Dr Johannes Teyssen, CEO of E.on and President of Eurelectric, doesn’t beat about the bush: in an exclusive interview with Energy Post, he says that Europe needs a single climate target for 2030 of “between 40% and 50%” emission reduction. At the same time all energy subsidies and “green levies” should go. Renewables “have all the chance in the world to take the biggest chunk of the market” even without subsidies. The European Commission should act as a “central carbon bank”. About the strategy of his own company, Teyssen notes that “the upstream, commodity side” of the European market “is shrinking at high speed”, so “ we are trying to replace it with the distribution, retail side”. He says Eon wants to do “a smarter renewables development”, aligning “with pension funds and insurance money” and “just be the driver and innovator”. He also calls on Russia and Norway to sell gas to Europe at more “competitive prices”.
Should proponents of “the energy transition” rejoice or be disappointed at the standpoints of one of the most influential representatives of the established utilities sector? Johannes Teyssen is not only CEO of Europe’s second largest utility, with sales last year of €134 billion and a net profit of €2.6 billion, but also President of Eurelectric, the European association of the electricity industry. In a wide-ranging interview with Energy Post, Teyssen voices strong support for a very ambitious European climate policy.
He believes CO2 emissions can and should be reduced by 40 to 50% in 2030. If Europe abandons its climate ambitions now, “everything was wasted”, he says. He has no problem with the idea of Europe ‘going it alone’: “The world will not precisely follow our way [but] that doesn’t mean we shouldn’t have a way.” High energy prices, he says, should not be blamed so much on climate policy as on general taxation.
At the same time, Teyssen insists that governments should stop subsidising renewables altogether. Moreover, the EU should not embrace new renewable energy targets for 2030 nor new energy efficiency targets. Climate policy should be entirely driven by the carbon market, i.e. the EU Emission Trading System (ETS), which Teyssen says is perfectly compatible with economic growth and jobs.
For Eon itself the energy transition means that the company will have to transform itself quite radically in the years ahead. The future for Eon, says Teyssen, lies in getting closer to its customers, becoming an innovator and driver of renewables, and expanding internationally. EP’s Brussels correspondent Sonja van Renssen spoke with Johannes Teyssen in Brussels.
Q: The big debate here in Brussels right now is over what kind of climate and energy strategy we need for 2030. Many energy-intensive industries are worried about high energy prices and make a direct link to climate policy, especially the EU ETS. Can we still afford an ambitious climate policy?
A: I believe it would be utterly wrong if we now totally derail from our climate abatement strategies. Obviously some of the positions we were banking on a few years ago – fossil fuels becoming more expensive and scarce, global [climate] agreements in close reach, that it would be almost free and not hinder competitiveness if we embark on our climate strategies – proved to be wrong. But that doesn’t mean there is no climate issue and that all the ambitions we had are totally wrong. We just need to do it more efficiently.
Our industry and I – as President of Eurelectric and CEO of Eon – we are calling for an ambitious climate target for 2030 but that’s also the only thing we’re calling for. Numerous targets are inefficient, contradict each other and are the root cause of inefficiencies. We should go for a climate [emission reduction] target of at least 40% – between 40% and 50% – by 2030 and we should leave it to the markets how to achieve that.
Q: To what extent is climate policy to blame for high energy prices?
A: I think the cost of climate abatement is just one element of the high energy costs. If you see for example that private households pay more than 50% taxes and levies in Europe and 6% in America, then you could also easily argue that it is more the taxes than the climate strategies that put a burden on consumers. People too easily come to the conclusion that it must be climate ambitions that are the problem; I think it’s the inefficiencies in how we approach them.
Q: And this inefficiency you say comes at least in part from multiple targets?
A: We wrongly kicked off national targets on efficiency and renewables. We should also have had European targets there […] instead of allowing for inefficient throwing away of money.
Q: But we have a 20% EU renewables target.
A: No, we don’t have a European target. Do we harvest the sun and wind where it’s most efficient? Or are these running with inefficient strategies and policies in member states? With new state aid rules coming into force, the member states say: first you tell me you knew it was inefficient to do it in my home country but you told me to do so anyway and now you come and tell me I should do it better? I think we should have always had one single European target and we should have left the rest to the market.
Q: What can policymakers do to keep energy prices as stable and affordable as possible?
A: Have a single climate target, an EU ETS [Emission Trading System] target and entrepreneurial challenges on how to achieve that. There should be the removal of all fossil and renewable subsidies and state aid, and we should go with auctioning or other instruments to get to the results as cheaply and reliably as possible. We should also make sure we get the necessary security of supply as cheaply as possible. We can have a capacity market regime but make it market-based, technology neutral. Other than that, remove all extra levies from consumers’ bills. Leave it to the taxpayer if really needed.
Q: Is one of the main problems today renewables subsidies?
A: I’m talking about all green levies. I’m not saying give up on renewables. Eon has invested €9bn in renewables and I see that we harvest wind in northern Texas at 3.5 cents [per kWh] and we’re not close to that anywhere in Europe. The system here doesn’t invite cost-efficiency.
Q: Do you think that without a renewables target and special subsidies, we would be able to develop the range of renewables we will ultimately need in 2050?
A: Absolutely. I think renewables have all the chances in the world to take the biggest chunk of the market and there’s nothing wrong with that. We have seen steep cost declines from some, and sometimes it takes a while to innovate for the next step but we don’t need to be on a linear trajectory, we need to be on a cost-effective trajectory.
Q: What needs to happen for the EU ETS to deliver?
A: Most important is the 2030 target and the trajectory from 2014 towards that. With a target somewhere between 40 and 50% we would approach a 2.5% annual decline.
We might have to also see how we do the auctioning [of allowances]: do we do it in a linear fashion or do we also look into economic growth, the oversupply of the past, and auction a bit more cautiously in the beginning to have a meaningful carbon price. In money markets, central banks are not just on linear trajectories. They look into the economics of the market. They have the overall line of an inflation target for example – so we would have a declining target trajectory – and then work around it. The British now look more to a price trajectory [carbon price floor] which also makes some sense but not for the European level, where you would need consensus on a price-driven target.
Q: The European Commission has in the past always said it doesn’t want to take on the role of a carbon central bank.
A: Someone needs to do the dirty work. A few years ago the European Central Bank probably would have said all the strategies they’re embarking on now are crazy. Today it’s necessary. Who else but the Commission can do it [for carbon]?
Q: Why are member states not convinced that an ambitious climate policy is in their best interest?
A: Because they don’t look at all sides of the coin. If the market has a sustainable carbon price you would reach your climate strategy more cheaply in the end. It’s the total bill that matters. If renewables would be less needed or not needed at all then all these extra charges go. And states obviously also need to look into what they harvest on top [of energy prices]. That was fine when Europe had the same energy prices as the US. Now with the US having huge cost advantages, I think states need to see if they still can use energy as a caretaker of extra charges for retirement instruments, etcetera.
Q: What about the global perspective – should Europe keep ploughing ahead of the rest of the world?
A: I think Europe needs to pursue its own path in a responsible manner. I am not very optimistic that we will see a meaningful result [at the UN Climate Conference] in Paris [in 2015] after Warsaw. But it doesn’t mean that the rest of the world isn’t doing meaningful things. China may be more driven by pollution than CO2, but it will follow sustainable energy policies over time and so will others.
If we now decide to stop, everything was wasted. No, we will not save the world alone and yes, we should see to it that we do not have carbon leakage overall to a large extent but we must continue. It would be ridiculous otherwise and so typically European: first we run at full speed then we run in the opposite direction and think we’re better off. I think in the end we’ll just be tired.
Which of mankind’s questions has ever been agreed in a holistic global agreement? None. For a while the romantic Europeans thought that the rest of the world would follow them, but each world region and nation has to do its balancing act. I think Europe now understands that the world will not precisely follow our way. That doesn’t mean we shouldn’t have a way.
Q: Do you think climate policy can be in Europe’s interest for growth and jobs?
A: Only if we do it efficiently. If we do it wastefully, then we will not have permanent innovation drivers here on our continent, we will just have costs.
Q: So how do we prevent an unsustainable climb in costs?
A: By just making sure that wasteful systems are immediately stopped. And not just starting in 2016 with ambitious targets for 2018 as it’s phrased in the coalition agreement in Germany. I think the house is burning, America is overtaking us left, right and centre, so we need to be active now. There is no reason why we cannot change things tomorrow morning. I definitely have some hopes for the State Aid guidelines from [EU competition commissioner] Almunia, the Commission and the European Council summits in February and March [2014] for heads of state.
Q: What about energy end-use efficiency? Unused energy is the cheapest energy of all yet it seems far from the real priority.
A: End-use efficiency plays a very significant role. But I believe that this will happen much more market-based than you think. Because with the energy prices we see, the increasing burden and the increasing disadvantage compared to competitors abroad, there is an incentive for businesses and private households to invest in efficiency.
The demand side is happening. Some people would love to have it overnight but businesses and households can only spend the buck once. I don’t think we need another efficiency target; we need to enable customers and businesses – for example by building a smart grid – and it will happen. Maybe we also need incentives to drive innovation in the distribution grid. These are still the dark holes and they sometimes hinder efficient integration of smart renewables. But you don’t need subsidies: if you improve the regulatory terms there, if you invite faster returns on innovative investments, it will happen.
Q: How would completion of the European internal energy market improve your prospects?
A: It’s extremely important because as Eurelectric has said, year on year Europe is at a crossroads and for the past year we think Europe has taken the wrong path. Energy policy has become more national and European ambition is being questioned. If there is no European integration, big European players like GDF Suez, Enel and Eon will nationalise more and more.
Q: What is your role, Eon’s role in all of this? How would you describe that?
A: I think everyone understands at this point that value creation is moving downstream, to the customer, from the commodity side to the solution side. So Eon is striving hard in Europe to go to those parts of the value chain where we are close to our 25 million customers, where we enable them and can share with them the advantages of efficiency.
Another of our convictions it that intelligent and well distributed renewables are part of the solution so we will continue to invest in renewables, but align with pension funds and insurance money to just be the driver and innovator; so the holding value can also be with others. In Denmark we just found an alignment with another owner that took over an offshore wind park, after three years of proving that we are highly efficient there. So we will do a smarter renewables development, but we will continue. We don’t stop like others.
And a third ambition will be a somewhat broader international base because we believe that Europe will see low growth and in a more downstream, customer-based environment our market share will almost necessarily shrink. We now have 9 million customers together with our friends Sabanci in Turkey and we’re building several hundred MWs of hydropower there annually. We continue to develop our Brazilian position and our Russian position, which is the most energy efficient one of Russian generators.
It’s not that we are trying to leave Europe; Europe will still be by far the biggest base in our businesses but by definition its value size and its market share size will shrink and thus if we want to try to defend a meaningful size we need to try to be somewhat more international.
Q: How do you envisage growing the European part of your business?
I would probably say at this point it’s about first stabilising it before you dream of growing it. Because the upstream, commodity side is shrinking at high speed, we are trying to replace it with the distribution, retail side but even there we are still talking about finding a stable base. Overall the European part will shrink not grow.
Q: How do you try to differentiate yourself from these other big players? Aren’t others trying to do exactly the same thing e.g. becoming an “enabler” of renewables, as RWE put it, for example?
A: There are bits and pieces that sound similar, no doubt about it. All the European companies see the value in the more stable parts of the value chain, closer to their customers, finding a new connection there, building trust. It’s a question of what precisely are you prioritising? The differentiator will be: can you outperform others in your technology access and your customer access?
Then it’s a question of how much conviction you have in developing your renewables position. I think there are quite some differences. Some, I think, do it reluctantly or more opportunistically and there are a few others – definitely Iberdrola or EDP are extremely good companies with a clear global ambition – that like us follow the conviction path.
And finally on the international element, I think you can differentiate. If you look at GDF Suez for example, they follow more of an IPP [independent power producer] strategy while we do more of a market help strategy. IPP means that across the world you build power stations irrespective of regions, irrespective of integrating into markets, i.e. it’s predominantly upstream. In Turkey we are also downstream with our 9 million customers. So is it more about having a position to play improving a system or a country, taking some responsibility for a market – like us – or are you an IPP which outperforms on some single positions, or LNG for example?
Q: Do you see yourselves as an enabler then, the interface between customers and the Energiewende for example?
A: To be an enabler of the Energiewende would mean that I am part of an abstract story. I would say that we are engaged with very concrete individual customers- not theoretically with a political concept. When a customer’s individual Energiewende needs this or that, then we are there to do this or that. We don’t check whether it fits perfectly into the political ambition of the German, French or Dutch governments. We are there to be on the side of our customers. What’s right for them is right for us!
Q: What about gas? Gas is a favoured solution in the EU’s 2050 roadmaps yet it is difficult to make a gas plant pay nowadays.
A: This is truly the neglected fuel. Whilst in most parts of the world it is being spotted as one of the most important solution providers, in Europe in a lot of national political agendas, such as the agenda of the German coalition agreement for example. I’m not sure they even mention it. They didn’t mention gas when they drafted the original Energiewende. In Europe, gas is viewed as a dependency and a fossil fuel – and even then it’s expensive.
I think it falls short of its potential. We are the biggest coal importers and run old and inefficient coal plants while neglecting and even mothballing highly efficient gas plants. This is contradictory. With the subsidies we waste, we could probably almost give gas away for free. And the outcome for the climate might even be better.
I’m not saying we should now subsidise gas but we need to identify how to make it part of the solution. We need to align better with gas exporters – Russia, Norway, Northern Africa – and they need to understand that they cannot sell here for huge profits. If they want a sustainable market, they need to come with competitive prices. But then they will also expect some reliability and so Europe should redefine its gas strategy.
Q: How do we bring gas prices down?
A: The gas producers/marketers need to aim for a sustainable market share of gas and they should question their pricing strategies. If I were a gas producer I would rather defend my market share than my value. Because once there are no gas-fired power plants left on this continent, they won’t come back.
This article was originally published by Energy Post. Reproduced here with permission
