Can Europe Survive the Transition To Renewables? Ep201: Nikos Tsafos

Michael Liebreich

I'm looking at it, I think, probably as a more apocalyptic moment, where Europe is struggling to just feed its energy addiction. What are we going to do to really solve the problem and get cheap energy? Because I don't buy this narrative that the problem is gas and not variable renewables, and all the things that you need to do to integrate them into the system.

NT  

The number one way we balance renewables is trade. We export electricity when we have a lot of renewables, primarily wind, and we import electricity when we don't have a lot of renewables. Why am I saying this? Because I think it shows you the promise of a much more integrated market in Europe, and a market that is not 27 national plans stitched together, but one plan that looks at the resource endowments of the EU and says, 'Okay, bring them together and try to do what is optimal for the system, rather than what is optimal for the country.'

ML  

Hello, I'm Michael Liebreich, and this is Cleaning Up. Just halfway through the 2020s it's already possible to say this is the most turbulent decade in energy terms since the end of the Second World War. You have the US doubling down as the world's leading petro-state, and you have China doubling down as the world's leading electro state, and that poses very difficult questions for Europe. How will it respond? What will its role be? What narrative can be used to woo its population away from extreme politics? My guest today has a ringside seat as Europe works its way through to the answers to those questions. Or I should say, he had a ringside seat, because in the time between the filming of this episode and its release, he's been appointed Deputy Minister of Energy for Greece, so he now has a role in the ring. Please welcome Nikos Tsafos, deputy minister of energy for Greece, to Cleaning Up. 

ML  

So Nikos, thanks so much for joining us here on Cleaning Up. 

Nikos Tsafos 

Thank you for having me. 

ML  

So we'll start where we always start, which is to ask you, in your own words, who are you and what do you do?

NT  

I am Nikos Tsafos. I currently serve as the chief energy advisor to the prime minister of Greece, and I've been in this position for a little under three years. Lived in the US for a long time, and basically came back to Greece — I was born and grew up in Greece — came back to Greece to help the Prime Minister and the country deal with the sort of energy shock that followed after Russia's invasion of Ukraine in 2022 so my job is, I like to call it half energy security, half energy transition. So looking after the things that we have, and making sure that we are well protected from shocks, but also thinking about where the country needs to go, in2030 and 2050, and crafting a strategy to get there.

ML  

And that's drawn you into some other areas, like transport, public transport and so on. You have some sort of special role there. 

NT  

Yeah, so the way I think of my job is: if it emits carbon, I'm thinking about it. And so we are one of the countries, like many others, where increasingly transportation is our number one source of CO2 emissions. It's right up there with power generation — may have surpassed it may not. And so I think about electricity, I think about transportation and the challenges we have there. I think about industry, and I think about buildings. So really have a broad scope in terms of thinking about the different sectors where we have to reduce emissions over the next 20 odd years. 

ML  

Okay, now I want to get back to Greece's journey, which is quite particular, because obviously there was this huge crisis. Actually, Yanis Varoufakis was a former guest on this show, talking about the electricity system, but obviously he played this kind of pivotal, high-profile role then. But you've got the recovery process from the crisis, and obviously a particular geographic location and particularities of your energy systems. We'll come on to all of that. But I want to talk about Europe. You and I met at the Eurelectric Summit, which was just outside Athens, and you gave what I thought was an absolutely masterful sort of, I don't know, 30,000-foot vision of where Europe was at this moment in time, and that was before the election of President Trump, though. And it was all about competitiveness, and it was all about Europe's climate initiatives and so on. So can you kind of do that, but updated for exactly what's going on in the world? 

NT  

Yeah, so I mean, if you think about the European energy system right now, and this is before President Trump was elected, but it remains true today. The main challenge that we have is very high energy prices in Europe. And if you look at the price of gas, we used to have an average price of about 20 euros per megawatt hour. In 2023-24 that was closer to 40. If you look at the electricity sector, we had electricity prices in Europe of roughly 50, a little bit under 50 euros per megawatt hour. You know, last year it was 80 something. And the last few months we've had consistently prices over over 100 euros on average in the EU. So the real backdrop is that all the stuff we're trying to do in terms of climate and trying to be the first carbon-neutral continent, all those things have to be done at the same time as we face very high energy prices, right? And so I think part of the challenge that we have in Europe is we have a very good idea about where we want to go, and we have a very clear picture of what our priorities are and where we want to be in 2030 and 2040 and 2050. But I can also tell you that when I have conversation with companies, and they tell me, you know, 'I don't know if I'm going to make it through 2025, so don't tell me about 2030 don't tell me about 2035, because I really have to make it through the short term.'

ML  

Can I just come in? Because you framed it as we're doing this marvelous transition, and the only problem is we're being hit with these high energy prices. But there are those who say, 'no, no, the high energy prices are caused by the transition.' So can you unpick that and clarify that. You're one of the great energy economists in Europe, how much is invasion and how much is transition?

NT  

At the end of the day, the real shock that Europe faced was the sharp decline of Russian gas, right? And the price of gas started to rise before the invasion, but that was also related very much to Russia not sending as much gas to Europe and not refilling its storage at the time. And if you think about the price of electricity, which is also a pain point, if we had cheap gas, the price of electricity wouldn't be incredibly high, right? So if you look at what shapes electricity prices in Greece and in all of Europe, it ultimately depends on how much gas and coal you use, and increasing the gas, because that's the marginal fuel. So in many ways, the gas crisis has translated itself into an electricity crisis as well, because as the marginal fuel, the price is high. And so when you look at the gas market, what has happened is, at the end of the day, Russia took out a huge chunk of gas from the market in 2022 and 2023 and as a world, we still haven't made up for that lost gas. I mean, if you look at the net gas that's available to be traded in the international market, the International Energy Agency has a great graph on this that they update every quarter, and they show the declines in 22 and 23 and then the gains in 24 and expected in 25. The gains in 24 and 25 are still not big enough to offset the loss of 22 and 23, so we are still in a market that is essentially very, very short, and that high gas price then translates into a high electricity price. So I don't think that you can make a strong argument that the price of energy in Europe is high because of the transition. Really the major thing that has happened over the last three years has been the huge increase in gas prices and the spillover of those prices into the electricity system.

ML  

But how do you deal with the criticism that says, 'look, here's a chart, and wherever there's high variable renewable penetration, there's also high electricity prices.' Now the mechanism might be, you have a lot of variable renewables, so you need to use a lot of gas to fill in the gap. You might have, I don't know, 30-40% variable renewables, but then you need to have 30-40% gas to match that. So even if it's the gas that drives the power up, it's caused by the variable renewables. How do you deal with that criticism in your framing?

NT  

Well, I think there's a there's a couple of ways to answer that. First, I saw recently, it was making the rounds on social media, a graph that actually showed the opposite, when looking at the carbon intensity of European electricity systems. Low carbon intensity was correlated with low prices, and high carbon intensity was correlated with high electricity prices. And I think it's also important to think about what prices we're talking about, because oftentimes people use wholesale or use retail prices, or retail industrial prices, which have taxes and network charges and other things. But let me tell you the very simple way I look at it. So, a big part of my job is trying to understand what happens in Greece. And so I look at the Greek electricity price, and I'll go a little bit into Greece, because I think it's actually a good proxy for the rest of Europe as well. And I say, okay, the price of electricity in Greece, it can be shaped by any number of things. It can be shaped by how much gas we're using, how much lignite we're using, how much hydro we're using, how many renewables we have, the demand, the trade, etc, right? And I correlate the price of electricity with all these things, and none of them really works. You know what really works? How much gas we use in the system on any given day is the most predictive variable for the price of electricity that day. So in days where we use a lot of gas, we're going to have a high electricity price. And on the days we use little gas, we're going to have a low electricity price. And it's partly a function of, obviously you have to pay for the gas, so it becomes more expensive, but it is also a matter of competition in the electricity sector. So that, to me, is the cleanest evidence I have for the link between the gas price and the electricity price. And so if I had more renewables, and therefore I would be much lower on the how much gas I'm using, I would have lower prices, right?

ML  

But also, there's a lot more LNG coming onto the market, right? There's this sort of, almost, I don't know if it's going to be a glut of LNG, but there's a huge amount of LNG liquefaction plants that are being built that will come on between now and 2030-2033, that sort of time frame. And we've built in Europe, I don't know what the number is, 25 regasification plants? And then, who knows, there may be a resolution to the Russia-Ukraine situation, which brings Russian gas back to the market. So do you sit there and you go: Well, Europe's going to be fine. There's actually nothing that needs to be done, because the gas prices are just going to go back down. And then we can sort of get back to Europe's main business, which is transition. That feels a bit naive, if that's the plan.

NT  

Yeah, let me tell you how I think about that. I mean, I come from the gas business. I spent most of my professional career as a consultant in the natural gas world. So I've lived through about three or four forecasted gluts that ended up not being gluts. So I have a natural skepticism towards any forecast that says things are going to get much better or even much worse, medium to long term. I think experience shows that if you have a glut and the price is cheap, people are going to step in and buy it, and it's not going to be cheap for very long. So I do have a little bit of hesitation to say, 'hey, let's just sit back and wait, because everything is going to be fine.' I don't think that's a great basis for public policy. What I do see is that a lot of gas is coming into the market, and the tight fundamentals that we saw over 22, 23, 24, 25 are going to get much easier. So that I have a lot of sort of comfort with. But let me tell you two more things which come back to the public policy side of things. You know, there's a lot of things that we can do... I always like to distinguish between basic market forces, so supply and demand, but also market design and risk premia. So one of the things we're doing in Europe now is trying to have a more reasonable trajectory for refilling storage during the summer, so we don't all rush to fill up storage as quickly as possible and pay whatever price and subsidize that price, rather than have that have a sort of calmer, more flexible, build out, so that we don't just go all after the market and try to put upward pressure on prices. We also see at this point that essentially, the price of gas in Europe is highly influenced by financial flows. The net position of traders essentially appears to be the number one driver of gas prices in Europe these days. And so they sort of amplify whatever they perceive as the political risk. So it seems to me that you want to look a little bit at the plumbing and how the system works, and also the signals you're sending so that you don't unnecessarily trigger price increases. But the medium to long term is that when you look at the natural gas market, you know the price in the US, and I'm going to speak in in euros per megawatt, which is bizarre for US prices, but you know, it's around 20 euros, is what it leaves the US as LNG. So the gas, you know, plus the LNG is, is roughly that. And then you have another five years to transport it to Europe. So that gets you to 25 odd. And then the price in Europe is 35-40. So someone makes that delta right? Because they've been willing to take on the risk and the long-term contracts and so on. And so part of our thinking of the ideas that we're putting at the commission, is to say: if we keep doing this, if the market is loose and prices are low, it's going to be great, but if the market is tight, you know, people are going to be selling us cheap gas, but by the time it comes to Europe, it's not going to be not going to be cheap unless we are able to go out there and get it more conclusively for ourselves. 

ML  

But there's something else going on at the same time, which is, you've got this trade war, you've got tariffs. As we film this, we've just had tariffs on aluminum and steel, so it's not clear, even if you look at the US... Traditionally it's been a friendly power, supplying us gas when we needed it, and stepped in two three years ago when Russia invaded Ukraine. The US essentially said 'we're going to open the taps.' But you know, how does all of the above, it's a fantastic primer on the energy markets as they pertain to Europe. But how does that play out through the lens of some pretty dark storm clouds in terms of geopolitics? 

NT  

Yeah. I mean, I think there's a couple of things. One is to look at it very narrowly in the energy world, right? And I think if you sit at the position of Europe, and you say: I had Russia, and that's proved to be a challenge. I've done more with the US, but then our relation with the US is going to be complicated. You know, if you read just the public announcements, we've had some back and forth with Qatar over some of the EU level regulations around corporate sustainability. So you look at that and you say: Okay, I have to sort of think a little bit about my gas strategy and how I'm going to navigate these difficult waters, right? And so I think that to us, at least here sitting in Greece, we say, Okay, we need to think a little bit more strategically about gas and how we secure our resources. At the EU level, we've been very good at creating diversification and going out and finding sort of new sources of supply in the past to try to make sure that we have a more balanced portfolio. For example, in the Caspian, right? So I think there's a gas story to that. But the broader story, I think, which is what you're asking,and you talked about that discussion that we had sort of last summer in Athens, right? And one of the things I was saying there is that it seems to me that over the last few years, climate policy has been completely interwoven with geopolitics. That climate policy is no longer climate policy. And I think Europe was probably the last major part of the world to sort of not realize that. But we need to really embrace that and understand, okay, like I can't just be doing climate policy. I have to be doing climate policy in the context of security and geo economics and trade and what we call strategic autonomy, essentially making stuff here. And so what I see happening, is a little bit more of a shift, not so much on climate per se, and whether we still have a target for climate neutrality, which we do, but trying to embed climate policy into a broader sort of thinking around, where the EU sits in the world, and how you deal vis-a-vis other partners. And so it's shown up in different ways around a little bit more of a made in EU, made in Europe, sort of push in public procurement, and not price criteria, things we could talk about if you want. But to me, really the question is: how do you do climate policy that is not just about reducing emissions, but is about reducing emissions in a way that makes sense for the 5-10 other things that you want in the world.

ML  

I agree entirely. And it's always struck me as odd, you know, when I came in and started to do this sort of thing, in 2004-2008, you know, I came in as an energy analyst and then started to get involved in understanding climate. And it was amazing that the climate negotiations and climate was, in a sense, just an environmental issue. You'd go to these conferences on climate, the environment minister was there, and you'd be like, 'Well, why isn't the finance minister here?' All this is irrelevant. It's all about trade, it's all about finance, it's all about capital, it's all about investment. And the Environment Minister in most countries is the most junior minister at the cabinet table, maybe not even at the cabinet table. And so I totally accept that climate really is a kind of, I don't want to say, it's the overarching ministerial brief, but it certainly can't be pursued in a silo. Absolutely not. So I welcome that change. Are you seeing that? As you talk to not just your boss, the Greek Prime Minister, but in your conversations with counterparts around Europe, is this really understood, or is this not yet understood?

NT  

It depends. I think there are some folks that have gotten there, not faster, but they've embraced this more than others. I mean, one of the things that I always have to remind myself about the European Union is you have 27 countries that look at the world in 27 different ways. And then you have Brussels, which is its own thing, and different people in Brussels look at this in different ways. So I think there is more awareness that you have to do climate policy in that broader geo-strategic frame. I wouldn't say that, when we're recording this right now, I can give you like 10 examples where this has manifested itself yet, where I can tell you: Oh, we were going to do this, but we're not going to do it anymore, or we were going to do this, but now we've shifted to something different because of this realization. I don't think we've quite gone there yet. What I do see, though, which is very welcome from my perspective, it is a much greater willingness to talk about these issues. And to me, the greatest example is natural gas, you know? I remember talking about the need for a European strategic approach to gas before I came to this job, when I was still in Washington DC, and meeting with folks that would come from from Europe to Washington. And in general, there was very little appetite to talk about natural gas and how we're going to secure it and at what prices and under what terms. And now, if you look at the action plan for affordable energy that came out from the commission a few weeks ago, you know, there are whole sections about natural gas and thinking about how do we become more strategic? Because, let's be honest, a lot of the things that we need to do are just internal EU stuff, right? So when we have massive price disparities between countries within the EU, that's not about the United States, it's not about China, it's not about Russia, right? It's about how do you build capacity between, say, Austria and Hungary, or Spain and France or other places, right? And so what I see is a greater willingness to say, we know there are these bottlenecks, we know these things have been pain points for a while. Can we get a political urgency to sort of push them through? And so that's another thing I'm sensing, where people are more willing to say, 'Okay, let's go after the areas where we know the internal market is weak and try to strengthen them.' And this is obviously something that hurts us in Greece a lot, because we're at the corner of the EU and so we end up having sort of structurally higher prices as a result of that. So we're big believers in strengthening the internal market. And so people are more receptive to that today, because they understand that the stakes are much broader than just the price of electricity,

ML  

But those are the sorts of things that I almost would expect the EU to be quite good at. But I'm looking for a more substantial reset that reflects what's actually happening in the world with President Trump. But it's not just Trump. It is actually a pushback in a lot of countries, a populist pushback against this kind of easy assumption, which I don't want to accuse you of portraying, but you know, that we're going to do the transition, and it's going to be fine, and we've got a bit of a local problem with gas and a short-term problem because of the conflict, but you know, we'll figure out technocratic ways to solve that. I'm looking at it, I think, probably, as a more apocalyptic moment, where the US has gone from being an energy importer to a pretty dramatic world-leading energy exporter, China has become the electro-state to the US' petro-state. China has got a much higher electrification rate within its economy. It dominates all the supply chains for everything electric — solar, wind, batteries, electric cars. And Europe is struggling to just feed its energy addiction. We've gone from importing cheap Russian gas, to begging the US for gas. And then everything we do is all about how are we going to import and we have these kinds of fantasy discussions about importing hydrogen, but we're not really solving the problem. What are we going to do to really solve the problem and get cheap energy? Because I don't buy this narrative that the problem is gas and the problem is not variable renewables, and all the things that you need to do to integrate them into the system. So I'm looking for a much more profound reset, if I'm honest. 

NT  

Let me reflect on a couple of reactions to that. First, I absolutely agree on your last point about the challenge of variable renewables, right? And if I look at Greece, and you asked me, what is, you know, if not the number one, but close to sort of top three issues that you're thinking about in terms of the future of the Greek energy market, I would say it's how we balance renewables, and how do we keep the system running without having a huge cost for the last, you know, 10, 15, whatever, 5% that remains that cannot be covered by renewables. So I very much share that this is a major challenge. I also think that if you look at the data, at the European system right now, what you really see is that actually we have a real challenge with sort of seasonal balancing. That essentially solar is fantastic in the summer at the EU level, and it does very little in the winter time, which means that in the winter time, your powerhouse is wind, which on one day could be fantastic and push you to zero prices, and the next day can be terrible and push you to triple digits. And those two days can be two days apart. And you can do this over and over again, right? And so to me, there's a seasonal balancing, particularly around winter, that I worry a lot about at the EU level, that I don't worry about summer. Because in summer you have solar, and all you need to do is move the solar from the middle of the day to the evening, and we have the technology and the economics to do that. But let me tell you the one final thing that I underappreciated before I came to this job, and before I started looking at the Greek data, and I'm gonna use Greece again as an example. So when you say, 'Okay, we have a lot of renewables in Greece, how do you balance renewables?' The answer is cross-border trade. The number one way we balance renewables is trade. We don't balance it with gas. We balance it with a little bit of hydro on an hourly basis that we basically use hydro. We turn it up in the morning, we shut it down in the middle of the day, and we turn it back in the evening. But the number one way we balance renewables is trade. We export electricity when we have a lot of renewables, primarily wind, and we import electricity when we don't have a lot of renewables. And in fact, through that process, we've also discovered that Greece actually has uncorrelated wind with the rest of the EU. If you remember back in November when there was low wind in Germany and all of Europe was at 150-200 euro prices. It was crazy. And I was looking at our data, and we were massively exporting, and I said, 'What is this?' And I started digging at the data, and it turns out that we actually have wind that is very differently correlated with the rest of Europe. Why am I saying this? Because I think it shows you the promise of a much more integrated market in Europe, and a market that is not 27 national plans stitched together, but one plan that looks at the resource endowments of the EU and says, 'Okay, hydro there, nuclear there, offshore wind there, solar there, bring them together and try to do what is optimal for the system, rather than what is optimal for the country.' And that, I think, is something that we haven't gone to quite yet, but holds, in our view, immense promise, because we just see the synergies between the different countries. To give you another example, Albania, next door to us, is a system that is 99% hydro, right? Like they should be using no hydro during the day, right? But for them to do that, they need to be embedded into a broader network and have trust in their neighbors and all that. So it's not easy to get there, but when you look at the resources, you realize that there is a huge amount of complementarity you can unlock to manage this variability with a more integrated system.

ML  

So you won't find me disagreeing with one iota of that, right? That's what I've essentially been saying, I don't know, for 15-20 years. That is a clean energy system which works and is resilient. And of course, the longer distances that you can link, the more you get uncorrelated resources. I'm an investor in Xlinks, which is from North Africa to Morocco to the UK. Going north-south, you get different weather systems. I would also love to see the UK link to the north east of the US. Can you imagine, as a trader, you have a gas trading background... Can you imagine the value of being able to trade between a five hour time difference? And these are only 4,000 kilometer distances. They're perfectly feasible with high voltage DC. And you've got a plan, I think, to link to Egypt yourselves. Here's my question, though. When we started to add lots of renewables to the grids, and then the price dropped, and renewables looked really cheap — solar is cheap, wind is cheap — there was the narrative that was being promoted, and, you know, I've got to put up my hand, I'm going to confess, I was one of the people promoting the narrative that this stuff has become very, very cheap. Cheaper than coal. And that's fine, because we had a lot of flexibility on the system. We had those gas peakers. We had demand response capacity that was unexploited, we had interconnections that were not at capacity, and so for a while you could do that. But the reality of the system that you're describing is that you've got to have over capacity. Let's start with you say solar in the summer. Fine, you've got the solar, but you've also got to pair it with batteries so that you could use the solar at night. So now you've got solar, but not just solar, you've got to put it with batteries. And then you've got the wind, and it’s a fabulous wind resource. I've been to Naxos, and it was unbelievably windy. And so I know Greek wind well. Even going back, Odysseus was writing about the winds. So you've got lots of wind, but every so often you don't, and then you will need it from wind in winter that is in the North Sea. So now you've got to have over capacity in Greece to serve Northern Europe, you've got to have over capacity in Northern Europe to serve southeastern Europe, you've got to have transmission lines between the two. And, you know, I'm just finding it hard to see how that ultimately averages wholesale less than about 100 euros per megawatt hour. By the time you've got to pay off the capital for all of that over capacity, aren't you going to get to 100 euros per megawatt hour? In other words, structurally, a higher price than the US, China or other major strategic or economic competitors.

NT  

I don't know if that's the equilibrium price, but I haven't done the math to tell you. Let me give you a couple of reactions to that. One is on the transmission side, which is, you know, we had an episode last summer where prices along the Balkans, Greece, Bulgaria, Romania, Hungary, just completely diverged from Central Europe. And I did a calculation during that time, and I looked at the price of electricity on one side of the border — Greece, Romania, Bulgaria, Hungary — and then the price of electricity on the other side of the border. And I just did some math. And I don't remember the exact number, but it was something like, the electricity on the one side cost 50 million euros more in one evening just because the prices went so high. And so when you see that kind of volatility, I think you can make a much stronger case for interconnectors and also for over building interconnectors. And I think that's something that actually probably does pay quite a bit. I'm not sure that we need to overbuild generation as much, but I would definitely like to see over building interconnectors. Again, to go back to Greece, we have a cable that we're trying to build with Italy. You know, it's probably going to take us 7-9 years to complete it, and it's probably going to be congested very soon after it gets built, because we're building looking at the world today. And so I think there is a strong case to be made for over building some of this capacity. And also part of the challenge that we see is making sure that the incentives are aligned, because oftentimes you ask countries to overbuild and incur the costs for benefits that accrue somewhere else. So I do see enormous amounts of cost savings that could be had through a more integrated system that could keep a lid on that. And if you told me, how can we balance with the Greek system, without international trade, I would sort of raise my hands and say, I have no idea. But if you can have some of these synergies, the whole system, the whole exercise, becomes that much easier.

ML  

And as I say, I'm not going to disagree with you. I think even if it is 100 euros, then you say: well, that's better than a dirty, polluting system that imposes, frankly, much higher costs on society and on the planet, whether it's air quality, but also the climate damages. The challenge is doing that when other parts of the world are not doing that. And the challenge also translates within Europe, potentially into a populist pushback. I mean, just a very concrete example in Norway. They're protesting and have threatened to disconnect the interconnectors from Norway, because it's exactly what you're talking about: It's pushing up the costs for energy users, electricity users in Norway. So we all like the idea that, 'Oh, we're dumping electricity, we're constraining it and we'll be able to sell it if we have this interconnector.' What we don't want to think about is the other side of that, which is, 'oh, but if somebody buys that, that's going to push up our average cost.' Do you not worry about the direct line between energy costs, retail energy costs, commercial energy costs, costing jobs and de-industrialization, and a populist pushback? Because it looks like a pretty direct line to me.

NT  

What you're describing in Norway, actually, we saw a little bit of this in Greece as well. Because in 2024, we became a net electricity exporter for the first time in 25 years. And a lot of the reactions, actually, in the press, was exactly what you're saying: that, oh, therefore our neighbors are dragging up the price for us. If you look at what's actually happening, it's that the price was high for everyone, but you were lower because you're a net exporter, and so it's better than the counter factual, which is that if you're a net importer, you would have even higher prices than your neighbors. But it was interesting to see, for a country that has been for decades a net electricity importer, how quickly the discussion changed once we became a net exporter, and people were asking, 'Well, why are we doing this?' And it was, it was actually quite telling. And so I do worry about that, which is why, at the end of the day, I spend a good amount of my time trying to figure things out at the Brussels level. Because those are problems we can always solve together. And it does seem to me that there's a lot of, not low hanging fruit, but low-ish hanging fruit. Last summer, we saw plants were going on maintenance during the summer, because no one really expected heat waves, it was a really uncoordinated process. We saw interconnectors that didn't seem to be getting used at the maximum capacity. So there are a lot of things that, if you had done those things, you would have deflated, we think, a huge chunk of the price increase. And when you look back and you go more towards the competitiveness angle again, I think there we have to be a little bit careful. When I look at European industry, there's some industry that is actually going quite well, and there's some industry that is really hurting. And there's also very, very different stories within Europe. I mean, if you look at the industrial production index of Greece, it's like 20% higher relative to 2019. And when I talked to some of my colleagues in Spain, they say: we don't necessarily have an industrial crisis, right? And I think you have to separate out what sectors are we talking about, what firms and what countries, and try to figure out how we help them. But I also think that a lot of the industrial anxiety comes not necessarily from the cost of energy per se, but from an expectation that the cost of decarbonization is going to be very high, right? And so when I talk to some of our industries here, yes, we will talk about the price of energy, but a lot of them will say, actually, what really worries me is about the price of CO2 and sort of the regulatory structures that we have created around how you can meet the targets, and if you do all those things, it becomes very expensive. And the good thing about that is that it is something that we have the power to influence. And so I think that when you see that Europe is in a malaise, I would call it, that is a confluence of different factors. I would also add value chains for the clean energy transition, where, obviously the solar industry has gone to China, but there's a lot of questions around wind these days, and competition in wind. We have in Greece, you know, serious companies that do cables for transmission that we're seeing more competition from China. So those are broader questions of economic competitiveness that are not purely about the price of energy, but are contributing to an industrial anxiety. And so I'm a firm believer in breaking apart the question of competitiveness, and really trying to think about, what are we talking about, what sectors, what is the real problem? And then really understanding, how do we help those industries? And for some of them, it may not be the price of energy, but other things related to trade or carbon or climate policy, in your medium to long term.

ML  

Cleaning Up is brought to you by members of our new Leadership Circle: Actis, Alcazar Energy, Davidson Kempner, EcoPragma Capital, EDP Portugal, Eurelectic, the Gilardini Foundation, KKR, National Grid, Octopus Energy, Quadrature Climate Foundation, SDCL and Wärtsilä. For more information on the Leadership Circle, please visit cleaningup.live, that’s cleaningup.live. If you’re enjoying Cleaning Up, please make sure you subscribe on Youtube or your favourite podcast platform, and leave us a review, that really helps other people to find us. Please recommend Cleaning Up to your friends and colleagues and sign up for our free newsletter at cleaninguppod.substack.com. That’s cleaninguppod.substack.com.

ML  

The way that the EU, and I will say Europe, because it's not different in the UK at the moment, has really put climate as the sort of number one, be all and end all, if you like, the sort of the senior requirement for everything is climate, and it has trumped competitiveness, resilience... every other policy priority seems to have been subordinated. Is there a willingness to relax on that? You know, we hear about the omnibus proposals to reduce some of the bureaucracy, some of the disclosures. But is the EU prepared to say: Do you know what? Maybe 90% decarbonization is enough if the last 10% is going to drive us to do crazy things like hydrogen for power generation, or extreme amounts of batteries or whatever it is. Is there a willingness to say: the reality is the US is not on board. The reality is that China is targeting 2060 not 2050 and we're just going to have to do a pretty substantial rethink?

NT  

Let me react to that in two different ways, and these are things that Greece has put on the table at the EU level several times. One is: I want to distinguish between the overarching target and then the means of getting to that target, right? Because a lot of the costs and a lot of the challenges that we have when we try to come up with our national energy and climate plan about how we're going to get to the targets is not the top level number, but all the sub-targets around efficiency, around hydrogen, biofuels, what have you. And when you start asking yourself not 'how can I decarbonize in the way that makes sense for me,' but how can I decarbonize in a way that makes sense for me while meeting a very large number of targets that are well meaning in the sense that they're meant to spread the burden across the EU — so you don't want folks to be sitting out things — but actually, do add a lot of costs to the transition. I think there's enormous gains to be had by trying to sort of simplify the targets a little bit and say: you might want to do hydrogen, someone else might want to do CCS, someone else will do offshore wind. Someone is going to specialize in SAF, or whatever...

ML  

Nikos, you have to use the word nuclear at some point because, of course, the some of the backdrop here is that the EU is threatening or actually suing France because it wants to do nuclear, but is then going to miss sub target number 47b subsection whatever, on the amount of renewables that it's supposed to do.

NT  

And I think that's the most sort of glaring example of where the means and the ends are getting confused, right? And so to me, it makes a lot of sense to say, 'we want to reduce emissions, and different countries are going to do it differently.' And if we actually let countries specialize, that makes a lot of sense. So I think to us, and the Greek Prime Minister has talked about this. We call it 'the one target rule.' Just give us the one target, and let countries get to that in their own ways. And so there is, I think, a benefit from a simplification in terms of how we get to those targets. The second part, though, to your question, is about, and I think we're not quite there yet, which is, I wouldn't say that anyone is really talking about, 'let's just do 90%' and forget about that. I haven't really heard that in terms of a conversation. What we have talked about, and what I've talked about in my discussions, in terms of trying to think through this question is, 'how do we get better at evaluating trade offs?' Because at the end of the day, what you're describing is essentially a trade off, right? I can go faster, but then it's going to cost me more, or it's going to undermine my competitiveness, or it's going to undermine this particular industry. And it seems to me that when I look at the US and China, I have this sort of mental triangle in my head: cheap, domestic and fast. That's sort of a triangle of the transition. You can do it fast and cheap, but you're going to import a bunch of stuff from others. You can do domestic and cheap, but it's not going to be fast, right? And so you have to think about how you weigh those different goals, and my sense from Europe is that we don't do a great job at thinking about how going in one direction could require us to rethink our ability to meet the other one or two targets. 

ML  

Let's just map this back to the earlier conversation about what the energy system might look like, and the challenge I threw out as to whether it's going to be 100 euros per megawatt hour. Because, if we say really, the issue is the dunkelflaute — it's that period in winter where there's no sun, because it's winter, or by no means enough. And the wind suddenly drops. And it doesn't just drop for a day or two, it drops for 3, 4, 5 days. And maybe it sort of does that a couple of times in a row. That strikes me as being the absolute core of the problem of getting to 100% clean, 100% net zero. You have to deal with the dunkelflaute. Everything else I can see is reasonably affordable: integrating across borders as you've described. But you know, a lot of the cost comes from dealing with what you do in Dunkelflaute, which at the end of the day is going to be one or two weeks per year. It's going to be 2% of the time. So that last 2% could end up driving literally trillions of euros of costs — capital investment, I should call it, but it'll be otherwise uneconomic investment. So yeah, costs.

NT  

I don't mean to dodge the question, but what I'll say is that at this point, when I look at Greece, we're about 50% renewables. And it's not that we'll get there when we get there, but I don't think this is a major driver of the cost and the things we have to do right now. I would push back a little bit about how unique this is. I mean, just to take you back to Greece. When I look at the data for Greece, if you Greece is a market roughly of about 150 to 200 gigawatt hours a day. When it's really hot, it may go over 200 gigawatt hours, but that just gives you a scale. And if you look at our daily wind generation last year, the range was, on a daily basis, 74 gigawatthours a day on a eally good wind day. The really bad wind day was 3 gigawatthours. And we had a similar range for solar. It was around 3 to 42 or 44, I don't remember the precise number, right? And so very similar to what you're saying, when I think about where we need to go, I am obsessed around the day that solar will be three and wind will be three, and maybe they will happen together. And there's not a huge amount of correlation, by the way, between solar and wind when we look at the data in Greece. So I'm very obsessed with that scenario. But it's probably not something we have to deal with very soon. Like, the immediate question we'll have to deal with is, you know, as you put more renewables in the system, and the load factor of the gas plants comes down, do you have to figure out a system of capacity mechanism to support them? And for how long? And how do you design this? Those are the more immediate policy questions that we have to deal with, rather than fixating on the last sort of 5%, which I agree with you, is going to be the most difficult, and, if we don't do it well, the most expensive. But we don't have to deal with it quite yet, and it's not a driver of the cost quite yet.

ML  

I think what's fascinating about the conversation is that I'm playing the kind of glass half empty role, and you're playing the glass half full role. And quite often it's the other way around. Just to be absolutely clear, if I got the same criticisms thrown at me by either a kind of hardcore nuclear eco-modernist bro or by a fossil fuel climate contrarian, I would be saying, 'no, no, it's going to be fine.' All we need to do is these things, and I'd give the same list that you give, don't get me wrong. I did promise that we would get onto Greece, because it has been actually an extraordinary transformation in terms of the amount of coal that you used to use with a very, very heavily coal-fired system.and where are you today. So give us the postcard of what you've achieved in Greece, and maybe the things that you're currently working on and thinking about.

NT  

So if you look at Greece at the top level and again, these are from memory, so don't quote the exact numbers: we've reduced our greenhouse gas emissions by maybe 45% relative to 2005. So about a third of that was related to the economic crisis, reduction in GDP, reduction in transportation and industry, and the other part has been largely through fuel switching in the power sector. And if you look at the power sector, Greece is a country that, depending on the year, consumes anywhere from 50 to 60 terawatt hours. And if you look at coal at the peak, it generated more than 35 terawatt hours in 2005. So 35, divided by 50 or 60, depending on how you want to do it. That gives you a pretty high percentage. Since then, we've reduced our coal use by 91%. So from 2005 to 2024 by 91%. And so what has really replaced this has been renewables. We have more than doubled our capacity over the last five years. When you look at the penetration of wind and solar at the global level, and of course, at the EU level, we're consistently in the top countries in Europe. There's sort of a five way tie. One year Spain is higher, or Portugal is higher. One year we're higher. But essentially there's sort of Denmark that has the highest number, and then we are at the next tranche of countries, one of the highest penetrations of renewables, wind and solar in the world. If you add hydro, we get close to 60%. And so for us, this has been a remarkable transformation. I talked a little bit before about trade, but if you go to 2019, we imported about 20% of our electricity. We imported about 10 terawatt hours in a market that was 50 terawatt hours. And last year, we were a slight net exporter, going from minus 20% import dependence to plus a little bit in five years. It's a remarkable shift. And then we have an enormous pipeline of projects. I mean, if you think about the average load increases about 5.5 gigawatts when it's really hot, it goes to seven or eight when it's super, super hot, it may touch like 11. So that's sort of the hourly profile of Greece. We have maybe about 15 gigawatts of renewables right now. We have capacity connection terms that we've given to firms that can bring that up to 27-28 and then we have a queue that is massive, depending on how you count 50, 60, 70 gigawatts. And a big question that we have is, how are we going to manage this extraordinary investor interest. And what is essentially a different twist on what you were saying, that we're going to be alternating between really low prices or really high prices, right? And try to think about how that system really works? So very much our focus is keep doing on the electricity side, keep pushing renewables. And there's lots of other sub projects. We still have a lot of oil in our islands. It's taken a while to connect to the islands. 

ML  

I was going to come with the challenges. I mean, what you've painted is quite a rapid transformation picture, and a lot of it is just post the crisis. So it's been very recent, it's the last sort of five or six years. But I want to give you, I think I can do four challenges. How are you going to deal with the following: AI, data centers? Fantastic resources, you've got everything it takes, but they're huge compared to your 5-8 gigawatts of demand. Second thing is your islands, which you just mentioned, they're still burning a load of fuel oil. That's absolutely crazy in this day and age, right? So your islands. Transportation: transport is the number one source of emissions, and your progress is not good on electrification of transport. And the fourth is you're doing this with a backdrop of a backlog of maintenance and investment because of the crisis. You're still running to catch up with yourselves on maintenance. So those four challenges you've got there, how do you deal with those?

NT  

Yeah, let me run through them. Let me start from the last one, the maintenance. I would twist it a little bit. I think we just have a lot of sectors in Greece where not a lot of money went in for the last decade, or sort of 2000 to 2020 because of the economic crisis. Our grid is one of those areas. We used to spend about 400 million euros a year on our grids in 2012. That was cut in half by 2017. It took us up to 2019 to bring it back to €400 million euros, and now it's €1.2 billion, right? So that's great, but you have to keep spending that to make up for 10 years of essentially under investment in our grids. And so you know where we still have, you know where I live, someone comes every month, and they see how much electricity I used the last month, and they write it down. You know, we're still rolling out smart meters and all that. So there's a huge challenge in the grid sector. Because essentially, for 10 years, the grid was not invested in. Islands. And then I'll go to transportation and AI. Islands: I'm trying to find the right word, you know, it's a major project, right? I mean, connecting to Crete, which is our largest island. I'm trying to remember the number, maybe it's like a billion euro investment in terms of the grid, like the cable that connects the mainland to Crete. You know, this is not a trivial exercise. When you start crossing the entire Aegean Sea and trying to connect. And you just have a lot of islands. I mean, obviously four or five islands are the major islands. I'm not going to get the number right, but I think we have something like 25-30 island systems, because some islands have multiple systems. And so we're obviously trying to go after the bigger islands first, where the greatest cost savings can be, but that's a major, decades-long effort. And we're sort of connecting, but it's going to take us, you know, a better part of another decade to complete that process, and it's very expensive. And as you know, the value chain for cables, as an equipment has also gotten quite a lot tighter. So it's a continuous effort to do that. But the benefits are immense. The cost of electricity is much higher, and the cost of CO2 is very high. Transportation, you know, we could do another hour on Greek transportation, but I'll tell you the highlights. This is another sector that, just for the last 10 years, people didn't buy cars. They bought used cars. They bought used trucks. They bought used buses. We have a big tourism industry, so lots of buses. And so if you look at today, we have the oldest fleet in Europe across all segments: buses, cars, trucks. So in that way, there's actually an immense opportunity, as we economically recover, to essentially renew this fleet. And I mean, you said something on our EV penetration. We're sort of at the midpoint of the EU, we're not a top tier, but there are a lot of countries below us, so we're still, if you include battery electrics and plug-in hybrids, we're sort of in the teens right now in terms of percentage of sales. So not world leading, we're not like 2-3% or anything, right? So we've made some progress and more public charges and all that. But when I think of it, there's actually huge savings to be had even by buying newer internal combustion engine cars, newer trucks. We have 15, 20, 25 year old vehicles out on the street, and if you could just replace those with something newer, the benefits would be huge. Not just on CO2, but also on particulate emissions and all that. So I see huge potential across the segments, on passenger vehicles, public transport, again, a sector that is reeling after a 10-year economic crisis, then came COVID. So right as we were trying to pick it up, we had another hit. So a lot of work needs to be done there to bring it up to where it was. And we're already doing that, we have a program for about 900 new public buses in the Athens area, and adding more to our plans going forward — refurbishing the metro, adding a new metro line. So there's a lot of stuff that we're doing in public transportation in the urban centers. We had a metro system in Thessaloniki, the second largest city, that just opened up after decades of delays. So good stuff is happening there. But it's not going to be incredibly fast, or as fast as one would like. And then AI, you know, obviously I am a careful reader, including of the things that you've written on AI. But as you said, we're a small market, and so if you have an average load of five and a half gigawatts, and then the chatter around the town is, 'oh, we're going to have another gigawatt or another 1.5 gigawatts,' you start looking at this and say, 'Okay, this is quite, quite serious.' And so, we have some AI data centers that have come in already. But when I think about the queue, very much my thinking is: how can we make sure that these projects are not disruptive? How can they play well with the grid, with the existing system? How can they bring their own generation, provide services to the grid and all that? So my thinking is very much: we want them, because they can be a great engine for economic activity. But you can't just go and add it to the system and pretend like it's a normal user, at least not when you start going to the bigger scale. I mean, you can do it maybe for a 20 megawatt or 30 megawatt centre, but once you start going to the bigger scale, you kind of have to say: Okay, you are a slightly different user. And I want to think about how to make sure that the externalities of that use are not significant. That's a little bit of our thinking on that front. 

ML  

I think that's right on the AI data center front. I think the challenge for the hyperscalers, as they go around the world, particularly in smaller markets which they want to serve, and have got some of the best power resources. They have to turn up and say, 'How can we be your friend? How can we be helpful to the grid? How can we be helpful to the energy system?' If all they do is sit there or turn up and say, 'We want to be here. We want to suck existing nuclear or existing hydro off the system.' And by the way, we need it to be fully resilient. There must never be a power cut. And we're so rich we can outpay everybody else, I think they're going to find a lot of social pushback, a lot.

NT  

So to me, it's about having these conversations and making sure that, okay, you have an investment interest, that's great. We have really good reasons why you want to do this in Greece. Let's work together to figure out what works and I'm looking at examples from around the world, around reusing the heat from the data centers in district heating. In Greece, we have greenhouses that could be interesting use cases. So it's all about questions like: what do you do with the water? And thinking about how can you make sure that there is a symbiosis between the data center and the broader system in which it lives?

ML  

Nikos I've had enormous fun over the last hour or so recording this. We could go on. We could easily do an hour on data centers, an hour on maintenance and maintenance backlogs, an hour on electrification of transportation and so on. An hour on islands, I find the whole electrification of islands since I've been building a mini-grid in Africa for the last seven or eight years, I find that whole area incredibly interesting and productive. There are problems that can be solved. Sadly, we don't have that number of hours. We have to draw it to a close. But I really want to thank you for joining us here and spending some time with us. 

NT  

Thank you for having me. Thank you for the good questions and for the fun conversation. I too had a lot of fun.

ML  

So that was Nikos Tsafos, the newly appointed deputy minister of energy for Greece. And as always, we've put links in the show notes to resources that we mentioned during our conversation. So that is episode 104: Power, Markets & Power Markets with Yanis Varoufakis, former finance minister of Greece. And episode 193 which is Generative AI, The Power and the gGory by not me but my AI alter-ego, Mike Headroom. As always, I'd like to thank the team behind the scenes and ask you to join me at this time next week for another episode of Cleaning Up.

ML  

Cleaning Up is brought to you by members of our new Leadership Circle: Actis, Alcazar Energy, Davidson Kempner, EcoPragma Capital, EDP Portugal, Eurelectic, the Gilardini Foundation, KKR, National Grid, Octopus Energy, Quadrature Climate Foundation, SDCL and Wärtsilä. For more information on the Leadership Circle, please visit cleaningup.live, that’s cleaningup.live. If you’re enjoying Cleaning Up, please make sure you subscribe on Youtube or your favourite podcast platform, and leave us a review, that really helps other people to find us. Please recommend Cleaning Up to your friends and colleagues and sign up for our free newsletter at cleaninguppod.substack.com. That’s cleaninguppod.substack.com.