batteries and they have the know-how, the expertise, and this is um really good. So then that's the battery cell component side of things, then the battery cell production, that's we have around 250 gigawatt hours worth of uh battery cell production, and more than 90% of all this uh uh battery cell capacity is uh geared towards EV applications, uh and the remaining 10% is ESS and most of it as well, EVs. So it's really an industry that has been uh created and established for the EV industry. And then if you look at the chemistries, it's also interesting to see that um 70% of it is uh nickel-based uh batteries, and because most of the clients that they have in Europe are looking for premium uh applications in EVs that are using nickel-based uh batteries because of their higher energy density, and then less than 30% is LFP. The problem is that now the market is converging towards uh LFP even for EVs. And of course, nickel will still have the their market because it's uh it's a great chemistry for for EVs. But this is changing very very rapidly as well. But there is a significant capacity for battery cell production, and we need to start building from there. And maybe going uh into your question, first of all, I would say that we need to foster these uh alliances between companies, uh, these uh mergers and joint ventures uh that we could have in in Europe. And one clear example is CATL, uh doing um you know, establishing uh factories and building up capacity in in the European Union in combination with other European players. And this is truly what needs to happen. Of course, it has to be under the right conditions that favor everybody, but this is truly what we should be fostering, all these strategic alliances that will allow Europe to reshore and localize a part of the of the supply chains. But for that, we need to we need to ally, we need to make alliances, and I think uh the lesson from that we learned from North Vault is very clear. Uh we need to to do partnerships and we cannot go for full vertical integration from the from scratch because it's an incredibly complicated endeavor. And I think we need to be uh highly realistic uh with that. And then just to close the battery pack and module assembly, uh surprisingly, most of the companies, or maybe not so much, are in most of the companies are in Germany, and uh most of it is for is for EVs as well. Uh so then let's let's have it in mind. The industry now is producing batteries for for EVs, and it's not so easy to shift to storage, even if the market is growing uh very rapidly at the moment. Uh so we need to keep that in mind. Um and then just to finish up to go through the main policy recommendations, you need to support the EU-based production, that's very clear. You need to give all these manufacturers the support that they require, not only for the initial capital investment, but also for the running costs of the factory. This is something that we've been asking for ages. But we're sort of let's let's not say say suffering, but it's just that we have higher electricity or energy costs in general, and then we also have higher labor costs than in than in Asia, for example. And we need to uh compensate for that because otherwise the prices are too high and the market is just let's let's let's be honest, it's very price-oriented, and um we need to subsidize uh and give uh public support to these manufacturers so they can just bridge the gap. Uh and for that we need CapEx and OPEX. Then we need to enhance as well the access to critical raw materials. Uh we need to expand our processing capabilities, but we also need to make deals with uh many of these countries that are providing the raw materials that we need, and that has to be done in uh in a setting where, for example, you're making sure that they're uh using sustainable practices, that their mining operations are not using forced labor. So all these conditions need to be on the table. And with that, you can sort of build an ecosystem here, um, but then also always keeping the sort of the trade flows going, because otherwise we cannot risk uh delay in the transition. It's uh it's too important to start now the discussion, the unrealistic discussion on on how to to do things that are not uh constructive.

Peter Pongracz 40:29

For sure. I mean I I think it's much more important to get going than uh doing it or trying to do it perfect from the from the start, and living with the words of my my good friend Dr. Rado Kopesek from IS Constance, you know, we were debating about this topic, but uh for the modules, and uh his take on this is that yes, China is willing to play a game with us as well, so they they are willing to license some technologies back to us, but it has to be you know a win-win for everybody. And then with maybe a little bit of tariffs, we could produce enough for our own consumption. We are never going to be exporting because we don't we are not going to be competitive in terms of pricing. But if we could at least meet our own demand, then you know both the the energy stability perspective and the geopolitical perspective as well, if we could meet our own demand, I think that would be a huge step forward.

Antonio Arruebo Lacleta 41:19

Yeah, I think to me, tariffs um is never the I don't think it's the optimal way out of this out of this situation because if you're restricting deployment, and it already happened in the solar industry, right? They they put all these tariffs in place, and if you kill the market, then all these manufacturers have they don't have uh any customers left, right? If you're just increasing prices. And we're very reliant on all these uh imports. Uh and you know where it's where do you set the threshold, right? Like from which step of the supply chain are you gonna put the tariffs on? And that's gonna have an incredible effect on on all the markets. And I think the more we deploy, the more we learn, and the more we're that we will be able to produce these things on our own. But for that, we need to have strategic alliances, and that does that doesn't happen with trade restrictions. I think uh we should be aiming for the other um for the other route, really like setting the right conditions for these uh joint ventures to happen. I think that's that should be the um yeah the priority.

Peter Pongracz 42:24

And it's tricky because we already see some bad examples in the US, you know, with um both both the tariff side but also uh forcing to buy American-made, etc. But again, you know, the price is going to be higher. So it's it's a difficult exercise because on one hand, you know, you're trying to support your own industry, but if you support too much, then it's going to be you know, living in a bubble, and then it's not going to be self-sustaining. So, you know, you're you're pulling both levers, uh, but you cannot pull them at the same time for sure. So it's a billion or trillion dollar question. But I think there must be a solution somewhere down the line.

Antonio Arruebo Lacleta 43:03

Yeah. Yeah, it's this push and pull framework, right? So you need to support them, the the supply in Europe, but you also need to create the market for that because all these products will come from um with an added premium. And you know, for example, for solar modules, we we have now in the NCIA uh the auctions that will have to to have some capacity reserve for European manufacturers, and this is a good start. Uh there's a whole new conversation on how you you set all these criteria so it's fair for everybody, and you're giving the right incentives. But you know, there are some initiatives that that could have an effect. But on batteries, to me, it's very clear there is there is an industry that is geared towards a very specific application and they need to be taken care of. And there are already tariffs in place, by the way, for these batteries coming from from China. Uh, but we need, I think the the word here is we need to be realistic with what we can or we cannot do.

Peter Pongracz 43:59

That's very true. And you mentioned the the EV application, so there is some sort of know-how, but what why is the so why would companies not really shift into manufacturing utility utility scale best? So is this a technology question or or the the EV side of things is a little bit more lucrative and a bit more simple to do?

Why solar is falling short of the 2030 pace

Antonio Arruebo Lacleta 44:22

That's a good question that I've been posing uh to myself but also to many industry players over the past uh years. Uh, because in principle, if you're a manufacturer, right, you want to have flexible production lines because there is um this idea that you in principle can make all these batteries so modular, then then just at the end, when you're assembling it, you can divert it to either EVs or stationary storage, that you can have this. Flexible production lines within the same facility that then are rapidly adjusting the production depending on the demand and depending on the customers that you have. But it's more complicated than this. This is sort of the story that you can read in reports. Like if you check the IEA's report on batteries, they have this nice segmentation of the supply chain, and it seems that everything is the same until the end of the application. But then if you talk to the industry players, this is completely uh, let's say, simplistic because you're already making decisions about the chemistry, about the cell size, uh, already at the beginning, depending on the application that you have. Right. Uh, and that's really at the uh at the battery cell component level. Uh and before that, you need to have your suppliers for all the raw materials and the exact you know um processing procedure that they have to follow in order to give you the right materials for you to develop your battery into an EV application or stationary storage. So I think we're heading in that direction. I think uh I think Chinese players especially they're looking at this because it's uh it's really the um the future, right? Uh and especially with AI, I think this is gonna really uh boost all these kind of procedures that will be highly automatized and uh that can happen uh very very quickly. So I think I think in terms of technical uh from the technical side or the technical perspective, I think it's feasible, but I'm not sure if it's economical yet, because uh it wouldn't tell a lot of investments and uh I don't think people like companies are looking at that at the moment. So I think the industry will as will stay as it is, but you know it's the energy industry, and we know how rapidly things change, so maybe this this could become a reality in the short term.

Peter Pongracz 46:47

We need to write the economies of scale and also the closing the knowledge gap of uh what we know how to do now, and and then hopefully tomorrow we will have better understanding, better applications and better use cases for the for the same technology.

Antonio Arruebo Lacleta 47:02

Yes, I I completely agree. I think we need to focus on what we have, really master that, and then in the in the future we'll have access to all this as well.

Peter Pongracz 47:10

When it comes to looking into 2030, unfortunately we we felt uh we are falling a little bit short on uh on the target so far, right, of the 750 gigawatts installed if we keep up this pace. What do you think we need to do uh to get there to basically keep keep up with the pace?

Antonio Arruebo Lacleta 47:30

Yeah, that's uh that's a very good question as well. Because it's the first time that we're uh our estimations, at least in the medium scenarios, our medium scenario is the current set of market and policy conditions. And if we we always do the five-year outlook until, and in this case, it's until the end of the decade, and we saw that installations would only add up to 720 gigabytes in DC, but the target is 750. And it's the first time that we're seeing that the current conditions do not lead to the optimal uh target, which is the 750. And it's a similar story to batteries. We've we're having a slowdown and even a decline because the rooftop segment is uh is sort of uh it has dropped very significantly and it has fallen installations in in many countries uh because we had uh an incredible uh growth during the energy crisis because solar and storage, in a context of uh high energy prices and restrictions on supply, it's the optimal solution for all your problems. It's really just allowing you as a citizen to become completely independent from the grid, and uh you can run your appliances at home with uh cheap and clean electricity. Of course, it's a high capital investment, but it renders incredible benefits and it pays off uh depending on the country. But we're looking at seven, eight years payback times in uh in many markets. But you know, people are just investing in other things at the distributed level uh because we don't see the the pri it's not a priority anymore. We still have this perception that the energy crisis is something on the past that cannot happen in the future again. Uh so citizens were really uh just driving the energy transition during the crisis, uh, but now that has somewhat uh faded away. Also because support is not as high as it was in terms of uh uh public uh funds going into the residential and CNI segment. Um and still support schemes are not enough, are not sufficient to drive investments, and that have that this having um a huge impact, then at the utility scale level, I would say that it's really what we've been discussing the lack of flexibility, uh which is uh leading to record number of negative power prices and uh just very close to zero uh power prices, which is affecting the profitability of solar uh assets because of the cannibalization effect. And this is really hindering investments, at least in in markets that are leading solar markets like Germany, Spain, the Netherlands. These are markets that are already experiencing more than 500 hours of negative power prices every year. That's I think that's uh around 20, 22 consecutive days of negative power prices, which is already a very significant amount. Yeah. And um so yeah, this is affecting the the investments, and for that, that's why we need the flexibility roller. That's why all we need all these solutions uh in the market as soon as possible so we can continue uh growing. I think that right now we're estimating that uh the market uh will continue on the downside for the coming two years. Uh I think by 2028, if batteries continue to be deployed uh on the same uh trend, uh upward trend, then we could already see all the benefits in terms of flexibility and uh improving the economics of solar, and then we can have a rebound. But it's I think we're headed for two or three difficult years uh because you know this this has changed very rapidly and storage is coming, but not as fast as as we want it to come.

Who Antonio wants to connect with next

Peter Pongracz 51:35

For sure. And I mean, there are also the the the only component that we didn't really talk about is the financing, right? The interest rates are still relatively high. So if we manage to come down in the next year or two a little bit, then all of these huge upfront CapEx investments can be justified a little bit better, right? Because of course, if you're a developer, you need to put a lot of money in upfront and then you know wait for the return if it comes, if it doesn't come, and if something changes in the mix in the meantime, in terms of you know negative pricing that we see more and more of, uh it can really really mess up your whole uh whole ROI simulation into the future. Indeed.

Antonio Arruebo Lacleta 52:15

And again, it's happening so quickly, right? And uh you have all these assets that then have completely different pricing dynamics, uh and um it's moving very quickly. But I think um yeah, there is a real shift of mentality in the industry, and every developer that I'm talking to, they're just focusing on hybrid, and it's gonna happen very quickly. I've seen companies saying that we're signing deals on a weekly basis on retrofitting and new projects. So it's it's really now the direction of many of these companies.

Peter Pongracz 52:48

Yeah. Antonio, we are actually getting close to the end of our time. So uh I I want to give you uh the platform to give you a give a shout out to the people you actually want to speak to in terms of for the sake of battery storage uh Europe and and what type of people would be the right people to connect with you to help you know take this huge platform off the ground and and really uh help you push the industry forward.

Antonio Arruebo Lacleta 53:12

I think now we have the platform, we have the sort of institutionalized process uh to uh welcome all the companies that are interested in shaping the policy making in Europe to make really business happen within the industry. And we are not only talking about the demands, all the developers of storage and hybrid solar and storage, and all the utilities, all the IPPs, um, but we're also talking about all the manufacturers and all the people that are supplying all these modules as well, because we're not only talking about deployment, but we're also talking about uh building resilient supply chains. We also want to attract that part of the industry, and we already have members on that front, but I think the more the merry the merrier. Um and me personally, I'm always looking for experts, uh, people that have high technical uh expertise on the topic. Um, because I come from an economical background and I can then understand uh dynamics and trends, and uh and you know I have some level of expertise within the within the technical details of batteries and uh energy storage and solar. But for me, it's always very useful to connect with uh you know the technical experts, that those are my kind of uh of people that really have the quantitative analysis in their in their heads. And um yeah, I think that right now we have this gravitational pool with the with the platform that is attracting a lot of very interesting and smart people. And it's an absolute pleasure every time that we have a strategic day, uh, we're receiving there people from the European Investment Bank, from the Commission, uh from uh the industry that are really the brightest minds. And it's a true pleasure to to participate in these discussions. But everybody that has to do something with uh with batteries in the end, I would say that is uh that is interested in in shaping what's what's coming ahead uh for uh for the energy transition.

Peter Pongracz 55:09

And on that note, what would be the right way to reach out either to yourself or or battery storage Europe? No, please connect with me.

Antonio Arruebo Lacleta 55:16

Um at the moment in the in the platform we are a big team. Uh but um you know all the all these reports that we're publishing are coming uh are coming from from my department, and we tend to we try to be the voice of the industry, and everything that you tell me that is important, I will I will surely mention it because if it's uh if it's a need of the industry, that will be part of our of our discourse with policymakers.

Peter Pongracz 55:41

Excellent. So, Antonio, thank you very much for sharing your expertise. We will link in the show notes to the report and all the other materials that you mentioned. So we will try to push the narrative forward and make 2026 a huge one for the industry. But thank you for the time and I hope to see you soon. Thank you, Peter. It was an absolute pleasure to be here. I really enjoyed the conversation.