As Markus Krebber geared up to take on the top job at RWE, the German energy giant was getting a harsh lesson on the challenges of energy supply in the 21st century.
With temperatures as low as minus 14C gripping Texas in February and households cranking up their heating, gas plants, wind turbines and even a nuclear power facility shut down as pipes and infrastructure froze.
Electricity outages spread, the grid was “seconds away” from an uncontrolled blackout affecting 26m customers, and computers controlling the system went haywire. Regulators intervened to briefly push electricity prices up to $9,000 per megawatt hour to try to encourage extra supplies.
RWE, which had about 80pc of its wind power capacity in Texas knocked out by the storm, had to buy power at that price to fulfil its supply obligations, resulting in a major hit to its bottom line.
“The unfortunate thing in Texas that nobody had foreseen was that the entire conventional infrastructure actually broke down,” says Krebber, 47, who became chief executive in July after nearly five years as finance chief. “We maybe need to factor more extreme weather events in our risk management.”
Extreme events or not, the weather plays an increasingly influential role in the fortunes of the electricity generation giant and its 20,000 employees as it shifts from fossil fuels and nuclear and pushes further into wind and solar power.
Based in Essen and worth almost €22bn (£19bn) on the Frankfurt stock exchange, RWE took on rival E.ON’s renewable operations in 2016 as part of a major asset swap, turning it into Europe’s third-largest renewable power generator.
Krebber finds himself in charge heading into winter at a time of record gas and power prices in much of Europe and the UK amid a gas supply crunch, with businesses forced to curb output and consumers braced for higher bills.
Spain has moved to cap generators’ profits, redirecting money to consumers. The Business Secretary, Kwasi Kwarteng, spent the weekend locked in talks with the energy industry to try to contain the impact.
“It’s a concerning situation because it's something which nobody had foreseen six months ago,” says Krebber. “We had very low gas prices, we had an abundant supply of gas in the last two winters.
“Now, filling levels of all the European gas storage sites, including the UK ones, are far below average. So I can see that we will have maybe a very tight situation in the winter - especially if the winter will be very cold.
“So in the end, the determining factor is the weather for the winter. I can only urge everybody to get prepared. We are doing that – adjusting maintenance cycles of our fleet so that everything will be available in the critical months, and securing gas supply already on a firm basis.”
For many years one of Europe's largest carbon emitters, RWE now plans to slash its direct and indirect carbon emissions to net zero by 2040, and is growing its renewables projects to more than 13 gigawatts by the end of 2022.
Its portfolio of 41 gigawatts now includes 9 gigawatts of global wind and solar power plants, alongside its 14.1 gigawatts of gas-fired projects and remaining few coal and nuclear plants in Germany that are being phased out in line with government policy.
It is investing heavily in the UK, where it generates about 12pc of the country’s electricity via wind and solar farms and gas-fired power stations. RWW is also building the Triton Knoll wind farm off the Lincolnshire coast and Sofia off the north-east coast, with others in the pipeline.
But its evolution is not fast enough for some. Activist fund Enkraft has reportedly bought 500,000 shares and is calling for a split of its German lignite coal business, which it argues is a drag on its value.
Mr Krebber disagrees. “Transformation within a company is always better,” he says. “It also means we can offer workers in the conventional business which we are phasing out over time a clear way into the future business. If you do a sorting exercise into this is good, this is bad, in the end this will hinder transformation.”
He adds that more than 90pc of RWE's investments are in green products and that separating the lignite division would merely see it fall into less responsible hands. “Will it be a listed company under full scrutiny from corporate governance? Definitely not. Is it their interest to transform faster than us? Definitely not.
“And when it comes to value creation - when we started the transformation, our share price was below €10. We are now above €30 within four-and-a-half years. I mean, that's tremendous value creation.”
'Hydrogen requires more investment'
Along with wind and solar power, RWE is taking a major interest in hydrogen, the clean-burning gas being seized on by politicians around the world to replace fossil fuels, particularly in heavy industry and heavy transport.
The company has more than 30 projects, focusing on developing “green" hydrogen made by extracting hydrogen from water using renewable electricity, rather than from natural gas.
Under the Government’s hydrogen strategy, hydrogen producers are in line to be subsidised to ramp up output, with the Government saying hydrogen could meet 20 to 35pc of the UK’s energy demand by 2050.
Krebber welcomes the strategy but says the Government could go further to promote green hydrogen given that alternative production methods are less clean.
“If you really want to go full green, we need green hydrogen in future. And therefore, the only thing which I would recommend is also coming out with clear targets for green hydrogen and electrolyser capacity.”
He believes Europe will ultimately need to import hydrogen in the future, given the competing demands on renewable power supply, potentially from North Africa, the Middle East and elsewhere.
RWE’s trading arm has signed agreements with Australia’s Hydrogen Utility to explore imports of hydrogen to Germany, and with Ukraine’s Naftogaz to explore imports from Ukraine. “We have 250 people working on different parts of the [hydrogen] value chain,” Krebber says.
Yet the UK’s abundant wind supplies give it an edge over other nations in being able to supply clean energy, he believes. That could help businesses who have long complained that energy costs more in Britain than Europe, and are now battling the soaring costs.
“If you are able to deliver to industries green energy at competitive prices, you are very attractive for industrial sites,” he says. “I think the UK has a huge advantage. It is an island with a lot of offshore wind potential and also an excellent infrastructure for importing liquified natural gas, which you could maybe use later for other energy carriers [such as hydrogen].”
Krebber adds: “In discussions with the industry, I always like to distinguish what is the target picture and what is the transformation path.
“When you look at the transformation path, you see all the challenges. But when you look at the target picture and say, let's assume we're going to have green energy supply by 2045 or 2040. Will the average cost of energy be higher than today? No, because the technology is already competitive.”
RWE is trying to expand its renewables business amid intense competition given the pressure on companies to move away from fossil fuels, including Shell and BP who are trying to redefine themselves.
In February, BP and consortium partner EnBW paid £460m a year to lease two 1.5 gigawatt wind projects in the Irish Sea, the highest bidder in the auction round. RWE, by contrast, says it managed to lock in the lowest price.
Last week BP poached the boss of RWE’s renewables division, Anja-Isabel Dotzenrath, to lead the push into renewables at BP. “I like the competition,” says Krebber. “Let’s see where it takes us.”