Enel Green Increases Bet on Renewable Power as Oil Slumps
Italy’s biggest utility is preparing to invest 27 percent more in renewable energy in the year ahead even as a slump in oil prices makes it more difficult for solar and wind power to compete with fossil fuels on price.
Enel Green Power SpA, the publicly traded renewables unit of Enel SpA, plans to increase capital spending to 2.1 billion euros ($2.4 billion) and hold it near that level through 2017, up from 1.66 billion euros in 2014.
Chief Executive Officer Francesco Venturini, who briefed investors on the plan Thursday, said renewable-power developers are squeezing costs out of their projects, widening the appeal of wind and solar farms beyond the energy-poor industrial nations that subsidized the industry’s boom.
“In the last two years we’ve seen oil-producing countries moving into renewables, which was an impossible thought until two years ago,” Venturini said in an interview. “For them, it makes more sense to produce energy with renewables” than to consume their own oil and gas.
Brent crude futures are down about a third from their peak of more than $115 a barrel last year, dragging down the cost of natural gas and coal -- the most widely used fossil fuels in power generation. That undercut the economics of solar and wind, which have relied on subsidies to expand.
Even so, some renewable-energy developments are progressing at prices that appear competitive with traditional fuels, especially in the most sunny places. Dubai’s government-owned utility in January set out plans for a 200-megawatt solar plant that will generate electricity at 5.85 cents a kilowatt-hour, one of the lowest tariffs in the world. Venturini expects projects like that to flourish even if oil prices stay low.
“There are countries that have systems now that enable this industry to drive prices down at an even faster pace than we’ve seen in the past couple of years,” he said. “It’s telling me that price is no more an issue because we’re very, very close to reaching grid parity in many countries.”
Enel Green Power plans to adapt its business model to working in nations far from its stronghold in Italy.
The company currently operates almost 10 gigawatts of clean-energy projects across Europe, North America, Latin America and Africa.
Its spending of 8.8 billion euros through 2019 will almost double its renewables capacity, adding 7.1 gigawatts. About half of that, or 4.7 billion euros, will be in Chile, Mexico and Brazil, where the company sees strong growth in electricity demand and abundant resources, it said Thursday.
That will add to the 1.7 gigawatts of projects it already operates in Latin America. Enel Green Power said it will also start looking for opportunities in Asia.
For emerging markets that need electricity now, installing a wind farm can be completed three to five years more quickly than a gas-fired plant, Venturini said. Such projects also create local jobs, since many places require developers to source a portion of the components locally.
Enel Green Power will sell assets to help fund its plans. The company has started looking for buyers for its clean-energy assets in Portugal, he said.
While the company is currently focused on building utility-scale projects, smaller and more localized units are likely to form a “big chunk” of the future, according to Venturini. It’s looking at South Africa as a potential market for so-called distributed generation. It already operates a project in Chile that uses solar, a battery, and a diesel generator as backup, to supply clean power to a remote village.
“It’s pretty incredible to see how once the power arrives, it creates wealth,” Venturini said. “There was no bakery, and suddenly there is because they can use the power to open one. My impression is this is going to happen more and more often all over the world.”