Oil boss says nuclear-free Germany 'could have Europe's priciest power' as he defends offshore wind grab

The aggressive bidding that secured French oil giant TotalEnergies a 3GW share of the seabed rights on offer in Germany’s recent offshore wind round was based on a bullish assessment of future prospects for electricity prices in Europe’s industrial powerhouse, the French company’s chief executive has admitted.

TotalEnergies was awarded extendable 25-year marine concessions N-12.1 and O-2.2.

Located in the North Sea, 170km off the coast, concession N-12.1 covers an area of around 200 square km and has capacity for 2GW.

Area O-22 is located in the Baltic Sea, 40km from the coast, with a a surface area of around 100 square km and capacity for 1GW.

“Some people think it's too expensive. It's not. I think it's exactly what we are looking for in integrated power. It's a perfect illustration of our business model. Why? Because it's the first of a market, the German market, which will offer the best price for electricity in the future,” TotalEnergies chief executive Patrick Pouyanne told analysts on an earnings call on Thursday.

Pouyanne argued that Germany’s decision not to use nuclear power and the strong demand for growth in renewables there pointed to stronger electricity prices in Europe's largest economy.

"In Europe, we are thinking that the price of electricity might be around €70 or €80 per MWh, so [higher German prices] follows as a matter of course," he said.

Quizzed about what this assessment meant for German industrial competitiveness, Pouyanne said the question went to the essence of what states and societies want in terms of energy transition and what support they are prepared to give to energy-intensive industries.

"I think the question for me is, yes, there is room for industrial competitiveness in Europe and Germany, if we are able to put together some long-term contracts.

"I think this is part of our intention with this offshore wind development [we] will want to be able to commit some of the capacities to this type of long-term contracts and keep part of it as merchant," he said.

"The answers to this go to government and customers, industries. If you take some long-term commitments we can lower the price. I don't recommend to anybody to invest in Europe based on spot prices because then you could be in trouble," Pouyanne argued.

"I think the question for me is, yes, there is room for industrial competitiveness in Europe and Germany."

Asked about the political acceptability of these higher price levels, Pouyanne continued: "The world has changed! We have to be clear to everybody that the energy transition has an impact on energy prices... and there is no way to make a transition in Europe without a higher price."

Know-how

Oil companies often see themselves as especially well equipped to manage offshore wind projects by leveraging expertise and relations with contractors in areas such as engineering procurement and offshore construction and logistics.

Pouyanne said the structuring of Germany’s marine lease sales also offered some analogies to to oil and gas concessions.

“It's an upfront payment, like the bonus we pay for an oil and gas concession, and we fix exactly our fiscal terms and royalty over 20 years,” he said, adding that the German model also frees the winner from grid connection fees.

“I can tell you, I'm very happy that we have managed to get access to the 3GW of offshore wind because it's exactly the model we want to put in place,” Pouyanne told the analysts.

“The price is not controlled. So [it's] up to us to decide which part we will sell to PPAs to German manufacturing industries and which part will keep merchant in order to trade around and use for asset integration."

Pouyanne stressed that TotalEnergies will continue to invest in renewables, despite higher return in oil and gas.

“We are also a company in transition... and we are looking to the devise new energies that play to our strengths. We consider our commitment to build this integrated power product as the core of our transition strategy,” he said.

“I don't like capex increases, whether in LNG or in oil or in offshore wind, but it is up to us to leverage purchasing power. And I think this is where we have an advantage," he added.

In its second quarter earnings, TotalEnergies reported a 1GW addition to its own installed renewables capacity from the preceding quarter, reaching 19GW.

A rash of recent acquisitions means the company has another 56GW of renewables capacity in development or construction.

Capacity and cash flow will be boosted further by the conclusion, this month, of the acquisition of the 70% of equity that the oil giant did not already hold in renewables unit Total Eren

Returning to the bigger questions, Pouyanne concluded. "The real question for all of us concerns the pace at which we will make that transition, in order for the customers to accept it. It's what we call the just transition.

"Then it's a question for EU of how manufacturing is to be competitive and probably to have to take action to protect it in some way, as in the US," he said.