📖 Episode Transcript

Cody Ellingham (00:00.088)
I started working on this concept of the transformation of value about two years ago, which is kind of like, it's quite an encompassing thing around energy, freedom, money as well, really interested in Bitcoin and how it kind of changes the game when it comes to the way economies work.

And it sort of feeds in from my perspective, I can see it feeding down into a lot of these other things. And so think when you take it through the Bitcoin lens, it's like this actually does impact grids and I'm sure we'll get into this, you'd be mining and that sort of thing. And yeah, yeah, yeah. I'm really interested. mean, I'm equally as interested to learn from you about these sorts of technologies. And, know, I know very little about it really in terms of.

Cody Ellingham (02:10.318)
it's capabilities, but it seems to me that having flexibility of your loads is a really big opportunity in the grids. Yeah. Yeah. Particularly in New Zealand as well. And I don't know to what extent these models are being rolled out overseas. And so I'd be really keen to learn from you as well, little bit of what that landscape looks like. Yeah. Well, absolutely. mean, I'm happy to talk about that. I mean, something you've said actually is flexibility is key in the transition of NZ's energy sector.

especially with our limited hydro and with gas challenges. I guess, mean, before we dive into that though, maybe we could talk a little bit about your background, Nick, because I know you've worked overseas, you've done a lot of different things. So maybe you could just give us sort of a high level on your formal background in regards to energy and sustainability, please. Yeah, yeah, and I'm to. So I guess the broad brush on that is I roughly sort of had about 25 years plus at the moment career.

working in the UK, Australia, and New Zealand. So the split there roughly is probably about half that time I've been in New Zealand and half that time has been overseas. And really, my roles have always been in the sustainability policy sort of space. So I identified to do very early on in my career that I found sustainability to be really interesting, fascinating space.

At that stage, it was very nascent, so I didn't really quite know how to get into it. So I did my first degree overseas, my postgraduate degree at London School of Economics. At that time, I was in sustainability and kind of like environmental assessment and policy. And that really triggered for me a real interest in what does this actually mean? What am I going to focus on?

The general split was for that first part of my career was working mostly in the NGO space and for associations. So I first started off with a company called Forum for the Future that had this novel idea that businesses were probably part of the solution for sustainability, not the problem necessarily, or least not all of the problem. And that, you know, with the right settings and the right incentives could actually do some good.

Cody Ellingham (04:26.67)
And that was a really fascinating time for me. And I first got involved in energy when I worked for the Royal Academy of Engineering in their policy space. And we did the first sort of seminars on what does wind look like for the UK? know, like how are we going to build more wind farms? And that really got me intrigued. And energy is a really tangible transition for sustainability. You know, that was a really tangible element of what a sustainable future look like because we need to decarbonize our energy systems.

And so I felt that was really one I wanted to spend my career. And it wasn't until I moved to Australia and started working for the Energy Supply Association of Australia there in a policy role, managing that policy team, that we really got into the nuts and bolts of how energy markets work, what the challenges were. Australia at that time was mostly 90 % coal. And someone like me, just to see how that's transitioned even over the period since the last 13 or 14 years since I've been back in New Zealand.

It's actually staggering to see how quickly they've managed to get to much higher penetrations of renewables. And by the time I left Australia, was coming to New Zealand, which was a completely different environment where we already had world leading levels of renewables. It was almost the complete opposite to Australia. But yet we still faced some very similar challenges in terms of how we're going to build enough renewables to meet the very obvious demands that we were going to be having from other sectors.

And so I've always been involved, I guess my background's always been in the policy engagement space for Mercury. I, which is the company I most recently worked for and started off with Mighty River Power, moved towards being, became Mercury later on. One of New Zealand's largest electricity generator retailers, largest wind farm portfolio, now the largest retailer. So it was a really exciting journey to go through with them.

set up the first government affairs and sustainability functions, which is my role there, and really help them to think about what does sustainable transition mean, know, listening to our stakeholders, trying to understand the challenges that New Zealand faced and then what role that company was going to play. And then I guess from this year, I've completely shifted again. I've moved out of the corporate environment and into pursuing my passion. I decided to take some time out to pursue my passion about

Cody Ellingham (06:51.988)
helping early stage companies in the innovation space that are looking to make transformative change into some of the new sustainable technologies. And I think it's really exciting. I find really exciting about having a career in the energy space and sustainable transition space has been just incredible innovation that's coming out now. And not just with an energy, you mentioned your background in

and agriculture, know, biotech in New Zealand is a really exciting space as well. Aerospace, we actually, there's a lot of innovation that's occurring across a range of different parts of the economy. And energy is a real critical one, of course, because of the fact that energy is getting into electricity, renewable electricity is getting into other parts of the economy, like transport and process heat.

and increasingly AI as well with the energy demands there as a real driving force. So, you know, I've been quite focused on trying to understand the landscape in New Zealand and I've been very privileged and lucky to have come across the guys at Outdoor Adventures who in the VC world who have been doing some really exciting work, you know, they've got an amazing facility up here in Auckland. At Future House, where you've got a lot of

people doing deep tech startups, doing some amazing technology. And it's really opened my eyes, I think, to just how many clever people that we've got in this country doing some amazing experiments and trying to get these technologies scaled up. And I'm really excited to, as this part of my journey, to focus on how I support those companies in their journey.

Thank you, that's very comprehensive and I certainly agree with the sentiment that there's a lot of innovation coming out of New Zealand. I mean, we've kind of had to make it work with these southern islands that are at the bottom of the world. We have to be smart about things. And I think I'm really interested to come back to your time at Mercury Energy, which I know generates a lot of its electricity from hydro stations on the Waikato River. And there's also a lot of geothermal. I believe there might have even just been a new geothermal that opened up recently. I saw something.

Cody Ellingham (09:06.754)
years. Yeah, that's it by contact energy. Yeah. is that contact? Okay. So, mean, clearly though, there is this bigger opportunity with geothermal and I know you spent quite a bit time at Mercury in that role. And I think that it's interesting to explore what this means because New Zealand, you know, also by virtue of being isolated and not being connected to any other countries, has this real big question of energy sovereignty. And when we look at it, I guess, holistically,

energy underpins everything without power, without energy, you really can't do anything and everything comes to stop. maybe we could talk a little bit about that because it's quite a unique situation for us to be so far away. Most countries are connected to someone else and they can get electricity in, but we have to do it all ourselves. I mean, how does that figure into, I guess, when you were looking at policy and that sort of thing, how do you sort of see all that connecting? Yeah, well, mean, it's actually

It's a really great insight and it is a challenge, Our geographical isolation is a significant challenge to us. We can't rely on massive grids that span across continents. So how that plays out for us, particularly in New Zealand, is the level of our hydro storage, for example. Overseas, you see in other countries that are blessed with hydro resources. I'm thinking like the Norways and Scandinavian countries.

They have very deep hydro storage that can go for years and providing electricity so much so that they actually build interconnections to other parts of Europe to be able to share that energy. We don't have that luxury here and we actually have very, very shallow storage in New Zealand comparatively. Roughly speaking, you have about six weeks worth of storage. So if you go into a dry sequence, you can find yourself caught short in terms of the fuel supply that's actually within that system. And we've seen that play out.

earlier this year as well, where we went through a particularly dry sequence. And you can have some very deep dry years that can become quite problematic. So this whole concept of dry year risk that we're not connected to other energy systems, so we can't just import. We have to think about solutions domestically as actually one of the challenges, or probably one of the most significant challenges we face, particularly when predominantly we've relied on thermal fuels to be able to provide that long, deep

Cody Ellingham (11:34.434)
storage for those periods where we do go dry and particularly with the role of gas being particularly challenging in New Zealand. That's one of the main energy transition issues for New Zealand. We can't just import energy. What is the gas challenge? If you can elaborate on that, please. Put simply, it's that we're running out of it. We've long relied on the existing gas fields to provide gas and we have

one major off taker that uses about 40 % of that gas in methanics to provide methanol. And so they've underpinned the gas industry in New Zealand for a long period of time by providing the security for the rest of the sector to be able to use gas. So it might surprise people, but actual gas usage for electricity generation in New Zealand is relatively small, very small. Domestic gas use is again, very, very small. So most of it goes to these large industrial users.

And so without them underpinning that gas supply, that becomes a challenge. And because we've had a situation of declining gas and no new major fines, we're in a situation now where, as we've just seen last winter, where it's been actually more profitable to provide that gas to other users than to use it for producing methanol.

And that's a solution that's been good for New Zealand in the short term, but longer term is unlikely to be the solution. We're going to need to either start thinking about finding new gas supplies if we're going to continue to use gas. And that's, again, problematic if you're trying to achieve your emissions reductions targets. And that's the perennial discussion that we're having in New Zealand at the moment, how we do that. Or you're going to need to start thinking about maybe you should import gas.

So that's a very active debate going on at the moment, whether we import gas through an LNG type facility. certainly. mean, importing it again, bringing it all the way to the bottom of the world is quite an expensive proposition. And I'm just wondering if you're able to talk to this, these gas challenges a bit more here, because with, I believe it's the Taranaki gas fields that are often talked about in the media and this idea that maybe they're running out.

Cody Ellingham (13:53.224)
And I'm just wondering how that is couched with previous government policy around exploration. And I'm not too deep in that space. I hope you can share what you know. But what was the situation and where is it at today in terms of new explorations, new gas fields opening up? Yeah, it's a real active debate going on at the moment. And there's sort of two sides to the debate. There's one side that will say, you know, it's the fact that the previous government

introduced a ban on oil and gas exploration in New Zealand and that's scared off the capital investment that's needed to continue to explore the gas and to continue to develop the existing gas assets in New Zealand. And then there's the other side of the debate that says, you know, though if you look at the gas permits

for exploration, were declining before the government's gas ban. No one had found anything. It wasn't the policy that's created that issue. We need to get off fossil fuels if we're going to make rail inroads into achieving our emissions reduction targets. So we just need to draw a line in the sand. so those two debates are really active at the moment. And I guess the key point is

how are we going to provide certainty, I guess, for the holders of assets? For example, if you're talking about electricity generation, how are you going to provide certainty for the holders of those assets that they can continue to operate those assets and that they'll continue to be alive for those assets if they continue to invest in them for 25 years plus as we go through the transition? So it's one of those key points to say the reason why gas is important is for that reason that we can run out of hydro storage.

And the types of generation that we're building tend to be intermittent renewable generation. So, you know, if you look at a company like Mercury, it's been building, it's got the largest wind farm development portfolio. Others are building wind farms. Solar is becoming more popular as well. And we're seeing the first grid-connected solar grid scale farms come onto the grid. All of those depend on the wind blowing and the sun shining, of course. They're not...

Cody Ellingham (16:10.922)
as firm as an option. And you'll hear this concept of firmness come through. An option is building a gas-fired generation plant which can come on very quickly and provide a lot of megawatts very quickly to meet those really cold days that we have. And also it can operate in a more sort of constant mode for those periods, which we often get in New Zealand where you don't have a lot of wind. So this is what happened to us early on in the year. We had this period where there wasn't really a lot of wind.

for a number of days and we didn't have the hydro reserves in our hydro scheme. And so, you know, the question was what options did we have there apart from asking prices were going very high in the market, which was signaling, hey, it's profitable for you to turn off whatever you can to avoid those costs. The market was kind of doing what it needed to do, but the challenge is of course that creates perceptions of a broken market.

Yeah, well that's quite interesting to me, Nick, that as you say, there's this intermittent load of solar and wind and then the question of baseload, which is something that perhaps the public are not too aware of. I think it's kind of a little bit like, you you flick the switch and the light comes on and there's this whole magic really of infrastructure and systems that power that. And it's kind of a complex topic, or at least there's a little bit of complexity which the general public are not aware of.

And then when suddenly in the middle of winter you get into a situation where there's the possibility of blackouts and having to ask people to turn off as well as high prices, these things that are very counterproductive to a functional modern society. This is not what we would expect in New Zealand. And it sort of also has a lot of flow on effects for industry as well. There's processes that can't be turned off and there's things like hospitals and critical infrastructure which...

It leads to all sorts of questions about what people will do and this kind of fragility of the system. So maybe we can talk a little bit about baseload in New Zealand and sort of how it works. Because again, as these long islands with load centers sort of very far away from a generation potentially, I mean, just broadly, how would you paint that picture? In terms of what currently provides that sort of consistent baseload energy? Yeah, I guess where are things at at the moment?

Cody Ellingham (18:30.53)
What's the composition of the network? Yeah, well, that's right. you have predominantly thermal fuels and geothermal actually providing what we call baseload power. within your thermal fuel fleet, you have thermal coal stations like Huntley. And to this extent, gas can provide baseload as well. And Huntley can operate in both modes. can burn both fuels. So it's a very flexible plant. And it's located in a great part of the grid as well because it's

You want to know is Huntley close to Auckland where a lot of your demand is. So, you know, the grid is adequate to meet that demand. So generally, generally what has happened in the past is Huntley will turn on through winter and generate baseload electricity. It'll be operating in a baseload mode most of the year. And it has got some ability to ramp up and ramp down. Your geothermals will be operating in that consistent baseload as well. So a geothermal

Power station likes to be operating constantly. It doesn't like to be ramped up and ramped down. So in response to whatever the demand is on the network. But of course, meeting those peaks when it gets very cold in winter is what you need peaking plant for, which is predominantly being gas for stations and our hydro stations, providing that really instantaneous peak load.

So broadly speaking, those technologies have been the ones that we've relied on and increasingly we've had to rely on, we've probably had to rely on coal a lot more to provide that base load with a shortage of gas in particular. And then going forward, it's what are the technologies that are actually going to replace that? So Huntly...

If you look at its roadmap, Genesis has got out its strategy around how it's going to start thinking about replacing those technologies and it's looking at things like, could you burn biofuels within Huntly and what are the roles of the sort of alternative fuels and that. But of course, all of those speak to, have you got the supply chains for it and what will the cost be? Well, that question of supply chains is also very interesting because there seems to be, again, with these islands at the bottom of the world,

Cody Ellingham (20:49.25)
I mean, even more broadly, the electrification question when it comes to petrol and oil imports and storage facilities and that whole supply chain because the question of Marsden Point comes up and the refinery and the ability to have sovereignty around hydrocarbons as well is really interesting. And so there's this kind of broader question, which I think maybe if we bring this back down into this policy background that you've got, from my perspective, I often think

there's kind of what the government thinks, what the state thinks, and then what the reality is. what is the challenge here? Because energy is such a critical piece of everything that happens in a country and a civilization, yet we also feel like maybe we're sleepwalking towards this sovereignty challenge with energy and its sort of policy is pushing it in different directions.

Broadly, how would you connect policy and then reality and how they connect? Yeah, I think ultimately New Zealand's in a really great position to have energy independence and to realize energy sovereignty and that's through the electrification of the economy. So I think it's pretty clear that the policy settings and where the government wants to get to, in particular with the net carbon zero targets that we have by 2050.

they are quite clearly signaling that we need to double our renewable electricity generation. So that's the main challenge, if you're thinking about like energy sovereignty, because we want to get off our reliance on importing fossil fuels, right? So we predominantly import fossil fuels for the like of, for our transport fleet. And our ability to be able to decarbonize that will be a major source of demand for electricity, right? And we're lucky in that we've got a renewable pipeline that is very, very healthy.

So companies like Mercury, Contact, Meridian, the big players have all got enough consents and the analysis is out there, the regulators have put this out there and the industry has put it out there. There is plenty of options to develop and to build more renewables to meet demand. So what you generally tend to find that the biggest challenge is that when you look at the graphs, you have this nice sort of linear graph that goes from now to 2050, which shows

Cody Ellingham (23:11.374)
Here's where we will need to get to and it'll be a nice smooth transition. And the reality is that transitions never look like that. They're a big squiggly line that go up and down, up and down, up and down until you get to that point. And we're in that up and down, up and down, up and down world at the moment now where we're moving to a point where we're building a lot of renewable electricity, but it's creating real challenges in terms of security of supply and reliability really of the system because we're relying more on weather dependent

renewables as we go through time. And that is creating this challenge of what's going to be able to replace the role that fossil fuels have played because we're displacing those. And that's what you want to see, you want to see an energy system displace your fossil fuels from the system. But that's creating other challenges in terms of security and reliability. So the opportunity is clear for New Zealand. We need to get off fossil fuels for our process heat as well as transport. So Montero burns a lot of coal.

We need to get them using electricity in their boilers. We need other processes to use electricity in the country. And the real challenge is, we going to be able to build the renewables at a cheap enough cost to be able to create the demand for those sorts of products, demand from those sectors to be able to sustainably transition?

Well, just just pulling on that, because I mean, I think there's a bit that's kind of encapsulated in this idea of the 2050 thing, the decarbonisation thing. And again, this is something that the public maybe isn't really aware of. They maybe heard some of the buzzwords floating around. the idea that, you know, there's going to be this electric transition, this electrification of everything and that this is being led by government who, you know,

Do they really understand what's going on? know, is there sort of role here in terms of communicating and actually bringing the public and, you know, citizens and businesses on board? How does that look? because I know the energy sector in New Zealand is quite connected with government, though it is separate and these are publicly traded companies. so, I mean, broadly, how do we see the connection between what the government thinks is the right thing, which is not always the case?

Cody Ellingham (25:29.038)
the public and private sector kind of making things happen. Yeah, that's a great point. I do think that one of the key parts of my role and I think the key, my previous role was really about how you build that connection, right? So how do you communicate what it is that the industry needs in terms of policy settings to support that transition? And then what's the role for governments, regulators, the sector more broadly?

play. And then also, as you correctly pointed out, do the public understand the current state of play? I still think you still tend to hear, still think the sector needs to do a much better job and probably the government needs to as well about where we're actually at, like what the progress is that we're actually making because we are on track in terms of building enough renewables to meet that demand, the forecast demand to meet our 2050 targets.

But yet I don't know that there'd be a lot of... I think when people see the fact that we've got energy shortages, I think we're not building enough electricity generation, for example. They don't really fully appreciate that this is an issue due to a fuel supply issue rather than an actual fact that we're not building enough generation to meet their energy demand. Basically, we need to build a lot more renewables, the problem we're going to have is how do we shift those renewables into those periods that we actually need them to be in? So, you know, those...

winter period, peak periods, how do we shift that energy around that we're building? Or equally, how do we send really clear price signals and incentives to people who might have capacity to reduce their demand? And that could be households as well, to reward you for the fact that you run your battery or whatever you have or whatever distributed energy resource you have over those peak periods rather than rely on the grid. there's a lot of work being done now, a lot of...

There's a lot of trials going on in the industry. Another client that I'm working with at the moment is doing a lot of trials with retailers around how they can control order load within your home and provide incentives for consumers to allow your retailers to control at those periods when we might have peak demand on the network. So all of that innovation is actually really going to be really important for our transition as well.

Cody Ellingham (27:48.352)
Yeah, I mean, guess, I to be more straight up about it, I mean, we've got this innovation happening at the edges. There's interesting things. But again, there was the risk of blackouts earlier in the year. And there's just challenges, which again, isn't something that should be expected from a developed economy. And it seems as if, you know, New Zealand tends to look towards government, you know, this kind of give us leadership.

And energy is one of these funny places where it kind of does rely on a lot of policy and there's a lot of kind of interconnection between what can be done in the private sector and what the policy is. And so there's this kind of challenge where, again, the government is setting strategy and it's making these bold claims for something like an energy transition, which actually has an impact on everybody. And so just, mean, we could just dwell on this for a moment, but how does this work? Because

With any other sector, generally the market drives change and people can decide what happens. But with energy in particular, it's one of these things that kind of relies on policy and there's a lot of regulation. You can't just start up and build a power station. There's a lot of consenting, all these kinds of things. And it just seems like the default argument in the media that is never challenged is what is the government doing here setting these targets? And do they even know what they're doing? And that's a question I'll put to you, like what?

What is the level of competence from government and advisors? Do they really understand when we're getting this close to blackouts that there's actually a real impact on the people here? look, mean, yeah, they do. And I think this is the transition and the reality of the transition, which I was trying to articulate. You know, it's not the nice straight line, right? So, you know, to be clear, I think the issues that we're going through in the sector will be resolved. know, like the solutions will be found in the short term.

For example, the difference that we'll have this year compared to next year is we've got about 300 megawatts of batteries that will come online. We've got solar farms that will be operating over those peak periods that weren't operating before. This is the great thing about the industry is it's very dynamic, right? Because you've had a situation of challenge, doesn't mean that that is... People tend to extrapolate and go, well, now every year we're just going to have blackouts and it's going to be a third world country and that's not good enough. It certainly is the case that there's challenges and we've seen those writ large.

Cody Ellingham (30:10.454)
I guess the main challenge for the government and for the industry is to just not knee-jerk into solutions that, so-called solutions that are politically acceptable but don't actually really address the problem. Is it a competition? On one hand of the argument, people will say it's a competition issue, you need to more competition. Other people will say, you can go down that route, but it's a fuel supply issue, so what are we going to do about the gas transition? How are we going to provide certainty there?

batteries will come in and solve some of the problems. Some of that longer duration piece will be a bit more challenging, but the industry will work it out. And history has shown us this. mean, when you're around in the sector long enough, you sort of see these sorts of things come and go. We were in exactly the same situation 20 years ago, I you may not be aware, but, you know, government papers up to cabinet at that time talking about importing LNG because we'd had a very dry winter. We'd had very high prices.

the Jerry Brownlee letter, a reform process in the national government at the time to do a big review of what we're doing, exactly what we're doing now. There was an underwrite for a gas generation plant at Huntley in E3P and effectively that meant that we didn't import LNG. solutions kind of get found to these problems that come around. This is no different to situations that we've been in in the past. And I believe the market will eventually solve it.

But it's going to be messy and it's going to be challenging. I don't see that there's a role. think government absolutely understands the challenges, but they also know that they don't want to have a role in kind of interfering in the market and potentially stifling that investment that is going to happen that will eventually help to solve some of these challenges. From an outside perspective, I can fully appreciate where people go, well, this doesn't look like anyone's got their hands on it.

Yeah, well, I just, again, I do think New Zealand is an interesting case where there is this kind of big government, even though it is relatively small country. And, you know, we often seem to be looking to the government for the answer, which I sort of, you know, instantly makes my gut turn a little bit. And I think where, where is again, where is the competency and, know, the solution will work itself out. But again, with something as critical as energy, you know, is there, you know,

Cody Ellingham (32:28.802)
Is it worth putting to chance? And I can only trust that there's competent people working in the generators and in the market who can actually push back because the challenges when you get a political solution emerge and we've seen there was sort of murmurs around price controls and these kinds of things and you know people, know, the short-termism of government talking about something that they're not going to be around for and so they can...

make knee-jerk changes for political purposes. And this is the constant struggle that you've got government in for a few years. And they can make promises that appeal to the voters now, but ultimately, longer term, it undermines the integrity of the nation. I think this is something maybe we sort of, you you talk about Jerry Brownlee's work 20 years ago, and, know, sort of we've seen again and again these political maneuverings, sometimes for better, sometimes for worse.

And I just wonder how that affects maybe the public perception as well, because the government should do something about it is the call that we hear. And then sometimes that doesn't really make a solution, you know? Yeah. And that's right. mean, you know, that is the perennial issue that you're always trying to deal with, right, is to go, how do we get sensible policy that accepts that, you know, I'll be the first one to admit no market is ever perfect, right? Like you've always got, you're always...

needing to make tweaks, you're always needing to evolve it. And the Brownlee reforms are, I think, a really great example there where when I first came into the industry, people were going, well, I can't believe there are actually some pretty big changes that were made, like virtual asset swaps to try and produce more competition between the big players. There were penalties put in place, compensation payments that had to be made by retailers to their customers if we went dry. And all of these things were seen as, particularly for a market-led government.

as nationalists seem to be, they were sort seem to be reaching quite deeply into the market, also the establishment of a hedge market. But I think when you look back on those periods, you realize that those actual reforms were things that helped people to shift their perceptions and move forward. I do think there's this healthy tension, you know, like I'm sort of almost loathed to sort of go, yes, know, government always gets it wrong and any industry knows what's going, what's best. I think there's this tension that emerges between

Cody Ellingham (34:49.71)
there does come a point where industry hasn't got the ability to be able to come together to solve some of the bigger issues. And the gas transition is a classic example of this right now, right? So, you know, we need to just be able to provide some certainty to people that they can continue to invest in these assets and that they're not going to have stranded assets on their balance sheets, right? Putting aside for one minute whether we think that gases, you know,

the environmental impact of it. mean, that's a separate debate. But if you're just talking at security at the moment, and the conversation we've been having is that people would have a reasonable expectation that we keep the lights on. And gas is an essential part of that mix at the moment. But we're really stuck in this conversation that no one in the industry can resolve bilaterally or collectively. And there have been attempts to do through contracts. For example, Genesis has been out there with contracts in the market saying, hey, we can provide you with

power over these periods to provide a firming product. And there are a of players who have been saying the market's broken and not working who haven't bid in for those products, right? When the market has clearly offered them and they're exposing themselves to unnecessary risk. People who could be hedged and who don't need to go out of business but aren't taking up those products. So you kind of look at it and go, the products, it's not a lack of availability of the product in the market. There must be something else going on.

So the ability for the industry to kind of resolve these issues is going to be really challenging, right? Because each individual's incentive, we want people to not collude. We don't want people to work together, but some of these solutions need, because it's a competitive market, but some of these solutions need us to come together to go actually what's the best solve for New Zealand. And sometimes you can only do that through processes like what Brownlee went through and also what the government's probably going to go through now. There's always a risk that you come out with some ideas that are not great.

But there's this tension that sort of builds up in the industry and then it has to be released somehow, I think. so, everyone will be focused very much on trying to get some sensible policy options into that debate. Yeah, I mean, I guess I'm certainly open to exploring the idea that with something, again, like energy, which kind of impacts everything, it sort of sits along national defense or something like that in terms of the level of reach.

Cody Ellingham (37:13.718)
you know, the kind of national responsibility. And this is certainly something that I'm interested to learn more about in terms of the, I guess, the strategic approach to something like this, because I know in other countries, you've got, you know, owned infrastructure and utilities, you know, fully directed from the top. In other places, you've got fully independent private sector led kind of leave me alone type of strategy. And so there's these maybe different models. I guess

I'm willing to learn about the different ways that you could approach this and given your experience working in the UK, Australia, different places, I mean, how would you compare and contrast models broadly towards energy and policy? Yeah, in terms of market design, you generally tend to have two different types and one's called an energy only market and then one's called a capacity market. And in New Zealand and Australia, although Australia is moving more towards, it feels towards more of a sort of regulated control market.

in different parts of the world, we are running an energy-only market. And effectively, what energy-only market says is that everything's in the price, right? So you simply have a poll where everyone bids into and you're just trying to dispatch the least cost generation to meet demand at any given point. And that means that if you're a generator that requires, for example, a peaking generator,

you are only going to be dispatched in those periods when you really need it. So the rest of the time, you're going to have to cover your costs through payments that might not actually really cover your long-run marginal costs, so using economics term. so what that leads to, well, economists really like that because it's very transparent and it's very, it's kind of lease cost dispatch. So you're always making sure that you've got, you're sending the right signals for the lease cost generation at any given point in time to be dispatched.

big challenge that you've got is that in those periods where it's really needed, the price can go very, very high. And it also can create challenges like we've seen recently, and we've seen throughout the debate within New Zealand, is what incentive do I have to keep to maintain this asset? So if I've got a peaking generation plan in New Zealand at the moment,

Cody Ellingham (39:32.014)
I've just got to keep it warm and keep it running and keep it going for that period where I'm going to be needed and then I make my money. And for a lot of companies, it's becoming harder and harder to do that because they look at it and say, well, I have the CSG requirement where people don't want me holding these assets. These assets are very old now. I'm not going to build a new plant because I don't know that I've got the certainty of a 25-year return on that asset. So you're in this really challenging environment where

On the one hand, like if I play back the arguments I was hearing, you're talking about where people would have reasonable expectations that we keep the lights on and that these companies then operate these assets. On the other hand, they get a lot of criticism for holding those assets and saying, well, why are you continuing to invest in gas when we know that the future has to be renewables? You shouldn't be holding these assets. I don't want to invest in your company. So there's this tension that we're asking these companies to kind of do everything.

And yet we're not providing them with any kind of certainty around returns or why would they do that? So legitimately, they face these challenges from their investors to go, well, why are continuing to hold these assets? And they go, well, if I don't, it's like South and New Zealand, then we don't have an energy market. So I think these are the tensions that people don't really fully appreciate in terms of the challenges that these companies have to navigate. And it's very easy to just say, they made a lot of money. They should just suck it up.

Yeah. And that's a bit, and invariably we just get to these polarized arguments, right? Which really don't help the understanding of the challenge. Yes. Yeah. Well, it's this nuance. Yeah. There's real nuance to it. Right. Yeah. And this is interesting. It's just so there's energy only market approach, everything encapsulated in the price. I imagine then that's where the role of power purchasing agreements and, you know, having contracts in place to turn off, to get paid, to turn off these kinds of things playing. Can you tell me a bit about that?

Yeah, yeah. mean, so basically everything's in the price. So participants will enter into hedge contracts to effectively insulate themselves from that price. So you agree an agreement whereby a swap contract effectively to ensure that you only face an average price. And that's what a retailer will do for you. So an electricity retailer, they sell you a fixed price variable volume product. So you can use it as much as you like of that product for a fixed price. And that's all they're doing is they're just

Cody Ellingham (41:52.078)
saying doesn't matter what the volatility is on that spot market price, you'll only ever pay 25 cents a kilowatt hour, even though the price may go to a thousand or whatever. I'll manage that for you and you pay me and I pay you. so people don't, as a consumer, you don't really see that, right? You just say, great, I've got a fixed price. I'm happy with that. And by and large, that kind of works. It's fine. Where it's become problematic, for the larger end of town, they,

will enter into, they may enter into much longer duration supply contracts. And they may underwrite, they may say, I'll take the output from a new power station for a long period of time to get a really good and get a really good low cost of average energy for themselves. But what you increasingly find in New Zealand is that it's becoming more more challenging for a lot of businesses to really enter into those long-term contracts. They're tending to either ride the

shorter term exposure to that spot price or in terms of very short duration contracts of a year or less. Like you might do with your own mortgage, you might take a view that, mortgage rates are going to come down. I don't want to fix for five years. I'm going to go for a shorter duration. Generally, what

appears to be happening in New Zealand, particularly with lot of large industrials too, is that I think it's quite challenging for them to commit to long-term tenures because a lot of them may not be owned by New Zealand interests. They may be part of a portfolio of companies globally and their owners will look at it and say, well, I don't know really whether or not we be operating in New Zealand in 10 years. So I'm not going to contract to get you the lowest cost possible energy only. want you to try and manage with what you've got.

So, you know, that can create real challenges, I think, for the sustainability of those businesses. And then when you get into a situation where you have these really high-priced energy events and you're not hedged, you know, that can be real problem. Yeah, that's fascinating. And for me, you know, someone outside of this industry, it sort of stands out that there's certainly a lot of complexity. I've explored some of the things we've talked about before, and I'm aware of some of them. it's sort of, certainly have to expect the public to appreciate that.

Cody Ellingham (44:07.334)
and to be able to sound like that is very challenging. it seems like maybe the thing that's missing amongst all of that, which is again what we started this conversation with, is the flexibility. Because again, with the move towards solar and wind, increased build out of renewable energy, that question of flexibility comes up. And maybe we can talk a little bit about that, what the flexible options are. You mentioned there's a battery build out that's just happened, 300 megawatts.

I mean, but broadly, mean, let's talk about flexibility. What are the options and what's happening at the moment? Yeah. So, you you can think about it from the supply side and the demand side, right? So, you know, the flexible forms of generation that we have are like hydro. So hydro is able by determining how much water actually goes through your penstock and to your turbines. You can ramp up and down according to what demand is on the network. And hydro plays a really important role in New Zealand. know, 60 % of our generation is hydro. So, and mostly that most of that is very flexible.

Equally gas, as I've mentioned, is just a big gas turbine like you'd find on the outside of a jet plane. You just blast a lot of gas through that and you can create megawatts very quickly. Batteries are very good at providing very, very fast response time. you know, battery is not a form of generation, of course, it's just a storage. So, you you need to have generated something from some other source of generation. can shift it though. Yeah, but the...

that allows you to shift it through time. And our hydros do exactly the same thing. So when you think about the challenges for lot of jurisdictions, they're building a lot of intermittent renewable generation, but they don't have the storage that we have in our hydro lakes. So now they're having to face the challenge of building lots of battery storage to kind of move that energy around, right? And it's the same issue for us a little bit because when our hydros go dry, then we're in the same sort of situation. by and large, we've got inherent storage in our system.

a bit of it and that allows us to build these new intermittent renewables. There's flexibility on that generation side through batteries which are helpful and then on the demand side of course you know flexibility is about contracts that you could enter into to effectively not consume energy at particular periods so you know if you look at the smelter the aluminium smelter NSAS is entered into a contract as part of its negotiations with

Cody Ellingham (46:29.166)
recent negotiations with the industry, particularly through Meridian for energy supply. And part of that contract was to ramp down its production and Meridian notified that there's going to be a shortfall or whatever. I can't remember what the actual limits are, but it's reasonably chunky. And I believe that there are other industrials as well. think New Zealand Steel has an arrangement that was negotiated as part of its...

It's part of some investment from the government fund that it received a while ago as part of that arrangement, included flexibility arrangement, which is really important. you know, these are, when we were talking about, you know, the challenges that New Zealand faces, what people don't see is some of these arrangements that have come in. And that's actually played a really critical role in terms of shoring up the industry. And then there's actually, and the problem is that people don't see that, right? So they don't see when that successfully gets brought into play that we avoided a shortfall situation.

I mean, the other point that I would note about the shortfall situations for people is that there's a lot of worry and concern around shortfall. And we hear now it's quite commonplace in the news to say, Transpowers issued a notification to the network that things might be a shortfall this evening. Those notifications have always happened and they've always come out. It's only because we've had an incident that people suddenly have gone, look at these notifications, we were having this all the time.

So I think this is a perception issue as well around some of the shortfall situations. The shortfall situation generally means that we're reaching a threshold whereby we still have quite a lot of reserve to go, that we're not going to go dark. And some of the challenges that we've had is just because of not so much that we've run out of fuel or we haven't had the fuel and supply. There's been things that have just broken in the system and it's been a bit of a sort of a...

Compliance of events that have all happened at the same time as a black swan event if you will rather than an actual hey We've just haven't invested enough for the stuff that we've got is not working right. Well, just thank you for that and I guess a tech that I want to explore now with you is just coming back to this idea of Bitcoin mining which we talked about a little bit before offline and I guess starting off. I mean, how aware are you of the space? I mean, what what do you what is your understanding of Bitcoin as it stands?

Cody Ellingham (48:49.132)
Yeah, very little. I'm really, I'm just the most excited for, think, rather than me watering on actually hearing from someone with your experience and expertise in this. you know, one of the things around flexibility that I didn't sort of talk about was, yeah, you know, the ability for server demand, for instance, you know, that's been a big source of demand for New Zealand, which has been really exciting. I know it's been probably the highlight for what has been otherwise a very

dim outlook for demand in New Zealand. So we know we're focused a lot on supply, a lot of our policies focus on how can we get more renewable generation. But we don't really have a lot of policies that look at how do we build demand in New Zealand. And the fact that we've seen interest from Amazon Web Services and Microsoft and the like to build actually reasonably chunky servers in New Zealand has been a real, yeah, it's been really exciting for the sector, I think, to see that sort of demand. And what I was going to say is actually,

The great thing about that demand is that it is flexible because generally what you find is that when someone comes and says, I want to get a supply contract from you, they want a very firm contract, right? So they want you to firm that output for them to make sure that they're not exposed to any volatility in that wholesale price. And that means that you've got to use your flexible hydro resources to be able to provide that firm power output for when those companies require it.

higher cost, it just speaks to cost, right, so the contract. If you came to me and said, hey, I just want to get contract and I just want the power any time, you know, like doesn't need to be over PICS, you I don't worry about PICS, I can manage that myself. I can give you a much more competitive price for that energy than if you said, actually, I need you to make sure that I pay the same price no matter when I use it, right? And that's the situation, like I said before, that fixed price, variable volume that we have to apply to households. And that's what makes a householder actually

the cost to serve for a household or for electricity retailer is a lot higher. So the beauty of server demand is that of course they can flex their demand depending on where their server loads are globally. So when we talked about New Zealand being isolated, actually server demand is an awesome outcome for the New Zealand industry, for the electricity generation sector, because they say, hey, we just like the fact that it's green, it's great, give us as much as you can.

Cody Ellingham (51:09.582)
and let us worry about those peak periods because what we'll do is just throttle down our server demand. We'll just use it in Australia or wherever out of our global system and we'll manage that risk. So just give us the cheapest cost and happy days. So that's a really great thing for the sector. And I think my limited understanding of Bitcoin mining is that it does seem to be inherently flexible in that same way. Would that be fair to say?

Yes, I think I would probably contrast it a little bit with data centers in the sense that it can be turned off instantly and you can turn the whole thing off and it won't make a huge difference. Whereas I think with servers there are, and high performance compute, there is an expectation that it is on and available. Otherwise you're going to be eroding the value of that site because these are extremely expensive. For data centers, these are extremely expensive investments.

To be turning it off willy-nilly isn't really an option, whereas I would contrast it with Bitcoin mining and I'll share what I know in a moment, but it really can just be turned off with a switch because of the nature of the hashing process that's taking place. And so if I can broadly paint a picture of what I know, and what I think would be interesting is to connect this with what you know about energy and grids, Bitcoin mining, if you think of it as basically these shoeboxes.

They do one thing and one thing only, it's the hashing function. And they do this billions of times a second, these machines. And really all you need to feed them is power and a relatively low bandwidth internet connection. They don't require that much data. They do need data from, they need to connect to the internet, but it doesn't require the tier one internet that you need for a data center. So they can be anywhere.

And they're also relatively durable in the sense that they can be as simple as one of these single shoeboxes in a room or in a container. They're not as sensitive, I guess, as a high-performance compute center or a data center. And so they can be moved around quite a lot. And effectively, the interesting thing for the grid, and I'm to hear your thoughts on this, is number one, it's an intermittent load.

Cody Ellingham (53:27.052)
So it really can just be turned off instantly, turned back on as required. And secondly, there's actually an economic output because you're mining Bitcoin, which is a digital currency. It's got value. It's got economic value. yesterday, the value of a single Bitcoin hit 100,000 US dollars. And so we've seen this massive growth in the industry, this massive increase in value as Bitcoin monetizes into a currency that's being used by more and more people.

And so there's this really interesting situation where you can have an asset that's maybe not connected to the grid. It can be making money without actually being plugged in to the national network. And this is a really interesting game changer, which I just don't know how much. I don't think there's anything else that does that, And so it's kind of this, this kind of an elixir for the grid, which more and more people are beginning to explore.

And certainly I'm very interested in this space, but I mean, a Bitcoin mining site that can be plugged in anywhere at any time, can kind of model the income and the revenue of that site because it's making money through mining Bitcoin, but it can also play a role in some of these contracts and PPAs that you're discussing where you can turn off, you can get paid to turn off and you can move it.

around, know, these containers can be picked up and moved relatively easily. So there's kind of a few factors there. So happy to take questions from what I know, my humble knowledge, or maybe throw it to you how you see that maybe impacting the grid. Yeah, well, look, when you, if I take it back to what we're trying to achieve in New Zealand, and that is, you know, the rapid build out of as much renewable electricity as we can. You know, I haven't even touched on AI power demand, because, you know, when I talked about the 50 %

increase in renewable electricity we need by 2050. In New Zealand, that doesn't even take into account the fact that US server demand looks like it's going to go from 3 to 16 in the next six years just because of AI alone. How do we think about that in New Zealand? So I think when I look at that, I hear what you're talking about too, there's definitely going to be more demand for as much renewable electricity as we can get onto the grid.

Cody Ellingham (55:47.286)
everywhere in the world. And New Zealand will be, I don't think New Zealand will be any different. And you already have a lot of projects that are looking for large offtake demand to underwrite those investments, to ensure that they have the stable cash flows to be able to know for certain that you're going to get a return on that asset, right? I mean, you can sell it into the wholesale market, which is obviously what you do, but then you run the risk of the volatility of that market. Ideally, what you find is with

The large players, they're inherently conservative, right? They're not looking to make the most money out of their investment. They're just making to look at a stable return. The utility shares, they trade at a reasonable rate on the stock market. not going to be technology shares, not going to be valued at those kind of levels. They're just expected to provide a reasonable rate of return. So anything that can underwrite those revenues in that market by providing a stable sort of source of demand, but also being able to provide some flexibility so that, you

that point, I don't have to provide you with firming because you can actually manage that risk, I think is inherently attractive. Well, if I can ask you something. my, again, from the outside of the industry, my feeling is that by being able to say, look, if we drop in two shipping containers or, you know, we build a small situation, we build a small site on site behind the meter, you can factor that into the planning and the financing of a project.

from my perspective, given that it may take a period of time to connect to the grid, and I'd love to know what that might be from your experience, but you've got some far rural site, wind, solar, whatever, it's gonna take a bit of time to connect to the grid. And in the meantime, though, you can have this thing behind the meter, you can drop it off with a truck, and it's gonna start making money, and it's gonna be making very good.

valuable, valuable money. mean, how do you see that dynamic playing out? Well, I mean, it's interesting. I'd be interested to understand. Is that something that you see playing out overseas? Is that generally how this technology is being deployed? It's interesting in that from my experience, it's happened. There's a lot of different ways it can work. There's stranded assets that can be monetized. There's new sites that it could be built alongside with. And then there's just people who are, you know, mining it at, you know.

Cody Ellingham (58:06.798)
at market rates. There's quite a lot of different people and pretty much the only thing they have in common is that they're all using these Bitcoin mining machines, but the business models are very broad and because it's, guess, again, from my study and my experience with this, the industry is still very nascent. know, this kind of commercial level Bitcoin mining has only been really a few years. And so there's kind of a real, and maybe we can live this back to some of your innovation work, but for me, it's like, man, there's this

this is a machine that you can plug in anywhere and if you've got cheap power, it will make you more money. And that's kind of a magical thing that doesn't really exist anywhere else. And we haven't really fully explored what that means yet, I think globally. And so there's this kind of opportunity to use that and innovate with that. Yeah, I mean, certainly connection times can be a factor. Rural wind, rural solar, I what sort of...

Are we talking months or years or what's the connection depends. Short answer is I wouldn't be able to give you an exact figure, it depends on the size of the... Because obviously clearly a smaller wind farm or a smaller solar farm will have less demands on the grid. Mostly people are trying to locate these... Your ideal is that you're locating it at an area where there is either sufficient capacity and that you're going to have to spend the minimum amount to try and connect it to the grid.

But in some parts of the grid, you might be looking at it saying, well, I know I'm going to be putting maybe a couple of wind farms in this area. therefore, I'm prepared to to augment the grid facilities or the connection facilities to quite a high level to put some more capacity in there, knowing that I'm going to be building some of the stuff in the region. I won't go into the sort of agories of the connection agreements and arrangements because it is actually quite complex. But it can take some period of time. It can take years to get it.

mean, getting consents and getting everything done for a wind farm can take decades, right? So, you know, would depend on the sequencing of how things go. So, you my initial reaction would be you probably do have a period of commissioning whereby you wouldn't be producing power into the grid. But that generally tends to be reasonably short. It's not, you know, it's maybe a couple of months rather than years type thing.

Cody Ellingham (01:00:22.938)
because ideally you want to have everything up and running and connect it to the grid as quickly as possible. And you'll connect things in stages as well, right? So you won't have the whole farm up and running, you might have half of it, then you commission the other half and get it going in stages. So it definitely sounds like there'd be potential for something like that. And I certainly agree, if you want to get the lowest cost of energy, you'd want it to be closest to the, you know, to on the site itself, because otherwise you're having to pay for transmission and distribution.

costs and transmitting that electricity, which, you know, to give you some idea, it's roughly about a third, a third, a third, right? So, you know, you can produce electricity reasonably cheaply. wind farm will be around eight cents a kilowatt hour, eight to 10 cents a kilowatt hour, you know, outside. Yeah. Well, I guess, again, it's quite interesting because there's this established, you know, energy grid in New Zealand. There's a lot of players, a lot of, know, a lot of

policy and regulation and then there's this new thing of Bitcoin mining which it's unfortunate that there is maybe public misconceptions about what Bitcoin is and what Bitcoin mining is. It's sort of that that's a challenge that we're having to deal with. But beyond that the opportunity for innovation because again this is a very valuable digital asset that's being produced by these Bitcoin miners and they

have this again almost magical ability to be the buyer of first resort and also the buyer of last resort because they'll take any energy, know, give me cheap power. I'll turn off if you need me to. I'll go wherever you need me to. I can just do with a Starlink, you know, basic, you know, literally a container and a Starlink and you're good to go. That's very flexible. It's very scalable. You can have one machine or you can have 5,000 machines. You know, it's kind of got some interesting attributes which

haven't fully been appreciated because I think on again on the public side, the mass media is sort of having their go at it and not really appreciating what this means and the kind of the whole story of Bitcoin itself as an inflation resistant money, et cetera, et cetera. There's a whole story there, which again, people aren't aware of. And so there's actually a real opportunity that I see for these Bitcoin miners to operate.

Cody Ellingham (01:02:37.944)
bring some self sovereignty to local communities as well. And so something you were talking about earlier with the geothermal, a lot of this is Iwi land, Maori land. so actually having something there, a demand center that can be making money. It's not just making a product or a commodity, it's actually making money and plugging that in actually can bring a lot of self sovereignty. So there's a lot of moving parts.

And there's not that many people talking about this in New Zealand. There is a few of us. But I mean, certainly from what we've talked about today, and it seems like maybe it's kind of a new topic for you, but I mean, what's your general feeling about what this could mean and sort of maybe innovation opportunities? Yeah, I do agree. think you're going to be, it's a little bit like earlier conversation and trying to explain the intricacies of how an electricity market works. Like most people are just inclined to take the sound bite right that it just doesn't work and we need to do something about it.

I think Bitcoin is often the same thing. You quite rightly point out people's perception of it, public perception of it might not be the actual reality of what the technology is capable of doing and achieving. So there's that public perception base that would need to be addressed. What would it look like if a major public listed entity in New Zealand announced that it was getting into Bitcoin mining? I don't know the answer to that.

what the shareholder reaction would be or whether you'd... I mentioned people that tend to hold the stock tend to be inherently conservative. They're looking for a consistent return. They're not looking for outsized returns. They just want a stable stream of returns. But I think the flexibility of the technology is inherently attractive, putting aside the public perception of Bitcoin.

I think the actual technical capabilities that you've just described and what it's able to do is inherently, I think, valuable. Particularly in a market where I just mentioned we're in the short term, we have to make some pretty big decisions about what is going to be the thing that provides that flexibility. And the only thing that I can see that you can flex in the short term is demand, whether that's through providing better pricing to householders to use energy at different times or to directly control their loads, like their EV charging or their...

Cody Ellingham (01:04:58.798)
hot water load control, which was sort of saying there's a lot of demand in that system existing that could flex. And I would put Bitcoin mining in that kind of same box, right? I did look at it. I headed us to do a little bit of sort of AI searching around just to get an idea. And I see that Texas has done some stuff there. Are you able to talk at all? Yeah. Well, I mean, I can give you a New Zealand example. So when we were having that period earlier in the year where there was the

challenges with the electrical, you know, the potential of a blackout actually. There's a company in the South Island at Monowai called GridShare who are Bitcoin mining and I'm a customer of theirs and we turned off for that whole period. So we curtailed and they have an agreement with the generator there to curtail and you know, we did our bit, we turned off and we let their electricity flow into the national grid. And so that's a small example and it's

you know, for New Zealand, think it's really awesome case study, but those guys are doing awesome work. So there's a company, Gridshare. And it's, I think a lot, there's a lot of opportunities that exist like that in New Zealand where a PPA, a power purchasing agreement could be in place. There could be some contracts where you turn off to curtail. And when you're not turned off, you're making, you know, making the world's hardest money, inflation resistant money. And then when the needs of the grid.

exceed the price of that, then you turn off and you let that energy flow. So that's a real example that happened this year. And I think that's pretty awesome to see that innovation in New Zealand. Yeah, absolutely. And I mean, in that respect, I think the mining operations are probably not that too dissimilar to most loads on the network. I don't think there would be any reason why a renewable electricity generator would not want someone with that inherent flexibility.

as part of their portfolio, right? I don't know whether they're the natural owners of the technology itself. I don't know that I would see people probably directly investing in it, but they would probably be quite keen to see that industry grow as a source of demand, absolutely. And being able to contract with a flexible load would have inherent advantages in terms of balancing their own portfolio.

Cody Ellingham (01:07:17.25)
as I've painted out this kind of flexibility constraint world that we're in at the moment. Nick, was just going to say though, I I talk to a lot of people about this who are certainly more closer to the tech than me and who are working more closely in this space. as I say, I'm a customer of this particular company and I talk to a lot of people, but from your perspective, in the New Zealand situation, where...

should this conversation be happening and who should we as Bitcoiners and Bitcoin miners, who should we be talking to to make this aware that this is the kind of stuff that can be used in New Zealand for the benefit of the grid and for everyone effectively and that this is a real opportunity for innovation for New Zealand. Who should we be talking to? What are the forums? Yeah, well, I mean, there are many forums, but I think

I think the thing that you want to be doing is providing as much information as you can out there. That case study that you just provided, I think would be really, really useful to be able to pull together, to be able to say, hey, look, this is how this technology can be used. This is the response times that it can provide. The fact that you're saying you can go almost instantaneously off and have to ramp down in any kind of way. I would say that the main

The main entities that would be particularly interested, and if you haven't already spoken to them, would be someone like that who operates the power system itself. So the Transpower is an entity that both owns and operates the grid and to the system operator function. And they are always looking at ways in which there can be, they've looked at the past in terms of how you develop flexibility markets as well. So some of the processes that are happening that they've had in the past have looked at, how do we actually remunerate and provide incentives for

for people to be rewarded for dropping their load and for providing benefits back to the system. This is actually part of the debate that's going on at the moment. don't know how closely you've been following some of the reform processes that are coming out, but if you look at the package of reforms from the Energy Task Force that's around there, the package two reforms are all looking at this area of how do we reward loads for effectively providing flexibility into the market.

Cody Ellingham (01:09:31.398)
And there's something called the Flexibility Forum as well that is a grouping of, I mean, it's a group of flexibility providers and industry participants that are coming together to go like, how do we actually get some visibility around what does the opportunity look like? What are the policy settings need to look like to encourage flexibility? How do we need to work collectively together to provide the protocols in which flexibility can be integrated better into the market?

There's a lot of stuff that's happening through various forums and things like the Business Energy Council as well of New Zealand. If you haven't come across them, they're a really great Wellington based sort of body that can help provide and they're really interested into the innovative new ways of doing things and providing that link into policy makers. But I'll be directly engaging as well. I New Zealand is a small place, which is one of the great things about it. You literally can, you know,

get the address of a policy advisor into the Minister of Energy or to, you know, I'd be talking to the science and innovation people as well at MB, as well as the Minister for Science and Innovation across those portfolios and saying, you know, these are real opportunities for us to scale and grow these things. it a, how does it, how is it, how is the innovation piece?

developing and growing overseas. I who's typically investing in these technologies? Do you see venture capital getting involved in it? Like what is the, is it just in basically enthusiasts of people who are really, really keen on the tech and also trying to test it and push its boundaries? So paint a picture of the ecosystem for me. Yeah, sure. I mean, what's interesting is again, it's an open network. And in fact, you can probably see there's this little box just on my shelf here. So that's a small, it's kind of a...

Bitcoin Miner, it's called a Bitax and that is just a tiny little demo machine that I use for people. you've got stuff like that all the way through to, you know, in places like Texas, you've got these facilities that have got thousands of machines that are operating at the cutting edge of technology. There's capital funds coming in and helping build these things up and stand them up. it's quite, again, there's a very broad

Cody Ellingham (01:11:40.238)
scale of opportunities. mean, I'm personally mining myself. There's sort of lots of different scales. And so that's something that's interesting is that it really is quite scalable. And yeah, you've got venture funds coming in. You've got people doing it as part of integrated business structure. Maybe they do some other Bitcoin related things and they want to have the Bitcoin mining capacity so they can make sure their transactions are always going to go through. there's kind of lots of different models that are emerging.

And it's kind of, again, early days, but the real disruptive thing, and I think maybe the change that's happening pretty much right now is that we have been in a period where there's been a bit of uncertainty about Bitcoin at a high level. But given the outcomes of the US election, and that's been reflected in market stability, people now have confidence that the US is heading on the right path. And the value of Bitcoin...

and the exchange rate value of a Bitcoin has gone up incredibly in the last few weeks. I mean, there is questions of volatility, but effectively it's monetizing into a global reserve currency that can be used by anybody. And so there's this really interesting political dynamic, which I think maybe a year or two ago would have been a little bit more challenging to talk to people. But I mean, certainly I'm having people come to me now and wanting to talk about Bitcoin. I guess for us, you know, we're non-state.

aligned, know, the Bitcoiners, you know, like to be able to do their own thing. And so we're sort of in this interesting place where now is actually an opportunity to talk to regulators and to the bigger, bigger corporates and this sort of thing, which until now, maybe we wouldn't have had a, had a hearing. And so I think it's really exciting where there isn't an industry body, there isn't really a voice because everyone's just, you know, working for themselves, basically. You know, we don't, we don't have an industry body in New Zealand, though I wonder whether that might change soon.

who could have gone approach the government and say, well, look, this is a real opportunity for innovation. So, yeah, I mean, that's why I ask you sort of what the forums Talk to me a little bit more about what you think the opportunity is and what is your actual specific ask of government? Are you looking for funding? Are you looking for, know, what would what is it that you would want? What's the outcome you'd be seeking? Well, it's interesting. I don't know if I'm the right person to answer this, but I don't I don't think there is a specific ask. It really is an open market. You know, we're basically customers of Bitcoin.

Cody Ellingham (01:14:04.078)
we are customers that buy electricity and engage in contracts with generators. And so there isn't really any barriers. It's more, I think, a recognition of what this means as a strategic pillar to be building on. there's other things that can be talked about, whether it's AI or whatever, but there's actually a real present opportunity that if New Zealand became a mining hotspot,

then that's actually got a lot of value for the country because you're now producing one of the most valuable currencies in the world and you're exporting that and it's a digital export. And so you can sell it and you can get US dollars. can get, know, because at the moment New Zealanders collectively are importing Bitcoin. They're buying it on market and bringing it in. But if you're mining it, you're exporting it and it's a weightless thing. And so it's actually a very interesting dynamic, which

you know, with all the study I've done, I see this just continuing. And, you you sort of wonder where does the trajectory go where, you know, every power station in New Zealand has a Bitcoin mine associated with it that turns on and off and is able to help regulate load and all of these things we've talked about today. But at the same time, it's producing this pristine digital asset that can be sent weightlessly across the world. I mean, that's quite a paradigm shift.

Yeah, I mean, I guess the question, like, what is the framework that I always sort of say to people when you're seeking to engage with the government is, you know, how does it link into what their government's trying to achieve? Like, what are their aspirations and objectives? know, like, and so basically, it sounds like you're coming in and saying, hey, this is really interesting technology, just want to make you aware of it. It's a nice conversation to have. But, you know, if you think about what are the challenges, particularly for government, the revenue constrained at the moment. So, you know,

they'd be looking at saying, well, this is great. I want to build industries here. I want to get IP here. How does this grow an industry for New Zealand that leads to jobs, that leads to productivity, that leads to growth? If this thing is able to just be exported and weightlessly cross borders, how does it... Do I get any tax revenue out of it? Does it actually help me to solve some of the problems that I'm looking to solve? So guess that'd be my first point for you to reflect on is to go, how would you answer those questions?

Cody Ellingham (01:16:25.294)
Because you don't just want to turn up into a conversation to say hi, we're here We're doing some stuff and they go well looks like the markets delivering it. So What you know, generally you you would speak they would say well is there barriers that we can help to reduce here Are you looking for funding which the answer won't be really be no because we've got money You know like I think you're having that clarity around kind of what is your actual ask here and what is it that you want?

because if it is as good as you say it is, then it will just naturally happen. And there won't really be much of a role for government. And if I was sitting on the other side, I'd be saying, I'm not really sure what you want of me. Yeah. I mean, that's an interesting perspective. And certainly I appreciate that, you you've, been in on these kinds of conversations. I guess what I'm seeing, and maybe we can move on to my final point after this, but

From my perspective, all of the people I've spoken to, I think this is something that New Zealand broadly is sleeping on and there is some really awesome people doing some awesome stuff in the private sector. But as a country that is struggling, the New Zealand dollar is not doing too well. The New Zealand economy broadly, despite what many are saying, I mean, that's certainly one of the reasons I left. It's kind of tanking.

And I think that is an inherently connected with the nature of the New Zealand dollar and the role of government. You know, we've had massive inflation, which has just been really challenging because, you know, they've been printing money, they've been doing all of these things. And now there's an opportunity to get on board with the next thing. And I guess the situation that this reminds me of, Nick, is something like the Internet. And if you look at the rollout of the Internet, you know, the copper lines were already there, but actually up, you know,

embracing it and saying that this is a pillar, this is a strategic pillar, this is where the world's moving and we need to be on this. The first movers and the early movers were the ones who got the advantage there. And I think New Zealand did really well with the unbundling of the cables and all of that stuff. But ultimately, I think this sits in that same space. So it's more, I guess, visionary. You know, we're not asking anything. In fact, we don't need the government really to do anything here. We don't want them to do anything actually. But it's sort of like, well, there's a vision here. And given that the energy grid is so connected.

Cody Ellingham (01:18:34.476)
with government policy like it or hate it. It's like, well, look, there is this magical thing that can make money just by plugging it in. And then the bigger question of what that money actually means and we'll look, why don't you hold a little bit of it? Why don't we, you know, why don't we explore what this could mean for self sovereignty for not only energy, but also for money. And so there's kind of some bigger questions and it gets a little bit maybe beyond the Overton window. know what I mean?

I think that is potentially the challenge, right? Because philosophically, your governments generally find it challenging to hold, you know, and make investments in physical assets into things where they see it as being a market-led outcome, right? So I think if I'm playing back what I'm hearing from you, sort of saying like, is going to be something that's going to be very big, you need to actually be investing into this industry as the government itself rather than...

reducing new barriers towards other people investing in it, is that right? Well, I mean, as one potential vector, mean, certainly Bitcoin doesn't care what the New Zealand government does. know, Bitcoin keeps on going, but the countries that don't adopt it, are they going to get left behind? And I think I look at the US who are really leading this and you look at, again, you just look at the exchange rate. You know, the New Zealand dollar is tanking relative to not only the US dollar, but also to Bitcoin.

And the role of New Zealand in the global economy is challenging when we're starting to kneecap ourselves around some of the regulation on farming and these sorts of things as well. it's sort of well, maybe there's an opportunity to stop doing that stuff and just export Bitcoin that's sustainably mined. We've got all this renewable, sustainable energy. I see it as analogous to some of the arguments that were being put forward before it became patently obvious that

It was going to be quite challenging, around exporting hydrogen, for example, using renewable electricity to... And we export our renewable electricity in terms of our aluminium. And that's got a brand, there's green aluminium. It's worth something in the market, but there's always ongoing debate about how much that is.

Cody Ellingham (01:20:48.866)
So there's certainly, I mean, there's certainly those attributes of it. I don't know whether that actually plays out in any way within the Bitcoin community in terms of, you know, whether you're using renewable electricity or not. Do people really care? Yeah. I guess they just care about it being the least cost. Yeah. I mean, I think generally you'll find that, you know, if you can work with those PPAs and those contracts, you can get the best price. You know, you're not having to rely on a commodity fuel like you would with a thermal energy. So there's sort of a nuance there that's still early days, but

I do just conscious of time, Nick, just my final thing I just wanted to talk about. You mentioned OpenStar and some of the innovation. Is that something you can share? Yeah, no, happy to. I could for a long time about OpenStar. yeah, I've been hugely lucky to work with Ratu Al and the team at OpenStar. So OpenStar is a startup, deep tech startup looking to create Fusion Power based in Wellington.

Turns out that New Zealand actually has some pretty amazing world leading expertise in superconductivity and particularly high temperature superconductors, these magnets that have been pioneered through the Robinson Research Institute down in Wellington. So that actual technology allowed Ratu and his time, Ratu Matara, the founder, to draw the links to a particular type of

fusion technology called a levitating dipole, which basically imitates the natural effects that we see for the magnetosphere and the Earth. If you've ever seen the Northern Lights, that's just containing a plasma. And what you're trying to do with a fusion reactor is obviously the process that happens in the sun. You're trying to contain a very superheated plasma within a magnetic field and get that hot enough to be able to create fusion, hot enough and enough pressure to create fusion.

And so this technology, novel technology that they've come off based off these high temperature superconductors has really put them at the forefront of this particular approach. And as of a few weeks ago, they've hit their first test of producing a stable plasma in the reactor. So now they are looking at getting funding. They've already had quite a substantial amount of funding, tens of millions of dollars from New Zealand VC investors. And now they're into

Cody Ellingham (01:23:13.1)
the funding rounds from February next year, they'll be into the funding rounds overseas. So, you know, super exciting time, massive milestone for that team. And my role has really been to, you know, as we've just talked, be that interface, given my experience in New Zealand, the energy sector between themselves and the government to go, you know, we want to recognise this as an opportunity for New Zealand, we want to see this grow. It's analogous to, you know, kind of the opportunities we've seen in the aerospace where...

You know you're not going to be able to develop and grow the technology, the actual production of the technology here because you don't have the supply chains, but we can keep the IP here, we can keep the smart people and we can build the ecosystem, we can build a fusion industry and also superconductivity more broadly has a huge range of applications for what we've just been talking about, more efficient energy grids, more efficient motors, just a range of other technologies as well as fusion reactors allow you to do things like...

medical isotopes and use neutrons in new and novel ways. So the innovation ecosystem that this technology unlocks, it's contributing the fusion of New Zealand as a real game changer. So yeah, I've been super excited to be involved in that. been great. you know, really consistent with that mission I sort of talked about where the stage of my career where I'm interested to be that, help guide these companies with a sustainability vision.

Yeah, well, I think that's, that's awesome stuff. And I mean, there's kind of a bit of a theme here. We've got, again, a very innovative country. We've got, you know, fusion coming out of fusion technology coming out of little old Wellington aerospace technology. And then again, the Bitcoin story. And I think I am keen and I do appreciate this as maybe a new area for you, Nick, but I am keen to maybe continue the conversation offline and maybe we can, you know, talk with a few other people, maybe even.

some of the guys who are mining down south in New Zealand and just kind of talk about the way that this could all connect because I certainly think there is a high value export, an innovation export here with the Bitcoin stuff and given New Zealand's geographic situation, political stability, etc. It just seems like it's the Goldilocks for some of the stuff to take off and it can also be just a very valuable thing to do.

Cody Ellingham (01:25:28.162)
I'm keen to continue the conversation if that's okay. I'd love to. Yeah. It's a fascinating area and I have a very low level of knowledge, I guess if anything in my career, I've always seen people say, these technologies will never take off, they'll never scale, they'll never be big enough. When I first started in the UK, wind was the exact example. No one ever thought wind would be more than 10 % of the grid. It would never be cheap enough and now it's the preeminent.

renewable technology, even when I started in New Zealand 13 years ago, there was hardly anyone. you know, I think people just need to be brought along on the journey. you know, I think I would be saying to you, building your evidence base, you know, really being clear around what it is you think the opportunity looks like and how it links into the other objectives that New Zealand's trying to achieve. are really important parts of that conversation that I think you could work on and I'd be really keen to continue that conversation. I think it's a great conversation to have. Yeah.

Sweet, yeah, gradually then suddenly it all happens. All right, Nick, I appreciate your time and for sharing everything you know and yeah, look forward to catching up again in the future. no, thank you. Thank you very much for the opportunity. I really enjoyed it. Cool, thank you. Thanks mate.

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