Lights will stay on this winter

Power supply in northwest Europe over the coming winter faces uncertainty amid limited nuclear availability, aging conventional plant capacity and colder weather, but the lights will stay on, Vincent Verbeke of Engie assures us. 

In this episode we discuss the ever expanding European PPA market and Engie’s strategy going forward, as well as touching on the role of blockchain in the energy transition. 

Host: 

• Richard Sverrisson, Editor-in-Chief Europe, Montel, 

Guest: 

• Vincent Verbeke, Member of the Executive Committee, Global Energy Management, Engie. 

Transcript

Anna Siwecka, freelance journalist/podcaster: 0:01

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Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:31

Hello listeners and welcome to the Montel Weekly Podcast, bring Energy Matters in an informal setting. For this week's episode, we recorded an interview with Vincent Verbeke, member of the Executive Committee Global Energy Management at Engie. He talked about his company where Engie Plans to grow the PPAs, the coming winter, potentially a tough decade ahead, but he assured us the lights would not go out. Always great to have you with us, Vincent.

Vincent Verbeke, Member of the Executive Committee, Global Energy Management, Engie: 1:02

Thank you. Thank you, Richard. Thank you for inviting me. Always a pleasure to talk to you and to Montel.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:07

So how do you see the current market? And the role of Engie in it.

Vincent Verbeke, Member of the Executive Committee, Global Energy Management, Engie: 1:13

The market is moving very fast now, but maybe to start with a quick word on ENG G and our strategy, our purpose is to act, to accelerate the transition towards zero carbon world. So carbon neutrality and the energy transition is at the heart of what we do, and our strategy is based on two very strong pillars. On the one end, we are developing renewable assets, and on the other end we focus on infrastructure. And on renewable, just to give you one figure, I do not want to flood you with figure, we want to add an extra four gigawatt of extra capacity per year going forward. So this is quite, quite an important number. That's globally. That's globally, that's correct. So specifically now focusing on the global energy management business unit. So Gem, global Energy Management. We are the trading arm of of the group. So we are global business unit. We present in 16 countries. We have trading operations in Americas, in Asia, and in Europe. And what is very specific about us is that unlike our peers, we have chosen for decentralized organization. That means that we want to be as close as possible to our clients and to our stakeholders. And our strategy in a nutshell is very simple, very straightforward. We want to be greener. We want to go further. We want to be leaner. We want to do it together. Let me first emphasize on the greener, because this is at the core of our exchange. Our ambition is to clearly be the leading green mid streamer on green power naturally, but also on green gases. That means that as a trading company, as a trading and energy management company, we will be sitting between the ones who produce green energy. The ones who consume green energy, our clients. The second pillar for strategy is further, of course, today we have strongholds, geographical, strongholds, so Northwestern Europe is our basis, but we want to expand geographically significantly. So we are developing our activities in the us. We are developing activities in Iberia, in uk. So all these markets are growing rapidly. We clearly want to position ourselves in this market. On the leaner side, this is about digitalization, so we had the occasion to discuss that in a previous exchange, Richard.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:34

Yeah, absolutely. Yeah.

Vincent Verbeke, Member of the Executive Committee, Global Energy Management, Engie: 3:34

Trading activities are evolving quickly, so digitalization is at the core of what we do, and we want to pursue that. Together that's echoing to our people because we believe that our people make the difference in the trading business. So now on the greener and our ambitions on the on the green energy. So I must say that, over the last two years we have done quite a lot to give you a few numbers. We have signed more than 55 0 terawatt hour of PPAs over the last two years globally, and this is growing over next year. We want to double that figure. By PPAs we mean offtake contracts with producers, so with what we refer to as being upstream PPAs. So we buy the electricity that is generated by renewable assets. As well as downstream PPA. So basically contracts with end customers. And let me be specific on this because I think that the PPA business is evolving quite rapidly and we see some changes in there. So on the upstream side, first, we see, of course. All technologies being developed. So offshore wind parks, onshore wind and solar and all three technologies have a great future in the energy system. So we have signed PPAs with offshore wind developers, with onshore developers, with solar developers, with hydro producers, and this is only the beginning of it because we see governments slightly but surely. Moving away from subsidies and asking developers to develop assets without subsidies. And of course for assets developers, there will be a very strong demand for companies like us. To provide them with the right risk management solutions, allowing them to de-risk their projects. So that's on the upstream side.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:37

Where's the growth area here? Where do you see the most exciting markets for Engie?

Vincent Verbeke, Member of the Executive Committee, Global Energy Management, Engie: 5:42

We see Iberia as a as a very exciting market. France, Italy, the US are exciting with the new president elect us will be tremendous, a tremendous market. Again, on the renewable side, just to name a few, I want to talk about the other side of the equation, which is the down downstream side, which is the client side. And on the client side we see things evolving as well because typically, the gfa, the tech companies, they were leading the way in signing PPAs. And now what we see a growing demand from industrial companies. So the chemical industry, for instance, is moving big. To me, the game is changing, so meaning that the demand for PPAs on the client side is growing exponentially. And in addition to that, we also see small and medium sized companies asking for PPAs. In a nutshell, the business is growing big time both. On the upstream side and on the downstream side, and also in terms of products, in terms of risk management products that we offer to our clients, this is evolving as well. We have some clients asking for fixed price product. We have some clients asking for more complex structure with gaps, floors or prices. So we see also there. The maturity increasing with our clients and stakeholders.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:05

So on the downstream as well. Vincent, is that you're talking Iberia, the us, France, are these the growth areas or is this more global in scope?

Vincent Verbeke, Member of the Executive Committee, Global Energy Management, Engie: 7:13

I think the trend is occurring in every geographies, but probably at a different pace. So Germany, I didn't name Germany so far, but Germany for sure. It's also great countries for our development. Benelux, France will be present. Italy, Iberia as well, uk but when I say each country has its own pace, I mean going green, it's it's something that is happening, have everywhere but the regulation. It's different from one country to another one. I give you an example, Germany was probably pioneering that energy transition. So right now in Germany, what do we see? We see a lot of capacities going out of the feed tariff and the first CFD contracts, so we talking about two gigawatts per year of capacity that goes out of subsidy in Germany. So of course. That means that for mid streamers like us, this is a big market,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 8:14

but is it a very competitive market as well, Vincent? There must be other mid streamers like yourselves or maybe even involved in similar ideas, trying to capture all these, especially in Germany, some of these facilities that are at the end of their subsidy lifetime.

Vincent Verbeke, Member of the Executive Committee, Global Energy Management, Engie: 8:27

For sure. For sure. And this is welcome because competition is good for, it's good for the clients it's good for the business, it's good for the clients, it's good for the asset developers. So indeed we will not be alone on these markets. Other companies will also try to grasp their share of the cake for sure, but we believe that we have some significant assets to be successful in that green merchant activity. And one of them is that if we look at our portfolio. It's very diverse. In Europe, to give you a number, we have a portfolio of 25,000 megawatt under our management, and within that portfolio we have flexible generation assets, so hydro generation among others that basically allow us to combine and optimize the combination with renewable energy. In order to provide our customers with the product that they want to consume. So it can be, we can do as produced, we can do as consumed, we can do base load. So I'm not saying that this is a blue ocean, huh? Far from that, Richard. Green is the new black. We for sure we will not be alone. At Engie we welcome the competition and and we believe that, in some specific geographies, we have some assets that will allow us to be successful. So to come back on the geographical focus that we will have northwestern Europe, so by Northwestern Europe, Benelux, Germany, France. This is our stronghold. So for sure we would want to keep a strong position in there in terms of our development areas. We will push big time in Iberia, in the uk, in the US and in Italy. We believe that these are tremendous markets. I wanted to add also one point is that because we talking green and this conversation is fascinating, obviously Richard Green is not only power, actually green is also about gas and we talked a lot about green power, but in order to achieve in Europe carbon neutrality. Green power will not be enough. We will need all technologies contributing to this zero carbon system, meaning that green gases will be equally important and on the gas, green gas midstream business that is entirely to be invented, we will want to be positioned. And very recently, and we are very proud of that. We signed a very interesting bio methane deal whereby we bought green gases from a green gas producer and we sourced a small B2B client. Who was willing to consume green gases. So it's a first of a kind deal, but I'm sure there will be many others to come.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:13

Very interesting, isn't it? But I think hydrogen, has talked about. As the way to decarbonize industry, for example. But if I return to the PPA market, and particularly in Europe, what some people have talked about, there's a fear of kind of price cannibalization because the success of the PPAs, you have more and more renewables coming on board, which then in turn drives the wholesale prices down, which maybe make some of the PPA markets look less attractive. Is this something that you are concerned about?

Vincent Verbeke, Member of the Executive Committee, Global Energy Management, Engie: 11:43

Of course, the more you build renewable. The more the effect you were referring to. So price cannibalization, this is a risk. And Amit, as a mid streamer, this is a risk that we will be keen to onboard to a certain extent. And once again why are we in a position to do it's because we have our flexible assets that nicely complement, those renewables. But for sure and that's why. Massively pushing for renewable development. So meaning wind, onshore solar, wind onshore is not enough. We need to build also flexible assets in order to make sure that those renewable assets entered the market as efficiently, as economically as possible, and also we need to work on the demand side. Making sure that consumers also. Can ize their own consumption in order to adapt their consumption pattern and have it match as much as possible to the renewable production pattern. This is by acting both on the supply side and on the demand side, that we will achieve carbon neutrality in the most efficient way. I want to come back on that because helping customers to adapt their consumption. In order to do that, you need to give transparency to the customers. So the trustability of the energy is something that is very big. And on this one, we have developed a solution whose name is Teo d Energy Origin that allows you to to track the origin of the energy that you consume on an hourly basis. So it's much more. Precise, that guarantees of origin. It allows you to track down what you consume on an hourly basis, so which technology and which assets on an hourly basis. So I think it's a great solution for clients who wants to go a step further. In the Greenification roadmap.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:44

So this is a kind of rival product to guarantees of origin. Is this something that you would be pushing to either replace guarantees of origin or would it coexist with them?

Vincent Verbeke, Member of the Executive Committee, Global Energy Management, Engie: 13:53

It's going to coexist. And once again, because I hear sometimes a lot of bashing against guarantees of origin. I personally do believe that guarantees of hygiene is good because we need something we, we need something. So having something is better than having nothing. Is the system perfect? No. Can we do more? Yes. At ng, what do we propose? We have a trustability solution that is there for our clients, by the way, on energy, so meaning on power, but also on gas. Tomorrow on hydrogen. So we have a trustability system that is there to support our client in that.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 14:32

But this is also coming in the renewable energy directive, the mark two, isn't it? I think there's that, there's gonna be big focus on guarantees of origin, especially for hydrogen. In some senses maybe you preempting that, but we also see in some countries Vincent, that there's renewable tenders and auctions, subsidies in another form basically, aren't they? For example, in Spain and in Poland, will you be active in these?

Vincent Verbeke, Member of the Executive Committee, Global Energy Management, Engie: 14:54

We will be active in that. So as, once again I want your answer as a, the trading company, so on, on this one. Of course, we'll be looking very carefully at the asset developers will win those auctions when these auction take place. Some of them are successful, others are not. And so for us as a trading company, we will be working with the winners of those auctions. Basically those, the winners of these auctions, they will need, to market their energy and we'll be there to help them. But also I believe that there will be a tremendous potential for the asset developers who will not be successful in these auctions. Because that mean that they will miss the first order subsidy, if I can call it that way. But it doesn't mean that their project is dead. Maybe there is a way. To make those projects fly on a pure merchant basis. And on this one we'll be helping them.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:49

So losers can be winners. Vincent,

Vincent Verbeke, Member of the Executive Committee, Global Energy Management, Engie: 15:50

Let me phrase it this way. There might be lucky losers.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:54

Lucky losers. Exactly. Yeah. So you'll be eyeing their projects and maybe helping them to go on a more merchant basis. Exactly. Exactly. We're running out of time a little bit here, Vincent, but I want to ask you. You are based in Brussels, there seems to be recurring issues every winter that there's a fear of supply squeeze and that the lights may go out. Do you think these are over egged, exaggerated, or scaremongering even, or is it a realistic scenario? I

Vincent Verbeke, Member of the Executive Committee, Global Energy Management, Engie: 16:20

want to articulate a little bit my answer because. So first of all, if we took electricity, everybody knows that the electricity system is a European one. So in order to ask oneself the question, okay, will the light go out or not, we need to look at that from a European perspective. If we look a little bit at what happened recently, I think that we observed in Q4 a very decent return or a very decent increase. The availability of nuclear power plant in France. Okay, so meaning that the risk for Q4 is much lower. Now if we look at at Q1. So this winter, once again, if we look at Q1 and we look at the overall European supply demand balance. It's true that the nuclear availability in France is a little bit on the lower end, and so if I can phrase it this way, we will be faced with the usual risks. So meaning what if there is a significant underperformance of some nuclear power plants, especially in France. What if it's getting very cold? Because we know that in some countries the thermo sensitivity of the demand is very high, and in addition to that, there is a potential for early closure of some coal plans in Germany. So I would say that the uncertainty is certainly important. Will the light go out this winter? I don't believe so. But as usual, the winter on the power side is always a bit of a special period, and I want to say world also on a more longer term basis because, and I think people tend to forget that. But the next decade is going to be amazingly important for the power sector. If we look at the capacities that will go out of the system in the next decade, we are talking about almost a hundred of gigawatts that will go out of the power system. So we're talking about nuclear capacity phase out, of course, like in Belgium or like in some other countries. We are talking about coal plan closures like in Germany, and we are talking also about the end of life of some aging gas, fire power plants. So there is a huge amount of infrastructure that will need to be replaced. So my conviction is that in the winters to come structurally. The supply demand is gonna get tighter and tighter. And of course, governments are putting schemes in place in order to replace that controllable capacity. Amongst other things, the Belgian government has decided to move ahead with the CRM, so capacity remuneration mechanism in Belgium, and I hope that will help bring additional controllable capacity in the European markets. But in a nutshell, I think that the upcoming years will be. Would be interesting.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 19:23

I'm sure they will. And just a final question for you, Vincent. In recent years a very, or maybe two years ago, a very hot topic was blockchain. Is it dead or is it just a sleeping giant?

Vincent Verbeke, Member of the Executive Committee, Global Energy Management, Engie: 19:33

It's absolutely not dead. I told you the third pillar of our strategy is about digital. Blockchain has a role to play in the digitalization of the energy sector. And we as a trading company, we will be using that technology. I give you two example where we believe blockchain can be very interesting for us. Blockchain can be very interesting for us in order to streamline. Our deal confirmation processes and our back office processes. So I think that, that's going to be an important topic for trading companies, especially if we go into the space of peer to peer trading. Blockchain will play a role, I'm sure in the future years around that. The second point, and that I explained that already, I think it's about possibility of the energy. I think that blockchain offers. Technologically some great advantages in terms of certification that the information that you present to a customer, to a stakeholder is certified and that this certification is done in a very efficient way, so cost efficient way. In a trusted way because we know security is is of the essence. When you talk trustability,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 20:44

Vincent, I'm sure we'll talk again very soon and I'd love to discuss with you at the end of next year to see if you reached all those ambitious targets.

Vincent Verbeke, Member of the Executive Committee, Global Energy Management, Engie: 20:52

You are welcome, Richard, more than welcome. And I hope, I really cherish the little hope that maybe we could do that physically. Yeah, absolutely.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 21:00

That'd be great. Over a little beer and Brussels. That'd be perfect.

Vincent Verbeke, Member of the Executive Committee, Global Energy Management, Engie: 21:03

You'll be my guest.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 21:04

I'll take you up on that, Vincent, with pleasure. Excellent. Okay. Thank you very much for joining the Montel Weekly podcast, Vincent

Vincent Verbeke, Member of the Executive Committee, Global Energy Management, Engie: 21:10

and with pleasure.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 21:11

That's about all from the Monte Weekly podcast this week, listeners, you can follow the podcast on our own Twitter account. Where you can direct any suggestions, questions, or ideas for potential guests. You can also send us an email to podcast@montelnews.com. Lastly, remember to keep up to date with all that's happening in the energy markets on Montel News. You can subscribe wherever you get your podcast from, and please rate us and review us if you can. That only helps us to improve. Thank you and goodbye.