#LightsOn - Live from the Eurelectric Power Summit 2024 in Athens - Ep164: Leonhard Birnbaum

ML  
Hello, I'm Michael Liebreich and this is Cleaning Up. Last week the leading lights of Europe's electricity industry gathered for the annual Eurelectric Power Summit at the Lagonissi Beach Resort just outside Athens. Greek Prime Minister Kyriakos Mitsotakis welcomed delegates to Greece and Maxim Timchenko, CEO of Ukrainian utility DTEK opened proceedings with a moving description of what it takes to keep the lights on when Russia destroys 90% of your generation capacity. The conference - under hashtag this year of #lights on - lasted two days and covered the key issue facing Europe's and the world's power sector. Two topics in particular stood out: the need to accelerate the build out of transmission, and the pressures and opportunities offered by digitization and AI. And at the event, Eurelectric published a brace of reports on these two topics. On the final day of the conference, I caught up with Leonhard Birnbaum, Chairman and CEO of German utility and distribution grid operator E.ON and President of Eurelectric. We spoke on a sunny and windy terrace just outside the conference centre to discuss all this and more. Please welcome Leonhard Birnbaum to Cleaning Up.

Leonhard, thank you so much for joining us here on Cleaning Up.

LB  
It's my pleasure Michael, and in this location actually it's a privilege to do a podcast. 

ML  
Well, this is the strangest location in a sense for a podcast-

LB  
We have to explain it to our listeners. 

ML  
Yeah. So we're on a beach- this will go out I think both video - on YouTube - and also as a podcast on all podcast platforms. So, the people who are watching on YouTube will know that we're on a beach; there's a howling gale so hopefully you can even hear this, but there's a fantastic backdrop, right?

LB  
Yeah. We're talking about the new energy world and new energy world has lots of wind in it. So it's a- it's a fitting location. Also lots of sun, so we are in a place of new energy.

ML  
Right, so tell us where we are and why. Actually, let me back up. Who are you? Let's start with who are you, and where are we, and why?

LB  
Alright, so my name is Leo Birnbaum. I'm the CEO of E.ON, the German utility and- German-based utility with business all over Europe, and I'm also the president of Eurelectric. And here we are at the Eurelectric annual meeting, the Power Summit, which this year takes place near Athens, and we had a wonderful conference over the last two days. 

ML  
It has been great - I can vouch for that. And that explains the sun and the wind - this is famous frog from Odysseus and so on, we get the Greek wind and the Greek sun and it is absolutely visiting us here today-

LB  
Yes.

ML  
-making our life interesting.

LB  
Yeah. I would say: we were working really hard, even though nobody will believe it when you see the pictures of our sitting here. 

ML  
Well, I don't know about you; I was working hard because I was up on stage this morning talking about electrification and we'll go into that 

LB  
I actually have seen you on stage so we can discuss about that.

ML  
We will get into that, no doubt. Could you do the following: now, our listeners are- they're a very diverse group, so we have people who will know more about any individual topic than than me or possibly even you, but some of them are generalists, civic society, and so on. So what does E.ON do? 

LB  
Alright, so my company is focused on providing infrastructure, especially a electricity infrastructure, to the new energy world - that's around 75% of my business. And the rest of the business is about providing smart energy solutions to my customers, B2C and small B2B customers, so like the typical commodity supply contracts plus all the new customer solutions like EV, battery, PV, heat pumps and so on. So this is it: so infrastructure and customer solutions. We are not in the generation business, as long as it is not part of a customer solution - so some of our customers want also a kind of like a small, on-site CHP, or whatever, that we also partially do. So this is the business.

ML  
And I remember when it was split, you did used to have generation and then there was this big reshuffling of the deck in German utilities - or German-based utilities - and you got rid of the generation piece, correct?

LB  
I mean, E.ON went through a huge transformation over the last decade. And maybe it's interesting just to listen to the three kind-of-like changes which we did. The first one we did in 2015/16, when we said: we have a new energy world, which is around infrastructure around customers around renewables, and we have a system-centric world, which is around at central power stations, trading etc, and we split it: we split off this company called Uniper, and then we sold Uniper to Fortum in the end. And just leave it there. And then-

ML  
If I might; when you were splitting that off, there was a time before the name Uniper had been developed, and we were talking about this transaction before the name was there-

LB  
Yeah.

ML  
-and I used to call it "E.ON" and "E.OFF".

LB  
Yeah, but it is actually wrong. I think they have there- but to be fair, they had special challenges over the last year because they also had all the Russian business and all the import gas contracts, so it was really difficult, in hindsight.

ML  
I wasn't suggesting it was a worse business, I just needed a name for it. 

LB  
Oh, is that so? And actually, we have a great CEO there, Mike Lewis, who is also at this conference-

ML  
Who I've known for a very long time, and he's here, yeah.

LB  
Exactly. So that was step number one. Step number two is that we actually made all these nuclear topics manageable, because we had, you know, like, we had still the nuclear acids including the storages, and that made uninvestable, because it was, you know, hard to understand what is really the nuclear risk. And actually, we got- we struck a deal with the German government to say, "the risks - which are purely political, and storage is a political risk - you need to manage,| and we paid- actually, we transferred all our provisions and the German government took over the obligations of nuclear, so we had sorted that one out. And then we did a big transaction with RWE in which we took over innogy - which was a subsidiary of RWE - which had lots of grids and renewables. And we took them on board, and then we split them, and we became the largest grid operator. And we handed over all renewables, including our own ones, to RWE. So our- then we really focused only on infrastructure and on customer solutions. We fully dedicated to the new energy world, which is now developing. So that's a huge transformation over 10 years, but it has been really successful, and also capital markets have really acknowledged what we have done.

ML

Now we're gonna get on to- well, there's so much to talk about, but I do want- the middle one of those, the nuclear sort out that you described there, are you still running- are you still responsible for those nuclear sites which are being shut down?

LB

Yeah, we are. We are responsible for decommissioning and we said, "we can take responsibility for decommissioning because this we can manage." But the storage part of nuclear is a political process. And we said, "we can't manage something, you know, where we have no say." So basically, we say- we said to the state, "look, if you take the responsibility, then we give you the money for it, but then it's all yours," and this is the way we actually split it.

ML   
Okay, but- now imagine- your bio, you've got all of these stiftungs and all of these verbände - foundations and associations and councils - and then you've got your responsibilities that E.ON and then for Eurelectric; set that aside, can I ask you as a citizen-

LB  
Oh, absolutely. 

ML  
Would you shut down- would you have shut down those fantastic German nuclear plants? 

LB  
You think they are fantastic? 

ML  
Well, they were producing an awful lot of clean energy- clean electricity.

LB  
I think it's an irrelevant question. It's history. We should look forward and not backwards. 

ML  
But there's a citizen, doesn't it- I mean, look: I've described the shutting down of those plants as a climate crime. I mean, it was just so much clean electricity and, you know, now we start to see the renewables coming on. But meanwhile, there has been this huge bulge of emissions because of that German policy. 

LB  
Yeah, but it was - in the end - a political decision, you know, like- and we have to just to respect it. And it makes no sense to look backwards and say, "you know, I think I have a better decision." No, it's just irrelevant question.

ML  
Okay. So let's- let's move on. I mean, I would love to dive in - you know me-

LB  
Yeah, we have limited time. 

ML  
Yes. So much to talk about, because - now, I want to- 

LB  
Let's look at stuff- the forward-looking stuff, yeah. 

ML  
Well, let's look at the stuff that we've actually been talking about here. Eurelectric: there have been two reports that have been announced and a lot of sessions around those. And so: one is essentially around transmission- Grids For Speed, and the other is around digitization and so on. Do you want to talk about: why those two topics?

LB  
Yeah. First, small correction: it's more about distribution than transmission, actually, because what we realised - as Eurelectric -is that we had a phase - and I'm simplifying and you know that -we had a phase where the energy transition was about bringing in renewables into the picture and scaling them really, yeah.But now, that has already- that has happened, yeah. So we are now talking about whether we go to 70, 80 or 90%,at which speed, yeah. But the phase of introduction of renewables is over. Now we are in at the beginning really of - let me call - the second phase, about electrification of mobility - which is now really taking off in this decade - about the electrification of heat - which is ticking- picking up,but I think the peak of the electrification of heat will really happen in the next decade, and it's about the integration into the infrastructure. And we are now realising that the real bottleneck, the real challenge going forward is: do we have the appropriate infrastructure where we can integrate the electrified heat, the electrified mobility and the electrified renewable world which we're having? And so we said, "we need to have more focus on grids", and especially on distribution grids, because on the European level, we had discussions around interconnectors and large transmission, but where the energy transition really happens is in the low-voltage and medium-voltage and high-voltage grids, because immobility happens in medium and low voltage. Your home PV and battery happens in low-voltage. The onshore wind farms happen in high voltage, the large-scale PV farms happen mostly in medium voltage. So actually, we said, "the distribution grid is where the energy transition really happens, and we need to look more at it." And so we did two reports, and one was: what is the investment need? And in a nutshell, it's big, yeah, so we need to double investments. But also, it's not a number which is impossible, yeah. It's like other infrastructures like railways and roads and so on. And the second one was about: how digital are we already?Because we can run those systems only when it's completely digital. And so those were the two studies. And we can talk in more details about them.

ML  
And just to come back to this question of transmission versus distribution, because I'm not sure that it needs to be either/or because, you know, I look at it and say that all of these- when you start to get to the really big renewables, they come from offshore, and they're connected to a transmission grid. They come from deserts, they're connected to a transmission grid. There's a huge need for interconnections between countries. I'm an investor in XLinks, from Morocco to the UK, and hopefully also it will be Morocco-Germany, and so on. So, you know, are you- is there an element of you trading your own-

LB  
No. 

ML  
-you need investment in distribution so that's the focus? I'm being a bit cheeky.

LB  
No, it's not. But we just said, "we need to add the distribution to the full picture." And that is what we did as Eurelectric, over the last two years, and the grid action plan of the European Commission is acknowledging that there is not only a transmission issue, that there is also as large a distribution issue. So, your're like, "if we would have all interconnectors, all of- all of which we desire, we- and if we would have all the North DC lines which we want to build, we would still have a problem if you don't strengthen, for example, the medium voltage grid completely." And so, then we said, "no, we need to put distribution on the agenda as well." And this conference had kind of like a focus on grids ,really, and especially on distribution grid. And not just looks- look at the numbers, maybe, yeah? In Germany, we just did the grid development plan, looking forward, and we knew we had an estimate that we need 300 - 350 billion of investments in transmission. Now we actually have said, "probably, we need another 250 billion on the distribution grid." Actually, the numbers - depending on timescale, in the study that we did Grids For Speed is something like 400 - the differences can be explained technically. But anyway, what it means is the distribution investments are in the same order of magnitude as the transmission investments, and you need both.

ML  
You need both.

LB  
And if you only focus on one, then you will figure out, "I have a problem."

ML  
No, and I'm very happy that you've kind of backfilled to say, "it's both." It is both, I mean, it really has to be that's clear- 

LB  
Yeah, but you asked me on those numbers and those were on distribution.

ML  
I just called you up because you dived in on the distribution side, and I agree that it's of course- of course without that- it's essential, both are essential. So what were the key findings? That was Grids- we'll come back to digitization. We won't disagree and it all has to be smart - there's no question. What were the key findings on the Grids for Speed - that piece of the report?

LB  
So on Grids for Speed, the first one was: we are somewhere plus/minus - I'm giving you number. Now, all numbers are wrong, but they give an order of magnitude and they tell you something about the trend, right? - so we have something like 30 - 35 billion plus/minus 1 billion of investment per year, right now in Europe in distribution grids. This number needs to go up to something like 67 billion, so let's say roughly a factor of two. So that's number one. We are talking about the doubling of investment. Now that's the average across Europe. If you look at it in detail, it's different by country, depending on the starting position. Second finding is, depending how we do that, we could do it also maybe cheaper. For example, if we do anticipatory investment - so we're trying to build for future demand, not for the existing demand - then we- and some other levers, we could maybe come along with 55 billion, plus or minus. So what- but what is tells you in anyway, it's significantly higher than today. And then the next finding was, what do we need to do- and so the industry is actually not fighting for getting as many investment opportunities as possible. We are happy if we can reduce it because even 55 would be a huge challenge for us. And then we set and the second finding is: what is it that we need to change so that we can deliver? And, for example, some of the changes actually impact regulation; if we want to build smart grids - and you just said, "we all agree that we need to build smart grids," - then we should be incentivized to build smart grids and not be punished for doing so. There are some regulations in place which would actually - if we just leave them - incentivize us to do dumb grids, and earn more money on it. So we don't want that. So as an industry, these are the findings.

ML  
Can we do the- critical points, or one point which is: these reports that we're talking about, for the audience, we're gonna put a link in the show notes, they can be downloaded from the Eurelectric website - we'll put a link in - and I encourage everybody to download them and read them. They are extremely on-point. The second thing is, could we do the following: can we just take a step back for the audience; could you give us grid regulation 101, or even 0.9? Because, you know, for a lot of people who are listening, you know, we live with this, we live this. How do you- you want to put these billions into the grid. How does that become an investment that brings returns to your investors? I

LB  
Okay. So- then you have to understand two things about grids. So first, it's a natural monopoly. So if I - as E.ON - build an electricity grid in a certain area, it's absolutely inefficient to build a second electricity grid into the same area. So there is only my grid. So I'm - what we call - natural monopoly, and that means I'm regulated so that I can't leverage that position for excessive returns. So I'm in a regulated business where a regulator sets a price which allows me a certain return - and I'll explain that in a second - which is adequate to the investment that I make, but not excessive. So that's number one that you need.

ML  
Right. That's where the perverse incentive comes from-

LB  
No, no.

ML  
-the risk of perverse incentive, because your- the return you get is proportional to the money you put to work. So there's the perverse incentive risk, right?

LB  
Like we say, but first, you need to understand that we are monopoly, natural monopoly. This is why we are regulated. Second - and I'll explain the regulation in a second - second thing you need to understand is that once I have invested, I can't walk away. So I need - as an investor - to have kind of like the security that, you know, I don't spend a billion and afterwards I'm screwed. So I need to have a visibility and a predictability that I have a chance to actually earn my money, yeah? So those are the two things you need to understand. And it's actually a lot of money that I'm investing. So how does it work? So I'm investing a billion, 2 billion - whatever - a-year, and what I get is: on the money that I invest, I get a so-called, it's my- we call it "regulated asset base" and I'm shrewdly simplifying yeah. On that one, I get a regulated return by the regulator which is according to the cost of capital. So it's- for example, I get 5% return pre-tax on the money that I invest, and that's- for the capital I invest, I get- it's like I invest a bond, I get an interest rate on a bond, I invest into an asset, I get interest rate. Plus, obviously, I can then charge a depreciation and then I have OpEx cost. So I have a CapEx return on the money that I invest, but I also have OpEx.

ML  
And the return comes, though, from your customers. So it's a regulated price, 

LB  
It is all translated into []. 

ML  
So it doesn't - the government isn't cutting the check, the customers cut you a check, but the government - or the regulator - tells you how big the check is allowed to be? 

LB  
Exactly. And there are three elements: one is the CapEx return, so I invest capex and I get the return on the capex that goes, yeah? I actually invest labour - and I can pass on my labour, by the way- and if I'm very efficient, I might make a small margin on the OpEx part. And in some regulations, there's a quality incentive. So if I- I'm better than certain quality indicators, I get an extra return. And so the combination of the capex return, the opex outperformance and the quality outperformance, that's my return But the capex outperformance is by far the largest one, yeah. So that's it.

ML  
And so how does innovation play- now you said that you want to have an incentive to do smart investment. But how does that help you to- you know, because if you become very efficient, don't the regulator's just say, "well, thank you very much. Now the price- you have to charge a lower price, please." 

LB  
Yeah, we always do that. So all efficiencies in the end are beneficial for our customers. So we have an incentive to be efficient, and there are now more details: there's incentive regulation on the opex side - which we can't possibly explain in the podcast - but no, so- but on the innovation side, as a- you know, what I can do is I can sometimes, for example, introduce a smart IT system, which increases my cost of working, yes, and my opex, and it reduces actually the investments that I need to make. But then if the regulation is such that, on investments I get a return, and I get punished actually for not making an investment by having a higher cost of working, then actually, I will say, "why would I do something smart if all I get out for that is a lower return?" yeah. And so we actually advocate that if we do something smart, there needs to be also recognition that we have done something smart.

ML  
Right. So if I- if I try and make sure I've understood and maybe for the audience as well. So now you're talking about these technology in there, and maybe talking a bit more about the second reports on the digitization. So you dip into your pocket, you invest on digitization. But if that improves your asset-utilisation, you may end up putting less money to work on the assets and you reduce your profits - the big pot of profits - that you're allowed to make through your pricing?

LB  
Look, this is all fine for me because we have investment opportunities anyway. But on top, if I have an IT system, my operating costs are higher. And if I now, you know, like I just increase my opex to not invest, and then the regulator tells me, "but this increase in opex, I'm not going to remunerate you," then I say, "well, then I don't invest, I don't increase my opex. So then I rather invest into aluminium and copper." And so we're saying: we need to digitise everything. So, digital innovation costs, we need to be able to pass on as well. And there had been some regulation where they basically punished us for being smart. And so we did it anyway and then asked for a change in regulation, and mostly got it. But still, we have regulation in place, which actually is driving us in the wrong direction, and we are advocating as an industry that we should change that.

ML  
Right. Let's come back to one aspect of digital innovation, which is machine learning or AI. Let's come back to that, because I want to hear about that second report. So the first report says 35 billion per year, Europe-wide needs to be 60 if it's not very smart, 55 or something like that if it's smart. And that's Grids for Speed. And actually, before we move on: anticipatory investment, you used the phrase there. Explain what it is.

LB  
Basically - I'm, simplifying again, yeah - so I'm digging up a road in the city to put in a new cable, and let's say the cable has 25 square millimetres. That's what I need for that road. I'm just wondering, should I put in now a 25 square millimetre cable, or should I just think, "we will have EV and heat pumps in this roadm, aso let me just throw in a cable which is twice as large." 

ML  
And right now the regulator would say, "no, you can't add that to your asset base because it's more than needed."

LB  
Yeah, so we have many, you know, like detailed regulations which make it difficult for us to make such anticipatory investment. But basically, the idea is: we build for future demand and not for the existing or nearby demand. So we think about 2040 when we actually build it, we say, "we will have the utilisation," and it's actually smarter to dig up the road only once and then add maybe, you know, like then the cable might be 10% more expensive. But at least I dig up the road only once. So this is a little bit to simplify-

ML

I like this because you're now admitting that it's your industry that digs up the road repeatedly,which is good to get that on the record! I'm joking.

LB

No, that's unfair! There's the water company, there's the sewage company, there's the telecoms companies, yeah, so- 

ML  
And in the transmission - just to make sure that we're sort of staying somewhat balanced - on the transmission side, they also have a concept of anticipatory investment and that's largely because it takes so long to get planning permission for new pylons that they kind of want to start doing that early. And that's also regulatory-

LB  
Yeah, but they're- actually on the transmission side, we are trying to anticipate what is the landscape gonna look like 15/20 years out and so what are the lines that are the corridors which I need to build now? So, to be fair, in transmission side, we had always a more forward-looking perspective, but we want that now also on the lower turn -a, you know, on the lower-

ML  
-distribution side, okay. So then, what were the main messages then on the digitization report which has also come out during this conference here at Eurelectric?

LB  
Now the first message is: we can master the challenge only if we digitise every single process which we have and if we use every small technology that is available to us in the future. So we will not be able to operate the systems of the future if we don't fully digitise everything, yeah? Asset management, asset operations, asset construction; everything needs to be fully digitised. And even if we could theoretically do this, yeah, we could not possibly do it without all this digital support at acceptable cost. So digitization is an absolute must in the future, you know, because the system is just much more complex. So that's number one. Number two: this is a huge transformation and we are at very different stages of maturity if you look across the landscape. And why is that? B ecause it's very hard to change those systems which we have, you know, like across the board. And it's, you know, like, if I introduce a new asset management system, it's not just about a task for the IT department to change programme -then I need to train all my technicians to use the new asset management system, and I need to transfer all the data from the old systems into the new system. So it's a huge transformation, and the report shows that we are very different stages of maturity, you know, across the board across all utilities in these different fields.

ML  
Let's give the audience's just a little bit of a flavour: you said asset management. Is that- that's not the financial asset manager, this is asset-tracking, this is- this every single-

LB  
I'm an engineer, I'm not a financial guy-

ML  
We have a mixed audience so I just wondered- that's why I want to just- what is your asset tracking or asset management system? What does it do, just the very brief version so people can get a sense of how complex - even this, in a sense, that's just one part of digitising your entire operation - but just give us a very quick sense.

LB  
Yeah, for example E.ON: we have 130,000 medium-low voltage transformers standing around. And so in asset management, it's about: what transformers do we have? Where? What is their history? When do we need to do maintenance on them? How are they connected to the cables, yeah, and to the customers? And if I then plan for extending the network, where do I need to add new transformers and new switchyard? Where do I need to strengthen, you know, the line behind it? So asset management is about, you know, kind of like the full inventory of the assets which are distributed all over Europe, in my case on 11 countries, all over Europe I have these assets, all over Europe I have teams running around that maintain them. And this is what the asset management is about. It's about the physical management, new construction, replacement, repair, maintenance of all these assets. This is what we do in asset management. 

ML  
That gives a great perspective because that's probably a piece of this system that many people in the audience won't have thought about. They think about- and you haven't even gone on to generate- well you don't generate, but dispatching and matching and balancing and billing and all the others. So- now, we just heard in the session that I was on- when I was on the stage from Arshad from Epri who said-

LB  
-a great guy, Arshad Mansoor.

ML  
-Arshad Mansoor from Epri and I really enjoyed the conversation. But one of the things that he was postulating: that we're in this new world of machine learning and AI, and all you need is you upload all of your data - you're making it too complicated- you upload all of your data to ChatGPT and just ask it about preventative maintenance or predictive maintenance. Ask it, and it will tell you where to add this where to add it because there's going to be a human brain and everything's going to be solved. I'm joking, of course, but I'm drawing the conversation on to: to what extent do these new technologies make your life easier? Or do they actually make them harder? 

LB  
I think actually both, yeah. So like- actually, I agree with- I disagree with something you said on the stage - and I repeat it for the audience in just a second. But- so they make it- first, let's start why they make it harder, yeah. Actually, what Arshad shows is that we have a huge request for additional capacity coming from AI, which we see in the US, and actually if I do an investor roadshow these days, I get asked for that all the time. And so- and actually, if we get even close to the demand that he showed, we would have a huge problem because this capacity we would really struggle to provide

ML  
And that's- these are- because the data centres for AI are gigawatts. They're not like the a few 10s of megawatts or 100 megawatts, these are really, really substantial demands-

LB  
Absolutely substantial. And to be very fair, we see part of that already today around Frankfurt, which is one of my supply areas, which is the internet breakout which goes through the North Atlantic, arrives in Frankfurt, for historic reasons, yeah. I think NATO was part of it, but anyway. And so, everybody wants to have a data centre around Frankfurt. We have connection requests in Frankfurt for 3,000 megawatts, and the grid will not support 3,000 megawatts, no way. And and so we have that all over the place. Now, Arshad Mansoor was showing that Texas, in the next six years, would add the capacity of Germany, yeah. Actually, I don't believe that, yeah-

ML  
I'm not sure where that figure came from.

LB  
-because I actually have an NVIDIA chip on my gaming computer at home, and it's extremely energy inefficient. You can realise- you produce a lot of heat. Why? Because nobody cared about energy consumption, as long as it was only for the gaming industry. But now, I think, you know, like, if you look at this, they will come up with innovation and the next chips will be much, much, much, much more energy-efficient.

ML  
Leo, at this point, you're actually agreeing with what I said on stage.

LB  
Agree, but it will still mean it's gonna be significantly more consumption and capacity. And it's baseload capacity which they are asking, which is not making our life easier. So that's making it, I think, more complex, on the other side- so I'm agreeing with you also that machine learning is not gonna substitute us. I'm completely relaxed, you know. We had this discussion: when the mobile comes on, we don't need any managers anymore, because they can be so efficient. And then the email came and said, "with the email and the mobile, we will come around with like 10% of the management that we had in the past." It's all stupid. Now, we actually have 20% more managers just doing email, most of them unnecessary. So actually, I'm completely relaxed about machine learning, AI, but AI will be part of it- of our life, as the mobile and the email is, and it will transform the way we work. So actually, I think it's- so like, even if- I don't care, it's an irrelevant discussion whether AI is gonna replace the human brain or not - it's gonna add to the human brain, it's gonna be there and it's gonna be a reality, as the mobile and as email. So- and, personally, I believe- so AI is not going to replace brains, but brains with AI are going to replace brains without AI, yeah. So that would be my- and so the grid operator of the future needs to have AI as a part of it. Personally, I don't believe generative AI is actually the big solution. I think we need other AI tools, but without AI, we will not be able to run the grids of the future.

ML  
And so the bit that you disagreed with- I'm sort of trying to pass it because- I mean, essentially, that's what I think as well, it's exactly the same. It is a substantial source of demand-

LB  
Yeah, butyou played it down a little bit by saying, "my brain is going to still be there." 

ML  
That's partly because Arshad was saying that it's a fantastic project, it's the human brain, and I was just thinking, actually, when he was saying how massive- the demand of Germany just in Texas-

LB  
But think about the problems that we could solve.

ML  
The thought that I had when he was describing that was how unbelievably energy efficient the human brain must be! Because we don't need to get- we don't need three megawatts-

LB  
Absoutely!

ML  
-in order to do this stuff, we just need a few hundred watts.

LB  
But actually, maybe we'll put AI- the first task that we put to AI is to come up with an architecture which is as energy efficient as the human brain. 

ML  
I think it melts if you ask it questions about itself. So- but let me do this. So you've got these these two reports - okay, that's great. And they chart a very clear direction forwards for Europe. You know, this transition, we talk about though, it has to be global. It has to be global and of course it has to be - that means you know - it's sort of, in a sense, easier in US, Europe, the G20, where effectively, energy demand has been dropping, and we might now see some growth. But we've got to do it - also - in Asia and in Africa. And where are the skills? Where is the finance? You know, I spend a lot of time also talking to people about the Global South. These same challenges, hopefully, will occur in the Global South, right? Because if they don't, then they're just using gas and coal and the climate - you can forget the climate, it's screwed. 

LB  
Yeah. Personally, I believe the decarbonisation challenge - if I may put it this way - is going to be answered in India and Africa.

ML
Correct. China is on its way.

LB  
China is on its way, Europe and North America on the way, and if you're- if you look, where's really the population growth? Where will there be an increase of energy consumption? It is Africa where we will see a doubling of the population in the next two years, and India which is by far the largest- it's actually larger than China now, and it still has to catch up on energy consumption per capita. So those are the areas where it will be decided whether we are successful in decarbonizing fast enough or not. I'm not trying to downplay now, Europe or whatever, but just from the numbers. And I think the key point is, do they repeat the path that we have gone- 

ML  
-or leapfrog.

LB  
or Leapfrog? So this is why I'm saying this is where really it's going to be decided whether climate action is successful or not. If they don't leapfrog, we will not be successful because we cannot compensate for that in the rest of the world. So that- so this is maybe the one poin? And actually- but actually, I'm optimistic because why would they not leapfrog and take all the smart technologies?

ML  
Right. But I do have a question for you, though, which is: there's, there's different sorts of optimism. There's passive optimism, saying, "they're smart, they'll use smart technologies," and there's active optimism that says, "I, Leo Birnbaum, will do what it takes to help them adopt the smart technologies." How much of your time- do you spend any of your time in all the stiftungs and all of the verbände and so on? Are you helping with that transfer, that leap frogging process?

LB  
And the answer is: not, no. Sincerely, no. Yes, I am active in some association, I'm willing to actually share my experiences, but E.ON is is clearly a European company and we are focused on the European energy transition. And in my time - I'm CEO, in office three years - we have increased investment from 21 billion - so we had a five-year rolling investment burn, we invest 21 billion every five years - now we're investing 42 billion, just three years later; 21 to 42 billion. So it's- and we have increased workforce, we've increased everything. My guys are busy day and night, just delivering on that. So, like, I'm modest enough to say, you know, I have nothing that- I there's nothing that I can tell to people in India, they will say, "I come to India now to help you," because they don't need it. They have the engineers, they have the IT, they actually can do it with out myself. So I'm focused on Europe. And actually, that keeps me busy day and night. 

ML  
Yes, I'm just- I'm fascinated because your predecessor at Eurelectric as chair, Francesco Starace, who was CEO of Enel, was nevertheless very active personally and through Enel in, you know, technology transfer, knowledge transfer, being involved at the UN level in things like this- I met him in Sustainable Energy for All which became SDG 7. I'm probing at the kind of the social responsibility side of this transition.

LB  
Yeah, obviously, like I'm in the World Energy Council where- I was- I was long enough in the World Energy Council where I did exactly that. I tried to- I chair the Studies Committee, where we try to share actually expertise. I have visited exchange between North America and Europe, what can we learn? We have, as Eurelectric President, Eurelectric, we do an international energy summit where the energy associations of Japan, Australia, America, US and Europe actually meet and exchange their experiences on a global scale. So yes, I participate. But you have been asking what do I do kind of like in the sense of my company, and then sincerely, my company is focussed on their markets. And it makes no sense to overburden my company by saying, "let's do a little more marginal activity somewhere," where really, we have no expertise.

ML  
Yeah. So one of the subtexts at this conference - it was grids, and it was digitization and it's been absolutely fantastic - but there was throughout a sort of undertone, which was of Europe's problems, Europe's difficulties. So the AI, where it's really the US that has taken a huge lead, possibly with China as well, and then I actually showed the chart of the penetration of China into all of that, whether it's wind, whether it's solar, whether it's batteries, whether it's minerals, it's 80-90%, or even more, right across the supply chains. And there was a sort of- there was a little bit of an undercurrent of - I would say - pessimism about Europe: high energy costs, and low innovation, and high regulation. And there were lots of people saying, "this has to be fixed, it has to be fixed," but I didn't really hear very many solutions coming out. 

LB  
Yeah. I think- I said it yesterday, I don't know in which session: we need to focus more on the opportunities than on the risk. We have a tendency in Europe to focus on risks. I mean take the AI Act, yeah. We actually are proud that we are the first ones to regulate it on a worldwide basis, yeah. But nobody regulates itself to the top in innovation. You're either the most innovative one or you're just irrelevant, yeah. And the belief that actually regulation is going to make you relevant:I just question it. And so- and the same is, you know, like- we need to see the opportunity of new industries have all been- as growth arch, yeah. So, we need to look more at: how can we grow? how can we actually find opportunities in the new technologies? rather than: what is the risk actually? you know, like: why should we not do something? And I think this pessimism that we have observed - and I agree with you - is because we are too focused on the risks, and we are not focused enough on the opportunities. We are too focused on our weaknesses, not enough on our strengths. And as a result, we see a slow decline. And actually, the reports are really clear. You know, you take any indication: patents, patents by industry, patents by application, the market cap of companies, GDP development: in every single KPI, Europe is losing relative ground. And actually versus China: fine, yeah, because they were catching up over the last decade, but also versus the US. We were on-par with the US 15 years ago and now we are clearly behind the US. And so we need to change that momentum in Europe, that's absolutely essential.

ML  
Now there's another- a European initiative that you're part of, as a company which I found fascinating, which was the voting- the encouraging- there's 30 organisations, E.ON is one of them that have said, "people should vote." So you've got the upcoming European elections, and it's called We Stand For Values, I think. And can you explain, why did you decide - because a lot of companies don't want to get involved in political choices. It's a dangerous space, perhaps particularly dangerous for- or it has some historic resonances for German companies, and a real-which has led to a real desire to stay out of politics. But here you are, really- and it's pretty clearly encouraging people to vote for pro-European solutions, pro-European parties and-

LB  
Now, you can criticise a lot about EU, but without Europe we are all irrelevant. So like, you take any European member state, including Germany being the largest: even Germany is irrelevant on a global scale. So the solution for Europe, for any European member state can only be: Europe. That's the only way to stay relevant. So do you want to discuss with Xi Jinping or Biden or maybe Trump or whomever - you want to discuss that as the Prime Minister of the Netherlands or of Hungary or even of Germany? No, you don't? We need more Europe. So there are certain things that only Europe can fix. We know that without European energy markets, we would have been toast in the last years. So the only solution for a safe energy supply is a European energy market. Only with a European capital market do we have the pockets to actually finance all the investments. If we don't have a European financial market, actually, we will struggle to finance the energy transition, and we will be depending on US financial markets. Only with the European market for pharma - actually wherever you go, more Europe is the solution, it's like- and this is what we want to make absolutely clear: take the European elections seriously. Our future is Europe. Maybe we should adjust lots of what we're doing in Europe, but the future is Europe, nevertheless. The future is not the individual member states. I absolutely believe in this. It's the number one reason why we actually supported it. The second one is we shouldn't - by accident - now, you know, just- we shouldn't have an accident on Europe like the UK had. And so we said, "it's important that you engage and it's important that you also think, "who is really a constructive force?" and don't use now Europe, you know, to do whatever- for whatever national protest you want to have, because that's too expensive. The price is too high. We can't use Europe as a bargaining chip for local discussions. So vote on the European level and vote pro-European, and then whatever it is. But don't just neglect it." So this is- I'm really passionate about it. The future of everybody in Europe is within Europe, or we have no future.

ML  
Look, it's fascinating. I don't want to relitigate Brexit, but there are parts of that that I would- you know, because I'm thinking as you speak about, let's say, South Korea, or Japan: they're not in a Europe-style federation, right? They are perfectly viable, sovereign countries. Should they cooperate more closely with each other? It's very interesting. As an investor and XLinks, building 4000 kilometre HVDC cables, and you look at Asia and you think, "well, you know, there's this assumption that we can't have a HVDC super grid. Of course we could and we should." Do we need to be in these kinds of federal arrangements to do those sorts of things? I would say no. But I actually want- we've got very few minutes left-

LB  
No, no, this is the Brexit supporter here speaking.

ML  
Correct. 

LB  
But actually, I disagree. Even with the examples that you say: they are also looking for partners. You can't live in this world, yeah, stand alone as a- nation states are too small. You need to have- and Europe is the best choice that we have to actually have lots of friends and lots of partners with whom you have joint interest. And this, we should really push for.

ML  
And the UK, you know, we're off, you know, signing with CPTPP with Asia. So there are other alternatives. I would love to do it- maybe after this when we cut the recording-

LB  
In hindsight, I think- in hindsight, I regret a little bit that companies have not been more explicit on what they think about Brexit.

ML  
Okay, let's move on from that because it can consums conversations - in a pleasant way, but not for the podcast. But I do want to jump into one thing, which is capital markets, the importance- you used this in your opening remarks at the conference, and that's one area where, you know, I do think the choice is not Frankfurt versus New York; you've got London, and London is has come through - for better or for worse - it has come through Brexit actually in really pretty good health. It's attracting more fintech investment. So why is London not the- still the obvious solution rather than- you know, because the attempt to kind of take over London in Amsterdam or Frankfurt or Paris - that has not worked, and it will not work. So surely, you should have a kind of a- we should have a re-coming together around the capital markets to fund these vast 10s of billions that you need, you know, in Europe, for what we're talking about here at this conference?

LB  
You're out of the EU. That's the problem. 

ML  
Why is it a problem? I don't-

LB

So like, capital markets- I mean, I'm not the finance experts, you should talk to bankers, yeah. But it's like, if you want to have a joint capital market and banking union, you need to have kind of like a joint regulation. Now, the UK decided we want to be a separate regulation. Alright, fine.  Separate regulation. Now, that means European regulation is not valid in the UK. But that means kind of like - we have now two markets. And now- if there would be political will, you could think about all kinds of things, but there was no political will, on both sides. And so obviously- I mean, we can't forget about it. So either- so what we now need as a European market- and it's fine, yes, I agree: the solution is not Frankfurt or whatever, but we need one capital market. It's like- it's not liquid enough, yet. The money is here- there is enough money in Europe, but the access to the money works through other capital markets. And that is []. So we invest into funds in the US, yeah, and then we tap into those markets to bring the money back to us. That we shouldn't do.

ML

Now, last question:you've got another year or two to go-

LB  
One year.

ML  
-as as Eurelectric President, one year more. What are the priorities for your- for just the rest of your term as President or chair of Eurelectric? 

LB  
Yeah, so we had really kind of like the first priority, which we had '22/'23 was kind of keeping the markets afloat.

ML  
Surviving  this-

LB  
The electricity market design design was actually- I think, in hindsight, solution was pretty good. The second priority which we had is: put grids on the agenda. We talked about it today. The third one is: security of supply and a fair deal for consumers, because now we need to prepare for this new world. And what is a fair distribution of risks and benefit between the investors, the generators, the distributors, and the customers?

ML  
Affordability, risk and resilience?

LB  
Yeah, but we didn't want to say affordability because then it always becomes a price discussion. A fair distribution of risk and benefit also includes, "I need to make now huge investments into the grid," you know, which is a risk, you know. I need to have a benefit versus risk. So it's more than just an affordability-  affordability is part of the risk and benefit distribution, but it's not all, because affordability is only the end-customer, but also the investors, the investors into renewables, the investor in the grids need to have a chance to have a fair distribution of risk and benefits. So that is the second year, focus on that one, last is security of supply. 

ML  
Very good. So I very much look forward to the research, no doubt, it'll be the same format. There'll be some research, reports and then there'll be some conference. I don't know if we'll have the same sorts of beautiful beach and sun and wind as here-

LB  
The wind was picking up all the time during our podcast.

ML  
If I was 20 years younger, I'd be going windsurfing, but-

LB  
It would be- I mean, no complaints about your podcast but windsurfing would beat the podcast! For the two of us, but not for the listeners! 

ML  
We could break new ground with the the podcast whilst wind surfing. Leo, it's been a grea pleasure. Thank you so much for your time.

LB  
Michael, a pleasure. 

ML  
So that was Leo Birnbaum, CEO of German utility and distribution grid operator E.ON and president of European Electricity Industry Association: Eurelectric, speaking about all things power, transmission, digital, and more. As always, we'll put links in the shownotes to resources mentioned during our conversation. So that's: Eureelectric's and E.ON's websites, the Eurelectric Power Summit 2024 #LightsOn website, Eurelectric's two new reports on Grids for Speed and Wired for Tomorrow which were released during the conference, and Episode 34 of Cleaning Up with Kristian Ruby, Secretary General of Eurelectric. 

If you've enjoyed this episode, please make sure you give it a like or a thumbs up and leave a nice review. You can follow us on Twitter, LinkedIn or Instagram and sign up for our free newsletter on cleaninguppod.substack.com, that's cleaningup pod.substack.com. And don't forget to visit cleaningup.live where you can binge watch or binge listen to 160 hours of conversations with extraordinary climate leaders, that's cleaningup.live. Cleaning Up is brought to you by the Liebreich Foundation, Gilardini Foundation and EcoPragma Capital. And that's all for this week. We'll be back next week with another episode of Cleaning Up.