Cleantech Podcast | Episode 4 - Grégoire Dallemagne : "Investing in the transition will cost money, but doing nothing could cost even more"

BXVentures had the pleasure of interviewing Grégoire Dallemagne, CEO of Luminus. In this new episode, Grégoire Dallemagne discusses the energy transition and the future outlook of the energy sector. Luminus has emerged as a market leader in renewable energy production and a provider of energy efficiency solutions. With over 2,500 employees, the company is actively contributing to the energy transition by building a CO2-neutral future that balances environmental preservation, human well-being, and economic development through innovative solutions and services.

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BXVentures: Mr Dallemagne, thank you for joining us. Could you please tell us more about Luminus?

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Grégoire Dallemagne: I am the Managing Director of Luminus, a company that produces power as well as provides energy and energy efficiency solutions. We lead the way in both onshore wind power and hydroelectric power in Belgium. We also play an important role in supply security due to a number of gas-fired power plants that compensate for the variable nature of wind and solar power. We sell gas and electricity to both residential and commercial clients and have a market share of about 24%. Our 2,500 employees are fully committed to building a CO2-neutral energy future, reconciling preservation of the planet, human well-being and economic development through electricity and innovative energy efficiency solutions. In this last area, we created Luminus Solutions 7 years ago with the aim of helping our customers to consume less, but also better, while helping them to reduce their total energy consumption.

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BXventures: So you've anticipated my next question, which is this: you've just mentioned that you help your customers to reduce their energy consumption thanks to Luminus Solutions. Can you tell us exactly what that involves?

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Grégoire Dallemagne: There are several aspects to reducing energy consumption. On the one hand, there's sobriety, on the other, energy efficiency and electrification. Sobriety involves, for example, reducing home heating by lowering the thermostat, while the second aspect, energy efficiency, involves using more efficient solutions to consume less energy while maintaining the same level of comfort. Luminus Solutions operates in this field.

We have positioned ourselves as the leading player in Belgium in what are known as energy performance contracts. We have also announced a number of major contracts with major Belgian cities and regions, under which we, together with Luminus Solutions and our partners, will be carrying out work on groups of buildings, such as schools and community campuses. We are going to take the steps required to drastically cut energy use and commit to a fifteen-year period for results. This is an energy performance contract in which our company Luminus Solutions not only does the work, but also provides maintenance to contractually guarantee the energy consumption decrease. If the customer consumes less energy, we receive a bonus; if the customer fails to achieve the planned reduction in energy consumption, we receive a penalty. The incentives are aligned to achieve results that translate into a structural reduction in energy consumption.

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BXVentures: What are your forecasts for trends in the energy market over the next few months and even years?

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Grégoire Dallemagne: First of all, it's important to understand what caused the very difficult period we're going through. To begin with, we are all consuming too many fossil fuels. We've known this for a long time, and in fact we should have reduced our fossil fuel consumption much earlier for well-known climatic reasons, which are reiterated every year, if not every month, by the IPCC experts. What we have observed and what adds to this climate crisis, which in itself should be sufficient motivation to reduce our consumption of fossil fuels, is that we have done too little. 20 years ago, 84% of the energy consumed worldwide came from fossil fuels. Twenty years later, the figure is still 82%, but the total has risen. So, over the last 20 years, we have increased our total consumption of fossil fuels instead of reducing it. And that's a problem for the climate, because when we burn fossil fuels, we generate greenhouse gases that contribute to the global warming we are trying to avoid.

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If we look at the events of the last two years, we can see that in the fourth quarter of 2021, gas consumption in Asia and Europe exceeded supply. However, both Asia and Europe are importers of natural gas and are therefore competing for the same LNG (Liquefied Natural Gas) vessels to meet their gas demand. As a result, the fact that demand for gas outstrips supply in both Asia and Europe has led to an explosion in gas prices from the fourth quarter of 2021. This phenomenon has been reinforced by the terrible conflict in Ukraine, followed by the decision to stop buying gas from the Russians, or at least to drastically reduce these purchases, which has further exacerbated the problem.

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I would like to stress that the explosion in gas prices was due to the fact that demand outstripped supply. But these fundamental problems have not gone away!  Today, this imbalance persists because it is not easy to substitute 40% of Europe's gas supply with liquefied natural gas. The market will take years to adapt. If we were to import more or the same amount of gas as before, we would need to construct new liquefied natural gas terminals to regasify it and then deliver it to various clients and nations across Europe. However, this will take years and is also harmful for the environment.

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This imbalance will endure, and if prices are currently declining, it is due to the mild weather. We had a warm winter and autumn in Europe, which contributed to a decrease in consumption as well as significant efforts in energy efficiency. Europeans consumed less gas, while activity in China contracted due to the COVID-19 problem, resulting in a decrease in economic activity in China. However, the fundamentals between now and 2025 have not disappeared, and we need to continue our energy efficiency efforts to avoid another spike in gas prices.

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BXVentures: So, even without this conflict, this war, we would have been in a similar situation?

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Grégoire Dallemagne: Absolutely, we consume far too many fossil fuels in comparison to the emissions budgets we must adhere to in order to protect the environment, and we consume far too much gas in comparison to the availability of gas in Europe and Asia. As a result, we must prioritize reducing our total usage of fossil fuels. And we have three levers to achieve this: sobriety, which Belgians and Europeans exhibited this winter. The second pillar is energy efficiency, which Luminus is collaborating with public bodies to implement through Luminus Solutions. The third and last pillar is electrification, which helps to minimize total energy consumption when we electrify uses for a variety of reasons.

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BXVentures: Among the three levers you identified, you mentioned electrification. Can you tell us why this is so important?

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Grégoire Dallemagne: Electrification is essential for reducing total fossil fuel consumption, because it is synonymous with energy efficiency. For example, when you drive 1 km in an electric car, you consume three times less energy than if you drove the same distance with a combustion engine, which loses three quarters of its energy in the form of heat. Similarly, if you use a heat pump for heating instead of a gas boiler, the heat pump's efficiency is so much higher than that of a gas boiler that you can significantly lower your total energy usage. That is why it is critical to electrify your home.

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The second reason is that electricity is the only energy carrier that can be produced on a large scale with little or no carbon emissions. This includes electricity produced by nuclear power stations, renewable energy sources (solar, wind and hydroelectric) and electricity produced by high-efficiency gas-fired power stations, which are needed to complement renewables, and which have relatively low CO2 emissions compared with burning gas directly in a less efficient boiler. If you have a limited amount of gas, it is better to burn it in a high-efficiency power station to power a heat pump rather than in a boiler, which can reduce overall energy usage by two or three simply by electrification, even with a high-efficiency gas power station. So, the second rationale for electrification is to choose the lowest carbon electricity mix feasible, which includes renewables, nuclear, and gas.

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The third reason is that electricity is required for the creation of molecules such as green hydrogen. Its creation requires a large amount of energy, mainly electricity, to power an electrolyser capable of producing hydrogen. This allows for the decarbonization of sectors that cannot be directly electrified, such as mobility or heating.

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These are three reasons why electricity is essential to the decarbonisation process and why we will need much more electricity tomorrow than we do today.

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BXVentures: Electricity consumption is expected to triple in 2050. How do you think we're going to meet this demand?

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Grégoire Dallemagne: The Belgian electricity transmission system operator (editor's note: ELIA) estimates that to achieve carbon neutrality by 2050, we will need three times as much electricity in Belgium as we do today. How will we produce three times as much electricity tomorrow as we do today? That's the question! At Luminus, we believe that we need a diversified electricity mix to produce enough electricity at all times, to ensure security of supply at the lowest possible cost and with the lowest possible CO2 emissions. A diverse electrical mix is desirable to achieve this. Luminus has been investing in onshore wind power for ten years, we are the leading wind power producer in Belgium, we are deploying a large number of solar panels, but we are also present with stakes in nuclear power stations operated by Electrabel and gas-fired power stations, because we believe that a diverse electricity mix is required to produce enough electricity at the right time under the best conditions of availability and CO2 cost.

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BXVentures: Luminus is a pioneer in renewable energies in Belgium, but these energies can pose the problem of intermittence and therefore storage. You've just mentioned the energy mix, but even so, shouldn't we hope that other technologies will emerge to meet these needs?

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Grégoire Dallemagne: With the development of renewable energies comes intermittence. There's wind when there's wind, and there's sun when there's sun. That's why we call them "unavoidable energy sources". These are fantastic sources of energy that we need to make use of, and at Luminus we're extremely committed to investing in these areas so that as many people as possible can benefit from them. However, it is important to distinguish between different types of flexibility needs that arise when using this type of energy. There is intraday flexibility, i.e. flexibility within a day, where, if you have sunshine during the day, you can add a battery to your solar installation at home in order to shift electricity production from midday to the evening. For these uses, we'll be able to use batteries and demand management, such as starting up machines when there's sun. We will be able to optimise these aspects to improve our intraday storage capacity and the optimisation of the electricity system throughout the day.

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On the other side of the spectrum, there's inter-seasonal flexibility, and that represents a completely different challenge. Every winter, we have long stretches without light and wind, which I witnessed in 2022-2023. We had two such weeks in December 2022 and January 2023, as we do every year – by the way, we know this in advance. We need to continue supplying electricity to the country despite the cold during these weeks, which are uncomfortably known as "Dunkeflaute" (editor's note: this phrase refers to the few weeks of the winter in Europe with little sun and wind). And at the moment, we have no solution for storing solar energy in summer so that it can be released on a national scale in winter. In fact, there is no hope of solving this problem at present. That's why it's important to have a diversified electricity mix, with 'dispatchable' power stations, meaning that we can activate them when we need them to get through these winter periods.

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I also analysed the situation carefully this year. In Belgium it was nuclear and gas, in Germany it was coal and gas, and in France it was nuclear. We believe that it is necessary to maintain sufficient centralised capacity of 'dispatchable' power stations to cope with these periods of Dunkeflaute year after year, in order to guarantee the electricity supply in winter. If you read Bill Gates' book on climate (editor's note: Climat : comment éviter un désastre - Flammarion), he explains that he has invested considerable sums in storage research and he mentions that while solutions are emerging to enable intraday storage, there is no reason to think that we will be able to solve inter-seasonal storage in the next few years. I think it's important to keep in mind what we can solve with storage and what we won't be able to solve.

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BXVentures: Do you think that the recent measures taken by the Belgian government to extend nuclear power are sufficient?

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Grégoire Dallemagne: Opting for a diversified electricity mix with a minimal carbon footprint is the right thing to do, to ensure sufficient supply in winter and reduce CO2 emissions as much as possible. So these decisions are heading in the right direction. Similarly, the Capacity Remuneration Mechanism (CRM) will enable new gas-fired power stations to be built to replace those reaching the end of their life. In fact, for more than 20 years, virtually nothing has been built in Europe without a remuneration mechanism, such as green certificates for renewable energies, or a capacity remuneration mechanism. We are now in a situation where nuclear and gas-fired power stations are reaching the end of their lives, even if some of them can be extended. What's more, we have to take into account the fact that Germany still burns a lot of coal and that the absolute priority for achieving carbon neutrality is to stop coal-fired power stations. So, if we want to shut down coal-fired power stations, we will create a shortage of centralised 'dispatchable' capacity, and it will be necessary to take measures, such as those taken in Belgium today, which go in the right direction: extending nuclear power stations and also allowing investment in new flexible capacity such as gas-fired power stations, through a capacity remuneration mechanism.

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BXVentures: There's talk of Germany turning to coal, but shouldn't we be aiming for European solidarity, unless it already exists?

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Grégoire Dallemagne: European solidarity already exists thanks to interconnections. Electricity circulates between member countries, but I've noticed that when Belgium lacks sun and wind in winter, this often also happens in Germany, France and the Netherlands. It's a phenomenon that happens every year and we have to take it into account.

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BXVentures: Despite the ongoing energy accessibility and pricing crisis, do you remain optimistic about the need for continued reduction in energy consumption over the coming years?

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Grégoire Dallemagne: In every crisis, there is suffering. The situation in Ukraine is abominable, and the economic repercussions in Europe are challenging for families and businesses facing rising energy costs. However, amidst this crisis, there are also elements of hope and opportunity. Firstly, the crisis has compelled us to actively practice energy sobriety, which is crucial for sustainable development. Secondly, I have observed that public authorities are highly demanding and motivated, serving as a driving force for improving energy efficiency in public buildings. Numerous initiatives are currently underway to significantly reduce energy consumption in the public sector and businesses, which is excellent news. The crisis has accelerated these efforts. Thirdly, we are witnessing an increasing number of governments embracing the electrification of energy use to further liberate themselves from fossil fuels, gain energy efficiency, and explore decarbonization options for their electricity mix. For instance, many countries worldwide, including Europe, are re-evaluating nuclear power, which, let's not forget, generates abundant low-carbon electricity.

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BXVentures: During my research for this interview, I came across an interview with economist Christian Gollier, who stated that "the transition is going to be expensive, but nobody wants to pay for it." What is your perspective on this statement?

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Grégoire Dallemagne: Yes, I have read his book, which offers interesting insights, particularly on CO2 pricing. I agree with the notion that the transition will indeed be expensive. However, it's important to note that when the book was written, fossil fuels were inexpensive. Today, the situation has changed drastically as the price of gas has surged. Therefore, the cost of inaction is also substantial. What has changed in recent years is that we now have a strong economic incentive to reduce our gas and fossil fuel consumption. We realize that the supply of fossil fuels is not limitless, and if we don't curtail our demand, prices will skyrocket. Despite the hardships caused by this crisis, it acts as a catalyst for us to significantly reduce consumption, which is economically viable today. I agree that it is rational to invest in the transition, which incurs costs. However, doing nothing could be even more costly, as we are witnessing in Europe where gas prices have become unaffordable.

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BXVentures: Some industry specialists and scientists are expressing concerns and suggesting that achieving net-zero emissions will be incredibly difficult, if not impossible. What are your thoughts on this viewpoint?

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Grégoire Dallemagne: I am inherently optimistic. When I look at Luminus, I see the dedication of our 2,500 employees who are working tirelessly to bring us closer each day to our core mission of building a CO2-neutral energy future. This gives me hope. Despite the severity of the energy crisis we are currently facing, it also serves as a catalyst for progress, pushing us to explore and implement all the necessary solutions to overcome any obstacles that may have hindered their adoption in the past. I believe, and even hope, that this crisis will provide us with the impetus and act as a catalyst to accelerate all the actions required to reduce overall energy consumption. We can already witness public authorities, businesses, and individuals making decisive choices. The United States has unveiled a major plan to reduce CO2 emissions, and Europe is also taking significant steps in this direction. With such key players moving in unison, I am genuinely hopeful that this period will bring about accelerated progress as we move away from fossil fuels.

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BXVentures: In your opinion, how can technology contribute to addressing our future challenges?

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Grégoire Dallemagne: Technology will undeniably play a crucial role and assist us in tackling future challenges. We need innovation, entrepreneurs, and industrial companies to deploy solutions. However, it is not solely their responsibility. Every individual and business must also actively work towards reducing energy consumption. Additionally, political authorities can create an enabling framework for investment, expediting permit issuance, which is currently a hindrance to renewable energy development. At the European and Belgian levels, they can establish standards that guide the energy quality of equipment and housing, effectively directing efforts in the right direction.

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About Grégoire Dallemagne

Grégoire Dallemagne began his work as an auditor with Arthur Andersen after earning an MBA in Business Engineering from the Université Catholique de Louvain (UCL) and an MBA from the University of Chicago. He later had management positions in different telecommunications companies, including Tele2, KPN Belgium, and Belgacom. As CEO of Luminus since 2011, he has led a strategic change to meet the challenges of the energy transition. Luminus is now a market leader in renewable energy production and a provider of energy efficiency solutions. Luminus is actively contributing to the energy transition with a team of over 2,500 committed individuals on a daily basis by constructing a CO2-neutral future that reconciles environmental preservation, human well-being, and economic development through innovative solutions and services. Grégoire Dallemagne is an important figure in this mission.