Episode 17: Green Grids, Good Business

The costs of converting Germany's power supply infrastructure to renewably generated electricity is enormous. Some skeptics fear the high cost of the transition will frighten off international companies. But there is also a case that with increasing numbers of firms committed to carbon-neutral production, Germany's green energy grids will soon a powerful argument for them to do business there.
 

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Our Guests

Nicolas Steinbacher | © Nicolas Steinbacher

Nicolas Steinbacher is Senior Director of Strategy & Corporate Development for Swedish lithium-ion battery company Northvolt in Germany. Northvolt has broken ground on a gigafactory in northern Germany with its huge supplies of wind-generated electricity.  
 

Marco Nix | © Marco Nix

Marco Nix is Chief Financial Officer for 50Hertz, one of Germany's electrical transmission grid operators. His company is building thousands of kilometers of power lines to feed green grids bringing energy from wind and solar sources in the north, to manufacturing centers in the south of the country.  
 

Transcript of this episode

"German and European companies need to develop a technological advantage so they should see more expensive energy not as a disadvantage over the next five to ten years. Instead, they can make up for that by becoming more technologically advanced. By being ahead of the curve on energy costs."

Presenter:  

Hello and welcome to INTO GERMANY, the German business podcast, brought to you by Germany’s international business promotion agency, Germany Trade & Invest. I’m Kelly O'Brien.  Opening this edition was Marcel Fratzscher, the President of the German Institute of Economic Research. He was speaking about the opportunities for companies presented by Germany's transition to green energy.

The Energiewende, as it’s known in German, aims to completely phase out fossil fuels by the year 2045. In the next six years alone, the target is to use renewable sources, primarily wind and solar power, to produce 80 per cent of all electricity consumed in Germany. 
But the transition to green power grids is costly. The price tag will be 1.1 trillion euros, according to one estimate. So can the Energiewende really be an advantage for Germany as a business location?
That’s the question we’ll explore later in the podcast with Marco Nix, the man in charge of finances at one of the country's four main power grid operators,  Fifty-Hertz.
But first let's look at a company that came to Germany in part because of the growing availability of clean energy. Nicolas Steinbacher is the Senior Director Strategy & Corporate Development for Swedish company Northvolt. It’s building a giant factory for batteries for electric cars in the northern German city of Heide. The 4.5 billion euro facility will produce batteries with renewable energy and is slated to create 3000 new jobs. 
Nicolas, Northvolt specifically came to the region north of Hamburg because of its access to energy produced by offshore windfarms. Before we get into that, why don't you tell us a little more about Northvolt?  

Nicolas Steinbacher 0109 - 0232

"Yeah, so Northvolt is, I think, a pretty unique company, starting with its mission when Northvolt was founded in 2016 by Peter Carlson, formerly working for Tesla, with a big mission to really bring green batteries to Europe. So the idea was actually that if the electric mobility really hits the market, then Europe can just not sit there and buy batteries from only from the Asian part of the world. 
So Europe needs to have their own supply chain to build everything. So the Northvolt company was founded around a much bigger vision and mission to really solve a problem and to tackle that problem together with that company. And what makes us different is that we put a lot of effort really making batteries green. So that means that we do not only want to... make it a green production with renewable energies, but we also really think the whole battery value chain in a closed loop environment. That means that we're also looking into cathode active material production, the battery cell manufacturing for sure, but then also the recycling of the battery cells so that we can use recycled batteries for producing cathode active material production afterwards. And that makes it very sustainable if you have a closed loop concept."

Presenter:

So your main market will be German automakers, who want to become less dependent on Asia for car batteries?   

Nicolas Steinbacher 0413 - 04.42

"Yeah, so we have three main areas of business, which is for sure automotive for electric mobility. Then it's the whole topic of energy storage. Enabling the energy transition enables green grids, actually. And the third one is to give battery solutions to industrial customers, for instance, mine vehicles or other industrial vehicles, which are like have like special requirements in terms of the battery."

Presenter: 

Your company produces lithium-ion batteries that have a dramatically lower carbon footprint than batteries produced using fossil fuels. Tell us more about green grids. 

Nicolas Steinbacher 04.48 - 05.23

"When a green grid actually consists out of a lot of production of renewable energy so that the share of renewable energy in electrons in the grid is high as high as possible. So this is also why we are locating our factories or battery factories in only green grids where there are even surpluses of energy in the grid so that the grid cannot even take away all the renewable energy produced in that sector. That's the case. for Skellefteå, our first gigafactory, but it's also the case for gigafactory we are placing in Germany in the region of Heide." 

Presenter:

Another factor for your company deciding on Germany was that you had a lot of customers here already, right? The car companies... 

Nicolas Steinbacher 0739 - 08.50

"A huge group of partners in Northvolt already have in terms of customers is located in Germany. So, a lot of premium customers from the German automotive industry. So we want to be close to our customers, being customer centric. But it's also, as you mentioned, about energy. So, we want to let me start with this. the German government has kind of decided to do a very ambitious energy transition, right? It really starts with the right mindset in order to shift things in the world in terms of how we produce new products, green tech products, how do we handle the topic of green electricity and decarbonization? And then it first starts with a mindset. So the German government had that mindset, has this mindset. And then we looked into, okay, what regions are actually like exceptionally performing well in this renewable energy strategy. And that was Schleswig -Holstein in the very north to make sure that the energy production in Germany is even above target. And that is exactly the same aspiration we have at Northvolt to build the greenest battery in the world. And that fits very well together with our strategy."

Presenter:

What about the cooperation you received from the German authorities in getting permission and funding for the gigafactory? There is a perception that German bureaucracy is not fast enough to meet the huge demands and tight deadlines of the energy transition. 

Nicolas Steinbacher 09.17 - 10. 18

"What we have experienced as Northvolt is a very close partnership with all levels of authorities. If it's the Federal Republic of Germany with the Ministry of Economic Affairs and Climate, but also the state of Schleswig-Holstein and local municipalities. So, there was always the same will and the trustful partnership to make things happen. So that I can really say. And of course, in Germany, you have certain topics where You could be a little bit faster in terms of digitalization of processes, cutting processes in a certain way. Right. But I also think that if you work together very closely with authorities and the regulators, then you could also bring in your ideas as a company to make things faster. And I think sometimes it's also like a partnership to make things happen together. And this worked very well in our case. And I can just say to other investors that it's like going faster, not only demanding things, but really working together and just fixing some things very pragmatically." 

Presenter:

Do you envision other foreign companies being attracted to Germany because of its rapidly developing green energy infrastructure? 

Nicolas Steinbacher 13.36 - 14.44

"I think green energy is the start for everything. But you need to place a lot of innovation around how to package battery cells, how to maneuver the energy transition, how you use digital solutions to make it happen. I think for all players who are willing to create or produce green products being located in the green tech industry, so -called, I think Germany is a very interesting potential target as a country. However, you need to look at okay, where is actually the energy existed? Where can you connect to energy? And then there are also ecosystems which can be built around. So, I can only say that, from my point of view, a huge competitor factor in the end is if you're able as a municipality or as a state to build out renewable energy so that investors can come. and really connect to these renewable assets and then also can promise their customers like a true green product. So that is something what is absolutely necessary."

Presenter:

Nicolas, skeptics doubt that Germany will be able to meet its ambitious green energy goals. As your business strategy revolves around sourcing green energy, what is your view?

Nicolas Steinbacher 10.37 -- 11.58

"I always ask about the alternative, right? So, I think we all see that climate change is hitting and that there are a lot of things which are already which you can already see in terms of droughts, in terms of the climate changing. It's getting warmer. The question is, do we really mean we really have an alternative? It's more about the question of what needs to be in place to get to that goal and make it happen, right? And therefore, for sure, there is measures which you need to look at. How do you balance the grids in terms of energy storage solutions? How do you use digitalization? How do you use innovative solutions to use battery electric vehicles to store energy in night or something? So it is a lot about innovation. And I think if you really pull the innovation and the willingness of German engineers to excel in these kinds of things, then you can reach it. But the most important thing is that you have the mindset and that you think that this is possible and that you're driving things in a so -called self -fulfilling prophecy direction that it means like, okay, we get everything in place and then we make it happen. If you are just very destructive and always searching for the reasons why this cannot happen, then of course it will not happen. I'm really like a big supporter of understanding the problem and then understanding what and defining measures which make it happen."     

Presenter:

That uplifting notion is a good place to conclude this portion of the podcast. Thanks very much Nicolas Steinbacher, senior director of strategy and corporate development at Swedish battery maker Northvolt, which is breaking ground on a gigafactory in northern Germany. It will be the company's third gigafactory and produce enough batteries to power one million electric cars each year.
In just a few minutes we'll be speaking with the C-F-O of one of Germany's electrical grid operators, 50 Hertz. He’ll provide his input on the business argument for Germany's Energiewende. 

But first, let's look at some of the stories making headlines on Germany's business scene. 

(+++BUSINESS SHORTS IN+++) 

Billion Euro Boost

US software colossus Microsoft says it will spend more than three billion euros on its artificial intelligence business in Germany. The investment is to be made in the coming two years. It is the largest sum ever allocated by the company to Germany in Microsoft's forty years of doing business there. Germany ranks second in the world in terms of usage of A-I by organizations and is the second most important developer of A-I applications in Europe. But the country only ranks eleventh in AI capacity.

Smartphone Surge

German digital industry association Bitkom predicts that German smartphone business will reach a record 38.9 billion euros in 2024. Bitkom says that growth is being driven by investments in network infrastructure, which will be worth 2.4 billion euros in the coming year, and increasing turnover in mobile telecommunications services. The group also notes smartphones are increasingly making other electronic devices obsolete, with roughly two thirds of users having dispensed with their digital cameras and alarm clocks.  

Relaxed Requirements

Germany has introduced new legislation to modernize German residence law. This will make it easier for qualified non-EU professionals who wish to live and work in the country. Easements for the EU Blue Card have been in place since November 2023. The new support measures mainly focus on the recognition of foreign professional qualifications. German Minister for Economic Affairs and Climate Action Robert Habeck said the changes will secure a strong position for European industry among its global competition.

Green Goal

Germany is now on course to realize its ambitious goals regarding carbon dioxide emissions. CO2 emissions in Europe’s largest economy dropped 10.1 percent in 2023, the largest decrease since 1990. That’s according to data from Germany’s Federal Environmental Agency. Germany emitted 673 million tons of greenhouse gasses in 2023, 76 million tons less than the previous year. Extrapolated into the future, the decrease would mean that Germany would be able to achieve its aim of lowering CO2 emissions by 65 percent of 1990 levels by the end of this decade.

And finally...Strong Start

A quartet of promising start-ups from various corners of Germany began 2024 with financing rounds of 80 million euros or more. The largest of the VC deals, 270 million euros, was landed by Berlin telecommunications company Everphone. There were also major investments in Karlsruhe synthetic fuels firm Ineratec, Munich electric vehicle- subscription company Finn, and portable battery systems provider Instagrid from Stuttgart.  

Presenter: 

And that brings us back to power grids - and the case for green energy as an ADVANTAGE for business in Germany. 

The country's world-class industrial and manufacturing sectors were built around fossil fuels. One of the key legacies is an energy logistics network that features massive power plants, located close to areas with large energy needs, such as factories and major cities. The electricity grid is decentralized and able to deliver more or less power to meet demand. 

But Germany's old electric grid is far less suitable for meeting the requirements of clean energy. One reason is the logistics of transporting electricity over long distances. Germany's renewable energy from wind turbines is produced in the north, offshore and close to the coasts. The major centers of production are in the south and west. 

That is why the pressure is on Germany's handful of electrical grid operators to expand capacity. The lion's share of the cost of the transition to clean energy, in fact, nearly 700 billion euros, will go toward expanding and linking Germany's grids. The biggest project? A giant autobahn for electricity, slated to begin transmissions from wind turbines in the north to customers in the south in only three years. 
So, let’s bring in Marco Nix, chief financial officer at grid operator Fifty-Hertz. The company provides electricity for 18 million Germans in the north and east of the country through over 10,000 kilometers of power lines. Their goal? To convert fully to green electricity in only eight years. 

Marco, so 50 Hertz is going for a 100 per cent green grid... and your company is key to accessing wind power in the sea basins in the north. 

Marco Nix 01.21 - 02.16

"In Germany there are four energy grid operators.  But what makes us different is on one hand that, share of renewables, which we are transporting. And our grid is already of a remarkable size. It consists of 72% measured in the consumption in our grid. That's already what we are transporting, year by year. So that's quite advanced compared to our peers. The second one is that we are the only transmission system operator who is active in both cyber songs in the Baltic Sea, where we already connected 1.5GW of offshore wind, and in the North Sea, where we are going to connect, ten additional gigawatts of, offshore wind."

Presenter: 

So your company is at the start of the supply chain transporting all that wind energy from the north. Where presumably more renewable energy is produced than is needed?

Marco Nix 03.16 - 04.10

"...We are covering 20% of the inhabitants in, in Germany. And that's, as a rule of thumb, valuable for, the transmission for, the consumption as well. But the production is, for the time being, bigger, and it's still growing. And in particular, the fact that the density of inhabitants is not as big as in the Western countries.  We are facing relatively high amounts of renewables for a growing that's needs to be integrated in the grid. And that's a huge transformation task for the entire system. So we, we do see. Different kinds of production, more spread of production, but higher transport distances. And that requires a sufficient infrastructure. That's one of our main tasks in providing it. And secondly, of course, to cope with the higher volatility between the consumption and production in a future system."

Presenter:

There are over 10,000 kilometers of NEW power lines   needed in Germany. How much of that new construction will you be responsible for at 50 Hertz? And what else is required to transport electricity over those vast distances?

Marco Nix 05.21 to 6.56:

"...There are in total in Germany, being foreseen, extension of the grid by around 12,000km. We ourselves are operating a system of 10,000km and 4000 of the new ones. So, there's around the 40% increase of the total grid length and measure the kilometers capacities. It's even more. That's one of the major tasks, where we need to invest in. And the second, this, of course, that's been said due to the fact that transportation distances become bigger. We, going away from the closely meshed grid in, in the AC world. We usually have 80km transport distances before you have in feed or offtake to the big overlay grid, the DC grid. And that's usually an end-to-end point connection, which contains a converter station, which converts from AC to DC that big transportation distances and then converts back that this can be consumed there. And a third element to be named, these are active steering, things like power electronics in the grid, which enables us to steer to some extent, load flow to make sure that we really pass the electrons down to the load centers in the south."

Presenter:

In the past, there has been criticism that Germany's renewable energy policy was uncoordinated. For example, solar cells and wind turbines were promoted when grid operators had no way to handle the extra electricity.  

Marco Nix 09.35 - 11.10

"Yeah, of course, the transformation task is a one which we need to do commonly. On one hand, we need to trust that we set together with the politicians the right incentives to invest. That's a prerequisite. And we are doing our best to ensure that the business case of the developer, for instance, is a good one. So, what means we provide sufficient infrastructure that they have no restriction in it, which that's the main task we are doing. Furthermore, we are giving some advertisement in that regards on both side, for industrial play, which put new consumption centers, for instance, in that area and for wind farm operators as well on land, for instance, or photovoltaic operators on land, to make it a little bit easier for them to have access to the grid. That's, that's what we are doing and what gives us confidence is a little bit of history. I would say, with an eye to 2013, the amount of renewables, was at 38%, measured in the consumption of a year. We are now at 72. And even if you linearly prolong that, you lend at 100% in 32. But of course, there are more mature plants behind, taking all the developments, of offshore wind, onshore wind and photovoltaic into account. And we check the maturity of these projects, synchronize that with our grid development so that there is a kind of likelihood that we are landing there. And that gives us confidence."

Presenter:

German policymakers are making the case that in the long run, Germany's green energy grids are going to be a boon for industrial investors because renewables will become cheaper than fossil fuels. On the other hand, industrial lobby groups say the costs of energy are so exorbitant, they could force investors to other countries. So which view is correct?

Marco Nix  13.18 to 15.45

"The answer is, multiple. I would say it's not to neglect that we are now in the transformation journey and currently paying. The old system to some extent, and a new system at the same time. That's, of course, a question of affordability, as this is something industry is suffering from. No doubt on that. But with an eye on the future, the question is what are the costs of opportunities? And the system today has been built in the 70s, coming from the oil crisis of high investments in nuclear arms and high investment in fossil fuels, power plants. They are quite centralized, being located. And in Germany, both are gone. And now the question is, what are the alternatives? And to be honest, they are not that many. But even if you stick to one and taking the nucleus, for instance, and compare it to a renewable energy system, nukes are not more. Commercially advanced, then renewables, that the cost of the system will change. So the pure renewable production itself will be rather cheap. It's almost zero and there are no residual costs, once this has been corrected. But it's been said the upfront investment costs are significantly higher, not on the renewable energy source itself. So the production facility is not necessarily more expensive, but the system costs are as you usually need to have backups, for instance, for megawatts installed of renewables, as you do not have 100% load outs there, and you need to have a kind of backup, once this is not up and running. That's fair to say. And we do believe that, this could turn out in the kind of, positioning which is then a balanced one over time, which gives security for the industry and is not more expensive than in conventional system as of today."

Presenter:

That's an encouraging assessment about costs, coming from the chief financial officer! Before we go, Marco, could you please tell us what international companies interested in expanding to Germany should know about green energy here?

Marco Nix  18.09-19.43 

"I think German energy sector is one of the most open compared to other countries in Europe. And our example is a good one as, our mother company is a Belgian based holding company which is listed on the Bel 20. So comparable to Dax 30. And this is giving an idea how open Germany is in attracting foreign capital on one hand and connecting to other countries and that's. That's something we are forcing as well, like the discussion which we are facing around the Baltic Sea. Leader, leadership that that we try to connect ourselves with other European countries to, on one hand, increase security of supply. Secondly, get access to renewable energy sources in these countries which might have excess of that. And thirdly, have a mesh grid to enable the kind of European market on electricity. And that requires quite a lot of connections to other countries. And from a technical side, we do have it for a couple of decades, as at least the 50Hz is a common frequency in Western Europe. But that's something we all are obliged to help, all the time. And that requires some kind of interaction minimum. And of course, we, pushing all the guys, to have more and this, as we do see that as a is a very fair creation, for entire Europe."

Presenter:

Thanks for that Marco Nix, chief financial officer at Germany's grid operator 50 Hertz, and also, I should say, C-F-O at 50 Hertz's holding company that he just mentioned, Elia Grid International.

Before we say goodbye, here's a look at HOW GERMANY WORKS. 

As Marco Nix said, 50 Hertz is one of four transmission system operators, or TSOs, in Germany. They build, maintain and operate extra high-voltage power lines. They do NOT generate or sell electricity. 50 Hertz is responsible for eastern Germany and Hamburg. TenneT (pronouce ten-net) covers a broad swath of the center of the country from the North Sea all the way down to Alpine Bavaria. Transnet takes care of the majority of Baden-Württemberg, while Amprion covers the rest of that southwestern regional state as well as Germany’s heavily industrial west. The transmission systems also link the German network with those of its neighbors via cross-border interconnectors and underwater cables, enabling electricity to be traded across European borders. And THAT’s how Germany works.
 
This brings us to the end of another episode of Into Germany. If you think your company can help power the German green energy revolution, please contact us at Germany Trade & Invest. There’s no bigger European market, and we can provide expert guidance on opportunities to set up shop here. What's more, as a government agency, all G-T-A-I services come free of charge.

Get in touch at gtai.com. We’re also keen on your opinions, suggestions and questions. Please leave a comment in your favorite podcast app or drop us a line. You’ll find all the details in our show notes.      

So, till next month, “Auf Wiederhören” and remember: Germany means business.  

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