Enel's Strategic Plan 2023-2025: Executive Summary
In recent years, the world has experienced the Covid-19 pandemic, quickly followed by a precarious geopolitical situation and, concomitantly, a worsening of the extreme weather events that are directly related to climate change.
In the energy sector, therefore, the global need to guarantee secure (i.e., minimally exposed to international crises), affordable and sustainable energy supplies, while keeping the impact on the environment to a minimum, has never been greater.
Accelerating the transition toward renewable sources is therefore a top priority if we’re to protect the climate and reduce the dependence of individual countries on imported fossil fuels. To enable the development of clean energies, it is essential to drive forward the digitalization of power grids and the rebalancing of supply chains.
The Enel Group’s strategy
In this context, the Enel Group has identified three strategic pillars for the 2023-2025 three-year period.
Firstly, there’s the need to continue the program of sustainable electrification that has characterized the Group's activities in recent years, both in terms of zero-emissions electricity generation and digitalization: the objective is to be generating 75% of electricity from renewable sources and to have digitalized approximately 80% of customers on the grid by 2025.
Regarding its geographical scope, the Group aims to create a more agile corporate structure, focusing on six core countries: Italy, Spain, the United States, Brazil, Chile, and Colombia.
Finally, Enel is renewing its commitment to ensuring growth and financial strength, and therefore to enhancing its ability to create value for all stakeholders.
Taken together, these directions will help make the Group's activities even more resilient, while simultaneously confirming the profound and now structured integration of sustainability at all levels of its strategy.
The 2023-2025 Plan
This is the main thrust of the new Strategic Plan. Over the three-year period, the Group plans to invest a total of approximately €37 billion, around 50% of which will be to support electricity generation, around 10% will be for customers and services, as part of an integrated business strategy, while around 40% will be aimed at power grids.
The Plan will focus on four lines of action:
- balancing customer demand and supply to optimize the risk/return profile;
- resolutely continuing on the path toward decarbonization, to ensure competitiveness, sustainability and security in the core countries;
- strengthening, developing and digitalizing the grids to enable the energy transition process;
- streamlining the portfolio of business and geographical areas.
Balancing supply and demand
By 2025, in the core countries, the Group plans to sell approximately 80% of its electricity under fixed-price contracts (an increase of 7% with respect to the estimates for 2022). Fixed-price sales will be fully covered by the Group's own generation, 90% of which will be from zero-emission sources: this will enable the Group to implement a stable, long-term business strategy, thus reducing the short-term risks associated with external volatility.
To facilitate customers playing a central role in the energy transition process, over the next three years the Group also aims to accelerate the roll-out of value-added services: electric vehicle charging points will increase from approximately 500,000 in 2022E to 1.4 million, behind-the-meter storage systems from about 99 MW to 352 MW, while demand response will account for 12.4 GW, up from 8.4 GW.
By 2025, the Group plans to add around 21 GW of installed renewable capacity, including approximately 19 GW in the core countries, reaching a total managed capacity of around 75 GW (including around 4 GW from BESS - Battery Energy Storage Systems, i.e., batteries for storing electricity): the percentage generated from zero-emission sources will rise to around 83%.
This will mark a further significant step by the Group toward achieving its decarbonization goals, in line with the 1.5 °C objective established by the Paris Agreement. The goal remains to have, by 2040, an electricity generation mix that’s entirely derived from zero-emission sources.
Digitalization of the grids
With respect to power grids, the Plan focuses on the five countries (Italy, Spain, Brazil, Chile, and Colombia) where the Group has an integrated position, and envisages increasing its investment per customer by around 30% compared to its estimates for the 2020-2022 period.
This increase is aimed at achieving a variety of objectives: to improve the quality and resilience of the grids to enable them to support load growth and to cope with the challenges posed by climate change-related events; to continue the process of digitalization in order to improve efficiency and reduce grid outages by a further 35% with respect to 2022 estimates (SAIDI – the System Average Interruption Duration Index - is expected to fall to around 150 minutes in 2025); to increase the number of digitalized grid customers to 80%; and to increase connections so as to accommodate the expected increase in distributed electricity generation and the expansion of urban grids.
Streamlining the portfolio
The Group’s intention to streamline the geographical areas it encompasses will continue in the new Plan as it withdraws, commencing in 2023, from certain areas that are no longer aligned with the Group's strategy (Romania, Peru and Argentina).
As a result, its European activities will be concentrated in Italy and Spain, while in Latin America further streamlining is planned in Brazil with the focus turning toward the country’s megacities (Rio and São Paulo). Other geographical regions (such as Australia and Greece) will be transferred to come under the scope of the Stewardship model.
In terms of business areas, under the Plan the Group will commence its withdrawal from the gas sector: a choice that’s in line with the objective of abandoning its carbon-intensive activities, and which has been accelerated by the current market context.
The Group expects to complete divestments totaling €21 billion.
The Investment Plan
The Group plans to invest around €22 billion in its integrated business strategy (generation, customers and services), with approximately 90% of that amount being invested in Italy, Spain and the United States, countries where the regulatory framework facilitates and supports sustainable electrification.
With respect to the development of renewables in particular, in Italy and Spain the Plan focuses on longer-term fixed-price contracts, and in the United States and Latin America on long-term Power Purchase Agreements (PPAs), which offer high visibility on returns.
The Group plans to invest approximately €15 billion in power grids, more than 80% of which will be in Europe.
The Stewardship business model will also continue to be implemented, aimed at taking advantage of potential further opportunities in non-core countries and at maximizing value creation globally. Under this model, the plan is to mobilize investments by the Group and third parties totaling around €15 billion, in order to add further renewable generation, new infrastructure and services.
This new Plan underlines the Group's commitment to prioritizing sustainability principles: approximately 94% of the planned investments are fully aligned with the UN's Sustainable Development Goals (SDGs).
In particular, they directly contribute to achieving SDGs 7 (“Affordable and clean energy”), 9 (“Industry, innovation and infrastructure”) and 11 (“Sustainable cities and communities”), all of which directly contribute to SDG 13 (“Climate action”).
Furthermore, due to their substantial contribution in terms of mitigating climate change, 80% of the investments are aligned with the European Union Taxonomy criteria.
The Group's business strategy is expected to contribute to an overall increase of approximately €70 billion in terms of Gross Domestic Product in the countries in which it operates, and is expected to enable its customers to reduce their total household energy costs by about 20%, in addition to improving service quality.
The Plan envisages that, for 2025, the Group's EBITDA will grow from an estimated €19.0-19.6 billion in 2022 to €22.2-22.8 billion. The Group’s net income is expected to increase from an estimated €5.0-5.3 billion in 2022 to €7.0-7.2 billion.
The Dividend Per Share (DPS) is forecast to increase from €0.40 to €0.43 in 2023, and to remain at least at that value for the following two years.
The table summarizes the main financial targets set out by the new Plan for the coming years:
|Earnings growth||2022 E||2023||2024||2025|
|Net income (€bn)||5.0-5.3||6.1-6.3||6.7-6.9||7.0-7.2|
|* minimum DPS|
The actions outlined in the Plan are expected to impact positively on the Group's net debt, which is expected to decrease from €58-62 billion in 2022 to €51-52 billion by the end of 2023. As a result, the net debt to EBITDA ratio is expected to decrease from 3.0-3.3 to 2.4-2.5 in 2023, and then remain stable over the remainder of the period covered by the Plan.
Sustainable finance will remain at the core of the Group's financial strategy: by 2025, the share of the total gross debt coming from sustainable financing sources is expected to increase to 70% from the estimated 60% in 2022.