The future of renewables: a national plan for energy sustainability. Water, sun, wind and heat from the earth: these are the ingredients that enable Enel Green Power to produce around 22 billion kilowatt hours a year. With a share that has gained 20% on the Stock Exchange since its listing (November 4, 2010), the "green" company of the Enel Group confirms itself as one of the sector leaders worldwide.
The managing director, Francesco Starace, and professor Andrea Gilardoni of Bocconi University as well as President of the International Observatory on Renewable Energy Industry and Finance (Oir), talk for FIRST ONLINE on the development of renewable energies in Italy and in the world. By outlining global trends, and then going into the specifics of the Italian situation, many interesting ideas emerged, including the proposal to radically rethink the structure and meaning of the National Energy Plan (PEN) to aim for an instrument that you consider with at least equal dignity the reduction of consumption, efficiency, rationalization of production, the birth of smart cities and eco-districts. In a word: sustainability.
GILARDONI – Investments in this sector have increased significantly. But beyond that, what are the most relevant global trends in terms of demand composition, regulation, obstacles? And what is Enel Green Power's position in the world?
STARACE – 2010 was a really positive year for the renewable energy sector in the world. Investments in production plants increased by 30% compared to last year, exceeding, for example, the total value of the global "luxury" market. 86 MW were installed and the greatest dynamics was recorded in solar (+71%), followed by wind (+24%) and biomass (+11%). From the industry report analysis, an annual growth of 2020% is estimated for 8,7. Until now, every expectation has proved wrong, but by default. 2010, the worst year after the crisis, recorded an increase of 7,6%. And Enel Green Power's capacity has grown even more, having recorded a 30% increase compared to 2009. It is interesting to note that in renewables, growth is distributed indiscriminately throughout the world, even in Africa. In many countries, clean energy is not the result of environmental attention, but is part of a response to energy needs. This is a leitmotif in South America: energy is needed and produced, but green; in fact, renewables represent around 65% of the production mix. The example of Egypt is even more striking: in 20 years the population has doubled, and with it the demand for energy. However, the government has not been able to generate an adequate offer for such an increase in requests. In the world, renewables have increasingly proved to be the most efficient solution in the short term: they are produced locally and are a short-term answer. In Europe perhaps it is a little debated issue because there are conflicting drives but also because the objectives are different: we want to have energy independence in the long term and for this reason we discriminate between energy sources. It's not wrong, there are different reasons. But we also have a huge advantage: the average cost of energy in Europe is on average lower than in some Asian or Latin American countries.
GILARDONI – In this context, you are betting a lot on South America, is Europe no longer making money?
STARACE – No, he's not lost in the Old Continent yet. It is true that the new strategic plan envisages fewer investments in Italy and Spain, where however we already have a more than significant presence, and 1,2 billion more between Latin America and the rest of Europe. Our aim is to keep up with global trends and look for places in the world where renewables are not part of a narrow niche, but compete in a freer and more dynamic market.
GILARDONI – A study by our Observatory shows that you employ different strategies than your major competitors. The market is large and there is no real leader. Which of the competitors do you feel closest to?
STARACE – In one year, new capacity is installed worldwide equal to 15 times the MW installed today by Enel Green Power. The renewables sector is characterized by incredible fragmentation. With the right moves there is great room to develop. However, I believe that Enel Green Power pursues a "unique" strategy, not comparable to that of other companies. The latter were all born recently, focused on one, at most two, technologies with a similar technological footprint. We, unlike them, are present in many countries around the world and we develop hydro, geothermal, solar, wind and biomass energy. The market has now had the time to understand it and to reward us. And over the next five years we expect to have an additional capacity of approximately 4.300 MW from renewable sources, subject to our commitment to have at least a 10% return on investment.
GILARDONI – It is therefore a market that offers many opportunities: the more technological-productive cards you have to play, the more likely you are to be successful?
STARACE – Yes, the problem with many companies is that there comes a time when it is no longer possible to remunerate the shareholders: the projects lose quality and the companies stop growing. Enel Green Power has strong cash flow, multiple technology projections, and adds one or two new growth areas a year. It is able to finance its growth, and it grows by diversifying technologies and geographies, thus always choosing the best projects. This ensures growth over time, with always sustainable returns.
GILARDONI – Turning to Italy, a few days ago, in Corriere della Sera, Agnoli wrote that there is an excess production capacity of 20-30%. Governor Mario Draghi in his latest Annual Report calls for a careful cost-benefit analysis to optimize the infrastructural investments necessary for the country's development. From our estimates, investment in other infrastructures (such as broadband) and not in the production from renewables would result in greater benefits.
STARACE – This doesn't surprise me at all even if it's not up to me to give indications. Italy lacks adequate infrastructure. Limiting ourselves, however, to energy, certainly too little has been invested in the network, not at all in gasifiers and too much in generation.
GILARDONI – We know that small and medium-sized enterprises rely on the networks that large companies weave around the world. What are the spaces for Italian industry? Can Enel Green Power act as a driving force?
STARACE - Certainly. There are cases where it does it directly. For example, in the geothermal energy sector: there is a strong Italian industry, a national know-how has developed and our country still has a lot to offer, having already conquered, thanks to our group, a technological leadership recognized world level. As far as solar is concerned, on July 8 we will inaugurate one of the largest factories in the world. Obviously around these industries there is a large production chain and it is a sector through which we can still bring value allowing national companies to grow. In wind power, where there is already a highly developed world industry, there is still a large space for components. Perhaps the most interesting is the biomass sector on a "small" scale: we want to create an all-Italian technological supply chain. It is something that is missing in the world and we are launching it. The volumes to produce biomass energy are enormous but if you think you can transfer them over long distances, you are off track. The goal is to create ad hoc and on-site responses by building many plants where they are needed.
GILARDONI – After the Fukushima accident and after the referendum, what role do renewables play? Should the 50-25-25 (fossil-nuclear-renewables) be rethought?
STARACE – Reaching 50% renewables in the not too distant future is not an impossible goal: solar growth will be large, geothermal energy could triple and biomass still has unknown potential. I am convinced that we will be surprised by the speed with which photovoltaics will spread, and from 2016 on its own, without incentives.
GILARDONI – The Pen (National Energy Plan) has always been thought of as a way to build the offer. But that was fine as long as there was an inertial, monotonous picture of growth. The scenario has changed: I believe that the Pen is outdated, indeed dangerous. We should launch something new, a National Plan for Energy Sustainability, which drastically reduces the attention on how to produce and which focuses more on the issues of energy efficiency and Smart Cities, since consumption and emissions are mainly generated in cities. Energy policy is no longer done with the Pen, what do you think
STARACE – I agree with you, but I think that in practice it has already been abandoned. You can no longer plan by asking for an amount of MW per year, you have to aim for sustainability. Merkel is taking the path of renewables in the right way: not indicating results to be achieved but delimiting the framework in which companies must operate
GILARDONI – And then there is the issue of incentives. According to many, they are still too high and last too long. Shouldn't a greater share of resources be shifted towards Smart Grids, eco-districts, energy efficiency, research and industrialization where, among other things, we could really develop greater ability to compete?
STARACE – We need to distinguish between solar and other sectors. In fact, in the photovoltaic sector, the government's change goes precisely in this direction: the incentives will end in 2015. The idea is that by then we will be able to walk on our own. It was an important step: it has been said that the incentives, at a certain point, end, but leaving the necessary time for the Italian supply chain to grow and conquer its market share. The other sub-funds are generously and also riskily incentivized. The latest decree on renewables eliminates green certificates and establishes that from 2013 only competitive auctions will take place: we are on the right track.
GILARDONI – Yes, but few have understood how these auctions work.
STARACE – It's very simple, in Brazil this has already been the case for some time: for example, a tender is held to produce, say, 1.000 MW. Each company presents its project so as to understand who is willing to produce and which volumes.
GILARDONI – You're lucky, you got to see it work in Brazil. But the other operators are not very clear how the system will perform. Perhaps the government should concern itself with explaining the application aspects better. As far as incentives are concerned, what is the best system in your opinion?
STARACE – The most valid form just described, namely the premium feed-in. As I said, the most efficient is rewarded: whoever manages to produce with the least incentive. Let us remember that this is the least expensive solution for the final consumer. In fact, the producer of renewable energy collects a fee which is the sum of the market price of the energy plus the premium. Enel has already done the bulk of support for smart grids with the smart meter. What is missing is the leap from installed systems to software development: it is a matter of brain rather than wallet. And the same goes for research. The funds are there, what is missing is the right collaboration between the world of industry and that of universities. Businesses, in their small way, should propose concrete projects and institutions should be ready to listen to them.
GILARDONI – I would conclude by talking about Smart Cities. Is it possible to build an industry that develops renewable energies suitable for the construction of ecological and sustainable cities?
STARACE – Mini-hydro, mini-solar and small sizes can be developed in Italy. There are many possibilities and we already have an advantage with the 32 million meters that Enel has installed throughout the country. We are partners of Genoa and Bari, candidates for the "Smart Cities" initiative launched by the European Commission. Two cities for each EU country will be entitled to EU funding to reduce 2020% of greenhouse gas emissions by 40. We hope that the project will be successful and that it will be the beginning of a long journey for all Italian cities.
(edited by Camilla Carabini)
Francesco Starace, current Chief Executive Officer and General Manager of Enel Green Power, was born in Rome in 1955. A graduate in nuclear engineering, he worked with international experience in General Electric, ABB and ALSTOM. He has lived abroad for several years in the United States, Saudi Arabia, Egypt, Bulgaria and Switzerland. In Enel he was Head of the Power Business Area within the Generation and Energy Management Division, and later Director of the Market Division.
