Interview with Gary Mazzotti: We are investing over 12 billion in reducing emissions. We will be carbon neutral by 2040.

17. 5. 2021

This is a translation from an interview for the E15 daily, which was published on Friday, May 14, 2021. The original of the interview can be found here

The introduction to the EP Infrastructure Sustainability Report states that your mission is to provide the necessary infrastructure for energy transmission. How does this mission go hand in hand with the major transformation that is taking place in your company in terms of the new goals you have set for yourself as EP Infrastructure?

The transition to zero-emission sources of anything, including energy, is very important for Europe today. Coal-fired power stations are being decommissioned or replaced. Gas is essential for Europe to become independent of carbon. Our company is therefore ideally placed to help make this transformation happen. Europe has set itself the ambitious goal of being carbon neutral by 2050. We say we will meet these targets by 2040.

This is a very ambitious goal. What do you need to do to fulfil this commitment?

There are several routes we plan to take. First, we’ll look at our coal resources. We have three coal-fired thermal power plants in the Czech Republic, which we will replace by 2030. It could be gas, biomass, synthetic methane… there are more options. This transformation will substantially reduce our emissions burden. In another division, we are trying to power our compressor stations with renewable energy instead of gas. In Slovakia, we are experimenting with new gases – we are converting renewables into hydrogen to power our compressor stations. Carbon capture will become increasingly relevant for us. And once we get carbon underground, it will help us become carbon neutral.

If you can’t keep up with this transformation?

Then we will build some renewable capacity to offset our emissions. So we have a pretty detailed plan to meet the targets. But if you want to say for sure how it’s all going to happen, I don’t know.

EPH has historically invested in green energy, recently approving a huge investment to build wind turbines in Germany. Do you plan to move in this direction within EP Infrastructure as well?

For EPIF, renewables are not the main strategy. We will only step in if we cannot meet the targets and only where it serves as a supporting technology to a larger whole. Investing in renewables is more the EPH way.

You are presenting an investment-intensive plan. How much will such a transition cost you?

I think we need to invest substantially.

At the end of February, you issued half a billion euros of 10-year bonds. In koruna terms, this amounts to 13.2 billion. And it was relatively cheap money. Is that the way you want to go in the future in terms of financing this transformation?

EPIF is an investment firm. We have issued €2.35 billion of bonds so far. The latest subscription for half a billion euros indicates that the financial community understands the investment potential of our group. And they also see the role we will play in the context of the transition to clean energy.

Do you feel the rate of transformation to carbon neutrality increasing? Europe has set 2050 targets and companies are already racing to see who can reach the target first. Years like 2030 are already falling.

Two factors influence this situation. The first is the political consensus across the European Union and nation states, and the second is the investor community. If you look at insurance companies, they look very closely at how much is being discharged by the clients they insure. And let us also not forget that there is increasing demand for a clean Europe from citizens. It is no longer a question of if, but when. And every month the question of “when” gets closer and closer. Notwithstanding these changes, energy must remain affordable.

Will energy – with such a heavy investment load – remain affordable?

I don’t think energy prices will go up for the end customer. Because prices can only rise in proportion to the wealth of the people who consume the energy. You can’t have people paying more of their budget for energy, the states won’t allow that. So we’re going to focus either on better technology or financial subsidies.

This is not your first but your third sustainability report. How is it different from the previous ones?

This is not news. What is new is the extent to which the whole process has been accelerated. World business has gradually moved on to new technologies, and the new technologies tend to be cleaner than the old ones. So as your business evolves and grows, so does its environmental impact.
Energy transfer generally generates losses. Have you been able to improve this technical shortcoming as part of the development?

An important improvement of the whole central heating system is the switch to biomass and energy from waste. But I also see the future in carbon capture. But we are still 15 years behind. There is an interesting project in the UK, for example, where one of the large biomass power stations is storing carbon underground.
How important is this technology to you?

Economically, it’s not working out for us yet. It’s too expensive to get the carbon underground. However, the price of emission allowances will continue to rise, so the cost of production will also rise. As prices rise and carbon capture technology gets cheaper, it will start to spread around the world. Whether emission allowances will cost EUR 100 or EUR 150 at that time, no one knows.

But you are having some debate about the development of emission allowances within the fund.

Emission allowances have had a major impact on the decarbonisation of Europe. Their problem is that their price should rise in line with what is happening in the market in terms of technology, which is unfortunately not happening. I think that allowances will continue to rise for another ten years or so. If their price rises too soon, upward pressure on energy prices will develop. Nobody is going to run a power station at a loss. If, on the other hand, their price rises too slowly, we will not meet the decarbonisation targets. And although I believe in a free market, I do not think that allowances move in a functioning free market.

What do you mean?

This market has seen the emergence of investors who treat emission allowances as a speculative instrument. With a little exaggeration, allowances are becoming a CO2 bitcoin. And central banks are pumping money into the economy in the wake of the pandemic. That money is then finding employment wherever it can. For example, in the emissions allowance market.

Back to new technologies. All of Europe wants to capture carbon, and business is also becoming increasingly vocal about hydrogen as the energy of the future. You are developing hydrogen energy technology. What is its potential?

There is a consensus across the market on hydrogen. And it’s not just about its supply. Today, hydrogen technology is in demand by the steel industry or by agriculture for ammonia production. The next hydrogen application will be in transportation. But we’re not there yet. Burning hydrogen for power generation is terribly expensive. Hydrogen will develop in several directions. The so-called grey hydrogen is the one we know and use today – the most common type. It will be converted into blue hydrogen by capturing carbon underground. So a cleaner type of hydrogen. And the purest type is turquoise hydrogen, which is produced by extracting hydrogen from natural gas. It’s an experimental technology. And then you can produce green hydrogen. That is, only if your country is full of renewable energy.
You are also experimenting with synthetic methane in Slovakia.

Yes, this technology goes one step further than carbon storage. Methane is much easier to transport than hydrogen, you can also store it better. We’re looking at how to turn hydrogen into something that will be easy to transport over longer distances. Which is just synthetic methane, which has similar properties to natural gas.

Will Europe’s role in the transition to carbon neutrality remain pivotal in the future?

The European Union is here to put pressure on others. And logically, the EU always pushes a lot. It is then up to individual nation states to control it. So I don’t see the problem with that. But we are still waiting for nuclear and natural gas to become part of the European taxonomy. They are not yet. But everyone is already aware that without nuclear and gas, there will be no carbon-neutral Europe.