Episode 4: Making Energy Efficiency More Efficient

Russia’s war against the Ukraine underscored the need for Germany to get more from less energy – something that was already a priority in the global fight against climate change. But how can energy efficiency be increased most efficiently? What opportunities do international companies have to be active in the field in Germany? And why are heat pumps currently flying off shelvesin Europe’s biggest economy? Three specialists give us the lowdown.

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The cast

Volker Weinmann, Beauftragter Umwelt, Politik und Verbände bei Daiki | © Volker Weinmann/Anton Brandl 850

Volker Weinmann

Volker Weinmann has worked for Daikin, the world’s leading heat pump producer, for twenty years.  In his current position as representative for politics, environment and associations, he represents the company at numerous committees, associations, initiatives and organizations.

Andrew Mack; CEO Octopus Energy Germany | © Andrew Mack

Andrew Mack

The British CEO of Munich’s Octopus Energy, Andrew Mack, is an expert on the future of energy, having worked in the industry for almost two decades. Before setting up shop in Germany, he helped take London’s OVO Energy from a startup to the second largest independent energy company in the UK.

Dr.-Ing. Marek Miara, Business Developer Heat Pumps at Fraunhofer-Institut für Solare Energiesysteme ISE

Marek Miara

Marek Miara is a veteran in the field of renewable energies and been employed for twenty years at the Fraunhofer ISE, where he currently serves as the institute’s business developer for heat pumps. He has supervised both national and international projects and is also a member of the Association of German Engineers and the energy division of the German chapter of Scientists for Future.

Send your feedback and comments to andreas.bilfinger@gtai.com.

Transcript of this episode

Presenter: Hello and welcome to the German business podcast “Into Germany.” It’s brought to you by Germany Trade & Invest, GTAI, the German government’s international business promotion agency. I’m Kelly O’Brian! Our topic this time round couldn’t be more timely: how to save money and protect the climate by maximizing energy efficiency. Starting with heating.

Heating bills this winter have sent cold chills down the spines of people throughout the industrialized world. Prices for gas, oil and other heat sources exploded in the wake of Russia’s on Ukraine. But the quantum leap in costs only underscored something climate change should have already taught us. If we don’t use less, we’ll pay more.

That’s why there’s a huge market in Germany for all sorts of solutions to increase energy efficiency. We’ll meet Andrew Mack, whose company Octopus Energy is getting its tentacles into this lucrative sector.

Andrew Mack: It's a very challenging market to be a new entrant. But it was well worth it. There's not a day when I regret coming here.

Presenter: We’ll also be talking to the Daikin company about why heat pumps are flying off the shelves in Germany. And a renowned scientist will share some insights on how we’ll likely heat our homes in the future – and what that means for businesses.

Renewables hog the headlines about Germany’s so-called energy transition. But just as important as wind turbines and photovoltaic installations is efficiency in general – and efficiency in heating in particular. After all, heating accounts for more than 60 percent of energy consumption by private households in the EU. The potential for savings is enormous. But how can we get more from less?

Andrew Mack from Octopus Energy has some suggestions. He has worked in the energy industry for almost two decades. Before setting up shop in Germany, he helped take London’s OVO Energy from a startup to the second largest independent energy company in the UK. So Andrew, tell us a bit about Octopus first.

Andrew Mack: Octopus is based in the UK, it has businesses in Germany, France, Italy, Spain, Texas, Japan, where we have a joint venture. Australia where we have a partnership. And also in New Zealand. We are a retail energy provider. We provide energy to consumers, but we also build and manage renewable energy generation. We have created our own software platform that we license out to a number of big energy companies. So for example, E.ON in the UK runs on Octopuses Kraken software. And we also install heat pumps and solar panels on consumers’ homes around the world with smart meters and we have an electric vehicle leasing business in the UK. So we are gradually getting our tentacles into everything to do with the clean energy transition. And over time, in every market where we operate, we aim to be that one stop shop where a consumer can come to and get everything they need to make the transition to a clean, renewable future. Our goal is to do all of those things and then to be able to optimize it in such a way that it's the cheapest possible option for the customer.

Presenter: What is the best way to rise energy efficiency?

Andrew Mack: So step one is use less energy. And step two is use more of the energy that you need when it's plentiful. So, for example, when the wind is blowing, when the sun is shining is a great time to concentrate your energy consumption. And you should avoid times when energy is in short supply. And that means we maximize the amount of renewable energy that's used and we minimize the amount of coal and gas power that's used.

Presenter: Your office is in Munich in Bavaria, which has been rather slow to construct wind turbines. Do your ideas work throughout Germany or only in specific places?

Andrew Mack: Well, I mean, the electricity grid is connected across all of Germany. So just because Bavaria doesn't have many wind farms, for example, it doesn't mean that there isn't an excess of electricity when the wind is blowing. So on a windy day, power prices drop across Germany. And that's a good time for consumers to use that energy. The second thing we can do is actually help to build more wind farms and solar farms and increase the amount of renewables on the system.

Presenter: So, Is Octopus building wind farms in Germany?

Andrew Mack: In the last 12 months, we have purchased one completed wind farm, which is already operational, and we're building two further wind farms in Germany as well. So they are in the middle and the north of Germany at the moment. We would love to be doing projects in in Bavaria. And the government here is starting to get much more interested in in wind farms, which we're very excited about. So I do hope in the near future that we would be able to participate in in building wind farms in Bavaria as well. So today we have approximately 90 megawatts of wind farms, either operational or in development. Our goal is to get to 1.2 gigawatts of capacity by 2030.

Presenter: How competitive are wind and solar in Germany?

Andrew Mack: Wind in Germany is very competitive with other forms of power generation. Solar, particularly in southern Germany, works very well. We have long hours of sunshine here in Bavaria, which is one of the reasons that makes it such a nice place to live. But yes, from a solar perspective, it makes a lot of sense. And the cost of wind and solar in particular has been coming down so quickly over the last decade that both technologies are increasingly very, very competitive on cost. There are schemes in place to support renewable energy the EEG in particular provides a base price for renewables. But if you look at the price of gas, for example, last year unsubsidized wind and solar projects were much cheaper than gas generation in 2022. And that's going to become increasingly the case that wind and solar don't need any significant financial support and they can compete with gas and with coal projects and with nuclear as well.

Presenter: What were the biggest challenges of getting started in the German market:

Andrew Mack: Let me give you one specific example. So when I started the business, I decided that we were going to be able to serve customers all across Germany. We weren't going to focus on any one region. We were going to be open to everybody. And that meant that I had to contract with 800 electricity network operators and 600 gas network operators. Each one of those is a separate company. Each one of those requires a separate legal contract to be put in place. And each of those contracts could only be done at that time in paper form. So I had to sign, apply for and sign 1400 contracts.

Presenter: But the situation is changing, isn’t it?

Andrew Mack: You can now sign these contracts digitally. So the days of the postmaen turning up at my door with a cardboard box full of contracts has gone. I think he's very happy. So it's improved a little. But, you know, we still deal with 1400 counter parties on a daily, daily basis. And each one of those is sending us regular messages throughout the day. Each one of our individual customers. So the complexity behind the scenes is phenomenal.

Presenter: Would you recommend international investors come here?

Andrew Mack: I think competition is great. It's great for the consumer, but it's also great for the companies involved. I think having other competitors around you pushes you to try harder, to do more with less and stops you getting lazy, frankly. So I like it when new competitors come to the German market. And I would encourage that. It's a difficult market to get set up in. It's a very challenging market to be a new entrant. But if you get it right, then there's a lot of opportunity to bring that to a lot of people. So it was hard work, particularly in the early years. But it was well worth it.

Presenter: What pieces of advice can you give to energy companies looking to expand to Germany?

Andrew Mack: One is, particularly in the energy space in previous years, some customers have been treated appallingly. They've had contracts cancelled. They've witnessed energy companies go bankrupt and not refund any of that money. So there's a legacy of mistrust for energy companies and often, frankly, with good reason. And so I think that's one hurdle to overcome. And the other is simply cultural. I love reading reviews from our customers who say everything's worked perfectly. We came on supply exactly as we it. No complaints so far, but I've only been a customer for six months and therefore I can only give it four stars out of five. And I think, you know, that's a that's a very German cultural thing. In the U.K., people are much, much more ready to throw praise and give out five star reviews left, right and center. Germans are a bit more cautious.

Presenter: As Andrew Mack just told us, Germans can sometimes take a while to adopt new trends. But when they do change, they tend to commit big time. Case in point: domestic heating. When Russia invaded Ukraine a year ago, many homeowners had never heard of heat pumps. But with prices soaring and Russian gas an absolute no-go, there’s no hotter sector in the country right now than heat pumps. And the government is targeting six million units installed by 2030.

Volker Weinmann from Daikin, the world’s leading heat pump producer, is riding the crest of this wave right now.

Weinmann: We have now the willingness of the German government to implement heat pumps as a standard heating system for our buildings. So meaning we tripled the production in 2021, and we doubled the production in 2022 and we will double it this year.

Presenter: Daikin has announced huge investments at its production site in Güglingen in southern Germany. What are you planning?

Weinmann: So next to our production facility, we bought an area about 22,000 square meters. And then that we can build up additional production lines for the heat pumps in Germany next to what we have done already the year before. So, in 2020 we tripled the production, in 21 we tripled  production and in 22 we will double it this year. That's all what we are doing in Germany with this expansion of our production facility and Googling next to that, all the investments we are doing. And Europe is about €1.2 billion in all our production facilities, meaning in Ostend, in Bilsen and Bruno, and the new factory which is built up in Lodz in Poland.

Presenter: There are quite a few big heat pump manufacturers in Germany – Viessmann, Bosch, Vaillant, to name just a few. How big a piece of the pie will be left to you?

Weinmann: That's an interesting question. But then I hope you can understand that at that time we had a little bit coy with this information. We have to make plans, you can be sure we are an international company and the shareholders are looking to us and we will have our dedicated part of it. You can be sure.

Presenter: In fact, the heat pump market is so torrid right now, that there aren’t enough specialists to install them. Is that a problem for Daikin?

Weinmann: It will be a challenge. It will not be a problem, but it will be a challenge. The heating market based by the installers, they are they are quite familiar with installing gas and oil boilers, but they have recognized in the meantime that there is a change even within the demand of the public. And if you install only one heat pump a year, you will it will take a lot of time. But if you install one a day and meaning every day installation, it becomes a routine Training for sure is also a real challenge. All manufacturers and even we are really increasing our training capacity to fulfill the demand coming from the request of the market of the installers to give them the skills, the dedicated needs, that they have to fulfill when they install the heat pump that they really step into the business if they have not done it before.

Presenter: The German government subsidizes up to 35 percent of the installation costs in old buildings. But it is still very expensive. Why?

Weinmann: All manufacturers are really doing efforts to decrease the prices by more using mass production, Daikin is a really specialist in mass production because we build thousands of units every year and heat pumps add to our air to water, whatever you want. And therefore for us, we have been started with a real quite low price in the market. This was really compared to the modern, not really handmade units by competitors, but we can use our competence for mass production and this is reflecting in our price structure already.

Presenter: Germany signed the Paris Agreement. How will the red-hot heat pump market help the country fulfill its commitments?

Weinmann: If you exchange your heating system, you need 65 percent of renewable energy on your heating system, which at the end means that the heat pump comes into place. This is only a discussion at the moment. It was done was a coalition contract for 25. It was advanced in March last year to 24. There is no really time left. So this has to be implemented by legal into the German Energy Act. If this will come, it's definitely quite high signal for everybody to see.

Presenter: We’ll discuss Germany’s drive to meet its lofty energy goals in a second with one of the country’s leading experts. But now, let’s look at some other top business news from Germany.

Remote Control:

The company that runs the massive port in the city of Hamburg, HHLA, is testing a seriously long-distance operational system. It has remote operators in Munich steering trucks in the box terminal in the Estonian capital Tallinn. That’s more than 2000 kilometers away. Experts predict that all logistics will use such teleoperations in the future.

Cutting Out the Middlemen:

Speaking of online platforms, a start-up called SparePartsNow is making procurement easier and cheaper with a user-friendly B2B Internet site for components. Think Amazon for spare parts. The site currently lists 5000 items but is aiming to scale up to hundreds of thousands in the near future.

H2 Hotspot:

Germany is the place to be for innovations in hydrogen. That’s the conclusion of a long-term study by the European Patent Office and the International Energy Agency covering 2011 to 2020. It calculated that Europe’s largest economy accounted for 11 percent of patents in hydrogen during that period. Only Japan and the US surpassed that number.

Better than Expected:

Despite a lot of gloomy forecasts, and some major geopolitical disruptions, German gross domestic product grew by around two percent in 2022. So say the initial figures from the country’s Federal Statistical Office. To put that number in perspective, growth in the final two years before the corona virus pandemic, 2018 and 2019, was 1 and 1.1 percent respectively.

New and Improved:

Finally, the German government is putting forward legislation to kick-start the use of smart electricity meters. The technology will allow consumers to adjust their power consumption to times when electricity is less expensive and react to fluctuations in power production from renewable sources. The aim is to pass the initiative into law this spring.

And here we are back at how Germany can most efficiently use energy. For the past 20 years, Marek Miara of the Fraunhofer Institute for Solar Energy Systems has been researching precisely that. He’s a heat pump pioneer. Marek, tell us what you do.

Miara: Now my role is so-called coordinator or business developer heat pumps. I'm trying to help all people working at our institute to do strategically to support heat pumps. See, pumps are now very important for our institute. As I started 20 years ago, we have been two of us working with this topic. Now we are more or less 150 maybe. And my role is to coordinate all of our activities on this topic

Presenter: You used to be a lone voice in the wilderness. Now everybody is talking about heat pumps. Will they solve our heating problem?

Miara: We definitely need to go off from fossil fuels and to increase the efficiency. So each not efficient system has to be abolished from the market. So we we cannot allow systems which are not efficient and working still on the market. And the heat pump can be this good solution for the future, replacing gas boilers, oil boilers which are just not effective enough. So we have we do not have any other or more or less any other technology which can reach or which can meet the targets, the climate targets for the heating sector.

Presenter: What was it about heat pumps that caught your attention as a scientist?

Miara: If we heat with natural gas or natural oil, we are just burning on a very high temperature level fossil fuels. And with a heat pump, we have much better efficiency than just burning the fossil fuels. And the beauty of heat pump is that we can also use electricity, which is needed by heat pumps from renewable energies so we can provide the heating for buildings and also cooling with 100 percent of renewable energy, which is so far not possible with fossil fuels. Heat pumps as a long technology can use renewable energy coming from sun, from wind to provide heating and cooling. And this is the biggest advantage comparing to the other systems.

Presenter: Can you quantify the energy efficiency of heat pumps?

Miara: It means that with one unit of electricity, the heat pump is producing three units of heat. So you can also say it's 300 percent of efficiency comparing with the gas boiler, with 100 percent of energy of gas, you can produce maybe 95 percent of heat. So it's three times more from this perspective. This perspective is, of course, not very, very, very easy to make, because for the let's say, the electricity as a energy source or form is much more viable than just a gas boiler or natural gas. But you can make it also from the economical or not ecological perspective and also from the ecological perspective. This free as efficiency is much better than burning the gas with efficiency of below one. You can also look at from the other perspective, if we would like to use gas and farther in the future, we need to go away from the fossil gas. We will need hydrogen or methane coming from natural from renewable energy sources. But in this case, the efficiency of the heat pump is much, much higher because producing green methane or hydrogen is connected to quite big losses. So using the heat pump with the electricity coming from the sun and using the gas boiler, using the hydrogen coming from, let's say from the green energy, it's like 6 to 8 or even more, less times efficient. And this is the crucial point. So it will be never as economic and it will be not an endeavor as an energetic good to use this other sources than the electricity directly using by heat pumps.

Presenter: Does it bring back manufacturing into Germany? 

Miara: Yes. Yes, they are producing here. They are, let's say the big three from Germany - Viessmann, Vaillant and Bosch. But they are also something like I would say second click, not about the quality speaking but about numbers or says and there is really that a big range of companies like Steve Electron and all others which are reproducing a lot. And this is also very important and there I think for the future they invested last year this year really huge amount of money to increase the capacities, the production capacities. We know now that the heat pump companies invested more or less 4 billion Euros for the next year. So we will see the really huge increase of production capacities in the next two years.

Presenter:  I can see heat pumps being a good choice for newly built housing. But what about the huge amount of uninsulated old houses without underfloor heating?

Miara: Well, we let's I will try to answer this question this way. We are monitoring heat pumps in existing buildings in retrofitted and those that are not retrofitted. So buildings with high-energy losses or high energy demands since 20 years. And the results from all of this projects are quite clear. Heat pumps can deliver the heat for the buildings, even without renovation in quite an efficient way, much more efficient than other technologies. Of course, there is always room for improvement, but there are a lot of practices which are not true. For example, that heat pumps are able to work only efficiently with underfloor heating. It's just not true. So we have really hundreds of examples with heat pumps, with radiators and just normal radiators. And the efficiency is more than three or even sometimes more than four, which is a very good efficiency. Comparing with other technologies and comparing also with old heat pumps technologies. The reason why it is so, it's first. Firstly, the technology is improving and so since years so we can see in the last years really a big improvement of efficiency and also some special technology technological developments which are dedicated for existing buildings. So we don't have the problem that the heat pump cannot deliver the heat for this house. So it is possible. The second question is if it's possible, if it's reasonable to make it with the heat pump, and if you only put a bit attention on the building and on the heat pump, it's definitely so that the heat pump can work really efficient. Also in not retrofitted buildings.

Presenter: Still, the plans of the German government – led by Minister of Economic Affairs and Climate Action Robert Habeck - are ambitious. Do you think they’re realistic?

Miara: Just looking on the development on the markets today, I am quite optimistic that it will be possible. I was not as optimistic as now, I would say six months ago or even a year ago, but now. Just looking on the very strong plans from Mr. Habeck and not only for him are really very, very precise and very well supported by actions. And they are and they was last year, for example, this heat pump summit. And it was really very clear positive meetings where the whole community is trying to or was trying tried to address the problems, but not only with it with we talks like we cannot reach it, but we really were looking for solutions. And this solution will come. We are trying to change the whole system in a very short time. And this system was, let's say, like I said, in last 30, 40 years. So it's really it's not an evolution. It's a revolution of the heating system.

Presenter: And with the prospect of a revolution on the horizon, we have almost come to the end of this episode. But before we go, we’d like to tell you a bit about HOW GERMANY WORKS.

We just mentioned Robert Habeck, Germany’s Ministry for Economic Affairs and Climate Action. You might have raised your eyebrows at that title. Most countries just have a ministry of economics, but Germany’s fifteen ministries often have a combination of functions. And their portfolios fluctuate over time. The German Ministry for Economic Affairs and Climate Action, or BMWK, has previously been known as the Ministry for Economics and Technology, the Ministry for Economics and Labor, and the Ministry for Economics and Energy. It was once also half of a super-ministry, The Ministry for Economics and Finance. The shifts reflect the horse-trading needed to form multi-party government coalitions with changing priorities. In this case, the marriage of economics and climate protection underscores Germany’s commitment to becoming carbon neutral. And here’s a final fun fact: The BMWK is also responsible for video games.

Thanks for listening. And remember, Germany Trade & Invest can help you bring your business to Germany.

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Til next month – “Auf Wiederhören” and remember: Germany means business.