After COP26 in Glasgow, the world finally seems to be in agreement about one thing: the actions that we take over the next decade will be key to containing the effects of climate change and avoiding the environmental, social and economic repercussions of an increase in average global temperature of more than 1.5°C.
A peremptory statement that commits us all, on behalf of the future generations who will inherit the planet we live on, to an “extraordinary challenge that must be met with an extraordinary and coordinated effort.” This was how Francesco Starace, CEO of the Enel Group, alongside CFO Alberto De Paoli, introduced Capital Markets Day 2021, the annual event during which Enel presents its new strategic plan to the financial community and the media. As with last year’s edition, this year’s event, which was held in Milan on November 24, served to present not only the 2022-2024 three-year plan, but also our vision towards 2030; in other words, the crucial decade ahead.
“The whole world is moving towards the target of net zero,” explained Starace, “and reaching it requires a huge increase in the electrification of customers’ demand for energy. The message shared by everyone is that we must electrify as much as possible and, at the same time, support that electrification with decarbonized energy.” We could even consider this as the decade of electrification: “we will see electricity taking on a leading role, even in sectors where it had never previously been present,” the CEO said.
The key role of energy
The goal of a future in which the energy sector “plays a key role in cutting emissions” has resulted in the four key actions on which our strategic plan is based. The first involves investments to produce and distribute increasingly green energy. For this purpose, between 2021 and 2030 the Group will allocate 210 billion euros: around 160 billion euros will be invested directly by the Group through the traditional “ownership” business model, a further 10 billion directly through the “stewardship” model, with an additional 40 billion euros mobilized via the latter approach through third parties.
Thanks to this strategy, we expect to reach a renewable capacity of around 154 GW by 2030, three times the 2020 level. We also expect to acquire 12 million new grid customers. Around 70 billion euros will be allocated to renewables, and the same amount will be assigned to the Infrastructure and Networks business line, with the goal of reinforcing quality and efficiency in order to seize the incredible opportunities offered by electrification. “Grid resilience is fundamental to accelerating the process of electrification,” Starace stressed.
In actual fact, the Enel Group is the only Utility in the world to have introduced (some time ago) a single platform that manages the entire global network and places the customer at the center.
This new platform, the Grid Blue Sky, is designed to significantly increase efficiency, and, above all, safety levels, while simultaneously limiting energy losses and boosting grid stability. This is in addition to forecasting by 2024 a reduction in commercial losses of 20% compared with 2020.
Benefits for customers
The second point in the plan concerns customers. According to Starace, they “must be an active part of the process: without them the word ‘electrification’ would have no meaning.” This is dependent on a number of conditions: that energy is accessible (i.e., inexpensive) and clean (which implies a greater diffusion of renewables, the cost of which is constantly falling), a stable and reliable electricity supply and a higher quality of services offered, many of which will soon be considered essential, for example, electric vehicle charging. “We believe that all of these conditions will, for the most part, be met in the decade ahead,” Starace said.
Looking ahead to 2030, the actions in the strategic plan aim to create shared value for customers, who will benefit from a reduction of up to 40% in their energy bills, and up to 80% in their carbon footprint1. The latter is an indicator which, given the substantial consequences of excess greenhouse gases in the atmosphere, translates into a tangible improvement in the quality of life for everyone. On the subject of shared value, the third point of the plan will further consolidate the position of the customer as a pivot around which the strategy revolves through the creation of the new Global Customers business line. It will be responsible for drafting the commercial strategy and directing the allocation of capital towards customer needs, leveraging electrification and, at the same time, obtaining excellent service levels.
Finally, one of the most important points is that of bringing forward by ten years, to 2040, the deadline for completely decarbonizing the Group. The journey began some time ago: in 2010 Enel added 382 MW of new renewable capacity, and in 2021 alone it expected to add a further five thousand (equal to a thirteenfold increase compared with 2010, an unrivalled record). By 2030 the Group predicts that the annual added growth of renewable capacity will be around 15 thousand MW. This exponential growth is also possible thanks to the world’s most extensive project development pipeline, which amounts to 371 thousand MW.
By 2030 the Enel Group expects to reach a renewable capacity of around 154 GW, tripling that of the 2020 portfolio, which amounts to around 49 GW. This has so far enabled the Group to stay on target to achieve by 2030 an 80% reduction of Scope 1 emissions as measured in 2017. But Enel plans to go even further. By 2040 it will have achieved not only net zero, but also zero carbon. In other words, it will not be necessary to compensate any emissions, or as Starace succinctly explained to the analysts, “put simply, we will stop producing CO2,” and that includes the elimination of all Scope 1, 2 and 3 emissions.
This will occur through a gradual abandonment of coal-fired generation, which will be completed by 2027, and of gas by 2040, in addition to the fact that by the same year the Group will withdraw from the retail gas market and will only sell electricity produced from renewable sources.
The benefits for shareholders
The benefits of the actions outlined in the strategic plan will not be limited solely to the environment and customers but will also concern shareholders. They can expect, as highlighted by CFO De Paoli when he detailed the 2022-2024 Strategic Plan, a fixed dividend per share (DPS) that increases by 13% over the next three years, reaching 43 cents per share. For the decade ahead the Group’s ordinary EBITDA is expected to increase by 5-6% in terms of compound annual growth rate (CAGR), with ordinary net profit increasing by 6-7% in terms of CAGR.
“Electrification,” said Starace at the end of the presentation, “will occur much more quickly than we think. In recent years we have built a mechanism that enables us to take full advantage of all the opportunities offered by this change so that we are ready at the right time. And that time is now.”
1 A reduction in energy costs and the “carbon footprint” compared with 2020 calculated based on the Enel client portfolio in Italy and Spain.