World’s leading renewable energy IPP, Enel Green Power boasts an installed capacity of around 46.4 GW across a generation mix that includes wind, solar, geothermal and hydropower. With operations spread globally, the Enel Group has been working speedily towards further strengthening its presence across Europe, the Americas, Asia, Africa and Oceania. In an exclusive interview with REGlobal, Antonio Cammisecra, Head of Global Power Generation, Enel Group and Chief Executive Officer, Enel Green Power spoke about Enel’s renewable energy strategy, his views on the recently concluded Green Deal by European Union, and key challenges in the global renewable energy sector…
What are the key trends that define the global renewable energy sector today?
First of all, what we are currently observing in the energy scenario is a strong consolidation of the global decarbonization effort. The switch from a fossil fuel-based generation mix to one based on renewable and more sustainable technologies represents one of the main answers to the fight against climate change, mostly driven by an increased sustainability awareness of individuals, corporates and governments, combined with the increasing competitiveness of renewable technologies. In addition, the energy transition today plays an even more significant role in the post-COVID-19 recovery. As a matter of fact, this emergency has highlighted the vulnerability of the global economic and production system and the need for a more equitable, resilient and sustainable economy. The first steps towards a decarbonized and renewable-based economy that have been taken at the global level, can be summarized as follows:
- renewables are widely recognized as the cheapest power generation technology in most countries and further cost reduction is expected, both in solar and wind;
- there is an increasing awareness over the potential that needs to be filled in order to fully decarbonize the energy sector. As a result, Oil & Gas companies are gradually moving into the renewable market;
- talks at regulatory levels are being carried out on the adaptation of market design and the recognition of the economic value of balancing/ancillary services, considering the shift in value that accompanies the transition to the generation of a service from the generation of a commodity;
- the energy sector is working to enable higher renewable penetration by involving different sectors, such as the Oil & Gas value chain, combining different geographies and switching to a more active role of consumers, including through decentralized generation and demand-side management;
- the market is also showing strong interest in new technologies that allow further integration between renewables and storage;
- there is an increased focus on digitalization of generation, networks, and consumption;
- the energy sector is increasingly promoting renewable hybridization as a system-friendly solution capable of providing steady supply of renewable energy, with these systems quickly spreading in more liberalized and sophisticated markets.
Finally, it is important to remark that an environmentally friendlier and circular economy approach is becoming mandatory in the sector so as to respond to the world’s sustainability needs and to provide companies with an extraordinary opportunity in terms of competitiveness and job creation, hence creating value for them and their customers alike.
What has been Enel Green Power’s strategy to expand its renewable project portfolio globally, in terms of geographical and technology diversification?
Since Enel Green Power’s inception in 2008, we have developed a major renewable footprint, with around 46.4 GW of installed capacity that we expect to increase to 60 GW by 2022. Our footprint is truly diversified, both in terms of geographies, spanning from the Americas to Europe, Africa, Asia and Oceania, and in terms of energy mix, as we operate all main renewable technologies: hydro, wind, geothermal and solar.
If there has been a common theme in EGP strategy it has been to depend as little as possible from incentives and develop projects that boast an outstanding industrial performance. Our strategy is largely geared to more market-oriented schemes such as tenders and, more recently, power purchase agreements (PPAs) with final users, typically utilities as well as commercial & industrial clients. We have adopted a mix of the above schemes, depending on the markets where we operate.
“We scout for additional opportunities both in the countries where Enel is already present in power generation and/or distribution as well as in new geographies, where we also look at the possibilities of entering with one generation technology and growing also in other technologies.”
When selecting a market we have maintained a consistent strategy over the years, which is substantially focused on looking into areas with high renewable resource availability and a steady regulatory framework that allows long term visibility on margins. We scout for additional opportunities both in the countries where Enel is already present in power generation and/or distribution as well as in new geographies, where we also look at the possibilities of entering with one generation technology and growing also in other technologies.
Enel Green Power evaluates which technology to invest in on a case-by-case basis, opting for the technology or technologies that offer the best solution sustainability-wise, as well as in economic terms. Having said this, we have a large wind and PV installed base, where we concentrate most of our efforts. Due to historic reasons, we also have a major hydro footprint as well as a second to none expertise in geothermal generation. We are strongly pushing storage and grid balancing technologies such as batteries and hydrogen as we acknowledge their potential for renewable integration and for the supply of system services.
Which regions of the world are placed well to attract highest renewable energy investments? Accordingly, what are the key focus markets for Enel?
When looking to enter a new country, the only prerequisites for us are resource abundance and a steady regulatory framework, as already mentioned. When it comes to our 2020-2022 plan, in terms of geographies we are mostly progressing in three directions. First, we are focusing on countries, such as Italy, Spain and Chile, where we are phasing out coal generation and where new renewable investments will support the decarbonization of our generation fleet. At the same time, in countries such as Brazil and the United States, we will keep developing the generation and commercial business through PPAs with commercial and industrial customers that are served by our renewable projects. Over the Plan period, we will also look at new countries, or countries we have recently entered, some of them through joint ventures. Towards year-end we are planning to launch a joint venture for development in Africa, while recently we have clinched a long-term agreement with Norwegian Investment Fund for developing countries Norfund to jointly finance, build and operate new renewable projects in India. When it comes to those markets in which we do not have a presence in the renewable field at the moment, in Europe we are scouting for France, Germany, Poland and Portugal while in Asia we are looking into Vietnam and South Korea.
How would you compare the prospects for solar power vis-à-vis wind power? Which one has a brighter future and why?
According to BNEF’s New Energy Outlook, PV, both large and small scale, with 131 GW of additional capacity installed in 2019, almost doubled wind, which reached 68 GW of additional capacity installed in the same year, both onshore and offshore.
The current predominance of solar over wind does not come from clear cost competitiveness: PV and onshore wind have very similar LCOE in general terms. Therefore, the future prevalence of one or the other technology will depend on their availability in a specific geography. The main difference between the two technologies is the simplicity and modularity of PV that makes it suitable also for small scale, which represents about 48 GW of the total capacity added in 2019 (around 37%).
It is hard to estimate which technology will prevail over time. While it is expected that the learning curve of PV will continue to be faster than that of wind, allowing the costs of solar panels to be reduced quickly, it is also true that PV production is limited to certain times of the day, with some impact on energy market prices. Moreover, with lower module prices, the focus shifts to other cost components, such as, for instance the costs related to balance of plant or permitting, whose learning curve is not so steep. Finally, PV could encounter land use issues.
With regards to wind power, the main issues are related to the logistics challenges linked to ever-higher hub heights and larger blades, which are the basis for the continuous learning curve. Nevertheless, the distribution of wind resource over the different hours of the day in a specific geography and its compatibility with other land uses may become an advantage over time. A further aspect to be considered will be the management of the millions of tonnes of composite material from disused wind turbines. The average useful life of wind turbines is about 20 years; after this period, the mechanical and structural properties of the turbines decay and refurbishments might be necessary, in some cases, to extend their useful life for a few more years, while in other cases, dismantling and substitution is required. At present, circular economy solutions for wind blade recycling, the most difficult-to-recycle part of the turbine, are being tested.
Summarizing, even if the outlook for solar technology may appear brighter today, there is no doubt that wind power will play a key role in the expansion of renewables, considering that there are many areas which boost high resource levels that are still unexploited.
In any case, Enel Green Power has an agnostic vision and will always adopt the most appropriate solution in terms of sustainability, cost-effectiveness and social acceptance.
What is your opinion on the falling cost of renewable energy vis-à-vis conventional power? Do you think that coal-based power can be phased out earlier than expected?
In all the areas where we are present there is growing consensus among stakeholders about the need to close coal-fired plants, on economic as well as sustainability grounds. From an economic standpoint, we expected wholesale energy prices to reach today’s low levels a few years from now, and these prices are projected to go down even further, as more and more renewable plants enter the global generation mix; as a consequence, unless coal generation is subsidized or renewables face limitations by governments, the economics of fossil fuels are more stressed than those of renewables.
As Enel, we are working to accelerate decarbonization and to be the first ones to do it at a large scale. Over the Enel Group’s 2020-2022 Strategic Plan, out of a total capex of 28.7 billion euros, investments in decarbonization will account for about 14.4 billion euros (50% of total capital expenditure), aimed at developing new renewable capacity and gradually replacing conventional generation assets.
Over the past years, thermal generation has seen a decline in terms of production and capacity, while at the same time those of renewables have increased, so that now the two are roughly at the same level.
As presented at our latest Capital Markets Day in November 2019, due to a combination of disposals and changing market dynamics, coal production more than halved since 2012 and by 2022 it will be reduced by around 75%, compared to 2018.
Looking at the first half of 2020, it is worth highlighting that Enel’s power production from coal collapsed by 72% on the same period of the previous year, as a consequence of shrinking thermal gap and the ongoing coal phase-out process. Likewise, we managed to reduce our global coal footprint to well below 10 GW by the end of this year, thanks to the shutting down of Teruel and Compostilla in Spain, already foreseen in our Strategic Plan, and to the recently announced early closure of Brindisi 2 in Italy and Bocamina I in Chile.
In Italy, we confirm our commitment to close coal-fired plants by 2025, in line with Enel’s decarbonization strategy and as required by the country’s Integrated National Energy and Climate Plan. Enel’s decarbonization plan for Italy envisages the progressive replacement by 2025 of the company’s 6.2 GW of coal-fired plants with new renewable capacity, storage plants and, to the extent strictly necessary for system stability, gas plants to be located in the sites where Enel is today present with coal units.
In Spain, our subsidiary Endesa submitted the application to close the coal-fired plants located in As Pontes (La Coruña) and Litoral (Almería), so that they can be shut down in 2021.
In Chile we have recently received from the country’s National Energy Commission the authorization for the closure of Unit II of the Bocamina coal-fired power plant (350 MW) in May 2022. According to what we projected in the country’s National Decarbonization Plan signed with the Chilean Ministry of Energy just one year ago, the closure was scheduled to take place in 2040 at the latest. So, we are 18 years ahead of schedule.
“The Enel Group’s goal is to fully decarbonize its generation mix by 2050. Towards this aim, the Group is working towards a full coal phase-out by 2030.”
The Enel Group’s goal is to fully decarbonize its generation mix by 2050. Towards this aim, the Group is working towards a full coal phase-out by 2030. Furthermore, on the road to full decarbonization, Enel committed to a 70% reduction in its direct greenhouse gas emissions per kWh by 2030, from a 2017 base-year, as certified by the Science Based Targets initiative (SBTi).
With that regard, what do you think about the recently released Green Deal by the European Union? Would it be effective in helping Europe become 100% carbon neutral by 2050?
We regard the European Green Deal as an opportunity to accelerate the transition towards a fully-decarbonized and sustainable economy, while ensuring European economic growth and competitiveness. Even now, as the economy requires massive recovery programs, the stimulus based on the EU Green Deal can act to relaunch it as well as serving as a means to decarbonize and digitalize the Continent.
For us, increased electrification combined with full decarbonization of the power sector will be the key lever to achieve a carbon neutral EU by 2050, with particular focus being placed on transport, buildings and industry. In this respect, an enhanced policy framework, which fosters the deployment of renewables by simplifying and harmonizing permitting procedures at EU level, the development and upgrade of digitalized grids and the electrification of end uses, including electric mobility as well as heating & cooling, are paramount to support an accelerated emission reduction pathway.
A complete pan-European market integration, which involves the implementation of the Clean Energy Package, together with the strengthening of the regulatory framework and the definition of clear long-term price signals, is required to create a steady environment for carbon-free investments, both by the private and the public sector. At the same time, taxes and levies should be harmonized among energy carriers and a level playing field reflecting actual CO2 emissions should be promoted: consumers need to have proper price signals to perform their investment choices and switch to electrical appliances, for instance from gas boilers to heat pumps, from internal combustion engine vehicles to electric vehicles.
Towards this aim, we certainly welcome the recent publication, by the EU Commission, of both “Powering a climate-neutral economy: an EU Strategy for Energy System Integration”, and “A hydrogen strategy for a climate-neutral Europe”, as official communications by the Commission to the other EU bodies. The sound implementation of these strategies, with increased emphasis being placed on the concept of “carbon-free” as opposed to “low carbon”, is expected to pave the way for a complete and efficient decarbonization of the whole energy system in Europe via direct electrification of additional final uses and indirect electrification to produce hydrogen and e-fuels for hard-to-abate sectors.
The European target of a fully decarbonized European energy sector is ambitious. We do not see limits to the accomplishment of this goal from a technological standpoint, though we reckon that technological development, especially in what concerns integration of variable and decentralized generation, will be at the core of full decarbonization. Making the right choices now will enable Europe to reduce the weight of this transition while also leveraging on its opportunities and extending its undisputed leadership in the field.
What would be the key factors driving renewable energy tariffs in the future?
We expect that as renewable penetration increases, wholesale prices will decline but it is important to highlight that these prices will not be the only generation cost customers are expected to face because more and more resources are set to flow in order to remunerate services and back-up capacity.
Increased renewable penetration will stir major investments in green energy development, in networks and in technologies for the steadier operation of the electricity system. These additional investments will need to be remunerated and the expiration, due in coming years, of tariff obligations linked to past incentives and energy policies will prevent a negative impact on end customer energy tariffs. Moreover, potential tariff increases resulting from additional investments might be offset by lower taxes on clean electricity, as taxes would rather penalize carbon-intensive energy sources.
“As regards energy prices in bilateral contracts, the so-called PPAs, the future price impact will largely depend on the sharing of risks between generators and off-takers.”
As regards energy prices in bilateral contracts, the so-called PPAs, the future price impact will largely depend on the sharing of risks between generators and off-takers. As mentioned above, with the decrease in renewable LCOEs, the cost of energy production as such is expected to decrease. However, in a market driven by more intermittent generation, the generators will have to seek mechanisms to make it more stable, for instance by combining generation with storage through additional investments, the contracting of financial mechanisms, and so on.
Overall, we must acknowledge that, with a market dominated by renewables, once their nearly zero variable generation costs will be the bulk of the system, the current marginal price market will probably no longer make any sense. We should make an effort now to design the energy market of the future.
What potential do you foresee for green hydrogen power and gas-based renewable hybrids? What has been Enel’s experience in these two sectors?
Renewable hydrogen is a perfect fit within Enel’s strategy, which is based on decarbonization and direct electrification of end uses. For us, hydrogen must be truly “renewable”, or “green”, and this occurs only when it is produced through renewable-powered electrolyzers separating it from oxygen in water. This way, hydrogen will be fully carbon-free right from the beginning.
We could consider renewable hydrogen as the next energy vector for decarbonization, but its production costs need to be reduced, through economies of scale and technology development. For this reason, we recently launched “Choose Renewable Hydrogen” with other European industry peers and renewable associations, as a joint promotion initiative.
For us, renewable hydrogen is set to become very competitive in around five years. Green hydrogen can play a key role as a cost-effective, sustainable fuel for the decarbonization of hard-to-abate sectors, such as some heavy industries, long-haul road transport, aviation and shipping. In the power sector, a renewable project hybridized with an electrolyzer supplies similar grid flexibility services to those of a solar or a wind plant combined with a battery. As more renewables enter the system, more grid flexibility will be required and a solar or wind plant coupled with an electrolyzer onsite will produce hydrogen alongside ensuring a higher degree of flexibility than stand-alone generation.
The domestic production of green hydrogen can create a new value chain, generating income and jobs in coming years, as well as improving security of hydrogen supplies. However, at present, most hydrogen production is not CO2-free. The International Energy Agency’s 2019 Report “The Future of Hydrogen” informed that the production of this element, mostly from fossil fuel, emits as much CO2 into the atmosphere as the UK and Indonesia combined. Therefore, we need a robust regulatory framework to enable the decarbonization of this value chain and, towards this aim, the publication of the European Commission’s hydrogen strategy for a climate-neutral Europe is a key milestone. However, the sound implementation of this strategy requires that more focus is placed on fully-renewable hydrogen than on low-carbon hydrogen, which often involves major retrofitting investments and risks to create stranded assets if the objective is the full decarbonization of the EU economy.
Enel decided to start scouting for options to install electrolyzers within its wind and solar fleet. We are focusing, at least at the beginning of our green hydrogen development, on renewable projects, existing or soon to be built, that are located close to hydrogen consumption centers. At the same time, where the regulatory framework allows, we focus on integrating the electrolyzer with the renewable plant in order to provide ancillary services to the grid, almost as if it were a battery. We expect to have the first green hydrogen production facility in just over a year and, once fully operational, we can aim for high double-digit returns. The first project will likely be located in Chile, the United States or Spain, where there are excellent renewable resources, major potential markets and favorable regulatory conditions.
“While volume growth will be crucial to keep pace with the challenging targets of the company, we are convinced that the “how” issue will also be of paramount importance.”
Where do you see Enel on the world renewable energy map in the next five years? What is the company’s long-term vision and target?
Enel, alongside being the leading private renewable player worldwide in terms of installed capacity, is a global leader in the energy transition with a clear commitment to achieving the climate goals set for 2050. Enel is working towards decarbonizing its generation fleet ahead of current policy requirements and towards increasing its renewable capacity to 60 GW by 2022, from the current 46.4 GW.
While volume growth will be crucial to keep pace with the challenging targets of the company, we are convinced that the “how” issue will also be of paramount importance. Enel will provide to its customers truly sustainable and renewable energy, its value will be shared with all stakeholders, from our employees, to the communities that host our plants and our suppliers. It will always be competitive and flexible because its risk/return rate will be tailored to the needs of off-takers. It will always be innovative, encompassing all relevant technologies, creative and inclusive of circular economy principles along the entire value chain.
In a nutshell, we see Enel as the reference name in renewable generation, for its scale, geographical reach, technological know-how and penchant for innovation as well as sustainability.