Energy, recovery & Germany’s next move

It was Europe’s biggest importer of Russian gas prior to the Ukraine invasion but Russia’s cutting of gas supplies to Europe pushed Uniper to the brink of collapse.

It was nationalised in one of the biggest corporate bailouts in German history.

Montel’s Editor-in-Chief has been speaking to Uniper’s COO, Holger Kreetz, on the firm’s recovery, Germany’s energy transition and the imminent snap election.

Host: Richard Sverrisson - Editor-in-Chief, Montel News.

Guests: Katharina Johannsen, Montel News Germany.

Holger Kreetz, Chief Operating Officer, Uniper.

Podcast editor: Oscar Birk, Montel. 

Transcript

Richard Sverrisson - Editor-in-Chief, Montel News: 0:06

Hello listeners and welcome to Plugged in - the Energy News podcast from Montel. Each week we bring you in-depth analysis and insights from across the energy sector. This week we focus on one of the world's largest power producers, Uniper based in Düsseldorf with core markets in Germany, the UK, Sweden, the Netherlands, and a reach into more than 40 countries, this is a global power player. But has faced massive challenges In recent years, it was Europe's biggest and importer of Russian gas prior to the Ukraine invasion. This highlighted Germany's reliance on Moscow as the country imported more than half its gas from Russia. Putin's decision to cut gas supplies to Europe pushed Uniper to the brink of collapse. 13 and a half billion Euro bailout by the government. Saw it nationalized in one of the biggest corporate bailouts in German history, but the firm has quickly recovered setting The scene for us this week is Katharina Johannsen who's Montel Berlin Correspondent. Katharina Warm welcome to you. There's quite an important election coming up. Can you tell us a little bit more about that and how that looks set to shape energy policy in Germany over the coming years?

Katharina Johannsen, Montel News Germany: 1:14

Hi Richard. Lovely to be here again. Yeah, so we have quite the important elections, federal elections in actually just one and a half weeks. So this is the hot phase of the election campaign Since the last time we spoke, some things in the election campaigns actually changed because there was a knife attack in a city called Schoenberg. And since then we have spoken a lot about migration and. Regarding energy and climate topics, these things sort of went back to the background. There was still some paper issued by the CDU, the party that is leading the poll. Where they set these kind of things we want to immediately change after we come into power. And one of these things was that they said they want to lower electricity prices by 5 cent per kilowatt hour for everyone. So not only industry, but also households. And other than that, we haven't really discussed climate issues at all. Big difference towards last election campaigns. And also the topic of energy has been a bit to the background. The bonus tag, the Parliament has issued some laws just like one or two weeks ago regarding energy. But yeah, that, that's so far what has changed.

Richard Sverrisson - Editor-in-Chief, Montel News: 2:37

So it's come off the political agenda as you like the energy issue, but energy prices are still there, aren't they? They're still quite important for the population at large.

Katharina Johannsen, Montel News Germany: 2:45

Absolutely. I think at the moment we mostly talk about electricity prices less gas prices. But it is a huge issue for the economy, obviously, because we've been struggling a bit. There's been like three years of recession in a row, and electricity prices or overall energy prices do play a big role in that. And also households are worried about the energy costs, but also about the renovations that are necessary for moving. The, going from gas heating towards maybe more heat power like heat pumps. So that is more on the agenda, but less so the gas prices for households.

Richard Sverrisson - Editor-in-Chief, Montel News: 3:24

Katharina, thank you very much indeed. You've set the scene perfectly and provide us with a background in which we can, in which Uniper finds itself, which we're now gonna be talking to Uniper next. Thank you. I met up with Holger Kreetz Uniper's, Chief Operating Officer at the E-World Trade in Essen. A warm welcome to you Holger.

Holger Kreetz, Chief Operating Officer, Uniper: 3:41

Thank you very much. Good to be here.

Richard Sverrisson - Editor-in-Chief, Montel News: 3:43

Perfect. There's quite an important election looming in Germany, isn't there? I mean, just we are on the 23rd of February, so how could that shape the Germany's energy future? Do you see Holger?

Holger Kreetz, Chief Operating Officer, Uniper: 3:54

Election is actually yes, on 23rd of February. It's an important election. We have many topics in the energy market. That are very important now to get fully implemented. We are in Germany. We are on a journey to make the, to transform the energy system to the, deliver the energy vendor. And in the last couple of years, lots of progress was made in delivering lots of wind farms and particularly also pv strong growth in those areas. At the same time, we had to, replace the Russian gas that was coming into Europe with, for example, NNG terminals that we built in record speed. And now the new government will need to pick up on a couple of topics to continue this journey. Get get the grids up and running in, in Germany. Make sure that the hydrogen economy is being continued to be built up. And also develop a capacity market to for the German system to do without coal.

Richard Sverrisson - Editor-in-Chief, Montel News: 4:54

Absolutely. I mean, I probably want to touch on each of those subjects a bit later, Holger, but if we can go, the en energy vendor in Germany or the energy transition, how is that progressing? Is it, has it been stuttering a bit or going a bit slowly, or is it still full speed ahead and do you expect the new government to, to proceed with the same kind of way?

Holger Kreetz, Chief Operating Officer, Uniper: 5:11

I think you probably, again, you need to go through the various chapters there. If we start with the build out of renewables onshore wind, offshore wind solar pv. That has been I think particularly speedy in the last couple of years. The permitting procedures have been made much more effective and much faster. A lot of bureaucracy was cut out the system and really lots of new wind farms and lots of pv plants are coming into the system. So that's going very well. The the grid connections that now brings the energy from the areas where the new. Renewable assets are being constructed to bring them to you, to the customers that is in progress. This is important that, even more focus will be put on, on, on that one going forward. But that's happening as well. And then also first really good steps have been made in built out of the hydrogen economy. For example, Germany has last year decided on building. More than 9,000 kilometers of core grid for hydrogen, partly from gas grid, partly new build. So an investment, more than 20 billion euro to go into this hydrogen grid. So lots of progress on that one. And now obviously new infrastructure investments are needed on the storage side, on the import terminal side. And yeah, so therefore I would say we've been we've been. Doing very good progress over the last years, but still lots of things in front of us.

Richard Sverrisson - Editor-in-Chief, Montel News: 6:44

Absolutely. That, hydrogen plans you mentioned is that a final investment decision that's already in place there?

Holger Kreetz, Chief Operating Officer, Uniper: 6:50

For the infrastructure there's on a lot of the on a lot of the assets, there's final investment decisions. There's the regulation amortization accounts is in place. So therefore the the investments can go ahead, but now it is also important to connect this infrastructure to newly, to be built infrastructure on storage. So hydrogen storage to connect it to the grid, and then also get the generation projects up and running, so the hydrogen production projects up, up and running so that we can fill the grid and bring the molecules to the customers. And then. The customers need to to procure, to buy the molecules at the end. So therefore, still some some way to go.

Richard Sverrisson - Editor-in-Chief, Montel News: 7:29

Absolutely. And hydrogen, we've seen in recently as a lot of projects being canceled or for or postponed. Is it a bit of a tough time for the hydrogen industry? Because did people underestimate the costs or the use cases for hydrogen, do you think? Holger.

Holger Kreetz, Chief Operating Officer, Uniper: 7:45

Again in, in hydrogen very good progress has been made on infrastructure, so on, on the grid. And now some pragmatism is needed in the market to deliver the hydrogen the the green hydrogen as cheap as possible. And therefore we speak of different colors in the hydrogen business. Blue hydrogen, green hydrogen, and. If we are much more pragmatic on the regulation to also accept blue hydrogen for some time, I'm sure also that the prices will significantly go down and it is much more affordable than for our end customers. To go from either from from gray hydrogen directly to green or blue hydrogen, or to replace the fossil fuel with green hydrogen. If industry needs.

Richard Sverrisson - Editor-in-Chief, Montel News: 8:32

Can you just remind the listeners what the difference is on the, oh yeah. The colors. So green is purely a hundred percent renewable, isn't it?

Holger Kreetz, Chief Operating Officer, Uniper: 8:37

Yeah, that's right. So green hydrogen is, you use a renewable source of electricity to produce the, an electro electrolysis to, to produce the hydrogen blue hydrogen. You use the conventional way of producing hydrogen and you. Use the carbon that is that is emitted in this process. And you put the carbon underground in storage, so some kind of carbon capture storage system is connected to that. But also this hydrogen at the end is is very, was very low CO2 amount amounts or therefore considered also as a very positive one.

Richard Sverrisson - Editor-in-Chief, Montel News: 9:13

Yeah. Oh no, absolutely. Thank you for that clarification. I think we've also. Germany has closed its nuclear plants. It's looking to exit from coal. But there is a big need to build new capacity in the country, isn't there? The and the German government has its power plant strategy. What's the latest there? Holger.

Holger Kreetz, Chief Operating Officer, Uniper: 9:31

The before the German government broke there was Kraftwerkssicherheitsgesetz. So this is a power plant strategy. A piece of law that had the intent to bring in new capacity, about 10 gigawatt of new capacity into the market in the next couple of years through auction systems. Partly security of supply kind of gas assets partly already. Hydrogen ready gas assets that have done a clear path to carbon neutrality. The existing government that will now, where we now have the election was not able to conclude that law. So therefore it is up to the new government, to conclude it and to find to find a law that really. Starts finding solutions for capacity market then in, in Germany. So in Germany, we we don't have a capacity market at this point and we have lots of opportunity to learn from countries like France and Belgium and the United Kingdom where our capacity markets are up and running since so many years. And therefore, some stealing with pride there could be helpful to get it implemented faster.

Richard Sverrisson - Editor-in-Chief, Montel News: 10:38

Absolutely. But capacity markets, I've been in this business for quite a number of years as you have as well, Holger. It is quite a, it has in the past been quite controversial, but you think Germany really requires one now.

Holger Kreetz, Chief Operating Officer, Uniper: 10:50

I think it's a capacity market is important to have the right incentive to, to build capacity that has then the the ability to replace coal. I think if we are, if we're serious with with battling climate change, we need to replace coal from the system. As from the UK in the UK we have been running a coal fire power plant, Radcliffe. And in last October we were actually closing that power plant and it was the last coal fire power plant in the UK to go after 142 years of coal fire generation in the portfolio of the United Kingdom system. And it was the capacity market that was introduced 10 years ago that really made that possible. And it's the first big industrial nation that does without coal. And I think. Germany needs to go the same route, and with the capacity market, we will be able to go there fast.

Richard Sverrisson - Editor-in-Chief, Montel News: 11:44

Yeah, I think, some people shed a tear when Ratcliffe was closed, but other people maybe celebrated the end of the coal and looking to, to a greener future. But can you run a gas fire plant in Germany, you've got ing for example. Does that, is the capacity market the best way to incentivize the, a new build of gas fire plant? Can they exist in the market as is without the capacity market?

Holger Kreetz, Chief Operating Officer, Uniper: 12:06

Well, may maybe one comment on, on, on Redcliffe before we proceed with your Sure. Question. Obviously we were also shedding some tears. Yeah. Our teams they did a fabulous job over the last decades to really. Keep it up and running and provide security of supply to so many customers and the whole region. But things it was a very important power station and we were very proud to operate it. But it was time to move on and and everybody understood that without coal was replacing it with gas and ultimately at some point was renewables or carbon capture storage. We we are in, we are moving into a carbon friendlier world at the end. So therefore the need was clear. But coming back to your to your question on the on the need for the capacity market, I do think it is needed. There is not sufficient incentive in the system for energy only kind of assets to be built. You can see that in the market. You can observe. You know that there's not sufficient incentive. There are very little new capacities being built and with a nuclear exit and the coal exit both happening in Germany in the same decade obviously there's need for sufficient amount of capacity. More than 20 gigawatts need to be replaced in the next couple of years in Germany. And it's not happening without the capacity markets.

Richard Sverrisson - Editor-in-Chief, Montel News: 13:31

Okay, but, and you think it can be built in two or three years with a capacity market? There's a huge amount of capacity that needs to come online and to avoid a serious supplies crunch. Further down the line, Holger?

Holger Kreetz, Chief Operating Officer, Uniper: 13:43

Not in two to three years but but obviously, you know, if the log gets on the way very soon, then there's a good chance that we get a sufficient amount of capacity in by the end of the decade, beginning of the new decade. And then, over time. I think there's a, there, there's a fair chance that we get the 2020 gigawatt implemented. We need to.

Richard Sverrisson - Editor-in-Chief, Montel News: 14:04

Yeah, absolutely. And if I can bring it back to Ratcliffe again, Hong yeah. You like that one? Yeah, exactly. So that, that was switched off in October 24, the coal-ex in Germany. Do you see that happening by 2038 as well? Is that possible?

Holger Kreetz, Chief Operating Officer, Uniper: 14:20

Yeah, I think it should be possible. 2038 is still a long way to go. And with the capacity market coming, there's the opportunity to really replace these assets. There's lots of coal fire power plants already going out the system together with Radcliffe. Last year we were exiting also from coal fire power plant called Hayden in the middle of Germany. And other assets, we are removing from the system. They're system critical, so we. We keep them in reserve, but we slowly, take these assets out of the system.

Richard Sverrisson - Editor-in-Chief, Montel News: 14:53

And really important, you mentioned earlier as well Holger CCS, so carbon capture and storage how feasible is that in Germany? What are the, it's been talked about for decades and there are some projects where it's been successful or possible even, but how possible is that in, in Germany, you know, in terms of, cleaning up both gas and coal generation. No one wants to live. The problem is where do you put the carbon, where do you sequester? What do you store it?

Holger Kreetz, Chief Operating Officer, Uniper: 15:17

I think what's first of all on carbon capture storage, it's probably it's probably fair to acknowledge that the UK was really leading the way here. Very early on they, they started to put this in regulation. They put it. They put, auction systems in to incentivize for, for carbon capture storage systems as an integral part of decarbonizing the industry and the energy system. While it's in Germany and in other European markets. There was more ance on on, on doing that. I feel particularly in the last two, three years that. Also more pragmatism is is coming into the discussion and the understanding that a sustainable energy system is only possible if it is an affordable one. And therefore, I think it needs also pragmatic solutions like accepting that carbon capture storage as part of the solution space. I see that. I see that mind shift happening in, in Germany over the last years. It will certainly take some time. This is not something that is done in a year or two. But I'm rather optimistic that at some point we will have carbon capture and storage and carbon capture and utilization, Both in the mix

Richard Sverrisson - Editor-in-Chief, Montel News: 16:37

central here, isn't it? The focus is very much on, as you say, affordability. But also securing supply. I mean, and reducing dependence on other countries, which may not always be so friendly or, which brings me onto my ne next question. Really ho, Uniper's been on quite a rollercoaster ride for the last few years. Could you de describe some of that journey for me and for the listeners?

Holger Kreetz, Chief Operating Officer, Uniper: 16:59

Yeah. Maybe I start in in 2016. In 2016, we were split. As the generation and trading business of Eon and we were IPO. So we were brought to the market. Soon after the for group from Finland acquired ultimately a majority share of of Unipar. And we were then working together with to create one one company. And then in 2022, in the middle of it the Ukraine War started and Russia invaded. The Ukraine was all the impact on the European energy system. Half of the, more than half of the gas that was coming from that was coming to German customers were actually coming from Russia, and the majority of that was coming through Uniper. So we were the largest. Customer of Russian gas at that time. And so therefore, in 2022 we still secured our customers with gas all the way through this crisis in 2022 when Russia stopped the gas flows. But this led to an to a financial crisis of the company because we made up to. 200 million Euro losses per day in, in August in 2022. So it needed the German government to intervene and ultimately take over more than 99% of the shares of unify at the end of 2022. And they didn't solely do that to save Uniper, but it was also done to make sure that the energy system remains stable in Germany because our. Yeah, customers are more than 500 municipalities and many bigger industrial groups that were, getting our gas. So therefore, the German government decided then to go in and to secure and save us, and was becoming the majority more than 99% shareholder of uni. And then, and then we we recovered the year after. We we managed to get out of the hole that we were in, in 2022 and released our new strategy in 23. Made sure that we are really focused on transforming the company to a more sustainable company, to a greener company. And ever since we are. In the process of working on our strategy and transforming the company and yeah, investing in the renewables business, investing in in hydrogen and green molecule business and investing in clean, flexible power.

Richard Sverrisson - Editor-in-Chief, Montel News: 19:40

So it's been quite a turnaround in a way, hasn't it?

Holger Kreetz, Chief Operating Officer, Uniper: 19:42

Oh, absolutely. Absolutely. And it's been an, for all of our employees and customers and stakeholders. Quite an quite an exciting journey, to be honest.

Richard Sverrisson - Editor-in-Chief, Montel News: 19:51

Absolutely. From IPO to Fordham to being owned by the German states. That's, that, that's quite a journey. Absolutely. And what does the future hold? I know, there is talk of a sale, but what kind of is the outlook Roy for Uniper?

Holger Kreetz, Chief Operating Officer, Uniper: 20:04

We are transforming the company, so we are delivering our strategy to make Uniper. Greener. We are planning to invest around 8 billion Euro into into making unipar greener into transforming the company until the beginning of the 2030s. In the in the three areas, clean, dispatchable, power, renewables, and green molecules. We do have an obligation from, or the German government as our. Main shareholder has the obligation from the European Commission to exit Uniper by the end of 2028. Or exit at least. The majority share, so down to 25%. And therefore the government is currently seeking for. The next chapter of our future.

Richard Sverrisson - Editor-in-Chief, Montel News: 20:53

Absolutely. So an interesting and a fascinating journey. Awaits, I'm sure, Holger, but in, in terms of gas, obviously that plays a big part of Unibo or has done the gas business. What's the outlook for the next couple of years, do you think, not just for Uniper, but more for Germany and Europe in terms of security securing gas supply? What's the outlook there? Holger?

Holger Kreetz, Chief Operating Officer, Uniper: 21:13

Yeah, I think physically Germany has has worked on alternative supply system for gas. So from being very dependent from Russian gas to a situation where now there's different different other elements. Norwegian gas coming through pipeline, but also LNG gas coming through the the newly erected LNG import terminals. So therefore, I think our gas system is getting more and more secure and more and more stable with the many gas storages that we have in in, in Germany's. And I believe that, with the capacities that will need to be newly built. Ultimately hydrogen based, but initially methane based. I think gas will have also in the next years quite a big role to play in the energy market in in Germany.

Richard Sverrisson - Editor-in-Chief, Montel News: 22:10

But critics would say maybe that there's this means, or this risks locking into a fossil fuel future. How would you counter that?

Holger Kreetz, Chief Operating Officer, Uniper: 22:19

At the moment, when you are building out the renewables business which is hap happening at the moment at very significant speed in Germany. So particularly last years, were really very successful in the build out of solar and wind. But you need to make sure that you have sufficient energy in the system Also. For the periods when there's no sun and no wind and therefore this assets, if they're not coming, they're not coming from the nuclear power plants because they are off the system. And if we don't want that energy to come from the coal fire power plants, they need to initially come from the from gas fired power plants that we then over time will be able. To convert into green fuel power plants like hydrogen ready or carbon capture storage connected power station. So therefore, again I don't I, I do believe gas will play a role in the transition, but we always need to plan, for the period thereafter to make sure you know that the hydrogen. And carbon capture storage solutions find their way into the German energy system.

Richard Sverrisson - Editor-in-Chief, Montel News: 23:28

Yeah. That's important to keep, thats security supply. But also, I mean, there, there is the affordability question here.'cause CCS and hydrogen are not cheap at the moment, are they? They're not, so how do how do you apply those but still maintain, low cost?

Holger Kreetz, Chief Operating Officer, Uniper: 23:43

Yeah. We need to find a balance of, you know what, what in the energy business we call the energy where, you know, you have security of supply, you have affordability, and you have you, you have the environment or the climate as one, one of the criteria. And therefore, I do believe we need to find our journey into the greener energy world in a more pragmatic way than what we are doing today. For example, when we are discussing. To build a grid in the earth or above the surface of the earth, there's a big difference in cost. And if we are looking at hydrogen, you can have the blue hydrogen, you can have the gray hydrogen you can have the green hydrogen or the blue hydrogen. It's a big difference in cost. You can import the molecules from renewable assets. It's that are in very sunny and very windy areas of the world. Or you can do it inside Europe. It's a big difference in costs. So therefore when you are, when we are going onto this journey to decarbonization, you need to be very pragmatic from mass perspective to really target the the most affordable solutions.

Richard Sverrisson - Editor-in-Chief, Montel News: 24:57

Yep. Makes absolute sense. And in a previous podcast we, we talked about, a wave of populism that seems to be sweeping across certain parts of Europe. Are you worried that there is a sort of backlash against the energy transition? Germany's been a leader in the energy transition for many years many years. Is there now a feeling now that people have gone too far too quick?

Holger Kreetz, Chief Operating Officer, Uniper: 25:20

What people realize in Europe and that's that's pretty healthy to realize this. Is that the there are certain ways to get to a greener society, to get to a greener energy system. And we need to be very pragmatic and we need to be very cost aware in finding our right path. And sometimes with the regulation that we have in place, both in Germany, but also on the European level, we're creating. Unnecessary bureaucracy. We are creating unnecessary hurdles and barriers that make the whole system as such more expensive, and that makes it easier for people to criticize the system. So therefore, if we keep the focus on reducing these barriers, cutting the bureaucracy, making it as affordable as possible. I think it is very possible to continue on the journey to decarbonization.

Richard Sverrisson - Editor-in-Chief, Montel News: 26:21

It's very refreshing to, to finish on an optimistic note, Holger. So thank you very much indeed for being a guest on plugged In- Montel energy news podcast.

Holger Kreetz, Chief Operating Officer, Uniper: 26:31

It was a pleasure. Thank you.