Hi, Mrs Dana Perkins, and you're listening to Switch It on the b n OF podcast. So this winter there have been some unusually warm and unusually cold weeks, and certainly people are talking not just about the weather, but the energy crisis. The conversation around natural gas and how it fits into the future of the energy system and really what that energy system overall looks like as the energy transition gets underway, has something that has been front of mine for many people, certainly the companies in the energy transition and of course policymakers. So today we have the opportunity to investigate the policy aspect more deeply. M A Champion here at BNF is head of Regional Energy Transitions Research, and she was able to sit down in conversation with Dr Patrick Greign, State Secretary at the Federal Ministry for Economic Affairs and Climate Action for Germany, and they discuss the ongoing energy crisis. Even as the days are longer and we can almost see spring approaching on our calendars, this conversation is not going to stop when we get to the summer. So what steps can and should be taken? Well, I'm going to leave that conversation with Emma and Dr Gregan. As a reminder, being a F does not provide investment of strategy advice, and we have a complete disclaimer at the very end of the show. Hi everyone, my name is Emma Champion. I sit on the analyst side at BENF working on our energy transitions coverage of the European region, and today I am actually so excited and in fact honored to be playing MC for today's episode because we get to have a really important conversation with an exceptional guest. So joining us on the show today to discuss some of the policy responses to the ongoing energy crisis here in Europe and transition opportunities that might help us get out of this situation is Germany's State Secretary of the Ministry for Economic Affairs and Climate Action, Dr Patrick Gregn. Thank you so much for joining us today, Patrick, and welcome to Switched On. Yeah, thanks for having me, Emma. I'm really delighted to discuss because there's so much going on. Absolutely, I think to start with needless to say, at least from my perspective, it's been a particularly eventful eighteen months to be an analyst covering European energy markets. We've seen gas prices hit those unprecedented highs energy costs adding to a lot of the inflationary pressures that are facing European economies and governments as a result, staging quite deep and unprecedented interventions into our energy markets to help contain those costs, support the struggling industries and households as well as utilities in some cases, and markets have been almost haywire. Over two following Russia's invasion of Ukraine, we've seen extreme volatility in energy prices. So I kind of want to start off with a really quite broad question, but one I think a lot of people have been asking themselves at various moments over this crisis. Patrick, do you think our energy markets are broken? And I guess what we're really getting out here is what do you think is the cause of the crisis. The real cause of the crisis is very simple. We're lacking one hundred third gbcm of gas from Russia, and that of course has a substantial reaction from Europe to somehow hope with that, and of course that means high gas prices, it means public activity to increase the availability of energy to Europe, and it will take a while until global markets have rearranged, and of course, because the power market is linked to the gas market in the sense that gas power plants are setting the price in the power market, we're seeing those high electricity prices. But at the end of the day, I'd say markets are functioning. Yeah, absolutely. I kind of want to reflect on some of the lasts that we can and maybe should already be taking away from crisis management, particularly from your perspective and time now as a policymaker during this time, and so let's dig into some of the measures that are already being implemented for this winter. I'm in London. We've already seen over some of this month, indeed across much of the rest of Europe snow and sustain subzero temperatures. This is generating more and more concern around energy costs and looking forward, I guess I want to know what, in your mind should governments be prioritizing to minimize the negative effects of this crisis. It's very clear that we would need to reduce our guest demand by some twent over the next eighteen months in Europe, and essentially the price will do part of this. We see already how a price have driven down guest demanding industry. But then there are other effects where we would also need to government intervention, lower heat demand, to boost energy efficiency, to boost renewables, to basically we did the call back online in order to get basically gas our plants less full of ours. So those are essentially all the things that we need to do when it comes to basically gas flows. Then of course we have the gas price issue, and there we have, of course for customers huge price increases. We somehow need to find a way that they can cope with it. That's why a lot of governments have handed out subsidies. But on the other hand, there are also people who make a lot of money now and we should also take some of those extra profits and give them back to customers. I want to dig into some of those ideas a little further, so maybe let's talk about the demand and price dynamics. We've already seen to your point that many consumers across the segments from residential to industry are already responding to this higher price environment and reducing that consumption. My colleagues on the BENF Gas team are trying king gas demand destruction in Germany at over fift even since it got colder over the recent weeks um and that's according to our provision or kind of implied demand data. But we've also seen to your point about many governments, including in Germany, you're rightly putting in place measures to help contain costs for consumers and support their energy bills. I guess the question here is, is there a dilemma where there are risks of going too far in shielding consumers from price increases and thereby actually muting the effect of some of those price signals to reduce demand. I guess, like, what's the sweet spot? Well, what we are doing is the shielding of customers has to still have a full incentive to reduce demand, which is why at the end of the day, it is a lump some money calculated on previous demand, but it's a lumpsome transfer that we're doing. That means you still have the full incentive to reduce your gas demand because you still see the gas high prices on your marginal demand. And therefore I think that's what is needed, shield customers through a mechanism which still gives the full incentive to reduce Yeah, I understand it's certainly a tricky one though to get the balance right, and I mean to be fair to my point, we are still tracking demand destruction happening in real time, so I think we're not quite at that point where it's completely in elastic. If you look at now the cold times, then essentially what is happening and that is our problem. Because French nukes are down demand from France and electricity is so high to the imports, especially when it gets cold, that then gas power plants in all neighboring countries are producing for France. That is, in essence something that will be I think the major risks throughout this winter how much cold spell will on the one hand increased gas demand in the heating sector and on the other hand city demanded France which they cannot meet themselves. I think we would agree with you here that at least the biggest priority has to be focusing on gas demand and mechanisms to support the gas price side of things. The question and risks around the crazy power market dynamics we've seen over this year, especially as you point out with French nuclear output being at almost record loads, that they're all definitely things on our radar. I guess maybe to dig in a little bit more on the gas price side. You know, we've seen a number of interventions being proposed and in some cases even implemented across the region, but also not a lot of progress. If I dare to say on on some of the mechanisms that have been floated to support gas price to actually mitigate some of the high gas price environment that we're seeing, I kind of want to know your view on what kind of interventions on the gas side are likely to be most successful. And I'm particularly thinking post this winter. So if we're thinking one to three years out now, I think joint purchasing by Europe on the global energy market would of course drive down producers rent here and increase our buyer power here. So that's something we should definitely do. And then, of course the second thing is will we see in increased export capacity over the coming months and years now? There are some projects that are envisaged a lot I think will come only and therefore we will I think I have to find a way to keep efficiency, renewables and others really as strong pillars over the next twenty four thirty six months in terror to have gas demand lower than we had it in with those measures we need to be able to get the gas market back to normal. Yeah, I guess it's definitely be inflated for a a while now. The question of joint gas purchasing, are you optimistic that will kind of progress? Well, used to be something where also Germany was very hesitant. We have switched our position. Given the high gas prices on the LNG market. I think there is a very good cause and case which is now different to other discussions that we had up to one. So therefore I would say yes, three will be the year where we see jo gas. And of course you know that there have already been a range of successful measures in some cases for the gas markets, including support for the midstream gas storage targets. We saw a kind of elect effectively rolled out across the region. And also to the point you raised earlier about downstream support to consumers, we already talked a little bit about how the high gas price environment is also having spill over consequences for our power markets because electricity prices are very often set by gas as the marginal supply source in the region. So maybe want to dig a little bit into some of the measures on the electricity side of things. Now. Back in October for those listening, the European Commission did set the stage for the EU to implement measures, including things like the levies on fossil fuel production as well as clawbacks on electricity generators profits, namely those inframarginal technologies like nuclear and renewables and nignite. But in practice been a analysts have been tracking kind of some of the measures that have actually started to be rolled out, and we've noticed a real mixture of measures starting to take effect across the regions. So Germany announced it's when for clawbacks on electricity generation, which go actually deeper than the EU threshold of a hundred and eighty euros Permegawa tower. Germany's, i believe is a hundred and thirty threshold with a ninety cent tax rate. And France has a perhaps even more aggressive and different clawback as well, starting from a hundred years permegawa tower, and they're planning to implement that for an even longer period of time than recommended by the Commission. And I think for start is these clawbacks are creating some discussions among the utilities around you know, use of these proceeds, And I want to ask you in particular, do you see any risks to so many differentiated response is now taking place among EU member states? Not really. I mean we see huge extra profits out there, and no one was planning with them. Honest, no one would have predicted the power cries of some have heard the euros promegoad hours or who or even higher that we have seen this summer. And if you take basically the three expectations were also well above three hundred euros permego at our I've seen a lot of models, but none of them have really kind of had those numbers. People out there are making a lot of money and if governments say a part of that should be given back to customers, then that's fair enough. The question is rather how long will those measures last and what happens afterwards. We have said they should end the end of April four. I think others in Europe also saying the crisis is not over in somewhere twenty three, but I'm in twenty four it will be over. And therefore the question is really what is the investment environment and when do we go back to normal? And there I would say everyone can be expecting that in four we will be returning back to normal markets. Yeah, I think we agree in terms of the investment signal, particularly for new technologies like on shore windom PV, which are now very much cheaper to run even to build new than even running the existing colon gas fire fleet, especially in this commodity price environment. So I think the investment signal question, like the fundamentals are there um everything in our models agrees build renobles to displace that existing generation, and definitely agreed with you as well on the question around duration at these mechanisms. I know, at least here in the UK, the clawback that's now been proposed by our government is planned to run through CHILL, at least in the press release that they announced last month, So that's definitely a question mark around around duration. And I think in some cases, if we're talking about measures that may extend over the kind of six to eight month time horizon and into the year, maybe even five years in the case of the UK, we do kind of reflect on the question around will there be perhaps slightly stronger signals for investment in new build renewables in certain markets over others, especially given things like supply chain constraints that many renewable energy developers are facing. I think the question mark around whether there will be slightly different decisions made is an interesting one still. I agree, of course, and the European Commission will now propose some market design reforms, and I guess a lot will be injuring towards for difference all over Europe, which the UK has as a standard model for renew renewables because that then gives to teacher investors. But at the same time it also has some sort of automatic cap on extra profits there in build So that is something I would expect to be coming out of Russells and to be also debated and discussed aboung members states throughout twenty twenty three. And we've just increased the auction price on wind and solar by twenty because of higher prices of raw materials and steel and everything that we see out there. So yes, inflation is there. We will see for probably some years higher prices, but that will also trigger new investment and then prices will come back down again. So these are special times we need to adapt and react, but I would see that Europe does that. Yeah. I think we agree on on this point a lot about the need to reflect on how the market design is laid out, particularly as we moved to technologies in the energy system that you know very much increasingly become based on their fixed costs, unless on their variable costs. I guess maybe just to dig one level deeper on on that, maybe just thinking about the renewable side of things. You mentioned CFD auction designs which have been very important in bringing lots of new renewables to the markets, and we have various designs across Europe. I guess we're we're actually facing similar reforms or at least proposals for reforms to how this happens in the UK here, and we have governments starting to think about how do we balance the need for keeping the incentive for new investment in renewables to also balance the needs of the power system itself to operate. You know, have operational signals that enable things like flexibility and other things. What do you think is most important to get right in the immediate term for kind of market design changes. You've been highlighting that this is about first of all, getting investments done. At second, the what market to be I think the key price signal that we need in order to have flexibility and everything to have a real time dispatch to the supply and demand work, and that's essentially what we need to solve those See if these whether or not they are towards killer what hours or maybe rather killer what's what is it that basically insures investment certainty at the same time gives the incentive to optimize yourself towards a very variable spot market. And there are answers to that if you ask economists, and we should listen to them. But I'm quite confident that we will get that also done within Europe as part of the negotiations in three Yeah, and I know that this has been on the agenda for the Commission in the wider member states for a while now, at least since I've been covering the onset of the European Green Dale, the market design reforms have been on the agenda. So hopefully one of the shall I benefits that are there in this whole crazy environment that we find ourselves and is that it's accelerating that discussion. One more thing we've been pushing very hard the last year, and that looks like now we will really be able to implement it to eason permitting processes to have everything really fast and speedy when it comes to wind and solar installation and permitting really is basically get to those six months of permitting process which the European Commission has been announcing the repower you and therefore I would say this is the moment to really kick start the renewable revolution in Europe, because it's very clear that is the only real sustainable answer to this higher gas prices at crisis. It's not going to be elergy from elsewhere. It's going to be wind and solar produced in Europe. Yeah, you've actually very well preempted the next question that I had for you, which is very much about the transition opportunities that are in urging in response to this crisis. We've long had this discussion around solving the energy trilemma. You know that our optimal energy system should balance one lowest cost for consumers. Too, it should be clean, it should be sustainable. Three, it should be reliable and secure. And actually, for me personally, I would add a fourth dimension there, which is we need to be talking about pace of delivery. Now. From my perspective, energy security has never been so high on the agenda, and it is increasingly clear that transition is part of energy security, especially with the need to cultivate accelerated deployments of local renewables. However, unfortunately, our analysis continues to find that there is actually just a really sizeable, huge disconnect between what's needed in terms of scale up of clean energy capacity and the reality of what's happening on the ground. You've mentioned permitting. We know that there are a number of challenges facing the scale up of renewables, and I know Germany has quite recently updated its own clean energy to how it gets as part of that Easter package earlier in two What beyond just getting the permitting right do you think is key to addressing those challenges in accelerating deployments at the pace that we actually need. So permenting is one thing alluded to that. The second thing is also to increase the capacity along the whole value chain. I've talked to winds producers and asked them, so are you prepared for that huge demand that will come all over Europe for additional wind mills, for additional pillars, for additional technologies that are associated to that, like grid connection and stuff, and there I was astonished that they were. So it's it is also about industrial policy here, because if I add up the wind off floor targets for example of the UK, Germany, Denmark, Netherlands and now also Poland and Poltics, then we're talking about quadrupling the factory sizes that we need to produce all that. So I think that will be the next real challenge, basically the capacity to build that stuff, and not just the market design. How important do you think the energy security dimension to the supply chain is in that equation? As a policymaker, how do you think about that? We didn't pay enough attention to that in the past. I would say I would feel a lot safer if we knew that let's say some or so of European demands on wind, solar and batteries and grids technologies and everything it can also be produced within Europe, and the European Commission I think is now waking up to that we will need additional instruments that FUNDA Lion has said we will for a few years need to relax our strict state it rules, and A totally agree because we need in this context, also as a response to the Inflation Reduction Act in the US, have a strong industrial policy. In Europe that delivers on all of those targets. That's really interesting. I guess beyond clean power, we know that other parts of the economy also need to transition, especially when we talk about sectors like heating, and we need to strike the right balance between supporting industries and companies and even households with their energy costs while still encouraging them to decarbonize. Now, as you will well know, the European Commissions Repower EU plan, which was kind of set up in response to the invasion of Ukraine earlier in the year, set some pretty lofty targets to structurally cut gas demand by over half across our entire economy. By that would require us to drive down gas use, not just in power where you know, relying on renewables, but also in heating an industry too. What are your source on Repower EU now and what kind of measures do you think will be required to actually deliver on it. I'm very grateful for the European Commission to have put forward Repower you because it was clear we needed an response in this crisis, and not just AFT package, which in itself was already very ambitious, and then the additional two ordinances that they proposed. Now what is key is heat pumps so quick, a lot of heat pumps all over Europe. That reduces gust demand in the heating sector. Second, what is needed is, as I've said, quick permitting procedures, and there we need to change European legislation in order to be quicker on national levels. So that is key and crucial in that regard. And the third is that industrial policy approach to those key technologies like wind, solar, battery and grips technologies. I think we need more of reducink gas demand in the hurry. There are some things that are just switching from gas to oil, which is the short term measure, but when it's really transformatory is switching from gas to electricity, not only private households but also within industry, and of course ramping up everything we can on the renewable electricity side. And I mean that that also does have to be somewhat of a discussion around the risks to our carbon footprint of things like the repowery package which do more heavily rely on cold generation, for example in Europe. And actually, while prepping for this interview with you, I spent a lot of time talking to many being analysts and people in our teams. And one of the questions that came up, and this is maybe a little bit broader step away from repower EU specifically, but more about the role of climate policy and our targets in light of this energy crisis and the example that Europe has to be setting to the rest of the world. And maybe to be quite simple on the question, but something that came out out of CORP recently in Egypt is the whole how do we keep one point five alive? I guess that's my question for you. How do we admite of this situation? Well, it is of course the challenge, and let's not show away from it. We're using more cold than we thought and we've prolonged the lifetime of a cold power plants which we all were shutting down up until in Mark twenty four. So these are teen months of additional cold power which we have to take. But the good news is we're not changing anything on the emissions trading system. The Canadas up and negotiations in Brussels have really delivered on a strict reform of the t S, which is why we see high prices. High prices on you as you two allowances, and at the moment gas prices go back down, we will see the COD phase out just happening faster than you have ever thought. I would expect the second half of this decade six onwards that you'll see basically the whole call phase out happening in Europe, and therefore the signal to the rest of the world is, in essence, we're continuing on the energy transition. You'll see I think the fastest you roll out ever in this year and the last year, the COD phase out will happen the second part of this decade faster than you ever thought. Yeah, I think I think this alligans with a lot of the internal thinking that we're doing as well. I guess my very last question for you for today is again a slightly broader one, stepping back in light of the current geo political situation, and you've already mentioned several quite game changing perspectives that actually started to shift across Europe. Just as one example, the relaxing potentially of stating rules to be able to kind of support domestic manufacturing of clean energy components within the region. I guess, in light of our current geopolitics, are those principles that sat at the heart of European energy policy for the last few decades of the liberalized clean energy market now really at odds with delivering on our energy security goals. I do think that the European Commission, and it's basically safeguarding the competition rules they have put two little emphasis on, but we need that stuff with factories in Europe. And I think what we're now needing is this is not about an individual member state having that now advantages these are the other member states. That's not what we want. What we want is that within Europe we have the industrial capacity for all those technologies. So what this is really about is finding new state rules and also European instruments that allow for government funding for new factories in Europe. And that's then the European answer to the Inflation Reduction Act. While the focus has very much been on we don't want competition between member states and we need to basically ensure that, and that has been led to two little investments. Will now be how do we ensure that investment takes place in Europe? And of course also this shouldn't lead a one member states to be more about than others. But I see a convergence on these issues, I think I tend to agree, especially on the alignment between energy security and decombanizing the energy systems. Perhaps the question of how to do this well in terms of liberalizing markets is a slightly different question, and it definitely aligns with some of the This one question that honestly, I think every single client has asked a being affair at some point over this last year, is will this crisis accelerate or decelerate the transition? And I think there is no simple answer to that other than to say it's mixed and it depends what we're really we're really talking about. Well, I would say it does accelerate if you look at what the i A has just put out in their report of how they expect a renewable accelerating. Of course, we will have higher emissions in the power sector three because of short term measures on oil and coal, But at the same time, structurally this is driving renewables and just driving electrification, and that's what the energy transition is about. I would be very confident that if you look at short term indicators you might have a different due to this, But if you're looking at what happens structurally. Then this is speeding up the energy for sire, and that also aligns with many of the key findings of our new energy outlook as well. I could have asked so many more questions to you today, but unfortunately we are getting towards the end of our time. Patrick, I want to thank you for such an insightful conversation today. I think it's a really critical time for us to be reflecting on the responses that are taking place to the energy crisis while taking the time to think forward about the emerging energy transition opportunities. UM, thank you so much again for joining us today, Patrick, Yes, thank you, I'm up for having me and let's see what three you will bring. Today's episode of Switched On was edited by Rex Warner of gray Stoke Media. Bloomberg an e f A is a service provided by Bloomberg Finance LP and its affiliates. This recording does not constitute, nor should it be construed as investment advice, investment recommendations, or recommendation as to an investment or other strategy. Bloomberg an e f should not be considered as information sufficient upon which to base an investment decision. Neither Bloomberg Finance LP, nor any of its affiliates, makes any representation or warranty as to the accuracy or completeness of the information contained in this recording, and any liability of this recording is expressly disclaimed

Hi, Mrs Dana Perkins, and you're listening to Switch It on the b n OF podcast. So this winter there have been some unusually warm and unusually cold weeks, and certainly people are talking not just about the weather, but the energy crisis. The conversation around natural gas and how it fits into the future of the energy system and really what that energy system overall looks like as the energy transition gets underway, has something that has been front of mine for many people, certainly the companies in the energy transition and of course policymakers. So today we have the opportunity to investigate the policy aspect more deeply. M A Champion here at BNF is head of Regional Energy Transitions Research, and she was able to sit down in conversation with Dr Patrick Greign, State Secretary at the Federal Ministry for Economic Affairs and Climate Action for Germany, and they discuss the ongoing energy crisis. Even as the days are longer and we can almost see spring approaching on our calendars, this conversation is not going to stop when we get to the summer. So what steps can and should be taken? Well, I'm going to leave that conversation with Emma and Dr Gregan. As a reminder, being a F does not provide investment of strategy advice, and we have a complete disclaimer at the very end of the show. Hi everyone, my name is Emma Champion. I sit on the analyst side at BENF working on our energy transitions coverage of the European region, and today I am actually so excited and in fact honored to be playing MC for today's episode because we get to have a really important conversation with an exceptional guest. So joining us on the show today to discuss some of the policy responses to the ongoing energy crisis here in Europe and transition opportunities that might help us get out of this situation is Germany's State Secretary of the Ministry for Economic Affairs and Climate Action, Dr Patrick Gregn. Thank you so much for joining us today, Patrick, and welcome to Switched On. Yeah, thanks for having me, Emma. I'm really delighted to discuss because there's so much going on. Absolutely, I think to start with needless to say, at least from my perspective, it's been a particularly eventful eighteen months to be an analyst covering European energy markets. We've seen gas prices hit those unprecedented highs energy costs adding to a lot of the inflationary pressures that are facing European economies and governments as a result, staging quite deep and unprecedented interventions into our energy markets to help contain those costs, support the struggling industries and households as well as utilities in some cases, and markets have been almost haywire. Over two following Russia's invasion of Ukraine, we've seen extreme volatility in energy prices. So I kind of want to start off with a really quite broad question, but one I think a lot of people have been asking themselves at various moments over this crisis. Patrick, do you think our energy markets are broken? And I guess what we're really getting out here is what do you think is the cause of the crisis. The real cause of the crisis is very simple. We're lacking one hundred third gbcm of gas from Russia, and that of course has a substantial reaction from Europe to somehow hope with that, and of course that means high gas prices, it means public activity to increase the availability of energy to Europe, and it will take a while until global markets have rearranged, and of course, because the power market is linked to the gas market in the sense that gas power plants are setting the price in the power market, we're seeing those high electricity prices. But at the end of the day, I'd say markets are functioning. Yeah, absolutely. I kind of want to reflect on some of the lasts that we can and maybe should already be taking away from crisis management, particularly from your perspective and time now as a policymaker during this time, and so let's dig into some of the measures that are already being implemented for this winter. I'm in London. We've already seen over some of this month, indeed across much of the rest of Europe snow and sustain subzero temperatures. This is generating more and more concern around energy costs and looking forward, I guess I want to know what, in your mind should governments be prioritizing to minimize the negative effects of this crisis. It's very clear that we would need to reduce our guest demand by some twent over the next eighteen months in Europe, and essentially the price will do part of this. We see already how a price have driven down guest demanding industry. But then there are other effects where we would also need to government intervention, lower heat demand, to boost energy efficiency, to boost renewables, to basically we did the call back online in order to get basically gas our plants less full of ours. So those are essentially all the things that we need to do when it comes to basically gas flows. Then of course we have the gas price issue, and there we have, of course for customers huge price increases. We somehow need to find a way that they can cope with it. That's why a lot of governments have handed out subsidies. But on the other hand, there are also people who make a lot of money now and we should also take some of those extra profits and give them back to customers. I want to dig into some of those ideas a little further, so maybe let's talk about the demand and price dynamics. We've already seen to your point that many consumers across the segments from residential to industry are already responding to this higher price environment and reducing that consumption. My colleagues on the BENF Gas team are trying king gas demand destruction in Germany at over fift even since it got colder over the recent weeks um and that's according to our provision or kind of implied demand data. But we've also seen to your point about many governments, including in Germany, you're rightly putting in place measures to help contain costs for consumers and support their energy bills. I guess the question here is, is there a dilemma where there are risks of going too far in shielding consumers from price increases and thereby actually muting the effect of some of those price signals to reduce demand. I guess, like, what's the sweet spot? Well, what we are doing is the shielding of customers has to still have a full incentive to reduce demand, which is why at the end of the day, it is a lump some money calculated on previous demand, but it's a lumpsome transfer that we're doing. That means you still have the full incentive to reduce your gas demand because you still see the gas high prices on your marginal demand. And therefore I think that's what is needed, shield customers through a mechanism which still gives the full incentive to reduce Yeah, I understand it's certainly a tricky one though to get the balance right, and I mean to be fair to my point, we are still tracking demand destruction happening in real time, so I think we're not quite at that point where it's completely in elastic. If you look at now the cold times, then essentially what is happening and that is our problem. Because French nukes are down demand from France and electricity is so high to the imports, especially when it gets cold, that then gas power plants in all neighboring countries are producing for France. That is, in essence something that will be I think the major risks throughout this winter how much cold spell will on the one hand increased gas demand in the heating sector and on the other hand city demanded France which they cannot meet themselves. I think we would agree with you here that at least the biggest priority has to be focusing on gas demand and mechanisms to support the gas price side of things. The question and risks around the crazy power market dynamics we've seen over this year, especially as you point out with French nuclear output being at almost record loads, that they're all definitely things on our radar. I guess maybe to dig in a little bit more on the gas price side. You know, we've seen a number of interventions being proposed and in some cases even implemented across the region, but also not a lot of progress. If I dare to say on on some of the mechanisms that have been floated to support gas price to actually mitigate some of the high gas price environment that we're seeing, I kind of want to know your view on what kind of interventions on the gas side are likely to be most successful. And I'm particularly thinking post this winter. So if we're thinking one to three years out now, I think joint purchasing by Europe on the global energy market would of course drive down producers rent here and increase our buyer power here. So that's something we should definitely do. And then, of course the second thing is will we see in increased export capacity over the coming months and years now? There are some projects that are envisaged a lot I think will come only and therefore we will I think I have to find a way to keep efficiency, renewables and others really as strong pillars over the next twenty four thirty six months in terror to have gas demand lower than we had it in with those measures we need to be able to get the gas market back to normal. Yeah, I guess it's definitely be inflated for a a while now. The question of joint gas purchasing, are you optimistic that will kind of progress? Well, used to be something where also Germany was very hesitant. We have switched our position. Given the high gas prices on the LNG market. I think there is a very good cause and case which is now different to other discussions that we had up to one. So therefore I would say yes, three will be the year where we see jo gas. And of course you know that there have already been a range of successful measures in some cases for the gas markets, including support for the midstream gas storage targets. We saw a kind of elect effectively rolled out across the region. And also to the point you raised earlier about downstream support to consumers, we already talked a little bit about how the high gas price environment is also having spill over consequences for our power markets because electricity prices are very often set by gas as the marginal supply source in the region. So maybe want to dig a little bit into some of the measures on the electricity side of things. Now. Back in October for those listening, the European Commission did set the stage for the EU to implement measures, including things like the levies on fossil fuel production as well as clawbacks on electricity generators profits, namely those inframarginal technologies like nuclear and renewables and nignite. But in practice been a analysts have been tracking kind of some of the measures that have actually started to be rolled out, and we've noticed a real mixture of measures starting to take effect across the regions. So Germany announced it's when for clawbacks on electricity generation, which go actually deeper than the EU threshold of a hundred and eighty euros Permegawa tower. Germany's, i believe is a hundred and thirty threshold with a ninety cent tax rate. And France has a perhaps even more aggressive and different clawback as well, starting from a hundred years permegawa tower, and they're planning to implement that for an even longer period of time than recommended by the Commission. And I think for start is these clawbacks are creating some discussions among the utilities around you know, use of these proceeds, And I want to ask you in particular, do you see any risks to so many differentiated response is now taking place among EU member states? Not really. I mean we see huge extra profits out there, and no one was planning with them. Honest, no one would have predicted the power cries of some have heard the euros promegoad hours or who or even higher that we have seen this summer. And if you take basically the three expectations were also well above three hundred euros permego at our I've seen a lot of models, but none of them have really kind of had those numbers. People out there are making a lot of money and if governments say a part of that should be given back to customers, then that's fair enough. The question is rather how long will those measures last and what happens afterwards. We have said they should end the end of April four. I think others in Europe also saying the crisis is not over in somewhere twenty three, but I'm in twenty four it will be over. And therefore the question is really what is the investment environment and when do we go back to normal? And there I would say everyone can be expecting that in four we will be returning back to normal markets. Yeah, I think we agree in terms of the investment signal, particularly for new technologies like on shore windom PV, which are now very much cheaper to run even to build new than even running the existing colon gas fire fleet, especially in this commodity price environment. So I think the investment signal question, like the fundamentals are there um everything in our models agrees build renobles to displace that existing generation, and definitely agreed with you as well on the question around duration at these mechanisms. I know, at least here in the UK, the clawback that's now been proposed by our government is planned to run through CHILL, at least in the press release that they announced last month, So that's definitely a question mark around around duration. And I think in some cases, if we're talking about measures that may extend over the kind of six to eight month time horizon and into the year, maybe even five years in the case of the UK, we do kind of reflect on the question around will there be perhaps slightly stronger signals for investment in new build renewables in certain markets over others, especially given things like supply chain constraints that many renewable energy developers are facing. I think the question mark around whether there will be slightly different decisions made is an interesting one still. I agree, of course, and the European Commission will now propose some market design reforms, and I guess a lot will be injuring towards for difference all over Europe, which the UK has as a standard model for renew renewables because that then gives to teacher investors. But at the same time it also has some sort of automatic cap on extra profits there in build So that is something I would expect to be coming out of Russells and to be also debated and discussed aboung members states throughout twenty twenty three. And we've just increased the auction price on wind and solar by twenty because of higher prices of raw materials and steel and everything that we see out there. So yes, inflation is there. We will see for probably some years higher prices, but that will also trigger new investment and then prices will come back down again. So these are special times we need to adapt and react, but I would see that Europe does that. Yeah. I think we agree on on this point a lot about the need to reflect on how the market design is laid out, particularly as we moved to technologies in the energy system that you know very much increasingly become based on their fixed costs, unless on their variable costs. I guess maybe just to dig one level deeper on on that, maybe just thinking about the renewable side of things. You mentioned CFD auction designs which have been very important in bringing lots of new renewables to the markets, and we have various designs across Europe. I guess we're we're actually facing similar reforms or at least proposals for reforms to how this happens in the UK here, and we have governments starting to think about how do we balance the need for keeping the incentive for new investment in renewables to also balance the needs of the power system itself to operate. You know, have operational signals that enable things like flexibility and other things. What do you think is most important to get right in the immediate term for kind of market design changes. You've been highlighting that this is about first of all, getting investments done. At second, the what market to be I think the key price signal that we need in order to have flexibility and everything to have a real time dispatch to the supply and demand work, and that's essentially what we need to solve those See if these whether or not they are towards killer what hours or maybe rather killer what's what is it that basically insures investment certainty at the same time gives the incentive to optimize yourself towards a very variable spot market. And there are answers to that if you ask economists, and we should listen to them. But I'm quite confident that we will get that also done within Europe as part of the negotiations in three Yeah, and I know that this has been on the agenda for the Commission in the wider member states for a while now, at least since I've been covering the onset of the European Green Dale, the market design reforms have been on the agenda. So hopefully one of the shall I benefits that are there in this whole crazy environment that we find ourselves and is that it's accelerating that discussion. One more thing we've been pushing very hard the last year, and that looks like now we will really be able to implement it to eason permitting processes to have everything really fast and speedy when it comes to wind and solar installation and permitting really is basically get to those six months of permitting process which the European Commission has been announcing the repower you and therefore I would say this is the moment to really kick start the renewable revolution in Europe, because it's very clear that is the only real sustainable answer to this higher gas prices at crisis. It's not going to be elergy from elsewhere. It's going to be wind and solar produced in Europe. Yeah, you've actually very well preempted the next question that I had for you, which is very much about the transition opportunities that are in urging in response to this crisis. We've long had this discussion around solving the energy trilemma. You know that our optimal energy system should balance one lowest cost for consumers. Too, it should be clean, it should be sustainable. Three, it should be reliable and secure. And actually, for me personally, I would add a fourth dimension there, which is we need to be talking about pace of delivery. Now. From my perspective, energy security has never been so high on the agenda, and it is increasingly clear that transition is part of energy security, especially with the need to cultivate accelerated deployments of local renewables. However, unfortunately, our analysis continues to find that there is actually just a really sizeable, huge disconnect between what's needed in terms of scale up of clean energy capacity and the reality of what's happening on the ground. You've mentioned permitting. We know that there are a number of challenges facing the scale up of renewables, and I know Germany has quite recently updated its own clean energy to how it gets as part of that Easter package earlier in two What beyond just getting the permitting right do you think is key to addressing those challenges in accelerating deployments at the pace that we actually need. So permenting is one thing alluded to that. The second thing is also to increase the capacity along the whole value chain. I've talked to winds producers and asked them, so are you prepared for that huge demand that will come all over Europe for additional wind mills, for additional pillars, for additional technologies that are associated to that, like grid connection and stuff, and there I was astonished that they were. So it's it is also about industrial policy here, because if I add up the wind off floor targets for example of the UK, Germany, Denmark, Netherlands and now also Poland and Poltics, then we're talking about quadrupling the factory sizes that we need to produce all that. So I think that will be the next real challenge, basically the capacity to build that stuff, and not just the market design. How important do you think the energy security dimension to the supply chain is in that equation? As a policymaker, how do you think about that? We didn't pay enough attention to that in the past. I would say I would feel a lot safer if we knew that let's say some or so of European demands on wind, solar and batteries and grids technologies and everything it can also be produced within Europe, and the European Commission I think is now waking up to that we will need additional instruments that FUNDA Lion has said we will for a few years need to relax our strict state it rules, and A totally agree because we need in this context, also as a response to the Inflation Reduction Act in the US, have a strong industrial policy. In Europe that delivers on all of those targets. That's really interesting. I guess beyond clean power, we know that other parts of the economy also need to transition, especially when we talk about sectors like heating, and we need to strike the right balance between supporting industries and companies and even households with their energy costs while still encouraging them to decarbonize. Now, as you will well know, the European Commissions Repower EU plan, which was kind of set up in response to the invasion of Ukraine earlier in the year, set some pretty lofty targets to structurally cut gas demand by over half across our entire economy. By that would require us to drive down gas use, not just in power where you know, relying on renewables, but also in heating an industry too. What are your source on Repower EU now and what kind of measures do you think will be required to actually deliver on it. I'm very grateful for the European Commission to have put forward Repower you because it was clear we needed an response in this crisis, and not just AFT package, which in itself was already very ambitious, and then the additional two ordinances that they proposed. Now what is key is heat pumps so quick, a lot of heat pumps all over Europe. That reduces gust demand in the heating sector. Second, what is needed is, as I've said, quick permitting procedures, and there we need to change European legislation in order to be quicker on national levels. So that is key and crucial in that regard. And the third is that industrial policy approach to those key technologies like wind, solar, battery and grips technologies. I think we need more of reducink gas demand in the hurry. There are some things that are just switching from gas to oil, which is the short term measure, but when it's really transformatory is switching from gas to electricity, not only private households but also within industry, and of course ramping up everything we can on the renewable electricity side. And I mean that that also does have to be somewhat of a discussion around the risks to our carbon footprint of things like the repowery package which do more heavily rely on cold generation, for example in Europe. And actually, while prepping for this interview with you, I spent a lot of time talking to many being analysts and people in our teams. And one of the questions that came up, and this is maybe a little bit broader step away from repower EU specifically, but more about the role of climate policy and our targets in light of this energy crisis and the example that Europe has to be setting to the rest of the world. And maybe to be quite simple on the question, but something that came out out of CORP recently in Egypt is the whole how do we keep one point five alive? I guess that's my question for you. How do we admite of this situation? Well, it is of course the challenge, and let's not show away from it. We're using more cold than we thought and we've prolonged the lifetime of a cold power plants which we all were shutting down up until in Mark twenty four. So these are teen months of additional cold power which we have to take. But the good news is we're not changing anything on the emissions trading system. The Canadas up and negotiations in Brussels have really delivered on a strict reform of the t S, which is why we see high prices. High prices on you as you two allowances, and at the moment gas prices go back down, we will see the COD phase out just happening faster than you have ever thought. I would expect the second half of this decade six onwards that you'll see basically the whole call phase out happening in Europe, and therefore the signal to the rest of the world is, in essence, we're continuing on the energy transition. You'll see I think the fastest you roll out ever in this year and the last year, the COD phase out will happen the second part of this decade faster than you ever thought. Yeah, I think I think this alligans with a lot of the internal thinking that we're doing as well. I guess my very last question for you for today is again a slightly broader one, stepping back in light of the current geo political situation, and you've already mentioned several quite game changing perspectives that actually started to shift across Europe. Just as one example, the relaxing potentially of stating rules to be able to kind of support domestic manufacturing of clean energy components within the region. I guess, in light of our current geopolitics, are those principles that sat at the heart of European energy policy for the last few decades of the liberalized clean energy market now really at odds with delivering on our energy security goals. I do think that the European Commission, and it's basically safeguarding the competition rules they have put two little emphasis on, but we need that stuff with factories in Europe. And I think what we're now needing is this is not about an individual member state having that now advantages these are the other member states. That's not what we want. What we want is that within Europe we have the industrial capacity for all those technologies. So what this is really about is finding new state rules and also European instruments that allow for government funding for new factories in Europe. And that's then the European answer to the Inflation Reduction Act. While the focus has very much been on we don't want competition between member states and we need to basically ensure that, and that has been led to two little investments. Will now be how do we ensure that investment takes place in Europe? And of course also this shouldn't lead a one member states to be more about than others. But I see a convergence on these issues, I think I tend to agree, especially on the alignment between energy security and decombanizing the energy systems. Perhaps the question of how to do this well in terms of liberalizing markets is a slightly different question, and it definitely aligns with some of the This one question that honestly, I think every single client has asked a being affair at some point over this last year, is will this crisis accelerate or decelerate the transition? And I think there is no simple answer to that other than to say it's mixed and it depends what we're really we're really talking about. Well, I would say it does accelerate if you look at what the i A has just put out in their report of how they expect a renewable accelerating. Of course, we will have higher emissions in the power sector three because of short term measures on oil and coal, But at the same time, structurally this is driving renewables and just driving electrification, and that's what the energy transition is about. I would be very confident that if you look at short term indicators you might have a different due to this, But if you're looking at what happens structurally. Then this is speeding up the energy for sire, and that also aligns with many of the key findings of our new energy outlook as well. I could have asked so many more questions to you today, but unfortunately we are getting towards the end of our time. Patrick, I want to thank you for such an insightful conversation today. I think it's a really critical time for us to be reflecting on the responses that are taking place to the energy crisis while taking the time to think forward about the emerging energy transition opportunities. UM, thank you so much again for joining us today, Patrick, Yes, thank you, I'm up for having me and let's see what three you will bring. Today's episode of Switched On was edited by Rex Warner of gray Stoke Media. Bloomberg an e f A is a service provided by Bloomberg Finance LP and its affiliates. 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