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6 December 2019

Enel underlines the true profitability of renewables

Enel’s financials are out this week, and the Italian energy-major put on a capital markets day to show analysts how it had achieved them. Its ideas were put cogently and clearly by CEO Francesco Starace and an example to any major operator of how to run an energy business. His claim is that he can grow, embrace renewables and increase profits, all at the same time, and with 73 million end users, and 46 GW of current capacity, and a share price that has grown 90% over the past 5 years – he clearly has the knack and today the company is valued at a touch under $70 billion.

“In 2015 we took the decision to go after smaller, more flexible projects, in order to achieve sustainability.” And in that 5-year period he has taken Enel from spending 66% of capex on renewables to 83% and says very clearly “renewables reduce exposure to commodity pricing because they are mostly conducted under PPAs.”

Enel has 1,200 new plants, across 31 countries and is currently adding capacity at 3 GW per annum. Starace sees this going beyond 5 GW over the next 3 years.

“The key is the digitalization of networks,” he says, “to integrate key acquisitions,” and he claims to already have smart meters in 45 million of those customers. “And we have done this while reducing our opex per end user (monthly bills) from €57 to €43,” and later he added that it is scheduled to fall to €35.6 by 2022.

Starace probably gives this kind of presentation every quarter, but few DSOs have the clarity of purpose of Enel. “We have added 1 million new customers each year while remaining profitable and our EBITDA per customer has risen from €84 per annum to €95.”

The key to this and his entire future strategy, which will entail new flexible business models, such as embracing a huge number of EV recharge points, is the migration to both renewables and to the cloud. At Enel this is now complete, way ahead of most majors of this size, an energy company that runs without a single data center. “In 2015 we had fragmented IT systems and now our data is 100% in the cloud. This means we are ready for 2020, when new business models will occur. Digitalization really matters.” He said the company ran on a single unified “data lake” and had developed the Enel X platform for accommodating all future business models.

And he insisted, “decarbonization needs to be done, because it creates value. We are ready for electrification to accelerate, and that’s where the sustained demand comes from.”

He then charted the rise in Enel’s renewables. In 2018 35% of 7.2 TW capacity was renewable. Enel is on track by 2040 to have 69% of a much larger capacity, at 15.5 TW, which actually represents a four-fold increase in total renewable capacity.

Demand Response is planned to go up 3.5x in the next 20 years to 2040, and storage is expected to grow by 45x over the same period. Then he criticized most other DSOs, saying that many of them split renewables out from thermal generation such as coal, which he said is wrong. Enel by comparison sees renewables as the generator technology now and as if to underline this he told of his company’s €4.2 billion impairment taken at the end of Q3 against the most recent coal plant closures, which he said will now all be phased out by 2030, with 74% of them would be gone by 2022.

He then gave a sideways nod to European regulators who have hinted at carbon taxation in the near future, saying “If you get rid of coal, you get rid of the prospect of carbon taxes.”06

He then listed his renewables additions in the coming three years to 2022, with 5.4 GW additions in Italy, Spain and Chile; 5.1 GW in Brazil and the USA as it comes out of being a regulated market, and 3.5 from new markets, many through joint ventures in places like Africa, Asia and India, for a total of 14 GW added by 2022. “After 2022 it rises to 5 GW additions per annum,” Starace concluded.

“We have a pipeline of 90 GW, and about 58.6 GW of that is early stage. This was 25 GW a year ago, with a mix of 43% wind, 56% solar and 1% hydro, and that does not include offshore wind.”

“We will be down to 220 grams CO2 per Kwh by 2022, and 125g/CO2/Kwh by 2030. And we will hit full decarbonization by 2050.”

On the call, Starace’s last points were about charge points for EVs, and Enel already has 82,000. This will rise astronomically to 736,000 by 2022, citing 1 billion EVs, 2.8 billion air conditioners, and 2 billion heat pumps and a 43% rise in electricity requirement by 2040. That is a company not shirking its responsibilities under the IPCC Paris accord and blazing an entirely profitable trail, with virtually guaranteed regular dividends – not so easy to find for investors right now.