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London — Italian utility Enel will likely close its remaining coal-fired power stations around the world faster than anticipated, with worsening economics for the fuel leading to billions in write-downs and making an even stronger case to replace capacity with gas-fired plants and renewable energy.

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The company is still one of the largest owners of coal plants among European utilities and in May was placed on a watchlist by Norway's $1 trillion sovereign wealth fund for falling foul of new environmental guidelines, which require companies to own less than 10,000 MW of coal capacity.

But Antonio Cammisecra, head of global power generation at Enel, said in an interview that the company expects to reach that milestone by the end of this year — likely accelerating Enel's eventual exit from coal, tentatively planned for 2030.

"We'll do it faster than we expected just one year ago," Cammisecra said. "No doubt, by 2025, Enel will be out of coal in Italy and, mostly, around the world."

Enel now wants to close its last coal plant in Chile several years ahead of schedule, after which it will have only one small Colombian unit left in Latin America. In October, the company sold its last coal plant in Russia.

The rest of its coal stock, roughly 11,000 MW in all, is in Europe: In Italy, the company just got permission to close a 660-MW unit at its plant in Brindisi, while two of its five remaining plants in Spain also have the green light for decommissioning.

"It must be done. And the quicker we do it, the better for everybody," Cammisecra said.

Gas replacements

In the case of at least four of its five coal plants remaining in Italy, Enel wants to convert units to burn natural gas instead. Even though gas has less than half the emissions of coal, and Enel expects the plants to be in use much less after their conversion, that means the company will continue to emit carbon even as the pressure to clean up power plant portfolios is increasing from investors.

Enel wants to cut its direct greenhouse gas emissions per kilowatt-hour of power produced by 70% between 2017 and 2030, and get the number down to zero by 2050. So far, the company has cut its emissions intensity by about 28%, to 296g CO2/kWh by the end of 2019.

Cammisecra said Enel has not decided how exactly it will offset emissions from its remaining gas-fired generation, but that this would likely include offset measures like reforestation rather than carbon capture technology.

In the meantime, running gas plants instead of coal is still "a cost we think is OK to pay," Cammisecra said, adding that the plants will act mainly as a backup to renewable energy.

But while Enel is able to build wind and solar parks quickly enough to compensate for lost coal production in Chile and Spain, planning procedures in Italy take too long to make this a viable option in the short term.

"We are forced to pass through gas for a period of time," Cammisecra said. "The bulk [of replacement capacity] will come from the wind and solar we are developing already."

'Better to close'

In Spain, where Enel operates through subsidiary Endesa, the rapid expansion of renewable energy means the company can follow a cleaner path. Ample solar resources and land availability, coupled with faster bureaucracy, means a "transit through gas" is not necessary.

One thing that is true across Enel's portfolio of coal plants is that they are increasingly becoming a burden on its balance sheet. In 2019, the company recorded more than Eur4 billion in write-downs related to coal, across virtually all of its assets. The impairments led Endesa to announce that it would likely close all of its coal stations over the next two years.

Now the coronavirus-induced demand drop has pushed coal out of the mix in many countries and gave Enel "a final push" to shut down the plant in Chile, Cammisecra said. But even without the pandemic, the economic case is much too damning to justify burning coal much longer. Coal generation across Enel's portfolio collapsed by almost 80% in the first quarter of this year, compared to 12 months earlier.

"We're basically not burning coal right now ... and this is not a temporary factor," Cammisecra said, pointing to increasing generation from wind and solar, cheap gas and a tightening emissions market in Europe, which are all eating into margins for coal.

"I think this [dynamic] is here to stay," he said. "So better to close these plants now."

-- Yannic Rack, S&P Global Market Intelligence