The Solar Journey
Episode #021 - Dr. Tim Meyer
Episode #021 with Torsten Brammer & Tim Meyer:
In this episode, Torsten Brammer talks to Tim Meyer, the owner of 3Epunkt, a consultancy for renewable solutions with renewable energy & sector coupling. Tim has more than 27 years of technology and management experience in the renewable energy and energy industry. Together with Torsten, he takes a closer look at our current situation in the European Energy market – specifically Germany. What challenges are we facing right now? How did we cope with the energy crisis so far? And what does it take to accelerate the renewable energy market to the next level?
#klimaschutz #energiewende #energiewirtschaft #renewables
Connect with Dr. Tim Meyer on LinkedIn.
The main showstopper for the acceleration of renewables in Germany is bureaucracy. But changing the regulations is very hard and the best thing would be to write a completely new energy law. Tim Meyer, the owner of 3Epunkt, a consultancy for renewable solutions with renewable energy & sector coupling, outlines approaches that have already been made and how the Stiftung Umweltenergierecht is involved in it.
Europe is right in the middle of an energy crisis. Certainly, the war in the Ukraine is the main trigger but is it also the root cause? Tim Meyer, the owner of 3Epunkt, a consultancy for renewable solutions with renewable energy & sector coupling, explains what really causes the high energy prices, it is the structure of the energy system itself.
Yes, we are facing big challenges to bring renewable energy to the next level. Storage technology is one of them. But Tim Meyer, the owner of 3Epunkt, a consultancy for renewable solutions with renewable energy & sector coupling, trusts in the engineers and entrepreneurs by saying “If there is a market for things, they will evolve”. So, let’s spread some optimism ☀️
[00:00:16.090] - Torsten
Hello, everybody, and welcome to a new episode of The Solar Journey. My guest today is Tim Meyer. Welcome to the show, Tim. Hi, Tim. Yeah. So Tim has been a renewable energy systems and energy markets enthusiast for over 27 years. He started his career in technology development and management at Fraunhofer Institute in Freiburk, Germany. After his time at Fraunhofer, he held several executive management positions in the first booming years of solar in Germany. Back then, just to give you an idea, he was the CTO of the German company called Ponergy, one of the big brands in the first industrial phase of solar. He then moved from tech to electricity trading. He founded his own startup called Greg. That's a German term in English, something like green electricity workshop or plant. So guru Schromberg provided regional green electricity solutions, and after a few years, his company was taken over by one of the German largest green electricity utilities called Natushcom. Tim stayed on board. He became a board member of Natushrom and stayed with Natushkom until January 2022. Since then, he has been enjoying his role as a strategy consultant and interim manager in the new energy industry.
[00:01:57.310] - Torsten
And now he enjoys having more time to engage in public discussions and writing posts on LinkedIn, as he can all see on LinkedIn. Again, very warm welcome, Tim.
[00:02:11.850] - Tim
For the kind introduction and long introduction.
[00:02:14.830] - Torsten
[00:02:16.010] - Tim
People must believe I'm pretty old now.
[00:02:20.990] - Torsten
Yeah. You started electrical engineering back then after school. Was that your obvious choice, or was it a hard decision for you to choose one or the other?
[00:02:38.690] - Tim
It was an obvious choice, really. I think back, it's difficult to explain why. Probably because my father was an electrical engineer, but he also was a lawyer, patent lawyer.
[00:02:54.330] - Torsten
I am. Okay.
[00:02:56.150] - Tim
I was in contact to electrical engineering, and there wasn't too much of thinking going on in my head back then.
[00:03:03.920] - Torsten
Yeah. So it was the natural decision, more or less.
[00:03:08.780] - Tim
And I liked it. Of course. I'm an engineer of our hearts in a circumstance.
[00:03:15.690] - Torsten
Okay, excellent. Just like me. You studied in Calswear, Germany. How did you end up in the Rhine Valley?
[00:03:26.210] - Tim
I studied in really, my PhD theater.
[00:03:30.450] - Torsten
[00:03:31.170] - Tim
My professor was in Caldswood.
[00:03:33.320] - Torsten
[00:03:33.720] - Tim
But physically, I spent that time in Freibur college. Most of my time I was in front of her, and my professor was in carswood, so I didn't really live in carswood.
[00:03:47.100] - Torsten
All right. Okay. So you studied electrical engineering. You were at the front of an institute, let's say the most prestigious solar R and D institute in Germany. Why did you choose solar? When did your interest in college, et cetera, start? Was there a special trigger.
[00:04:18.050] - Tim
Already? As a teenager, I found that something's going wrong. I couldn't put my finger on it, but I said, no, the way we treat our planet can't be right. And of course, there was Chernobyl as the main disaster that really made everybody understand this might not be the right track to go for energy, but for me it was all still pretty vague. So it was in arson actually when I studied that I got more and more in contact to real ecology topics first other environmental things and then really energy. And my diploma thesis was on a developing a module, integrated Power inverter back in the early 90s. That was fancy stuff.
[00:05:13.650] - Torsten
Yeah, interesting. Cool. And so you spent a lot of time, your initial career in solar technology as an engineer, but also in management. What made you switch to switch to the electricity market, to trading electricity, buying and selling electricity?
[00:05:38.590] - Tim
Well, actually there were two points. One was after leaving Franofa, which was more like going into industry to make things happen more and to be able to create things and make business actually. And that was in more or less classical solar industry, as you mentioned. And back then I did quite some restructuring, was a restructuring case, the earliest in the industry. There were some heavy management mistakes made. So this company crashed first, which was interesting to see because I learned a lot about restructuring companies. But that learning lots of things. But it was like around 2011 twelve, when also the German boom came to an end and it was more or less the race for cost down. Right? That was the industry mechanics. And for me I thought, well, first of all, I have done that now for a couple of years, it's a little bit boring for me. Then I asked, well, it's not only about cost down. As an engineer I was quite optimistic that at the end PV will be the cheapest energy technology, but the key question was how to use it and not on the technical side, how to use it, but how to integrate into energy markets and systems.
[00:07:10.190] - Tim
And that's really why I left solar industry down, to say no, there must be more. And so I did some consulting and out of that I founded Gregsonback, that small utility that was specialized as a first company in Germany to make electricity tariffs and products for end customers out of PV electricity, to use the electricity as a product rather than self consumption or other things. That's easy. It's really utility business.
[00:07:43.010] - Torsten
What made you start your own company? You couldn't find a similar solution in the market and you thought that's an innovative business model or what triggered you to start your own, to start Green spoonback?
[00:07:59.210] - Tim
Well, certainly the utility business in Germany was very conservative back then. It's still in large share of relatively conservative. So yes, there wasn't a similar solution around. I could just say, oh, I go to that company, but also I just wanted to run an old company, I just wanted to try as you know, or maybe no, you have the same experience. But to start up your own company, you also have to have some navy. So just to believe, oh, it's going to work and then you see the real problems later on. But you would never start problems right ahead. So I just wanted to try I was a position happily that I had the opportunity to do. So I met the right people.
[00:08:55.130] - Torsten
Okay, so you just mentioned you started a company and then you suddenly surprised what kind of issues you were facing and you need to come up with a solution. What would you say is the most important lesson you learned from starting up and running a company? So as an advice to potential founders or even senior management, what would you, what's your biggest learning?
[00:09:27.590] - Tim
Maybe there are two. One is of course always when you start, you have to be, as I mentioned, a little bit naive. Just believe that's going to be great and don't worry too much because otherwise you will never start. But on the long run it can be really time consuming, energy consuming to do all the financing routes. So that was at the end for us. Also we saw it's better to be taken over by natural form, which was a great case for us because just the perfect company fit. But it's really you cannot only do your business building and stuff. You need to have the financing in the right park for that to go the next in the third round. And we struggled with that a little bit. We had a small team financing company in the beginning and it wasn't really built from the beginning to do further financing loans. And the point is that the timing is really difficult to find just to start when you have to start. We were a little bit early on, we had a pretty complex business model which was utility business and tried to explain venture capitalists utility business, right.
[00:10:52.390] - Tim
They knew how to build a PV system or how to finance PB projects. But utility business is completely far off for them. So it took a long time to build that business and it's now that it's running right after many, many years. Also in the twistal, we continue, but we were a little bit early on actually. So we underestimated the complexity of the business model we chosen and then you just need time.
[00:11:22.490] - Torsten
Okay, excellent, thanks. So timing definitely requires some luck, I would also say, right, you can make lots of analysis, but in the end you just need to try. I would now like to jump right into the presents and potentially also a bit into the future. As an expert on trading electricity and as an expert on energy markets in general, how do you see the current situation? So Germany and Europe, you could call it an energy crisis, prices went up dramatically. What exactly are the causes? Of course, everybody talks about the prices, about the war in Ukraine. Is that the only thing? Is that the only thing that triggered the price spikes.
[00:12:26.430] - Tim
So it certainly was a trigger, but not the root cause. And there were several root causes and several circumstances bad luck that matched quite well. So I believe the root cause is that Europe, but particularly Germany, has maneuvered itself into a huge dependency from Russian pipeline transported gas. Right? And there were many bad decisions made in the past decade that led us there. The real wood cause is the dependency on a single source and a single source that let's say on the political and geostrategic side, not a good partner. Definitely not. So that was one of the root causes. And then there are other circumstances that were bad luck, which is that in the same year we had huge problems in France. France had huge problems with his nuclear fleet. So French electricity production was declining the years before already but last year went down 25%, just not there due to problems with safety, with cooling of the plants during hot summertime, some strikes there was a shortfall of electricity in France and other minor effects, like also dry summer shortfall of hydro power in Europe. So there are many factors altogether. So yes, Ukraine was the trigger, but the structure we had in Europe, the energy system, that was the real good cause.
[00:14:17.410] - Torsten
How does coping work for us and for our European neighbors in the current situation?
[00:14:25.730] - Tim
I did not the same very well. That's strange maybe because if you look at German newspapers and public discussion it's like everything's and everything's dramatic and yes, this is a dramatic crisis, definitely. But particularly it is for households and industry that has to cope with high prices for a certain time now. Right? So we have to think about measures, how to help these people. But generally, if you would have asked any expert before Russia related to Ukraine, if you would have asked any expert what would happen if you just switch off gas from Russia within a few months disaster. And even Germany, we had all these big discussions about we have to switch off the gas, the industry will not work, we will have a recession by 12%. This all did not happen. We managed as Germany, as Europe. It's a big European success story. We managed to this crisis at a relatively solid level. We didn't have, at least in Germany, no blackouts. The winter was well managed, we had other gas capacities, quickly developed even recession now isn't a big topic anymore. Yes, we have huge prices. We come to that later.
[00:15:55.780] - Torsten
[00:15:55.990] - Tim
This is also helpful, but I think we are coping a lot better than one could think. If you look at English papers yeah.
[00:16:07.830] - Torsten
It is like that, right? So we were expecting here in Germany to have cold households and that the industry has to shut down its factories and all that didn't work. All that didn't happen, fortunately. So what do you think? What have we learned? What have we achieved? And what still needs to be done.
[00:16:32.430] - Tim
[00:16:35.710] - Torsten
Let's start with the learning.
[00:16:36.880] - Tim
We're in the middle of learning things still, right? Because in Germany the discussion is very overheated. So people are more exciting on really different positions. But I think we learned, first of all, Europe is great as a structure for such situations, to share infrastructure, to help out with energy. So we receive a lot of gas from the Netherlands, from Norway. Well, they earned a lot of money with it. Actually. We help France with our electricity and so forth. So it's really good to have also strong interconnectors in the electricity grid that's all value we have. We also learned that apparently if there's a real crisis, we are able to act. If you look at the discussion in Germany on the LNG terminal, that was fast. It was really fast to get these things right. Also on many measures that have been taken, not only in Germany, also in Europe, the last decisions on European level, not only on energy crisis, but on climate, technology and change. It's good, right? So we have learned that we are able to move if there's a real danger. The point, what we need to learn is that climate change is a real danger.
[00:18:03.390] - Tim
And just because it's not today that I don't know, we have code home, no reason to wait. So that's something we still have to learn. And we have to learn, I think, in political discussion, that transformation of infrastructure is a process. And our discussion culture does not work towards value in such a process. It's always about oh no, prices are high, we have a huge problem. This price shows that a renewable energy system will never work. We had that discussion in early December and Germany quite fascinating. We had two weeks, very cold, still win. So energy prices and electricity prices sky high. And you could see all these posts and all these messages and the newspapers. This shows renewable systems don't work because if there is no renewable, we have a problem, we need gas. And even ultimately, two weeks later there was a steep fall, so we had much more wind and was warmer and prices really went down. Then the other voices came. We knew it was like right. And sure, that's true, but how could this be? That as if you live in two separate countries. You have to combine these positions and you have to learn that value at a certain point of time, doesn't say anything.
[00:19:40.810] - Tim
So you need to think of systems and transition paths and of course we need storage and so forth. And it's difficult in Germany today, I believe, to really have a good fact based discussion on what's the target system we are going for and what is the transition part and the steps we need. So we waste lots of time with really strange discussions on nuclear.
[00:20:06.850] - Torsten
So you just mentioned the aspect of energy security and on the other side, the transition to renewables, how can that be matched? What's your vision? How can those two systems can be combined?
[00:20:32.810] - Tim
On the conventional side, I think you have to distinguish between something like gas fired power plants. We will need them for a certain time because it will take some time to build flexibility and storage in the system. We need to compensate for fluctuating renewables. It will take some time, but not too long. A bit careful that we don't build too many LNG terminals because we don't need them in ten years time maybe. But that's one part of the bill on conventional and transition parts. The other one is the so called base power plants like nuclear. It's completely different story because they just don't fit into the system design. Right. Flexible power plants, I guess it does fit to renewables for transition time because it can compensate fluctuations. Nuclear, just nuclear isn't flexible. So we had that discussion in Germany on the last three nuclear power plants still operating and whether we should prolong and prolong and prolong and go further. And this is not only not necessary, but it can become a real blocking point because they are not flexible and you have to cut off the waste redispatch. Or is it called more and more renewables because the grid is just full of nuclear power in the northern part of Germany.
[00:22:01.660] - Tim
It's the case with the nuclear power plant. So there's so much more background effect you need to consider in these discussions. But it's a pure political topic and so it's difficult to get that level of differentiation. But back to your question. So we need something like gas for a certain time to compensate for fluctuations until we have sufficient storage and flexibility in the system and so called base load we need to switch off as soon as possible, which is nuclear and ignite.
[00:22:49.750] - Torsten
Do you dare to give us a year when we turn off the last gas fired electricity plant?
[00:23:01.290] - Tim
Well, difficult to dare. The final date is set by our climate targets. Of course. I would believe it's even more important to think about and discuss the last day of Lignite because that's much more CO2 intensive, much more emissions. And after the last decisions on European level, what I just mentioned, the Potsam Institute for example, one of the biggest institutes on climate change in Germany and also the economics behind said with these decisions it might take only until 2030 until Lignite is just switched off for cost reasons. And that's really good news, right? And if you manage the market right also gas will phase out when it's early because it just doesn't earn money anymore.
[00:24:07.710] - Torsten
What kind of storage do you see then if we turn off gasfired power plants? So how do we manage? Will we manage times when there's no wind and no sun? I think that will be a big question.
[00:24:25.990] - Tim
There will be two timescales we have to consider, of course, one is the short term fluctuation daily basis, for example. That's easy if you see the current spreads in the market, spread means from lowest price of electricity to highest price of electricity, within one day there's a huge spread. And that's just business model for storage. So with battery storage or other kinds of flexibility, like customers using flexibility, shifting loads, I'm very confident there will be so much business model for this that we don't have to care about or does not have to worry about flexibility.
[00:25:09.230] - Torsten
On short term, what kind of storage technology will be used? There's various, let's say, batteries possible. Do you have an opinion on that?
[00:25:23.290] - Tim
No, I'm too little an expert on the individual technologies, but engineered on cleaner, I would say we haven't seen most of them yet. So there's so much market, so much growth. There are new technologies not only being developed, but also being introduced into market. It's again what I had before the discussion on transition path, it's a pathway we have to go today. The argument is, oh, we don't have all the lithium we need and oh, the way we get the lithium is not good. So how can we build a whole system? Lithium, iron batteries, who talks about it's only lithium? We just don't know yet. So just trust the engineers and the entrepreneurs. If there's a market for things, they will evolve very fast. If you look at the growth curve of solar PV, of batteries in the history of industrial energy, from starting from coal to oil to you have never seen such steep growth path in the last hundred years. So these technologies, they involve and grow so quickly have never been there before. So that's dynamics, market dynamics, industry dynamics and just we have to create the environment for that and that it will happen so long, long term, I don't have an idea what exact technologies will be, but don't worry, they will be enough.
[00:26:54.230] - Torsten
Okay, good to hear your optimism. You're an expert on energy trading. So when we talk about storage in the grid, is that already easily possible? Let's say in Germany, in Europe, in the world to harvest energy once there is oversupply, or if the prices are low, and then to redispatch it into the grid when the prices are good, or when there's a need. Are the regulations already in place to allow such business cases?
[00:27:40.290] - Tim
So it strongly depends by country, because energy is always highly regulated and very differently regulated in every country. So I can also kind of judge how it's in Australia, but there are many countries where are business models. In Germany we have the problem that our regulation is not yet made for a real 100% renewable energy system, also meaning for the integration and use of storage. So it's actually not easy today to make a business model just for storage. As a standalone thing you can create a business model if it's a storage to increase your self consumption as an industrial customer or household not only you can save or earn money on that, but also the regulation allows you to do certain things as a market actor just have a storage put somewhere and act in the market is much more difficult. So there needs to be change of regulation, further change of regulation to really make these multiple business models possible and to also change the way the grid fees, for example, in what case we have to pay them. I'm quite positive that this will be addressed by the government soon, but it's as of today, not yet really well regulated.
[00:29:12.350] - Torsten
So you just mentioned Australia and Elon Musk building, maybe one of the first big batteries there. And it seems that it works and that it makes sense from a business point. That's at least what I read. So what's different in Australia compared to Germany? When we talk about storage facilities, as.
[00:29:34.650] - Tim
I mentioned, I can't really judge because I don't know the Australian regulation well enough. Okay, but there are two points. One is, am I allowed to do certain things? And if I'm allowed, what do I have to pay for that? For the use of grid, for example. Right. And if that's too difficult, like in Germany, that's the main roadblock, the business case itself, like what is the spread in the market? How can I earn money? Can I make an Arbitrage or can I make reserve power business? I would believe in most countries there would be a case for it because the spreads in the market are very good and they are going to be higher and higher if you only put in more renewables without having that flexibility, of course.
[00:30:27.450] - Torsten
So when I understand you correctly, at least for Germany, the biggest threshold right now is what do I need to pay to the net operator for receiving and again sharing my electricity from the storage? Is that the case?
[00:30:47.010] - Tim
These two tools are certainly a major point.
[00:30:52.370] - Torsten
Then I would say, why is it so difficult? What's stopping us from changing or implementing the right regulations to allow for that?
[00:31:07.510] - Tim
My feeling is that particularly in energy regulation, Germany, we have over decay, just put new elements here and there to make certain things possible, to create certain applications. But we've never redesigned the whole legislation towards the future system. So it's thousands and thousands of pages of legal text. You have to understand. And if you are now the lawmaker, it's almost impossible to change something without having contradiction to other laws elsewhere. Right? And so I would believe the best thing would be just to write a clean new energy law.
[00:31:56.150] - Torsten
Are you working on it?
[00:31:57.910] - Tim
No, it's called stiff, Tommy. But it's a major legal not only think tank, they have very good concrete projects they are doing. They have proposed effective, all right? They referred to a big legislation overall, 1900 was the BGB, that's the major law, civil law in Germany. And before that there was chaos and then there was the BGB, which is a clean and consistent framework. And they proposed to have a similar thing. Now on energy, just throw away all the old trap, thousands of pages and different laws and sub laws and blah, blah, blah with all these contradictions in that. So even you have to discuss what's the consumer, what's the producer, it's not really clear in all the cases. So just clean up the whole mess and start over.
[00:32:50.870] - Torsten
What's the name of the institution?
[00:32:52.350] - Tim
Could you say that again?
[00:33:00.550] - Torsten
Interesting. Cool. Very good. They finished their work and they proposed it to politicians.
[00:33:10.830] - Tim
The project has not been fully carried out. Or if you started, I don't know, because you need money for that, it's not so easy. And my perception is that in politics, everybody is a little bit afraid of making such big overhaul moves because it takes very long. If you look at how discussions work in the political sphere, making big changes is difficult. It takes very long to get everybody on board so that you have the majority in the bundes tag and all the bundeskar and get all this through. And then there's the public share of the discussion, which is not fact based very often, but just more like feeling based and emotional daughter. So my impression is also the current government until today has mainly tried to put new elements on top of existing regulation to make things work, to accelerate things, which is good. They've just announced a major package of making regulation easier, right? In fuel cartesian, what's that term? It's less creation, less overhead and all these legal things for renewables. So we will have to see what comes out of that package.
[00:34:46.430] - Torsten
And do you think that's the key stumble block right now for the acceleration of renewables?
[00:34:56.090] - Tim
That's bureaucracy, that's the point. And it's even more dramatic for wind, of course, getting wind permits to build wind farms in Germany is just crazy. It takes like six to seven years and yet it's an endless process, way too slow. And but it's also for, for PV and storage and, and flexibility. We need flexibility. There is flexibility in the system. Industry could be more flexible if it pays. There's a business case for that. But regulation is just so difficult. So yes, that's the main roadblock for accelerating things. It's not so much the market, the prices, the subsidies. I don't believe that.
[00:35:43.340] - Torsten
We have the technology, we have the business cases. It's regulation that stops the transition or.
[00:35:52.680] - Tim
Slows down, at least slows down. We have a good pace now. We have new record on heat pump installations. It's on track, right? So the electrification of heat sector is on track. We have PV growth on track last year in terms of volumes and target volumes. And I think in PV we can continue growth rates now and when we are not on track, definitely not with flexibility, we are.
[00:36:25.370] - Torsten
In Germany again, there's a lot talk about hydrogen. It seems like in the public space, hydrogen is like the single piece that saves us. What do you think about the hydrogen Hype we observe.
[00:36:52.610] - Tim
As you describe? I mean, it's treated as a silver bullet. It's not we need hydrogen, or I tend to say we need molecules in our system, right? Because for the compensating seasonal fluctuations, that's not a battery storage, that's a molecule where you have chemical energy stored and can be hydrogen, ammonia whatsoever, just or some kind of synthetic methane, whatever. But we need molecules. So yes, we need that. We need it in industry processes to replace gas or other carbon based molecules. And we might need it for peak power purposes at certain times, but it's not the silver bullet. And my impression is, of course it's a hype. So large amount of money go in, which is fine, it's nice, but my impression is behind that there's one key driver for that I don't like so much. If you look at, particularly from the parties and actors, which for a long time supported the old system, the old centralized system, we had fossil bays, big power plants, these people still, I believe, mainly think in central structures. So if you look at certain parties say, oh, we need no nuclear fusion, that's the silver bullet. Complete nonsense.
[00:38:31.470] - Tim
It will be far too late to do anything about climate change or we need carbon capture and storage, that's a silver bullet for me. Again, nonsense. It's driven to be able to remain the old industry structure and have a big power plant and just dump the carbon dioxide, which is not proven and not safe yet. And similarly with hydrogen, it's a very much centralized technology. You can build huge electrolyzers, huge plants to make hydrogen and that's not so good. You can start making hydrogen for methane and dumping the carbon dioxide. So it's all big, big, big technology for big companies. Big old oil industry likes the idea, certainly. Big old gas industry likes the idea, certainly. So that's the dangerous part of that hype. That old industries that don't really have to drive for climate neutrality, they drive hydrogen. And that's, again, a little bit dangerous. We have to be very careful. That the good part of the hydrogen hype. That's innovation, it's growth, it's new market, maybe new industry leadership. This is really focused on the purely renewable energy system and the whole hydrogen can play in that system and not in the old system.
[00:40:01.570] - Torsten
I would agree. Right, and it's also about the monopoly in the distribution, right? So gas, you don't have five, six, seven pipelines in parallel. You always have just one pipeline and the one who runs the pipeline is the king. Right? And with a heavily decentralized energy systems, then everybody can create a business. The threshold is massively reduced. So what we have seen, and we've touched it several times we have seen a liberalization of the electricity or in general energy market I think it started around 2000 in Germany where are we today and what still needs to be done? We mentioned, let's say rewriting the code, is that the key thing? But could you be more precise on one or the other aspect which we still need and how it could help the transition to renewables?
[00:41:09.350] - Tim
First of all, we will make further big progress also with the old legal code, right? It's not the prerequisite to really get things going. I believe we should start that exercise now, so that we have at a certain point in time, fitting code. But it's not that we can't grow renewables today. We do already. On the liberalization side, I think many things are done relatively well. However, what I realized also in the energy crisis is that there's a new sort of interventionism. Right? So, of course, there's big, high prices. Everybody is afraid of who can pay the bill. So there's a big pressure on politics to do something about it. And that's intervention. And we've seen in Germany really bad interventions because they try to really go into market mechanisms, and that breaks the market. And what we now need is a functional market because high prices, scarcity pricing is the signal that the market works. A high price is the incentive to do investments for new business. So new generation capacity, flexibility and so forth. And if we deeply go into the market machinery and say, oh, we cut off the high prices, no investment, no change, right?
[00:42:48.940] - Tim
So that's really dangerous and now there's further intervention isn't discussed so should we do this and that? Should we have an industry price in Germany that's linked to offshore wind energy prices? So take off that share of the market. And I think that's a dangerous path to do the opposite of liberalization, but more state driven measures to somehow get control of things. And I believe that's the wrong way. So we need to stick on to liberalization. But the wrong part about the formal liberalization was the boundary conditions were not set right. So I strongly believe in the power of markets if they have the right boundary conditions, which is, in our case, thinking about climate change, sky high carbon emission prices, sky high prices and even obligations to do not make certain kind of use of environment for free like the German temple limit and speed limit. It's so crazy. So crazy you can't even have speed limit in German autobahns for some, I don't know, ecological reasons. The argument is it's our freedom. It's a liberal argument, right? So I believe in markets and the huge power of industry and money we need that power, that massive power but we have to channel it in a direction that helps for transformation or energy system for saving climate and the environment excellent.
[00:44:40.890] - Torsten
In order to promote renewables, there's a new tools which I call, for example, guarantees of origin. Then there's contracts for difference and there's carbon tax. Maybe you can explain those three first and then also tell us what do you think about them? Do we need more or do we need do they need to look differently? So maybe we start with guarantees of origin. Why do we need them and how do they work?
[00:45:13.650] - Tim
Well, first of all, guarantee of Origin says if I have a certain form of energy, for example, electricity generated from a renewable source, you not only get the commodity, so the electricity you can trade on markets, but also a paper of origin, a certificate, so that it's validated that this is clean energy, right? And you can trade these. It's very important. In the beginning of liberalization in Germany was the idea and the hope that with that you get customer choices, so that customers say I want clean energy, I'm willing to pay a little bit more, but I need a good COO certificate of origin to be sure it's the right form of energy. The bad thing is that first of all, the willingness to pay more. There is a small segment of customers willing to pay more, but most of them don't. So the market is flooded with not really valuable origin. Like in Germany, we have over 90% of our green electricity is from Scandinavia because they have all the hydropower. We just purchased their papers of green electricity and in return to Norwegians, they have German gold power, but they don't know because they see the hydro plants in front of them.
[00:46:45.350] - Tim
Apparently I get hydropower, but legally they don't. Legally they get green electricity, but they don't care because they don't know. And this system is a little bit broke and it would be good to also have tighter limits on that. And at a certain point of time, however, it will change because if everything is renewable, we don't need the certificate anymore, the screen anyway, but for the transition, it's a good influence, but it has a relatively it has an impact, but the cost cannot be too big. So it can move not so much money with it.
[00:47:28.830] - Torsten
Then there's carbon taxes. I think that's pretty straightforward, right? Who is it?
[00:47:33.430] - Tim
Hold on. Well understood. I think that's common sense. We need high carbon prices and even higher carbon prices. The good point is that besides carbon prices so cost companies have today for emitting carbon dioxide. They have understood that there's another value of renewables which is resilience, not being dependent on gas, for example, because you can buy certificates, of course, but if you can't buy gas anymore and this is really expensive, that's painful. So we need higher CO2 prices and I think the pathway is clear, the instrument is understood and accepted. I think that's fine.
[00:48:18.750] - Torsten
And then contracts for difference.
[00:48:23.950] - Tim
They are different instruments. They are all called like that I refer to as a very valid instrument, or interesting instrument in Germany is an arrangement of contracts for difference, for industry to support their transition to clean tech, right? So assume you have a steel or whatever industry production of whatever product and you want to switch to clean energy or fuel, switch from gas to electricity whatsoever. And you realize if you do so because it's still more expensive than what is done on the world market, you realize if I do so, I'm out of the market. Then you can make a theme that's currently under corporation in Germany that you offer your measure on a marketplace. Say I could invest €10 million in new tech, with that I save XYZ tons of carbon dioxide. And then the best offers get extra funding. So to subsidize down these difference costs you have against world market prices, so you can enable the switch to clean technology and don't suffer in world market environment with loss of business. I like a lot because it's not really going into market mechanisms, just giving support to companies that want to move faster than the market is.
[00:50:06.450] - Torsten
But why is it still more expensive? Right? If we say solar and wind is already the cheapest energy, then why would the switch cause higher costs? Is it because we talk about 24/7 availability and we don't have all the storage facilities in place? Or why is it more expensive?
[00:50:27.120] - Tim
So the main difference is that we in if you say PV and wind is the cheapest, that's true and it strongly applies to new plants, right? I want to have more capacity. That's the cheapest way to do. If I go to marginal cost of existing technology, of course others are still cheaper and in certain industrial processes it's really expensive to switch from gas to electricity, for example. And then they need to invest.
[00:50:56.280] - Torsten
That's why. Because they need to redesign the whole plan.
[00:51:00.130] - Tim
The whole manufacturing process has to be redesigned and that's just expenses. And many other countries, of course, they do ducting on the environment. So in Europe we have higher energy prices currently than in most parts of the world because we were so reliant on foreign gas. Of course, in other countries in the US and China, in Asia we have lower energy prices. So it's it's difficult to compete on that price level. That's why I'm a fan of such instruments to say okay, on the long run we will not be able to compete in our industrial production in Germany against Asian gas prices. If you have a certain process that needs gas, if you have to decide, do it here or there. On the energy side, the decision is clear. That's what BASF, the big chemical company, did years ago. They decided to make a new plant in China on certain processes and that in the long term will remain because the gas is there, it's cheaper. So we have to make a switch and say okay, our future industry should be built on new technologies that are cleaner, don't use so much gas, but maybe electricity or hydrogen whatsoever.
[00:52:20.360] - Tim
And this transition we can boost or at least support with these instruments to say the investment for the change of technology that's supported by subsidies, by governmental funds. Okay, excellent, but not the operation on the long term.
[00:52:43.350] - Torsten
Are there other tools or instruments we already talk about or should be implemented in the future to facilitate the transition to renewables?
[00:52:58.410] - Tim
I think we had all points like legislation making things easier, certain support schemes to really support the change of infrastructure. Of course we will need and that's a very important point for the political discussions. I think we need to do a lot more about our policy in terms of social policies and having an adjust system. Right? So today we often have the problem that if we change our energy systems, energy system might be that certain users have a higher bill for a certain time. If these are the poor people, it's very easy what happens, they just say no. Also for industry, right? So we have to change not only energy policy but also social policy and economic policy to adjust who carries what kind of what share of the burden. And this is not fair today. It's just not fair. And that's a very important discussion not to make social politics within energy politics we have a huge discussion on heat for tenants who pays what in Costarise? Very difficult to discuss. I would say just the user has to be at the cost because then the user has an interest to be efficient but then the user needs more money he can spend on energy.
[00:54:31.290] - Tim
That's social politics rather than energy politics.
[00:54:34.170] - Torsten
Yes. Great. Thanks, Tim. By nature we have been talking a lot about Germany, but I think it's because we are from Germany. We are in Germany. But I think also it's interesting because this is where the energy transition is in full speed. Still, let's broaden the scope. What's happening worldwide? Will the climate crisis and energy crisis bring new dynamics also to other countries? What's going on there? Maybe you can give us some examples.
[00:55:17.590] - Tim
Yeah, definitely it does. So at the end it's tragic, but I think the current energy crisis is the booster to decarbonisation of the global economy and one is climate crisis is now really understood as a threat by most governments in most countries. Is that new? That's new. But the second point is that resilience is also understood as a value. So not being dependent on geostrategic partners which turn out to be not even putting for example right, so you have to guess the Inflation Reduction Act, which is massive, just a massive program to not only change fuel, fuel mix and stuff like that on the energy sector, but also to build up industry in the US. Again for certain technologies to be more independent. And these kind of measures you've seen in many places, even in Australia there's now a discussion on how to get out of Lignite, which is really new. We haven't had that discussion before. We have we have Bozo naval gun, right, which is great news for climate change or for climate fighting climate change. That Brazil will certainly have new policy again. So there's many, many things going on. And on the general level, there was a very interesting study I read recently, if you look, how money flows change because anything that drives things and.
[00:57:04.230] - Torsten
[00:57:04.570] - Tim
Change of our industry is money. And the capital streams are so brutally changed now to clean tech, to new tech. That's a very good sign that globally things get into dynamics. And you see also that was more anecdotal that it's more and more difficult for all tech companies to hire talents to get people to do the job. Frankly, you are a solar guy for many years as well to work for dirty older company. Right, sorry. There will be listeners here in other companies. But just if you if you're a young, talented person you make a choice for you for a future life, what will you choose? Pretty easy, right? And so you have money flowing, you have talent flowing, everything goes into that direction. So the big track is just running off and I'm pretty convinced that globally the race is one already. The key question is will we be fast enough on the finish line? That's the point. How fast are we? But that we will do it with much more than in the last years. I think that's clearly you can see it on the numbers.
[00:58:28.530] - Torsten
Excellent. I'll take that as a very positive final statement. Tim, thanks a lot for coming onto the show and all the best for your future enterprises. Consultancy projects. Tetra, thanks for not having me.
[00:58:47.710] - Tim
Torsten. That's been fun.