Speaker 1
We've talked about the renewable side of the equation, but I think the only way that we get to net zero is if we look at the transport side and the heating side. And in truth, net zero doesn't happen without industrial decarbonization. So we have to make inroads in that. But I think it's a challenge as we've heard, but it's also a massive business opportunity. I think that everybody here in the room is here for also that very reason. Maybe Alexander, I'll start with you at the end. Industrial decarbonization.
What comes to mind in your mind when you hear that and where does Uniper fit in that mix?
Speaker 2
It's a good question, Ralph. And I still tend to think about industrial carbon decarbonisation in two big buckets, industry as industry, like chemicals, etc. But we should not forget about the power sector. And overall, in Germany, I do believe we have massive opportunities. It's the fourth largest economy in the world.
4.3 trillion dollars GDP and yet more than 650 million tons of emissions per year. So we at Uniper stand ready to contribute and take action on decarbonisation of both our customers, i.e. the industry, my first bucket, but we also take very rigorous action on decarbonising power industry when we shut down coal-fired power plants.
and ensure the transition of our power generation portfolio. So all in all, putting our company into the context of this massive economy, what fascinates me is that the scale and the depth of decarbonisation in Germany is absolutely enormous.
Speaker 3
So what first comes to my mind is actually a project that we started in Sweden. And I think it's still a kind of a blueprint of how things can work.
because there we worked together with a steel company, AKB and SSAB, with a vision of producing CO2-free steel. It starts with, we were not allowed at some point to call it CO2-free steel, because then you need to be CO2-free in all different steps, but it was really the vision of how can we do that together. And Sweden, of course, has the prerequisites in the first place of a very...
carbon-free electricity system to start with and relatively low electricity prices as well. So that helps. And it started as a really small, okay, let's see if it works. And what happened then over time is that there was actually quite some large interest. As soon as there was the little piece of CO2-free steel produced, there were already demands on, yeah, we want to have that CO2-free steel in different equipment’s.
Speaker 1
Maybe, Pierre-Alain, G-Tech industrial decarbonisation is very core to what you do, but maybe you can just outline what comes to mind with that question, industrial decarbonisation, and where you fit in.
Speaker 4
So I think the first level is just a systemic view. Having been in the electricity sector and now in the industry, the second level will be more the operational view. So let me start with the...
the systemic view, I think it is a very complex challenge. The reality is specifically day to day industrial reality is not as easy as just switching one fuel to another or switching one equipment to another or there's a lot of implications in there and this requires collaboration. So the first thing which comes to mind is it's not one single company, it's a bunch of companies, it's a sector, maybe it's a country, maybe it's even a region.
to collaborate on this. The second perspective is about the way we balance industrial politics and the demand for producing industrial goods here in Germany or in Switzerland or in Europe versus the decarbonisation because the reality it's a constant trade-off we need to do. There are some industries which most probably will suffer.
from decarbonisation due to cost increases? What's the answer to that? I don't think we do have it at the moment. And the third systemic view, it's technology driven. And one of my favourite stories is when I was CEO of a transmission system, my fellow electrical engineers, that's about 10, 15 years ago, said electric cars will never happen. Now it's only because some forces started to come,
And it starts to happen. Same for wind. So I think we need to drive technology.
Speaker 1
Maybe Catrin if I can start with you. As you think about decarbonisation on the electricity side, is it one of just let's just do the same thing that we've been doing all along and it's all we're on the path, we just need to find the money. But as long as we have that, it, you know, we're going to decarbonise the electricity side of industrial demand without too many hiccups.
Speaker 3
Of course, we are talking here about Germany, not about Sweden. Sweden is almost there. Germany, I think, is plenty a lot more difficult, because there is not the high-speed resources that you have in Sweden, and nuclear is shut down, which again is the other big part in Sweden. So I absolutely see that it's getting more and more difficult. Not necessarily because...
The technology is not there. I think we see at the moment, especially PV getting again cheaper and cheaper. But it's really the question, how will the whole system hold together and who's responsible for holding that system together? And I think we need a lot more thought processes into how does that market design look like? I think that was mentioned before, there need to be.
different incentives and a lot of brainpower put into what is then the most, in which direction should we try for the most efficient solution? Because I think what we also don't want to go to is a totally central planning, but then the balance is difficult to get between having the right incentives in place and still recognizing where to put those incentives
And I think the one part that we are really not good in Germany is being able to connect politics, politicians, decision makers in politics with industry. There's such an inherent mistrust that I don't see in other countries. In the Swedish system there's a roundtable, then there's a discussion, and of course there are different interests, but they kind of come together.
And at the moment in Germany, I have the feeling there's not really a lot of... there's not a round table thinking, there's not a consultation on how does that whole system fit together. But it's all little pieces put together and then maybe a bit of incentive in one direction and if in doubt, and another incentive in a different direction. I think it's really time to have a more conclusive solution in mind on where are we heading to make things happen in a good way.
Speaker 1
One of the things we discussed previously is not just, you know, we need green electricity, but we need electricity all the time and security of supply. Can you talk a bit about when you're speaking to industrial companies about also the certainty of actually having power at all times at a reasonable price?
Speaker 2
Absolutely, and excellent that you pick up on this, Ralph. Indeed, this difficult middle bit. mis going to be the next opportunity, I firmly believe, because as we heard earlier today, a very significant amount of dispatchable capacity being nuclear coal lignite will leave the system in Germany in the next years, and that's pretty much given.
In the case of nuclear, it is given. While more and more renewables come into the system, and that requires and drives demand for clean dispatchable capacity. Now, what is challenging is that there is currently no regulation in place which incentivizes investments into clean dispatchable capacity. And what I observe is that in our industry and power plant operators, no one is ready to invest on a merchant basis, i.e. without stable remuneration.
That holds true for us at Uniper and we are very eager to hear from the government, from policy makers, more on the capacity mechanism, the capacity market or similar scheme, which is very acutely required because in this German system different forecasters give you different numbers and BDI, the German Industry Association, put more than 40 gigawatts capacity required in Germany by 2030, take half of it, 20 gigawatts until 2030 is still a massive number.
The good news is though that BMWK are working on a very, very concrete plan, and there is a Kaftwerk strategy, I think, being now developed, and we await very concrete measures.
Maybe last point on that one is that we saw that in the past that such capacity mechanisms were introduced on a, so to say, individual power plant or individual location basis. And we as Uniper participated in the tender one project in Bavaria, successfully implemented it. And now it's up and running for system purposes in Bavaria. Yeah.
Speaker 1
I mean, this is meant to be the easy bit, right? And actually we're talking about, we need to make sure we get the auctions right, and we need to make sure we have actually a predictable flow and some incentives for clean, dispatchable and flexible generation assets. And I think Kunal, you alluded to the flexibility challenge as well. So maybe I'll shift to the harder bit just to keep it going. And.
talk a little bit about decarbonizing away from the electricity side and more into the molecule side, whether that's on the hydrogen or some of its derivatives. Pierre, maybe I can come to you first just in terms of decarbonizing, heating, decarbonizing, operational aspects, you know, signing a PPA in theory, easy, not so easy, but...
Actually, now we're talking about decarbonizing also the operational side of things. When you speak to industrial customers or real estate companies, how difficult of a discussion is this? How long does it take? Just give us a sense of how those discussions happen.
Speaker 4
There are some companies which are driven by a net zero mission and to them, as long as it's halfway economically viable, we will engage in a very meaningful conversation and it goes maybe six months until you have the project in place and then up and running.
I just went to our sales lead system yesterday, as late as yesterday, and I saw our sales lead for four years. And so I went into and said, OK, what is it? What does it take? And that was a customer with high energy intensity, unclarity about their location, unclarity about what type of fuel they would prefer. Do you do biomass or would you do something else? And then it takes much more time.
it's very difficult to give you a prediction on how quickly it goes. The biggest challenge, though, I think, is in the end, is the euro value at the bottom, because the reality is the industry needs to pick up a share for rebuilding a system or for paying for a different type of fuel. So it's a cost-driven question.
which in a global competitive environment is quite challenging to tackle. So I think what we try to do in our case is really to use, to bridge several technologies, to bridge fuel to electricity, to really make sure we make use of all type of energies at any point in time, to really minimise the financial impact. But I think that's most probably...the biggest discussion point there.
Speaker 1
Yeah, I think it's more tailored in the sense of what the... Depending on how much energy consumption you have and your sensitivity to price, I think drives a lot of this discussion.
Speaker 4
And maybe if I may add to that, also what you have in your production process drives the discussion. We are the owner of two chemical parks, three chemical parks by now. I stopped counting, but three chemical parks, not that many.
We have ample hydrogen or ammonia on site, or we have the possibility of using ammonia. So that's what we're looking right now to recycle certain waste products on site. So there are also ways on doing things differently.
Speaker 1
Maybe if I can try and go one level deeper and talk about projects that have happened the way you've put money to work, where you've taken FID decisions. And I think there's a really important point is that actually low cost of energy. what you can drive in terms of the solutions you can provide and then attracting industry. You know, the German decarbonisation doesn't happen just in Germany. I think we have to recognise everything around us is influencing that. And clearly you've already made investment decisions that are kind of supporting some of this. Maybe Alexander also to you. I know you've taken some FID decisions on some early projects. Can you give some flavour to the audience of what those projects are?
Speaker 2
A couple of examples indeed from our own portfolio and also broader observations in the market. I keep coming back to that difficult middle bit, clean dispatchable power. Some concrete examples that we implemented in the UK, more than 70 million synchronous compensator projects, which provides now...
inertia to the grid, to national grid, and it is fully regulated on the six-year contract with high single-digit IRR. Next example that I earlier referred to is a 300 megawatt OCGT in Bavaria fully contracted to the TSO and features roughly similar returns.
call it between 5 and 10 percent IRR, required by the transmission system operator for grid stability purposes. In June this year, now moving on to the green molecules side, we took a financial decision on 30 megawatt electrolyser capacity at Energiepark Bad Laustädt. Let's say that the economics are a bit more modest.
It's a non-regulated project, which requires, what we discussed earlier, cooperation from multiple parties, from transmission system operator, gas site and power site, feedstock from renewable producer, etc. And that is currently complex. And that's what I was going to say, that my observation is that returns in investments in hydrogen projects, in particular in electrolyser projects, are currently, let's face it, somewhat challenging.
Should it discourage us? No, I'm absolutely confident not it shouldn't, because the fundamental demand is there. There is plenty of hard to obey sectors where hydrogen is effectively the only option to decarbonize and I firmly believe that over time returns will then match expectations of investors.