Latest / Columbia Energy Exchange / Speed to Power: Christian Bruch on Siemens Energy's Turnaround

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Speed to Power: Christian Bruch on Siemens Energy's Turnaround · Columbia Energy Exchange

• 0:00
  Christian Bruch:
• 0:01
  Globally, I do believe this continuation of growth and electricity will prevail. We were always discussing about sustainability, reliability, availability of supply, and now there comes the dimension of speed to power. The speed of deployment or speed of generation capacity is, I think, a new equation, what we are seeing that, actually, speed has a value.
• 0:02
  Jason Bordoff:
• 0:03
  Siemens Energy sits at the center of many of the biggest forces reshaping the global energy system, rising electricity demand, pressure on grids and transmission infrastructure, supply chain bottlenecks, geopolitical fragmentation, the renewed importance of natural gas, shifting policy support for clean energy and the growing tension between affordability, sustainability, and energy security. The company's experience recently also captures the volatility of the energy system.
• 0:04
  In 2023, quality problems at its renewables division triggered billions of dollars in losses. Since then, Siemens Energy has staged a significant turnaround, making it a useful lens through which to understand where the global energy system is headed.
• 0:05
  So what does Siemens Energy's recovery tell us about the future of power? How's the company thinking about the surge in electricity demand from AI and the pace of the energy transition? And how is it responding to swings in market demand for renewables, particularly in the US wind market?
• 0:06
  This is Columbia Energy Exchange, a weekly podcast from the Center on Global Energy Policy at Columbia University. I'm Jason Bordoff. Today on the show, Christian Bruch. Christian is president and CEO of Siemens Energy as well as president and CEO of Siemens Energy Management. Earlier in his career, he worked for more than 15 years at the Linde Group where he held a number of leadership roles. Christian started his career with the German energy company, the RWE Group, where he rose to head of research and project development at RWE Fuel Cells.
• 0:07
  Christian joined me to talk about the opportunities and challenges that Siemens Energy is facing today from surging electricity demand and growing infrastructure investments to geopolitical headwinds and supply risks. We talked about the future of wind power, how the company's navigating all that policy uncertainty, and strategies to boost productivity and capacity in order to move faster toward electrification, both in developed and in developing markets. I hope you enjoy the conversation.
• 0:08
  Christian Bruch, welcome to Columbia Energy Exchange. For the first time, I can't believe we have been remiss in not having you on, given what an important role you play, not just in Europe, but in the global energy system, but it's good to see you again. Thanks for making time. I know how busy you are.
• 0:09
  Christian Bruch (02:52):
• 0:10
  Thanks, Jason, for having me. I'm looking forward to the discussion.
• 0:11
  Jason Bordoff (02:55):
• 0:12
  There is a lot to discus, we will no doubt run out of time, but I think by this point, especially these days, when everyone's looking for another gas turbine and looking for issues with the electricity grid as demand rises for reasons of AI and other, I think people are broadly familiar with what Siemens Energy is all about, but for people listening, just give a sense of what the company is, its history, what its focus is.
• 0:13
  Christian Bruch (03:19):
• 0:14
  Yeah. Look, we go back, let's say, from the Siemens stage from to 1847, but at the end, we are also a six-year-old startup, which is present along the whole value chain of energy, which comes really from generation transmission of electricity, but also in the industrial space in terms of how to make more efficient use of energy. So we cut across the whole energy business and in this regard, obviously play in a lot of different segments play in more than a hundred countries of the world. And as you said, I mean, it's not just gas turbines, it's renewables with wind, it's transmission, it's grid equipment, but it's also from compression steam, you name it. But at the end, we are driving electrification and electricity growth. This is what we aspire.
• 0:15
  Jason Bordoff (04:05):
• 0:16
  And as you said, six years, you've been at the helm of Siemens Energy. The energy industry is known historically for cycles of boom and bust, but I'm trying to think of another comparable individual who in a six-year period has had the kind of dramatic swings that you have seen with an energy crisis in 2022, an energy crisis today, and of course swings in how the company is doing and the steps that the government had to take to help after the last energy crisis. Just help people understand that arc of the last six years and how you've been coping with it.
• 0:17
  Christian Bruch (04:41):
• 0:18
  No, it has been a tremendous journey. And first of all, obviously we have the privilege to sit on a very broad portfolio of technologies, more than 20,000 patents. And this gave us a position into the energy market when we started six years ago to say, let's see where we can play and where we would want to play. Six years ago, you might recall all our discussions. It was much more sustainability and the focus, a lot of different views on gas, a lot of different views on the role of the grid, interestingly enough. Some of these things have fundamentally changed some of these things we have been seeing coming, some of these things we have not been seeing coming. Throughout these six years, we obviously tried to not only serve the energy market, but also to shape the company for driving the energy, I would call it transformation and obviously having also taken over a hundred percent of our, let's say, wind daughter, Siemens Gamesa, which was a challenge because they made billions of losses. And that was a time in 2023 when we had to do a full turnaround of the company while let's say other businesses started to grow super fast, like the grid technologies business.
• 0:19
  Jason Bordoff (05:58):
• 0:20
  I saw a quote from you where you called it, “Absolutely an existential crisis. For months, I could not sleep.”
• 0:21
  Christian Bruch (06:05):
• 0:22
  Yeah, no, 2023, we are a fast growing company. We roughly, let's say, we have a double digit billion amount of guarantees, which we hand out in terms of projects and orders, which need to continue to flow. We turn a lot of cash by the projects we execute and you are dependent on being liquid in terms of your financial resources being supported by the banks. And when we reported a roughly four billion euro loss in the wind business, everybody took a step back and said, "Oh, wait a minute." And that was really an existential crisis where we had to reposition the company. We had to regain trust also with investors and also with the banks and that was obviously-
• 0:23
  Jason Bordoff (06:44):
• 0:24
  And just to remind listeners, so Siemens Gamesa the wind division of the company and there were quality issues. That's what you're talking about.
• 0:25
  Christian Bruch (06:52):
• 0:26
  Yeah. Exactly. That's what I'm talking about. So we had actually three quarters of the revenue, which run perfectly and fine growing, improving every day. And then we had around a 10 billion business, which is the wind business, which had this massive hit of four billion losses in a year and that really what turned around the situation or the perception of the company. I felt very comfortable to turn around the company at that point in time, but you had to rebuild the trust obviously step-by-step in the market and also with investors and the banks. That took us some time, but since then we had an, I would say, incredible journey.
• 0:27
  Jason Bordoff (07:30):
• 0:28
  Say another word about how you did that. This is an energy podcast, not a business school leadership podcast, but I'm curious as a leadership challenge, how you rebuild that trust and how you steer a company through that kind of challenge.
• 0:29
  Christian Bruch (07:42):
• 0:30
  No, absolutely. And first of all, you have to ensure that you reestablish the trust also inside your own company with the employees, with everybody who's contributing because they need to continue to work every day fully focused on the customer orders. And a lot of this was communication. A lot of this was staying on and staying visible and staying in front of the company and explaining the steps what we are doing to say, "We are here and this is where we are going and these are the next things you can hold me accountable to every quarter, as simple as this. And definitely there were also the benefits of having some tailwinds in the energy market to be clear, but a lot of this was the trust in our own capabilities. I was convinced that we have everything in the company to drive a successful energy infrastructure business and this is what we have proven.
• 0:31
  And this then over the quarters also the trust from the investors came back and a lot of this was communicating, communicating, communicating. And we have relatively also for the employees, relatively simple, communicable structures that they understand where we take the company. And that was enormously important that they can really from the top of the mind understand why is the horizon sunny and looks good and that we did, I think, successful.
• 0:32
  Jason Bordoff (09:06):
• 0:33
  You mentioned a couple of things already, the shift in the discussion narrative around climate change and the transition, natural gas, wind. So you've put a bunch of issues on the table already I want to come back to. So stay with wind for a moment since we were talking about Siemens Gamesa. What you see as the outlook for the industry now, offshore wind was already having, I think, some economic challenges just because of market conditions. We now have a president in the United States who seems to not like offshore wind very much and is trying to get out of deals where the government had auctioned waters to allow wind projects to move forward. What do you think the outlook is for wind power, both onshore and offshore?
• 0:34
  Christian Bruch (09:44):
• 0:35
  Look, Jason, I still believe wind power is needed going forward in the equation of the energy mix. And this might be different per regions. There might be regions who say, no, I don't want it. There might be regions who say," I absolutely do need it. If you see the current status of the industry, market is still growing also onshore and offshore. We shouldn't forget that the wind market is as big as in terms of gigawatts as big as the gas market. Everybody talks about gas at the moment and we should not overlook that there is still a decent generation technology like wind. So I'm actually pretty positive in the sense of will wind still be around. But if you take offshore wind, because you mentioned it and obviously we are, let's say leader in the offshore industry, the market is much more regional. It anyway has only be always a couple of countries in the world.
• 0:36
  Let's assume 10 countries in the world focus on offshore wind. I do see this continuing. I mean, yes, it is challenged in the sense of that financing cost went up quite a bit and yes, absolutely the US, I don't see new offshore wind market in the next couple of years. That is also clear, but you have seen the auction rounds in the UK recently, which was relatively successful in the gigawatts and it is not to forget, that is the renewable energy source with the longest operation time per year. And that is a value, particularly if you see that you need to stabilize a grid.
• 0:37
  Jason Bordoff (11:11):
• 0:38
  The highest capacity factors you mean?
• 0:39
  Christian Bruch:
• 0:40
  No, the highest hours of operation. If you take the 8,760 hours in a year because the wind conditions are obviously better on sea than normally in a lot of onshore cases, the amount of operating hours you get from an offshore wind park is a lot higher. And that is a benefit if you want to build alternatives. It depends on the conditions which every region has. Look on the US, which is relatively independent from an energy perspective, seeing the hydrocarbons resources. Look on Europe, which is now let's say much more including renewables into the equation and Europe, particularly Northern Europe, has some constraints. You recognize it every day in solar because sun is not shining that much here. And in that regard, wind will play a key role. You see similar discussions in Taiwan and Korea and Japan. So you will have countries which will include offshore wind in the equation.
• 0:41
  (12:12):
• 0:42
  It is at the end if you take offshore wind, it is relatively small market, but it's a good market to be in. And since we are market leader, I'm still confident on offshore wind, even if we see that at the moment a little bit a dip seeing the higher interest rates, which influences obviously always the build out of the renewables.
• 0:43
  Jason Bordoff (12:32):
• 0:44
  How policy dependent is that offshore wind market and how do you handle the dramatic swings in policy that we see not just in the US but elsewhere?
• 0:45
  Christian Bruch (12:39):
• 0:46
  It's absolutely policy dependent because the auction rounds are defined by policy and obviously you need a long-term planable framework in terms of really executing these projects or deciding on these investments. And the key thing is here, stability of policy. It's not so much is it now good or bad, but it's really make this stable. And you see the struggle at the moment. Take my own country, Germany, where they had offshore wind auctions, they now debate about changing the bounding conditions and immediately the investment decisions are delayed because everybody looks on it and tries to understand what is coming. That's not good. It's an industry where you need six to seven years to build a wind farm in offshore wind. And in that regard, you need planable conditions for investors to understand what the payback going to be. So it is super important. Stability is super important and that is something where we try also to help the governments on how to frame that.
• 0:47
  (13:38):
• 0:48
  I would always say the good example in the world who has really done this extraordinary good is the UK.
• 0:49
  Jason Bordoff (13:45):
• 0:50
  You mean policy, stability, you mean?
• 0:51
  Christian Bruch (13:47):
• 0:52
  Policy stability or when they change the policy to clearly put it in a framework to make it still planable. And this is also why I think auction round seven in the UK, which was the last auction round for the offshore wind was very successful in terms of the deployment of gigawatts.
• 0:53
  Jason Bordoff (14:05):
• 0:54
  How would you characterize the investment climate in Europe more broadly? A lot of people I talk to find it a very difficult market to invest in because of the regulatory issues, everything on the Draghi report and not enough progress being made to address that.
• 0:55
  Christian Bruch (14:18):
• 0:56
  Yeah, I know I clearly have, as a proud European, I always have to say, "much better than you believe." And you see people investing here and absolutely Europe has its challenges in terms of energy independence. European Union is a slow acting player in certain reforms, but still I think you have a lot of capabilities in this region here. If I look on my order book, I see a very decent amount of share of order still coming from Europe. It's neck-on-neck always with the US, but there is a very decent investment also into energy infrastructure. What Europe does different on the energy side is I would say proportionally it invests more into the grid infrastructure and less intergeneration. That is also driven by less electricity growth, what you see in the region, but it still invests a lot in energy infrastructure here in Europe. And I think you have a lot of great companies here in Europe, which you can bring together.
• 0:57
  (15:18):
• 0:58
  And I'm confident that also reforms slowly but reforms will come and we are investing in Europe, we are investing in the US and we are investing in Asia because you have to be present in the respective regions if you want to play there.
• 0:59
  Jason Bordoff (15:35):
• 1:00
  You're sitting in Germany as you talk to us now and obviously a country you know pretty well where energy is critically important for industrial competitiveness for the economy. I'm curious what shifts you've seen with these energy shocks of the last several years on nuclear power, for example, or in other ways, how is the country responding and policy change?
• 1:01
  Christian Bruch (15:55):
• 1:02
  Yeah, a couple of things to that. I mean what you do see is the understanding got a lot better also in the government or with the policymakers that energy infrastructure, generation infrastructure needs to be diverse. So a lot of different technologies. It's not just renewables and batteries. You heard about the gas package, which is now like the around 10 giga to be installed on top. I don't think in Germany you will see a renewed nuclear discussion simply because of complexity and simply because it's so much easier to source nuclear power from France or Czechia or Poland, wherever you build it. And that is a great thing about having a strong grid. But I would say the discussion here got a lot more pragmatic in terms of on how energy looks like. That said, one thing to be clear, Germany and I think Europe in total will always be disadvantaged if it comes to electricity cost.
• 1:03
  (16:51):
• 1:04
  Electricity costs will here always be more expensive. That said, we always have to be also aware that as much we talk about energy cost and electricity cost in Europe, that's not the major cost criteria for European companies. It's much more on the labor side. So you could do a lot of reforms which make European companies more competitive and then yes, you need to find a way to compensate for an energy cost disadvantage, but we will never be able my view to compete either with the Middle East or with the US on the energy cost side. I think Europe has to do other things to make this region successful.
• 1:05
  Jason Bordoff (17:30):
• 1:06
  And talk about the US market for a moment. Obviously you said we need policy stability. We have not had that in the United States. We've had dramatic swings and the Republicans pulled back significant parts of the Inflation Reduction Act, harder to get permits for renewable projects, but still solar is going to be by far the fastest growing form of new power generation capacity in the US. How big a difference did those policy shifts make in the outlook for energy investment here? And then beyond renewables, it may have looked gone in the other direction. How much did it make it easier for natural gas or is this just more perception than reality?
• 1:07
  Christian Bruch (18:06):
• 1:08
  Yeah, maybe the change has been less than you would expect, right? Because obviously on the wind side, yes, absolutely. I mean, we were looking into reentering on the new unit market in wind in the US, which we pushed out a bit seeing the obviously current situation, but a lot of the things we are doing on the grid side, on the gas side, on our industrial equipment actually we continue throughout all the years now and execute the plan. The only thing what we obviously have now done, we push even more investments into the US. I mean, you might have seen our announcement to invest a billion dollars in the US and it's probably not end there. It will probably continue and particular to build out factories for grid infrastructure and also obviously more factories for gas services or for gas turbines, but it is not such a major shift from a policy side.
• 1:09
  (18:59):
• 1:10
  What is obviously a shift for us is, or the planning element is how do the tariff looks like, what other restrictions might be there? So it keeps us busy, but fundamentally I would not see that the infrastructure built out is so different if it relates to us of what needs to be done. There
• 1:11
  Jason Bordoff (19:20):
• 1:12
  Are a couple of macro forces affecting that in terms of the focus on the power grid, not just in the US but elsewhere, but also this current energy shock. You talked in Europe, for example, about the focus on renewables, efficiency, rethinking natural gas. There's a lot of discussion as there was in 2022 that when you have a geopolitical shock to global oil and gas markets, it spurs a faster transition. Is that sort of optimism among people who want to see that or do you think it really is having that impact? And I know it's early days, so we're two and a half months into this conflict, but what's your sense? Yeah.
• 1:13
  Christian Bruch (19:55):
• 1:14
  First of all, globally, we have to say that renewables is still the fastest growing generation capacity. We should never forget it. It sounds as if energy transition is out of the window, which I don't think so, simply because it is a logical element in the energy infrastructure. I do not see a deliberate change yet in terms of how to do it that you would say now you accelerate all offshore or onshore wind or big solar parks. This is not what I'm seeing because people obviously plan much more from what is mid and long-term needed. And I believe most of the people see it still a bit in terms of we will get through this crisis and getting back to somewhat a normal ecosystem of energy flows. So not fundamentally I would see a change in the regard of energy independence there, at least not more than it was there before.
• 1:15
  (20:46):
• 1:16
  What I think Europe was much more influenced in its view on energy independence by the Ukraine war than now by the Strait of Hormuz was as challenging as it is to obviously handle at the moment this gap in the capacity.
• 1:17
  Jason Bordoff (21:00):
• 1:18
  Yeah. I mean, what you're saying makes sense, particularly from a company perspective. You have long-term plans and you're not going to change it in response to a shock where if the strait reopens tomorrow, markets were bearish before this all started. We were in an oversupply situation. But for governments that are looking at energy security and potentially thinking, you know what, in this world of geopolitical fragmentation and this collapsing world order we seem to be in, we're more worried about energy security than we were before and we need to take steps to enhance it, maybe invest in expand strategic stockpiles. Do you see governments reacting that way or not?
• 1:19
  Christian Bruch (21:40):
• 1:20
  No, that's my point. I'm not. I'm not seeing that deliberately. And while from a logical perspective, you are absolutely right, I don't see this change in mindset yet that you would really say, and that is why we push something forward or we are willing to, let's say, invest money in a different area or write a different policy. While everybody agrees to that complexity or to this vulnerability, I'm not seeing respective action.
• 1:21
  Jason Bordoff (22:08):
• 1:22
  And I guess in Europe in particular, that kind of insurance policy for energy security comes at a cost and fiscal balances are strained.
• 1:23
  Christian Bruch (22:16):
• 1:24
  Absolutely. It comes as of course at a relatively expensive system. Obviously the logic in Europe is the grid is in the center and it tries to combine very diverse generation infrastructures from the hydropower in Norway to the nuclear and France to the mix of renewables and gas in Germany over to the East. So it tries to combine these different sources and the grid plays an incredibly important role in that in terms of bringing that together. But this was also a discussion before, as I said, particular triggered out of the Ukraine war and the gap which the Russian gas left behind.
• 1:25
  Jason Bordoff (22:55):
• 1:26
  And then the other macro force of course is this rising power demand, AI and data centers. Stepping back, the kind of exponential growth curves, there is insatiable appetite for power and we need to build, build, build. I'm wondering if you think that is kind of potentially exaggerated or if in fact we're going to look back and be like, yes, of course we needed to build more power generation, but it turns out people learn how to use energy and power more efficiently. They use existing power generation sources a bit more through demand flexibility and other things. What's your sense of where we're headed?
• 1:27
  Christian Bruch (23:30):
• 1:28
  Yeah, look, I mean, first of all, I don't know what happens in five to 10 years, but what I would say, what I currently see from my perspective, I don't see any stop to this build out of the generation infrastructure. So I'm very positive on this midterm demand and this elevated level of electricity generation. Obviously you will at one point in time when you, let's say everything is grid connected, you balance it out better, you will have a lot of capacity available, but I think it will also drive further electrification, which we should never forget. Only a small fraction in energy demand is actually electrification. We talk so much about that we want to do more electrification. If you would really electrify the mobility sector, you double the electricity, world electricity consumption. If you would electrify chemical processes, you would obviously add an enormous amount.
• 1:29
  (24:21):
• 1:30
  So I'm positive in the mid and long term on the electricity growth in general on a global base. You have exceptions to that. And this is why, for example, looking back on Europe, as you said before, Europe is not growing in electricity consumption. It's not. US is absolutely, and US is driven really obviously particular by the data center demand, which is a change. But fundamentally globally, I do believe this continuation of growth and electricity will prevail and it adds one equation now one element to this equation. We were always discussing about sustainability, reliability, availability of supply and now there comes the dimension of speed to power because that is determining at the end the dominance of AI or not. And can you achieve supremacy against others? And this speed of deployment or speed of generation capacity is, I think, a new equation, what we're seeing that actually speed has a value.
• 1:31
  Jason Bordoff (25:25):
• 1:32
  Yeah. Is that the biggest kind of risk to energy security today? It's actually supply chains and the ability to grow supply chains. And you're squarely at the center of this. Everyone talks about how many years the order book is for gas, turbines and other equipment from companies like yours. Is that the biggest challenge we have right now?
• 1:33
  Christian Bruch (25:43):
• 1:34
  Look, it's always a challenge in an industry which operates projects over years if something dramatically fast is changing. You have to build up new contractors, you have to build new factories, you have to probably get more raw materials. So it's a change process and absolutely these teething panes in terms of bigger capacities in the industries will be visible and they are visible, but it's a good problem to have. And at the end, I'm not questioning whether we as an industry are able to face it. I would just question is what you can do overnight or not overnight. So certain things will take time including building all this stuff. I mean, you will need construction workers pouring concretes or whatever to build a foundation. And so this has to grow with it step after step, but fundamentally this will be resolved, but you will see in the next two to three years, some shortfalls in the industry of just digesting this growth.
• 1:35
  Jason Bordoff (26:42):
• 1:36
  Yeah, you said it's a good problem to have. And I feel like that's true. Tell me if you agree, not just for the Siemens Energy share price, but what you said a moment ago, if we want to electrify, if we want to have a faster transition, we just need an enormous amount of capital invested to upgrade and modernize our grid to get cost allocation rules right in places like the US to figure out how to do permitting reform to build faster. The urgency of this and the amount of capital being put into this space from the hyperscalers, the infrastructure funds seems like a huge opportunity, even though I know people are concerned with what AI might do from an emission standpoint or more gas build or something. I think if we have a unique opportunity, I feel. I don't know if you agree with that.
• 1:37
  Christian Bruch (27:21):
• 1:38
  No, absolutely. And I mean, imagine when have been the last time when we have built such an infrastructure really more or less completely with so much, there's never been so much money invested into energy infrastructure like today. It is a unique opportunity from a business perspective, absolutely, but also as societies to build more resilience, more, let's say, sustainable and putting more into that. So it is a fantastic opportunity to have, and it also brings one element to the table, which actually is an interesting one particular if you look back to renewables or grid or whatever, because that is also largely hinging then on financing cost on interest rates. So a lot of these developments actually will depend very much on is it financeable and is it on competitive rates? And if I see, for example, at the moment some big offshore discussions on the wind side, they will all depend on the interest rate, not so much whether the technology is there or whether the products are affordable, but if you have an interest rate with a 4% instead of 2%, then you have a problem to roll out that energy infrastructure.
• 1:39
  (28:31):
• 1:40
  So what I think the policymakers have to see on how do they get maybe the risk related piece of the interest rates under control or how do they want to push certain projects forward in a time when an enormous amount of capital is required and obviously compared to fossil or let's say more conventional type of technologies, renewables grids tend to use more capital in comparison to then afterwards having lower variable cost, but this brings obviously financing and interest rates in a core element of making energy transformation successful.
• 1:41
  Jason Bordoff (29:10):
• 1:42
  So if a policymaker in say advanced economies were to ask you, how do we not miss this opportunity that we were just talking about cost of capital, the capital intensity of what needs to happen, that would be where you would tell them to focus a lot of their time, I'm sure along with things like permitting reform or something, but yeah.
• 1:43
  Christian Bruch (29:27):
• 1:44
  Absolutely, because I think private capital is available, but at sometimes you might need, depending on how you frame certain things, you might want to de- risk projects, giving a backstop, allowing capital to flow and take out the uncertainty. And these are the things where I think policymaker can go a long way because private capital is available and should be made available to the investment into the infrastructure.
• 1:45
  Jason Bordoff (29:49):
• 1:46
  And you said a moment ago, so there's hiccups along the way. The next two or three years are difficult, but eventually we get there, we build out the supply chains, we expand. But when you're in a race to win or a race for leadership and maybe the defining technology of the 21st century, the stakes in the next two to three years are pretty high for how companies are going to be able to get the power that they need. So how do you see that playing out? I think it seems to me like failure is not an option and companies will do whatever they have to do to figure out how to get power. It's existential for them too.
• 1:47
  Christian Bruch (30:24):
• 1:48
  No. I absolutely agree and obviously you see it already. I mean, look on the US in terms of what type of solutions people try to find at the moment just to generate electricity in the shortest possible timeframe. And also ourselves, we are doing, let's say, a lot to transform the way we operate. How can we get more productivity out of our processes? How can we get faster? Can we find a workaround solutions in terms of ramping up capacity? So I think we have never been so creative of doing things differently and it's less about the technology itself. It's doing things differently as an industry. And keep in mind, energy has been for a long time, a slow growing, not for a lot of people, not super exciting industry, but it has been rather a slow moving type of engine. Now you shifted whatever, two or three gears up, speed is much higher and you need to do things differently.
• 1:49
  (31:18):
• 1:50
  So as you said, failure is not an option, but it also means we need to work completely different as companies, but potentially also as an industry.
• 1:51
  Jason Bordoff (31:28):
• 1:52
  Yeah, your point is a good one. It is interesting to see how companies are almost jury-rigging solutions using old aircraft turbine engines and turning them into gas turbines and things like that. People are being very creative, I think while the whole industry catches up and the supply chains shift. On the question of how to scale supply chains and move faster toward electrification, also hopefully a faster transition toward solar and electric vehicles and batteries, a question that often comes up there is how to think about supply chain security risk, namely China's dominance in many of these markets, whereas the energy security conversation for many decades has been more one of global oil and gas trade and the role of OPEC and things like that. It's biweekly email I do, you're on the distribution list. I'm sure you're too busy to take a look, but I commented yesterday on a new report I found interesting from former UK national security official who was writing about the risks to European energy security of excessive dependence on China for all the products and technologies it needs.
• 1:53
  (32:33):
• 1:54
  How do you think about those security risks and the spectrum of risk? A solar panel is probably different than Heavy Rare Earth, something like that. How should policymakers understand them and what should they do about them?
• 1:55
  Christian Bruch (32:43):
• 1:56
  Yeah. First of all, to be crystal clear, I read your newsletters. I mean, obviously the first thing is to become aware of your dependencies. And I think this was a big step over the last couple of years in terms of understanding vulnerabilities on how dependent you are and now is gradually together with policymakers at least trying to diversify it. That said, we have to be aware there's no way to create an independence over the next decade in certain supply chain. There is a way to diversify on certain supply chains or to create dependencies on the other side so that you have something to trade with. But I appreciate and I welcome very much the activities which are done in the US administration as well as in Europe in terms of trying to bring it together. I also believe some of it should be actually governed by a policymaker because look on us, right?
• 1:57
  (33:44):
• 1:58
  I mean, we need certain materials. While I can diversify or invest myself in certain areas, I will not be able to, let's say, make sure I safeguard all the critical minerals what I need. So that is a really first and foremost policy driven procedure, but we are in for decades. It will take decades to really change the picture and this goes far beyond the ability of one administration and we have to be aware of this, but also here step after step, but we negated it or we ignored it for the last three decades and it will take three decades to fix that.
• 1:59
  Jason Bordoff (34:26):
• 2:00
  Can we move from an advanced economy conversation for a second to how you view the outlook in emerging and developing economies, which are obviously experiencing rapid demand growth, power demand, but probably AI and data centers is not the primary driver of that. It's economic growth and air conditioning and industry, how is it different say in Africa or Southeast Asia trying to put capital to work and trying to do business there?
• 2:01
  Christian Bruch (34:49):
• 2:02
  I think it's very different in the different regions, right? I mean, if you compare Africa in terms of leveraging bigger projects, which is particular on the equity side, a lot more challenging if it comes to bigger projects where you need different structures. But at the same time, if you look like a place like India, which is actually the, let's say, really fast-growing energy market, completely transforming a lot of renewables, a lot of grid investments, a lot of own in- country capabilities to build the infrastructure coming up. So you see very, very different pictures. What you also do see is obviously that because of the high demand in all regions of the world, obviously you have seen prices going up on grid equipment, on gas turbines. You see certain countries, let it be in Southeast Asia or let it be also in Africa, which are not as wealthy and not as rich, obviously being challenged quite a bit to progress on their energy transformation and to build fast enough capacity on an affordable base.
• 2:03
  (35:52):
• 2:04
  And that is something which should be a concern to us because at the end we need to make sure that obviously we help these countries also to prosper. But I see a disconnect at the moment between whatever say the, how do you want to call it developed and less developed countries, which is at the moment creating a stretch particular for the upcoming economies.
• 2:05
  Jason Bordoff (36:21):
• 2:06
  As you think about modernizing the grid and so much of the conversation is about how do we build more? We need more gas turbines, we need more transmission, but how do you think about using existing grids more efficiently because technology can help with that a lot. We have a grid built to handle a few days or a few weeks a year when demand is highest, but a lot of the grid is unused a lot of the time.
• 2:07
  Christian Bruch (36:45):
• 2:08
  Absolutely. And this will be the key thing for a very simple reason because if electrification goes, as we believe, you cannot physically build it in that timeframe where you need it. I mean, you have thousands of gigawatts of capacity not connected to the grid because they're waiting for the grid connection. So you have to use it smarter. There's room to use it smarter. Keep in mind it's also equipment in the grid, which is like 30, 40 years old, so it's not intelligent and you have to develop systems which can bring the things together. We are doing a lot in that. We launched this year, what we call Noedra, which is our software and digital suite. So we trying to create a capable mind of the grid that the grid is capable at the end to think independently autonomous to really root more power through the lines which are existing.
• 2:09
  (37:34):
• 2:10
  This will be an indispensable element of building out the grid. And by the way, it also doesn't make sense to invest so many billions and billions and billions in materials and copper and cables and transformers and not squeezing the assets to the maximum. And that will be over the next years the area of growth and change and transformation, potential is vast. And it's not just about getting more through the lines, it's also how to stabilize it differently. Also, that will be, let's say, a very software driven focus. Definitely that is something which is for us on the top of the list.
• 2:11
  Jason Bordoff (38:12):
• 2:12
  And I presume while AI is a driver of some of that increased demand growth, it's also my understanding a powerful tool to help with that- Absolutely. ... better use of the grid. Yeah.
• 2:13
  Christian Bruch (38:20):
• 2:14
  I mean, I have to say, Jason, I'm thrilled at the moment really by the examples I see in my company by using AI and it is on the one side really developing digital to solution, which makes it much easier to operate effectively in grid infrastructure. But at the same time, the amount of productivity which we got out of the factories more by deploying AI tools is tremendous. And this all of a sudden allows you to use, let's say, more from your existing assets getting faster. So I think the amount is impressive.
• 2:15
  Jason Bordoff (38:55):
• 2:16
  Yeah. I mean, think about how much extra time you'll have when I can interview AI Christian.
• 2:17
  Christian Bruch (39:00):
• 2:18
  You don't know whether it might be AI Christian now. I mean, you cannot be sure.
• 2:19
  Jason Bordoff (39:05):
• 2:20
  Or AI me, and then they'll just talk to each other and record an interview and we'll listen to it later. I wanted to ask also about, you mentioned before a couple of times in passing the shift in the conversation about sustainability and just help me understand how you view that. Is climate change off the agenda now? Is it being addressed, but in different ways? It clearly has been a little bit of a shift toward pragmatism, realism, but it's never entirely clear to me what people mean when they use words like that.
• 2:21
  Christian Bruch (39:35):
• 2:22
  Yeah, no, I do agree. And I would differentiate a bit about the public discussion or the discussion in the financial market and what is really happening. I think the, let's say if I look back six years ago when everything was about renewables and green hydrogen and everything, I think that discussion was overrated and today you have the feeling that sometimes people believe renewables or energy transitioners off the table, I think that is overrated. At the end, you have to recognize you're building infrastructure for decades and the technologies prevail or successful, which makes sense, which also financially makes sense and also resilience wise makes sense. And this is why you do see a mixture between renewables, let's say some conventional technologies like gas for the grid build out. So I do not see such a dramatic change in the build out of the energy infrastructure if I look globally.
• 2:23
  (40:27):
• 2:24
  Yes, you do have at the moment an urgent need to quickly ramp up generation capacity in the US particular because of AI and this is what drives gas so fast. But if I look across the world, by no means I would say energy transitioners off the table or renewables are off the table, not at all. The key question will be, are people willing to pay an extra price for a more sustainable or more renewable system? And this is where you have to say, no, potentially not if you do not structure the policies very smartly in terms of how you get there and how you keep competitiveness. But I think as I said, both discussions from my perception have been a little bit overrated six years ago and now.
• 2:25
  Jason Bordoff (41:13):
• 2:26
  Your point a moment, you mentioned green hydrogen. So just as one example where it seems like the willingness to pay a green premium is more limited than maybe some had hoped, does that mean is there a market for hydrogen to grow as a pillar of decarbonization or not so much?
• 2:27
  Christian Bruch (41:28):
• 2:28
  Well, it will come eventually at one point in time also just to get access to molecules which can transport energy and that is fundamentally what hydrogen is. It transports energy in a relatively effective way. But let's say if I would look towards the end of the decade, there's no short-term market what I would see on green hydrogen except certain special applications where you have certain specific boundary conditions, but not in a global vast market. We continue to stay engaged. Also, our factory is building electrolyzers for green hydrogen, but not at the scale what we anticipated when we started the activity because that would mean a fundamental willingness to pay more for a molecule which people are today not interested to do so.
• 2:29
  Jason Bordoff (42:16):
• 2:30
  One of the ways that conversation about pragmatism manifests itself is in the role of gas. You mentioned Germany, for example, and how it's thinking about the role of gas in the energy system. The faster some countries pursue electrification and transition strategies, sometimes the more dependent they become on gas in the medium term and it turns out the medium term might be longer than some had hoped to maintain reliability as a bridge fuel. Is that your understanding of where we are? Is that how you see policymakers, broadly speaking, reacting to the role of gas, thinking about it now in energy security and in the energy transition?
• 2:31
  Christian Bruch (42:51):
• 2:32
  Well, for Germany, obviously if you look here on the specific case also in Europe, gas is very much really a stabilizer in the system. And while I would believe you will see days here, and you have seen also already days, for example, in Germany where you had sufficient renewable energy to supply the complete electricity market, you will need, let's say, a dispatchable power system based on gas to fill the gaps. And this is it, not more than this, not less than this. And still, I would believe we will continue to see a continuous build out of renewables and grid infrastructure in Europe and that's it. So be pragmatic and what is the most efficient overall system. I think the wrong thing or where people go wrong sometimes in discussing energy infrastructure, they try to discuss one technology and saying, "That's the LCOE or that is why this is good." I mean, at the end, an energy infrastructure always lifts from the diversity of the system because different parts fulfill two different roles.
• 2:33
  (43:58):
• 2:34
  And this is why at the end it's always about the system cost. So how much investment I can save on the grid side if I build this one gas turbine in it? And that is a valid question to ask. So I do see this pragmatism and this try in the meantime to evaluate the system from an overall perspective.
• 2:35
  Jason Bordoff (44:17):
• 2:36
  Even with the loss of Russian gas and now concerns about Qatari gas and even maybe concerns about US gas sometimes.
• 2:37
  Christian Bruch (44:23):
• 2:38
  First of all, I mean, keep in mind the biggest supplier, if you take a country like Germany, biggest supplier of gas is Norway, but I also would believe whatever the solution is to the Strait of Hormuz or US or who are going to deliver LNG market going to be around and this is a possibility to tap into. So in that regard, no, I don't see this as a fundamental concern in terms of the mid and long-term planning.
• 2:39
  Jason Bordoff (44:48):
• 2:40
  And what do you see as the medium to long-term gas demand outlook? And a lot of it's going to come from outside the power sector.
• 2:41
  Christian Bruch (44:54):
• 2:42
  Yeah, no, a lot of this comes from outside the power sector. And if you look on the electricity generation, I mean, at the end, today natural gas is roughly around 20% of the electricity generation. I think this is roughly what we're going to see also continuing. The 20% type of time of size, which means with the growing electricity market, gas is going to grow, but I don't believe gas is going to increase its share in the overall equation on the electricity side, but it will be around for a long time. And I think the first exercise always in the electricity generation system is get the coal out. That must be our first target. Get the coal out of the system and not to forget we are today talking about a 30% share in electricity of coal. So we're talking about the CO2 emissions in gas. Fair. But I'm super concerned of the continuation and even enlargement of the coal generation.
• 2:43
  Jason Bordoff (45:51):
• 2:44
  Yeah, no, it's a good point. The world is still using an enormous amount of coal. So the conversation about gas also, I think often you hear people say solar and wind are the fastest way to bring new power on the grid and companies like Siemens Energy, five, six, seven-year backlog for gas turbines, even if you want them. What's kind of most misunderstood about that perception? What are you doing to scale manufacturing capacity or other companies like yours? Is that really where we are, that you can't build that out even if you want to?
• 2:45
  Christian Bruch (46:22):
• 2:46
  Look, we are firing on all cylinders to build our capacity. I mean, from today until 2030, we probably at 50% of the capacity on the grid side. So with transformers and switchgear and the likes. And let's say roughly, roughly also the same on the gas turbine side. And you will see a massive increase of capacity or a good increase of capacity towards the end of the decades coming in. The question will be, what will be the gas market? Is it still a hundred gigawatt or is it a 70 or where are we going to land? So I think you will see high demand for some time, but at one point in time, it will go down because everybody's expanding and the things are going to grow. I think what I always try to explain investors, I think we should not underestimate that the whole system needs to grow, including whatever the EPC companies who build it, including obviously the civil companies who do make foundations.
• 2:47
  (47:16):
• 2:48
  So you need to ramp up a whole industry infrastructure, which has a certain speed of growing or transforming. In that line, I think we will not be at the end the limiting factor in the long run. And this is now building a bigger industry. So my statement would be, yes, at this point in time, the industry is constrained, delivery times are too long, everybody's working on it and it will ease over the years to come even so the next, I would expect two to three years will be pretty tight.
• 2:49
  Jason Bordoff (47:51):
• 2:50
  Let me ask you to conclude and help me wrap this up by sort of telling me what we haven't talked about in the innovation sense. We talked about solar and wind, offshore wind, gas turbines, but your company's also thinking a lot about what's coming around the corner in energy innovation and technology. What are you most optimistic about? How's this conversation going to be totally different in five or 10 years?
• 2:51
  Christian Bruch (48:13):
• 2:52
  First of all, we're going to see a lot of the existing technologies also in five or 10 years. That's the one thing. Obviously, we also as a company, working on, let's say, all type of new technologies from fusion to fuel cells to new type of, let's say, applications. But what I find really intriguing at the moment, which has not been seen so much two or three years ago is these enabling platforms, robotics and AI and potentially materials. These are three enabling platforms which cut across. That's not entirely in energy technology, but let's assume you can build equipment with entirely different materials. Let's assume you can build a transformer with entirely different materials, or you can bump up your productivity in a factory by completely new ways of robotics and you can operate your grid completely different based on AI. And I think we should not underestimate the power of these enabling platforms transforming an existing technology portfolio to something completely different.
• 2:53
  (49:13):
• 2:54
  And that makes me super excited going forward because it's obviously also something which you can deploy much faster. If you talk about Fusion, it's cool. It's great. I love Fusion and it will at one point in time probably solve a big problem what we have, but I would assume I'm retired by then. And the other things on, as I said, robotics, AI and materials, there's so much more to be done much faster.
• 2:55
  Jason Bordoff (49:40):
• 2:56
  And you see that changing the way Siemens Energy, for example, operates?
• 2:57
  Christian Bruch (49:43):
• 2:58
  Absolutely. No, it does already today in terms of, for example, on how we apply robotics and how much we ramp up there, how much we do development projects where we try to achieve the same performance with a different material which is easier available and not so constrained, as I said, how we deploy suites of digital applications based on AI. And you see this changing our way of work, but it also changes the way on where we deploy research and development money.
• 2:59
  Jason Bordoff (50:14):
• 3:00
  And when people hear AI and robotics, it leads to lots of angst that kind of is a vision of where workers are not needed. Is that a conversation governments do in fact need to get pretty prepared for the way-
• 3:01
  Christian Bruch (50:26):
• 3:02
  No, we all need to get prepared for not just ... I mean, the whole society needs to get prepared for it and I think we will not stop it. I think the point is always absolutely will people be replaced, but people will be replaced by people who know robotics and AI. And so I still believe in terms of is it possible to transform a workforce such that people will have a job? Yes, I think so, but we will have to embrace it completely different. How do you build up knowledge while you have AI in the center and you still need to build up experience in your people? So there's a lot of tasks which we are facing where we are not trained in yet, but I find it, let's say, an exciting opportunity. Absolutely it has risks. Every new technology has risks, but it's now about embracing these technologies and build it into the DNA of your company.
• 3:03
  Jason Bordoff (51:24):
• 3:04
  Christian Bruch, every time I have the chance to spend time with you for the many years we've known each other, I both learned something new, but also leave with more questions that I want to ask than because you've gotten me thinking about a lot of things that I wasn't even thinking about before. So this conversation has been no exception and I know how scarce your time is. So thank you for making time to have this conversation. I appreciate it.
• 3:05
  Christian Bruch (51:45):
• 3:06
  Thanks very much. Take care.
• 3:07
  Jason Bordoff (51:51):
• 3:08
  Thank you again, Christian Bruch, and thanks to all of you for listening to this episode of Columbia Energy Exchange. The show's brought to you by the Center on Global Energy Policy at Columbia University. The show is hosted by me, Jason Bordoff, and by Bill Loveless, Mary Catherine O'Connor, Caroline Pitman, and Kyu Lee produced the show. Gregory Vilfranc engineered the show. For more information about the podcast or the Center on Global Energy Policy, please visit us online at energypolicy.columbia.edu or follow us on social media @ColumbiaUenergy. And please, if you feel inclined, give us a rating on Apple or Spotify or wherever you get your podcasts. It really helps us out. Thanks again for listening. We'll see you next week.