Heading into the Decade of Electrification

Achieving the net zero target by 2050 will require an unprecedented transformation of energy infrastructure and the built environment. To get there, clean electrification is an investment priority.

According to the International Energy Agency (IEA), as the cost of renewable energy continues to decrease, “electrification of areas previously dominated by fossil fuels emerges as a crucial economy-wide tool for reducing emissions.”^[1]

Enel Group, the world’s largest private renewable energy operator and Italy’s leading company in terms of market capitalization, has been pioneering the clean energy transition. Now, a sea change is on the horizon.

“We are moving from the decade of renewable energy to the decade of electrification,” says Francesco Starace, Enel’s CEO and General Manager. “We are accelerating. There are incredible opportunities.”

Putting electricity at the heart of the energy system

Starace is not alone in this view, and recently published scenarios agree that, to reach ambitious climate targets, the electrification of energy needs to accelerate together with a massive deployment of carbon-free energy.

BloombergNEF (BNEF) reports that in the transport sector alone, electricity demand will increase “by a factor of 26, from 333 TWh in 2019 to 8,911 TWh in 2050, taking transport from 1% of global electricity in 2019 to 17% by 2050.”

Other sectors will follow suit, and analysts largely agree that the linked processes of decarbonization and electrification of the global economy are key to minimizing serious climate and environmental repercussions.

And yet, change is not happening fast enough. On the current trajectory of average global warming, we will fall short of realizing the 1.5 Celsius or even the “well below 2 Celsius” Paris Agreement goals.

In response, Enel has integrated sustainability into its business model, its governance, its strategy and its finance, and the group plans to invest around 170 billion euros ($192 billion) until 2030 toward this goal.

“We are accelerating growth across the business and bringing value to our customers via a reduction in their energy spending and an increase in service quality,” says Starace; Enel forecasts a cost reduction up to 40% by 2030. “Furthermore, we are bringing Enel Group’s full decarbonization target forward by 10 years, to 2040. We will continue to grow in renewables, leveraging what is already the world’s leading private renewable asset base.”

The group’s customers—currently around 70 million—will be the active drivers and main beneficiaries of this process.

The narrow path to net zero emissions

The consensus and collective will that came out of COP26 is helpful, but achieving an electrification rate of 50% by 2050—the scenario outlined by the IEA and BNEF that aims to limit the global temperature increase to 1.5 Celsius—requires a roadmap beyond the rhetoric.

That’s why, at Enel’s Capital Markets Day on Nov. 24, the group outlined three conditions that businesses and enterprise should aspire to meet.

First, energy must be affordable and clean; electricity will substitute for other forms of energy only if it is cheaper and prices are less erratic. Electricity generation will certainly continue to be further decarbonized as the cost of renewables is now much lower than the cost of thermal energy production, and renewable-powered electrification will reduce dependence on volatile commodity prices.

Second, electricity should be delivered to end users in a reliable and safe way by increasing network resiliency and by leveraging digital pathways to guarantee uninterrupted usage.

Finally, allowances should be made to accommodate growing demand and ease of access, as end users increasingly power electric vehicles as well as their digital services and products. Businesses can play a role in helping consumers become more efficient with their power use, which will create cost efficiencies for consumers while also improving their emissions footprint.

With this acceleration of sustainable activity comes accountability. Enel Group has been deploying renewable capacity to compensate for the decommissioning of fossil fuel plants, and it plans to close all its coal-fired power plants by 2027. By 2040, Enel will exit completely from gas-fired generation and fossil fuels.

Enel’s plan for a zero emissions future

"We are planning to mobilize total investments of 210 billion euros between 2021 and 2030 that will allow us to anticipate our net zero commitment by 10 years, from 2050 to 2040," says Alberto De Paoli, Enel's CFO. The group’s strategy to bring forward its net zero commitment by 10 years covers both for direct and indirect emissions, without resorting to any offsetting measures, such as carbon removal technology or nature-based solutions.

• In 2021 Enel will continue the deployment of renewables by installing around 5,000 MW of new capacity.
• By 2027 the group will exit coal, replacing it with new green capacity and hybrid renewable storage solutions.
• By 2030 the group will reach the target of 82g of CO2/kWh—an 80% reduction on 2017—certified by SBTi as compliant with the 1.5 Celsius pathway
• By 2040 the group will exit gas production and gas retail, and achieve 100% of electricity sales from its RES fleet.

The value created for Enel’s customers is expected to result in up to a 40% reduction in their energy spending, alongside up to an 80% reduction of their CO2 footprint^[2] by 2030.

Through this process Enel will create value not only for its customers and the environment, but will also increase its ordinary earnings, before interest, taxes, depreciation and amortization, at a compound annual growth rate of 5%–6% leading up to 2030. “Dividends will reach 0.43 euro per share in 2024. That is a 13% growth compared to what our shareholders received this year,” says Alberto De Paoli, Enel’s CFO.

Empowering sustainable progress

By 2030, Enel expects to reach a total renewable capacity of around 154 GW, tripling its 2020 portfolio and growing its grid customer base by 12 million thanks to a grid infrastructure that will be strengthened in scale, quality and efficiency. The group has created a Global Customers business line that will oversee commercial strategy and drive capital allocation toward customer needs, while leveraging electrification and excellent service.

IEA and BNEF research show that today’s energy networks are not designed to meet modern needs. Renewably generated electricity and modernized networks provide a suitable solution and presents opportunities for disruptive businesses in many industries to underpin tomorrow’s built environment.

At a time when investors and customers are seeking clarity around measurement and transparency of sustainability, Enel is well placed to lead this transition and deliver price stability across its global platforms, and it is innovating a path for others to follow. A sustainable, energy-efficient and prosperous future depends on it.

Sources:

^[1] www.iea.org/reports/net-zero-by-2050

^[2] Reduction in energy spending and CO2 footprint calculated versus 2020 based on Enel’s portfolio of clients in Italy and Spain.