The Green Transition by Europe's Leading Utility Creates Value for All

Italian energy group Enel’s 2020 financial results show that going green can be good for investors as well as the planet.

Enel, Europe’s biggest utility[1], has made rapid progress in moving its electricity generation to solar and wind power and away from carbon-emitting fossil fuels. At the same time, it has boosted profits and dividends.

Over the past year, the company has ramped up renewables capacity, slashed carbon emissions and installed thousands of electric vehicle charging points. Despite the challenges of the global pandemic, Enel made its largest-ever annual investment in 2020, with €10.2 billion ($12.1 billion) of capital expenditure, up 2.5% from 2019, ploughing huge budgets into building renewables capacity and improving its distribution networks.

The company is demonstrating that its green transition offers benefits that are not just environmental. “The growth in our results confirms Enel’s ability to create shared and sustainable value for all stakeholders,” says Enel Group CEO Francesco Starace.

The shift to renewable power is paying off as the costs of wind and solar power fall. Despite a challenging year, Enel’s net ordinary income for 2020 rose 9% over the previous year to €5.2 billion ($6.2 billion), at the top of analysts’ guidance. Ordinary EBITDA stood at €17.9 billion ($21.3 billion), unchanged from 2019, thanks partly to the growth in the company’s renewables capacity. The dividend proposed at Enel’s annual general meeting was €0.358 ($0.427) per share, a 9% rise over the previous year, and above the guaranteed dividend per share of €0.35 ($0.417) set for 2020.

At the Forefront of the Green Transition

Enel’s strong financial performance in 2020 shows that it is at the forefront of the green transition in Europe and beyond. Its profit and dividend rise came in spite of a 19% year-over-year drop in revenue to €65 billion ($77.44 billion), owing to the pandemic.

Enel’s transition has wide-ranging implications for the future of fossil fuels. Significantly, Enel is now producing more energy from renewable sources than from conventional fuels, hitting 53% renewable power generation in 2020. The company aims to increase green electricity production to 80% of total generation by 2030, and plans to reach net zero carbon emissions by 2050.

Enel reduced coal production by 65% during 2020 compared with 2019, as its coal-powered electricity generation declined 24% to 8.9 GW, and it plans to completely phase out coal by 2027.

The company’s overall carbon emissions are declining steeply. In 2020, Enel’s emission-free production increased to 65% of total production, compared with 57% in 2019. Meanwhile, CO2 emissions across the group were down by 28% year on year to 214 gCO2 per KWh. Over the next 10 years, the company aims to reduce its direct CO2 emissions by 80% compared with 2017, saving emissions equivalent to 200 million barrels of oil by 2030.

Such dramatic cuts in greenhouse gases are essential in the fight against climate change, as businesses scramble to meet their commitments to the Paris Agreement that aims to keep global warming to below 2 degrees C.

As a global leader in green energy, Enel’s 49 GW of installed renewable capacity is more than any other company and includes 3.1 GW added in 2020. This rapid growth is an important milestone in Enel’s broader sustainability strategy, and shows it is on course to reach its target of tripling its renewable capacity to 145 GW by 2030.

The Plan for 2030

Enel’s ambitions are evident in its investment plans, with a planned spend of over €190 billion ($227) billion mainly on renewable capacity and distribution networks over the next 10 years. With millions of kilometers of power lines bringing electricity to homes and businesses, improving distribution efficiency is a key target for the company.

Investment in digitalization and improving the services offered to end users is another priority. As a result of those investments, the System Average Interruption Duration Index (SAIDI), which measures the average time of power outages among Enel’s operations, should drop to about 100 minutes in 2030.

In addition, underlining the wider economic benefits of the green transition, more than $285 billion in GDP will be generated in the countries where the group operates through investments in generation and electrification over the next 10 years.

As part of the green transition, Enel is actively promoting digitalization among its base of more than 74 million end users globally. The number of Enel’s end users with smart energy meters reached 44 million during 2020. Meanwhile, the company’s customer base in the free retail power market grew by 200,000 clients. Its electric mobility efforts also surged, by the end of 2020 the number of electric vehicle charging points Enel installed increased 2,3 times year on year, to reach around 186,000.

Investing in a Sustainable Future

These benefits have been made possible because Enel was an early entrant into the renewable energy market—launching Enel Green Power in 2008 and betting on a sustainable energy future while many rivals were still building out fossil fuel capacity. The company’s investments in wind and solar power have paid off as they have become cheaper alternatives to coal, oil and gas. Enel’s share price has soared in recent years, along with the value of other green leaders, as investors recognize that decarbonization is the future for all energy producers.

Enel CFO Alberto De Paoli says that the latest set of financial results is an affirmation of the company’s strategy for energy transition.

“Notwithstanding the exceptionally challenging year, in 2020 we were able to further accelerate the group’s decarbonization process,” he says. “Thanks to green repositioning of our generation portfolio, 65% of the group’s total production is now emission-free. The resiliency of our sustainable model has been reflected also in the financial results.”

The coming year will see a continuation of this successful strategy. “During 2021, in line with the Strategic Plan and our decarbonization and digitalization objectives, we plan to accelerate investments in renewables, in the improvement of the quality and resiliency of networks and in the electrification of consumption,” says Starace.

This strategy will allow Enel to continue to lead the energy transition and create value embracing the concept of “stakeholder capitalism”, with customers, shareholders, wider society and the environment all benefitting from the group’s sustainable and profitable growth.

Source:
1. Bloomberg (November, 2020) www.bloomberg.com/graphics/2020-renewable-energy-supermajors/