⁠Hydrogen Subsidies, Clean Power & Fixing Spain's Blackouts | Ep212: EU Commissioner Dan Jørgensen

Dan Jørgensen  

I have to tell you, there are also some pretty smart people, even with their own money on the line, who are willing to invest in this. What is it that they have misunderstood?

Michael Liebreich   

They have misunderstood the economics of hydrogen, and they've misunderstood the amount of subsidies available. 

DJ  

So the CEOs of some of the biggest energy companies on the planet, they don't understand economy?

ML  

The ones that are persevering with their own balance sheet, that's exactly right. Look these projects, they are only reaching final investment decision when they secure very large subsidies or regulatory support under RFNBO (Renewable Fuels of Non-Biological Origin) and so on. That's the reality. 

DJ  

And that's a totally fair point, and it's exactly the same point as was used against offshore wind, for instance. And yes, for most new technologies to enter our markets, we will need subsidies, and that is also the case for hydrogen.

ML  

Hello, I'm Michael Liebreich, and this is Cleaning Up. I'm in Brussels today attending Eurelectric’s Power Summit, which is called Power Play. I've taken time out from the conference to come over to the Berlaymont building, where we're going to be speaking to today's guest: Commissioner Dan Dan Jørgensen, the energy commissioner. Please welcome Dan Jørgensen to Cleaning Up. 

ML

So Commissioner — Dan — thank you so much for joining us here on Cleaning Up today. 

DJ

Thank you for having me.

ML

This morning you gave some remarks at the Eurelectric Power Summit, and one of the areas that you led on was what you're doing with respect to energy from Russia, energy supplies from Russia. For the sake of the audience who were not there this morning, could you just reprise what you said at the summit?

DJ  

Yes. So I think actually, probably many people would be surprised to learn that we have spent — in the EU, our member states combined — spent more money buying energy from Russia since the full scale invasion in Ukraine than we've actually given Ukraine as a help. So that is, of course, totally unacceptable. Now it used to be a much bigger problem than it is now. We used to import 45% of our gas. Now it's 13%. 27% of our oil. Now it's 3$. 51% of our coal, now it's zero. But still, even though we've managed to bring down the dependency of Russian energies, still it's about €1.8 billion per month that we then indirectly send into the war chest of the Kremlin. And that we need to change. So the commission has proposed, I've put forward a road map to propose, that we will ban the import of gas. This will mean, obviously, that at the end of this year, we will stop 1/3 of the gas imports. That's the short term contracts, the spot market contracts. And within the end of 2027 also the long term contracts will be banned.

ML   

How have you got that passed? Not all of the members of the EU want to go that route. There are a number of members who have been clinging on to their supplies of Russian gas, particularly, but also oil. Have you managed to persuade them?

DJ  

So I will be putting forward the legislative package in a few weeks. And then, of course, it's up to the co-legislators to actually decide. I do have a very good feeling, and I'm confident that we will get this through, because contrary to sanctions which demand unanimity, the measures that I propose can be adopted with a qualified majority. So as far as I can see, there's only one, maybe two, countries that will oppose. I would of course have preferred that all countries support, and I still hope that they will end up supporting — all 27 — but even if they don't, we can still adopt this.

ML  

So it's a very difficult time in that conflict, because you've got an incredibly vicious war. It seems to be becoming more vicious. But you also have talks about ceasefires, peace talks, supposedly, and so on. Are you already thinking about what happens after? Will Russian oil, gas and coal — can you see a scenario where they come back into Europe, where they're welcomed back, or is this really a break? Is this it?

DJ  

No, we all hope for peace as soon as possible. That goes without saying, but I also want to underline that when this legislation is passed, then there is a ban. And that ban will also stand even if there's peace and I think that that is the right solution. Because I think it would be a mistake, even if there's a peace agreement, to start making the same mistakes that we've done in the past again. To refill the war chest of the Kremlin in a situation after peace would not be a wise thing to do for security reasons. Also, we need to get rid of this dependency on fossils, in general, and especially on fossils that we've bought from our enemies.

ML  

So you've got the brief where you have to juggle not just the security implications, not just the security brief around energy, but also decarbonization and affordability. And it's clear that, from the security perspective, what you say is absolutely crystal clear. Decarbonization, it's crystal clear. But you've also got a competitiveness brief and a competitiveness problem.

DJ  

Yeah. So in the previous mandate, Professor Draghi was asked to write a report about the state of competitiveness of the European Union and what we could do to improve it. And he mentions energy more than 700 times in his report, because energy is at the core, of course, of our ability as a union to compete with China and with the US and others. And no doubt we pay too much for our energy. It's two or three times more expensive for the industry in Europe as compared to the industry in China and the US. So it is a very, very important task for us to bring down these prices. Now, fortunately, what we need to do to bring down the prices overlaps with what we need to do to become independent of Russian gas, what we need to do to decarbonize our economy. Because more renewables faster, more electrification faster, more energy efficiency measures faster. This will all help us solve all three of those challenges. 

ML  

I'm not going to sit here after 20 years as an analyst and a commentator on the shift to clean energy and completely disagree, right? There are certainly, you know, energy efficiency, much of it makes enormous sense. It's cheap and it achieves all goals. A lot of renewables — clean energy does indeed come in very cheaply, but we're also seeing the integration costs are much higher now that we reach high penetrations of renewables. And we also see, as we saw in the Spanish-Portuguese power cut, that we have to start paying for a resilient grid. We can't just get rid of spinning reserves or spinning fossil generators and just hope for the best. That's not a strategy. So are you sure? How confident are you that there's a kind of low-cost, clean system out there? Because I'm not sure that that's right.,

DJ  

Well, let me make three points. The first one is that fossil energy is also expensive. Fossil energy also takes a huge toll on our public budgets. In the EU, both in member states and on EU level, we imported the year before last, fossil energy for more than €400 billion. Now compare that — and that is then my second point — to the price of renewables. Renewables are extremely cheap to produce. Doesn't mean that you don't have to invest in it. Of course you do. But when you have it, the cost price is very low. So the IEA has made a calculation that estimates that we in Europe saved €100 billion on our energy prices from 2021-23, on newly deployed renewables. So the new renewables that were put online in those three years saved us more than €30 billion a year. The third point, however, is more in line with your argumentation and is that we really need to expand our grids, and we need to do it fast. We also need to use what we have more efficiently and rationally than we do today, and we need to get our energy union to work as a genuine union. So that's both the physical infrastructure, that's the grids, that's interconnectors, that's storage facilities, all of those elements, but it's also regulatory infrastructure, and it's a willingness amongst the countries to actually take those last steps so that we utilize just how much of a benefit it is for us to be connected now. Already now, ACER (EU Agency for the Cooperation of Energy Regulators) has estimated that we save more than €30 billion a year being connected, meaning that had we been 27 different countries instead of one union, we would pay more than €30 billion more for our energy a year. So we're not doing bad, but we need to do much better. And the potential, according to ACER, is quite big, and we can save between €40-50 billion a year if we are connected in a more rational and extensive way. 

ML  

So again, I'm going to agree that we need more and better connections, but I'm going to come back to this idea that renewables can somehow be cheaper than the gas, if it returns to the sorts of gas prices that we had before the invasion. Because the reality is that we're right now paying something like three or four times the gas price that we had in 2020 or 2019, and you know, the world is about to get, probably, a glut of LNG. There's all these projects, all this gasification. There's the liquefaction and gasification capacity being built. So if gas goes back to being, let's say $5 per million BTU, just as it was before — $5 to $7 instead of $15, where it is now, then aren't we just going to lock ourselves into high-priced electricity for the long term? Now maybe we can live with that, but I don't think we should pretend that we're going to get cheap electricity by just building more wind, more solar, and then more transmission.

DJ  

Well, everybody can see what it is that's driven the energy prices through the extreme level that they are at now, and especially the level that they've been the last couple of years. That is the price of gas, and that is because of the war. So if we do not transition away from gas, just only focusing on the price, then even if you're right that there might be pockets of time where that would be the cheapest solution, that comes with very high risks. And I don't think it is feasible for an economy like the European one to have our competitive nest be completely dependent on the political will of powers that we don't control. So for those reasons alone, I don't think that that would be a smart or rational way to go. And then we are also, of course, obliged to look at the other elements of our strategy, and that is to be self suppliant with energy is obviously better than not to be. We don't have the gas resources that the US has, even if we didn't care about climate change, and we just want it as cheap energy as possible. We simply would not have that possibility. And it is not wise to have an economy that builds on buying something from others and then using it and, then buying some new stuff. It's better to produce your own energy. And finally I'll say — I touched upon it earlier — climate change is not going to disappear, and if we don't do something serious to fight it, the consequences will hit us even harder. Already now, they are costing us fortunes every year, and worse than that, they are causing the loss of lives. So it's also a moral imperative. It's an economic imperative, but it's also a moral imperative for us to do a green transition.

ML  

So you've got the US and China that are going to have, well, US certainly cheap gas; China probably not because they don't have their own gas. But China has enormously driven into electrification and has very, very cheap electricity from renewables, but also cheap storage, high voltage DC, cheap because they're producing it themselves. And I suppose I worry, if I look at the EU system, the European system, also the peripheral countries, and the UK, where I'm based, I'm finding it hard to see how we get electricity, wholesale electricity, below €100-120 per megawatt hour. Competing with the US and with China, who will have €30 or €40 per megawatt hour, long-term for decades, because we're locking ourselves in. I hear you on decarbonization. I hear you on security, but I'm unconvinced on cost.

DJ  

Well, let me put it like this, if decarbonization was not the right strategy, also economically for the future, I doubt very much that countries like China or India or others that are really doing it big time as we speak, that they would do it. So that's certainly one point. But then it's also a very theoretical discussion, because you're speaking as if there is a world where we don't have to worry about security, where we don't have to worry about climate change. Well, you can imagine that world in theory, but in reality, those two issues are extremely important, and they are, perhaps right now in the short term, the biggest — certainly the security dimension — the biggest threat that we face. So even if it had been only one of those three challenges that we have to solve, I would argue to go the route of the green transition. And now we need to address all three of them at the same time. I really don't see an alternative. 

ML  

Well, there is an alternative, if you are facing system costs of wholesale power from renewables by the time you've got all of the integration done and the transmission, etc, etc, and it's coming to those sorts of prices, €100-120 euros per megawatt hour, then the question is, why not embrace nuclear? Because that's going to be approximately the same cost, and some of the members are very keen on doing that. So why not embrace it? 

DJ  

Well, some countries are embracing it. It is a part of the energy mix in the European Union, and I do agree that actually, there's no way around nuclear if we are to reach our reduction of emission targets in 2030 and even in 2050. This is, by the way, not a political opinion. This is also founded in IPCC work, and I think all experts would agree to that. Right now we have around 99 gigawatts of electricity production from nuclear power in Europe. I will soon be putting forward a report with a new analysis showing just how much we estimate that that will grow moving towards 2050. It's too early for me to, of course, state any of those numbers, but what I can say is that it's not going to be anywhere close to the level of energy that we will be getting from renewables.

ML  

I think that's absolutely clear, that even in China and India and countries where they've really tried to do nuclear as fast as possible, the renewables are just leaving it in the dust. 

DJ  

It's a very, very slow process to build a nuclear power plant. It's also very, very expensive in the establishment stage. Some will argue that over time, it's still a good economic business case. I think for most countries that have chosen to do this, it's not so much about the economy. Some might disagree, but I do still think that it's also for political reasons and for historical reasons that many countries choose to go down that path. It's very clear for me that I don't really see the discussion that we sometimes have in Europe that's very polarized between those who are very opposed and those who are very pro nuclear as being very beneficial. Since it is there, we need it. So whether or not you're critical or you're positive, we need to find common grounds. 

ML  

Are you relieved that your own country, Denmark, now looks like it's going to change its own laws against nuclear and is actually going to potentially explore getting back into the nuclear game.

DJ  

I do not think that will happen. We are one of the countries on the planet with the highest level of renewables, and we have huge potential to expand that. And just two weeks ago they and the Danish Parliament made a new agreement to build even more gigawatts of renewables. So long before it would be possible, if they even wanted to build a new nuclear power plant in Denmark, we would be completely green with renewables. So I don't see that. I do think it's an interesting discussion in Denmark, also, whether or not research, for instance, in fourth generation nuclear has a future. There's some Danish companies that do that. Of course, that would help solve some of the problems with security and with waste. So we all hope that that would develop, of course, that new technology. 

ML  

Cleaning Up is brought to you by members of our new Leadership Circle: Actis, Alcazar Energy, Davidson Kempner, EcoPragma Capital, EDP Portugal, Eurelectic, the Gilardini Foundation, KKR, National Grid, Octopus Energy, Quadrature Climate Foundation, SDCL and Wärtsilä. For more information on the Leadership Circle, please visit cleaningup.live, that’s cleaningup.live.

ML

That was a devastating incident where they had a power cut in Spain and Portugal on the 28th of April. Are you getting involved in your role as commissioner in the aftermath of that? And are you going to be pushing through directives and regulation to say how much of various services, stability services, short circuit current, et cetera, there should be? Because leaving it up to the countries may not be working terribly well.

DJ 

Well, I'm definitely going to be involved, but it's too early to say what the conclusions will be, because the analysis of what actually went wrong is still ongoing. I do think it's fair already now to say that the authorities of Portugal and Spain did a very good job in handling the situation when it arose. Very fast

ML  

It was a brilliant black start. It was a brilliant restart.

DJ  

That, I think, is without a doubt. And I think most experts were quite surprised that that could actually happen. So we need to learn from the positives also, of course, but most importantly, we need to find out what happened so that we can prevent this in the future. Now, can we already say that, not only for these countries, but for all countries, the risk of blackouts and certainly also the ability to to get back online fast is smaller if you're very well connected to your neighbor countries. Yes, probably that is fair to say. So I would assume that that will also be part of the recommendations that the experts will give. I can definitely tell you and listeners that irrespective of that concrete situation, I do believe that we need to be much better connected in Europe than we are now. 

ML  

I think we're going to see a whole list of recommendations coming out of that situation. My sense is there's a bit of a blame game going on right now between La Red Eléctrica, the transmission operator, trying to, how can I put it, manage the news flow, manage the information flow, and perhaps push some of the responsibility onto some of the other players in the country. That doesn't feel terribly productive, that's what I'm hearing at the Eurelectric Summit. 

DJ  

Yeah, so maybe I should have spent more time drinking coffee with participants — I don't know — and I would have heard the rumors. But no, seriously speaking, this is a very serious matter, and I can assure the listeners that no matter what rumors there might be, or speculations in the media or gossip, this is being taken care of by experts that are neutral and that only have one aim with that job. And that is to make an analysis that is as accurate and true as possible, and that can also lead to some real recommendations that the countries in question can then implement, obviously, first and foremost. But also I expect there to be some recommendations that are also up to the European Union to deliver on.

ML  

I think that's almost certain to be the case. Now, my audience would be very disappointed if I didn't ask you about hydrogen. I don't know if you know, on this show, we've had quite a few episodes, and I've done lots of work on the economics of hydrogen. The EU famously, in the front line, it had its EU hydrogen strategy 2020, to spend, to invest, 460 billion euros just on supply and transmission or transport of hydrogen. Very little of that is happening. Very little of it looks like happening. And the European Court of Auditors said that the plan was not robust and was based not on analysis, but on political will. Is there going to be, during your time as commissioner perhaps, a real reset? A real understanding of the economics of hydrogen and the fact that it can play almost no role in the transition going forwards? For purely economic reasons, it’'s just not going to be part of this transition, really, is it? 

DJ  

If I had listened to advisors and journalists and civil servants in my career stating that about many new technologies, then, well, Denmark would not have said ‘put an end date to the stop of production for fossils in the North Sea.’ We would not have had a 70% target for reductions of our emissions, just to name a few examples. Because political leadership is also about setting targets that are difficult, the targets would not happen if you just left it to the market. So let me just make that point as a starting point. It is very important that we as a union set the bar high and have very ambitious targets. So that's one point. Second point: There is no way, in my opinion, that we can decarbonize our economy completely without having hydrogen be a part of it, because hydrogen is necessary for us to decarbonize the hard-to-abate sectors. So I would say parts of our industry,  definitely also maritime, transport, aviation. It's also, I think, a big chance for us to have a more rational energy system in which we plan, so that the hydrogen can serve as a storage also of energy. And I will still say, okay, maybe I also owe you to listen to some of your former programs. But it would not be difficult for me to find experts that will tell you that you can indeed make a business case for this to work in the future. Probably, of course not, or certainly not in the start, where you need to get production up in scale and down in price. But that is, and that's coming back to my first point, that is always the way with new technology. Always. When we built the first offshore wind farm in Denmark, I can assure you that people were shaking their heads, saying, ‘why on earth would you do that?’ That's so difficult, that's so expensive, put the turbines on land instead. And now offshore wind outcompetes coal in price. 

ML

So I had Henrik Stiesdal on Cleaning Up 

DJ

Yeah, he's my hero.

ML  

A great Danish hero.

DJ

The issue with the argument that, wind got cheap, solar got cheap, batteries got cheap, therefore hydrogen will get cheap. The problem is that the majority of the cost of green hydrogen is either electricity or chemical engineering. These are basically chemical plants or electrical engineering, because you need substations, or civil engineering, or it's to do with compressing the hydrogen, or transporting the hydrogen, or storing the hydrogen, or distributing, and none of this has the sort of learning — because I've done learning curves all my career, that's what I do. And right now, I'm sure you've seen the figures, that right now to make a kilo of hydrogen, it's something like 10 times the cost of green hydrogen versus gray from natural gas. And you could make free electrolyzers, you could give me free electrolyzers, and I still couldn't get that price down by more than about 10 or 20%. That’s the reality, that’s what we’re looking at.

DJ  

Okay, so you refer to your own merits and bring some ethos into this discussion. I appreciate that. But I have to tell you, there are also some pretty smart people, even with their own money on the line, who are willing to invest in this. What is it that they have misunderstood?

ML  

They have misunderstood the economics of hydrogen, and they've misunderstood the amount of subsidies available.

DJ  

So the CEOs of some of the biggest energy companies on the planet, they don't understand economy?

ML  

Well, the ones that are persevering with their own balance sheet, that's exactly right. Look, Air Products signed a deal to buy the hydrogen from Neom, the biggest hydrogen project in Saudi Arabia. The CEO got fired. Neom can't sign offtake agreements. These projects, they only are reaching final investment decision when they secure very large subsidies or regulatory support under RFNBO, that's a reality. 

DJ  

That's a totally fair point, and it's exactly the same point as was used against offshore wind, for instance. And yes, for most new technologies to enter our markets, we will need subsidies. And that is also the case for hydrogen, and we are also subsidizing hydrogen. I could also turn it around and ask you, what would you then have replace hydrogen? How should we decarbonize the sectors I just spoke about?

ML  

Well, so mostly, what I would argue is electrification. The vast majority, that's number one. Where we use hydrogen, right up at the sort of, you know, I have this kind of ladder of uses. So where we already use hydrogen, which is fertilizer and petrochemicals, even that will be extremely difficult to decarbonize. It will cost literally trillions of dollars to decarbonize. So then you get to things like aviation and shipping, long duration storage. I would like to believe that hydrogen could play a role. I think that hydrogen from fossil, blue turquoise, probably can play a role, but I've reached the point where I think green hydrogen has no chance. And there's an interesting question, actually, if I might, every time we use a kilowatt hour of electricity to make green hydrogen, we could achieve three to nine times the carbon emissions reductions by using that electricity directly. So all of this effort that's going into green hydrogen, even if you're right, and these countries, these companies, are signing deals, it's bad for the climate. That's the reality. 

DJ  

No, you forget one thing, we need to be 100% carbon neutral. So this means that, yes, the last 10% or 20% they are going to be more difficult and they are going to be more expensive. 

ML  

I want to jump actually, I’ve got a final question, if I might. I notice we're over time.

DJ  

It seems like hydrogen is a personal cause for you, and I respect that, but I disagree.

ML  

In my career as an analyst, I have never seen such a big disconnect between the physics of what a solution can deliver and the politics of what's being asked of it. I'll say that. That's why it's a cause of mine. But I wanted to ask, actually, about the politics. Because I worry. The reason I worry about some of the choices that are being made that drive up costs is that we also have a political problem, and we saw it just yesterday in the Polish elections, with the victory of somebody who I suspect doesn't think climate is important as you and I think. But we've got an issue in Hungary, in Slovakia, in the UK. We're not an EU country, not your responsibility, but still the same issues going on. And the worry, I guess I would frame it as a question: how could you use your brief to, in a sense, lower the temperature of the politics and to win the political argument? Because right now, I would argue that we're losing it.

DJ 

Well, should I start by counter arguing that we're losing it, or should I start by answering your question? Let me just make a few arguments on whether or not we're winning or losing this, and then afterwards, I will answer your questions. Because I cannot disagree that we do see public opinion shifting, more opposition towards the green transition, that goes without saying. On the other hand, if you see how that is then translated into political action and the reality: we haven't seen backtracking in Europe. On the contrary, we have a European Commission of which I'm a part myself, insisting that if we are to deliver on all of the other legitimate asks that our population have, so security, jobs, prosperity, all of these things, then the green transition is really the way forward. So is it true that fighting climate change is not at the core of this argument always? Yes, it is. It's also other reasons that drive this for me. Was it Deng Xiaoping that said that, ‘it doesn't matter whether the cat is black or white, as long as it catches mice.’ I don't mean to make a laughing matter out of something this serious, but it is true that we're going in the same direction in many countries for different reasons. Having said all of that, I do agree with you, fundamentally, that we do need to be more mindful of the possible negative consequences for people. Because even though I think that the society that we are moving towards with a green economy is much better than the fossil driven society and economy, it doesn't mean that it's not dangerous for some people. I mean, sometimes they're real dangers, sometimes they're perceived, but it will have the same effect if people fear losing their jobs, if they fear they cannot pay their bills, if they fear that the subsidies that are needed are taking away from welfare in the state budget, all of these things. And politicians and decision makers need to have very good and concrete answers of what to do. So in my own country, when we decided to put an end date to the production of oil and gas in the North Sea and cancel all future licensing rounds, you would probably think that that could have given reason to some protests in the cities where thousands of people work in that industry. But actually it didn't, because what came instead was companies that are using the same people and skills, but for new purposes. So the same people that used to work in offshore oil and gas are now working in offshore wind. Many of the people that worked in the factories and connecting industries on the harbor are now working in the new hydrogen factory. It is possible to make these changes, but you need to take political responsibility also, and support this, both with funding and with training, so that people have the right skills. You need to also be able to formulate the narrative and hope that there's no populists going in the wrong direction with wrong arguments, all of these things.

ML  

Commissioner, it's a great answer. Thank you very much for spending time  here today on Cleaning Up, and I wish you the very best of luck. Thank you.

DJ

Thank you so much.

ML  

So that was energy Commissioner Dan Jørgensen, and we were recording here at the Berlaymont building during the Eurelectric Power Summit here in Brussels. As always, we'll include some links to useful resources in the show notes. And it remains only to thank my producer, Oscar Boyd, video editor, Jamie Oliver, the team behind Cleaning Up, and you the audience. Please join us at this time next week for another episode of Cleaning Up. 

ML

Cleaning Up is brought to you by members of our new Leadership Circle: Actis, Alcazar Energy, Davidson Kempner, EcoPragma Capital, EDP Portugal, Eurelectic, the Gilardini Foundation, KKR, National Grid, Octopus Energy, Quadrature Climate Foundation, SDCL and Wärtsilä. For more information on the Leadership Circle, please visit cleaningup.live, that’s cleaningup.live.