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Renewables giant Enel sees profits improving for green power

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Enel's 172-MW Morro do Chapéu Sul wind farm complex in Brazil.
Source: Enel Green Power

Over the past two decades, Enel SpA has leapfrogged many of its competitors to become one of the largest developers and operators of renewable energy in the world. Now, the Italian utility says sheer size, as well as surging demand for renewable energy from corporate consumers, will drive even greater returns in its green power business.

Traditional heavyweights in the sector are facing growing competition from deep-pocketed oil companies, utilities playing catch-up and large independent developers, who all want a slice of a market that is forecast to grow by up to 60% over the next five years.

But in the rat race for renewables, profitability in Enel's green power business will actually improve over the next three years, thanks to a record-high development pipeline, diverse technological and geographic footprints, and the benefits of being an integrated utility, Antonio Cammisecra, CEO of Enel Green Power, said in an interview.

Most significantly, the promising market in corporate power purchase agreements, or PPAs, is helping to lift margins, delivering stable returns while enabling the company to sidestep cut-throat competition in government tenders.

"We can combine all these possibilities together to exploit our pipeline [and] really select among the best opportunities," Cammisecra said. "All this means profitability is improving."

Cammisecra, who has been at the helm of Enel Green Power since 2017 and this year also took on responsibility for Enel's global thermal generation, discussed the utility's plans for growth in renewables following a capital markets day that saw Enel ramp up its planned spending on power generation to €14.4 billion through 2022.

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Like other large integrated utilities, Enel is able to spread its bets by building wind and solar parks through government auctions, selling power directly to industrial consumers and even building them on a merchant basis, Cammisecra said — since it can always fall back on its roughly 75 million customers.

A growing share of corporate PPAs in its power plant business will help lift EBITDA per newly installed MW of wind and solar to €115,000 over the next three years, up from €110,000 under the company's previous investment plan. Capital expenditure per megawatt is projected to be unchanged at €900,000, according to a company presentation.

Enel wants to install 4.7 GW of new annual capacity during the period while cutting its coal-fired capacity by 61%. Along the way, gross margins per megawatt-hour produced in its overall generation business are set to grow from an estimated €41,000 this year to €44,000 in 2022.

The improvement is also due to the higher share of contracted renewables overall, which are replacing merchant-exposed thermal generation.

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Alongside competitors like Iberdrola SA, Enel has branched out from its traditional markets in Italy and Spain, where it owns one of the largest power companies in Endesa SA. The company has traditionally focused more on organic growth than M&A in renewables and famously eschews offshore wind, which Enel CEO Francesco Starace regularly derides as an immature and unprofitable technology.

In the future, Enel Green Power's growth in the U.S. and Brazil will largely come through corporate PPAs, while new capacity in Europe and Chile, for instance, will replace existing thermal power plants. But even in Spain, Cammisecra said up to 30% of Endesa's green power generation could be sold under PPAs. The market for direct off-take agreements is also emerging in Italy, he added.

Endesa would compete for those contracts with a horde of independent developers, who have piled into Spain amid a boom in solar and wind development. But while those companies are bound to compete in competitive tenders or find suitable off-takers before building projects, Enel can take comfort in its retail customer base, Cammisecra said.

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"Developers are stressed a lot because they have only one market opportunity — a tender environment in which they resell the power of their project ... this is the only possibility they get," he said. "We are one of the lowest-cost competitors ... and we don't need to rush for the last cent in the tenders."

That means Enel will sell on power in a much more complex, but "much more lucrative" model, according to the CEO. And even among the largest utilities, few can match the company's origination ability, which has seen it accumulate an overall project pipeline of 90 GW — potentially enough to double its entire generation fleet.

Competition has always been high, Cammisecra said, noting that Enel has competed in renewables auctions ever since feed-in tariffs started disappearing several years ago. Now, with the industry growing, new entrants like oil and gas companies are simply set to take a slice of a much larger pie, Cammisecra said.

"They are entering when the market is becoming bigger and bigger."

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