Patrick Graichen is a State Secretary at the Federal Ministry for Economic Affairs and Climate Action. He has held this post since 15 December 2021 and is responsible for energy and climate policy.
From 2012, Graichen was instrumental in setting up the think tank Agora Energiewende, taking on the roles of Executive Director and Managing Director from 2014 until his move to the Federal Ministry for Economic Affairs and Climate Action.
He began his career in public service at the German Federal Ministry for the Environment, first as an officer in the Division for International Climate Protection, then as Personal Assistant to a State Secretary, and subsequently as Head of Division for Climate and Energy Policy. During this time, he played a leading role in negotiating the economic instruments of the Kyoto Protocol, the Federal Government's 2007 Integrated Energy and Climate Programme, the EU's 2008 Climate and Energy Package, and legislative procedures in the field of energy law.
Patrick Graichen studied Political Science and Economics in Heidelberg and Cambridge, UK, before going on to earn his doctorate at the Interdisciplinary Institute for Environmental Economics at the University of Heidelberg.
Michael Liebreich: Before we start, if you're enjoying these conversations, please make sure that you like or subscribe to Cleaning Up. It really helps other people to find us. Cleaning Up is brought to you by the Liebreich Foundation and the Gilardini Foundation. Hello, I'm Michael Liebreich and this is Cleaning Up. My guest today is Patrick Graichen. He is Secretary of State at the German Ministry for the Economy and Climate Action, and former Executive Director of Agora Energiewende. That's the leading German think tank behind the famous Energiewende. So please join me in welcoming Patrick Graichen to Cleaning Up. So, Minister Graichen, Patrick, how great to see you.
Patrick Graichen: Great to see you, Michael, I'm glad to be here.
ML: I'm trying to remember when we last met in person, and it would have been before the pandemic, of course, and actually quite far before it was, I think it might even have been 2017 when we sat down at one of your Agora Energiewende conferences. And actually, I think you interviewed me, that I believe was the last time that we met face to face.
PG: Yes, exactly. And you were telling the German audience, that it better get its grip together on electric cars, otherwise, we’re going to lose this industry. I remember that very well.
ML: That's right. It's very interesting that the, at that time, there was still a kind of rearguard action being fought to protect the internal combustion engine and so on, and we’ll get on to no doubt, the German car industry, and its attempt still to espouse hydrogen and other solutions. But you have now moved from the world of being the leading think tank, Agora Energiewende, there's a clue there, you were providing the analysis, the forecasting, the intellectual basis for the Energiewende. And now you are a minister. And, of course, all those reports where you said, we must do this, and the government must do that. That's now you, isn't it?
PG: Yeah, well, when I entered here into office, and the German term is State Secretary, so it's more the vice minister. But there was a journalist saying, we've never seen a state secretary where we can so much compare his announcements with his policy, and we will see what comes up in 100 days, because he already put out what the government needs to be doing in the first 100 days.
ML: Well, that's right. And in fact, you know, I have been going through and looking at a few old Agora Energiewende reports, because they presumably give a clue to what we're likely to see, although I suspect that you have other stakeholders around the Cabinet table that will be pushing back in various ways.
PG: Yeah. I mean, of course, we have a coalition treaty, which gives us a lot of push. But on the other hand, there's still so much that needs to be sorted out. And then you have coalition partners that have different views. We're in the midst of that.
ML: Right. And we are also in an extraordinary time. So, with the war on Ukraine, Russia's aggression against Ukraine, ongoing as we record this, and that changes a lot of things. So, in a way, that might be another reason why what you said last year is not necessarily what you're going to do this year. Because it seems to me sitting in London, that there's a very substantial rethinking of German energy policy going on as we speak. Is that a fair observation?
PG: Yes and no. It's a no because what is good for the energy transition is also good for making us independent of Russian imports. So, more renewables, more energy efficiency, electrification and green hydrogen as the four key pillars is a way to reduce carbon, but it's also a way to reduce our import dependency from Russia. Yes, there is an additional element that has now come to it. And that is diversification. I mean, we were really dependent on Russian imports, 50% coal, 50% gas, 35% oil, that's our import quota from Russia in the beginning of this year, and now we are gradually trying to get other sources and that has come on top of the table, and that is really the new element of February 24.
ML: Right and, you know, we'll come back I think can examine this proposition that the situation in Ukraine only accelerates the transition, because there are some short-term and some long-term implications of that. But before we do that, you are working right now on a package of policies, or the I think has been called the Easter package, Osternpaket, do you want to just outline that, give us the short version of what that is going to, what it includes, because that's working its way through the legislative system right now.
PG: Exactly. And that is basically what we prepared from day one once we came into office in mid December. And that is basically focusing on ramping up renewables. So, we have now a new target that is 80% renewable share in the power mix by 2030. And putting everything in place that needs to be done to get there. So, we have now ramped up auction volumes for wind offshore wind, onshore and solar PV, to numbers like, you know, 20 gigawatts solar per year, where you can really become a bit nervous about, but that's now our target. And that's what we will implement as of next year. And the same applies to wind onshore and wind offshore. Plus, you need grids for that. So we put additional grids into the law. And the third key element is, in essence, to fasten up and speed up the permitting process for all of this. So that's the real challenge. That's something we are now preparing. So that that comes in May to Cabinet, and then we have kind of the Easter and Pentecost package. And then if all goes well and heavens above are behind us, then we get that through by summer through Parliament. So that is in essence, the idea to really get the renewables up and running. And then the summer, just to conclude there, the efficiency package is to come to the Cabinet so that we reduce energy demand, which is, of course, the second key element.
ML: And there's also a heat package now is that part of the energy efficiency package, or is that something completely different?
PG: Now that's essentially there. So that's basically all about reducing energy demand, but also about switching basically to renewables in the heating sector. In essence, this will be now the heat pump revolution for Germany. And we have been laggards here. And we now want to come up to the, close up to the Scandinavians which are really frontrunners here. So as of 2024, for any new boiler, in Germany, any new heating system needs to have at least 65% renewable share. And that will in effect mean, almost always you go into the heat pump.
ML: Now is that also for retrofits, that's not just new build?
PG: That's also for retrofit, that's the key of it. And it'll mean in essence, last year, we had some 130,000 heat pumps installed in Germany, the overall heating system demand in Germany per year is some 800, 900 thousand. So, in essence, we're talking about increasing the heat pump market fourfold fivefold within the next 18 months. And that is a key challenge. I mean, our industry wasn't prepared for that. I know. But I mean, that's now what they need to ramp up in the next 18 months.
ML: Right. But there's the industry. And it's, you know, it's nice to see you taking the supply, you know, the supply side concerns first. But, you know, if you have somebody whose boiler packs up, that's it, done, need to replace it, they are going to be told, unless you can find a renewable energy gas, you have to replace it with a heat pump, which we know is considerably more expensive in the capital cost and it might require other changes to the fabric of the building. How are you going to navigate that? you're now on the political side? You can't just sit there and say, this needs to be done and the people just need to suck it up or whatever. You've got to solve that problem. Have you not?
PG: Well, yeah, Michael, welcome to my world. And it's exactly that. So, the combination will be how do we subsidise a heat pump so that it's not too expensive for households. And, of course, it is about finding ways so that we have all the installation and the plumbers and everything that that we need for that. And then maybe we'll need some sort of rule that if there's no heat pump available, and no one, then you have another half year or so. But, in essence, this is about really thinking it backwards and 2045, we need to be carbon neutral, that's the law. So, any new heating installed will last 20 years. So, anything that you build after 2024 has to have carbon neutrality in mind. That's the logic behind it. And now it's about really getting that through, and this summer will be hot in order to get actors behind that law.
ML: I think we need to give a little bit of context of some of those constraints. And there's been two in particular that I find fascinating. Well, three. We talked about the supply side. And, you know, you seem to have concerns about whether there are enough manufacturers of heat pumps. We've also got the supply side on solar panels, particularly where Germany, having invested hundreds of billions of euros has ended up with no manufacturers of note of solar panels. The second thing I would like to talk about is the planning acceleration that's required. Because the last few years have not been bonanza years for wind, particularly wind installations, and you have some very difficult rules to do with the spatial, where you're allowed to build a wind farm and how far from a habitation you're going to have to change quite a lot there. And then the third one that you've mentioned is the training, have we got enough plumbers, and so on. So maybe we can talk about those three constraints, which at this point, seem pretty daunting. I mean, this is what these three I believe, are really the reasons why German, you know, the Energiewende has effectively slowed down in the last, you know, almost a decade now.
PG: Yes, and that is the challenge. And they have kind of also, because of the policy of the past years, established themselves at a low level, in all, the whole value chain. And now what we want is basically to increase the whole value chain three to fourfold, in solar, in wind, in heat pumps and electric cars. In everything that we know, are the key technologies of the energy transition. And that’s the challenge, not so much changing the law and putting higher auction volumes in there. So, it is part of it is talking to industry and telling them this is real, invest now. And I could sometimes I'm really astonished that they don't believe that this is now what's going to happen. I mean, if you look at the European laws, I mean, it's very clear that that's the direction of travel for everyone out there. And then the second thing is we need to also speed up the processes, the permitting processes and the distances you were talking about. The question is how many birds does one have to observe for how long in order to get that nature conservation permit. And that's everything basically, for the next four weeks on my table. So, we're really trying to push everything that needs to be done through the next six months to Parliament. And that is, in essence, why I'm here.
ML: Now, let's take the first of my sort of chosen three constraints, though the supply chain. I'm an advisor to the UK Board of Trade, which was set up in the 17th century to regulate trade with at the time, Britain's colonies, and plantations and so on. And I can assure anybody listening, that is not what we do now. Not at all. In fact, it was got rid of during the years that the UK was in the EU, because there was no independent trade policy. And now it's back and I'm on that <inaudible> body. And one of the things that I believe that trade is vital to reduce the costs of clean energy solutions and transportation solutions and to accelerate the transition. But there's a lot of pressure in the world for local content rules and to capture local parts or to capture parts of the value chain locally to justify the population is not always 100% behind every single measure of the Energiewende or net zero transition. Let’s just put it that way. And so, the jobs are very important. Are we going to see either at the German level or the EU level, a local content push that will, I believe, ultimately harm the transition?
PG: I don't think we will have some sort of local content rules anywhere. But what I do see is a type of reshoring discussion because of the war, in essence, and because of the discussions that we're currently having, how much do we want to rely on China? So, in essence, it is about, we've basically relied on, there's everything available at the world market. Now we kind of see, well, maybe on coal, oil and gas, we were a bit dependent on Russia, and then we find out also for cables. The German car industry now has a problem, because those were manufactured in Ukraine. And we all know about the chip issue out of China. So I think that's rather coming back in terms of industrial policy. We want more of that to be produced, let's say at least in the free world, and not so much maybe a German discussion.
ML: Yeah, there's a wonderful word that I've heard. I don't know who came up with it. But it seems absolutely brilliant, which is called friendshoring.
PG: Yes, I think that is the discussion that we'll have. And also not to put too many eggs in one basket.
ML: Right. But when you say that, how confident are you? I mean Germany appears to be waking up from a sort of 20 year, maybe even a 25-year fever dream, where it became so reliant on Russia, one third of Germany's energy across coal, gas, oil, I think it's one third, maybe even more comes from Russia. And if you really wanted to be friendshored and resilient in your supply chains, that is wrenching change, I mean, the chips from Taiwan, the cables from Ukraine, obviously, you're going to have to sort out. But the reliance on China, it's just an enormous challenge, it's probably, I'm going to guess, 20 or 30% of the German economy would need to be sort of rewired and rerouted, and that's without even starting to think about food security, or agricultural commodities or whatever. It's probably a bigger number than that. Are you really doing that?
PG: You're perfectly right in the sense that basically, we were very much relying on that notion of free trade, free global trade will solve it. And we as an export nation, of course, we're always also counting on that when it comes to our exports. So we had kind of the same approach when it came to our imports. And I think the question that now comes here is that suddenly, there's geopolitics. And to be honest, Germany was never really good at geopolitics. And I think that is now only evolving. I can't tell you where we're ending up. But I mean, for example, we never had a law obliging that we have gas storage high enough so that we don't fear that it's cold in the winter. And then we ended up finding out that there were gas storages that were owned by Gazprom, and that they were empty at the beginning of this winter. Looking back, we know why. And we never had resource kind of stocks, that we would prepare ourselves for times when there was suddenly resource shortages, because we're all saying, okay, the market will deliver. So, I think it's that type of thinking, not so much it relying on every value chain and every just in time delivery, but rather thinking about stockpiles and more resilient that will now shape the coming years in Germany.
ML: So this is fascinating, because you described how you know, Germany puts its faith in the global trade system and globalisation of supply chains and is now having to rethink that and one thing that, what I'm trying to establish or trying to get my head around is, is this going to be a permanent change? Or does the situation in Ukraine resolve itself? Maybe some tensions with China resolve themselves? And we all go back to the fever dream years of being dependent? And so that's kind of question, that's the first half of a question. And I guess, you know, that, well, maybe I should, maybe I should sort of leave it there and see whether you think it will lapse back, or whether this is a permanent change in priorities.
PG: I do think it will be a permanent change insofar as we now more need to talk about stockpiling and less about just-in-time delivery, so that if there is a shakeup of global supply chains, there is the opportunity to adapt. And that may be, not really the harsh answer, saying we don't rely on global trade anymore. But it's back to, I'd say, what the status quo was some 20-25 years ago, when the firms had their stocks nearby, and didn't just rely on <inaudible>. And maybe one second thing might be, though, that it’s lasting. And that is, I don't think relationships with Russia will go back to the level before February 24 anytime soon. And that will mean we are entering a world of high prices, high coal, oil and gas prices. And that does have a huge effect, both on the energy transition, but also on the German economic model. I mean, we were kind of living off cheap Russian gas, our energy intensive industry, and how do we answer that? And my personal view would be, let's speed up our transition into green hydrogen. But that is a discussion we now need to have over the coming weeks.
ML: Right. Because I was going to wait until you finish but you actually made the point that I wanted to make, which is this is very inflationary. So, you keep a stockpile, you're a manufacturer, somebody has to pay for that stockpile. You lose flexibility and service and all sorts of other things as well, but, but it's inflationary. And then also, excluding certain types of certain producers or certain energy producers from the list of approved suppliers is also inflationary. So we are now, are we not, looking at unwinding 25 years of low inflation? And what is the, what is the policy response to that? How do we deal with the fact that people are going to be really hurting to meet their energy bills for a few years? But now what we're saying is, oh, by the way, that's the new normal, the energy prices, the prices of a washing machine of a car, they’re never going to go all the way back down. Because we've all got to price in the resilience as it were?
PG: Well, yes. I mean, it doesn't mean that you have permanent inflation. And in a way, I mean, others were paying that price, for example, our Polish neighbours, they were heavily investing into LNG, and they paid it and bought it on the world market, even though it was a lot more expensive than Russian gas. And that was in a way a geopolitical insurance premium that the Polish society was willing to pay, and we in Germany never did. So that's why we don't have an LNG terminal because it was never economic to do that. And I think that's the new element of it. That in essence, geopolitics and also insuring yourself in terms of defence policy, now, we're back in the 80s, in a way.
ML: And in fact, one of our early guests on Cleaning Up coined a great phrase. This was Roger Dennis, who's a futurologist based in New Zealand, and he said that resilience looks expensive before something happens and very cheap afterwards.
PG: Yeah, exactly. I mean, that's what insurance is about.
ML: Right. But the other question, the second half of my two-parter, which I'll come on to now is, does that also not mean that the state is going to be much more present in our economic life, telling people to have an LNG terminal telling Robert Bosch to keep more chips for its whatever it's making for the automotive sector. You want to buy an AEG washing machine, AEG is going to have to be told to keep stockpiles of whatever it is that it's buying from, whether it's from Taiwan or from even the, you know, eastern central Europe, isn't this just a recipe for a lot more state involvement, particularly obviously, in energy?
PG: Energy has always been shaped by governments and state involvement. So, in a way, I mean, I, kind of, don't accept that phrase that it was ever really a free market like chocolate or something like that. It's just different forms of regulating it. And now, we have two new paradigms. And that is more resilience. And the second is basically carbon neutrality. And we need to adapt regulation for that. I wouldn't, you know, maybe that's why I'm in government. I'm not afraid of having more state involvement here. As long as we're talking about efficiency and efficient outcomes as the ultimate goal.
ML: We may not be in the same place on the spectrum in terms of faith in government, of course, since I'm speaking to you, I have enormous faith in government to make the right choices. But that faith, I couldn't place in all government officials that I've ever met. But let me come back to this question of priorities. And let me postulate that Germany's priority stack before, let's go back a year before including perhaps even Glasgow COP 26. The number one top priority was the nuclear shutdown. And we know that because nuclear was shut before coal, so it must be nuclear, before climate, before cost, because fundamentally, Germany was quite wealthy, and there were costs, and they were being passed on to people with some very high electricity prices. And in last place, as we've already established, was the security issue, what I call the fever dream of reliance on Russia. So that was the stack, shut nuclear, then climate, then cost and then worry about security. And what we're saying now is that that has flipped, you've now got resilience and security pretty near to the top. Then, I don't know can you put those four things in order? Is it now climate second, or is it cost second? And where does the nuclear shutdown sit? It seems to be a little bit fluid?
PG: I've never thought about that stack. And I would probably frame it differently. Basically, it's the old discussion whether or not there is a tradeoff between climate and nuclear. And, of course, in all things being equal world since it was hard, ceteris paribus, as the economist would say, that is the tradeoff. In the German political context, that wasn't never the tradeoff. The tradeoff, was rather, there are climate targets, full stop, and are we going to reach them with more nuclear or more renewables, and therefore, it was rather renewables or nuclear that were kind of the discussions. And that's where the environmental scene in Germany was very much on the renewable side. But where are we now? I'd say the nuclear issue is basically gone and decided, I know that there were questions, why don't we prolong those three nuclear power plants that we still have online? Over the end of this year, at the end, we really looked into that. But those are old ones. We, the last time we did a security check for them was 2009. Normally, one has to do a thorough security check every 10 years, and the 2019 one was omitted, because in 2022, it would be over anyhow. So we need to do a thorough security check for them if we don't want to compromise on security issues, and we don't. And then they would be off for I don't know 12 months anyhow, and that's when we they might have been of any help. And since our real issue is gas, they wouldn't have been of any much help anyhow, because the gas that we still have happened the power system is CHP, so we're need to find basically solutions for the heat. So that maybe is a quick excourse to the nuclear issue. What I'm trying to do, and that's my 24 hours per day is that security, resilience and climate are not either or. But we're pushing both at the same time. The good news is I don't see contradictions there. The bad news is the day only has 24 hours. And what do I do with my time? What does my staff do with its time? And are we allocating now our efforts and time into the diversification and don't have that time to push the renewables and efficiency and electrification agenda? And that's where I see the risk, not only for us, but also for others, you only have so much, basically, capacity and resources. And if we divert that now, then we lose traction.
ML: Patrick, I want to come back to this question about whether climate and security are truly in lockstep or whether there are conflicts between those two, because the current situation we have, the war in Ukraine. And at the moment, as we speak, for all the headlines about what the EU is sending to Ukraine, the UK, Germany, the US all this military aid, humanitarian aid, financial aid, the fact is, it's dwarfed by the amount of money that the EU and even just Germany alone, is sending to Russia every day for oil and gas. And it just strikes me that if the words never again, mean something, they don't mean never again but starting in 2025, they surely mean never again, even if there's a social sacrifice, maybe people have to have colder homes, or maybe there's a recession and industry suffers. But is there not a strong argument for an absolutist approach that says come Christmas, or even today would be good, no more gas. And I think gas is the issue, you know, oil, the EU is already working on. I believe Germany is in accord with that. Hungary, of course, being difficult, as we know, but we will be off oil because we can buy that anywhere in the world and put it on a tanker. But gas is the problem because it's delivered by pipeline. But that doesn't mean you can't just turn the valve, shut the pipeline, you could.
PG: Yes, that is, of course, the difficult question. And I mean, you're right, one could and that's a heated debate between German economists, what the effects would really be for the German economy. And the thing is, it goes from that’s doable to that would be an economic disaster for years. And the problem, of course, for us in government is, as long as we're not sure what happens, let's rather be a bit more cautious. And what we're doing is trying to diversify as soon as possible. And that's why we now speed up LNG terminals, floating ones to come to our shore, and the first one should be in place by this winter. So, the idea is, and that's where everything, my efforts are going into is that within 24 months, we can get off Russian gas. Not within the end of this year, I'm afraid. And if one would want that, one would need to basically buy, I think, a very deep recession and be able to hold that through for two years or so.
ML: But isn't that the price Germany, in a sense needs to pay? Or isn't it appropriate to pay that price for what has effectively been catastrophically bad energy policy? Why is it a necessity that Germany should emerge from this fever dream period of reliance on Russia? And by the way, also, you know, what I would consider to be mistakes in the Energiewende shutting nuclear instead of shutting coal and so on. Why would it be a requirement that this should be painless?
PG: Well, there's not, it's not going to be painless. What we're living through currently is price increases on gas that we've never seen before and the same on electricity. So, we now have basically fourfold increase in wholesale market prices on gas and wholesale market prices on electricity. And that will carry through to customers within the next months. And then we will face the situation that a lot of firms will say, we will reduce production that is reliant on gas. And a lot of households will say we, we can't afford that anymore, and how do we go forward? So that is already, I would say, a huge challenge, and very few have already understood, what this will mean throughout the year. Plus LNG will be more expensive. Now, where we are reluctant is okay, that let's not only take that, let's take a deep recession of -6% for two years, and that's more or less what I would expect what will happen. And, you know, it'll be the same I would say with UK, this is not the German issue here. This is the question for all of Europe. Are we going to basically go through this with a very deep recession for the next two years? Now, this is frustrating, I'm not going to try to, to basically try to make it brighter as it is. But when we think about what can we really do for Ukraine, then I think military assistance and helping them to restore their, their life within their borders, and helping up a new infrastructure that is hopefully already directed into the clean energy future, I'd say that's what we need to do. And that's where the priority should go alongside with getting out of Russian imports within as soon as possible within the next 24 months.
ML: But you know, at the risk of making you feel very uncomfortable, your finance minister, Christiane Lindner said “we have to be patient”. I mean, we have to be patient is that should the people in you know, under occupation by Russia, should they be patient?
PG: I mean, patient is not actually what I am. Because this is really 24/7 trying to get LNG and trying to increase everything when it comes to energy efficiency and electrification so we reduce our gas demand. So that that's not the issue. I think the issue is rather, what is best, and having… supporting the Ukraine, by probably giving a very deep recession to all over Europe over the next two years, I don't think that that is really best.
ML: But what about just burn more coal in the short term? I mean, are you running all existing all coal fired power stations that have not been demolished yet? Are you running them flat out 24/7?
PG: Well, I mean, I'm not running coal fired power station, that's the market who decides that. Now, we already have that effect because of gas prices being so high, but gas power stations are now in the merit order behind coal power stations, where we of course still have gas in the power system is in the CHP plants because of their heat supplies. And what I'm currently preparing is a type of legislation to basically redesign the intensive for those CHP power plants. And that would, that's the biggest option to really reduce gas demand in the short term to get as much as possible out of the energy sector. And but of course, we also have path dependency here, I mean, all existing coal fired power stations. We will keep online. But you won't, don't have coal power stations everywhere to switch to when you have a gas CHP operating unit. But having said all that, that's important the listeners that are interested in the clean energy transition. This is not to shy away from the coal exit 2030 not at all. Coal phase out 2030 is part of our coalition treaty, and that is what we will be doing. The essence is really about what do we do with the next 24 months and there unfortunately, some re-operating of coal power plants will be part of the issue.
ML: Okay, so let's come back to the kind of medium term and longer term. Thank you for responding. And I pushed you quite hard on that question. But I'm going to push you hard on another question, which is actually the Energiewiende. And you know, and I'm going to say you started it, because you said it's the same in the UK. And of course, it's not the same in the UK, the Energiewiende, the transition, the UK is actually quite far ahead of Germany, to everybody's surprise, no doubt, and maybe a little bit of shame in Germany. For all the Energiewiende you've got double the energy intensity per kilowatt hour in your electricity. We've gone faster, we'll be shutting down all coal by 2025, we're almost off it entirely. And I would argue that we did a big chunk of that by keeping nuclear going. But on a lot of fronts, having the carbon price floor, which was an innovation, completely unexpected, by the way, on this side of the channel, under David Cameron and George Osborne. There's been a number of policies, and by the way, many of them now being copied by Germany, such as contracts for difference rather than feed in tariffs. So, you know, is there also a real reckoning now that you're in power and you're determined to accelerate the transition? You know, why not just copy what the UK is doing?
PG: So Michael, I mean, the last time I had discussions with UK colleagues some 10 years ago, they were telling me nuclear, CCS and maybe a little bit of renewables, that's the future. I said folks, it's wind and solar, forget the rest. Now, the thing is, we had a bad government the past four years, not focusing on wind and solar, and the UK really did their grips on wind. I'm impressed, I have to say, and when I look at wind offshore in the UK, I kind of think, wow, we should have been doing that as well. I mean, 14 gigabytes by 2030. That's, that's a work. And, and everything that has been accelerated on the renewable side in the past years is really impressive. So, let's, in essence, the question of what has happened in the past four or five years, and there, UK got its act together, and we didn't. Now we need to speed up again, so that it's kind of a race to the sky. And what I would have put into the law is a carbon neutral power system by 2035 as a target, which is the same as the UK target, actually. So I think that's where we're both heading. And the question that really comes with it, I think, is are we prepared for everything that needs to come with it? And there, I see challenges on both sides. When I look at the heat pump discussion, I don't think the UK is very far ahead from Germany. So there, we both need to. Electric cars is also on both sides. Now, we're at the phase where we need to accelerate. And then the whole hydrogen discussion, where to put the electrolyzers. And what to use the hydrogen for. There have also been discussions about the hydrogen, what is its value? Where I'd say don't put that stuff into heating, where there were discussions in the UK to put that, same in Germany and we're basically ending that discussion here in Germany, saying, folks, it's never going to go into heating boilers, forget that. So I'd say the interesting thing is, we are now very, closing up the UK and Germany on this with the one difference that you still build new nuclear, which I think is the most expensive way to produce electricity. But every country has its peculiarities.
ML: Okay. I'm really looking forward to this phase of our conversation. There's a lot there. And on heating, you know, if you'd say Scandinavia, maybe Sweden is I don't know, let's call it 8 out of 10, nine 9 of 10, then maybe Germany is a 5 and I would happily concede that the UK is a 2. And the conversation about hydrogen that we're still having, actually has been quite nicely finessed in the UK’s hydrogen strategy last year, although there was talk about hydrogen in heating, maybe 3 million homes by 2035. The number by 2030 is pitifully small. I mean, it's a few pilots, it's 60,000 homes, I think 67,000. So it's essentially saying, we're not going to do it for 10 years, and frankly, we'll probably not do it ever. But instead of saying that explicitly, it was a kind of finessing in order not to have the entire industry and all of the, you know, Global Warming Policy Foundation and Net Zero Watch and the whole of the kind of all of these, you know, sort of fringe elements, piling in, it's very cleverly done. But I would concede Germany, you know, on heating, but the big area, you say we're converging, but you call out nuclear is the only difference. It's not the only difference, but you have really tied your, your sail to the mast. I'm not quite sure what the phrase is, you have gone for 80% renewable electricity by 2030. And I guess I have two questions that I want to ask. One is how do you deal with the famous Dunkelflaute or as I call it, the dark doldrums? Those periods of, you know, one, two, three weeks when there's very low wind, and they may come at the end of a six-month period of low wind? When whatever storage, whatever batteries you've got, you know, are anyway rundown? And the second question is, if you just do the numbers, you just look at the amount of energy demand, not primary energy, I'm talking about energy services that Germany needs to be an advanced industrial nation, you are going to have to keep importing. Doing renewables does not mean doing renewables within the German border only. You're going to have to do something else. So, can we speak about those two things, the resilience and the Dunkelflaute and how are you going to import the energy needed for the German way of life and the German economy?
PG: Now, what do we do in those two, three weeks when there's neither wind nor sun? In essence, in an 80% world, that's where the 20% gas is. And that needs to be hydrogen ready, gas fired power stations, that we then gradually swift to green hydrogen. So, whenever a new gas fired power station will be built, and we will need them because of the coal phase out. That needs to be hydrogen ready. I think where we were, we're still in discussions with Siemens and ABB and everyone what that means. But it has to be very clear that that is the future. Because as of 2030 onwards, we will be phasing in green hydrogen into basically the power system.
ML: I'll come back with my question, but I'll let you continue for the moment.
PG: So the question then might be where is the storage for the hydrogen, well we do have quite some gas storage sites, which then also need to be transformed into hydrogen storage sites. So that opens up the import issue, because we won't be producing that green hydrogen in Germany in the amount necessary. That's really where imports will be needed from all over the world. And we would probably also import green electricity, which means North Sea, Baltic Sea, we really need to get our grips together to have huge wind offshore projects there that then supply the region. And the first projects are already planned, the Danish are very much into their the so-called energy islands. Same discussion in the Netherlands, and they have more wind potential offshore than their direct needs. So that's where Germany will need to engage and become an importer of green electricity from North and Baltic Sea. So that is, I think, what we will need to do for the next eight years on top of getting our own homegrown wind, solar and offshore potentials that happen all at once.
ML: Right and the volume of electricity needed renewable energy because now not only you are nailing your colours to the mast, there you go, I remembered the phrase, my English is improving. So not only you're nailing your colours to the master of renewables, but you know, it has also got to be green, it mustn't be blue. So it's a huge amount of renewable electricity that you need, because you've also got to decarbonize fertiliser, you know, and so on, and so on.
PG: Michael, don't tell me about it, I already know this is a huge challenge. And when we were calculating the renewables, we basically took into account that power demand will increase by 20%, between now and 2030. So I know this is a huge challenge, I'm not going to try to water it down. But the question is, really, is there an alternative?
ML: Well, if I might, let me push on that 20%, I'm going to do some back of envelope calculations, I know you're good at this as well. So you can push back, but you say 20% of power might be hydrogen, right. And that is one third the efficiency of just if you have that electricity, so because you have to go from electricity to hydrogen and back to power. So 20% equates to effectively pretty much an extra 50% of electricity generation just there just for that demand. You haven't decarbonized fertiliser, the chemical industry, all of the other uses of gas in industry, you've not done anything with and you've already added 50% to your electricity demand. Now, it may be overseas, maybe that 20%, maybe you resolve it by saying it's 20% increase in Germany, but you're effectively going to pretty much I'm guessing double Germany's electricity footprint in some way, shape, or form.
PG: Well, yes, that's true for 2045. And basically, it's because of the imports needed on green hydrogen, on all accounts. And then the question is really how much is European-produced wind offshore, North Sea, Baltic Sea, and maybe also in Spain, where you have full, whole load hours of wind and solar combined of some 3000 to 4000. And how much of it comes from Australia, the Arabic region, Namibia, and whatever. So this is about establishing a new global energy economy that is based on green hydrogen, green hydrogen derivatives. And I think that's where I'm pointing at. We need in this in this regard, clarity, technological clarity, and not trying to, you know, pull everything around. Now, you were saying, what about blue hydrogen? Well, gas prices, I don't believe in blue hydrogen at all anymore. We're not going to close down our borders for that. So if there's blue hydrogen coming from the UK, or Norway, we'll take it. But with these gas prices, green hydrogen is going to be cheaper. So, we're back in the discussion from the very beginning, do we have the supply chains to really ramp that up on a global scale, and if you believe in the 1.5 degree scenario of the IEA, it means basically, one terawatt of wind and solar per year to be installed. And that's where we need to go at.
ML: Right. But on the gas prices, I think we could have an interesting conversation about why gas prices would not, at some point in the relatively near future, three years, five years, let's say, simply return to where they were. We could have a very interesting conversation about gas prices, because your assumption is that they're staying high forever, or it appears to be, I would argue that in three or five years, there's no reason to believe gas prices wouldn't be back to where they were. Russian gas may be headed east rather than west. But there will still be an enormous potential oversupply of gas from the US, from Australia, from Qatar, potentially, again, from Iran. And we'll be back in the era of low gas, I think assuming it won't be, to me would be very dangerous. And but I don't know if we want, I mean, I'm happy if you want to follow that and we can debate it. But there's also if you're postulating green hydrogen, particularly from offshore wind with an energy, electricity cost of you know, 50 euros per megawatt hour, around that. And you know, are you not worried that you will simply make German industry uncompetitive given that others will have solar power at one cent, wind power at 1-1.5 cents per kilowatt hours or $10 per megawatt hour. And industry doesn't have to stay in Germany, you can, particularly primary industry, chemicals and all those associated, ceramics and so on. Isn't that just a risk that you're consigning Germany to very high electricity prices, forever? And the industry just says, well, you know what, we will simply make this stuff overseas. And you know, we can fantasise about hydrogen coming in on the equivalent of an LNG carrier from Australia, you know, $1 per kilo hydrogen that will spend $5 per kilo getting to Northern Europe on a ship, it's just not going to happen. We are going to be using the North sea offshore wind, and maybe some Mediterranean rim solar. That's the only imports of either renewable electricity or hydrogen that we'll be able to afford, and even then we probably won't be able to afford them.
PG: Well, that is indeed a huge challenge. And it's a challenge not only for Germany, but for the whole of Europe, in the sense that, of course, there are places on this globe where you get electricity for one to two cents per kilowatt hour. And then in essence, it's about shipping costs that decide whether or not there was one to two cents are then cheap in Europe as well, or expensive in Europe. Now, what does that mean for us? In essence, it'll probably mean, easy to copy energy intensive industry might go to places where you have those one to two cents. Energy intensive industry where it's about knowhow about skills, about competitive advantages that have to do with more complicated products than just the simple ones? That's then where we need to specialise. So, I mean, that's the old story of where's cheap energy? And what type of industry is then located there where we have cheap energy? And where is industry rather located near the customer? Because it profits from being in direct contact with the customer needs. But, you know, if we go down that common neutrality route, that's what we have to face anyhow. I don't think that there is a difference for all of us, in Europe on that question.
ML: I think that's a really interesting conversation, because a lot of the energy modelling that I've done, that you've done that, you know, IEA does. It takes us a given that energy demand kind of is what it is, and it is where it is, but actually in 2050, in 28 years' time, that can change very dramatically. And I suspect that that's actually a much less modelled and much less researched challenge.
PG: Yes. And of course, it's a topic where you don't really want to talk about that openly, because it's about the question of competitiveness that comes with carbon neutrality. On the other hand, I mean, in a way, we are going to face that situation already now, because high fossil fuel prices that we now experience in Europe, will obviously also pose the same challenge to energy intensive industries all over Europe. So, we will have that discussion sooner than we thought. And I think what we now need to get our grips around is, what does that mean for low carbon world? And where do we need to specialise when we now think about the future investment in those industries?
ML: Patrick, I want to finish, if I might with three questions around, I'm very open and forward about these things, three areas that I am working on, where I have a not just a point of view, but potentially an interest that have not come up but they're very relevant. One is very relevant to this question of importing. I'm an investor in XLinks. And that is wind, solar and batteries in Morocco, being brought by a long undersea cable, high voltage DC into the UK. So why import hydrogen from electricity if you can just import electricity? So that's business model one. Business model two, we've had all this conversation without talking about geothermal. And I've been working with a startup called Eavor, which is closed loop geothermal, no fracking, but not, just ground source. And it could actually deliver the heat into those CHP systems which are currently being kept on because those gas systems that you have to keep on and that strikes me as given the quality of the German geothermal resources which are among the best in Europe, possibly only one behind Italy and Iceland. So that's business model two. And then business model three is Germany is the only country in Europe that is meaningfully building hydrogen fueling stations on its motorways, possibly for heavy vehicles, but who knows, I can't see much justification. And I'm working on electrification even of heavy vehicles and freight. So, three possible business models. Do you want to respond to any or all of those?
PG: Oh, yeah, quick, real quick.
ML: Yes, we're running out of time. Quickfire.
PG: First of all, I mean, that Desertec issue never really got off, because the question was, who was going to build that cable? And in the original model, put it through Spain, France and everything when we wanted to have that, for Germany. Now, you're now doing it in the subsea? I guess there are lots of questions to be solved there as well. I just say, good luck. Building pipelines seems to be easier when it comes to long distances in terms of transport, but from an efficiency perspective, I'm with you.
ML: Okay. I accept your good wishes for the project. And we'll keep a watching brief and see if it works. Right.
PG: Second, geothermal. I think it all hinges on the drilling costs. And that's really the question, are we somehow able to get down the drilling costs, and I know Elon Musk with his, the boring company, and I don't know, what Eavor has in terms of technology there. And in a way, this has been an industry where we didn't get the scaling up, really, because it's a very static industry, as far as I know. And if we probably throw money at it, so that the market grows, we can also get the drilling costs down, and then that would be great as well. There, I see a higher chance. And there I’d like to learn more, what do we need to do in order to get better with cost down.
ML: Well, let me let me respond on that. Because Eavor’s investors include BP and Chevron, it is a drilling cost play. You're absolutely right. But actually, those costs have come down because of a horizontal drilling and so on. That's actually what enables, these are very, very long bore holes, it's nothing to do with Elon Musk - he is trying to do tunnelling, maybe he should talk to Transport for London, where I used to be on the board, but it's nothing to do with drilling and boring for geothermal. And it is about drilling cost. And it is a play that says, if you can use all the technologies developed recently and automate, then yes, we ought to be able to hit some very interesting price points, by the way, we already there or the company is already there on heat, for heat. So for electricity, because it's lower temperature...
PG: I'd say forget the electricity part, focus totally on the heat. And the question is, what does it need to really scale it up in time?
ML: Well, so let's, so we got good luck on the first one, but some interest and maybe even some positivity on the second one? And what about this one?
PG: Yeah, third one is an absolute must. I don't believe in hydrogen trucks at all. I know that there are still some around here in Germany who believe in it. But this will be basically, we need large scale directly on the high voltage grid located filling stations I would call them for electricity driven trucks. For battery trucks and and how do we basically then have the situation that once drivers need to make their pause because of regulation by Labour Law. And that half hour that he needs to do his pause needs to be the half hour where the additional 400 kilometres are on that truck, and anything we can do to get that done, I'm in it, and I would happily change any laws that we need to get that done.
ML: Well, that's not the response I expected. It's very welcome, because Eco Pragma the business that I'm working, building is developing exactly that sort of charging network for the heaviest freight exactly the thesis that says you have to stop anyway because of working time directives. And if we can connect to the transmission grid, this is going to be so much easier and more efficient than hydrogen. But I had read sort of too many stories about networks of hydrogen fueling stations and how many they are supposed to be in Germany. I was not expecting that answer, but I'm very, very heartened by it.
PG: Yeah, well, I mean, it always takes a while until everyone in Germany accepts the pure logic of efficiency, and that is, heat pumps, electric cars, and it'll be electric trucks as well.
ML: Well, it's interesting, because I would have thought Germany should be in the forefront of understanding the laws of physics. But apparently, in politics, even the laws of physics take some time to percolate through the system. But I'm pleased that in the end, they do.
PG: Well, there's this nice saying of Mark Twain, apparently, it's hard to convince people from another thing, if they're living depends on the other one.
ML: True, but you know, we're out of time, I'm going to stop you there for two reasons. One is we're out of time. The other is, I don't want you to say anything, that your team then comes back and says, oh, we need to edit this out or edit that out, because the Secretary of State has said some things he probably regrets or might regret. So, we're going to stop it there. But it is always such an enormous pleasure to speak with you. And I thank you for your good-natured response to by, you know, quite insistent questioning. But I think we, it's the best way to actually surface these issues and grapple them to the ground. So I really appreciate your willingness to do that with me here today.
PG: It's always great to talk to you. And it's great to be on this show. I mean, this podcast is really the high-class of energy podcasts, and I'm honoured to be here.
ML: Well, you're very kind about it. And so my final thought is I very much look forward to the time when we could be doing something like this face to face, hopefully in the near future. Minister, Patrick, thank you so much.
PG: Michael. It's always a pleasure.
ML: Well, Secretary of State. I now know I shouldn't call you Minister, but...
PG: Still Patrick.