EGP: Business without boundaries
“For a lot of people, this is hell,” says Enel Green Power (EGP) boss Francesco Starace from his company’s labyrinthine headquarters beside the immaculately sculpted gardens of the 18th-century Villa Albani.
But he is not talking about the enormous office complex, which takes up almost an entire block of a chic tree-lined boulevard in a plush Rome neighbourhood. He is referring to his company’s unusual business model.
EGP is a global renewables developer that does not give itself any boundaries. It makes use of wind, solar, hydro, geothermal and biomass — and will work anywhere in the world that offers good returns.
“The message from analysts when we started was ‘you have to specialise’,” he says, explaining that some banks thought EGP’s multiple planning scenarios were a “nightmare”.
EGP started life as a diversified company in 2008, when it was created from the renewables assets of its parent, Italian utility giant Enel.
Immediately, it had operations in a large number of countries utilising several technologies. “There were two choices: either shed some parts and concentrate; or grow and build an organisation aimed at managing diversity,” says Starace. Although it was a considerable challenge to build a company that was based on managing “business processes and not geographies”, Starace feels that the right decision was made.
“Now we can drive the car and we are finding that diversification is great,” he says. “The combination hedges beautifully, and allows us to become independent from meteorological conditions — rain, wind and sun.”
And unlike its peers, EGP has resolutely stayed out of offshore wind, saying that it is waiting for costs to show a positive downward trend before it gets involved.
And it has not just bucked the trend with its business model.
The company successfully completed a €2.26bn ($2.9bn) initial public offering (IPO) in November 2010, in a period when other utilities’ renewables spin-offs — EDP Renováveis, Iberdrola Renovables and EDF Energies Nouvelles (EDF EN) — had run out of steam on equity markets. Iberdrola Renovables and EDF EN were both reincorporated in 2011.
EGP has expanded steadily since its inception, helped by a steady revenue flow from its operating assets; a relatively low level of corporate debt; and the incorporation of assets from Endesa’s renewables division after Enel’s takeover of the Spanish utility in 2009.
Total renewables capacity grew from 5GW at the time of the IPO to 8GW by the end of 2012. Much of the growth was in wind, with the company adding 900MW in 2012 alone. And in keeping with its peers, much of the expansion took place in the US, along with Spain, Italy and Romania.
EGP seems to display a level of pragmatism around seizing development opportunities that its rivals do not.
For instance, EGP took a strategic decision to team up with GE Capital on the 235MW Chisholm View wind farm in Oklahoma, to ensure that it would be finished before the production tax credit deadline at the end of 2012. “We knew that by having equity as well as the turbine contract from the same partner, they would be fully aligned to finish the plant in 2012, and it worked beautifully,” says Starace. The company is now working with GE on the 250MW Buffalo Dunes wind farm in Kansas, which is set to be completed in December.
EGP’s development team, led by head of business development Ingmar Wilhelm, has a “holistic” approach to site and project selection, taking into account the possibilities of PV production at wind sites, or combining PV and geothermal — as it has done at its 59MW Stillwater project, pictured below, in Nevada.
The company is also adept at identifying and leveraging under-utilised grid connections, as it did for the 200MW Prairie Rose wind farm in Minnesota, where it is using a substation that was built for a gas thermal “peaker” plant. “The increasing difficulty today is to obtain a connection point,” says Starace. “If you look at the potential, you discover there is a lot you can do.”
Starace says that diversity in geographical terms is as important as diversity in technological terms. “When one regulatory framework has a turbulent time, others don’t,” he points out.
Starace is steering the company into emerging countries, with a full 69% of its growth capex to be directed to these markets.
Of this, the major recipients will be in Brazil, Mexico and Chile, while the company is also entering Turkey, South Africa, Morocco, Peru and Colombia. EGP has also identified East Africa and the Middle East as potential growth areas going forward.
Emerging markets will account for 3.6GW by the end of 2017, compared to 900MW at the end of 2012.
Projects in emerging markets now make up 40% of EGP’s development portfolio, compared to 23% in the previous five-year period.
When asked if EGP is increasing its exposure to risk by betting so emphatically on emerging markets, Starace points to the ongoing impact of the eurozone crisis and austerity closer to home.
“I don’t think the political risk in Europe is smaller or bigger, it’s just different.
“[The risk from] a power-purchase agreement in Mexico with a major corporation is perfectly comparable with the risk of installing a solar plant with a feed-in tariff in a European country where the government policy on incentives may be reviewed.”
At the same time, technological diversification will also increase, with non-wind projects accounting for 23% of EGP’s development portfolio, compared to 11% previously.
EGP’s holistic approach appears to be paying dividends, quite literally, with its share price rising by about 60% in the past 12 months. And there is no reason why the company will not continue its upward trajectory. Perhaps those analysts who told it to specialise should consider a change of career.