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Global electricity giant Enel SPA has set EUR 35.8 billion ($39.05 billion) in capital expenditure for the next three years with “selective investment” in renewable energy generation.
The Italian company expects renewable power to grow but sees a need to expand storage infrastructure to support the growth.
The 2024–26 capex includes EUR 18.6 billion ($20.28 billion) for grid upgrading and expansion and EUR 12.1 billion ($13.2 billion) for renewables. The renewables investment is for onshore wind, solar, battery and repowering across Europe and the Americas.
Enel targets to add about 13.4 gigawatts (GW) of operational renewable capacity during the period, out of 450 GW in the pipeline. “This sizeable pipeline allows the Group to maximize visibility on returns while minimizing risks, with the possibility to monetize the portion of the pipeline which is not instrumental to its industrial growth”, it said in a press release Wednesday.
“In 2026, the Group’s renewable capacity is expected to reach approximately 73 GW from around 63 GW estimated in 2023, with emission-free production reaching an approximate 86 percent vis-a-vis about 74 percent estimated in 2023”.
While adding new wind and solar capacity, Enel will also invest in repowering “to increase plant efficiency and reduce generation costs”.
The expected growth in renewable generation also entails investment in battery storage “to balance demand with supply”.
“… renewable investment decisions will be more selective, diversifying technologies and countries, improving returns and reducing risks, also leveraging on partnerships”, Enel said.
Enel will follow the partnership model, meaning having a stake of over 50 percent in a project, “to improve asset risk exposure, while retaining control and maximizing capital productivity as well as flexibility”.
Enel’s renewables strategy also includes full ownership in “geographies with higher and hedged returns”, mainly Italy and the Iberian Peninsula.
The strategy also includes having project stakes of less than 50 percent in “peripheral geographies”.
Focus on Europe
Most of the renewable power capex at EUR 7.2 billion ($7.85 billion) will be allotted for Europe, where “renewable generation [is] supported by a large customer base that allows the Group to cover output and stabilize returns”.
In a note last month ING Bank BV said it expects capex for renewables in Europe to increase by five percent next year.
“At the European level, renewables accounted for 21 percent of the bloc’s total energy consumption at year-end 2022”, it said in the article October 17.
Risks from Costs
However, the Dutch bank warned “inflation and the higher cost of materials mean that European utilities will be more selective when it comes to renewable projects”.
“Purchasing, staff and financing costs, especially for offshore wind farms, have forced some utilities to terminate some of their projects”, it cited noting the cases of Denmark’s majority state-owned Orsted AS and also state-owned Swedish company Vattenfall AB.
“Capital expenditure plans are financed partly by debt, especially for network utilities whose regulated cash flow generation does not provide them with sufficient funds to finance investment plans in full”, ING added. “In 2023 and 2024, we estimate that network utilities’ investment plans will surpass earnings before interest and depreciation (EBITDA) by 30 percent.
“For integrated utilities, earnings are sufficient to finance capital expenditure needs”.
In the case of Enel the Italian company said in its capex report, “FFO/Net Financial Debt is expected to increase to approximately 29 percent in 2026 versus about 15 percent in 2022 and around 26 percent expected in 2023 pro-forma”.
“Net Financial Debt/EBITDA is expected to drop to around 2.3x in 2026 versus approximately 3.1x in 2022 and 2.4x-2.5x expected in 2023 pro-forma, while 2023 expected Net Financial Debt/EBITDA stands at 2.7x-2.8x, with 2023 net financial debt expected to reach between 60 and 61 billion euros [between $65.44 billion and $66.53 billion]”, Enel added.
Policy Environment
Despite the risks in the European renewables market Enel sees the region as a priority area in terms of investment due to support from regulatory frameworks.
The European Union has adopted a so-called “Fit for 55” set of policies toward achieving a regional reduction in greenhouse gas emissions of at least 55 percent by 2030 relative to 1990. This set of policies provide not only financial support but also market predictability in the form of rules and regulations.
Particularly for renewables, the European Council has adopted a binding target for the share of such sources in the EU energy mix to be 42.5 percent by 2030, up from 32 percent. The target is contained in the revised Renewable Energy Directive adopted October 9, which has set a goal to reach 45 percent of renewables in the EU energy mix by 2030, 42.5 percent of which is binding while 2.5 percent is aspirational.
Enel said, “The Group plans to focus its investments where returns are visible, regulatory frameworks are remunerative and macro-economic as well as political environments are stable, with 49 percent of gross capex invested in Italy, 25 percent in Iberia, 19 percent in Latin America and 7 percent in North America”.
Enel expects European grants to contribute about EUR 3.5 billion ($3.82 billion) to its total capex.
To contact the author, email jov.onsat@rigzone.com
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