Status: 23/09/2023, 21:42 p.m.
By: Manuel Berkel
Leonhard Birnbaum, CEO of Eon. © Rainer Unkel/Imago
The reform of the European electricity market is in danger of failing, warns Eon CEO Leonhard Birnbaum. He talks about industrial electricity prices, capacity mechanisms and lack of priorities in EU policy.
Mr Birnbaum, does the future of European industry depend solely on low energy prices?
In my view, the problems of European industry are more diverse. We clearly have a problem between the major power blocs of this world. And we are neither geopolitically nor institutionally positioned for this. As Europe, we are not innovative enough. We don't have adequate infrastructure. As far as our financing options are concerned, we are too dependent on the Anglo-Saxon capital markets.
And the European single market?
We have 400 million customers. But then look at the digital markets, where we have managed to atomize the European market with 27 interpretations of the General Data Protection Regulation. New business models are therefore gaining ground in the USA, which we will then have to adopt. For some sectors, energy prices may be decisive, but if we reduce the issue of competitiveness to energy costs, we are oversimplifying.
It is precisely these energy-intensive sectors that the Federal Minister for Economic Affairs and Energy and the Prime Ministers are worried about. They want to subsidize the price of electricity for a few years until renewable energies push the price down – to five or six cents. How long would this bridging phase be?
In the end, a subsidized industrial electricity price is a political decision. You only have to answer three questions. You just asked the first one: How long does it take? At the moment, the hope is that after five or six years the bridge will become superfluous, because then fossil fuels will be more expensive than renewables. Maybe, but I don't want to get involved in this speculation. The second question is: If the bridge gets longer, how do I get back down from the payments? That is the question with every subsidy, once it has been introduced. And thirdly, is this the best way to use the financial resources? And who pays? Of course, the customers who do not benefit will have to bear higher costs.
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"Energy policy has become an industrial policy debate"
The German initiative is also justified by the concern that France will support its industry even more in the future through the price of electricity. Paris is trying to do this through the electricity market reform that is currently underway in the EU. Do you share these concerns?
Energy policy in Brussels no longer revolves around the design of the electricity market, it has become an industrial policy debate. We are witnessing a discussion about the price of industrial electricity between Germany and France. As a European energy association, we have no interest in the electricity market reform failing because of issues that actually lie beyond the question of market design.
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In short, it is about the modernization of power plants through state-backed contracts for difference and the redistribution of profits – especially from the operation of nuclear power plants.
Eurelectric does not want contracts for difference to be retroactively applied to existing generation capacity. That's what we've said from the beginning. But now there's this sub-topic: what about the profits of nuclear power plants that get an extension of their lifespan? Is this new capacity, because otherwise it would not have been available? I hope that France and Germany will find a way to clear up the discussion for both sides. As an energy company, we want the debate on the design of the electricity market to be concluded quickly.
"It's difficult when each state decides for itself"
Apart from the special case of nuclear energy: Who should receive revenues from new power plants if electricity prices rise exorbitantly again? The Commission wanted it to be shared among all electricity customers. Others want to use the revenue for the industry. In the end, it could be left to national governments.
I think it would be difficult for each Member State to decide for itself on the distribution of revenue from contracts for difference. Strengthening the European market must be in the interest of all Europeans, and the price of electricity will have an impact on more and more goods. If I give the EU countries a very large degree of freedom to influence prices for end customers, then I must at least be aware that this has a massive impact on the common internal market.
With the electricity market reform, the question of capacity markets for controllable power plants has also boiled up again. Poland even wants to continue to provide state support for old coal-fired power plants. Can't the country secure its supply in a more climate-friendly way?
I have been told that Poland would indeed have problems in the short term if it took its old coal-fired power plants out of the system. That is why I consider the transitional exemption from the CO₂ limits to be an acceptable wish. Poland is making an energy transition, and also with renewable energies – not just with nuclear energy, which will come at some point. And the Poles do not want to create a backup with gas capacities, as we are discussing in Germany. This is also due to the country's sensitivity to ensuring its independence. I would not turn the question of capacity mechanisms for Polish coal-fired power plants into a fundamental discussion for Europe. Poland can clarify this bilaterally with the Commission.
So the question of CO₂ limits for capacity mechanisms should not be dealt with with the amendment to the Electricity Market Regulation?
The question should at least not block the amendment.
"Germany has focused too much on switching off"
You mentioned the Federal Ministry of Economics' plans for new gas-fired power plants. There is a European procedure for the introduction of capacity mechanisms, but it takes years. Has Germany simply slept through the introduction of capacity markets?
Let's put it this way: Germany has focused very much on switching off and is obviously very late. If we want to get the capacity of gas-fired power plants that is now under discussion ready by 2030, then it will be five past twelve rather than five to twelve. However, I do not have a clear idea of how to speed up the examination of capacity mechanisms in Brussels.
What is currently being accelerated at EU level is the expansion of renewable energies and electricity grids. Are the simplifications from the Renewable Energy Directive sufficient for the necessary speed?
It's a helpful step in the right direction, but it's not enough on its own. We do not need selective exceptions, we need a simplification of the system across the board – at all levels. Just one example from the wind industry: For the transport of rotor blades, the federal motorway company does not obtain permits within an acceptable period of time. This continues with various other federal institutions, the licensing authorities in 16 federal states, the DIN committees. We need a different mindset everywhere. We have to make things happen. The Chancellor talks about Germany's pace. And in day-to-day business, I have to deal with authorities who say: I have my regulation here.
"When everything is important, nothing matters"
Back to the European level: In Strasbourg, the President of the European Commission announced a new phase of the Green Deal. What does it mean for the next European legislature if energy policy is more strongly influenced by industrial policy?
With the energy crisis, the balance has shifted. The Green Deal was very much focused on sustainability. Now it's not the only thing we can take care of. This does not mean that we no longer want to make an energy transition, it will continue. But it's not the case that everything will automatically be fine if we only take care of the energy transition. If I may take the liberty of giving advice, it would be nice if the Europeans could show their priorities. Is it possible to drop a few legislative proposals? If everything is important, nothing matters. This is an iron-hard rule. Ms von der Leyen's speech was a very long list. But what are the two or three things that really count?
I'm sure you have an idea.
As President of Eurelectric, I have three priorities. One is security of supply. With the energy crisis, it is back on the agenda. Number two: We need better infrastructure. I'm not just saying this for the energy industry. It also applies to digital infrastructure. And number three: We need a fair distribution of risks and benefits. I don't really care what the Commission's priorities are, as long as it sets them. But at the moment we are overwhelmed by a flood of regulations in all sorts of areas that do not show any priorities at all. I would like to see such focal points.