Cleaning Up: Leadership in an Age of Climate Change

⁠The €65 Billion Plan to Modernise Germany’s Grids | Ep233: Tim Meyerjürgens

Episode Notes

What does it take to future-proof Europe’s electricity grid? How do you finance €65 billion in infrastructure without driving up consumer electricity costs? And can the permitting process be sped up to become fast enough for the energy transition?

This week on Cleaning Up, Michael Liebreich sits down with Tim Meyerjürgens, CEO of TenneT Germany, the country’s largest transmission system operator, to explore the physics and finance behind decarbonising Europe’s power networks.

From billion-euro transmission lines to the domestic and international politics of connecting the North Sea’s vast offshore wind potential with Germany’s industrial heartland, Meyerjürgens offers a rare inside view of one of Europe’s most complex and capital-intensive transitions.

The conversation dives into:

• How TenneT split its Dutch and German operations to attract €9.5 billion in equity from investors like Norges Bank and GIC

• The challenge of accelerating grid buildout from 20-year to 5-year timelines

• The delicate balance between regulation, investment, and public acceptance

• Why building our transmission across Europe is key to energy resilience

This episode was supported by TenneT Germany.

Leadership Circle:

Cleaning Up is supported by the Leadership Circle, and its founding members: Actis, Alcazar Energy, Davidson Kempner, EcoPragma Capital, EDP of Portugal, Eurelectric, the Gilardini Foundation, KKR, National Grid, Octopus Energy, Quadrature Climate Foundation, SDCL and Wärtsilä. For more information on the Leadership Circle, please visit https://www.cleaningup.live.

Discover more:

• TenneT Germany’s website: https://www.tennet.eu/de-en/home

• TenneT Germany successfully concludes syndication of €12 billion revolving credit facility: https://www.tennet.eu/de-en/news/tennet-germany-successfully-concludes-syndication-eu12-billion-revolving-credit-facility

• The £60 Billion Plan To Rewire Britain | Ep227: John Pettigrew: https://www.youtube.com/watch?v=S7Lg1A958aA

• Can Europe Survive the Renewables Transition? Ep201: Nikos Tsafos: https://www.youtube.com/watch?v=dUvKzs82Mi0

Episode Transcription

Tim Meyerjürgens

Every euro that we are investing is reducing at least two euros on the ancillary side, in the long term. Just giving an example: We commissioned two years ago a line in the south of Bremen, Ganderkesee-St. Hü̈lfe, it was called. Just a 60 kilometer line.

Michael Liebreich

Right up in the north?

In the northwest of Germany. And from there, where we have a lot of wind to the south, a 60 kilometer AC line, rather small. The investment of this line was roughly 1 billion euro. It saved, in the first year of operation, 500 million of redispatch costs. So after two years, it's completely paid, and then it's bringing benefits to the customer.

How long does it take from the moment where you say: Do you know what? We just need to build a new line, through to actually pulling the switch and the first electrons to flow. What is the time frame in reality between those two events?

If I come back to the example that I mentioned before, Ganderkesee. This was one of the very first lines that we built for the energy transition. This took 20 years,

20 years?

20 years. And 17 of those were permitting and licensing.

Hello, I'm Michael Liebreich, and this is Cleaning Up. A few weeks ago for episode 227, I spoke with John Pettigrew, the outgoing CEO of the UK's National Grid, about the pressures being put on the transmission system by the UK's rapid exit from coal and dash for renewables. This week, we move to continental Europe to hear about how those same pressures are playing out and about the huge capital requirement that they drive. I'm here in Berlin as the guest of TenneT Germany, the largest of Germany's four transmission system operators, and this episode has been supported by them. So please welcome Tim Meyerjürgens, the CEO of TenneT Germany, to Cleaning Up.

Tim, thank you very much for joining us here on Cleaning Up today.

Thank you very much for the invite.

Let's start where we always start, which is in your own words, who are you, and what does TenneT do — or TenneT Germany — but obviously the condensed version.

So my name is Tim Meyerjürgens. I'm the CEO of TenneT Germany. TenneT Germany is one out of four German transmission system operators. So we are operating large transmission lines for the electricity grid in Germany. We are part of the TenneT group. TenneT is also a transmission system operator in the Netherlands, and we have been the first-cross border TSO in Europe. And we have an immense investment program in front of us, and that was the reason why we split the company at the beginning of the year into two national ones, so TenneT Netherlands and TenneT Germany, in order to get investors on board to fund our long term investments.

Now I'm going to start by enforcing one of our rules, which is the acronym klaxon. And you used an acronym there, which is TSO, and TSO is…

Transmission System Operator.

Very good. And so we had John Pettigrew of National Grid in one of our recent episodes. And I believe you listened to that, but you must know John very well. And of course, he's the grid operator. And then you have the transmission. You have in the UK, NESO (National Energy System Operator) . So which bit are you? Are you the grid operator, managing the wires, or are you deciding what goes into the wires?

We are both. So similarly, like National Grid, in the past, we have combined the asset operator that is building and maintaining the grid with the system operator that is then operating the grid.

The reason I ask these questions is our audience, they're all experts in what they do, but not all of them are expert in either the grid or certainly in the way that those responsibilities get split. And presumably within TenneT Germany, you have the same functions, but they are within one organization rather than being split, correct?

And also differently than National Grid. We don't operate distribution grids, so we are a purely system operator on the transmission side.

Tell us geographically what you cover, because that's also very different from a lot of countries, maybe even most countries. You've got four TSOs in Germany, so you're one of four, whereas National Grid is one of one in the UK. The US, of course, has got a very different structure in its electricity markets. But what's your geographic coverage? And is it a monopoly within that area?

Yeah, indeed. So in Europe, usually you have, per country, one TSO. That’s the normal model, but Germany is the largest electricity market in Europe. And therefore we have a different scale. And also due to historical reasons, we have grown with four transmission system operators, and we all have a natural monopoly in our control area.

Historical reasons… That would be 50 hertz coming from the former East Germany. And that pretty much follows that boundary, and then whereabouts within…

We are the only one connecting the north, where you have a lot of generation, especially renewable generation, with the south, where we have the load center. So we are in the middle of Germany, from north to south, from Denmark to Austria. And then on the eastern side we have 50Hertz Transmission, and on the western side we have Amprion in the southwest and TransnetBW

Okay, so I was thinking: can I get away with saying, ‘so you get the difficult stuff,’ which is going from offshore wind to Bavaria.

So indeed, we have been one of the first ones that was really facing the challenges of the energy transition, because we are connecting those areas with a high surplus of generation, with those areas that have a high demand, and that makes us quite unique. That is why we started very early to invest, and that is also the reason why we are nowadays the largest TSO in Germany. If you compare the grid lengths, we are the largest. But if you compare our regulated asset base, we are as large as the other three together.

So there's two subtexts to the conversation. One is, this is a tough challenge with Germany very rapidly going to very, very high levels of variable renewables. So there's a kind of one subtext is, how on earth do you do that? And the other subtext is really around the vast investment requirement, and how do you keep the money flowing in to fund what you need to do. So there's physics and finance. Those are the two big conversations. I think we'll just start in the context of finance. I think we'll just do the little bit of the context, and then we'll come back to that afterwards, because you have just gone through this transaction where TenneT was part of, or TenneT Germany was part of just TenneT, which was Holland, it was a Netherlands government owned organization. But you've separated out, and in fact, you were sort of brought in to steer the organization through that process. So talk a little bit about that, please..

So indeed, we have been a fully integrated cross-border TSO in the past. I myself was responsible for the operation, so I was the CEO of the TenneT group for six years. But now we are in a phase where we have to invest heavily into our infrastructure because of the energy transition. So we started that already a couple of years ago. But now we are at a scale where the Dutch state, as our shareholders, said we are not willing to continue to provide equity for the German business. And that was the reason why we said, ‘okay, then we’ll split the two companies in order to open up the German business for external investors.’

That process of splitting it and then bringing in equity, which took a couple of years, has concluded. Let's talk about how it concluded, who came in, who invested, and also perhaps some of the other pathways that you explored. Let me put it that way.

Yeah. So indeed. So first of all, the Dutch state said to us, ‘the German state is interested, so please speak first of all to the German state.’

So first refusal, in a sense, for the German state.

Indeed and then we had about two years of negotiation with the German state and the KfW under the old government. But at that moment, the government was not able to decide, for political reasons. That was also the time when the German government failed. So we said, okay, but we cannot wait.

If I might just come in there. Let me just put a quantum on that. You're looking for the equity for the plans we're going to be talking about in some detail, the amount of that, I mean, the eventual deal was €9.5 billion euros. So the first refusal was given to the German state — have you got €9.5 billion euros to invest in what's effectively a German critical asset? Is that correct?

That's basically correct. So we have an investment agenda in front of us only for the next five years of €65 billion. And of course, we have a lot of debt financing in order to be able to conduct this agenda. But on the other hand, we need, of course, equity.

Okay, so first refusal to the German state. The German state had other businesses to deal with. We also had the CEO, Michael Lewis of Uniper on the show, and so that was also taking a bit of time in the finance ministry, I suspect, with the Russian invasion of Ukraine, and Uniper requiring complete refinancing. So that was all going on. So you then went a different route for the equity piece of your finance requirement. And what was that exactly?

Then we said, ‘Okay, we will approach the capital markets.’ And we decided to go for a dual track. So we looked for a private placement, and at the same time, we also prepared an IPO.

Okay, so twin track private placement, and I'm just going to keep the audience with us here, private placement is equity investors. It's not on the public markets, so it's not something that your average retail investor would necessarily even know is happening, but it'll be institutional investors, pension funds, sovereign funds, investing privately. But you did also explore the public route, the IPO route. Which markets did you explore for that?

We've prepared fully to be a listed company, and we explored the European markets, of course, so Frankfurt, London. But also the US markets. So we have also been to New York, to Boston, and we spoke to many, many investors. And there was a huge interest, I think, also because of the geopolitical situation we are currently in, we saw that people are looking for safe investments. And one of the feedbacks I got in many of these conversations I had is that the investors are looking for security and predictability. And that the European market, and especially Germany, is seen as a kind of safe haven. So the investors are very interested in investing into European infrastructure, right?

So you've got Europe, which is perhaps not having quite the same turbulent ride as investments in the US, particularly anything around energy and transition and those people trying to do clean energy. So you've got Europe, you've got Germany, and you're a utility. So you had good feedback, but you decided, or you weren't able, whichever it was to do, not to do the IPO route. Why was that? What was the background? Because you've gone the private route.

Yeah, we prepared both up to the end so that, in the end, we had two fully negotiated solutions on the table we could choose from. And finally, our shareholder, our current shareholder, the Dutch Minister of Finance, decided to go for the private route, mainly because of the transaction security, because now the €9.5 billion equity commitment is in from the beginning. If we would have gone for an IPO, probably there would have been a small gap. And then there is an uncertainty that, from my perspective, is easy to fill. Nevertheless, for the Dutch state, it was the more certain route, and therefore that was a decisive argument.

Okay, so you've got the Norwegian Oil Fund, the NBIM fund. Now I have to be careful of my acronyms. Well it's the Norwegian Oil fund, what is it?

Yeah it’s Norges…

Norges just Bank Investment Management, there we go. And in fact, we had Carine Smith Ihenacho, their head of sustainability on the show in one of the earlier episodes. So they came in, Temasek came in, and also private equity? There was a third major player that came in…

The Dutch pension fund: APG.

APG, there we go.

TM

And then we have from Singapore, GIC

GIC, oh, it's not Temasek.

GIC, from Singapore, the sovereign fund. And then the Norwegian fund.

Very good. So you've now got committed equity investors, and we're going to come back to the debt requirement, because you've already put out there, though, that you need €65 billion over the coming years of equity and debt. Why do you need so much? It seems like every grid operator or every user — John Pettigrew also had a figure of 60 billion, but he had 60 billion pounds. You got €65 billion, and that's only for your part of Germany, and only for a few years. These are huge amounts of money. Why do you need so much?

Yeah, because the energy transition will only be successful with a strong infrastructure. We are changing our complete generation profile, and therefore we have different challenges. If you look into our grid today, we have constraints in the grid, and to manage those constraints, we have system services, and they are quite expensive. Half of our grid tariffs are driven by those system services, and the best measure to bring them down is to invest into the grid.

So when you say system services, these would be constraint payments, or redispatch payments. Or do you want to give… are there others? Paint the full picture, because this is what we're seeing, I think this is part of a long term trend. It used to be that the main cost of electricity was how much it costs to generate. So there'd be the wholesale price, and then the grid was a little bit and then you'd have a few charges, maybe a bit of tax, and so on, and the retailer margin. But mostly you were worrying about the wholesale cost of electricity. But now, and over the last couple of decades that I've been doing this, we've just seen that middle piece, the grid costs, going up and up and up. But it's not just the fact that you need a grid, it's all of these ancillary services and so on. So how does that look in Germany or in your region?

I would say the good news, first of all, is that renewables are quite competitive, so the wholesale price is going down. But indeed, there are other elements now that are important. And about 1/3 in Germany is about the infrastructure, the grid cost of which is half transmission and half distribution. I'm speaking for transmission. That is what we are looking at, and as I said, half of our tariffs are driven by those system costs. That is also the reason why we see rather stable tariffs also in the next couple of years, despite the fact we are investing huge amounts. But we are able, with these investments, to drive down the system service cost. And therefore we see price stability on the transmission side, it's a little bit different on the distribution side. That's why, overall, the grid tariffs are going up. But for our part, it's rather the opposite.

So I did an episode with Leonard Birnbaum of E.ON, and he was also talking about the huge amounts of investment. So you're essentially blaming him for the costs remaining high, because it's the distribution bit, not the transmission bit. Is that right? Is that fair?

No, that's not fair. I know Leo well, and it's not about blaming them, but it's a different system, and it's as important to invest into distribution as it is to invest into transmission. But there you don't see this constraint in the system costs. So that is why the investments they are doing are necessary, but that is why they are reflected in the tariffs. And we are really reducing with our investments the system costs, and that is why we are in the lucky position that we can keep the tariffs stable and in the long term, even bring them down again.

And I think we're painting a good picture of the system, right? Because you've got, on the generating costs, the wholesale side, you have all these renewables being built out very rapidly, also some gas, which we'll need to talk about. But then you've got simultaneously, a lot of investment going in on the distribution side to manage it, digitization, last mile, increasing the capacity to serve heat pumps and electric cars and data centers and so on. And then you've got your bit in between. And I guess my question is, isn't it a bit like you squeeze the balloon, you invest because you want to reduce these system services, the ancillary costs, the constraint or redispatch payments, but aren't you going to increase the actual… I mean, if you put more capital to work in the grid, somebody has to pay for that, no?

Yeah, but nowadays, the customers are paying for the ancillary services. And when I invest, of course, that also takes some money, but this money is saved then on the ancillary side. So therefore, I think it's a zero-level game in the end.

And in John Pettigrew's episode, CEO of National Grid in the UK, he talked about saving £40 of system service costs, with investment that would cost £4 pounds, I think were the numbers, in grid investment. And, you know, I didn't have time or the knowledge to challenge him. Is it similar? Or are you saying it's one for one? You kind of reduce one redispatch euro, and then you have one more euro to pay for the wires?

If I see it on a very broad level, then I would say every euro that we are investing is reducing at least two euros on the ancillary side, in the long term. So it's even bringing the cost down. And to make it very tractionable, just giving an example. We commissioned two years ago, a line in the south of Bremen, Ganderkesee-St. Hü̈lfe, it was called. Just 60 kilometers

Right up in the north.

In the northwest of Germany, and from there, where we have a lot of wind to the south, a 60 kilometer AC line, rather small. The investment of this line was roughly €1 billion. It saved, in the first year of operation, €500 million of re-dispatch cost. So after two years, it's completely paid, and then it's bringing benefit to the customer. We have another example. Last year we commissioned Wahle–Mecklar That's from Hannover, so a little bit more in the middle of Germany, also to the south. This one also saved €350 million in the first year. So you see that every investment that we are doing is paying off rather quickly, and then giving benefits back to the customers.

Those are fabulous examples where, in a sense, you've got a constraint today, you've got a re-dispatch problem today, and it would be lovely if the world could work that way, where all you'd need to do is release each constraint. Every time a constraint pops up, you immediately invest and within six months or a year, you would have a lovely brand new transmission line. I'm smiling, you're smiling, because that's not the way it works, is it?

In general, it is the way it works. But at the same time, we are very ambitious on the generation side to ramp up renewables even more to be able to fulfill the demand of the future, because the demand side is expected to grow with all the electrification of industry, new data centers. We expect that we will need much more, so while we are investing in reducing the ancillary services, we get more renewables connected to the grid, and this is pushing up the ancillary services again. So that is why we are in the kind of long-term marathon here

So let's just come back to this point about, you know when I was smiling and saying, in six months or a year, you've built the new line. How long does it take in Germany, which is partly stuff under your control, partly stuff under other people's control, regulators, public inquiries, environmental impact assessments and so on. How long does it take from the moment where you say, ‘Do you know what? We just need to build a new line, or we need to create a new capacity to connect up to create new grid connections.’ How long does it take from that moment through to actually pulling the switch and the first electrons to flow? What is the time frame in reality between those two events?

If I come back to the example that I mentioned before, Ganderkesee-St. Hü̈lfe… This was one of the very first lines that we built for the energy transition. This took 20 years.

20 years.

20 years, and 17 of those were permitting and licensing. It has improved very much. So until three-four years ago, we were on average, 10 to 12 years. With the last government under Robert Habeck, there were a lot of acceleration measures, also supported by the European Commission, with an emergency regulation because of the war in the Ukraine and the energy crisis that brought down the realization times to five to eight years. But now we are at the moment where those emerging regulations are running out, and we have to replace them by permanent legislation. And there we are getting stuck now again. So if we don't get a long-term framework that allows five to eight years, then we will go up to 10 to 12 again.

Let's assume you get that regulation through. I mean, you have a business-friendly government in power. You had a renewables-friendly and an Energiewende-friendly before. Now you've got business friendly. So let's assume a tailwind on that. But what triggers the beginning of that process? And the reason I ask is, if you look at you've got the people supplying the renewables — project developers — and you've got the people who use the renewables, which would be industry or a utility at the other end that's distributing to its clients, and each of those can operate on a sort of 1, 2, 3 year time frame. We want to do this. We plan it, we get our permits, and we're ready to go. And that takes a few years, let's call it three years. And at the other end, if it's now building a new program to roll out to, I don't know, let's call it to put heat pumps into some industrial facility, big increase in demand, so they start procuring power. And that also, that project will also be a two-three year project, realistically, to go through budgeting. So those two ends of the process take, let's call it two to three years. At what point do they trigger the, optimistically, 5-8 year process in the middle to get the transmission from the source of electricity to the demand for electricity?

The system has been, meanwhile, completely decoupled. So we are a fully regulated business. It starts with the climate ambition of the government. So they set the climate target, then the government is breaking down these targets into what will be the generation profile. So how much solar do I need? How much wind do I need? How much water, bio-gas, and whatever else. And then the same is done with the demand side. So what do we expect? What will be the mega trends of data centers, for example, how many data centers do we expect in the next five years, 10 years, 15 years? This is all put then into a scenario, or in three different scenarios. Those scenarios are approved by the regulator, and then the grid planning process is based on these scenarios. The four TSOs are developing a grid development plan showing, for all the three scenarios, what is needed on the grid side to accommodate those scenarios. And this again, is then publicly consulted by the regulator and also finally approved. And once this plan is approved, that's the basis for us. That is then going to the German parliament, and then the projects are really going into a law, where you see in the law, ‘this project is needed,’ and that's the basis for our investments. So it's completely decoupled from what is happening in reality. But this plan is revisited every two years to adjust it to the real development that we are seeing.

It's a real privilege, frankly, to have this explanation from you who knows this system so well, because the word that pops into my mind — that I probably should have used in the question — is ‘anticipatory investment.’ Because the problem that we've had in so many countries is that the grid operator, the TSO or the grid operator, have to wait, by law, until both sides are sort of lined up and begging. One is begging to supply electricity and one is begging to use it, and then they kick off a process which, historically, in some countries, in many countries, has taken 12 or 15 or 17 years. And that obviously, is no way to achieve a transition of any sort. So what you're saying is that that link has been broken, and you have anticipatory investment based on a scenario.

Yeah, it's like a little bit if you have a municipality that wants to have industry in their municipality, what they do is they start to invest into roads, into electrical supply, and when everything is ready, then they say, here's an area where you can invest, and then you are attracting the industry. And that's a little bit of the thinking of the system that we have in Germany.

What happens, though, to prices for your services, if that demand doesn't materialize. So there's a subtext here, which is Germany had a very ambitious heat pump, electrification of heating plan, very ambitious electrification of transport plans. If those don't happen, then inevitably you will have invested, because you started in good faith a few years back. Does that still get passed on, but now to a much smaller user base, because the megawatt hours you were expecting, the gigawatt hours you were expecting, didn't materialize? So you divide the same number of investment by a smaller user base, is that a risk?

So we have to divide the risk from a country perspective and also from a company perspective. So as a company, as I said, we are in a regulatory system. It's expected from us to invest in good faith, and we are also protected. So as a company, I'm not running a risk here. Nevertheless, of course, as a country, we want to have an efficient system. Therefore it's important that your forecast comes very close to what happens in reality. And that is why the plan is revisited every two years and then adapted to what is really happening. So, if you see the entire scale of the German energy market, of course, in one or other location, there could be a slight over capacity, but in general, it levels out quite well, and it allows, really, to drive the energy transmission forward.

And the context here is that Germany is aiming for Net Zero 2045. So that's the policy. I believe it's constitutional, and therefore the plans all have to end at that point. They're not allowed to be anywhere else, but you're not building for 2045. And that plan for 2045 would cost, I believe, between transmission distribution, it's €650 — that’s the figure that ChatGPT told me. €650 billion. Half of it is transmission, not all yours, but presumably a big chunk, because you're the biggest of the transmission operators. So you've got that 2045 number, how much is released for you to invest? Because you say it's reviewed every two years, presumably you are not pulling the trigger on everything that you need for 2045 which would be a real leap of faith.

So in the past, the grid development plan was always looking 10 years ahead, and then every two years renewed. So every two years looking two years further. The problem a little bit is also then in the acceptance with the people that you have a kind of salami tactic. You bring in a line and say to the people it's needed here, and then they understand and say, ‘Okay, I accept it.’ And two years later, you come and say, ‘now I need another one.’ So we also convinced the regulator and the government a couple of years ago that we should start with the end in mind. So what is needed for 2045? And nowadays, the grid development plan is looking to this target to 2045 and then has this scenario in between. The current one is 2037, so that you see what is needed more urgently and what is then the entire grid in the long term. And that helps on the acceptance side, because everything is known, and then still we can adapt. What we are doing is we are planning very concretely for the next five to 10 years, because that is where you also have to early start the investment. And as I said, for 25 to 29 we are investing €65 billion. So an average €13 billion a year.

Cleaning Up is supported by its Leadership Circle. The members are Actis, Alcazar Energy, Arup, Cygnum Capital, Davidson Kempner, EcoPragma Capital, EDP of Portugal, Eurelectric, the Gilardini Foundation, KKR, National Grid, Octopus Energy, Quadrature Climate Foundation, SDCL and Wärtsilä. For more information on the Leadership Circle, please visit cleaningup.live. If you've enjoyed this episode, please hit like, leave a comment, and also recommend it to friends, family, colleagues and absolutely everyone. To browse the archive of over 200 past episodes, and also to subscribe to our free newsletter, visit cleaningup.live.

You make it sound very sort of rational, very calm. Everything's under control. But there is also a huge grid connection pipeline, queue, bottleneck, you could call it. And across Europe, I believe it's something like two terawatts of backed up projects that are waiting for the grids, the various grids, not just your own. I've seen a figure for your area of something like 50 gigawatts of, I believe, batteries alone that is backed up. So why are there so many people complaining to me and to others that they have to wait till 2037 to get a grid connection?

Yeah, indeed, we have a huge queue all over Europe. If I look at Germany, we have been overwhelmed by battery requests in the last two years. Three years ago on the transmission level, we have seen no batteries. They were all in the distribution. Now we have 250 gigawatts of request only in the transmission grid. This is three times our peak load, and we all know that they will not all invest, because they will not have a business case. Once the first 20% have invested, then the business case for the rest will be gone. But we have a system, a regulatory system, where this is called a first-come, first-serve principle. So the one that is first in the queue gets a connection, and therefore everybody is now running to be the first one in the queue.

You've created the perfect conditions for a race to get in the queue, which completely masks any real signal of what demand is.

Exactly. And that's a little bit of a problem. That is also why we are now recommending changing the system to a more mature and system supporting criteria, where it's dependent on how realistic your planning is. Do you have the land plot already? Have you taken your investment decision? Have you secured the supply chain that you need those criterias, and are you supporting, with your business model, the system, or are you just taking advantage of the system? So we have, as Germany with one price zone, we have one price signal, and we have batteries that are north of a bottleneck and others that are south, but they are reacting in the same way on the price signal. That means, on one side of the bottleneck, they are supporting us. On the other one, they do the opposite. And that is why I think it's urgently needed that we change the system and that those criteria who is really supporting and also creating value for the customers get prioritization in the connection.

And we have that in the UK as well. So we have a lot of renewables in the north and offshore, which a lot of it comes into Scotland in the north, and then a lot of demand in the south. And something like a quarter of the time, because we only have one price and a constrained grid, something like a quarter of the time, our interconnections to other countries are flowing in the unhelpful way, because the price signal has said, ‘Oh, prices are going to be high, so buy in from France or Ireland or Norway or Denmark, when we should actually be doing the opposite, when, in fact, in the south, we've be the it flips. In fact, it's more likely that the price is low. And then France buys electricity, which we can't. Then supply from the from renewables. The solution to that feels to me like splitting the price zones is there? Is that under discussion? I mean, I know it's under discussion, but how can I put it? Is that a real debate? Is it really likely to happen in Germany? And if not, how do you solve that problem that you talk about, of the batteries dispatching when they should be being loaded and loading when they should be being dispatched. How do you do that if it's not zonal pricing?

So indeed, on the first moment, zonal pricing seems to be the obvious solution, but it's much more complex. First of all, if you want to change the current system to a zonal pricing system, it will take you four to five years to integrate it into the system. So it's nothing you can do overnight. And at the same time, the root cause is the bottlenecks in the grid. So we are solving those bottlenecks with all the investments that we are doing. So in five years time for now, we will probably have bottlenecks in completely different areas from today. So then the question is, what is the right design of the price zones to really get to what you want? And at the same time, you create a lot of uncertainty, also for industry, because you are in the transition phase, so that makes it very, very difficult. What makes it even more difficult in Germany is that we are a federal state with 16 states in the federal government, and they have different interests. Because if you split the price zone, then of course the prices in the South will go up, and in the north, they will be a little lower. So the states in the South are immediately in the opposition. And it's really hard to get to the core of the content, because it's such an emotional topic. And what I see currently also in the German environment politics associations, I don't think that is something that we can easily come to. So therefore, we are focusing on really investing into our grid and finding other ways of dispatching, for example, new customers like batteries, in a way with other incentives that helps to react to what is happening.

I did say you had two problems, which is the wind, the offshore wind, and then I said, Bavaria, but the South and the challenge there. So Sweden, I understand, introduced zonal pricing in 15 months, but I don't really want to debate how long it takes to change all of the pricing systems. Germany is more complicated than Sweden. We had the same conversations in the UK, and it became a totemic number that it would take five to seven years. I personally am not sure about that, but the choice that is being made, and that you're describing, is almost what you're calling copper plate country. Copper plate, in the sense that you can put electricity into it anywhere and take it out anywhere, and the grid can cope. Can the grid really do that? Can your transmission investment achieve that, given how much you're going to invest in offshore wind, particularly the big area of growth of renewables, which is mostly what you're going to invest in is renewables, and most of it's going to be offshore wind. So is it possible to then copper plate between that and those people in the South who want the cheap electricity?

I think there's no easy answer to that. First of all, I think completely copper plating cannot be the solution. So you also have to talk about curtailments, and that is also what we currently do with the regulator. In the grid, there's always a certain level of curtailment that you allow, because on the last mile, it's not really efficient. Nevertheless, Germany is in a completely different position than most of the other European countries. On the one hand, the largest electricity market. On the other hand, we are at the core of the European continent. So we are also facilitating the energy flows from the Nordics, where you have a lot of renewables, very cheap, to the south of Europe. And we are also allowing the flows from the east to the west and the other way around, because also France and Poland have very different generation profiles. So we are really in the middle of it, and only part of it is for what we need in Germany. The rest is also to facilitate the European market. And of course, this is a high investment, but still, I think it's the best thing that we can do, and it's the backbone of the German or of the European economy. So if we want to be successful in Europe, this is an asset that you find nowhere else in the world, a grid that is so highly meshed about such a distance from Portugal to the Ukraine, from the Nordics to the south of Europe. And at the same time, industry is never more than a couple of kilometers away from the grid infrastructure. So we have a high availability of our grid. So the transmission grid in Germany, we have provided 100% availability in the last years, so there has been not a single outage. This is a value for industry and for our economics that is highly underestimated, and I think that should be used in Europe to really develop the economy.

And certainly as the debate turns to resilience, and obviously the power cut in Spain and Portugal in April this year, focussed a lot of minds, as did Russia's illegal invasion of Ukraine, and this whole trend in geopolitics towards Europe being much more self-reliant. And when I say Europe, I mean the UK clearly, as well as not just the EU, but all of all of Europe. So resilience is in the spotlight. And I think you make a very good point that the country with the most resilient grid does have an advantage, and we don't market that. A question: Germany sits in the middle of Europe, and you have east west flows, and you have north south flows. How does that get paid for? I mean, can't you get them to pay for your copper plate, since they're using it?

Now, we have a market regulation in Europe which obliges us to provide a certain capacity of our interconnection capacity to the markets. That is what we are doing, and we get paid by the German regulatory system. So this is also decoupled from us.

And we've just talked about a lot of the, I would say, the mainland system. But you're also very active connecting up those offshore wind farms, doing it to a certain extent, on a sort of unilateral German basis, but also working with other North Sea countries, UK as well. Talk to me about the split. How much of what you're investing in, you've got that €65 billion, how much of that is your own mainland copper plate, and how much of it is actually going to be about importing the offshore wind into Germany? I suppose the third category is interconnections to neighboring countries. So you've got those three chunks. How does it split up?

Let maybe start first of all with why are we doing that? I think you talked about resilience. So from a resilience perspective, we have to be independent. And the most independent source are renewables, especially offshore wind, because it's highly available. We have more than 300 gigawatts of potential in the North Sea alone. So this is a huge energy source for Europe, and we have to connect offshore wind in a most efficient way. We have been the first TSO investing highly into offshore, especially into HVDC technology. So this is direct current that you need, if you go for long distances offshore, you cannot use the alternating current. We have been for 15 years, the only operator globally operating those systems offshore. Nowadays we have 10 gigawatts connected to the German mainland. But this is just the starting point. There's so much more. As I said, there are 300 gigawatts of potential. And if you want to do it in an efficient way, you have to do it together in Europe. Not only the EU but also the UK included. And that is why we started, already a couple of years ago, cooperation between the TSOs around the North Sea to provide a design for a grid to make it in the most efficient way for Europe. And we are working on that together with the North Sea Energy Cooperation of the member states to push this thinking forward.

So instead of having each wind farm connected by a single line to the coast or to the country in question, this would be more of a web-type approach, and saying the wind farms connected to each other, and the countries then connected through that to each other as well. Is that a fair characterization?

Absolutely, as I said, we are using direct current technology. Those are point to point connections, or as we often say, ‘radials’. So it's the connection from the wind farm to the grid onshore. That means we are transporting more or less the wind profile. So the turbine is just generating what the wind is providing. This in the North Sea, is usually 4,500 hours a year. So only half of the time is this connection really used. We see now, because of the ambitious targets of the German government of 70 gigawatts in a rather small sea area, that we are really seeing wake effects. So the turbines are covering themselves from the wind, and therefore the full-load hours go down from 4,500 to 2,500 or 2,200. That means that we are using our grid infrastructure only 25% of the time, and that's, of course, not very efficient with those highly expensive assets. If you now combine such an asset with an interconnector, we do it, for example, between Netherlands and the UK with LionLink, then you invest just in 20 kilometers more cable, and you get a full -fledged interconnector on top of your offshore connection, and then you can use it for 8,000 hours. And that's the thinking behind that, and that is why we think this is the right way. And coming back to your initial question, half of our investments are offshore, and half is onshore.

And the offshore is then interconnection, as well as wind farms?

Yeah, it's mainly wind farm connections, but it's also interconnections.

But that raises a very interesting question, which is that feels like a very pan-European conversation. I mean, of course, you've got Norway and you've got the UK who are not in the EU, but when you talk about the Netherlands, or you talk about Belgium, you talk about Denmark, and you talk about these flows — east-west — going across Germany — north-south — going across Germany. Why wouldn't the right regulator for all of this be Brussels?

I think we need common rules, that's really important. That is also where we see that we are currently getting a little bit stuck, because everybody is looking for their own cost and benefit. So we have to overcome this. And therefore we need common rules. If we do it directly on the European level, we think it will take a lot of time, because the countries around the North Sea have a common interest to find an efficient way to connect. But if you look at Italy or Greece, they have a completely different view on that. They also have different challenges to solve, and therefore to come up with a common model where all 27 say ‘that's the way to go,’ including Norway and the UK, I think that will take years. And therefore we rather think in regions. So the North Sea, for example, the Baltic Sea, the Mediterranean, and find solutions in a more regional approach, with the countries involved around a sea basin.

So if I push back just slightly, I had an episode with Nikos Tsafos, who's the Deputy Minister of Energy in Greece. Actually, when we recorded it, he wasn't, but then by the time we published it, he was. And what he was describing was that Greece has fabulous solar resources and actually a fabulous wind resource as well. The Aeolian Islands, the ‘Aeolian’ is the winds. And all of Greece has got fabulous wind. But there are times when you don't have either. So if you have an energy system which is dependent on variable renewables, you can have the best resources in the world 90% of the time, but he was talking about ‘and when we don't, we'll bring in electricity from the North Sea.’ Now, how does that get built in? Because if you do everything regionally, you'll end up with self correlating resources. So you'll have these islands that are, in the end, for the last 10% or the last 20%, dependent on each other. So again, the question, I suppose, is whether, what is happening with those rules at the Brussels level, are they not perhaps a bit more important than you're saying? Because without that last 20% you don't have a clean system. The system falls over unless you solve that.

First of all, I would say we already have a European system in place, and we have a lot of interconnections all over Europe. The question is now, how you get accelerated investments in those areas where it's most beneficial. And if you try to solve it with common rules, I think it will just take more time. Therefore, it's not either or, but it's just on top of the European system that we are having to provide some acceleration measures in certain regions. And of course, Greece has huge potential. We are also looking into an interconnector between Germany and Greece, but it's also quite a long distance. You have to cross the Alps and you are connecting Greece with a mainly solar dominated profile, with the south of Germany, Bavaria, which is also highly solar dominated. So you really have to look into the cases where it makes more sense. And if I look to the North Sea, for example, there is much more potential to easily gain before you look into interconnections, really, on long distances.

I want to talk about the supply chain as well, because this came up in the conversation with John Pettigrew. We've gotten this far into the discussion without mentioning AI and data centers. They're buying all the transformers, they're buying the cables, they're buying the electricity. But how do you move fast, given that everybody is trying to do the same thing and the supply chain is limited? And does that not just result in enormous inflation, frustration and grid connection queues?

Yeah, indeed, we have seen huge interruptions in the supply chain, starting with the war on Ukraine and the energy crisis, and we still see that the supply chains are not like they were 10 years ago. As I said, we invest very much into direct current technology, HVDC, about half of our investments, and this is a very constrained market. There are only a few players globally in this market. So we have seen very early that there will be huge constraints, and I have been traveling around myself to many of our key suppliers, asking them what is needed so that they start to invest in additional production capacity.

And I know what they said, let me guess. ‘Give me an order, give me a long-term order, and I will build capacity.’

Yeah, I think it was a little bit more complex, because one order will not change the system. What they said, they need predictability. And they also said they cannot invest on political ambitions. They have seen so many political ambitions over the years, and they have always seen that the development was different. So they were very, very hesitant. And then we said, ‘okay, what can we do to give more predictability?’ And we went with many of our suppliers into long term partnerships, indeed, with a long term view on what they can expect from us. So 10-15 years of portfolio already committed from our side. But we also obliged them to invest into production capacity. And for example, we tendered, three years ago, our two gigawatt program offshore. So that means a fleet of 2,000 megawatt offshore connections, all in HVDC technology with different suppliers. We have created a 15 year framework. And with the first call off — so with the first chunk of projects we use from this framework — we committed €50 billion to the market, and that was a game changer.

And just for the audience to get a picture of what it is that you've just bought. These two gigawatt… floating… this looks like an oil rig, but it's actually a substation. Is that right?

It looks like an oil rig. It's not floating. It's in the North Sea. We have rather shallow waters, so it's bottom fixed, and it's what we call a converter platform. So it's also not really a substation, because that is usually what you use on the AC side. It's an asset that allows us to transmit the AC current that is produced by the wind farms over long distances with DC current, and then transform it back, or convert it back onshore. So it's two converters, one offshore, one onshore, a platform and a cable, or a cable system in between.

Thank you. So it's not floating, and it's not a substation, but it's a big chunk of electrical kit on something that is… It’s not floating, but a lot of it would be originally oil field services technology to put that sort of asset out in the sea. But then your system, that you've placed the orders for, is that piece, the cable, and then the onshore piece of that, which then converts it back and puts it into the grid.

And to give you a little bit of a glimpse of the scale, it's like a soccer field 25 meters above the water and then 40 meters high.

And how much is each one of these? Effectively, you've placed a €50 billion forward order, presumably, lots of negotiations about break clauses, but you've placed that. How many units was that?

14. Eight for the Netherlands and six for Germany.

So we're talking about three and a bit billion euros each system. And did you do that on your own, or were you working with the other grid operators, the other TSOs? Or have they each done the same sort of thing, or together?

In this particular case, we have been the first mover in Europe. We see now that this model is used also by other TSOs. What we did is we shared our technical specification, so all our know-how, with all European TSOs that we're interested in. You can say, ‘why are you doing that when you are 15 years ahead, that's not logical.’ But in the end, what we are doing is financed more or less by public money, by the money of the grid customer. So we think we have a responsibility here, and on the other hand, it helps our supply chain to standardize, because if they are all using the same technical specification, it's easier for the supply chain, and they can get more output. So that is where we also benefit again.

Okay, so we need to get on to closing. We come back to that financial transaction, right? How do you finance all of this? Because you’ve got your €9.5 billion of new equity, so whatever's in the business. You want to spend €65 billion. You've actually already spent €50 billion, is what you're saying. You've already got commitments for just this one piece of it. And how are you going about raising the rest of it? Because that's kind of a core challenge, and I suspect a lot of your day is talking to the capital markets. How are you doing that?

So in the past, we have done the financing all via the TenneT holding. Now we do it on the German level. So the first step was to get the equity in, and we have the commitment of €9.5 billion, as you mentioned. And now we are preparing ourselves for the debt market. The first step was just recently, the authentication of a revolving credit facility of €12 billion euros.

So that's almost like… we would call that an overdraft in the retail market. You can use it for whatever, it's not connected to a project?

It's not connected to a project. It's more like an insurance, so it's just backing that you are ensuring that you have the liquidity that you need. So it's not a financing instrument in itself, but it gives you the access then to go into the debt market. And then we will start next year, going to the debt market with amounts, raising roughly €10 billion a year. Then the capital for the investment that we have, as I said, about €13 billion in investments each year.

So €10 billion a year over five years becomes €50 billion. You add it to the €9.5 and you've got your overdraft facility. Those €10 billions, each time you do it, will they be linked to specific parts of the grid, specific projects? So will you say, ‘Here's a new interconnector, you know the payback.’ Or will it come into the company so it'll just be on the balance sheet

It will come into the company, and we finance everything on the company level.

So everything will come in on the company level. And your credit rating… have you already got your own independent credit rating, or is that something also you're negotiating?

We are currently in the process of it, but we are striving for a triple-B-plus credit rating, and that is also where we are completely convinced that we will be able to maintain that in the long term

Interesting, triple-B-plus. I don't know what other utilities or other TSOs are, but that is just below investment grade, right?

It is investment grade.

It is investment… It is classed as investment grade. But it's not a sovereign rating. So the question is why? Why would it not be higher, given that, fundamentally, doesn't the German state stand behind you?

The German state, no. The Dutch state is still standing behind us as the majority shareholder, still holding 54%. And 46% is with the new investors. It's a little bit because of the regulatory system that we are having, because the regulator is assuming a fixed 40-60 share of equity and debt. And if we gear it, then we have a little bit of a chance here to outperform the regulatory system, and that is how we get our earnings.

So the guarantee by the Dutch for what's essentially a core part of the German infrastructure that the German state can't see fail. That must make for some interesting conversations at cocktail parties, possibly in Brussels. But I'm familiar with this process of running up each year, going into the debt markets. I was on the board of Transport for London, I was on the Finance Committee, and indeed, we did exactly the same. The reason why Transport for London was created, separated out from being a nationalized operation, was to be able to go into the debt markets, and over a period of time, you run up the debt, and then, of course, you get criticized because you've got so much debt. So some, not everybody, perhaps this episode of Cleaning Up can be referred to to explain why you're managing the finances the way you are, because some activists and maybe some of the existing audience will say that you should not be taking risk by raising debt and financializing what you're doing. It's a core asset of Germany, Germany should own it.

Yeah, on the other hand, we are in a very long-term business, and we are building assets, so we have an asset base and a value against it. And also on the equity side, we will be self-funding after this period of €65 billion investments, because our asset base will triple in the next three to five years from now. A little bit around €30 billion, then to more than €85 billion in 2029. And with that, we are able to also maintain our long-term financing in a very solid way.

So that's going to be an interesting conversation, and I would already invite you back onto Cleaning Up in 2029 because at that point you will be looking at the rest of your capital spend. So I said that ChatGPT had told me it was €650 billion across transmission and distribution for transmission operators, not just you. But that's through till 2045, there'll be episode two, or the second act of all of this, which starts presumably 2030 through to 2045, where you will still need to be building that copper plate Germany.

Yeah, indeed. So, as I said, we are expecting now for the next five years to invest €13 billion a year, and the years after 29 we still expect investments of around €10 billion a year.

Well, I'm going to wish you the very, very best of luck, and thank you for spending time with us here today on Cleaning Up

Thank you very much. It was my pleasure.

So that was Tim Meyerjürgens, the CEO of TenneT Germany, who also sponsored the episode. As always, we'll put links in the show notes to resources that we mentioned during our conversation. So that's episode 227, my conversation with John Pettigrew, the outgoing CEO of National Grid, and episode 201 with Nikos Tsafos, the Deputy Minister of Energy in Greece. We'll also put a link to TenneT Germany's website and to the press announcement of their recent major fundraising. And so with that, it remains for me to thank Oscar Boyd, our producer, Jamie Oliver, our video editor, the team behind Cleaning Up the Leadership Circle, who make all of this possible, and you the audience for spending some time with us here today. Please join us this time next week for another episode of Cleaning Up.