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
SUMMER SPECIAL Episode 2: CEO of Eon
This is the second episode of Plugged In’s five-part CEO summer series, where Richard interviews prominent leaders in Europe’s energy sector.
In this episode, Richard interviews Leonhard Birnbaum, CEO of Eon, about Europe’s power market.
They discuss the boom in renewable energy, the issues surrounding security of supply, and the importance of investing in Europe’s grid infrastructure.
Presenter: Richard Sverisson - Editor-in-Chief
Guest: Leonhard Birnbaum - CEO of Eon
Editors: Bled Maliqi, Sarah Knowles
Producer: Sarah Knowles
Hello listeners, and welcome to Plugged In - the Energy News podcast from Montel, where we bring the latest news issues and changes happening in the energy sector. Welcome to the second episode of our five part CEO summer series, where we put the big questions to key energy leaders. Last week, I spoke to the CEO of Energy UK about the labor government's, energy policies, and much more besides. In this episode, we turn to Germany as I speak to Leonhard Birnbaum, CEO of Eon. How does the boss of one of Europe's largest energy companies view the state of Europe's power market and why are batteries, in his opinion, not always a good thing? You're about to find out. I hope you enjoy this episode. So a warm welcome to you Leonhard. So welcome to Plugged in the podcast. Great to have you on.
Leonhard Birnbaum - CEO of Eon:Thank you for having me.
Richard Sverisson - Editor-in-Chief:You've been had many years in the business, Leonhard. What would you say has been the biggest change that you've seen?
Leonhard Birnbaum - CEO of Eon:So I'm twenty-eight years in the business now. And so I would just refer to the changes I've seen in the last years. And that's enough because otherwise, the podcast is over before we started. So I think the biggest change is that we have now focus on multitude of simultaneous targets, which we didn't have in the phase before. So we, you know, the second half of the, 15 to 20 maybe pre COVID and pre Ukraine, we had a pretty clear focus on decarbonization, adding renewables, and so the trimmer was taken for granted. Security supply is a given. Affordability is okay. We will manage, and I think through what we have now seen is. The addition of renewables is still a challenge. Actually infrastructure is the real bottleneck, and we need to actually change the approach on adding renewables towards doing it more with a system centric perspective. And then additional elements came into the place, storages mainly, and on top. Now Ukraine has taught us that security of supply is not a given, and affordability is not a given. And so I think that has led to a number of disruptions and maybe the visible change has been already in the last commission. When Mr. Dimmerman moved out and Mr. Sevkovich moved in, then it began to have a stronger focus on affordability, industrial dialogue started, and while before it was taken for granted that a fast decarbonization and adding of renewables automatically leads to affordability and security of supply. It's like now it's, no, these are targets that we need to achieve in parallel. So I think that's the, it's
Richard Sverisson - Editor-in-Chief:the sort of juggling of the priorities then you could say.
Leonhard Birnbaum - CEO of Eon:Yeah, but in the end, maybe it's going back to normal because we always had the issue of affordability, security, supply, and environmental friendliness, which we needed to manage in a proper way. And we always had to make trade-offs. It was only that we forgot a little bit about those necessary trade-offs. Until we actually woke up to the fact that they don't, the trade offs are not solved automatically. It needs hard work.
Richard Sverisson - Editor-in-Chief:Absolutely. And in those 28 years, Leonhard what's taken you most by surprise?
Leonhard Birnbaum - CEO of Eon:What has taken me by surprise is not this speed at which renewables developed. The speed at which they took the rent out of the market. Because if you think about it, like 10% of renewables addition already took 80% of the margins of the generators out. Yeah. So the economic change was much faster than the. Let me call it the physical change. And that is actually a good reminder. Once an innovation comes in, the innovation changes all fundamentals faster than you believe.
Richard Sverisson - Editor-in-Chief:Absolutely. And if we look forward what would you say the greatest challenges posed for the energy transition? If we can stick with the economics, if you like.
Leonhard Birnbaum - CEO of Eon:I think the biggest challenge is to ensure that we have a good business case for the energy transition. And not in the sense of low prices, but in the sense of a good deal for customers. And actually there is a business case for the energy transition, right? If we electrify and volumes go up, we can actually distribute the high investments, which we need to make on a broad base. And that means specific costs stay under control. And since we then replace expensive fuel and diesel and gasoline with it, actually everybody benefits from the investments that we're making. And it's important that we manage now the investments and this increase in demand and that we get it done. If we do it that we massively invest, but we don't grow the load, then the specific costs go up and then it becomes a bad deal for everybody involved, or it becomes a bad deal for too many people to keep support. I think that's the big, that's the really the big challenge. The big challenge is not to add renewables. That is, it's like we are adding this year, 89 gigawatts last year, 78 gigawatt. And if this goes down to 75 or goes up to 95, who cares? But if affordability gets lost, then the support gets lost.
Richard Sverisson - Editor-in-Chief:And how about in terms of infrastructure? We've seen certain we've seen the blackout on Iberian Peninsula, do not know exactly what caused that. We've seen certain other incidents, both in the UK, in the Balkans. It's it, what are the challenges in terms of keeping the momentum of the energy transition going if you like.
Leonhard Birnbaum - CEO of Eon:Oh, I'm a grid operator. I love it. So it's and if you allow, I think from an engineering standpoint, it's absolutely fascinating. We are now building a new system and now we are understanding that we need to operate that new system in a different way. We need to understand the different, the rules of the past, what we have done in the past to keep the system stable, might not be appropriate for where we are today. So it's an absolutely fascinating world. It's like it's great for engineers. So if any young student is listening, join the energy industry. That's the place to be and to solve actually good riddles. Yeah. And now on the infrastructure side what we need to do is we need to we so far had a little bit the understanding. Everything that we want to add gets added and the infrastructure has to make sure it's there, but that actually drives system costs up. And there we, I think we need to change the approach. The dynamics are not a problem. I'm investing 250, 235% of my depreciation year after year. Yeah. But what is the problem is if I am always building in a completely system inefficient way and I can see it, and I can give examples for that, and there, I think we need to change the approach. Whatever gets added should be added in a way that it adds benefits to customers and then infrastructure is supposed to follow. But right now we are adding lots of stuff, which is not. Adding benefits to customers and then on top infrastructure needs to do inefficient stuff to accommodate that.
Richard Sverisson - Editor-in-Chief:What do you mean by in what? In what? Can you give us an example?
Leonhard Birnbaum - CEO of Eon:I'll give you an example. If we have now in the Eon grid more than a hundred gigawatts of battery connection, request storage, battery storage, connection requests. Now you might say batteries. Isn't that a good thing? It does need increased flexibility, I said. It depends where you put the battery and how you operate the battery. But right now we have to work. How do we accommodate a hundred gigawatts? And yes, not a large part of that will not be built, but let 25 gigawatts being built at the wrong spot, that will just drive cost up. So what I would say is, no, not all batteries are good and therefore not as many batteries as possible should be built. Those batteries which make a utilization of the system better, which drive down cost for customers that increase flexibility, those should be built and then we will build the infrastructure for it. That's one example.
Richard Sverisson - Editor-in-Chief:But for example, could grid operators highlight a good location for a battery and then put in a tender system? So is that something that the regulation could cope with, for example?
Leonhard Birnbaum - CEO of Eon:Yeah, they are many ways of doing that actually, and we are proposing some of them. But the real point is we need to have this mindset that. You need to be somehow friendly to your customers with your addition. I can give you another one. Sure. Renewables. Yeah. Yeah. If I'm adding if I'm adding renewables in the middle of nowhere in like Meklenborg as the northern part north of Berlin, basically, yeah. I have their connection request of 190 gigawatts of renewables. I mean, I have today already in that area. Probably nine or 10 times the peak capacity of the year installed. So if I'm now ending up with 20, 30 times the peak capacity in renewables. It makes no sense. I'm building huge networks to get all that power to Berlin. I shouldn't be building some solar stations anymore there, or at least I shouldn't subsidize them. Yeah. That's not an example, huh?
Richard Sverisson - Editor-in-Chief:Is that for, is that, but is that, I can totally see your point. It seems absolutely ludicrous. You're dealing with all these requests for grid connections in areas which maybe do not need the power. In some cases they may need them, but is that an issue for market design or for policy makers to address rather than you as the grid operator so that these, you don't get all these speculative requests that maybe only two out of 10 will see the light of day.
Leonhard Birnbaum - CEO of Eon:Yeah. And even if only two out of 10 see the light of the day I'm building with 240% of my depreciation, as I just told you. Yeah, no, I think actually it's regulation and investors. Should actually bear the risk of their investment. Now I always get the counter argument. Yeah. But the renewables expansion is about CapEx investments and the cheaper we make the CapEx, the cheaper the energy transition is, and therefore there should be no risk. Because that's, but then I'm saying, yeah, but what it leads to is that the risk of building in the wrong spot. Like the risk of me curtailing the production because I can't transport the powerway that's socialized on all customers and therefore, yes, we need I think we need to change the regulation in so far as you are an investor, you wanna make money, you make decisions, but you need to take the risk of that pos decision. And at least you need, or let me put it differently, you should take responsibility for what you do. You're building in a space where, you know. That there is no demand. Sorry. Then if we curtail you, you can't expect to be paid in that time.
Richard Sverisson - Editor-in-Chief:Absolutely. Make, makes sense. And so these are wishes to the regulators or to, to policy makers to make sure that those changes are put in place so that the cost that you don't have to pay those costs, is that what you're saying?
Leonhard Birnbaum - CEO of Eon:The cost of paying paid by the customers so that the customers don't need to pay the cost because I am, I need to take those costs. I put them in the grid fees. I pass on the grid fees to my customers, and then the customers complain that they are actually paying. I can give you the most ludicrous example, in Germany we have a target of 70 gigawatts for offshore. Now we don't have that much sea space, so if we really put 70 gigawatts of offshore wind into the North Sea and the Baltics, the whim mills will be, you know, located so close to each other that they actually take them, they steal themselves, the wind. So we actually have done the analysis. I mean, offshore operators have done the analysis, not me, that with 50 gigawatts of windmill, we could produce the same amount of energy. So make the mass 20 gigawatts of offshore 50 billion, plus the grid connection plus two north south corridors. We're talking something close to a hundred billion Euros. To not get a single kilowatt hour more out of the system. Why should customers pay those 100 billion? That's the point that I'm making. We should have a better regulation, better targets, so that we charge less to our customers. Our customers should get more bang for the bucks that they're paying.
Richard Sverisson - Editor-in-Chief:But in, in a sense, isn't it? The devil's all in the detail there, isn't it? So that you need to optimize what you have and what you're building in, in, in the best possible way, otherwise yeah. It's a waste of money and time and resources.
Leonhard Birnbaum - CEO of Eon:Yeah. The good way of phrasing it there is so much optimization opportunity. It's like we, at Eon, we have published what we call the playbook. So in which we basically are saying it is possible to achieve the targets that we have in Europe. Significantly lower costs and significantly lower cost is 1.3 trillion less investments. So we're not talking, like small amounts of money. And that's actually a good story. We can pursue the targets and we can do it much more efficiently, but then we also should be doing it much more efficiently. Then we are also describing the levers that lead to that. One is like the examples that I just showed you, plus digitization, plus flexibility, and then it becomes actually a good deal for the customers. This is also what we showed. If we do it the right way, if we save all that money, if. Actually, the energy transition has a good business case for customers.
Richard Sverisson - Editor-in-Chief:Yeah, absolutely. And the role of digitalization in that process as well is absolutely vital. But you, you've talked about affordability would, is power in Europe too expensive?
Leonhard Birnbaum - CEO of Eon:Is this subjective? So I would say it's really, let's differentiate between the customer groups. If you go for industry, actually on, if we would do it the right way, on the electricity side, the problem would be only a gas problem. Yeah. And for energy intensive industries like gas is a critical issue and we have to be clear. We don't have cheap gas because we don't, we have no fracking. We don't produce it. So, if you ask is energy too expensive? Then you say, yes, it is. For certain industries, yeah, because they're competing with regions that have lower gas. And on the power side, we have to do everything that I described so that we get to a lower level. And but if we talking about, private customers, it's not like the US is so much cheaper. The US is not the US You are New York. You would wonder what prices you are paying. Huh? So if you take the taxes and leverage away, actually we, like many of our customers are perfectly fine apart from energy intensive industry, especially if they have a big gas exposure.
Richard Sverisson - Editor-in-Chief:Yeah, no, absolutely. But that's a different discussion as well in terms of gas. But if you look at, I mentioned the Iberian blackout earlier and that's highlights some of the vulnerabilities that we have. I mean is, for example, you're a grid operator. What are your views in terms of the grid resilience? And in terms of the robustness of the infrastructure we have, I mean, there are malevolent out there as well. And we've seen that in some offshore infrastructure and elsewhere. So how robust and resilient is the system as we have it today?
Leonhard Birnbaum - CEO of Eon:Let's say the challenge is increasing, that's clear. And for example, on cyber, we are digitizing, so obviously cyber threat becomes more relevant. There is no alternative to that. The systems we are building, we can only control them fully digital. So what it means is that we have to find ways of doing this in a responsible way and actually not to build systems which can't be cracked and hacked or whatever, because that's impossible, but to build systems where we, which are resilient in the way that we can recover from attacks, from successful attacks. And I would also say that electrification is actually the solution for many of the problems because whilst on one side might say, yeah, we become more dependent electricity grid. Yeah. But on the other side, we become less dependent, for example, on. Importers of gas, that weaponize energy against us as we have seen. Yeah. We have seen in Ukraine actually that renewable assets are very hard to attack whilst thermal assets actually get attacked. Actually sending missiles to destroy solar modules makes no sense because the missiles are more expensive than the solar modules. But to send a missile to actually destroy a gas turbine is economically a great case, and this is what the Russians are doing. We can actually build a more resilient system if we go for electrification and if we go for the energy transition. But we have to be mindful that, there are many things that we need to get right and we need to work on all the time once we do
Richard Sverisson - Editor-in-Chief:absolutely. I think and the key factor there is system recovery, isn't it? I think getting it up to speed again after some, there's a system down or whatever, because with the onset of EVs everything is becoming digital.
Leonhard Birnbaum - CEO of Eon:Yeah, but where the positive thing is you need to be probably an electrical engineer to find a positive in the blackout. I'm just a chemical engineer, but the recovery from the blackout was actually remarkably fast. We have to compliment the Portuguese and the Spanish colleagues for how fast they recovered from a complete blackout. Yeah. So might be to the listeners, why is it so difficult? Why don't you just switch it on afterwards? What does a power station need to switch on? Guess what? It needs electricity, but we just have a blackout, so it's actually not that straightforward. And if after, so we have power stations which have a diesel generator so that they can produce some power and then start themselves up with the power from the power this diesel generator. But then what happens if you then feed this power into the grid? After three hours, all the fridges starts to run simultaneously and you get a load peak, and boom. Goes the grid again. So it's actually a real challenge to restart. And the Portuguese and the and the Spanish colleagues were extremely fast on that one. I was positively surprised.
Richard Sverisson - Editor-in-Chief:It was about 12 hours. Wasn't,
Leonhard Birnbaum - CEO of Eon:It was actually pretty good. That's pretty good. Absolutely. Pretty good. Yeah. After a complete blackout, what you mostly have if, when you sometimes lose your power at home because somebody has been digging through a line. You lose the power, but then we reconnect and we rearrange the wiring and then we supply the power from another direction. But if there's a blackout, there is no other direction. This is why a blackout is much harder to recover from than a brownout, as we call it. Yeah,
Richard Sverisson - Editor-in-Chief:absolutely. And there's been a few of those over the years, in the past 28 years.
Leonhard Birnbaum - CEO of Eon:The European grids. We are always complaining about Europe. But actually European grids are pretty good, especially in the distribution side. Most grids, I wouldn't switch European grids for most grids in the us, Latin America, Africa, whatever. Actually, it's pretty good. Yeah. The connection capacity that we have in Germany, for example, 30 kilowatts, if for household connection is normal, has actually far more than most. Countries in the world have four an apartment. Actually, I think we have a good starting base from which on which to build.
Richard Sverisson - Editor-in-Chief:Absolutely. I think it's above 99%, isn't it, in terms of reliability?
Leonhard Birnbaum - CEO of Eon:Oh yeah. The generally we measure this so-called kind of like, the average interruption duration in minutes per year overall customers, and it's a few minutes with most countries in the world have. Hours or if not days of interruptions.
Richard Sverisson - Editor-in-Chief:I think that would be the envy of many countries in the world, put it that way.
Leonhard Birnbaum - CEO of Eon:Yeah. So we shouldn't be, like we shouldn't always feel bad about Europe. Europe has a good base, which we need to leverage. And the energy transition rightly done, can be one way.
Richard Sverisson - Editor-in-Chief:I absolutely, that's a very important point. And I think you mentioned digitalization earlier, Leonhard, and if we are talking, one of the key factors here is artificial intelligence and how do you see that providing both threats and opportunities to the energy sector.
Leonhard Birnbaum - CEO of Eon:I would like to start with the making the point that we need as much AI as possible, because that's the fundamental of future wealth. Yeah. And if we. Discuss too much, the threats and the challenges and so on, we just might get less of it. But if you think what is gonna make us rich as a society is to be at the forefront of innovation, what's gonna drive innovation in pharma, in medicine, development, in new materials development whatever. It's gonna be AI. So if we now say, ah, maybe not too much, data centers, not too much AI. It means, it is like saying how we don't want too much wealth. We'd rather be okay-ish. Yeah. We should discuss this. We should get as much as possible because it's just good for Europe. And then what does it mean? Or, oh yeah, that means obviously we need to build completely different infrastructure, but it's going to be a good and great business case, and the whole society is gonna benefit from it. If we now say, if we build less data centers in the uk, the average grid cost will be lower for the consumer. So say Yeah, true for three years and afterwards somebody else does all the innovation. And then you would wish you had invested into data centers and utilities.
Richard Sverisson - Editor-in-Chief:Absolutely. And it's important. New forms of demand, electricity, demand as well, of course. And in certain parts of Europe that's important.
Leonhard Birnbaum - CEO of Eon:That's true. But then there are also people saying, yeah, but if data centers no more demand, it means prices go up, it means it's bad for customers. I'm saying no. That means we have development and then yes, prices go up. But so is the general wealth of the society going up and like we are gonna, our pharma companies stay competitive, then they can offer jobs, they can offer better medicine and so it's worth it. So we need to work on it and we need to see the positive in it. Rather than a negative. This is why I'm also a bit critical on the eu. Too much emphasis on the risks, not enough on the opportunities. The AI Act is not an opportunity driven, it's a risk driven approach.
Richard Sverisson - Editor-in-Chief:I think. A final question. You are obviously active in, in the UK and in Germany, and one of the big discussions there has been zonal pricing. What's your view here?
Leonhard Birnbaum - CEO of Eon:I think, they're very different systems. From nodal pricing to zonal pricing, to uniform copper plate pricing postage stamp. And I think all of them can work. And it's like we've seen them here, like from Texas, from nodal pricing to zal pricing in Sweden to whatever we have postage stamp in Germany. The problem is not which system do we choose. The problem is how do I get from one system two? The other system and is it really solving my problem? I don't know exactly like what, how did, what the dynamics of the discussions are in the uk but you have also different starting point. For example, you have a zonal pricing for the generators, which we don't have in Germany. Yeah. So it might be easier to also do some zonal pricing on the customers. And then you have a clear north south set up. In Germany it's different. And I'll just give you one example so that you know why it's so difficult to switch from one system to another. We right now have a copper plate, so we have all kinds of industrial companies that made arrangements. I buy from you offshore operator power. And the offshore operator says I deliver into the German system, and the other guy pulls it out of the German system. Now we do zonalal pricing, let's say three zonals. Then where does the offshore operator need to deliver? Then the consumer will say, you need to deliver to where I am in Munich. Yeah. And offshore operator said, oh, why? I'm delivering to the coast. Yeah. All these contracts will end up in court. All of them. Yeah. So it's just one, one type of the problems that this is creating. And the second one is, what we really need is we need investment signals where you should build and where you should not build. Zonal pricing is not doing that. We, you need to punish the investment decision at the right spot. So you want to build in the north where we don't need you. The connection is expensive. You want to build in the south where we need you. The connection is cheap. That's the way to do it. But that's different from node pricing, which just drives, eh, sorry, from zal pricing, which dri just will drive prices up.
Richard Sverisson - Editor-in-Chief:I think that's a very clear argument. Thank you very much Leonhard Birnbaum for being a guest on Plugged In - the Montel News podcast.
Leonhard Birnbaum - CEO of Eon:Thank you very much for having me.
Richard Sverisson - Editor-in-Chief:I hope you found my chat with Leonhard informative. Join us next week for the third episode of our CEO Summer series, where I speak to Asta Sihvonen-Punkka, CEO of Finnish TSO, Fingrid.
Asta Sihvonen-Punkka - CEO, Fingrid:Last year we had the highest number of negative hours when looking at Europe, there were scenarios about the growth in consumption and how electrification would advance, but, that has been slower than anticipated.
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