An interview with Johannes Lambertz

MPS You have in the past drawn attention to quality and schedule/delivery problems at your existing fossil construction sites. Could you summarise the root causes of these problems, the steps that have been taken to address the issues, the current state of play, and what further measures you would like to see from the suppliers?  

Johannes Lambertz We are investing heavily in the modernisation of our power plant portfolio. Examples of this investment are the r 5 billion which we have injected into our projects in Hamm, Neurath and Lingen alone. This investment benefits not only supply security but also our climate. It is true that there have been delays for various reasons and we regret this deeply. However, we firmly believe that compromises should never be accepted when it comes to safety. This is why the boiler structures will now be rebuilt in Hamm. The problems have been brought to light by our own quality control management system, which tends to emphasise how important this tool is. We are in permanent contact with the contractors to ensure our quality standards are being met. For future developments we have demanded that the vendors in each project increase and improve their own quality checks significantly at all levels and enter into dialogue with us as soon as problems arise. This is the only way to ensure harmony between quality and economics.

MPS This answer implies that component and build quality by contractors was the root cause, but does not absolutely exonerate RWE’s own quality control. Can you comment on this?

Johannes Lambertz It was our own quality control system that brought these problems to light. And what is absolutely crucial is that safety always comes first. The contractor of course has the main responsibility for its own subsections of the project. In this particular case it was Alstom.

MPS Construction is now managed in a new entity called RWE Technology. What is the rationale for this reorganisation?

Johannes Lambertz RWE is investing billions in the construction of new power plants and large retrofitting projects in various countries. Given the large number of projects, it is only logical and meaningful to pool competencies and expertise in power plant construction. These pools range from procurement, implementation and construction monitoring on to the project management. The new entity RWE Technology has been doing this on an international level since the beginning of the year. This enables us to technically and economically optimise our newbuild projects in which we are investing billions. An added benefit is that new projects can now also be managed on the basis of uniform engineering standards across the Group. This is going to make life a lot easier.

MPS Beyond the coal/lignite PF plants currently already under construction in Germany, are we facing the prospect of what amounts to a ‘moratorium’ on new coal/lignite plants? If there is such a moratorium, does a country like Germany face the prospect of a supply shortfall in the not too distant future (as has been suggested by Stephan Kohler of DENA)?

Johannes Lambertz We are convinced that conventional power plants will remain necessary for secure and environmentally benign electricity supplies. This is why a moratorium is not in discussion. One thing is clear: even if the share accounted for by renewable energies is doubled from today’s approximately 15 to 30 % by 2020 to achieve Germany’s ambitious climate-protection targets, the gap would still be about 70 %. It would therefore make no economic sense to exclusively rely on renewables. We need highly efficient conventional power plants to avoid a supply gap and to help reduce the carbon footprint. Deutsche Energieagentur (DENA) is fearful of a supply shortfall of 11 000 MW, should no other projects be implemented beyond the plants which are already under construction; this is roughly equivalent to the capacity of 14 large power plants. To come to the point: a broad-based energy mix with renewable energies, new coal-fired power plants with highest efficiencies, and longer lifetimes for the nuclear power plants provides the best guarantee of achieving our ambitious climate targets. However, investments of these orders of magnitude are only feasible if the development of electricity and CO2 prices allows for an appropriate return on investment.

MPS In the past few months we have seen a number of pulverised coal projects cancelled in Germany. What lessons does RWE draw from that?  

Johannes Lambertz ‘Not on my doorstep’ – this is an attitude found in many areas in Germany, indeed not only in the energy sector. If we do not want to end in a cul-de-sac, we have to fight for the acceptance of large-scale industrial projects. Such efforts cannot be made by industry alone; I believe rather that the politicians, associations, trade unions and companies are together responsible for positively informing the population of the benefits to the local and regional communities of such projects. We have had this experience first-hand ourselves. The necessary industrial development, however, is urgently required, but it is by no means a surefire success.

MPS I note that you seem to connect the future of new coal build strongly to the development of clean technology – the one depends on the other. Is that interpretation correct? And do you think it is crucial to overcoming ‘Not on my doorstep’ objections?

Johannes Lambertz You are right with the interpretation as well as the direction of your question. It is one reason we have to fight for large scale industrial projects.

MPS In the absence of coal/lignite are we going to see a resurgence in gas combined cycle, as we seem to be doing in the UK? If so what are the implications?

Johannes Lambertz The question assumes a phase-out of coal and nuclear energy. This is exactly what we regard as a strategy completely out of touch with reality, because it is fraught with great risks for an industrialised nation like Germany. Electricity must remain secure and affordable in the future, too. This can best be ensured with a sustainable mix relying on the strengths of the individual energy sources. Let me illustrate this with lignite, for example. It does not have to be imported, all the value added from production, through generation, right down to the wall socket of consumers remains in Germany, and it will be available for a long time to come. The carbon footprint has to be reduced by stepping up research and development. It is not a good idea to discard options carelessly for ideological reasons. The UK, in particular, is doing exactly the opposite with the decision to build new nuclear power plants.

MPS Why is flexibility of conventional power plants particularly important today?

Johannes Lambertz The generation market has gone through a far-reaching change. Flexibility is the keyword. This may sound easy, but what it means is that we need a new and improved architecture of electricity supply. At present, about 26 000 MW of wind power are installed in Germany, and this is supposed to grow to 43 000 MW in the next ten years. But there are already days when the wind power fed into the grid changes by some 20 000 MW within 24 hours. Depending on the time of day and season this can be equivalent to between 25 and 50% of the current electricity demand. In the first week of January, only about 1500 MW of wind power capacity were on average feeding into the grid, on one particular day this capacity amounted to only 300 MW.

This volatility is set to continue growing. This results in a need for storage facilities, but they can only serve as short-term buffers. Furthermore, their capacity is limited and will hardly be able to keep pace with the development of renewables. A maximum of only 7000 MW of storage capacity is available today compared with 26 000 MW of wind power capacity. The development of renewables can therefore best be supported by a power plant portfolio which is able to quickly increase or reduce its output. This is the precondition for guaranteeing maximum supply standards in the future. Germany has the fewest power blackouts in Europe, and this positional advantage has to be safeguarded. This is why RWE has long since been turning the ‘flexibility screw’ to prepare the company’s own power plant portfolio for these challenges and to avoid unilateral dependencies on any single fuel. Nuclear power plants and modern lignite- and hard coal-fired power plants are on a par with gas-fired units as far as their control performance is concerned. As long as it is not possible to smooth the wind power output, for example by deploying storage capacity, we depend on modern, flexible conventional power plants. They are not in conflict with renewable energies, quite on the contrary, they will remain the indispensable, reliable, flexible partner in the long run.

MPS Your point about the extreme lack of wind on some days is well taken, it happens regularly, and, as you say, storage facilities simply cannot cope with this kind of shortfall from a future very large wind contribution. But is it really the case that modern coal and nuclear plants are as output-controllable as gas plant? And do they need to be? One can imagine a mix with simple cycle gas and CCGT as the front line of reserve, with coal and especially nuclear following in stages. The scenario also implies a very complex supply mix response to demand, probably only achievable on a national or European scale.

Johannes Lambertz The basic point is absolutely right: wind is going to extend, but with a huge amount of volatility – and nuclear power plants can be run in a very flexible way – as flexible as gas. This is in fact necessary because, as storage capacity is limited, supply systems will be dependent on flexible conventional plant.

MPS It has been suggested that the principal driver of new fossil build in Germany is nuclear life extension. What is the outlook on that front, and what would RWE like to see happen in the German nuclear arena?  

Johannes Lambertz Nuclear energy reduces the dependence on imports, it is carbon-neutral, and the German power plants are among the safest in the world. These are compelling arguments in favour of longer lifetimes. This is what the federal government decided in the coalition agreement [a post-election coalition government agreement to extend nuclear plants as a bridge to renewable power]. That nuclear energy prevents the development of renewables is a contraditiction which needs to be corrected. Replacing nuclear energy by renewables would mean that secure, baseload-capable carbon-neutral energy would be replaced by volatile and hence not reliably plannable and also much more expensive carbon-neutral energy. This would not benefit the climate. Improving the CO2 footprint rather requires that renewables and nuclear energy work together in order to replace types of generation with greater CO2 exposure. And the price must not be forgotten, either: Longer lifetimes is the least costly way for the national economy to reduce CO2 emissions. In particular, it puts a lid on the development of electricity prices: With longer lifetimes, the wholesale prices are likely to be about 20 to 30 % lower than without life extension with the same CO2 reduction effect. Against this backdrop, it does not make sense, neither economically nor from a safety point of view, to shut down safe German nuclear power plants and to then, in return, source electricity from foreign power plants or to operate old coal-fired power plants for a longer period of time.

MPS Another factor determining fossil new build, and also determining the operating regime for fossil plants once built, is the growth in renewables, including offshore wind, biomass. What is RWE assuming about the contribution of renewables in its planning and operating fossil fired plants?  

Johannes Lambertz RWE wants to become greener, more international and more robust. The development of renewables is a significant example in this context. RWE Innogy invests an annual r1.4 billion mainly in onshore and offshore wind wherever the conditions are particularly favourable. By 2013 at the latest, 15 000 GWh of electricity are to be produced annually this way. This volume is enough to supply about 4 million residential households with electricity. By 2025, we intend to have 30 % of power from renewables in our portfolio, which fit in well with our conventional power plants.

MPS The company’s 2009 Results press conference statement suggested 14 GW of renewables to be built by RWE alone by 2013. I would be glad to hear that such a growth figure could be sustained, but can it? The implications for siting, component supply, and grid reinforcement, amongst others, are huge.

Johannes Lambertz For RWE’s part, one third of our capital expenditure on property, plant and equipment between 2010 and 2013 will be on renewables – r5.7 billion out of a total r18 billion. In windpower RWE?Innogy alone plans to have installed 10 GW by 2020, much of it from its UK and Dogger Bank options. And by 2019 we intend to invest r6 billion in the modernisation and expansion of our electricity distribution grids.

MPS If coal is to play a role in the future, what needs to happen, eg in terms of enacting a CCS law, introducing more certainty into the carbon market, developing CCS technologies, finding productive uses for the carbon dioxide produced and so on?

Johannes Lambertz A new electricity supply architecture also requires climate-friendly power generation from coal. Aside from efficiency improvements, CCS technology is key to achieving this aim. This is why the efficient capture and storage of CO2 (CCS) is a focus of our activity in our coal innovation centre. We operate a CO2 scrubbing system together with  BASF and Linde. The first results of the demonstration plant are very promising: We are achieving capture rates of 90 %, while at the same time reducing the energy requirement by 10 %. We want to help to develop CCS technology to commercial maturity by 2020. However, technology is only one side of the coin, while the necessary legal framework and economic feasibility is the other side of the coin. It will indeed be difficult to establish this promising technology for the future successfully in Germany without legislation enabling CCS and the necessary political backing.

MPS Given the persistently low carbon price in Europe, is the Energy Trading System concept doomed? What needs to be done to fix it? What is your view of the proposal that there should be a ‘floor’, carbon price?

Johannes Lambertz A low CO2 price is not indicative of any functional weakness of the system, but points to a low level of demand or a good endowment of the plants with emission allowances. It must not be forgotten in this context that we are going through the most severe post-war economic crisis worldwide. Production has virtually plummeted in many industries, which of course has an impact on emissions. The viability of the system and the achievement of the climate-protection targets depend on the cap being complied with, not on a permanently high CO2 price. Certificates will be scarcer again and the price is going to rise in the third trading period from 2013. This, in turn, creates incentives for investments in the reduction of emissions.

A minimum carbon floor price is detrimental to the system, it would distort incentives without having a positive impact on the government’s target of 20 % lower emissions. The Emissions Trading Act does not deserve such a distortion of the market.

MPS What are the prospects for resuming work on the Goldenberg (Huerth) IGCC plant?

Johannes Lambertz We have completed our preparations for the project at Hürth. However, the first steps for the concrete implementation have been suspended for the time being. This is due to the lack of acceptance for CO2 storage in Schleswig-Holstein and the CCS legal framework which has not yet been adopted in Germany. However, we remain committed to numerous other projects to take CCS technology forward which, in the opinion of most international experts, is one of the most efficient tools in combating climate change.

MPS RWE is, I believe, Europe’s fifth largest utility. It was stated at the 2009 Results press conference that RWE has no more expansion ambitions in the region – for the foreseeable future. Can we take it that when more money is available those ambitions will be renewed, and perhaps outside the region?

Johannes Lambertz At Hamm, Neurath and Lingen we are building large power plants with a total investment volume of approx. r5 billion. Compared with old power plants, they avoid about 10 million tonnes of CO2. In addition, billions are being invested in the transmission and distribution grids and in the development of an efficient charging infrastructure for electric cars. RWE is among the pioneers in this field.

Dr. Johannes F. Lambertz is Executive Vice President of RWE Rheinbraun AG, Fossil Power Plants portfolio.