00:00:02
Speaker 1: Bloomberg Audio Studios, podcasts, radio, news.
00:00:08
Speaker 2: Europe has been in a state of permanent crisis ever since Russia's full invasion of Ukraine in 2022. The continent, home to more than 500 million people, is suffering from high energy prices and a declining industrial sector, while a hostile power is knocking on its door.
00:00:27
Speaker 1: So what's the way out?
00:00:29
Speaker 2: My guest today is Christian Ruby, the Secretary General of Euroelectric, the trade association of the European electricity industry, representing more than 3,500 utilities in 32 countries. To him, electrification is the solution to the crises Europe faces. He believes cheap, homegrown renewable energy will restore European sovereignty, lower prices and deliver on climate ambition. This is Zero.
00:00:58
Speaker 1: I am Akshat Rati.
00:00:59
Speaker 2: And this week, why electrification is the answer to Europe's malaise. Christian, welcome to Zero.
00:01:12
Speaker 1: Thank you very much.
00:01:13
Speaker 2: So you are running Euroelectric. Tell us what it does and perhaps give us some of your biggest success stories.
00:01:21
Speaker 1: Euroelectric is the trade association of the European electricity industry. That means that we speak for the industry at large across Europe. We have national associations in all member states, as well as Norway, Switzerland, and the UK. And we talk to policymakers to make sure that the frameworks are right. And, well, for the big success stories, I would say, I mean, if you were to choose one, I think that today we are really at a point where in Europe, We have sort of brought the fact home that electricity is the solution for our green aspirations as well as our security equation. I think that's a very, very big step. What now stands out is to fix the affordability and the competitiveness issues and make sure that transitioning to electricity for industries as well as consumers becomes a success story also financially.
00:02:18
Speaker 2: Well, we'll talk about those issues almost immediately because we are going into a European winter where almost all countries are panicking that, you know, the sort of energy price increase from the Iran war hasn't quite been felt over the summer, but it will really be felt over the winter. What do you think governments can do, not in the short term, because we're already seeing them trying to subsidize bills right now, but in the medium term, where they can deal with the increase in electricity prices during winters?
00:02:54
Speaker 1: Well, first of all, I think the recent European Council of last week was an important moment where on the one hand, we saw a level of very serious concern, but we also saw a European Council that did not panic. And that was a very positive, let's say, outcome. In broader terms, I think We're living in a world and a time where there is plenty of reasons to be concerned over where things are going. And I think it's really important to recall that the crisis we're seeing in energy markets is... a product of a broader geopolitical crisis that has been spurred by Vladimir Putin, by Donald Trump and the wars they have started. Now, how do we deal with that in terms of energy markets, electricity, affordability in the near term and in the medium term, if you will? I think if we look at the near term, we need to sort of brace ourselves for a difficult winter. And we need to make sure that we sort of stay the course, avoid political panic and allow for a few handheld solutions, frankly. What I mean by handheld solutions is targeted, temporary state aid measures that basically bail out groups that are feeling the pressure the most. It doesn't make sense for us to close down industries and make valuable industries go bust just because we have an externally induced crisis. It doesn't make sense for us to allow families that are struggling to struggle even more. So let's focus on those handheld solutions while keeping the main elements of the structures we've built in place. In the near term, that's our focus. In the medium term, I think there's a lot of good news coming our way. As I said, Europe has finally sort of gotten the memo that electricity is our way of insulating our economies against these roller coaster prices of fossil fuels, against the wars in geographies that we don't control. So if we double down on electrification, making our car fleets electric, making our homes electric, also on the heating side, making our industries increasingly electric, we are going to see a more insulated economy and we're going to see relief coming that way. It's about modernizing the system, it's about introducing new sources of flexibility, and it's about continuing the push for more decarbonized power. We saw that in numbers in the summer.
00:05:37
Speaker 2: Gas prices increased by 80 or 90 percent, but power prices only increased by 20 to 30 percent. And that resilience is something that governments will take very seriously. However, if you take a more general point of view, a little more longer term point of view, European electricity prices relative to other industrial bases like the US, like India or like China are much, much higher and are projected to remain much higher. So, yes, electrification might be a resilient solution, but what about the affordability of it? And how about then keeping industry competitive in that environment?
00:06:19
Speaker 1: Yeah, I think you're right. And I think we need to sort of zero in a bit on what are the causes of these price divergences. If you look at the US, they have a resource endowment with loads of very, very cheap gas. And also, they don't... at this moment in time, want to sort of face the climate challenge and therefore do not have policies in place that price carbon. If we look at Europe, I think we're seeing a slightly more diverse picture than we often sort of discuss or what we see in the public debate. If we look at continental Europe where gas sets the price, we have very high prices indeed. If we look, however, to the Nordics, to Spain, or to France, most of the time we have much more acceptable and frankly quite low levels of electricity prices. Take Finland, throughout this year they've averaged wholesale power prices below 40 euros. That's quite remarkable at a situation where the TTF, the gas prices are well above 70 and today above 80. When you have the right mix, a fortunate mix of firm power, clean power, reliable power and renewables, you are going to see a completely different price level in your electricity market. And I think that's really what we need to be opting for. Same story in France and, by the way, in Spain.
00:07:52
Speaker 2: Right. And that firm power, a lot of it is nuclear for especially France and Finland. In Spain, though, variable power has been the biggest contributor in lowering prices, mainly because of the solar deployment that has happened. If you look at solar Europe-wide, it seems like a boon, especially in the summer when we are getting more and more extreme heat waves and solar kicks in just at the right time to provide cooling solutions. But it's also causing a weird problem of too much power, the kind of abundance which is Maybe it doesn't seem like a problem, but when it causes electricity prices to go negative, that is a problem, right?
00:08:35
Speaker 1: I would say as someone who believes in markets that a negative price is not necessarily a bad thing. And if, again, we come back to the example from Finland, consistent periods of very low prices combined with negative prices has actually spurred a very large build-out of electric boilers. They now have three gigawatts of electric boilers that essentially provide for clean and very affordable heat for the citizens in a quite cold geography. So negative prices are not per se the problem I do think, however, that we will be seeing challenges with dealing with those enormous amounts of solar that we are adding to the system, in part because they are a legacy technology in the sense in the way they're interacting with the grid. And also because when you have a lot of electricity coming to the grid at high relatively sort of unpredictable moments, that actually poses quite a significant challenge for the system operator. So we are now entering a stage of the energy transition where we can cash in all the benefits of all those installations, but where the next set of challenges is quite different than the one we've been facing before. So the solar that we've added is great news for the green transition. ultimately also for prices. Now we need to deal with the challenges that this quite variable source of electricity provides.
00:10:10
Speaker 2: So we are seeing some countries like Australia, for example, that is essentially been on the forefront of the solar deployment for quite some time now. Turn to batteries as the solution to the problem. And already within the past 18 months, we've seen a battery rollout that has led to average electricity prices declining. In Europe, batteries have been deployed, but nowhere near the scale they are required, nowhere near the sort of gap that a lot of industry players are pointing out to. What's held back Europe from being able to really take advantage of now cheap batteries that are available in the global market?
00:10:50
Speaker 1: It's a good question. Why is it not going even faster when you see other geographies where it's really happening at high pace? I do think that we are seeing significant changes in the European market. I would say that the big shift we're seeing in investments is one transitioning from renewables towards storage, batteries, but also to co-located projects, hybrid projects. That said, I think essentially the business model around batteries is one that works on spreads. So it works on volatility and it's also a matter of whether other technologies are available to essentially handle this. I think a further barrier that we're seeing in Europe is that we have immature markets or non-existing markets for ancillary services. For example, a fast frequency response, which is one of those services that a battery can provide and also help create a business model by value stacking for the operator of the battery. So there are some frameworks that need to come in place. We also advocate an actual storage strategy. The European Commission is beginning to look into flexibility assessments for each member state, non-fossil flexibility to get away from fossil fuels as the flexibility technology and over to batteries, pumped hydro and other types of storage. So there's a number of regulatory things that we need to look into. But then I also think that we will see this come. The last thing that gets a lot of political attention in Europe on this is sovereignty. We are transitioning away from the peaceful world of globalization where you want it to trade freely and we are entering a much more complicated geopolitical environment where weaponization of supply chains is a real thing, choke points, and where you need to make sure that what you add to the system is de-risked and is safe so that foreign powers cannot all of a sudden shut down your system or manipulate how the system is working. Unfortunately, we are seeing this not with specific battery installations in Europe for the moment, but I think we all heard of the story of supermarkets that all of a sudden were manipulated to have much higher degrees in their freezers and destroying food. So evil intent directed towards our critical infrastructure systems is a real thing that we need to be keenly aware of in this new era.
00:13:20
Speaker 2: Can you tell me a little more about the supermarket example and who are the actors involved? What exactly happened?
00:13:25
Speaker 1: So this is a story from France where a group of hackers, I'm not aware that their origin has been disclosed, managed to break into the temperature regulating system of Danfoss, who runs the freezers for a big supermarket chain. Hackers were able to enter into this system and manipulate temperature to go up to 50 degrees, after which all the frozen goods were destroyed. And that's just one example of the new set of risks that we are dealing with as Europe has entered into this. escalated hybrid war scenario that we are in.
00:14:04
Speaker 2: Well, I want to talk about resilience and maybe we start with the sort of cyber attack or even physical attacks as Ukraine has been dealing with a lot of attacks on their energy assets, on power plants. What can Europe do to manage those? Because those are now becoming more and more frequent and it really doesn't matter how far you might be from your enemy anymore.
00:14:28
Speaker 1: Indeed. I traveled to Ukraine, as a matter of fact, back in the beginning of 2025 and visited a power plant that had been hit more than 13 times by direct sort of missiles or drone attacks. So there's a real sort of kinetic reality with sort of military attacks on utility assets. And unfortunately, we are seeing sabotage, kinetic attacks on infrastructure beyond Ukraine as well. Our assessment is that we are not yet there where we need to sort of prepare for a full sort of Ukraine scenario, but we need to learn from them when it comes to the way we deal with this type of attacks, the way we prepare for them, the way we respond and the way we rebuild. We are currently in the sector in a situation where there's a completely different mindset emerging around preparedness, around risk assessment, around security. And the whole equation around security, which used to be a little bit of a sort of sideshow to greening the system, is now becoming very, very central for all operators because the threat landscape has become much more complex, much more immediate and urgent. The way we think of it in big terms is in terms of kinetic attacks, which is now something that everybody needs to deal with. It is cyber attacks. It is supply chain. It is also very much readiness for extreme weather, which continues to be the leading, if you will, source of economic impact on our system. So in essence, it's really a much broader equation that we need to deal with. And from a political point of view, we need an updated security strategy, which we are expecting from Europe very soon. one that puts electricity at the center of the new energy system and essentially defines the way we need to operate such a system and make it ready and resilient for a much more complex future.
00:16:39
Speaker 2: After the break, more of my conversation with Christian Ruby, the Secretary General of Your Electric. If you're enjoying this episode, please take a moment to rate and review Xero on whichever platform you're listening on. expensive electricity especially when you want to put electricity at the heart of the european energy market means it's a problem for europe because you're not able to attract industry or keep industry open you're not able to attract data centers and artificial intelligence players to come in and people are worried about what they will have to pay if they move even now to an electric car eventually, even if it's cheap today, given where oil and gas prices are. So what are the top solutions that you can do then to manage all this additional cost that's going to come from investing in resilience?
00:17:38
Speaker 1: First of all, I wouldn't sort of overstate the additional cost. I think these are the type of costs that you cannot afford not to have. You will want to have reliable power. That is a critical precondition for an electrified society. And I think what we need to do is really to stack it up against the alternative, which is continued dependence on supplies of fossil fuels from the outside that we have no control over and which frankly looks more and more difficult in the near and medium term. So we need to reinforce our system. And again, you know, coming back to the example of Finland, which is really interesting here, they are doing many of these things. They are essentially building system level two protections. That means concrete barriers, protections around transformers, drone nets, etc.
00:18:25
Speaker 2: etc.
00:18:27
Speaker 1: And it's not a barrier for new investment. You'll know of the Google deal from a couple of weeks ago where Google invested $ 13 billion in a cooperation with Fortum, the Finnish utility, the biggest ever investment made. What the hyposcalers are after is reliable, immediate access to power and clean power if possible. And if they can get that, the price matters less. Building a resilient system is not a barrier. for investment. On the contrary, it is a precondition. And I think right now, what we're seeing in the next probably 12 to 18 months, I believe we'll see a new wave of data center projects emerge in Europe as the hyperscalers are meeting increased resistance in the US. They will look towards the European market for additional build-out.
00:19:16
Speaker 2: Beyond the cost side, there's another challenge that Europe and the US continue to face, which is just the inability to build what is needed. You need to build more solar, more wind, more transmission, more batteries. But you also need to be able to build data centers and EV charging network. And all of that comes with challenges to convince people that this is infrastructure that would be in their benefit. Are there places in Europe where the sort of permitting issues the building and the pace at which things can be built have been overcome that others can learn from?
00:19:55
Speaker 1: Yeah, I think there are those examples. And I think it's important to say that if the urgency is there, we can do things very fast. If you take a step back and look at what happened in the immediate wake of the invasion of Ukraine, Germany was able to mobilize and build an LNG terminal, I think, within six months.
00:20:14
Speaker 2: And, you know.
00:20:15
Speaker 1: Normally, we would think of this as an infrastructure project for six years, if not 10. So it is possible if we essentially take the situation that we're in sufficiently seriously. I think it's well known that Europe has sort of tied itself up way too much in red tape. And we are on a sort of multi-year mission to try to sort of simplify this, make it easier, make permitting flow more freely and make it happen faster.
00:20:42
Speaker 2: And we shouldn't forget, even though these recent wars and this move has caused people to turned toward more electric devices, that in general, the demand profile for Europe on electricity has been A, one of decline for a few decades. And now, if there is an increase, it's a tepid increase in demand. There's a ton of electrification that needs to happen on the demand side, be that transport, be that heating, which is the greatest source of consumption. of energy and thus emissions of energy because natural gas tends to be the fuel for heating. Are there places in Europe where the demand equation has been managed well and is showing the benefits that an increased demand profile can provide?
00:21:36
Speaker 1: Well, first of all, I would agree with you that the big challenge we have now is to align the rhetoric and our ambitions for electrification with the reality. It's really crucial now that the reality follows suit and that we take decisive steps immediate steps to replace fossil fuels and end uses with clean electricity. That needs to happen as a matter of urgency, as a matter of our security, and also as a matter of our green ambitions. So are there examples of countries where it is happening on the ground? Well, my own country, Denmark, noted a 1.5% increase in the use of electricity last year. I think it is going slow and slower than I would want it to go. But I think there's a number of underlying reasons here as well. First of all, we are experiencing economic challenges in Europe. And we've seen as a consequence of the energy crisis of 2022, a significant reduction in the output of certain industries. Not all industries, but some of the most energy intensive industries have scaled down significantly, mostly chemicals and steel. The second thing is that as an indicator, electrification understood as gradual increases in the share of electricity of total final energy consumption, it is a slow indicator because what we're doing is we are replacing fossil fuels that have an enormous waste footprint. with something that is much more efficient. And for that to happen, the steps will go relatively slow. The next big things that need to happen are essentially, in my view, in industry, where Brussels can truly do something is on industry, help industries electrify, get rid of fossil fuels, help them with the investment, help them with the operations, de-risk that transition, because any businessman will say, Well, it's all good and great with green ambitions, but what about my product? Electrification is just for me a way of producing something. What about prices? What about execution? What about grid access? What about my risk, my return on investment? All those questions need to be answered for the businessman to make that decision. And I think that we can craft tools at European level that will make it much more attractive as we have, for instance, in transport where the transition is happening.
00:24:11
Speaker 2: The European heating challenge continues to be a problem because of its dependence on natural gas. We have seen some countries that have succeeded in a good rollout of heat pumps. France is an example, Italy, Poland. Are there lessons from those places that other countries should be deploying?
00:24:31
Speaker 1: I think we should first off distinguish between the utility scale heat pumps and the heat pumps for individual homes. If we look at the individual homes, the success in deploying heat pumps is often tied to the incentives, attractive schemes of replacing your fossil boiler or whatever it is you have, your legacy system with a new electric heat pump. If you pay people to do that exercise, they're likely to respond to that. Another key challenge in the private segment is about the hassle of having it installed, frankly. There, I think we're seeing a improvements. We are seeing installers get more used to this equipment, and we're also seeing offerings from companies that really sort of involve making this a smooth transition for the individual household. If we look on the industrial side, I think it's a different equation altogether because it's really about business risk. It's about investments. It's about big equipment and making sure that that's profitable afterwards. What we're seeing in that space right now is that in the lower heat segments, there's a real big business case, whereas in the higher heat segments, extreme heat above 1,000 degrees or even 500 actually, the economics are more challenging. But we are beginning to see changes in low and medium temperature industries, which is very positive. And then if we look at sort of the public domain side of this story, decarbonization of big district heating systems, for instance, as in Vienna. Well, we're beginning to see some very, very interesting things where... For instance, water cleaning facilities are being equipped with industrial scale heat pumps to essentially power district heating systems for big cities like Vienna.
00:26:25
Speaker 2: Now, over the next 12 months, we are going to see a series of elections in large European economies. Spain, Italy, France, Poland... where a lot of these places are likely to see a rightward turn. And this rightward turn isn't just about immigration anymore, but also about using the green transition as a wedge to try and stoke fears around affordability and sort of populist message that really lands with people now. So if that happens, if we do get that right-wing turn and climate policies are undone at a national level by these new far-right parties, how exactly can industry manage investments in such an environment?
00:27:12
Speaker 1: Well, I think you're pointing to something very important, first of all. We, as an industry... in electricity, but also in all other sectors, need political stability to make the right decisions. And we cannot work with roller coaster policies. When we look at the wave of elections that is coming, we need to make sure that we get the arguments right, and we need to avoid that energy policy and climate policy is being weaponized and unduly politicized. Some of the warning signals I pick up are from AFD in Germany that say, well, let's go back to gas, let's drop any support for Ukraine, and that's the solution for German industry. Frankly, I just struggle to accept the logic of that argument. I cannot see how giving in to an aggressor that does not seem to in any way respect national borders can be in the interest of European countries. We have to stand by the rule-based international order as we know it and defend our territory. And that inevitably comes with some energy policy consequences as We need to come back to the realities and the fundamentals of the situation we are in. It is our dependence on foreign fossil fuels that is creating the vast bulk of the problems we're facing. Actually, as we see in several countries, the combination of clean and reliable electricity is something that foreign investors are very interested in. In terms of, let's say, what might be coming and how this could change, right now at EU level, I see an effort to try to get crucial deals done before potential major shifts might happen. That goes for the ETS, so the Emissions Trading Scheme. It goes for the multi-annual financial frameworks, the seven-year budget of the EU. And I would expect that there would be a... targeted effort this side of Christmas to find a overarching compromise in which all countries would be dissatisfied or equally dissatisfied so that these major deals are done before big countries might have a shift of power where there is a deliberate interest of the new governors to essentially challenge the EU policy in this area.
00:29:50
Speaker 2: Is that the case that the European project, which tends to have superseding effect over national policies in many cases, energy and climate policy being one of them, can then in a way slow down the resistance that might come at a regional level against these policies? Are there places that we've seen that play out already?
00:30:14
Speaker 1: That's definitely the case. If we just take an example of the Green Deal that was negotiated in the last mandate of the European Commission, the last political cycle, there's been a lot of discussions about one and the other target. But if we look at the bulk of that policy, it remains in place. We've seen flexibilities, and in my view, in some cases, meaningful flexibilities being introduced in relation to parts of this legislative complex, but the direction is set and we need that kind of stability, the outlook in order to make investments over the next 40 years. And frankly, you know, if you look at some of the countries where you have had right wing governments come in, say, Milan is Italy, I personally see sort of pragmatism effect kick in once you sort of enter the government offices and you have on your daily calendar to meet people in Brussels, do business with them, strike deals and come into the sort of nuts and bolts of making money political results on a day-to-day basis, well, you're forced to sort of look at what can be done. And once, as you say, the directives are in place, it takes a major decision to change them. And for Milonis Italy, I do think that we've seen a pragmatism and a willingness to play ball, also to frankly then make results for herself and get some achievements, but also in return, respect the broader set of priorities and the overarching direction that's been set by the countries collectively.
00:32:00
Speaker 2: It's going to be a complex challenge for Europe to pull off an electrification target that it's set for itself, that it is going to agree at COP 31. And that will have to be done in a time of geopolitical fragmentation and affordability crisis and a security crisis that the continent hasn't faced in a century. So you've got your hands busy and we'll keep on the updates that Euroelectric puts out about how the industry is going to manage this immense challenge. Thank you, Christian.
00:32:31
Speaker 1: Pleasure.
00:32:36
Speaker 2: And thank you for listening to Xero. Now for the sound of the week. That is the sound of the first Amazon delivery drone delivering packages in the UK. The company hopes to roll out these drones in many countries, but has already faced backlash to the noise that the drones create. If you liked this episode, please take a moment to rate and review the show on Apple Podcasts, YouTube and Spotify. This episode was produced by Oscar Boyd. Special thanks to Lily Pike, Somersadi and Alyssa McDonald. I'm Akshat Rati, back soon.
Speaker 1: Bloomberg Audio Studios, podcasts, radio, news.
00:00:08
Speaker 2: Europe has been in a state of permanent crisis ever since Russia's full invasion of Ukraine in 2022. The continent, home to more than 500 million people, is suffering from high energy prices and a declining industrial sector, while a hostile power is knocking on its door.
00:00:27
Speaker 1: So what's the way out?
00:00:29
Speaker 2: My guest today is Christian Ruby, the Secretary General of Euroelectric, the trade association of the European electricity industry, representing more than 3,500 utilities in 32 countries. To him, electrification is the solution to the crises Europe faces. He believes cheap, homegrown renewable energy will restore European sovereignty, lower prices and deliver on climate ambition. This is Zero.
00:00:58
Speaker 1: I am Akshat Rati.
00:00:59
Speaker 2: And this week, why electrification is the answer to Europe's malaise. Christian, welcome to Zero.
00:01:12
Speaker 1: Thank you very much.
00:01:13
Speaker 2: So you are running Euroelectric. Tell us what it does and perhaps give us some of your biggest success stories.
00:01:21
Speaker 1: Euroelectric is the trade association of the European electricity industry. That means that we speak for the industry at large across Europe. We have national associations in all member states, as well as Norway, Switzerland, and the UK. And we talk to policymakers to make sure that the frameworks are right. And, well, for the big success stories, I would say, I mean, if you were to choose one, I think that today we are really at a point where in Europe, We have sort of brought the fact home that electricity is the solution for our green aspirations as well as our security equation. I think that's a very, very big step. What now stands out is to fix the affordability and the competitiveness issues and make sure that transitioning to electricity for industries as well as consumers becomes a success story also financially.
00:02:18
Speaker 2: Well, we'll talk about those issues almost immediately because we are going into a European winter where almost all countries are panicking that, you know, the sort of energy price increase from the Iran war hasn't quite been felt over the summer, but it will really be felt over the winter. What do you think governments can do, not in the short term, because we're already seeing them trying to subsidize bills right now, but in the medium term, where they can deal with the increase in electricity prices during winters?
00:02:54
Speaker 1: Well, first of all, I think the recent European Council of last week was an important moment where on the one hand, we saw a level of very serious concern, but we also saw a European Council that did not panic. And that was a very positive, let's say, outcome. In broader terms, I think We're living in a world and a time where there is plenty of reasons to be concerned over where things are going. And I think it's really important to recall that the crisis we're seeing in energy markets is... a product of a broader geopolitical crisis that has been spurred by Vladimir Putin, by Donald Trump and the wars they have started. Now, how do we deal with that in terms of energy markets, electricity, affordability in the near term and in the medium term, if you will? I think if we look at the near term, we need to sort of brace ourselves for a difficult winter. And we need to make sure that we sort of stay the course, avoid political panic and allow for a few handheld solutions, frankly. What I mean by handheld solutions is targeted, temporary state aid measures that basically bail out groups that are feeling the pressure the most. It doesn't make sense for us to close down industries and make valuable industries go bust just because we have an externally induced crisis. It doesn't make sense for us to allow families that are struggling to struggle even more. So let's focus on those handheld solutions while keeping the main elements of the structures we've built in place. In the near term, that's our focus. In the medium term, I think there's a lot of good news coming our way. As I said, Europe has finally sort of gotten the memo that electricity is our way of insulating our economies against these roller coaster prices of fossil fuels, against the wars in geographies that we don't control. So if we double down on electrification, making our car fleets electric, making our homes electric, also on the heating side, making our industries increasingly electric, we are going to see a more insulated economy and we're going to see relief coming that way. It's about modernizing the system, it's about introducing new sources of flexibility, and it's about continuing the push for more decarbonized power. We saw that in numbers in the summer.
00:05:37
Speaker 2: Gas prices increased by 80 or 90 percent, but power prices only increased by 20 to 30 percent. And that resilience is something that governments will take very seriously. However, if you take a more general point of view, a little more longer term point of view, European electricity prices relative to other industrial bases like the US, like India or like China are much, much higher and are projected to remain much higher. So, yes, electrification might be a resilient solution, but what about the affordability of it? And how about then keeping industry competitive in that environment?
00:06:19
Speaker 1: Yeah, I think you're right. And I think we need to sort of zero in a bit on what are the causes of these price divergences. If you look at the US, they have a resource endowment with loads of very, very cheap gas. And also, they don't... at this moment in time, want to sort of face the climate challenge and therefore do not have policies in place that price carbon. If we look at Europe, I think we're seeing a slightly more diverse picture than we often sort of discuss or what we see in the public debate. If we look at continental Europe where gas sets the price, we have very high prices indeed. If we look, however, to the Nordics, to Spain, or to France, most of the time we have much more acceptable and frankly quite low levels of electricity prices. Take Finland, throughout this year they've averaged wholesale power prices below 40 euros. That's quite remarkable at a situation where the TTF, the gas prices are well above 70 and today above 80. When you have the right mix, a fortunate mix of firm power, clean power, reliable power and renewables, you are going to see a completely different price level in your electricity market. And I think that's really what we need to be opting for. Same story in France and, by the way, in Spain.
00:07:52
Speaker 2: Right. And that firm power, a lot of it is nuclear for especially France and Finland. In Spain, though, variable power has been the biggest contributor in lowering prices, mainly because of the solar deployment that has happened. If you look at solar Europe-wide, it seems like a boon, especially in the summer when we are getting more and more extreme heat waves and solar kicks in just at the right time to provide cooling solutions. But it's also causing a weird problem of too much power, the kind of abundance which is Maybe it doesn't seem like a problem, but when it causes electricity prices to go negative, that is a problem, right?
00:08:35
Speaker 1: I would say as someone who believes in markets that a negative price is not necessarily a bad thing. And if, again, we come back to the example from Finland, consistent periods of very low prices combined with negative prices has actually spurred a very large build-out of electric boilers. They now have three gigawatts of electric boilers that essentially provide for clean and very affordable heat for the citizens in a quite cold geography. So negative prices are not per se the problem I do think, however, that we will be seeing challenges with dealing with those enormous amounts of solar that we are adding to the system, in part because they are a legacy technology in the sense in the way they're interacting with the grid. And also because when you have a lot of electricity coming to the grid at high relatively sort of unpredictable moments, that actually poses quite a significant challenge for the system operator. So we are now entering a stage of the energy transition where we can cash in all the benefits of all those installations, but where the next set of challenges is quite different than the one we've been facing before. So the solar that we've added is great news for the green transition. ultimately also for prices. Now we need to deal with the challenges that this quite variable source of electricity provides.
00:10:10
Speaker 2: So we are seeing some countries like Australia, for example, that is essentially been on the forefront of the solar deployment for quite some time now. Turn to batteries as the solution to the problem. And already within the past 18 months, we've seen a battery rollout that has led to average electricity prices declining. In Europe, batteries have been deployed, but nowhere near the scale they are required, nowhere near the sort of gap that a lot of industry players are pointing out to. What's held back Europe from being able to really take advantage of now cheap batteries that are available in the global market?
00:10:50
Speaker 1: It's a good question. Why is it not going even faster when you see other geographies where it's really happening at high pace? I do think that we are seeing significant changes in the European market. I would say that the big shift we're seeing in investments is one transitioning from renewables towards storage, batteries, but also to co-located projects, hybrid projects. That said, I think essentially the business model around batteries is one that works on spreads. So it works on volatility and it's also a matter of whether other technologies are available to essentially handle this. I think a further barrier that we're seeing in Europe is that we have immature markets or non-existing markets for ancillary services. For example, a fast frequency response, which is one of those services that a battery can provide and also help create a business model by value stacking for the operator of the battery. So there are some frameworks that need to come in place. We also advocate an actual storage strategy. The European Commission is beginning to look into flexibility assessments for each member state, non-fossil flexibility to get away from fossil fuels as the flexibility technology and over to batteries, pumped hydro and other types of storage. So there's a number of regulatory things that we need to look into. But then I also think that we will see this come. The last thing that gets a lot of political attention in Europe on this is sovereignty. We are transitioning away from the peaceful world of globalization where you want it to trade freely and we are entering a much more complicated geopolitical environment where weaponization of supply chains is a real thing, choke points, and where you need to make sure that what you add to the system is de-risked and is safe so that foreign powers cannot all of a sudden shut down your system or manipulate how the system is working. Unfortunately, we are seeing this not with specific battery installations in Europe for the moment, but I think we all heard of the story of supermarkets that all of a sudden were manipulated to have much higher degrees in their freezers and destroying food. So evil intent directed towards our critical infrastructure systems is a real thing that we need to be keenly aware of in this new era.
00:13:20
Speaker 2: Can you tell me a little more about the supermarket example and who are the actors involved? What exactly happened?
00:13:25
Speaker 1: So this is a story from France where a group of hackers, I'm not aware that their origin has been disclosed, managed to break into the temperature regulating system of Danfoss, who runs the freezers for a big supermarket chain. Hackers were able to enter into this system and manipulate temperature to go up to 50 degrees, after which all the frozen goods were destroyed. And that's just one example of the new set of risks that we are dealing with as Europe has entered into this. escalated hybrid war scenario that we are in.
00:14:04
Speaker 2: Well, I want to talk about resilience and maybe we start with the sort of cyber attack or even physical attacks as Ukraine has been dealing with a lot of attacks on their energy assets, on power plants. What can Europe do to manage those? Because those are now becoming more and more frequent and it really doesn't matter how far you might be from your enemy anymore.
00:14:28
Speaker 1: Indeed. I traveled to Ukraine, as a matter of fact, back in the beginning of 2025 and visited a power plant that had been hit more than 13 times by direct sort of missiles or drone attacks. So there's a real sort of kinetic reality with sort of military attacks on utility assets. And unfortunately, we are seeing sabotage, kinetic attacks on infrastructure beyond Ukraine as well. Our assessment is that we are not yet there where we need to sort of prepare for a full sort of Ukraine scenario, but we need to learn from them when it comes to the way we deal with this type of attacks, the way we prepare for them, the way we respond and the way we rebuild. We are currently in the sector in a situation where there's a completely different mindset emerging around preparedness, around risk assessment, around security. And the whole equation around security, which used to be a little bit of a sort of sideshow to greening the system, is now becoming very, very central for all operators because the threat landscape has become much more complex, much more immediate and urgent. The way we think of it in big terms is in terms of kinetic attacks, which is now something that everybody needs to deal with. It is cyber attacks. It is supply chain. It is also very much readiness for extreme weather, which continues to be the leading, if you will, source of economic impact on our system. So in essence, it's really a much broader equation that we need to deal with. And from a political point of view, we need an updated security strategy, which we are expecting from Europe very soon. one that puts electricity at the center of the new energy system and essentially defines the way we need to operate such a system and make it ready and resilient for a much more complex future.
00:16:39
Speaker 2: After the break, more of my conversation with Christian Ruby, the Secretary General of Your Electric. If you're enjoying this episode, please take a moment to rate and review Xero on whichever platform you're listening on. expensive electricity especially when you want to put electricity at the heart of the european energy market means it's a problem for europe because you're not able to attract industry or keep industry open you're not able to attract data centers and artificial intelligence players to come in and people are worried about what they will have to pay if they move even now to an electric car eventually, even if it's cheap today, given where oil and gas prices are. So what are the top solutions that you can do then to manage all this additional cost that's going to come from investing in resilience?
00:17:38
Speaker 1: First of all, I wouldn't sort of overstate the additional cost. I think these are the type of costs that you cannot afford not to have. You will want to have reliable power. That is a critical precondition for an electrified society. And I think what we need to do is really to stack it up against the alternative, which is continued dependence on supplies of fossil fuels from the outside that we have no control over and which frankly looks more and more difficult in the near and medium term. So we need to reinforce our system. And again, you know, coming back to the example of Finland, which is really interesting here, they are doing many of these things. They are essentially building system level two protections. That means concrete barriers, protections around transformers, drone nets, etc.
00:18:25
Speaker 2: etc.
00:18:27
Speaker 1: And it's not a barrier for new investment. You'll know of the Google deal from a couple of weeks ago where Google invested $ 13 billion in a cooperation with Fortum, the Finnish utility, the biggest ever investment made. What the hyposcalers are after is reliable, immediate access to power and clean power if possible. And if they can get that, the price matters less. Building a resilient system is not a barrier. for investment. On the contrary, it is a precondition. And I think right now, what we're seeing in the next probably 12 to 18 months, I believe we'll see a new wave of data center projects emerge in Europe as the hyperscalers are meeting increased resistance in the US. They will look towards the European market for additional build-out.
00:19:16
Speaker 2: Beyond the cost side, there's another challenge that Europe and the US continue to face, which is just the inability to build what is needed. You need to build more solar, more wind, more transmission, more batteries. But you also need to be able to build data centers and EV charging network. And all of that comes with challenges to convince people that this is infrastructure that would be in their benefit. Are there places in Europe where the sort of permitting issues the building and the pace at which things can be built have been overcome that others can learn from?
00:19:55
Speaker 1: Yeah, I think there are those examples. And I think it's important to say that if the urgency is there, we can do things very fast. If you take a step back and look at what happened in the immediate wake of the invasion of Ukraine, Germany was able to mobilize and build an LNG terminal, I think, within six months.
00:20:14
Speaker 2: And, you know.
00:20:15
Speaker 1: Normally, we would think of this as an infrastructure project for six years, if not 10. So it is possible if we essentially take the situation that we're in sufficiently seriously. I think it's well known that Europe has sort of tied itself up way too much in red tape. And we are on a sort of multi-year mission to try to sort of simplify this, make it easier, make permitting flow more freely and make it happen faster.
00:20:42
Speaker 2: And we shouldn't forget, even though these recent wars and this move has caused people to turned toward more electric devices, that in general, the demand profile for Europe on electricity has been A, one of decline for a few decades. And now, if there is an increase, it's a tepid increase in demand. There's a ton of electrification that needs to happen on the demand side, be that transport, be that heating, which is the greatest source of consumption. of energy and thus emissions of energy because natural gas tends to be the fuel for heating. Are there places in Europe where the demand equation has been managed well and is showing the benefits that an increased demand profile can provide?
00:21:36
Speaker 1: Well, first of all, I would agree with you that the big challenge we have now is to align the rhetoric and our ambitions for electrification with the reality. It's really crucial now that the reality follows suit and that we take decisive steps immediate steps to replace fossil fuels and end uses with clean electricity. That needs to happen as a matter of urgency, as a matter of our security, and also as a matter of our green ambitions. So are there examples of countries where it is happening on the ground? Well, my own country, Denmark, noted a 1.5% increase in the use of electricity last year. I think it is going slow and slower than I would want it to go. But I think there's a number of underlying reasons here as well. First of all, we are experiencing economic challenges in Europe. And we've seen as a consequence of the energy crisis of 2022, a significant reduction in the output of certain industries. Not all industries, but some of the most energy intensive industries have scaled down significantly, mostly chemicals and steel. The second thing is that as an indicator, electrification understood as gradual increases in the share of electricity of total final energy consumption, it is a slow indicator because what we're doing is we are replacing fossil fuels that have an enormous waste footprint. with something that is much more efficient. And for that to happen, the steps will go relatively slow. The next big things that need to happen are essentially, in my view, in industry, where Brussels can truly do something is on industry, help industries electrify, get rid of fossil fuels, help them with the investment, help them with the operations, de-risk that transition, because any businessman will say, Well, it's all good and great with green ambitions, but what about my product? Electrification is just for me a way of producing something. What about prices? What about execution? What about grid access? What about my risk, my return on investment? All those questions need to be answered for the businessman to make that decision. And I think that we can craft tools at European level that will make it much more attractive as we have, for instance, in transport where the transition is happening.
00:24:11
Speaker 2: The European heating challenge continues to be a problem because of its dependence on natural gas. We have seen some countries that have succeeded in a good rollout of heat pumps. France is an example, Italy, Poland. Are there lessons from those places that other countries should be deploying?
00:24:31
Speaker 1: I think we should first off distinguish between the utility scale heat pumps and the heat pumps for individual homes. If we look at the individual homes, the success in deploying heat pumps is often tied to the incentives, attractive schemes of replacing your fossil boiler or whatever it is you have, your legacy system with a new electric heat pump. If you pay people to do that exercise, they're likely to respond to that. Another key challenge in the private segment is about the hassle of having it installed, frankly. There, I think we're seeing a improvements. We are seeing installers get more used to this equipment, and we're also seeing offerings from companies that really sort of involve making this a smooth transition for the individual household. If we look on the industrial side, I think it's a different equation altogether because it's really about business risk. It's about investments. It's about big equipment and making sure that that's profitable afterwards. What we're seeing in that space right now is that in the lower heat segments, there's a real big business case, whereas in the higher heat segments, extreme heat above 1,000 degrees or even 500 actually, the economics are more challenging. But we are beginning to see changes in low and medium temperature industries, which is very positive. And then if we look at sort of the public domain side of this story, decarbonization of big district heating systems, for instance, as in Vienna. Well, we're beginning to see some very, very interesting things where... For instance, water cleaning facilities are being equipped with industrial scale heat pumps to essentially power district heating systems for big cities like Vienna.
00:26:25
Speaker 2: Now, over the next 12 months, we are going to see a series of elections in large European economies. Spain, Italy, France, Poland... where a lot of these places are likely to see a rightward turn. And this rightward turn isn't just about immigration anymore, but also about using the green transition as a wedge to try and stoke fears around affordability and sort of populist message that really lands with people now. So if that happens, if we do get that right-wing turn and climate policies are undone at a national level by these new far-right parties, how exactly can industry manage investments in such an environment?
00:27:12
Speaker 1: Well, I think you're pointing to something very important, first of all. We, as an industry... in electricity, but also in all other sectors, need political stability to make the right decisions. And we cannot work with roller coaster policies. When we look at the wave of elections that is coming, we need to make sure that we get the arguments right, and we need to avoid that energy policy and climate policy is being weaponized and unduly politicized. Some of the warning signals I pick up are from AFD in Germany that say, well, let's go back to gas, let's drop any support for Ukraine, and that's the solution for German industry. Frankly, I just struggle to accept the logic of that argument. I cannot see how giving in to an aggressor that does not seem to in any way respect national borders can be in the interest of European countries. We have to stand by the rule-based international order as we know it and defend our territory. And that inevitably comes with some energy policy consequences as We need to come back to the realities and the fundamentals of the situation we are in. It is our dependence on foreign fossil fuels that is creating the vast bulk of the problems we're facing. Actually, as we see in several countries, the combination of clean and reliable electricity is something that foreign investors are very interested in. In terms of, let's say, what might be coming and how this could change, right now at EU level, I see an effort to try to get crucial deals done before potential major shifts might happen. That goes for the ETS, so the Emissions Trading Scheme. It goes for the multi-annual financial frameworks, the seven-year budget of the EU. And I would expect that there would be a... targeted effort this side of Christmas to find a overarching compromise in which all countries would be dissatisfied or equally dissatisfied so that these major deals are done before big countries might have a shift of power where there is a deliberate interest of the new governors to essentially challenge the EU policy in this area.
00:29:50
Speaker 2: Is that the case that the European project, which tends to have superseding effect over national policies in many cases, energy and climate policy being one of them, can then in a way slow down the resistance that might come at a regional level against these policies? Are there places that we've seen that play out already?
00:30:14
Speaker 1: That's definitely the case. If we just take an example of the Green Deal that was negotiated in the last mandate of the European Commission, the last political cycle, there's been a lot of discussions about one and the other target. But if we look at the bulk of that policy, it remains in place. We've seen flexibilities, and in my view, in some cases, meaningful flexibilities being introduced in relation to parts of this legislative complex, but the direction is set and we need that kind of stability, the outlook in order to make investments over the next 40 years. And frankly, you know, if you look at some of the countries where you have had right wing governments come in, say, Milan is Italy, I personally see sort of pragmatism effect kick in once you sort of enter the government offices and you have on your daily calendar to meet people in Brussels, do business with them, strike deals and come into the sort of nuts and bolts of making money political results on a day-to-day basis, well, you're forced to sort of look at what can be done. And once, as you say, the directives are in place, it takes a major decision to change them. And for Milonis Italy, I do think that we've seen a pragmatism and a willingness to play ball, also to frankly then make results for herself and get some achievements, but also in return, respect the broader set of priorities and the overarching direction that's been set by the countries collectively.
00:32:00
Speaker 2: It's going to be a complex challenge for Europe to pull off an electrification target that it's set for itself, that it is going to agree at COP 31. And that will have to be done in a time of geopolitical fragmentation and affordability crisis and a security crisis that the continent hasn't faced in a century. So you've got your hands busy and we'll keep on the updates that Euroelectric puts out about how the industry is going to manage this immense challenge. Thank you, Christian.
00:32:31
Speaker 1: Pleasure.
00:32:36
Speaker 2: And thank you for listening to Xero. Now for the sound of the week. That is the sound of the first Amazon delivery drone delivering packages in the UK. The company hopes to roll out these drones in many countries, but has already faced backlash to the noise that the drones create. If you liked this episode, please take a moment to rate and review the show on Apple Podcasts, YouTube and Spotify. This episode was produced by Oscar Boyd. Special thanks to Lily Pike, Somersadi and Alyssa McDonald. I'm Akshat Rati, back soon.
