10 years can seem like an eternity or a flash, a way like any other to perceive time. Likewise, 10 years can also represent a vision, a horizon or a milestone.
For Enel it is the latter, a milestone – the year 2030 – by which time the goal is to reduce emissions and contain global warming. In short, ensuring a better world for us and the generations that follow. This isn’t only in terms of quality of life, but also value shared with all stakeholders.
Acknowledging the importance of this milestone made this year’s Capital Markets Day 2020, the end-of-year appointment during which the Enel Group lays out its strategic plan to the financial community, very different from usual editions. During the online event that took place on November 24th our Group’s CEO Francesco Starace and CFO Alberto De Paoli presented not only the 2021-2023 Strategic Plan, as occurs each year, but for the first time, also a 10-year vision to 2030.
At the end of the decade ahead, which for many reasons should be considered a crucial one, what type of utility will Enel be? And what will be its position in the world?
The electric revolution
The starting point is that “the energy sector is destined to undergo a radical transformation,” as Starace explained in his presentation. It will be a green revolution, powered by the growing need to make the planet increasingly sustainable and decarbonized. In this scenario, renewables will become the main source of energy, contributing to reducing emissions. We can estimate that in the coming 20 years global capacity for renewables will quadruple while costs will continue to fall, creating huge opportunities for those in a leadership position at global level.
For Starace, this will drive users towards the electrification of a growing percentage of consumption (for the next 20 years growth is expected to be more than 40%), with a consequent increase in demand for electricity and new correlated services. The growing electrification will also be due to further urbanization – it is estimated that by 2050, 70% of the world’s population will be living in cities, compared with the current figure of 55% – but also to greater awareness among users (to which Enel has been contributing for some time) of how the shift from fossil fuels to electric energy from renewable sources will be beneficial both from an environmental point of view and an economic perspective.
Utilities as platforms
Within such a scenario, distribution infrastructure will have to adapt in order to ensure increasing stability and resilience. Underpinning everything will be digital networks, the heart of a new energy system composed of increasingly numerous and widespread assets: not only the power plants, but also solutions for energy storage and demand response for industrial clients, electric vehicles, charging columns and smart meters. And the utilities will become, or will have to become, the fulcrum of this system, as fully-fledged platforms that are flexible and modular by definition. Utilities will be the key to managing a system that is more and more complex and to navigating a pathway towards the energy transition in the role of what our CEO describes as “orchestra conductors.”
Starace emphasized that for some time now Enel has been “the leader in all sectors that are at the heart of this transformation.” Thanks to the strategies implemented in recent years, our Group is the world’s leading private operator in the renewable energy sector, with around 49 GW of installed capacity, in addition to being the largest private network operator (with more than 74 million final users) with the largest customer base (more than 70 million).
“Moreover,” continued Starace, “we are not only leading the way in terms of results and figures, but also when it comes to digital innovation.” Indeed, by following an ambitious digitalization program that was launched in 2016, Enel was the first large utility to become completely cloud-based, resulting in an extraordinary increase in the capacity for automation, scalability and efficiency. In other words, we are already, to all intents and purposes, a platform and this provides us with the best possible conditions for seizing all the opportunities that the energy transition might offer, also through an innovative business model made possible by the use of further platforms, which we call “Stewardship.” That means involving third parties through partnerships and joint ventures with Enel as an investment catalyzer to expand know-how and contribute to creating new products and services.
When we talk about seizing opportunities, for Starace it is useful to analyze the investment volumes planned for the energy sector in the coming 20 years. At global level, the World Energy Investment 2020 and the International Energy Agency’s World Energy Outlook 2020 forecast investments in renewables over the next two decades of 24 trillion dollars which, on a yearly basis, is four times the level of the last decade. Compared with the same period investment in networks will double, reaching a total of 12 trillion dollars, and investment in electric mobility and energy efficiency will increase fivefold (14 trillion in total). More than 50 trillion dollars overall, which, to give an idea of the amount, adds up to the combined GDP of China and the US in 2019.
Investments over the next 10 years
Faced with this unprecedented scenario, over the next 10 years Enel, which finds itself in the rather unique position as the leading actor, plans to mobilize investments of around 190 billion euros (around 150 through the traditional ‘Ownership’ business model, and around 10 billion through the ‘Stewardship’ model, simultaneously activating a further 30 billion euros of investments from third parties). Starace also announced that by 2030 the Group expects to have added a further 95 GW of renewable capacity (75 GW belonging to the Group and the remainder on behalf of third parties). Through Enel X the plan is to install more than 4 million electric vehicle charging points and to triple the offer of flexible technological solutions to industrial clients. Of those 190 billion, around 48 will be invested in the next three-year cycle, as CFO Alberto De Paoli explained, to immediately kick-start the 10-year strategy.
This strategy will bring Enel’s installed capacity of renewables to around 145 GW in 2030 (equal to approximately a threefold increase compared with today), a value that will see the Group consolidate its position as Renewables Super Major, the largest in the sector with more than 4% of the global market share (compared with its current 2.5%).
Shared value for all
More generally, Starace claimed, the strategies outlined by the Group will contribute not only to the achievement of some of the UN’s Sustainable Development Goals (SDGs), which were already the core of previous three-year plans, with a particular emphasis on SDG 7 (Affordable and clean energy), SDG 9 (Industry, innovation and infrastructure), SDG 11 (Sustainable cities and communities) and SDG 13 (Climate action), but can also generate significant shared value for all, first of all for the shareholders who can expect, as De Paoli stressed while detailing the 2021-2023 Plan, a guaranteed dividend per share that will pass from the current €0.35 per share to €0.43 in 2023, equal to a CAGR (Compound Annual Growth Rate) of 7%.
Then, for both the environment and customers, the growth in renewables and the closure of coal-fired plants will ensure an 80% reduction in emissions by 2030 compared with 2017 (a goal certified by the SBTi, the Science-Based Targets initiative). Investments in digitalization and platforms, on the other hand, will translate into an enormous improvement in the quality of the service: the index of average duration of system interruptions will fall by a third from its current level.
Furthermore, investments will not be limited solely to having a positive impact on the environment, shareholders and customers, but will also contribute in a substantial way to the economic recovery of countries in which the Group is present, causing a snowball effect and generating shared value for the entire community. Generalized growth of GDP deriving from investments over the coming 10 years in these countries is, in fact, estimated at 240 billion euros.
Almost half of investments in the Ownership business model will be dedicated to the Global Power Generation business line, with a total of around 65 billion euros allocated for renewable technologies. The plan is to achieve around 120 GW of consolidated capacity in renewables in 2030, 2.7 times more than today. To achieve this, the Group will add to the current production a further 75 GW approximately, evenly distributed between wind and solar power. To facilitate this, Enel plans the largest ever “pipeline” or rollout of renewables projects at global level, of over 140 GW, combined with a platform model for the activities of Business Development, Engineering and Construction, and Operation and Maintenance. The Group also plans to invest a further 5 billion euros in the hybridization of renewable energy plants by combining them with energy storage systems, with a potential of around 20 TWH to 2030. Significant opportunities will also be provided by the green hydrogen segment in which Enel plans to integrate electrolyzers into renewable plants that produce electricity for direct sale or dispatch services, then selling on the green hydrogen to industrial clients. The expectation is that we will reach more than 2 GW of capacity in 2030.
Around 46% of investments will be destined for the Global Infrastructure and Networks business line, which will consolidate the Group’s position as a global leader among private network operators, further increasing the quality, scalability, reliability and resilience of our distribution infrastructure (currently 11, for a total of 2.2 million kilometers already being managed entirely remotely), which by 2030 will be controlled through a single, integrated and entirely digitalized global platform.
The remainder of the investments will be dedicated to customers and will lead to a net increase in customer value. The Group will have an enabling role in the process of electrification, accelerating customers’ transition to sustainability and energy efficiency, combining with the traditional offer “beyond commodity” services. These activities will benefit from the world’s largest customer base, from digital platforms and from a growing portfolio of integrated offers, in the B2C (Business to Customer), B2B (Business to Business) and B2G (Business to Government) segments.
A genuinely global company
Enel sees itself in 2030 as a company without equals among the world’s utilities, and with a “genuinely global geographical footprint, as vast as the world itself,” Starace said, while it will have the smallest possible environmental impact.
At Capital Markets Day last year we summed up the strategic plan using an equation: sustainability equals value. The facts have proved this to be the case and today we know that the value generated by sustainability can benefit everyone. “Just one year ago we had no idea what the following months would hold,” said Starace, concluding his presentation to the financial world. “Nevertheless, in spite of the pandemic that has afflicted the entire planet, the exceptional work of our colleagues and their determination to advance on this pathway of sustainability has enabled Enel to achieve the goals set for 2020, which for a number of reasons were unique.”
Our CEO concluded by saying that “The pandemic has shown us many things about ourselves. We have understood in a profound way the importance of being digital, and of how our Group’s high level of digitalization has enabled us to continue to work seamlessly during the emergency. And we have become even more conscious of being a company that works to benefit people, and the social importance of our role. It is also this new awareness of our solidity and this reinforced sense of purpose that has shaped the 10-year strategy that we have presented today.”
After all, the surest way to reach a milestone is to know exactly where it is and why you want to get there.