“Big question mark over the idea of a renaissance in nuclear power.”

What does the end of the current political coalition in Germany mean for energy policy?

Germany will have to make some important decisions, and the German government must also live up to its aims to play a defining role in Europe. We therefore need to ensure Berlin regains its full capacity to act as quickly as possible, including in the areas of climate and energy policy.

It is becoming apparent that the Chancellor will question of confidence earlier than in January. Is that a good thing?

That’s a political decision. But I expect that the legislative process will be difficult with a minority government. Of key importance to us is that progress is made on amending the Renewable Energy Act and the Power Plant Security Act. This involves adding power station capacity to provide a backup for renewals to bridge periods when there is no wind or sunshine. Urgent action is needed, since we are repeatedly facing the kind of bottlenecks that we’ve seen impacting on electricity prices recently, when during periods of low wind and sun levels, electricity wholesale prices reached 800 euros per megawatt hour.

What do you think of the ideas on energy policy of the German CDU/CSU political party, the party that will possibly provide the next Chancellor?

The most recent paper on the subject does not provide for any fundamental changes in the energy transition, but emphasises cost efficiency. I think that’s the right approach, since in the absence of affordable energy prices for both industrial and residential consumers there will be no acceptance. We must focus our decarbonisation efforts first on areas where it’s cost-efficient to do so, and leave the expensive areas until later, when we have more refined technology at our disposal. The best lever for avoiding CO₂ cost-efficiently is the EU’s emissions trading system, the EUETS. It isn’t helpful for Germany to want to do too much all at once. We are also getting bogged down in details and over-regulation in the energy transition process. That slows down the transformation and makes it more costly, with no additional impact in terms of climate policy.

Where can the process be slimmed down further?

The definition of green hydrogen, green batteries, the mandatory switchover of energy sources in new gas-fired power stations to green hydrogen … all this has no positive impact on carbon footprint under the European carbon trading system. All these requirements achieve is to make the process more costly for us, and thus also for industry and for consumers. Another point is that we urgently need a broader range of supply. We are well on the way with renewables, but we need the same level of acceleration in the expansion of battery options and secured capacity – i.e. in hydrogen-ready gas-fired power stations.

The CDU/CSU is thinking about a renaissance of nuclear power. What’s your take on that?

In principle, there’s nothing wrong with an open approach to technologies. But I’m sceptical that it will be possible to operate nuclear power plants competitively. That isn’t a safety question, it’s an economic one. Many new-build investments get out of hand, pushing the costs of generating electricity up higher than they are now.

Would it even be possible to reactivate the recently decommissioned nuclear power stations?

Everything is possible at a purely technical level. But because the work of dismantling them is continuing unabated, it would almost mean fully rebuilding them. The key question is what is the consensus in society in Germany? Nuclear power needs a solid foundation.

The majority is in favour of nuclear power – surveys when the last nuclear power stations were switched off showed more than half of the German population thought it was a bad move.
But attitudes on this question have always fluctuated strongly back and forth. There are many other hurdles to consider: Permits have expired, the highly qualified workforce has moved on, the need for huge investments with a lengthy lead time. If I weigh up the costs and benefits, I have to say there’s a big question mark over the idea of a renaissance in nuclear power.

How practical would it be to make more use of carbon capture and storage, or CCS?

Most energy will be sourced from renewables in the future. For the small number of days when renewables don’t deliver, we need back-up systems – gas-fired power stations in particular – although they will not be needed much. That’s precisely why thought has been given to providing remuneration for this capacity on the capacity markets. Because these plants don’t operate often and only emit small amounts of CO₂, it’s likely to be cheaper to use hydrogen later on rather than CCS. We should, however, move away from the technology debate and not dictate which process is the correct one, but rather observe how and where we can avoid CO₂ at the lowest cost. CCS is urgently needed in many industries and in the production of blue hydrogen.

There are setbacks with hydrogen. The core network is going to be smaller than planned, and RWE’s Norwegian partner Equinor has cancelled its plans to export to Germany because the process is too expensive and there’s insufficient demand. But you still believe in hydrogen?

Three factors are essential for the ramp-up of hydrogen: demand, supply and infrastructure. Supply can be made cheaper by not being restricted to green hydrogen alone. The government is correct in moving ahead with the core network, but it also needs to assist with the import infrastructure. Where adjustments should be made is on the demand side. There are lighthouse projects in which individual companies receive support, but some thought needs to be given to broader incentives on the demand side, to ensure that there is a market for infrastructure operators and providers.

The US is the largest renewables market for RWE. What does the victory of climate change denier Donald Trump mean in this connection?

Regardless of the election result, demand for clean electricity in the US will continue to rise significantly, as a result of electrification and the huge requirements for data centres for artificial intelligence. That’s what underpins our business, so I am not concerned. Even during the first Trump administration, progress on the expansion of renewables was good, and green investments were promoted. Thanks to good wind and sun conditions, electricity and photovoltaics are flourishing in Texas, which is governed by the Republicans. These technologies create local jobs and add value. The Americans see economic opportunities in renewables for low-cost electricity generation.

You praise carbon trading, which countries such as the US and China don’t have. To ensure fair competition for imports, the EU is experimenting with climate duties, known as the Climate Border Adjustment Mechanism, or CBAM. Is this a good way forward?

I doubt that the CBAM will bring the situation under control. It’s an incredibly bureaucratic approach and will at best be of use for imports. For exports, EU companies engaged in international competition will need to continue receiving free carbon allocations or compensation from state CO₂ revenues.

Returning to the power station strategy and capacity markets: What has to happen there?

We have been discussing this for almost three years and we still don’t have a law. If we could build quickly starting right now, the new gas-fired power stations would be ready by 2029 at the earliest, and our exit from coal is scheduled for completion by 2030. The current plans for the law are still too complicated and too detailed, with precise fuel requirements, restrictions on location, and technically over-regulated specifications. My proposal is simple: Tenders for assured capacity not limited to any specific technology, and keep the decarbonisation process separate. We have the European Emissions Trading System for that. We can borrow the British or Belgian model for the capacity markets at a later stage. “Copy, paste, done.” You don’t have to reinvent everything.

There’s fairly broad agreement that the expansion of renewables is making good progress. Is it too good? Ultimately, the grid expansion is not keeping pace, we frequently see negative electricity prices, and some are already fearing a kind of “photovoltaic infarction” in which the grid becomes clogged and can no longer function.

Even if it means I’m speaking against our own business a little here, I share these concerns. Why? Because we have to maintain an overview of the entire system. We can’t keep on adding capacity just to achieve additional capacity targets, often with no benefit and in locations from which it’s impossible to transport the electricity in the first place. And we can only provide remuneration for something that provides a benefit. When I look at what’s happening now, it’s social dynamite.

In what way?

Let me give you an example. If we fit solar panels to the roof of our single-family home, we are, to a certain extent, triggering the need to expand the grid, and increasing the cost of running the grid. But these costs are spread across everyone. Then we receive a grid feed payment, even if the electricity isn’t used at all and the prices go negative. That cost is also spread in the end, and is borne by those who can’t afford solar panels of their own. That isn’t workable!

What should the outcome be?

There are two things we should tackle. First, renewables must be integrated into the market to ensure rational market behaviour by all players. After all, if we included the installation of a battery in the cellar, the problem would be solved. We’d be able to store our own solar power. The same should also apply to large-scale systems. It’s right that remuneration models should continue to exist, but the correct incentives need to be applied to ensure behaviour that’s in the best interests of the grid. The second is a general reform of grid fees. Grid fees must be divided up on the basis of who is actually making use of the grids. Or looking at it the other way around, relief should be provided for anyone displaying behaviour that’s in the best interests of the grid. California, for example, does not levy grid fees based on electricity volumes at all, but bases them primarily on who uses the grids when bottlenecks are at their most severe. The German Federal Network Agency is currently engaging in consultations on these questions.

Heat and transportation will also contribute to a successful energy transition. How are things looking here?

Highly complex! We have a very clear pathway to achieve decarbonisation in the electricity sector, one that we also hope will come at a moderate price. Heat and transportation are ultimately down to the decisions made by each individual consumer. What’s needed here is fewer prohibitions and encouraging enthusiasm about new technologies instead by using incentives! That applies to heat pumps for homeowners as much as it does for car buyers, for whom electric cars have to be made appealing.

So reintroducing purchase incentives?

In principle, carbon pricing is already a good tool. If the price rises proceed as planned, the use of internal combustion engines will become a lot more expensive. Of course, I need to give further consideration to supporting those who may be unable to afford an electric car, the key word here being “Klimageld” – which can be roughly translated as ‘climate premium.’

What do you expect in terms of future changes in electricity prices?

Besides the cost of generation, the prices for end customers also depend greatly on grid fees, taxes and levies. As for the wholesale price for power generation which affects us, I expect it to remain at the current level of about 80 euros per megawatt hour for the foreseeable future. There are two opposing factors at play here. We must expect carbon prices to rise, since the permitted emissions are steadily being reduced. And on the other hand we can assume that this will be offset by the addition of generation capacity and falling gas prices.

What does that mean for RWE as a company?

Compared to the situation five years ago, we are much less dependent on the electricity price level now. That’s due to the fact that most of our investments are hedged for the long term. For example, we enter into long-term power purchase agreements with our customers, which is good for both parties. We get investment security, and the purchaser gets a guaranteed price. And, of course, we observed that during the energy crisis: Those who had long-term purchase agreements in place benefited from stable electricity prices.

By 2030 RWE aims to have invested a massive 55 billion euros. Is that goal still realistic?

We are a company in transformation. Not only do we play our part in the energy transition, but we also have to replace those parts of our own capacity that is being switched off over time. It therefore makes perfect sense for us to make substantial investments. We also foresee excellent long-term prospects worldwide for our product, which is green electricity. This will be further bolstered by the growth of electrification and the boom in artificial intelligence. In the medium term, of course, we rely on having stable conditions and an attractive investment environment in the individual countries where we operate.

That takes us back to where we started. Politics [in Germany] and the currently rather unstable conditions.

Yes, politics is one factor, but not the only one. In our business, interest rates also play a part as it is very highly capitalised. Then there is also inflation, supply chains and geopolitical risks. We’re looking at an entire risk map that we take as the basis for assessing our investment opportunities.

Do these risk calculations also have to take into account the increasing growth of extremist forces in Germany?

We have a problem with the political capacity to act here in Germany. Too many things simply take too long, and some don’t make any progress at all. There are no clear responsibilities – one person points the finger at Brussels, another at Berlin, and someone else at the municipal administration. Decisions are always highly complex and slow. That obviously hobbles us and frustrates our citizens.

What does that mean when it’s applied to energy policy?

Even when you have a federal government that’s well intentioned, it can often take a long time to make anything happen. When they finally achieve unity within the coalition, they then need an OK from Brussels. Actual implementation depends on the local authorities. Application, verification and review processes for specific projects are often extremely complex. From an intention to build new power stations via a capacity market, the processes take at least five years until construction actually starts – and that means the completion stage is right at the end of the next legislative period. So that means even policy-makers who want to act are no longer able to. We need to deal with this urgently!

Christian Geinitz and Nadine Bös led the discussion.