Italy’s Enel Green Power (EGP) has stood out among renewables developers over the past few years — stubbornly pursuing its own path and bucking market trends.
As many analysts preached the virtues of specialisation, EGP was a model of technological diversification — active in wind, solar, hydro, geothermal and biomass. And while others retrenched and focused their investments in “core” markets, EGP steadily increased the number of countries in which it operates. And unlike some other utility-owned renewables developers, EGP maintained its status as a separate traded company, and steadily grew its capital expenditure by increasing cash flow from operations.
“I am happy with complexity,” EGP chief executive Francesco Starace tells Recharge with a wry smile. And he needs to be. EGP has grown from 4.8GW from 600 generation facilities at the end of 2009 to 8.9GW from 750 plants by the end of 2013. And as part of EGP’s new €6.1bn ($8.4bn) 2014-18 business plan, the company will add a further 4.6GW by the end of 2015, bringing total capacity to 13.4GW.
EGP currently has operating assets in 16 countries and is building plants in five more: Colombia, Peru, Turkey, South Africa and Morocco. In the next phase, six more nations will be added — Kenya, Uruguay, Saudi Arabia, Egypt, Ecuador and Russia.
“[EGP] has the most diverse renewables pipeline in the world,” says Starace. “This diversity has mitigated our risks and will continue to add value in the future.”
Diversity means that “we are not so worried if it is raining somewhere or the sun is shining”, he adds, explaining that geographical spread also mitigates the effects of adverse economic or regulatory changes in markets where the company operates.
EGP is moving away from low-growth areas in Southern Europe towards more dynamic markets in the developing world. More than half of EGP’s gross project pipeline of 20.4GW is now in emerging markets, with the lion’s share in Latin America. In terms of technologies, 78% of the pipeline is wind, with 15% solar, 3% geothermal, 3% hydro and 1% biomass.
For Starace, the industry is moving towards a more competitive environment, with much of the company’s development activity being organised around the growing number of tender rounds. This year, EGP is looking at taking part in tenders in Costa Rica, Brazil, Egypt, Panama, Morocco, Turkey, Mexico, South Africa, Chile, Saudi Arabia, Guatemala, Italy, Peru, Kenya and Russia.
“This competitive play has been good for us for some time,” says Starace. “A lot of others didn’t prepare early enough for this.” Operating successfully in a truly competitive environment entails being able to bring a number of abilities to the table.
“Site selection is crucial. It’s not the end of the story, but you have to have a very good site to have a chance,” says Starace. “Then you need to have a very good negotiating power with your suppliers, not just on the price level but on the performance level. And then you need to be very good on operations and maintenance [O&M]. And finally you need to have a competitive cost of capital.”
O&M is an area that figures prominently in EGP’s priorities. “You can find an incredible amount of cash sitting in your assets,” says Starace. EGP’s O&M head count has grown to 1,800 people — up from 1,300 in 2009 — and the company has moved to take full control over its assets, building a network of control centres and O&M hubs, and setting new targets in terms of cost per MW and lost production.
Where possible, EGP is trying to take a holistic view of site development, combining wind and solar facilities in countries such as Brazil, and solar and geothermal production elsewhere. “Every time we can do it and take advantage of synergies, we do it,” says Starace, pointing out that in places like South Africa, regulation means that you are obliged to tender separately for wind and solar as there is no mechanism for simultaneously working with two technologies.
Following his theme of growing complexity, Starace says that “the old days of framework agreements [between a wind developer and often a single turbine supplier] are dying”.
“There is no way you can have a [single] framework agreement that covers your competitive spectrum,” he says, adding that the company has signed successful framework agreements with major turbine suppliers.
“The global market is too complex even for the biggest one [manufacturer], with different wind speeds and conditions, and different production capacities.”
On the other hand, he says that a “wind multiplayer” capable of serving all the different global markets could emerge from industry consolidation “eventually”.
The single biggest factor driving turbine improvements is “the pervasiveness of digital devices and sensors”, he says. “If you look at it, your car is still better than a wind turbine in terms of these devices, so we will see more advances in performance.”
He points out that the amount of money invested in renewables has fallen slightly from its peak, but installation in terms of MWs has continued to rise. “Investment is down, but that’s not a sign that people don’t like it, it’s a sign that technology advances are breaking through and the sector is becoming more efficient.”
In overall terms, Starace remains extremely bullish about the outlook for renewables. Following analyst forecasts, EGP expects world electricity demand to grow by 60% by 2030, requiring an 80% increase in generation capacity. Of this, the company expects renewables to account for 70% of total new power generation.
“Renewables will outpace all other e sources in meeting world power demand in the coming period, underpinned by a growing competitiveness versus fossil-fuel generation,” Starace says.