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13 February 2020

Enel and Co prove renewables and growth go hand-in-hand

Three months ago, Rethink Energy wrote about Enel underlining the profitability of renewables in its quarterly earnings report. Its new preliminary results for the 2019 financial year, out last week, show much the same. The headline figure was its EBITDA, up at €17.9 billion, 10.5% greater than the year before, with the company outperforming its own expectations.

The Italian Energy player claims this to be “driven by distribution networks in Brazil and by sales on end-user markets,” but notes how along with ramping up its EBIDTA came a record year for renewable installations – with 3 GW of capacity installed globally.

This 3 GW comes as part of the company’s stellar example of transitioning away from fossil fuels – and how profitable that may be. Currently in line with the group’s decarbonization target, the group has installed 46 GW of renewable capacity so far, with plans to exceed 60 GW by the end of 2022 and reach net-zero emissions by 2050.

Other headline figures from the preliminary report indicate revenues of €80.3 billion, up 6.1%, and a net financial debt of €45.2 billion, up 10.0%. The company also generated 229.1 TWh of electricity, compared to 182.2 TWh the year prior, distributing 504.0 TWh (up from 279.4 TWh), with sales remaining fairly constant. The group also continued to conduct the majority of its business in 30 countries outside of its home in Italy.

Enel suggested that this is partially due to a growth in thermal generation and trading in Spain, Latin America and Italy, with a greater output from nuclear and a suspension on a number of taxes on conventional generation.

However, with the group planning to slash coal capacity by 61% by 2022, it is the company’s climate ambitions, rather than level of output, which are driving its continued stock growth.

Over the past 5 years, CEO Francesco Starace claims that Enel has increased spending on renewables from 66% of Capex to 83%, identifying that “renewables reduce exposure to commodity pricing, because they are mostly conducted under PPAs.” Compared to several key competitors, analysts S&P Global Ratings have identified that this rapid shift in mentality, away from fossil fuels, has been a major bolster to Enel’s creditworthiness.

Comparing stocks of global utilities in the graph below, the correlation between consistent stock growth and renewables penetration is crystal clear, with companies like Enel reducing the risk of stranded assets while adhering with the Paris agreement. As investors such as BlackRock continue to veer away from fossil fuel support, laggard utilities will eventually fall in line, but the speed at which they do so is paramount to their near-term growth and global footprint following the transition to clean energy. Alert players like RWE, NextEra, Iberdrola and Enel are therefore in good stead to expand and stay ahead, as others in the market are forced to catch up.

This week Enel continued to lead by example, signing contracts for its subsidiary Enel X to construct renewable energy project to power food production sites in Italy.

Similar news came later this week, with NextEra publishing equally promising results and levels of growth through 2019. Adding 2.7 GW of renewables projects to its total generating portfolio, the American utility reported an 8.7% increase in adjusted earnings from $3.67 billion to $4.06 billion.