Bensheim (energate) - "The energy sector in the gas price crisis" - this is the title of this year's interview summer series at energate. The series kicks off with an interview with Carsten Hoffmann, CEO of the southern Hessian utility GGEW.
energate: Mr Hoffmann, in the energy crisis most energy suppliers are concentrating on their existing customers and refraining from acquisition. When did you make this difficult decision?
Hoffmann: From the moment it was clear that the risk was no longer justifiable for a municipal company. In the meantime, the spot market prices were four times higher than the prices on the futures market. It was simply too risky to take quantities onto the books in these times whose procurement prices were not clearly foreseeable. After all, the existing customers in our own network also want to be served. There is a certain regional responsibility on our shoulders here.
energate: Are you still getting sufficient quantities for procurement and do you fear liquidity problems due to the high prices?
Hoffmann: Of course it is anything but easy. But there are possibilities and it's up to us to collect what the market has to offer, which means that energy purchasing is becoming more small-scale. We don't see any liquidity problems at the moment, but of course I have to sharpen my pencil even more than before. A lot of liquidity is flowing out via the high spot market prices - money that only comes back at the end of the year. So the demands on liquidity management are definitely higher today than they were a few years ago.
energate: Do your municipal shareholders understand this?
Hoffmann: So far we have come through the crisis in good shape and we will even show an increase in earnings in the balance sheet for 2021 compared to the previous year. As long as we continue to reliably distribute our dividends, the support of the municipal shareholders is given. I assume that we can continue to achieve this this year.
energate: The price adjustment rounds of the utilities are picking up speed. By how many cents do you have to increase, how do you deal with this in customer communication?
Hoffmann: How long a supplier can delay the price increase depends on how many years in advance the energy was procured. However, by 2023 at the latest, prices will have to go up for everyone and that gives me a headache. Energy prices have a very high social explosive force because they are passed on to the prices of goods. Despite our serious and long-term procurement strategy, price adjustments are unfortunately unavoidable for us as well. In addition, a sharp increase in bad debts will burden the annual financial statements of the energy suppliers.
energate: What have you learned from the crisis?
Hoffmann: We will continue to intensify our efforts to diversify our product portfolio. Because at some point the risks of fossil-driven spot trading become incalculable. Power purchase agreements, i.e. direct marketing between renewable energy plants and customers, will gain momentum - also in our corporate strategy. This will be the key to bringing electricity prices down again in the long term. However, this requires an enormous expansion of renewable energy. And we're not even talking about hydrogen yet, but only about replacing fossil energies with renewable ones.
energate: Could the impasse over the wind farm project in Gahrenberg near the airport in northern Hesse, which has already been halved, be resolved thanks to the crisis?
Hoffman: Under the guideline that renewable energies are in the overriding public interest and serve public safety, we are confident that we will find a solution for the wind farm mentioned. The framework conditions have improved substantially for this. In addition, we assume that building regulations will be changed in such a way that individual building projects will be facilitated again. Until then, we are pushing our efforts into renewable energies with less conflict potential, such as photovoltaic plants. Here, too, land acquisition is not a foregone conclusion. But we are optimistic that we will be able to build at least two more large-scale plants.
energate: Is the solar lease becoming more attractive again for end customers in the current situation?
Hoffmann: It's selling like hot cakes. We can hardly keep up with the material and installations. However, we are currently observing a trend away from leasing towards selling. Of course, we prefer leasing because we enter into a longer-term relationship with the customer and the volume appears in the books.
energate: The first utilities are launching products for heat pump contracting. Is that something you are also planning?
Hoffmann: Yes, that will come. And of course we are still marketing gas heating systems as long as we can. From 2024 onwards, the topic will be dead, as soon as "if possible" only heating systems with a 65-per cent share of renewables may be installed.
energate: State Secretary Patrick Graichen has started a debate about the dismantling of gas distribution networks...
Hoffmann: The debate must be conducted more sensitively and with tact. Basically, it is an attack on municipal assets, so there must be an orderly transition. When he talks about a paradigm shift, like with the nuclear phase-out, we have to see if the government can accommodate the utilities. Nevertheless, we municipal utilities have to look for alternatives. Not only in terms of heat, but also in terms of earnings. Because we are losing a large margin contributor over time. We hope to replace part of it with the construction of the fibre optic network. However, this will require investments at the beginning. We expect to break even in three to four years at the earliest.
energate: The alternative of a district heating network does not exist in your region. How do you deal with old buildings supplied with natural gas?
Hoffmann: We will need the gas networks longer than some people might think. There are still many bottlenecks to be solved before the heat turnaround is complete. We are discussing this topic together with other municipal utilities in the Trianel network Flexstore. In the end, depending on the location, it will probably be an individual mix of heat pumps, cold local heating and geothermal energy. In new neighbourhoods, I see a tailwind for cold local heating due to the high natural gas prices. When we developed our neighbourhood in Bensheim at that time, the solution was still too expensive and we opted for combined heat and power plants using biogas. To put it in perspective: There are only 15 cold local heating networks in Germany so far. Our sector is still in the research and development stage, so to speak.
energate: At the end, let's take a brief look at the vexed topic of gas shortages. Do you have a shutdown order in place?
Hoffmann: Yes, of course. With a view to the few guidelines of the Federal Network Agency, we have sought advice to find an order that is as objective and non-discriminatory as possible. Of course, there are discussions about system relevance in every sector. Currently, there is still a lot of understanding among customers. It is difficult to estimate how much of this will remain in the event of an emergency. This also has to be examined from a legal point of view in order to find the objectively best solution.
energate: What does all this mean for your staff?
Hoffmann: The burden on the workforce has increased significantly in the wake of the crises - pandemic, Ukraine war and inflation rates. Schedules have become fuller and there is more to do than ever. Internal pressure is mounting to implement strategic issues faster and more efficiently to prepare for the future. It is imperative that we keep an eye on the workload, health and mood of our staff. This is a personal and very important concern for me.
The questions were asked by Michaela Tix.
