Plugged In: the energy news podcast
Coming from the heart of the Montel newsroom, Editor-in-Chief, Snjolfur Richard Sverrisson and his team of journalists explore the news headlines in the energy sector, bringing you in depth analysis of the industry’s leading stories each week.
Richard speaks to experts, analysts, regulators, and senior business leaders to the examine not just the what, but the why behind the decisions directing the markets and shaping the global transition to a green economy.
New episodes are available every Friday.
Plugged In: the energy news podcast
German regulator talks gas storage, price zone split
In this week's episode, the president of the federal network agency discusses the critical issues facing Germany's energy market as the country waits for the new government to take the reins.
How will Germany - and Europe - fill gas storage ahead of the winter, given the current unattractive prices? We also talk about the pressure the country faces to split its price zone, and the outlook for power demand amid a challenging macro-economic environment for German industry.
Presenter: Richard Sverrisson - Editor-in-Chief, Montel News
Guest: Klaus Müller - President, The German Federal Network Agency (Bundesnetzagentur); Nathan Witkop - Editor, Clean Energy Desk
Editor: Bled Maliqi
Producer: Sarah Knowles
Hello listeners and welcome to Plugged In - the energy news podcast from Montel, where we bring you the latest news issues and changes happening in the energy sector. This week I'm speaking to you from Bonn. From the offices of the German network regulator, Bundesnetzagentur. It's a beautiful sunny day here and we're in the former offices of the, actually, what was the capital city, the capital city of the former Federal Republic of Germany. Now it will come as no surprise then that we will be talking about the German energy market. We will look at the energy transition the gas prices, power demand for Germany, and we will be speaking to the president of the German network regulator, Bundesnetzagentur. First, I'm joined by our Clean Energy desk editor, Nathan Witkop. Nathan, could you describe to us the political climate in Germany at the moment?
Nathan Witkop - Editor, Clean Energy Desk:So we've just come through an election. We're going to have a change in government, we're gonna have another grand coalition, although it's not gonna be that grand this time. We've got the Christian Union together with the social Democrats. They'll have a small majority and they aim to change energy policy insofar as they want to prioritize bringing down costs, though they do want to retain climate goals.
Richard Sverrisson - Editor-in-Chief, Montel News:And what would you say are the two most important questions that the energy sector or even the German government has to answer?
Nathan Witkop - Editor, Clean Energy Desk:So I think two important ways in which we could be bringing down costs. One of them pertains to gas and that the answer the answer to the question that I'm interested in here is the relationship between Europe's mandatory storage refilling targets and the assertion that this is being a speculation on this has inflated gas prices. I would like to hear the regulator say if. They see that and what they think should be done about it, if that's the case. On the other point of bringing down costs electricity, a lot of people are pointing to the expansion of the grid. Is there room because this is the regulator responsible for grids. Is there room to stretch out how much we're investing in renewables, solar, wind, and the grids to transport their energy to into the next decade, to bring down the cost because we're perhaps investing more than reflects the level of demand that we're at.
Richard Sverrisson - Editor-in-Chief, Montel News:Thank you very much, Nathan.
Nathan Witkop - Editor, Clean Energy Desk:Thanks Richard.
Richard Sverrisson - Editor-in-Chief, Montel News:Now let's bring our guest into the discussion and hopefully answer those two questions. I'd like to pass over to Klaus Müller, the president of the Bundesnetzagentur.
Klaus Müller - President, The German Federal Network Agency (Bundesnetzagentur):Great having you in Bonn.
Richard Sverrisson - Editor-in-Chief, Montel News:Excellent. I thought we, before we get to talking about gas storage let's look at some of the wider issues of Germany's power network. And let's look at maybe talk about the energy crisis. How did Europe do and how did Germany do in particular? Klaus
Klaus Müller - President, The German Federal Network Agency (Bundesnetzagentur):I think in the end we managed quite well. And it was due that. A lot of actors just work together, something which is not that widespread anymore. That government regulators, grid operators, company, industry, consumers, all said, okay, we need to manage this crisis. Russia invaded the frame, which meant high energy, price, high gas prices, and in the end also for electricity. So the governments all over Europe. Mainly Germany took a lot of money, public money, and they spend it so that in the end we managed a crisis. But yes, to be honest, at high costs.
Richard Sverrisson - Editor-in-Chief, Montel News:Is there anything you feel Germany or Europe in particular could have done better?
Klaus Müller - President, The German Federal Network Agency (Bundesnetzagentur):Oh yes, sure. But it's always easy to look back. Well, was it a smart thing to relate on the North Stream pipelines? Well, probably even in Germany and our friends in the Baltic in Poland told us many times. Probably it was not a smart thing. And in the end, president Putin decided to cut off the gas. Was it a smart thing to have the gas storages in Germany? Down to one 2% in the main storages. No, that was not smart. And we really needed to invest a lot to fill them up again to prevent a hard gas prices. So in the end, yes, we could have been prepared and it's one of the tasks of regulators to keep this memory up because now it's, wow, three years. Go. It's a long time for the human memory. It's always important to be prepared. Something can happen again, probably a little bit different, so it will be something new, but crisis can happen again.
Richard Sverrisson - Editor-in-Chief, Montel News:We have to learn from those lessons. Absolutely. Do you think that the German in particular is overbuilt kind of LNG infrastructure?
Klaus Müller - President, The German Federal Network Agency (Bundesnetzagentur):No. No, because we just don't know what can happen and you can compare the LNG structure to a kind of insurance scheme. I hope you have an insurance scheme for your whole, everybody should have. Do you want to knd it all the time? No, you don't want to knd all the time, but you will be very happy if you have it in a time for prices. So at the moment, we get a lot of gas from our friends in Norway, which is great. We get a lot of gas over Belgium, the Netherlands, which is good. But we also have the capacity together over the Baltic Sea, the Nord Sea, so we can actually do something for Germany. But we've always had our neighbors in mind. Look at the situation, Austria. The Czech Republic, and on. So I think having those capacities is a smart thing. Yes. They cost us something. That's true. But it's also one investment in hydrogen in the near or farther future. So it's a good investment.
Richard Sverrisson - Editor-in-Chief, Montel News:Absolutely. I think it's, as you say, it's very good insurance and to have that backup when, we dunno what's around the corner. We could even be swapping one unreliable supply with another one. Who knows what's, what was gonna come out the White House. But I don't want to talk to you about that here Klaus. But, do you think it's time to review the mandatory gas storage refilling targets? What? What's your view here?
Klaus Müller - President, The German Federal Network Agency (Bundesnetzagentur):Yes. I think what we have seen in the past gas season was okay. After the crisis, the market managed its task, but what we are seeing right now is something quite strange. We hear from the market that we have some actors who are bidding against the state because they think that at any cost. The government, THE, the regulator would step in ,and maybe pay some public money to fill the storages again. I can only warn that this is not a good bet. It's not something smart to do. So we have seen the debates in Brussels. Where France, Germany, and others argued for at least lowering the storage goals. I think that we are gonna see some action in the near future on it. So we can only warn it's the duty of the market to function, and it's not a smart thing to rely on the state to step in at any cost.
Nathan Witkop - Editor, Clean Energy Desk:Does that mean that it was perhaps an ill-conceived regulation because it's distorted the market?
Klaus Müller - President, The German Federal Network Agency (Bundesnetzagentur):It was a problem that we have seen the market in 22, 23. It was not working. And it's not like any other market where we could say, oh wow, there are no rolls today. That's a pity for my breakfast. Let's eat something different. Germany and Europe just needed the gas and our industry and consumers just needed this safety. They wanted to rely on the gas. So in these times it was probably necessary. To have this regulatory, hard regulatory framework, and then we saw that the market was working again. But what we now see is that yes, there are distortions, there are some incentives which are not working right. So I'm very pragmatic. If we see that we need to adjust something, our advice is. We're gonna adjust something. So now we're gonna wait until the government decides, but I think we're gonna see some action in the near future.
Nathan Witkop - Editor, Clean Energy Desk:Well, what's the pushback here? Because not all countries have agreed to push for more flexibility.
Klaus Müller - President, The German Federal Network Agency (Bundesnetzagentur):That's a problem. So we need to discuss with our European neighbors and friends, what are their interests. And yes, I admit it's a little bit difficult to explain because. The common public thinks having those storage goals is a good thing. It gives us security, but what we see now is that the market is not working this way. They just lean back and think, oh wow, let's the state step in and I cannot imagine that this will be the goal. The framework the new German government wants to work in.
Nathan Witkop - Editor, Clean Energy Desk:So do you see a, an explicit connection there with speculation, because there has been a jump we've seen in the volume of investment fund positions, long positions in the market. Is that connected in your view?
Klaus Müller - President, The German Federal Network Agency (Bundesnetzagentur):We just saw the same thing you just described. It's always difficult and. Maybe for a regulator or for the government even more difficult than for the free media to link something and to say, this is due to that. We actually don't know that, but we have the same observation. And let's say it like this, it makes me nervous. It's not something which gives me. The trust that everybody is just doing this job at the moment. So again, what I can say, it's not a good idea to bet against the state. It's nothing somebody should rely on, but they should just fulfill their duties. They are all signed treaties in serving the industry, serving the consumers in the winter, 25, 26, and we just expect the market to do what they are there for. Serving the people and the other companies.
Richard Sverrisson - Editor-in-Chief, Montel News:Absolutly, Klaus, would you say that there's a contradiction here because the storage operators, they're obliged to meet their targets. You know, it's, for some, it could be a reasonable bet to say that they'll have to fill them at no matter what the price so where, you know, is there a contradiction between what the market is expected to do and what the action market actually delivers?
Klaus Müller - President, The German Federal Network Agency (Bundesnetzagentur):I can only repeat myself. We see something quite strange. We should not see a negative summer winter spread on the gas market. It's very difficult to explain this to any economist or any normal person. So there must be something strange. Yes. There are international interferences. And you just mentioned names, which I do not want to repeat. So yes, there is something which. Could distort a market too. But I think it's something we hear quite honest that the regulatory system, which was necessary in the crisis, which worked in the crisis, which was not a problem in the winters to follow maybe at the moment, be something which distorts the market.
Nathan Witkop - Editor, Clean Energy Desk:In terms of preferences, then if you want to, you wanna talk about flexibility, but I see that Germany has a national oil reserve as far as I understand. We don't have one for gas. Why don't we have one for gas? Wouldn't that be a simple alternative?
Klaus Müller - President, The German Federal Network Agency (Bundesnetzagentur):Yeah. Because in the last decades. Even if you go back to, wow, the Cuba crisis, the Cold War, the gas market for Europe and Germany was working all in a acceptable way. Now, due to the Russian intervention, 22, 23 will never be forgotten. We saw that it did not work, so we implemented those gas. Goals, storage goals, and that was okay. It was expensive, but it was okay. So I think what we now see is that we will rethink what gives the industry, the consumers, the European continent. A maximum and cost efficient security for the gas supply. And right now, as we are still waiting for our government to get into place. I expect that we're gonna have an intense debate with the market, with scientists with our friends all over Europe. What is the smartest cost efficient way to secure enough gas supply without the public money to be spent in an endless way. This is not what the energy market is all about. So just to make a short a long answer short, yes, we need a debate, and at the moment I would not exclude any possibility.
Nathan Witkop - Editor, Clean Energy Desk:Do you have a preference?
Klaus Müller - President, The German Federal Network Agency (Bundesnetzagentur):I do, and I will tell my new minister,
Nathan Witkop - Editor, Clean Energy Desk:but you're not gonna tell us.
Klaus Müller - President, The German Federal Network Agency (Bundesnetzagentur):I had just asked you that interview is a great place to just cut, discuss things, but something should first be debated confidentially.
Richard Sverrisson - Editor-in-Chief, Montel News:Of course and with your minister, I can understand you're going to him, but. Before coming to our class. That's perfectly reasonable. But let's move on to more sort of general topics like the energy transition and the energy transition in Germany. What would you say are the, are Germany's most urgent energy priorities? Of course we see the bigger picture here is, passing billions of euros in terms of the budget focusing on defense and other issues, which are of course very important at this time. But what about energy?
Klaus Müller - President, The German Federal Network Agency (Bundesnetzagentur):Yes. I think it's quite obvious, and for nobody of our viewers and listeners, it would be any surprise what Germany needs. It's rather simple. What we need are the grids, which are already been built in a faster way. We really improved on that. We nearly cut the time for planning and our work by half, so we really speed up and we need to just. Go on with that. Building grids is something important to defend our bidding zone, to serve our neighbors and to serve for our own security of supply. Second, yes, we need to invest in renewable energies, but we need to do it in a more cost efficient way. Probably gonna talk about that and what we need on the third point are reliable capacities. Germany relied. If you look at our history on coal plans, I think we have a great consensus. We will not do this in a major way, so we need new capacities. The old government prepared, they had a lot of talks with Brussels. It took a little bit long, but that's how it works. So there are plans prepared. We see that the new government will probably step in. Yeah, and I would just add it with the capacity market to make it in the most efficient way so that we include flexibility and battery storages. And if we work on those three or three and a half things, we have a lot to do. And these are the main tasks.
Richard Sverrisson - Editor-in-Chief, Montel News:Absolutely. We'll come back to some of those issues, I think, later Klaus, but I think in terms of is there something Germany could do better without spending more money? Throwing money at things is not the answer. So what? What?
Klaus Müller - President, The German Federal Network Agency (Bundesnetzagentur):I think that cost efficiency, besides security of supply and always our climate goals will be the word, which will be written into bold letters in the next years. And there are a lot of things either politics can decide on, how do we build the grids? Do we build them below the earth or not? How do we readjust our offshore planning, not by cutting down the goals, but making it more cost efficient. We are at the moment working on the regulatory framework, as probably a lot of people know. How can we make our regulatory form week faster? Less bureaucratic, more cost efficient. So these are a lot of tasks, which in the end will save money for industry and consumers, make it more cost efficient. This will always be stress. Everybody calls for cost efficiency, but what you need to know is that somebody really has to make the effort for that. So it's not an easy thing to do, but I expect. The rules for the new government, the coalition treaty, our work as the Bundesnetzagentur, will have a very strong focus on cost efficiency, and I think that's possible.
Richard Sverrisson - Editor-in-Chief, Montel News:Absolutely and perfectly reasonable as well. I think we talked about the backup capacity that's needed and whether that, the potential for a capacity market there, but, so there's talk of new gas plants coming in. How critical, how important are they to, to Germany in in, in both the energy transition and generally in keeping the lights on?
Klaus Müller - President, The German Federal Network Agency (Bundesnetzagentur):This question depends on the timeframe we are talking about. Are we talking about today? No, it's not important. We have enough capacity. Do we talk about tomorrow? Next week? No problem. I'm quite relaxed. But that's not what we are talking about. We are talking about the view up to 2030. And the years afterwards, the Bona S tour is in charge of shifting old coal power plants into our reserves. And we do this until 20 31, 20 32. So we will always care that we have enough capacity for securing Germany's power needs 24 7. No doubt about it, but as we know. They're old plants. They are not climate friendly plants, and they're rather expensive because they're old. So what is a smart thing to do? Watch the old government prepared. And what we now read with up to 20 gigawatt, which is quite a lot that the new government wants to set incentives, real incentives, that we get enough gas plans for the future. So that what I was talking about today will also be true for the years to come. And yes, we agree. We need those power plants and we need to start today. Not because we have a problem today, but to prevent any debates on problems in the future to come.
Richard Sverrisson - Editor-in-Chief, Montel News:Absolutely. I think this is absolutely critical as well in terms of planning ahead, because you need to find the sites for them. You need to deal with local potential opposition. I think that they can probably be, I've heard, some power suppliers or power. Plant supplies can build four or five in a year. But I think it's not that simple. Is it when you need, when you when you're finding locations for them?
Klaus Müller - President, The German Federal Network Agency (Bundesnetzagentur):First of all, what we noticed already when we built electricity grids, which was always a great thing, to be in a position to it's a lot less than. Four or five years ago. So personally, I do not expect that everybody says, wow, I need a power plant in my neighborhood. I can understand that, but there's a lot less opposition to it. There's a great consensus between the political parties, even between civil society and industry, that we need those power plants. We can always talk. Should it be 10, 12, 15 or more? What's the relationship between capacities and a capacity market, including decentralized, flexible instruments? And I'm a very front friend of the Belgium system. We looked at the uk we looked at France and other countries. So I think. Implementing a cost efficient, flexible system, a capacity market for Germany, we can learn a lot from our neighbors. And again, the old government prepared for that. They already talked with Brussels and the EU Commission, so I expect a clear signal by the new government saying yes on a very short term notice. We want to set the intent incentives. For building those capacities and right away we're gonna start preparing a capacity market. And those two instruments closely linked together will just be the security of supply we need in the thirties to come.
Nathan Witkop - Editor, Clean Energy Desk:Can I get your view on two suggestions for reigning in costs and yeah, bringing down the overall expenses involved in what we're doing. One of them is as a bridging solution. To use some of those old power plants that have been put into reserves to dampen power prices in the electricity market. We've got all of these coal plants sitting around. Why not use them to take some of the pressure off the wholesale electricity prices bring down the cost of the energy transition in Germany.
Klaus Müller - President, The German Federal Network Agency (Bundesnetzagentur):Yes, we probably read both the same leaked document from the collision treaties. So indeed, the first problem is the European framework would not allow this at the moment. So you can change it, but you need to talk with Brussels. So this is probably the first thing. If the government sticks to this idea, they will need to talk to Brussels. And that's the first thing. The second thing is, if we look how those power plants are paid for. Being in the reserve. It's not paid by the companies owning them. And if you would introduce them in high price situations, Dunkelflaute. So if we have not enough wind energy, not enough solar energy, those are the moments of the high price peaks. They're not paid by the companies, but they're. By the grid operators. So by everybody paying the grid fees. So this is from an economic point of view, a little bit strange. Who would earn the money in those situations? How could we manage this in a fair way? So that's the reason why we just heard in just this week's time, a lot of major industry companies. Energy providers saying, oh, this is not the best idea to talk about. So I understand the point. I understand that we need to put down in those hours, days, maybe weeks of don't go cloud. How can we manage them in a more cost efficient way? I understand that, but I think. The last word on this idea has not been spoken yet.
Nathan Witkop - Editor, Clean Energy Desk:The other point on reigning in costs, another suggestion that's out there. This comes from industry, it comes from utilities as well. I've heard it from economists. And that relates to the pace at which we're building renewable energy, the pace at which we're building grid. Germany has the ambitious goal of 80% of electricity from renewables by 2030. Last year we had 55%, but the assumption around how much electricity demand we will have in Germany in 2030, I believe the economy of ministry works off the assumption of. 750 TERAWATT hours, and at the moment, the last two years where I believe at around 1993 levels around a third below that, and they, the critics say, look, it's unrealistic to expect that we're gonna have that much power demand. We can stretch out these investments into the 2030s. We can save a lot of money that way. What do you say to that?
Klaus Müller - President, The German Federal Network Agency (Bundesnetzagentur):First we have seen a lot of studies by the colleagues from the Boston Consulting Group, from McKinsey just raising this question, it's actually just on the table first. I see that. Probably the new government will stick to Germany's climate goals saying that by 2045 we want to be climate neutral, which I think it's a good sign of continuity, and we see that the market scientists NGOs are just quite happy that Germany just sticks to its promise. If this is the goal, we can have a good and pragmatic debate. What is the most cost efficient way to reach this goal? But we do not want to lose this goal. So this actually has effects on how much renewable energy we're gonna build. We've seen that we really had a stroke on solar energy. We are far ahead. Any goal that was just great. Lot of private investment lot of households, but also companies. We are not that good. On wind energy, but we are catching up. We've seen in the last two auctions the BUN crew just was responsible for that. We are really catching up on wind on shore and we are quite satisfied what happened on the auctions on wind offshore. So there's a lot in the pipeline. And Germany had some difficult experience when we just cut off those investments. This didn't do us very well, so I personally expect that we are going to have a continuity in the investments in renewable energy, but we're gonna have a debate, if any kilowatt hour at any place in Germany. It is a smart thing to do. And by asking these questions, you can see that I would not answer it with a good Yes. So what we need is more of to steer our investments in renewable energy, to make it more grid efficient. This is something I can expect and I will always support then. Yes. We did not met our goals or expectations, how much electricity would've been used by industry, but also by electric cars, heat pumps, et cetera. So we have a very pragmatic instrument in the German regulatory system saying that every two years we have a critical look. Our grid expectations grid plannings still what we need at the moment, so it's something all the grid operators know, which is coming, and it's coming by the end of April, so very soon. And the Bundesnetzagentur anticipate a lot of those studies saying we need to have a wide range on expectations. We need to have a scenario saying, we just continue. Like we did in the last years. Okay. We can be more progressive, okay, but we can also be a little bit more conservative. So all those scenarios will be included in our grid planning system published by the end of April, so we can cope with any goals, new government sets in its treaty. We can cope with the. Situation of economic development in the last two years, which is nothing anybody wants to continue in the next years. The new government will take a lot of money in its hand, a lot of cutting red tape a lot of innovative technologies to get Germany's economy on track again. If we are on track again, we are gonna need electricity. And what I do not want to hear is in. 2, 3, 4 or five years, Germany's economy is really boosting. Again, Europe is really back on track and oops, where are the grids and the electricity? So we need to anticipate, we need a little bit of optimism that what the new government, with the new chancellor merits, he, what he really wants to implement, will work out and needs to be backed by the electricity market. So yes, we can be more pragmatic. Yes, we can be more careful, we can be more cost efficient, and the net grid planning system will include this in the next weeks to come.
Richard Sverrisson - Editor-in-Chief, Montel News:Perfect. Klaus, I've got so many more questions to ask you. You could talk for hours, but I think we have to bring this to a close now. And I was I had your colleague he's the head of the the UK regulator OfGem. He was on the podcast a few weeks ago. He came out very strongly in favor of zonal pricing. So I think, you know, a lot of what my listeners will want me to ask you is about the potential of splitting the German price zone, though now there's been a lot of pressure from neighbors, et cetera. But there seems to be there's a lot of reluctance in Germany to do this. Could you explain that reluctance and say what you know is there, potential, I know there's a bidding review that's been delayed and postponed, but from both, from the T SSO side, but what's your view of this debate around splitting the German power price then?
Klaus Müller - President, The German Federal Network Agency (Bundesnetzagentur):Germany had an intense debate, a lot of industry a lot of scientists published papers on that. So we had a very throughout debate in the last months. Now, first of all, I can understand our neighbors and that they are impatient because the grid building in Germany was. Not the faster thing we did, and some of those costs we just place on our neighbors, which is never a nice thing to do. Not with your neighbor at your hometown and not in the European family. So I understand if they are. Reluctant, but I really ask them to see that the German at Luxembourg electricity market is the most liquid one we have. And this is just a very strong asset. I ask everybody to see at the real efforts we having in speeding up the grid planning system while every week we give year meeting and saying. TSO you can build now from here to there. So we really speeded it up and we can gonna see those results in only a short year's time. So the reasons for asking Germany to split their bidding zone, I think those reasons will not be there if we would now start with this process. If we listen to the voices of industry, if we listen to the voices of the main politicians, especially from the south, which are quite important for the German debate, they are, have a really strong view on it. And I would expect a lot of controversial emotional debates, which not speed up the whole process of the energy transition. If journey would decide on this way or if anybody would push. Too hard on this way. So Germany needs to do his homework. We have all those interconnectors, all the duties we pledge to. We really need to speed up the national North South grids. We're gonna do that. So in the end, I think there will be no reason. No harsh reason for splitting the German bidding zone, and I would be quite happy not to do that.
Richard Sverrisson - Editor-in-Chief, Montel News:I'm sure we'll have a year or so of debate in the meantime as well, Klaus. But thank you very much Klaus. Thank you Nathan for joining Plugged In - the Montel News podcast. Thank you for tuning into this episode. Our podcast episodes are released every Friday. For the latest news from Montel, please visit montelnews.com, or you can follow us on social media. We have accounts on LinkedIn, Bluesky and the usual outlets. So see you next time.
