Enel to invest €18bn in green power and smart grids
April 1, 2015
Italy's biggest utility Enel is banking on emerging markets, green energy and digital power grids to boost profits and dividends over the next five years, after joining rivals by cleaning up its finances with write-downs on ailing plants.
Under the first business plan of CEO Francesco Starace, Enel said it would invest €18bn, more than half of which in emerging markets such as Latin America and Africa, while doubling capacity at its green power division.
To curb risks, the company, which controls Spanish power group Endesa, said it would focus on a larger number of smaller projects rather than big traditional plants.
Europe's power sector has been hit by weak energy demand in a sluggish economy, low wholesale power prices and a surge in demand for cleaner renewable energy to replace gas and coal-fired power plants. That has prompted some companies to change. Germany's top utility E.On, which also booked hefty write-downs on 2014 results, has decided to focus on renewable energy and power grids, spinning off its thermal power plants.
"We have decided to reduce capacity in Italy and will close plants taking off about 13,000 megawatts of capacity," Starace said. "We might do something similar elsewhere."
But Starace, a nuclear engineer by training who formerly headed Enel Green Power, said Europe still presented opportunities, with the roll-out of smart power grids that could automatically monitor energy flows and adjust to changes in supply and demand.
After hiking its 2014 dividend, Enel pledged to raise its payout to 65 per cent of earnings in 2018 from the current 40 per cent while also offering a minimum dividend per share in 2015 and 2016 of €0.16 and €0.18, respectively. The move cheered analysts.
UBS said the dividend, plans to sell an extra €3bn of assets and the €18bn of investment were "all ahead of even the bulls' expectations". Enel, one of Europe's most indebted utilities, said it aimed to sell €5bn of assets in total over five years. It is in talks to sell its 66 per cent stake in Slovak power generator Slovenske Elektrarne and is close to selling US renewable energy assets.
"In the United States we see potential beyond renewables like gas generation and distribution," Starace said, answering a question about buying assets. He said €2bn euros of the new planned asset sales would be in Europe. In February, the group placed on hold plans to sell assets in Romania.
Europe's second-largest utility by installed capacity said it expected net ordinary profit of €3bn euros this year after an 84 per cent fall in 2014 net earnings to €517m due to heavy write-downs in Italy and Slovakia. Profits are expected to rise on average 10 per cent per year to 2019, it said.