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Enel's Strategic Plan 2024-2026: Executive Summary

Over the past 12 months, the international scenario has been redefined by a series of interconnected events that have caused turbulence at all levels. In addition to the well-known post-pandemic geopolitical events, such as the conflict in Ukraine, there has been a significant rise in the Eurozone in interest rates (now at around 4.5%) and inflation (at 2.9% in October, but reaching a high of 7% last April), with a corresponding decrease in the growth of many countries’ Gross Domestic Product (GDP).

This situation has led to reduced demand for electricity in Europe, as well as significant instability in the price of some commodities, such as natural gas, which has been reflected in the price of energy.

However, the medium-term scenario appears favorable for utilities: a new surge in electricity demand is expected, due to an increasing spread of end-use electrification. Hence – as many governments and regulators have well understood – the need to pursue ever greater energy independence by decisively stimulating the spread of installed renewable energy capacity. In this context, the role of distribution grids will be increasingly crucial in meeting demand and accommodating new capacity from renewables, along with the role of energy storage systems, which in turn are critical to ensuring not only the penetration of renewables, but also a stable and reliable energy supply.

 

 

The Enel Group's new strategy

In response to this short-term scenario, utilities are being called upon to increase their flexibility and improve visibility of returns. For this reason, the Enel Group's new strategy for the next three years aims to transform the Company into a leaner, more flexible and more resilient organization, ready to meet the challenges and seize the opportunities that may arise in the future.

Our new Strategic Plan is based on three pillars.

First, we reaffirm the importance of profitability, with selective capital allocation to optimize the Enel Group’s risk/return profile. With the aim of achieving a less capital-intensive business model, we plan to increase our focus on regulated businesses, particularly grids, including taking advantage of access to European financing, and we plan to build partnerships for renewable projects. This will translate into lower cash requirements for the Group, with gross investments substantially in line with the previous Strategic Plan, with net investments of about 26.2 billion euros. In terms of geography, we will maintain the focus of our investments in six core countries where it can leverage an integrated position: Italy, Spain, Brazil, Chile, Colombia and the United States.

The second pillar is effectiveness and efficiency, with the aim of achieving financial equilibrium. Cost reductions will be achieved through optimization of processes and organization, leading to clear accountability and a focus on the Enel Group’s core geographic areas. Cost reductions of about 1.2 billion euros are expected in 2026, to be achieved mainly through a redefinition of business processes, more effective organization, and an optimized mix of insourcing and outsourcing.

Finally, the third pillar is financial and environmental sustainability: we’ll contribute to the fight against climate change, to electrification of consumption and to the energy transition, pursuing value creation for all stakeholders while strengthening the creditworthiness of the Enel Group.

 

The 2024-2026 plan in detail

For the three-year period 2024-2026, we’ve mapped out an ambitious total gross investment plan of about 35.8 billion euros strategically distributed with about 49% of gross capital expenditures (CapEx) invested in Italy, 25% in Iberia, about 19% in Latin America, and the remaining 7% or so in North America.

 

A focus on grids

Grids, which are essential for integrating renewable sources and enabling the energy transition, will play a key role in the 2024-2026 Strategic Plan, with investments estimated at around 18.6 billion euros. These investments aim to strengthen the infrastructure by benefiting from favorable regulatory frameworks, including through access to European financing, which is projected to contribute about 3.5 billion euros to the Group's total gross investments.

Capital allocation for grids will be tailored to each country's remuneration schemes, with a focus on geographic areas that have fair and transparent regulatory frameworks in place. There is a particularly strategic focus on Italy, where the Group plans to invest about 12.2 billion euros of gross CapEx.

Our investments are aimed at improving quality, resilience and digitalization, and encouraging new connections. Over the Plan period, these investments are expected to lead to the improvement of the services we offer our customers, with an approximately 4% reduction in the System Average Interruption Duration Index (SAIDI) and an increase in distributed electricity volumes (from an estimated 447 TWh in 2023 to an expected 466 TWh in 2026).

 

Flexibility in renewables

In terms of renewables, we plan to invest particularly in on-shore wind, solar, and battery storage (BESS). A key factor will be innovation, making use of practices such as repowering plants to increase their efficiency and reduce generation costs, along with the implementation of storage batteries to enhance electricity system flexibility and load management.

The Enel Group has planned gross investments in renewables of about 12.1 billion euros between 2024 and 2026, including 7.2 billion euros for Europe, 2.6 billion euros for Latin America, and 2.3 billion euros for North America.

To improve the return on investment, we plan to enter into partnerships of about 6.1 billion euros in renewable projects, creating strategic synergies with external partners that will contribute significantly to the energy transition and give more flexibility to the financial resources we invest.

Our investment strategy in renewables will therefore be based on three different and distinct business models:

  • Ownership (in which the Group’s stake is 100%), a model that will be mainly applied in Italy and Iberia, where returns are higher and risk is mitigated.
  • Partnership (in which the Group’s stake is more than 50% but less than 100%), a model that aims to improve the risk exposure of assets, allowing us to maintain control of them while increasing our flexibility.
  • Stewardship (in which the Group’s stake is equal to or less than 50%), a model that will be adopted mainly in countries that are not core countries for the Enel Group, helping to leverage our robust project pipeline and improve financial flexibility and capital returns.

This diversified approach will enable the Enel Group to build about 13.4 GW of new renewable capacity between 2024 and 2026, based on a robust pipeline of about 450 GW, of which about 160 GW is at an advanced stage. This strategic diversification aims to maximize visibility of returns while reducing risks.

As a result of this plan, our renewable capacity is expected to reach about 73 GW by 2026, compared to about 63 GW estimated for 2023, with the share of zero-emission generation reaching about 86% compared to about 74% expected for 2023.

 

Improving the Customer Experience

The Enel Group plans to invest about 3 billion euros between 2024 and 2026 to improve the services we offer to customers. This strategy focuses on Italy, Iberia and Latin America, with the goal of putting the customer at the center, offering a single touchpoint (point of contact) for individual and small business customers and dedicated key accounts for major customers. This will include dedicated services for key business-to-business ("B2B") and business-to-government ("B2G") customers.

Active management of our customer base will be one of our strengths, including through multi-play bundled offers, an operating model that includes goods and services in an integrated portfolio available through a single touchpoint for the customer, who will thus find it that much easier to electrify his or her own energy consumption.

 

Environmental Sustainability

In terms of environmental sustainability, this investment plan fully confirms the path we’re on to reduce our direct and indirect greenhouse gas emissions, which has been certified by the Science Based Targets initiative (SBTi) as being in line with the Paris Agreement’s goal of limiting global warming to 1.5°C above pre-industrial levels. Specifically, the Enel Group confirms its goal of shutting down all remaining coal-fired plants by 2027, subject to approval by the relevant authorities, as well as its ambition to achieve zero emissions by 2040.

 

Financial sustainability

Between 2024 and 2026, the Enel Group plans to increase its cash generation, with total Funds From Operations (FFO) of about 43.8 billion euros, which is expected to fully cover net investments and dividends. Initiatives aimed at improving efficiency are also supported by the disposal plan, which has been partly redefined to focus on portfolio rotation driven by asset value. The implementation of the disposal plan is expected to produce a positive impact on net financial debt estimated at about 11.5 billion euros between 2023 and 2024.

 

Financial goals

The Enel Group's ordinary EBITDA is expected to increase to between 23.6 billion euros and 24.3 billion euros in 2026, while Group Net Ordinary Income is expected to increase to between 7.1 billion euros and 7.3 billion euros in the same year.

We confirm our focus on shareholders, with a minimum fixed dividend per share (DPS) of 0.43 euros for the period 2024-2026, with a potential increase up to a 70% payout on Net Ordinary Income if cash flow neutrality is achieved: that is, if cash flows generated from operations fully cover the Group's net investments as well as dividends in addition to the minimum fixed DPS.