Hello, I'm Michael Liebreich and this is Cleaning Up. Last week, the leading lights of Europe's electricity industry gathered for the annual Euroelectric Power Summit at the Lagonisi Beach Resort just outside Athens. Greek Prime Minister Kyriakos Mitsotakis Welcome delegates to Greece, and Maxim Timchenko, CEO of Ukrainian utility DTEK, opened proceedings with a moving description of what it takes to keep the lights on when Russia destroys 90% of your generation capacity. The conference, under the hashtag this year of Lights On, lasted two days and covered the key issue facing Europe's and the world's power sector.
Two topics in particular stood out. the need to accelerate the build-out of transmission, and the pressures and opportunities offered by digitization and AI. And at the event, Euroelectric published a brace of reports on these two topics. On the final day of the conference, I caught up with Leonard Birnbaum, Chairman and CEO of German utility and distribution grid operator E.ON and President of Euroelectric.
We spoke on a sunny and windy terrace just outside the conference center to discuss all this and more. Please welcome Leo Beunbaum to Cleaning Up. Leonard, thank you so much for joining us here on Cleaning Up.
It's my pleasure, Michael. And in this location, actually, it's a privilege to do a podcast. Well, this is the strangest location, in a sense, for a podcast.
We have to explain it to our listeners. So we're on a beach. Now, this will go out, I think...
are both video on YouTube and also as a podcast on all podcast platforms. So the people who are watching on YouTube will know that we're on a beach. There's a howling gale.
So hopefully you could even hear this. But there's a fantastic backdrop, right? And we are talking about the new energy world.
The new energy world has lots of wind in it. So it's a fitting location. Also lots of sun.
So we are in a place of new energy. So tell us where we are and why. Actually, let me back up.
Who are you? Let's start with who are you and where are we and why? All right.
So my name is Leo Birnbaum. I'm the CEO of E.ON, the German utility and German-based utility with business all over Europe. And I'm also the president of Euroelectric.
And here we are at the Euroelectric annual meeting, the Power Summit, which this year takes place in Athens. And we had a wonderful conference over the last two days. It has been great. I can vouch for that. And that explains the sun and the wind.
This is famous, I mean, from Odysseus and so on. You get the Greek wind and the Greek sun, and it is absolutely visiting us here today, making our life interesting. Yeah, I would say we were working really hard, even though nobody will believe it when you see the pictures of us sitting here. Well, I don't know about you. I was working hard because I was up on stage this morning talking about electrification.
I actually have seen you on stage, so we can discuss about that. We will get into that, no doubt. Could you do the following? Now, our listeners are a very diverse group.
So we have people who will know more about any individual topic than me or possibly even you. But some of them are generalists, civic society and so on. So what does E.ON do? All right.
So my company... is focused on providing infrastructure, especially actually electricity infrastructure to the new energy world. That's around 75% of my business.
And the rest of the business is about providing smart energy solutions to my customers, B2C and small B2B customers. So like the typical commodity supply contracts plus all the new customer solutions like EV, battery, PV, heat pumps, and so on. So this is it. So infrastructure and customer solutions.
We are not in the generation business as long as it is not part of a customer solution. So some of our customers want also kind of like a small on-site CHP or whatever. That we also partially do.
So this is the business. And I remember when it was split, you did used to have generation. And then there was this big reshuffling of the deck in German utilities or German.
based utilities and you got rid of the generation piece yeah yeah i mean eon went through a huge transformation over the last decade and maybe it's interesting just to listen to the three kind of like changes which we did the first one we did in 2015-16 when we said We have a new energy world, which is around infrastructure, around customers, around renewables. And we have a system-centric world, which is around central power stations trading. And we split it. We split off this company called Uniper. And then we sold Uniper to Fortum in the end and just leave it there.
And dangerous, if I might, when you were splitting that off, there was a time before the name Uniper had been developed. and we were talking about this transaction before the name was there. And I used to call it E.ON and E.OFF.
But it is actually wrong. I think they have their... But to be fair, they had special challenges over the last year because they also had all the Russian business and all the import gas contracts.
So it was really difficult in hindsight. I wasn't suggesting it was the worst business. I just needed a name for it. It was Uniper. Oh, I see.
And actually... We have a great CEO there, Mike Lewis, who's also on this conference. Who I've known for a very long time. Exactly, he's here. Exactly.
So that was step number one. Step number two is that we actually made all these nuclear topics manageable. Because we had still the nuclear assets, including the storages, and that made us uninvestable.
Because it was hard to understand what is really the nuclear risk. And actually, we struck a deal with the German government to say, the risks, which are purely political, and storage is a political risk, you need to manage. And we paid, actually, we transferred all our provisions and the German government took over the obligations of nuclear.
So we had sorted that one out. And then we did a big transaction with RWE in which we took over Energy, which was a subsidiary of RWE, which had lots of grids and renewables. And we took them on board.
And then we split them and we became the largest grid operator. And we handed over all renewables, including our own ones, to RWE. So then we really focused only on infrastructure and on customer solutions. We fully dedicated to the new energy world, which is now developing.
So that's a huge transformation over 10 years. But it has been really successful. And all the capital markets have really acknowledged what we have done. Now, we're going to get on to, well, there's so much to talk about. But I do want, there was the middle one of those, the nuclear sort out that you described there.
Are you still running, are you still responsible for those nuclear sites which are being shut down? Yeah, we are responsible for decommissioning. And we said we can take responsibility for decommissioning because this we can manage. But the storage part of nuclear is a political process. And we said we can't manage something, you know, where we have no say.
So basically, we say. We said to the state, look, if you take the responsibility, then we give you the money for it, but then it's all yours. And this is the way we actually split it. Okay. But now imagine your bio, you've got all of these Stiftungs and all of these Verbände, so foundations and associations and councils, and then you've got your responsibilities at E.ON and then for Euroelectric.
Set that aside, can I ask you, as a citizen, would you shut down, would you have shut down those fantastic German nuclear plants? You think they are fantastic? Well, they were producing an awful lot of clean energy, clean electricity. I think it's an irrelevant question.
It's history. We should look forward and not backwards. But as a citizen, doesn't it?
I mean, look, I've described the shutting down of those plants as a climate crime. I mean, it was just so much clean electricity. And now. we start to see the renewables coming on. But meanwhile, there has been this huge bulge of emissions because of that German policy.
Yeah, but it was in the end a political decision, you know, like, and we have just to respect that. And it makes no sense to look backwards and say, you know, I think I have a better decision. No, it's just irrelevant question. Okay, so let's move on.
I mean, I would love to dive in, you know me. Yeah, I have limited time. You have so much to talk about. Because now, I want to...
Let's look at stuff. the forward. Yeah, well, let's look at the stuff that we've actually been talking about here. Euroelectric, there have been two reports that have been announced and a lot of sessions around those.
And so one is essentially around transmission, grids for speed, and the other is around digitization and so on. Do you want to talk about why those two topics? Yeah. First, a small correction, it's more about distribution than transmission. Actually, because what we realized as Euroelectric is that we had a phase and i'm simplifying and you know that we had a phase where the energy transition was about bringing in renewables into the picture and scaling them really yeah But now that has happened.
So we are now talking about whether we go to 70, 80 or 90 percent at which speed. But the phase of introduction of renewables is over. Now we are at the beginning really of, let me put it, second phase about electrification of mobility, which is now really taking off in this decade, about the electrification of heat, which is picking up. But I think that. peak of the electrification of heat will really happen in the next decade.
And it's about the integration into the infrastructure. And we are now realizing that the real bottleneck, the real challenge going forward is, do we have the appropriate infrastructure where we can integrate the electrified heat, the electrified mobility, and the electrified renewable world which we're having? And so we said we need to have more focus on grids and especially on distribution grids.
Because on the European level, we had discussions around interconnectors and large transmission. But where the energy transition really happens is in the low voltage and medium voltage and high voltage grids. Because immobility happens in medium and low voltage. Your home PV and battery happens in low voltage. The onshore wind farms happen in high voltage.
The large-scale PV farms happen mostly in medium voltage. So, actually, we said... The distribution grid is where the energy transition really happens, and we need to look more at it. And so we did two reports.
And one was, what is the investment need? And in a nutshell, it's big. So we need to double investments.
But also, it's not a number which is impossible. It's like other infrastructures like rails and roads and so on. And the second one was about how digital are we already? Because we can run those systems only when it's completely digital.
And so those were the two studies. And we can talk in more details about that. And just to come back to this question of transmission versus distribution, because I'm not sure that it needs to be either or, because I look at it and say that all of these, when you start to get to the really big renewables, they come from offshore and they're connected to a transmission grid. They come from deserts, they're connected to a transmission grid.
There's a huge need for interconnections between countries. I'm an investor in X-Links from Morocco to the UK, and hopefully also it'll be Morocco, Germany and so on. So is there an element of you trading your own?
No, it's not. You need to do the distribution. So that's the focus? I'm being cheeky. No, it's not.
No, it's not. But we just said we need to add the distribution to the full picture. And that is what we did as Euroelectric over the last two years.
And the grid action plan of the European Commission is acknowledging that there's not only a transmission issue, that there is also as large a distribution issue. So, you know, like if we would have all interconnectors, all of which we desire, yeah, and if we would have all the North DC lines which we want to build, we would still have a problem if we don't strengthen, for example, the medium voltage grid completely. And so we said, no, we need to put… distribution on the agenda as well.
And this conference had kind of like a focus on grids, really, and especially on distribution grid. And now just look at the numbers, maybe. In Germany, we just did the grid development plan looking forward. And we knew we had an estimate that we need 300, 350 billion of investments in transmission. Now we actually have said probably we need another 250 billion on the distribution grid.
Actually. The numbers, depending on timescale, in the study that we did, Grids for Speed, is something like 400. The differences can be explained technically. But anyway, what it means is the distribution investments are on the same order of magnitude as the transmission investments.
And you need both. You need both. And if you only focus on one, then you will figure out, I have a problem.
And I'm very happy that you've kind of backfilled to say it's both. It is both. I mean, it really has to be.
That's clear. Yeah, but you asked me on the studies, and those were on distribution. I just called you up because you dived in on the distribution side, and I agree that, of course, without that, it's essential.
Both are essential. So what were the key findings? We'll come back to digitization.
We won't disagree. It all has to be smart. There's no question.
What were the key findings on the grid for speed, that piece of the report? Okay. So on grid for speed, the first one was we are somewhere plus minus. I'm giving you numbers now.
All numbers are wrong, but they give an order of magnitude and they tell you something about the trend, right? So we have something like 30, 35 billion plus minus 1 billion of investment per year right now in Europe in distribution grids. This number needs to go up to something like 67 billion. So let's say roughly a factor of two. So that's number one.
We are talking about a doubling of investment. Now, that's the average across Europe. If you look at it in details, it's different by country depending on the starting position.
Second finding is, depending how we do that, we could do it also maybe cheaper. For example, if we do anticipatory investments, so we are trying to build for future demand, not for the existing demand, then we end some other levers. We could maybe come along with 55 billion, plus or minus. But what it tells you in any way, it's significantly higher than today. And then the next finding was, what do we need to...
And so the industry is actually not fighting for getting as many investment opportunities as possible. We are happy if we can reduce it, because even 55 would be a huge challenge for us. And then we said, and the second finding is, what is it that we need to change so that we can deliver?
And for example, some of the changes actually impact regulation. If we want to build smart grids, and you just said we all agree that we need to build smart grids, then we should be incentivized to build smart grids and not be punished for doing so. There are some regulations in place which would actually, if we just leave them, incentivize us to do dump grids and earn more money on it.
So we don't want that. So as an industry, these are the findings. Can we do the points?
One point, which is these reports that we're talking about. for the audience. We're going to put a link in the show notes.
They can be downloaded from the Euroelectric website. We'll put a link in and I encourage everybody to download them and read them. They are extremely on point. The second thing is, could we do the following?
Can we just take a step back for the audience? Could you give us grid regulation 101 or even 0.9? Because for a lot of people who are listening, we live this. We live this.
You've got to put these billions into the grid. How does that become an investment that brings returns to your investors? Okay, so then you have to understand two things about grids. So first, it's a natural monopoly. So if I, as E.ON, build an electricity grid in a certain area, it's absolutely inefficient to build a second electricity grid into the same area.
So there is only my grid. So I'm what we call natural monopoly. And that means I'm regulated so that I can't leverage that position for excessive returns. So I'm in a regulated business where a regulator sets a price, which allows me a certain return. And I'll explain that in a second, which is adequate to the investment that I make, but not excessive.
So that's number one that you need. That's where the perverse incentive comes from. No, no, no, no.
The risk of perverse incentive, because the return you get is proportional to the money you put to work. So there's the perverse incentive risk. Right.
Let me say, but first you need to understand we are monopoly. Sorry. Natural monopoly. This is why we are regulated. And I'll explain the regulation in a second.
Second thing you need to understand is that once I have invested, I can't walk away. So I need as an investor to have kind of like the security that, you know, I don't spend billion and afterwards I'm screwed. So I need to have a visibility and a predictability. that I have a chance to actually earn my money.
So those are the two things you need to understand. And it's actually lots of money that I'm investing. So how does it work? So I'm investing a billion, two billion, whatever, a year. And what I get is on the money that I invest, I get a so-called, it's my, we call it regulated asset base.
And I'm truly simplifying. On that one, I get a regulated return by the... by the regulator, which is according to the cost of capital. So for example, I get 5% return pre-tax on the money that I invest.
And that's for the capital I invest, I get, it's like I invest a bond, I get an interest rate on a bond, I invest into an asset, I get an interest rate. Plus, obviously, I can then charge a depreciation and then I have OPEX costs. So I have a CapEx return on the money that I invest, but I also have OPEX.
And the return comes, though, from your customers. So it's a regulated price. It's all translated into grid fees. Right.
So the government doesn't cut you a check. The customers cut you a check. But the government or the regulator tells you how big the check is allowed to be.
Exactly. And there are three elements. One is the CapEx return.
So I invest CapEx. I get a return on the CapEx. That goes.
I actually invest labor. And I can pass on my labor, by the way. And if I'm. very efficient, I might make a small margin on the OPEX part.
And in some regulations, there's a quality incentive. So if I... I'm better than certain quality indicators, I get an extra return. And so the combination of the CapEx return, the OpEx outperformance, and the quality outperformance, that's my return. But the CapEx outperformance is by far the largest one.
Yeah, so that's it. And so how does innovation play? Now, you said that you want to have an incentive to do smart investment, but how does that help you to...
Because if you become very efficient, don't the regulators just say, well, thank you very much. Now the price, you have to... Charge a lower price, please. Yeah, we always do that. So all efficiencies in the end are beneficial for our customers.
So we have an incentive to be efficient. And there are now more details. There's incentive regulation on the OPEX side, which we can't possibly explain in a podcast. But on the innovation side, what I can do is I can sometimes, for example, introduce a smart IT system, which increases my cost of working.
So my OPEX. and it reduces actually the investments that I need to make. But then if the regulation is such that on investments I get a return and I get punished actually for not making an investment by having a higher cost of working, then actually I would say, why would I do something smart if all I get out of that is a lower return?
And so we actually advocate that if we do something smart, there needs to be also recognition that we have done something smart. Right. So if I can... try and make sure I've understood and maybe for the audience as well.
So now you're talking about these technology investors, maybe talking a bit more about the second reports on the digitized Asia. So you dip into your pocket, you invest on digitization. But if that improves your asset utilization, you may end up putting less money to work on the asset. So you reduce your profits, the big pot of profits that you're allowed to make through your pricing.
Look, this is all fine for me because we have investment opportunities anyway. But on top, If I have an IT system, my operating costs are higher. And if I now, you know, like I just increased my OPEX to not invest. And then the regulator tells me, but this increase in OPEX, I'm not going to remunerate you.
Then I said, well, then I don't invest. Then I don't increase my OPEX. So then I'd rather invest into aluminum and copper.
And so we're saying we need to digitize everything. So digital innovation costs, we need to be able to pass on as well. And there had been some regulation where they basically...
punished us for being smart. And so we did it anyway and then asked for a change in regulation and mostly got it. But still, we have regulation in place, which actually is driving us in the wrong direction. And we are advocating as an industry that we should change that.
Right. Let's come back to one aspect of digital innovation, which is machine learning or AI. Let's come back to that because I want to hear about that second report. So the first report says 35 billion per year, Europe-wide, needs to be... 60 if it's not very smart, 55 or something like that if it's smart.
And so that's grid for speed. And now, actually, before we move on, anticipatory investment. You used a phrase there. Explain what it is.
Basically, I'm simplifying again. So I'm digging up a road in the city to put in a new cable. And let's say the cable has 25 square millimeters.
That's what I need for that road. I'm just wondering. Should I put in now a 25 square millimeter cable?
Or shouldn't I just think, we will have EV and heat pumps in this road. So let me just throw in a cable, which is twice as large. And right now the regulator would say, no, you can't add that to your asset base. We have many detailed regulations, which make it difficult for us to make such anticipatory investment. But basically the idea is we build for future demand and not for...
the existing or nearby demand. So we think about 2040 when we actually build it, we say, we will have the utilization and it's actually smarter to dig up the road only once. And then add maybe, you know, like then the cable might be 10% more expensive, but at least I dig up the road only once. Yeah. So this is a little bit of simplified version.
I like this because you're now admitting that it's your industry that digs up the road repeatedly. Which is good to get that on the record. I'm joking.
No, it's unfair. There's the water company. There's the sewage company.
There's the telecoms companies. And in the transmission, just to make sure that we're sort of staying somewhat balanced, on the transmission side, they also have a concept of anticipatory investment. And that's largely because it takes so long to get planning permission for new pylons that they kind of want to start doing that early. And that's also a regulatory. Yeah.
But. But there, actually, on the transmission side, We are trying to anticipate what is the landscape going to look like 15, 20 years out. And so what are the lines that I, the corridors which I need to build now?
So to be fair, in transmission side, we had always a more forward-looking perspective. But we want that now also on the lower, you know, on the lower distribution side. Okay.
So then what were the main messages then on the digitization report, which has also come out during this conference here at Euroelectric? Now, the first message is. We can master the challenge only if we digitize every single process which we have. And if we use every smart technology that is available to us in the future.
So we will not be able to operate the systems of the future if we don't fully digitize everything. Asset management, asset operations, asset construction, everything needs to be fully digitized. And even if we could theoretically do this, we could not. possibly do it without all this digital support at acceptable cost. So digitization is an absolute must in the future, you know, because the system is just much more complex.
So that's number one. Number two, this is a huge transformation and we are at very different stages of maturity if you look across the landscape. And why is that?
Because it's very hard to change those systems which we have, you know, like across the board. And it's... You know, like if I introduce a new asset management system, it's not just about a task for the IT department to change a program.
Then I need to train all my technicians to use the new asset management system. And I need to transfer all the data from the old systems into the new system. So it's a huge transformation. And that the report shows that we are at very different stages of maturity, you know, across the board, across all utilities.
in these different fields. Let's give the audience just a little bit of a flavor. You said asset management.
Is that, that's not the financial asset management. This is asset tracking. This is, this is every single...
I'm an engineer. I'm not a financial guy. We have a mixed audience. So I just wanted, that's why I wanted just, you know, what is your asset tracking or asset management system? What does it do?
Just the very brief version so people can get a sense of how complex, even this, in a sense, that's just one part of digitizing your entire operation. But just give us a very quick sense. Yeah.
For example, E.ON. We have 130,000 medium low voltage transformers standing around. And so in asset management is about what transformers do we have, where, what is their history, when do we need to do maintenance on them, how are they connected to the cables and to the customers.
And if I then plan for extending the network, where do I need to add new transformers and new switch yard. Where do I need to strengthen the line behind it? So asset management is about the full inventory of the assets which are distributed all over Europe. In my case, in 11 countries. All over Europe, I have these assets.
All over Europe, I have teams running around that do maintain them. And this is what the asset management is about. It's about the physical management, new construction, replacement, repair, maintenance of all these assets. This is what we do in asset management. That gives a great perspective because...
That's probably a piece of this system that many people in the audience won't have thought about. They think about it, and you haven't even got on to generate, well, you don't generate, but dispatching and matching and balancing and billing and all the others. So now, we just heard in the session where I was on the stage, Arshad from EPRI, who said… The great guy, Arshad Manzoor.
Arshad Manzoor from EPRI, and I really enjoyed the conversation. But one of the things that he was postulating, that we're in this new world of machine learning and AI… all you need is you upload all of your data you're making it too complicated you upload all of your data to chat gpt and just ask it about preventative maintenance or predictive maintenance ask it and it will tell you where to add this where to add it because it's going to be a human brain and everything's going to be solved yeah i'm joking of course but i'm i'm drawing the conversation on to to what extent does do these new technologies make your life easier or do they actually make them harder i think actually both yeah so like Actually, I disagree with something you said on the stage, and I'll repeat it for the audience in a second. So they make it, first, let's start why they make it harder. Actually, what Usher shows is that we have a huge request for additional capacity coming from AI, which we see in the US.
And actually, if I do an investor roadshow these days, I get asked for that all the time. And so... And actually, if we get even close to the demand that he showed, we would have a huge problem because this capacity we would really struggle to provide. And that's because the data centers for AI are gigawatts.
They're not like a few tens of megawatts or 100 megawatts. These are really, really substantial demands. Absolutely substantial. And to be very fair, we see part of that already today around Frankfurt, which is one of my supply areas. which is one, the internet breakout, which goes through the North Atlantic, arrives in Frankfurt for historic reasons.
I think NATO was part of it. But anyway, and so everybody wants to have a data center around Frankfurt. We have connection requests in Frankfurt for 3,000 megawatts. And the grid will not support 3,000 megawatts.
No way. And so we have that all over the place. Now, Asher Manzour was showing that Texas in the next six years.
would add the capacity of Germany. Actually, I don't believe that. I'm not sure whether that makes sense. Because I actually have an NVIDIA chip on my gaming computer at home, and it's extremely energy inefficient. You can realize it produces a lot of heat.
Why? Because nobody cared about energy consumption as long as it was only for the gaming industry. But now I think, you know, like if you look at this, they will come up with innovation and the next chips will be much.
much much much more energy efficient at this point you're actually agreeing with what i said on stage i agree but it will still mean it's gonna be significantly more consumption and capacity and it's baseload capacity which they're asking which is not making our life easier so so that's making it i think more complex um on the other side uh so i'm i'm agreeing with you also that machine learning is not gonna substitute you us. I'm completely relaxed. You know, we had this discussion when the mobile comes on, we don't need any managers anymore because they can be so efficient. And then the email came and said, well, if we email and the mobile, we will come around with less 10% of the management that we had in the past. It's all stupid.
Now we actually have 20% more managers just doing email. Yeah, most of them unnecessary. So actually, I'm completely relaxed about machine learning AI, but AI will be part of it of our life.
as the mobile and the email is. And it will transform the way we work. So actually, I think it's like even, so I don't care.
It's an irrelevant discussion whether AI is going to replace the human brain or not. It's going to add to the human brain. It's going to be there and it's going to be a reality as the mobile and as email.
So that, and personally, I believe, so AI is not going to replace brains, but brains with AI are going to be replaced brains without AI, yeah. So that would be my... And so the grid operator of the future needs to have AI as a part of it.
Personally, I don't believe generative AI is actually the big solution. I think we need other AI tools. But without AI, we will not be able to run the grids of the future.
And so the bit that you... disagreed with. I'm trying to pass it because, I mean, essentially, that's what I think as well. It's exactly the same. It is a substantial source of demand for the grid.
You played it down a little bit by saying, my brain is going to still be there. It's partly because Arshad was saying that it's a fantastic project, it's the human brain. And I was just thinking, actually, when he was saying how massive the demand of Germany, just in Texas, for OVN.
But think about the problems that we could solve, Fian. You know what? The thought that I had when he was describing that was how unbelievably energy efficient the human brain must be.
Because we don't need three megawatts to do this stuff. We need a few hundred watts. But actually, maybe we put AI, the first task that we put to AI is to come up with an architecture which is as energy efficient as the human brain.
I think it melts if you ask it questions about itself. But let me do this. You've got these two reports.
Okay, that's great. And they chart a very clear direction forwards for Europe. This transition that we talk about, though, it has to be global.
It has to be global. And, of course, it has to be. That means it's sort of, in a sense, easier in U.S., Europe. the G20, where effectively energy demand has been dropping and we might now see some growth.
But we've got to do it also in Asia and in Africa. And where are the skills? Where is the finance? I spend a lot of time also talking to people about the global south.
These same challenges, hopefully, will occur in the global south. If they don't, then they're just using gas and coal and the climate. You can forget the climate. It's screwed.
Yeah, personally, I believe the decarbonization challenge, if I may put it this way, is going to be answered in India and Africa. In fact, China is on its way. China is on its way.
Europe and North America are on their way. And if you look, where is really the population growth? Where will there be an increase of energy consumption? It is Africa, where we will see a doubling of the population in the next years. And India, which is by far the largest, it's actually larger than China now, and it still has to catch up on energy consumption per capita.
So those are the areas where it will be decided whether we are successful in decarbonizing fast enough or not. And I'm not trying to downplay now Europe or whatever, but just from the numbers then. And I think the key point is, do they repeat the path that we have gone?
Or leapfrog. Or leapfrog. Yeah.
So this is why I'm saying this is where. Really, it's going to be decided whether climate action is successful or not. If they don't leapfrog, we will not be successful because we cannot compensate for that in the rest of the world. So this is maybe the one point.
And actually, but actually, I'm optimistic because why would they not leapfrog and take all the smart technologies? Right. But I do have a question for you, though, which is there's different sorts of optimism.
There's passive optimism saying they're smart, they'll use smart technologies. There's active optimism that says that I, Leo Birnbaum, will do what it takes to help them adopt the smart technologies. How much of your time, do you spend any of your time in all the Stiftungs and all of the Verbände and so on?
Are you helping with that transfer, that leapfrogging process? And the answer is not, no. Sincerely, no. Yes, I am active in some association. I'm willing to actually share my experiences.
But E.ON is clearly a European company and we are focused on the European energy transition. And you're like, in my time, I'm CEO now for three years, we have increased investment from 21 billion. So we had a five-year rolling investment plan. We invest 21 billion every five years.
Now we're investing 42 billion, just three years later, from 21 to 42 billion. So it's a, and we have increased workforce with. increased everything.
So like my guys are busy day and night just delivering on that. And so like I'm modest enough to say, you know, I have nothing that I saw. There's nothing that I can tell to people in India.
They would say, I come to India now to help you because they don't need it. They have the engineers, they have the IT, they actually can do it without myself. So I'm focused on Europe.
And actually, that keeps me busy day and night. Yes, I'm fascinated because your predecessor at Neuroelectric as chair, Francesco Staracci, who was CEO of Enel, was nevertheless very active personally and through Enel in technology transfer, knowledge transfer, being involved at the UN level in things like... I met him in Sustainable Energy for All, which became SDG7. I'm probing at the kind of the social responsibility side of this transition. Yeah, I'm in the World Energy Council where I was long enough in the World Energy Council where I did exactly that.
I tried to share the studies committee where we try to share expertise. I have visited every exchange between North America and Europe. What can we learn? We have as in. And Euroelectric president, Euroelectric, we do an international energy summit where the energy associations of Japan, Australia, the Americas and Europe actually meet and exchange their experiences on a global scale.
So, yes, I participate. But you have been asking, what do I do kind of like in the sense of my company? And then sincerely, my company is focused on their markets.
And it makes no sense to overburden my company by saying, let's do a little marginal activity somewhere. where really we have no expertise. So one of the subtexts at this conference, it was grids and it was digitization, and it's been absolutely fantastic. But there was throughout a sort of undertone, which was of Europe's problems, Europe's difficulties. So the AI, where it's really the US that has taken a huge lead, possibly with China as well.
And then I actually showed the chart of the penetration of... rush of China into all of it, whether it's wind, whether it's solar, whether it's batteries, whether it's minerals, it's 80% to 90% or even more right across the supply chains. And there was a sort of, there was a little bit of an undercurrent of, I would say, pessimism about Europe. High energy costs and low innovation and high regulation. And there were lots of people saying this has to be fixed.
It has to be fixed. But I didn't really hear very many solutions coming out. Yeah, I think I said it yesterday. I don't know in which session.
We need to focus more on the opportunities than on the risk. We have a tendency in Europe. to focus on risks.
I mean, take the AI Act. We actually are now proud that we are the first ones to regulate it on a worldwide basis. But nobody regulates itself to the top in innovation.
You're either the most innovative one or you're just irrelevant. And the belief that actually regulation is going to make you relevant, I just question it. And the same is, we need to see the opportunities of new industries evolving as a growth option. We need to look more at how can we grow, how can we actually find opportunities in the new technologies rather than what is the risk actually, you know, like why should we not do something.
And I think this pessimism that we have observed, and I agree with you, is because we are too focused on the risks and we are not focused enough on the opportunities. We are too focused on our weaknesses, not enough on our strengths. And as a result, We see a slow decline and actually the reports are really clear. You know, you take any indication, patents, patents by industry, patents application, the market cap of companies, GDP development. In every single KPI, Europe is losing relative grounds.
And actually versus China, fine, you know, because they were catching up over the last decade. But also versus the US. We were all power with the US 15 years ago and now we are clearly behind the US. And so... We need to change that momentum in Europe.
That's absolutely essential. Now, there's another European initiative that you're part of as a company, which I found fascinating, which was the voting, the encouraging. There's 30 organizations, Aon is one of them, that have said people should vote. You've got the upcoming European elections.
Yes. And it's called We Stand for Values, I think. And can you explain why did you decide?
Because a lot of companies are… don't want to get involved in political choices. It's a dangerous space, perhaps particularly dangerous for, or it has some historic resonances for German companies, which has led to a real desire to stay out of politics. But here you are really, and it's pretty clearly encouraging people to vote for pro-European solutions, pro-European parties.
Now you can criticize a lot about the EU, but without Europe, we are all irrelevant. It's like, You take any European member state, including Germany being the largest, where even Germany is irrelevant on a global scale. So the solution for Europe, for any European member state, can only be Europe. It's the only way to stay relevant.
So do you want to discuss with Xi Jinping or Biden or maybe Trump or whomever, do you want to discuss that as the prime minister of the Netherlands or of Hungary or even of Germany? No, you don't. We need more Europe.
So there are certain things that only Europe can fix. We know that without European energy markets, we would have been toast in the last years. So the only solution for safe energy supply is a European energy market.
Only with a European capital market do we have the pockets to actually finance all the investments. If we don't have a European financial market, actually, we will struggle to finance the energy transition. And we will be depending on US financial markets. Only with a European...
a market for pharma actually can as wherever you go more europe is the solution it's like and this is what we want to make absolutely clear take the european elections seriously our future is europe maybe we should adjust lots of what we're doing in europe but the future is europe nevertheless the future is not the individual member states i absolutely believe in this is the number one reason why we actually supported it the second one is We shouldn't by accident now, you know, just we shouldn't have an accident on Europe like the UK had. Yeah. And so we said it's important that you engage and it's important that you also think who is really a constructive force.
And don't use now Europe, you know, to do whatever, for whatever national protest you want to have, because that's too expensive. The price is too high. We can't use Europe as a bargaining chip for local.
discussions. So vote on the European level and vote pro-European and then whatever it is. But don't just neglect it. So this is, I'm really passionate about it.
The future of everybody in Europe is within Europe or we have no future. Look, it's fascinating. I don't want to re-litigate Brexit, but there are parts of that that I would, you know, because I'm thinking as you speak about, let's say, South Korea or Japan. They're not in a Europe-style federation, right?
They are perfectly viable sovereign countries. Should they cooperate more closely with each other? It's very interesting. As an investor in X-Lynx, building 4,000-kilometer HVDC cables, and you look at Asia and you think, well, you know, there's this assumption. that we can't have a HVDC supergrid.
Of course we could, and we should. Do we need to be in these kind of federal arrangements to do those sorts of things? I would say no, but I actually want, we've got very few minutes left.
I'm sorry, no, no, no. This is the Brexit reporter you're speaking. Correct. Yeah, but actually I disagree. Is it like...
Okay. It is. But look, even at the examples you say, they are also looking for partners. You can't live in this world, yeah, standalone. Nation states are too small.
You need to have a friend. And Europe is the best choice that we have to actually have lots of friends and lots of partners with whom you have joint interest. And this we should really push forward.
And the UK, you know, we're off, you know, signing with TPCPP with Asia. There are other alternatives, but I would love to do it. Maybe after this, when we cut the recording. In hindsight, I think, in hindsight, I regret a little bit that companies have not been more explicit on what they think about Brexit.
Okay. Let's leave it there. Because it can consume the conversations, which is in a pleasant way, but not for the podcast. I do want to jump into one thing, which is capital markets. You said this in your opening remarks at the conference.
And that's one area where, you know, I do think the choice is not Frankfurt versus New York. You've got London and London has come through for better or for worse. It has come through Brexit actually in really pretty good health. It's attracting more fintech investment. So why is London not still the obvious solution?
Rather than, you know, because that. The attempt to kind of take over London and Amsterdam or Frankfurt or Paris, that has not worked and it will not work. So surely you should have a kind of a, we should have a re-coming together around the capital markets to fund these vast tens of billions that you need, you know, in Europe for what we're talking about here at this conference. You're out of the EU. That's the problem.
Why is it a problem? I mean, it's like, I'm not the finance expert. You should talk to bankers. But it's like, if you want to have. a joint capital market and a banking union, you need to have kind of like a joint regulation.
Now, the UK decided we want to be a separate regulation. All right, fine, separate regulation. Now, that means European regulation is not valid in the UK, but that means kind of like we have now two markets.
And now it's like, see, if there would be political will, you could think about all kinds of things, but there was no political will. on both sides. And so, I mean, we can't forget about it.
So either, so what we now need as a European market and is fine. Yes, I agree. The solution is not Frankfurt, but we need one capital market.
It's like, it's not liquid enough yet. The money is here. There is enough money in Europe, but the access to the money works through other capital markets. And that is unacceptable. So we invest into funds in the US.
Yeah. and then we tap into those markets to bring the money back to us. That we shouldn't do.
Now, last question. You've got another year or two to go as Euroelectric president, one year more. What are the priorities for just the rest of your term as president or chair of Euroelectric?
Yeah, so we had really kind of like the first priority, which we had in 22, 23, was kind of keeping the markets afloat. surviving this technology. Yeah, this electric design was actually, I think in the hindsight, solution was pretty good. The second priority, which we had is put grids on the agenda. We talked about it today.
The third one is security of supply and a fair deal for consumers because now we need to prepare for this new world. And what is a fair distribution of risks and benefit between the investors, the generators, the distributors, and the customers? Affordability and risk and resilience. Yeah, but we didn't want to say affordability because then it always becomes a price discussion.
The fair distribution of risk and benefit also includes I need to make now huge investments into the grid, you know, which is a risk. You know, I need to have a benefit versus this risk. So it's more than just an affordability. Affordability is part of the risk and benefit distribution. But it's not all because affordability is only the end customer, but also the investors, the investors into renewables, the investor into grids need to have a chance to have a fair distribution of risk and benefits.
So that is the second year. Focus on that one plus security of supply. Very good. So I very much look forward to the research.
No doubt it'll be the same format. There'll be some research reports and there'll be some conference. I don't know if we'll have the same sort of beautiful beach and sun and wind as we have here.
Wind is picking up all the time during our podcast. If I was 20 years younger, I'd be going windsurfing. It would be. I mean, no complaints about your podcast, but windsurfing would be the podcast. For the two of us, but not for the listeners.
Break new ground with the podcast whilst windsurfing. It's been a great pleasure. Thank you so much for your time. Michael, a pleasure. So that was Leo Birnbaum.
CEO of German utility and distribution grid operator E.ON, and President of European Electricity Industry Association, Euroelectric, speaking about all things power, transmission, digital, and more. As always, we'll put links in the show notes to resources mentioned during our conversation. So that's Euroelectric and E.ON's websites, the Euroelectric Power Summit 2024 Lights On website, Euroelectric's two new reports on grids for speed and wired for tomorrow, which were released during the conference, and episode 34 of Cleaning Up with Christian Rubi, Secretary General of Euroelectric.
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