Stability and security in the face of volatility and uncertainty. Energy independence, guaranteed by production from renewable sources. This is what the Enel Group proposed in its three-year strategic plan for 2023-2025, which was presented in Milan on 22 November at the annual Capital Markets Day, during which the Group’s CEO Francesco Starace and CFO Alberto De Paoli explained the details of the plan to the financial world.
For the Enel Group the road toward the energy transition is not new, but rather a conviction which, if possible, is even more strongly held than it was in the past. This transition is faster, more wide-ranging and inclusive, and is being pursued according to a roadmap that our Group has long considered the only route to progress and to a world rightly geared to sustainability.
“In the last three years we have experienced unprecedented instability,” Starace said in his introductory address in which he outlined the current energy scenario, “and it’s so evident that it can be condensed into just a few minutes.” Three numbers concerning the European Union are particularly significant: an increase of 250% in the price of gas, a 7% rise in the consumption of coal compared with last year, and the fact that 70% of energy needs are being met using imported fossil fuels. At global level, a record number of extreme weather events, like floods and droughts, have dramatically highlighted the problem of climate change. “The combined effects of the pandemic and the conflict taking place on the edge of Europe,” Starace went on to say, “have drastically accelerated some already existing trends, such as the energy transition and the digital transformation. The current situation confirms that we should continue along this path.”
Sustainable electrification; the solution to global challenges in the energy sector
In order to make sure that energy can be our ally in “navigating turbulence and powering a form of progress that is genuinely sustainable for society,” it must meet three key parameters: it must be stable, with a cost that is accessible to everyone and without any impact on the climate and the environment, and, as much as is reasonably possible, it must be immune to geopolitical tensions. For Starace, these are “parameters that are perfectly achievable by accelerating electrification from renewable sources.” As he explained, achieving the EU target for increasing the penetration of renewables to 70%, combined with a 35% increase in the electrification of end uses would, by 2030, result in a 20% reduction in energy consumption costs and 30% in the volume of fossil fuel imports, with a 55% fall in greenhouse gas emissions. Furthermore, a stable energy price would provide a powerful boost to economic growth.
After all, the benefits deriving from clean electrification are clear to political decision-makers in Europe and the USA, who have launched important long-term legislation packages to incentivize its development. The resources allocated to achieve the climate and energy goals add up to €690 billion in seven years in the EU and €415 billion in ten years in the USA.
In this context our Group, which is growing rapidly in the world of renewables, as Starace pointed out, finds itself in the ideal position to seize all the future opportunities, having long ago made the energy transition and clean electrification central to our strategy. In recent years our efforts have consolidated our energy independence and cut greenhouse gas emissions. Since 2015 our wind and solar production has grown by a factor of 2.5, with a drastic reduction in the use of fossil fuels. At the same time, we have expanded our range of products and services designed for domestic use, as well as for businesses and municipalities. In this way, the electrification of end uses can become more widespread, while we have made significant investments in the digitalization of our grids: today they are increasingly reliable and resilient in the face of extreme weather events and are capable of supporting the substantial increase in demand for energy.
Robustness and growth in spite of the complexities of the market
The high level of financial robustness and resilience that these strategies have ensured for the Group has been broadly demonstrated in the last three years. In spite of the upheavals caused first by the pandemic (featuring extremely high volatility in energy demand), then by the conflict in Ukraine, Ebitda – thanks in part to timely managerial actions – rose from €18 billion in 2020 to the forecast €19-19.6 billion in 2022, compensating the instability of the global scenario. Nevertheless, Starace stressed, “the turbulence that we have experienced in the gas market, in addition to the possible rise in interest rates over the coming two years, are things that we have to consider when planning future actions. We believe this scenario could drag on for at least another two years so we must equip ourselves to work well in these conditions. Working well means managing situations like these almost as if they were the norm, and even being able to imagine interesting developments as a result.” The strategic plan has therefore been created to consolidate an integrated position along the value chain in such a way as to support our customers on their journey toward electrification with the energy we generate, with our distribution grids that are increasingly stable and with the products and services that we offer.
The goals of the new plan
The 2025 strategic plan basically has three goals:
The first concerns the acceleration of sustainable electrification which we are pursuing by providing our energy customers with prices that are accessible and 90% predictable, using (as of 2025) zero-emission sources that are not liable to external volatility. This will enable us to minimize risks both for ourselves and for our customers, incentivizing the switch from energy produced from fossil fuels to clean electricity. Achieving this relies on increasing our installed renewable capacity, which is expected to reach 75 GW by the end of 2025.
At the same time, we are bolstering our commercial strategy and the offer of services and infrastructure (1.4 million charging points for electric mobility for 2025), and flexibility services with 352 MW of behind-the-meter Storage and 12.4 GW of demand response (also for 2025). In order to facilitate this goal, we are looking in particular to the grids, and we are focusing on countries where electrification has the most potential. We will boost their digitalization, always acting as an early mover in relation to the growing requirements for quality, reducing SAIDI (the System Average Interruption Duration Index) by 35% and digitalizing 80% of our customers for 2025.
There is also a particular focus on the strategic restructuring of some supply chains in decisive areas. One key example is 3Sun, the Gigafactory for photovoltaic panels in Sicily where production is set to increase from 200 MW to 300 MW a year. This initiative will contribute to an even greater expansion of renewables and, according to Starace, “will also reduce dependence on Asia for this type of technology.”
The second goal is the strategic repositioning of businesses and geographies, with a decommissioning plan amounting to €21 billion after tax for the three-year period that will contribute to reducing Group Net Debt by around €5.6 billion by the end of 2022 and by a further €12 billion in 2023. The plan in fact includes focusing on the growth of the Group in six “core” countries, with the goal of supporting the integrated business strategy and improving the digitalization and efficiency of our grids. This will offer greater opportunities for growth, while at the same time ensuring the maximum value for shareholders. In short, Starace explained, “We want to concentrate on countries where the ambition for the energy transition is stronger and supported by adequate regulatory policies, and where our business model and technological know-how are most appreciated.”
The actions and investments in the strategic plan are based on rigorous principles of sustainability and aim to contribute in a significant way to the process of decarbonization for 2025, as this is essential for the future of the planet and equally important for our long-term vision. In actual fact, the target of achieving zero emissions was confirmed for 2040 with an announcement made last year. This was, Starace explained, “The most tangible sign of our determination and seriousness in the fight against climate change.”
In order to achieve these goals, the Group plans to invest around €37 billion over the three-year period, 94% of which is in line with Sustainable Development Goals (SDGs) 7, 9, 11 and 13 outlined by the United Nations, and more than 80% aligned with the European Taxonomy criteria.
With that in mind, CFO Alberto De Paoli outlined to the analysts the plan’s third goal: the growth and financial robustness of the Group. For 2025 Group Ordinary Ebitda is forecast to grow up to €22-22.8 billion, with a compound annual growth rate (CAGR) of 4-6%, while Net Ordinary Income is set to reach €7-7.2 billion compared with the current €5-5.3 billion, an increase of 10-13% in terms of CAGR, while the FFO/ND ratio is already set to reach 28% in 2023, remaining so for the following two years. Shareholders are expected to receive a Dividend per Share (DPS) of €0.43 for the three-year period, compared with €0.40 in 2022, a figure that for 2024 and 2025 should be considered as a sustainable minimum.
At the same time, the three-year plan should create substantial shared value not only for shareholders but also for all stakeholders. The expectation is that the integrated commercial strategy will enable the Group’s customers to benefit from an average reduction of around 20% on domestic energy costs, ensuring an ever-higher service quality, while investments planned for the countries where Enel operates will contribute to a cumulative increase in Gross Domestic Product equal to around €70 billion. There will also be positive effects for the Group’s personnel, 40% of whom will benefit from dedicated upskilling and reskilling programs, and for our partners (around €15 billion of transition investments will be through partnerships based on the stewardship model).
“The plan is clear and ambitious, with goals that are well-defined in terms of monetary return, financial robustness and operational results,” Starace declared. “But for some time, we have also been considering other metrics that are not purely financial, which help us to understand how the trajectory of the company can be more sustainable and less risky over time. When I say ‘risky,’ I mean disconnected from the needs of the society in which we operate. For a company, losing contact with reality is a huge danger. It is fundamental for us to pay attention to the community and to our customer base, to whom we have a duty to safeguard from volatility. This is also the case when it comes to our colleagues, so that they feel an integral part of this journey toward progress that we want to complete together. As long as these preconditions are met, then whatever the future may hold, we will be able to face it.”