Consumers in this country are too careless when it comes to energy consumption, warns E.on boss Leonhard Birnbaum. He demands clarity from politics – and speed. What he says about the lifespan of nuclear power plants and fracking.
FOCUS online: Mr. Birnbaum, did you actually turn down the heating in the Eon headquarters?
Leonhard Birnbaum: Of course. If all households and companies in Germany are supposed to save 20 to 30 percent on electricity and gas, we as an energy supplier will of course do the same. At our headquarters in Essen, the employees have moved together in one part of the building. We closed the other part completely and turned off the electricity and heating. In this way we have recently saved almost 50 percent of energy.
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Anyone who says that also saves energy at home. Or not?
Birnbaum: My wife and I actually decided that months ago. If we as a society do not continue to save energy consistently, we have a real problem. My wife and I have made it our goal: we will save 30 percent with many measures.
Many people dreaded this time of year. They were afraid of a gas shortage and that electricity would be scarce. Where are we now in the middle of winter?
Birnbaum: The good news is: Thanks to the warm weather for the time of year, we have a comparatively low gas requirement and an extremely high storage level. A lot would have to happen for us to have a supply problem this winter. As a result, gas prices are also falling – but they remain at a very high level compared to previous years.
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Sounds like the bad news is coming?
Birnbaum: Yes, and that is: We should actually save a lot more. So far, private households have only saved around ten percent. That’s not enough to get through next winter without Russian gas. The race for this winter is over. Now it’s about qualifying for the next one. If we don’t save more, we will have a bad starting position.
We cannot count on another warm winter to help us. And what also worries me: In the public discussion, it sounds as if the energy price brakes will permanently solve the problem of high prices. But they don’t. The fact is: Every customer will have to pay considerably more for energy. Unfortunately, many have a false sense of security right now.
What about industry savings?
Birnbaum: Industry saves around 20 percent on gas. But that is only partly due to higher energy efficiency, the other part is unfortunately due to the fact that production is being shut down. This does not go well for long, but in the long run endangers jobs and ultimately our social prosperity.
Energy prices will certainly not fall back to pre-war levels. What do we have to prepare for this year?
Birnbaum: Forgive me: I don’t make any price forecasts. But the assumption behind the price brakes was that prices would double permanently – even if consumers saved energy. This message has not really arrived yet. We therefore have to talk a lot more about savings in Germany.
The cheap gas that energy suppliers procured before the war will soon be sold. And the number of customers who cannot pay their bills has not increased compared to previous years. However, whether there will soon be more depends primarily on how much energy consumers actually save.
Are you seriously worried about next winter? How heavy will he be?
Birnbaum: That will also depend on how we succeed in further diversifying our gas supply sources and securing supplies. If, for example, the economy in China picks up, it will also become considerably more difficult for us to obtain affordable liquefied natural gas on the world market. But the weather also plays a role. We must now continue to work persistently on our pension provision – and then have a bit of luck.
Industry is burdened by high energy prices. How real is the danger of de-industrialization?
Birnbaum: We must be clear that this crisis is hitting Europe hard. It structurally and permanently changes our ability to compete with other regions of the world. As we now switch our supply from pipeline gas to liquefied natural gas by ship, i.e. LNG, our energy prices will not return to pre-war levels. In other words, we are losing ground to the USA and Asia. With the Inflation Reduction Act, the USA has also made a surcharge that many would wish for in the current situation in Europe.
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Birnbaum: …and we are seeing investment exodus. So far, Europe and above all Germany have benefited from integrated value chains, for example from intermediate products in the chemical industry. If these collapse as a result of high energy prices, then we will lose a key advantage. We must fight for our prosperity and no longer take it for granted.
Is the Inflation Reduction Act also a threat to the energy transition?
Birnbaum: Not for the energy turnaround – on the contrary. But this law is a massive threat to European industry. It makes America much more attractive to invest in than Europe. For example, it says that the operators of electrolysers will receive a subsidy of up to three dollars per kilogram of hydrogen.
In Europe, on the other hand, you are presented with a page-long definition of what green hydrogen is and what is not, and after two years of complex application procedures you are told whether you might still get some funding. So you have the choice between excessive regulation or three dollars per kilogram. Then, of course, you take the three dollars.
How can we counteract the imbalance in terms of energy supply?
Birnbaum: In the short term, we must secure and expand access to LNG in Germany and Europe. To do this, we need LNG infrastructure for the import and access to quantities, including long-term supply contracts. At the same time, we have to continue to save energy because that immediately relieves the market. In the long term, the massive expansion of wind and solar energy is the solution, but has only a marginal effect in the short term.
Domestic energy production could also help. What is the role of shale gas extraction, i.e. fracking?
Birnbaum: Just ten years ago, local gas production accounted for ten percent of consumption, today it’s just five. You could maybe get a few percent out of it now. But it’s about a fundamental question: where do we actually want to go? This country has led to long phase-out debates: about the nuclear phase-out, the coal phase-out, about a fracking ban. The reality in autumn 2022 was: Without coal and nuclear energy we would not have been able to maintain the supply. So we have to think again about how we can achieve security of supply. It will not succeed with wind and solar energy alone. We will also need reserve power plants in 2030 and beyond 2030 pipeline natural gas as well as LNG and green hydrogen as soon as possible.
The runtimes of the last three nuclear power plants, which will be shut down in April, are being discussed again. Your company operates one of them with Isar 2. If the government asks you that the nuclear power plant should run longer: are you ready?
Birnbaum: A nuclear power plant is not a toaster where you think every morning: Do I want another slice or not? Another megawatt hour from our power plant? That will not do. You can’t decide every few weeks to add a few more weeks or months to it. A clear political decision is needed. Continued operation is not a safety problem, not an economic problem and certainly not an energy problem.
Do you assume that the power plants will be shut down on April 15?
Birnbaum: There is a word from the chancellor that says so. Therefore, I do not speculate on this question.
By when would you have to order new fuel rods in order to be able to operate the nuclear power plant next winter?
Birnbaum: If we order the fuel elements now, we would probably have them in winter. But our internal planning premise is clear: Germany will phase out nuclear energy on April 15.
This year, the energy transition must accelerate enormously if the goals are to be achieved. Just between us: Are they still available?
Birnbaum: The required pace is definitely not there at the moment. But I’m counting on the fact that the expansion will pick up speed. Eon and its network companies are literally overwhelmed with requests for connecting wind turbines and solar systems to the grid.
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It took us 30 years to get 40 percent of our electricity from renewable sources. And now you want to double it in a short time?
Birnbaum: If you just look at the numbers, you really have to have doubts. At the moment I would not bet on the fact that we will achieve the expansion targets by 2030. But the momentum is going in the right direction. In the end, however, the core problem will be whether we will manage to make the new energy available where it is needed. The real bottleneck is the expansion of the power distribution grid.
You mentioned it: A key element of the energy transition is the expansion of the electricity distribution grid. That’s your core business – Mr. Birnbaum, be honest: what about the networks?
Birnbaum: It’s still good, with the emphasis on still. We have used up the reserves in our network in recent years. But if we look to the next few years, we need to build, strengthen and digitize significantly more. And it has to go much faster. After all, what good is the goal of approving a wind turbine in Germany in six months if we need eight to ten years for the line that transmits the electricity? That’s way too slow.
Even now, wind turbines are often curtailed because their electricity cannot be transported. How can the expansion of power lines be accelerated?
Birnbaum: We have to synchronize the expansion of the grids and renewables. We need better investment conditions, specifically a higher return on grid regulation. We have to build up the supply chains accordingly, as well as the capacities of engineers and specialists. However: We also have administrative processes that are dysfunctional – and not just in terms of approval. Take calibration law or certification, notification and information obligations. If you add everything up, it is now almost impossible to pull off large transformations. The system is not designed for that.
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The construction of the LNG terminals went much faster.
Birnbaum: That was an exception. But we cannot act permanently with exceptions. We have to get away from processes that are designed so that hardly anything is possible, everything is checked twice and three times. Our common starting point should be: We want to achieve something instead of playing it safe and, when in doubt, prefer not to do anything.
How realistic is such a change when the lifetime of the last nuclear reactor requires a word of authority from the chancellor?
Birnbaum: I have reason to be optimistic – there is a very serious debate in the EU about reducing bureaucracy in approval processes, and in Germany we have a Green Federal Minister of Economics who is open to CCS and CCU, i.e. the storage and use of CO2, to produce clean hydrogen advertises, who says that the construction of LNG terminals must also be possible without an environmental impact assessment and who buys LNG and gas very pragmatically so that the lights don’t go out in this country.
What do rising raw material and material costs mean for your business?
Birnbaum: For us, the high costs are only a problem. In the customer business, we have to procure gas and electricity at high prices and pass them on to customers at high prices. It only makes our business more difficult and doesn’t really make us more popular. This requires significantly more capital. And if the producer prices rise by 30 percent, all of my components in the network area, such as transformers and cables, will also become significantly more expensive. So I need to increase my investments to achieve the same.
But we don’t have to pull out our handkerchiefs now – your profits have increased enormously recently?
Birnbaum: Because our workforce did an excellent job. We need to invest more in the grid business in order to make the energy transition a success through growth and digitization. We also need more capital on the customer side to cover risks such as higher procurement costs. Sometimes you feel like you have to apologize for winnings in Germany. The energy supply companies must be able to earn more in order to ensure security of supply in this tense situation, but also in the future. The same applies to every German medium-sized company that wants to invest in order to defend its position in global competition.
The coalition agreement speaks of the construction of modern gas-fired power plants. Can that still be the plan in view of the crisis year?
Birnbaum: The power plants that will be built from now on must be hydrogen-capable. The phase-out of coal in western Germany is scheduled for 2030. This is now also being sought for the East. The approvals and investments for new power plants must be in place by 2025 at the latest. At the moment I don’t see these investments.
Gas-fired power plants are to be built at the request of the federal government in order to be available when electricity is scarce. Nobody builds a power plant like that.
Birnbaum: With the current market design, the power plants will certainly not be built. But since that is clear to everyone involved, hopefully something will change. Because if these plants are not built, then nothing will come of the climate goals by 2030. I am completely dry – in that case the ball is clearly in the responsible Ministry for Economic Affairs and Climate Protection and the EU Commission.
But then we emit a lot of gas again. This drives up the price of electricity.
Birnbaum: It depends. We should not simply extrapolate the situation today to 2030. In Europe, a discussion about the future electricity market design is just starting. A proposal is expected to be made in March. However, I would caution against believing that you can eliminate scarcity simply by redesigning the market. The merit order system…
…in which, according to the so-called merit order, the most expensive power plant determines the electricity price.
Birnbaum: …is the most efficient mechanism for controlling the use of power plants. When the electricity supply is scarce, someone has to pay for the new investments in additional generation. A different market design will not change that. Rather, there is a risk of trying to fundamentally change the market design only against the background of the crisis. Interventions can also have undesirable consequences that cannot yet be foreseen. The question of what additional elements can be added here to stabilize the market must now be clarified.
So things will continue to be politically hot in 2023?
Birnbaum: Let me put it this way: In the past year, many correct and necessary political decisions were made – in Germany and at European level. The energy system is much more resilient today than it was a year ago. But we mustn’t think that we’ve already made it. 2023 must also be a year of courageous decisions in order to become even better in the short term and to make the energy transition a model for success in the long term.
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