Digital start-up often shift course in spectacular fashion; in fact, pivoting is a condition of their survival in the ultra-fast-moving world of the digital economy. But it is also not unheard-of for industrial giants to profoundly change the way they do things. The current energy transition, of which the major energy companies are at the centre, provides a few examples of just such cases. What do their strategic shifts involve? The shift that Engie has been making over the past few years is now a textbook case, and we asked Gwenaëlle Huet, Managing Director of Engie France Renewables, to talk to us about it.
The energy production sector is undergoing rapid change, particularly as a result of political decisions that alter the economic equation, but also as a result of technological advances. The integration of ENRs into the energy mix is not only a constraint but also a real economic opportunity. This is the direction of the strategic shift Isabelle Kocher took when she became Engie’s CEO in 2016: focusing on low-carbon energies, with a double shift: the sale of assets, such as coal-fired power plants, and investment in renewable energies. More than 12 billion euros of assets have been sold to date. Freeing up financial resources allows technological development. Whatever the new production methods deployed, digital will irrigate them more and more. Engie’s strategy in France, analyzed here in detail, is to be considered in the context of a global strategy that takes into account an emerging issue: the emergence of local loops. In the near future, an increasing proportion of energy will be produced at consumption sites, in buildings, at home, in factories or in cities. A genuine decentralization of production is looming.
Paris Innovation Review – The energy transition is playing an increasingly central role in the industrial strategies adopted by energy giants and as director of the Renewable Energies business unit in France you are at the heart of this move. Can you explain to us what it involves?
Gwenaëlle Huet – It would be fair to say that our industry is undergoing a period of rapid transformation as a result of increased awareness fuelled by both scientific studies and now also political decision-makers, too. A great deal of work in the field has shown that our resource consumption levels are too high, amounting to around one and a half times the planet’s resources! This is simply not sustainable in the long term. At the same time, new, more environmentally-friendly methods of producing energy are being developed and becoming more advanced every day, with some having long proven their competitive advantages.
Doing more to protect the environment is no longer just a principle but rather a valuable economic opportunity. Furthermore, many financial institutions, such as rating agencies, for example, are taking level of commitment to using less carbon-intensive production methods into account when it comes to assessing a company.
This all helps to explain the strategic shift instigated by Isabelle Kocher when she became CEO of Engie in 2016, refocusing our activities on low-carbon energy sources by adopting a two-pronged approach that involved selling certain assets, such as coal-fired power stations, and investing in renewable energies. Over 12 billion euros’ worth of assets have consequently been sold to date, demonstrating our commitment to moving away from coal and the oil prospecting and production sector. This development is having a very formative effect on the group, with the resources that the move has freed up now enabling us to invest in both renewable energies and energy efficiency and innovation. After all, technology also has a role to play in such an approach, since digital tools will become an increasingly important part of any new production methods used, whether based on wind or solar energy.
This sort of rebalancing effort is being observed in various countries. Can you give us an idea of what is being done in France, for example?
Our company currently has a renewable capacity of 6.5 gigawatts (GW) in France – the equivalent, in installed power, of six nuclear reactors. These resources consist primarily of hydraulic production (run-of-the-river and high-head dams) – an area in which we hope, of course, to continue to develop our activities, provided that the market is open to such development. Apart from this, we are the leading company in onshore wind energy with 1.8GW installed – the equivalent, in installed power, of nearly two nuclear reactors. We introduced additional capacity of 200MW in this sector in 2017, not to mention our leading position in the solar energy sector, with 900MW installed. Our aim is to reach an installed capacity of 3GW for wind and 2GW for solar energy by 2021.
Let’s stay with France for a moment, since this issue of the energy transition has a slightly different meaning here than elsewhere. Indeed, the relative scale of France’s nuclear plants, which account for three-quarters of electricity production, does detract from the decarbonization argument. This is one of the reasons why France has failed to progress at the same pace as its European neighbors with regards to renewable energies. Are there any others?
Yes, there are also regulatory and administrative reasons in particular. With regards to onshore wind energy, one of the main constraints is the extremely long time it takes for wind turbines to come into operation once a site has been identified, which can be anything from 7 to 10 years! This delay is largely owing to the administrative procedures involved, and is one of the reasons that Germany now has four times the production capacity of France.
Despite recent changes that have allowed us to reduce it by two years, the procedure is still a long one and has to go through several courts, with a risk of it being appealed each time. It is also worth bearing in mind that most projects (around 70%, in fact) implemented by Engie or by our competitors are systematically attacked by highly structured sectors, meaning that we need to improve the acceptability of our plants and deal with the issues raised.
Using flashing lights to illuminate wind turbines at night is one problem that is often highlighted by local residents, and we have consequently called for a change to the legislation to enable us to use fixed lighting, which would significantly reduce the visual impact that they have.
Do these same factors explain the lack of progress in France’s photovoltaic sector, or in the offshore wind energy sector, where no wind turbines have yet been installed?
With regards to offshore wind energy, the Ministry for Energy Transition wishes to develop this sector and we are delighted to hear that. Other countries are, indeed, some way ahead of us in this respect, and this difference is also partially down to the length of the procedures involved.
In 2017, Engie won an invitation to tender in the United Kingdom and will be in a position to begin producing before the Normandy-based contract it won in 2014! Indeed, when a company wins a tender in the United Kingdom it is also granted a building permit, since all relevant studies are performed prior to the tendering process. We do, however, currently have two offshore wind energy projects under way in France, at Dieppe-Le Tréport and Yeu Noirmoutiers. Floating offshore wind energy is another significant field of interest when it comes to marine areas featuring particularly steep gradients and one that we will be developing off the Greek island of Lefkada, in the Mediterranean. California and Japan might also eventually benefit from the rise in popularity of this method of energy production. Indeed, the cost of offshore wind energy production has already fallen below the €100/MWh-mark.
The issue where solar energy is concerned is a different matter altogether. Despite a shorter development time, France currently has only 7GW installed as opposed to 12 in the United Kingdom and 40 in Germany, notably owing to the great deal of toing and froing involved with regards to the legislative framework. The framework is now much clearer than it was and visibility greatly improved, with invitations to tender launched twice a year with a total volume of 1GW that has recently been increased to 1.7GW, and we are convinced that political commitment will help accelerate this even further.
Is it a decisive factor?
It’s certainly a major factor. Within the European Union it comes into play on two main levels, namely Union level and national level. The European Commission has set a target of 20% renewable energies by 2020 and France has to do its bit. It is fair to say that the route that France has taken does fall somewhat short of European commitments, but the government has confirmed its desire to achieve its goal with regards to renewable energies and reduce its nuclear usage to 50%. The multi-annual energy program (PPE) that is due to be published in June 2018 will help to clarify things and outline a clear and realistic pathway for moving forward. We are certain that renewable energies will be given the place they deserve within a more diverse energy mix. In fact, the minister responsible for the energy transition, Nicolas Hulot, has already announced an increase in the number of invitations to tender in the solar energy sector.
Presumably technological progress also plays a key role, in addition to political commitment.
Absolutely. Technological progress has helped significantly increase the profitability of renewable energies, and it’s not over yet. What we need to focus on now is innovating and trialing new technologies. We are putting a great deal of work into the issue of storage, for example, because renewable energies are intermittent and depend on the strength of the wind, the sun’s rays, etc., meaning that storage is a major issue. That said, smart grids are also part of the solution. We have conducted research and performed many tests with the aim of combining solar production with electrical vehicle batteries and consumption and have even internally developed a piece of software in the form of a smart microgrid that enables us to optimize the production of the electricity used to power charging stations. This is a new field for us but one that will give us greater control over the entire production chain. With this in mind, we have also bought out other companies such as EV Box – the world leader in charging stations for electric vehicles – and very recently Electro Power Systems (EPS), which specializes in energy storage and microgrids.
One of the major developments we can expect to see is the introduction of local loops. A growing proportion of the energy we use will very soon be produced at the site of consumption, be it in buildings, in our homes, in factories or in towns and cities, with strong indications that production will become truly decentralized. An increasing number of manufacturers are expressing a desire to recycle energy at their production sites, something that we have trialed at a site belonging to the Charles André group in Rivesaltes. In addition to the installation of 48,384 photovoltaic solar panels representing a total of 13.5 megawatts-peak in power, the production facility includes a research & development component that uses a micro smart grid solution. Three photovoltaic solar canopies feed into a lithium-ion battery-based storage system that, thanks to the electric vehicles used by staff who need to travel, helps to optimize energy management practices. Furthermore, the building can be switched to a grid connection at any moment to ensure continuity of service, so you see – there’s far more to developing your operations in the solar sector these days than just installing a production facility. In fact, that’s just the tip of the iceberg.
In addition to the buyouts and takeovers it has completed, which relate primarily to infrastructure specialists (networks, storage devices, etc.), Engie is investing €1.5bn in the sectors of the future, notably including the use of hydrogen and green gases. Can you tell us a little bit more about this?
Hydrogen production is first and foremost part of the process of producing electrical energy from solar and wind sources. As we were saying, one of the notable characteristics of this type of production is its irregularity, meaning that there are times when production is very low and others when production levels are high, with lower wholesale prices – sometimes even negative in Europe – reflecting peaks in production. Rather than selling it at a loss or not producing at all, it is better to find a way of using this energy, and one such way is to use it to produce hydrogen by means of electrolysis. This hydrogen is then stored and can be used to make synthetic methane by injecting carbon into it. Our aim is to develop this process not only in the field of mobility but also on a larger scale, rolling it out to storage solutions that will help increase the proportion of renewable energies in the electricity mix. We are in the process of weighing up the cost of this technology to see how long it would be before it became competitive. We are firm believers in the future of hydrogen energy – so much so that we have recently launched the Engie Hydrogen Business Unit, in fact. This will allow us to incorporate it into other technological building blocks to help make the gas, electricity and means of transport that we use a little greener.
You mention irregularity. This is the issue that really annoys people when talking about renewable energies and the negative prices in effect in some of Europe’s wholesale electricity markets some days show that the increased use of renewable energy sources is disrupting the production system. We are seeing a number of solutions emerging, but the use of hydrogen, which would make it possible to create a system combining renewable energies with gas power plants, is still at the research stage. Are there any other innovations in the pipeline that might help optimize the way in which electrical systems are managed?
Yes, a great deal of consideration is currently being given to this issue and industrial players like Engie are at the cutting-edge, if only when it comes to managing not only production itself but also production facilities – infrastructure – as best they can. We have recently developed a digital platform known as Darwin that is designed to manage our onshore wind and solar energy production facilities. We have a team of 35 people working exclusively on this issue and on data sciences, which allows us to manage our assets very astutely. The aim is to gather as much information from our facilities as we can, with one wind turbine fitted with around a hundred or so sensors. If we gather data from inside the blades we can establish what condition the equipment is in and anticipate any failures or potential obsolescence. With regards to solar panels, it allows us to anticipate failures and arrange to have the panel in question replaced or to cease production when market prices are lower. We are in the process of connecting all of Engie’s production facilities around the world to the Darwin platform to help us improve our costs, our productivity and the availability of our assets.
What is the success of this switch to renewable energies ultimately going to be based on? The international dimension? The technology?
The strategy implemented in France reflects what we hope to achieve. We have been streamlining the scope of our operations over the past two years and taken leadership of the operations in question. Whereas we previously held primarily financial stakes, we are now in a position to implement an industrial strategy.
We have to now step things up a gear by moving faster and increasing the number of projects we implement. We have to become a showcase for the group. One thing for sure, however, is that such an approach will also require an international dimension whereby much more significant invitations to tender will enable us to reinforce our expertise. Internally, meanwhile, we plan to implement a ‘3D’ strategy that will focus on decentralizing, decarbonizing and digitalizing.
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