Anders Eldrup, DONG Energy
Release Date: 2009-03-15
You worked in Government for a long time and moved to the private sector in 2001, just as Prime Minister Rasmussen took up his position and begun to follow a ‘less renewable energy course.’ Did that influence your decision to move to Dong Energy?No. The first think that I have to say is that my decision about changing from the public sector to the private sector was taken before the elections. So it was not caused by the elections. I think the Rasmussen Government’s new idea was to introduce a market economy in the energy sector, because before everything was regulated. Going from a monopoly to a free market was quite a challenge. That was my first task.
Have there been many changes in Dong Energy since you joined the company?
My next challenge was to merge a gas company with several electricity companies and create a major Danish energy company in 2006 from six different entities. Today, we can say that we have been rather successful and we have lived up to the expectations.
The roots of the companies that merged to form Dong Energy are in the oil and gas industry, a sector that has found it extremely hard to embrace renewable energy. However, it seems that Dong Energy did this quite effortlessly. Is that a misperception or have you found a magic formula?
To understand this we have to go back to the first oil crisis in 1973. In those days, more than 95% of Denmark’s energy need was met by oil and coming from South Arabia, Denmark has so to speak put all the eggs in one basket. During the oil crisis this created a situation that was quite disastrous because we did not have access to supplies; it was a tough time. That is why in 1973 Danish policy makers decided to diversify the energy mix, while investing in wind energy and energy saving.
Moreover, the Government wanted to be at the forefront of the environmental wave and that is why Denmark committed to a 21% reduction of CO2 emissions. This is the biggest reduction for any EU country. To realize this commitment, the target was passed onto the energy sector because the Government itself does not reduce itself emissions. That is why we changed our production processes in order to achieve the Government targets and cut CO2 emissions.
What has been the balance between making coal fired power plants cleaner, shifting towards natural gas, and investing in renewable energy?
One priority was to make our coal fired power plants as efficient as possible, and today Denmark has the most efficient power plants in Europe and probably in the world. Another priority was to increase in the use of renewables, and especially wind energy which the Government decided subsidise during the 80’s. When I was in the Ministry of Finance I realized that the Government was investing a considerable amount of money in the development of the wind industry. It was quite costly, and it has taken a considerable number of years, but as a result Denmark has a very strong wind industry which has created the world’s leading turbine manufacturers. The development of the wind industry was also necessary because Denmark decided not to pursue nuclear energy.
Another focused effort was district heating. All the major cities in Denmark are now heated by district heating, which means that we have a really efficient system. To give you one example, in our most advanced power plant in Copenhagen the energy efficient is 47%, so when you put 100% of energy as an input you get 47% back as power. That is state-of-the-art today. If you combine this with the district heating system, the total energy efficiency of the power plant doubles to 94%. District heating is a significant change towards using waste water in a clever way.
The integration of renewable energy into the energy system creates an increasing challenge in terms of matching supply and demand as the renewables component increases. How do you think that this is going to play out in the future?
Today in Denmark 20% of our electricity comes from the wind and that is a world record. Of course, we have realised that on days when the wind blows electricity production exceeds demand and other days it doesn’t. Accommodating this fluctuation poses a challenge for the grid system. As our policy is to increase substantially the amount of energy coming from the wind, we have to solve the problem of accommodating this energy in the grid. The European Union has made a very interesting proposal; to connect the large scale wind parks in the North Sea to the large electricity consuming markets in Central and Western Europe through a brand new grid system. This project to create a so-called Super Grid is quite a big challenge but definitely should be done.
Another area we are working on is the transport sector. Dong Energy has teamed up with an American company called Better Place which is trying to introduce electric cars world wide. Denmark has been the second country to join this imitative after Israel and now several other countries are joining. During the night when electricity consumption is low and the wind blows the excess of production can be stored in the batteries of electric cars. If we can make this work then we can cope with quite a high amount of fluctuation in the electricity production. At the same time, we can make the transport sector, which is the most polluting sector, run on wind. That is our vision and in the coming years we will try and convince the Danish that they should buy electric cars.
Is it the responsibility of companies such as Dong Energy or the Danish politicians should be encouraging the Danish people to such initiatives?
We have seen a strong interest among both the general public and the politicians after we announced our electric car initiative. People want electric cars. So I guess that when we build the infrastructure and the cars, the public will welcome the change. The first cars will be ready for demonstration by next year, and by 2011 we will be ready to launch them into the market.
Dong Energy is also working on another interesting project. In order to make our power production more environmentally friendly we are working on the transformation coal to biomass as power generation source by, for instance, using straw from the farms. Half of the straw produced in Danish farms is used to feed animals, while the other half is burned in our power stations and used as a clean source of energy. But we can go one step further and use straw in a more intelligent way. Together with enzyme producers such as Novozymes and Dansico, we are building a factory that will enable us next year to start producing bioethanol from straw and use it for conventional cars.
We are proud of what we have accomplished. It could sound as if we are showing off but we have some success stories that we are really proud of. The first is that we will be one of the first company that can produce 2nd generation bioethanol. The second is that we will be able to introduce electric cars, and the third is that we have succeeded in the use of biomass in our power stations, meaning that they are not either gas or coal stations but multifuel power stations, and we can change the fuel according to the pricing. We are experimenting with waste as well. Then, we have the wind turbines. Denmark has been a first mover in the wind industry and of course we have companies such as Vestas and Siemens, but actually Dong Energy is the world leader in the specific field of off-shore wind parks. We have so far built half of all the offshore wind parks in the world. We have a great pipeline of offshore wind parks and we have the take on new challenges in this field. Due to the high population density in Europe people live very close together the use of offshore wind turbines in large wind farms has tremendous growth potential. Of course, offshore wind turbines are costly but we have to go down this road.
To summarize, we are proud of our power plants, our achievements in biofuels and our offshore parks. All of these successes have been possible because we have been forced by our Government through very strict regulation.
China’s rapidly growing energy consumption puts the country in a position where coal will remain the dominant power generation source for decades. What contribution could Dong Energy make to China’s ambitions to reduce CO2 emissions at its numerous coal fired power plants?
It is necessary to use the latest technology to increase the energy efficiency rate of China’s power stations. Of course, our current power plants with 47% efficiency are state of the art, but one of our projects has already indicated that increase that we will be able to increase efficiency up to 55% in the coming years. Also, there is the possibility of using alternative sources such as biomass and waste. This will allow China to not rely just on coal. But, finally and most importantly, China and even Denmark will need coal in their energy mix, supplementing renewable energy generating capacity investments, but this can be done in a more sustainable way if we use CCS technology.
Dong Energy has been running a CCS pilot project at one of its power plants for the last 4 years and it does work. Yes, we can do it! We can show that we can capture 90% of the CO2 emitted and store it underground in natural geological foundations in a responsible way as we have been doing for 20 years. The key is to find a natural geological foundation. Of course, it is costly but it does work. I think that the final solution to the ‘coal dilemma’ is to learn how to use it with minimum pollution. The technology is not yet ready but will be ready in the coming years and even though it is costly it will help reducing the environmental problems. I consider finding alternative ways of using fossil fuels in a responsible way to be a vitally important and the CCS is a good technology.
Do you see the greatest potential in the Chinese market in applying new technologies to new power plants or focussing on the application of such technology for existing power plants?
Of course it can be both but the easiest thing is to do is concentrate on new plants. The good news is that China is starting up two new power plants every week so we foresee a huge potential.
Nevertheless, reducing emissions at each existing power plant by 1% has a much greater impact in the short and medium term than constructing two power plants that emit 15% less CO2 every week...
That is for sure. I assume that global warming is increasing and we have to invest in both. For existing power plants we can do a lot by increasing the efficiency and using biomass. There is a lot that can be done. The contribution that Denmark could bring to the table would be sharing our technology with emerging companies from emerging countries.
Dong Energy will not be competing directly with Chinese utilities; doesn’t that create a unique opportunity to share your knowledge and technology?
Yes it is, but you should take into account that we are working on a lot of development activities focussed on our core business which are essential to further develop and improve our energy production system. So finding enough qualified engineers to work on the development of innovative technologies to enhance our core business while transferring technologies to developing countries is a big challenge.
At COP15 the developing world will be ready to support the global reduction of CO2 emissions, but these countries will expect that developed countries will contribute a certain percentage of their GDP to support clean energy initiatives in the developing world. Shouldn’t part of that money be spent on enabling European utilities to share their knowledge, technologies and capabilities with their counterparts in the developing world?
I think it is an interesting way to go forward I think that we have started that route actually because the existing Clean Development Mechanism is an important part of the carbon trading system. We are also using this system through which you invest in developing countries and as an investor you get credits for the carbon emissions saved as a result of that project. It is a good way of doing it because both parties gain. Developing countries gain access to new technologies and developed countries gain carbon credits. From my point of view, win-win situations are the best way of doing business.
There are some political parties and lobbying groups that are really sceptical about this mechanism. Even though I try to understand their objections, I find it a little bit difficult some times because they really hate coal and base their reasoning on some misconceptions. My point of view is that I do not like coal because it pollutes, but I do not mind having coal if we can handle it in a way that it does not pollute. Some of the green politicians and activists accept it while others, even though we have proven that we can store CO2 in a safe and efficient way, do not like. So we have some difficulties in communicating.
Is it likely that Dong Energy become a very active investor in CDM project in China and thereby partly become an emissions trading house?
Yes, that is right. We have started going down this road already. Compared with 1990, which is the base year, our carbon quotas have been reduced by 43%, so our quotas have almost been halved. This means that either we have to pay high penalties for buying carbon or we have to invest in CDM projects to generate our own carbon credits. Therefore, we have strong interest to participate in projects where we can acquire carbon licenses. After 2012, the reduction of carbon quotas will be reduced from 43% to 100%, there will be no free allocations. So the need for European companies to go for CDM solutions will substantially increase after 2012 and this will be good news for developing countries.
How much in a rush are you to develop the right partnerships in China today and be at the forefront of this wave, rather than wake up to a new reality in 2012?
Maybe we should be even more energetic in this regard. We are doing business in a lot of developing countries; we have been investing in about 50 projects so far. Our need for investing in such projects will be increasing. The starting point of such investments has been the United Nations and the World Bank, the facilitators of the CDM mechanism, but this business has grown so much that now we have to do at in a bilateral level to reach enough scale. We are building bilateral relations through projects in developing countries, but you might have a point that we do need to focus even more on this.
What will the energy sector look like after the Kyoto Protocol expires in 2012?
Of course, this sector is based on long terms investments so change will he gradual, but the investment pattern will be changing. We will focus more and more on renewables in order to reduce the problem of no longer having free allocations of carbon. Today, 15% of the power that Dong Energy produces comes from renewables and 85% comes from fossil fuels. Over a number of years we have to reverse this equation so that 85% will come from renewables and 15% from fossil fuels. Changing this equation is really a dramatic change of the business, it is sort of an industrial revolution that will take some decades, you cannot do it overnight. Our strategy is directed at tipping this equation towards renewables.
Next year, Copenhagen will host COP15 which creates a unique opportunity for Dong Energy to take advantage of being in the international spotlight. What should COP15 visitors expect when visiting Dong Energy during the conference?
We have talked about the areas in which we simply have a leading edge and we would like to demonstrate out competence in these areas. We are working on creating landmark for all the people that will be visiting Copenhagen next year. In front of our state-of-the-art power plant we will construct two of the largest and most sophisticated wind turbines available in the world up to date. Visitors will see in one picture this beautiful and efficient power plant that we will need in the near future, as well as the biggest wind mills that can be produced. It illustrates that you cannot pick and choose, for many years we will have to rely on both traditional and new sources of energy production, but we must be very good at making the fossil part of power generation as clean and efficient as possible. I hope that those people who do not take a picture of the famous little mermaid will come to our power plant, take a picture, and see what it is all about.
| Company: | DONG Energy |
| Position: | President |
| Country: | Denmark |