B ACK IN THE In the 1980s, a young Francesco Starace was working in the Saudi desert on a fossil fuel waste project. His task was to build an oil-fired power plant. It was very inefficient. Even though the country sits on a sea of stuff, fuel had to be trucked hundreds of miles across the desert from Jeddah. And to begin with, there were no customers; its aim was to provide a means of persuading nomadic tribes to settle in air-conditioned homes. Mr. Starace loved the work. It wasn’t until years later that it hit him how « crazy » it was. He tells the story to illustrate that the importance of sustainability did not quickly become apparent to him.
Today, the 65-year-old is the head of Rome-based Enel, Europe’s largest utility. Its market value has more than doubled to 85 billion euros ($101 billion) since he took office in 2014, making it an oil giant. Concerns about climate change are now all the rage among the global business elite. But few companies match Italy’s biggest company when it comes to putting its money where its mouth is. On November 24, Mr. Starace revealed plans to invest 160 billion euros by 2030 to nearly triple its renewable energy capacity to 120 gigawatts and transform its networks in Europe and Latin America to prepare for a fully electric future. The announcement came weeks after an equally striking promise from Iberdrola, Spain’s second-largest company, to invest 75 billion euros in renewable energy and networks by 2025. In America, NextEra, a Pioneering utility that briefly eclipsed ExxonMobil in value of late, also promised to fork a fortune on wind and solar.
The triumvirate’s spending plans are still dwarfed by the vast sums that oil companies invest in fossil fuels each year. But they clarify three things. First, renewable energy has gone from niche to big time. Second, utilities, once the dullest part of the energy universe, are now where the action is. Third, the oil industry has a lot to learn if it wants to invade their patch.
Sitting in his book-lined study on the eve of the announcement, the bespectacled Mr. Starace does not fit the caricature of a gruff public service boss. He is wearing a black crew-neck sweater. He reads poetry. He drives a Tesla. When he set out to sell Enel’s old coal-fired power plants in 2015, he wanted them to be turned into museums and art galleries. He talks about energy with a soft-spoken enthusiasm more often found among tech evangelists. When discussing the money that America, Britain and the European Union are promising to invest in clean energy over the next few years, he purrs: “They finally got it.”
The pandemic, according to Mr Starace, has given the world a glimpse of a renewable future. For years, there has been heated debate about how much intermittent wind and solar energy a power system could absorb without crashing. The lockdowns, he thinks, helped settle the argument. They crushed demand, driving out conventional sources of electricity generation in favor of cheaper renewables, but the systems withstood the shock “magnificently”. Although gas and coal rebound, he believes governments will be reassured that renewables do not pose the dangers their critics claim. Enel is benefiting from political tailwinds. By 2023, it plans to invest €16.8 billion in onshore wind and solar, promising to increase its core earnings, or EBITDA , by 13%. It still operates coal-fired power plants, but promises to close them by 2027, three years earlier than planned. In a dig at the oil industry, he began calling himself a “renewable supermajor.”
Renewable energy is attracting everyone’s attention. But Enel is also making big investments in networks and distribution – the pylons that make up a network, as well as the poles and cables that supply customers’ electricity – which it operates in eight countries. To strengthen and digitalize them for a future of clean energy, electric vehicles and mass electrification, Enel plans 16.2 billion euros of investments over the next three years. It is also open to acquisitions. Its total spending will be financed by a small increase in net debt, green bonds and government clean energy programs.
Enel’s €20bn annual EBITDA is likely to generate a « staggering » turnaround as a result, says Sam Arie of UBS , a bank. When Mr Starace took over, Enel was in debt and had recently cut the dividend. Yet now it promises a guaranteed payment for the next three years, even though many pandemic-hit businesses can barely look beyond January. Utility analysts, a nerdy bunch, appreciate boldness. “You’ve made our job a lot more interesting,” a member of Goldman Sachs, a bank, told Mr. Starace.
Oil companies, which once looked at utilities, now look at them with envy. They have a lot to learn. Despite their best efforts to repaint themselves green, their ambitions remain a pale shade. Enel’s promised investments in renewable energy over the next three years almost match those of BP , Royal Dutch Shell and Total combined. The oil majors also lack the right skills. Mr. Starace says vertically integrated utilities such as Enel are different from most oil companies mainly because of their relationships with regulators and customers. “The only thing they have in common with us is the word ‘energy’,” he quips. And, as Bernstein’s Meike Becker, a broker, says, oil giants tend to lack financial discipline in utilities. They talk about a good match. Utilities, on the other hand, like to underpromise and overdeliver.
Dangers await us. Increased competition means Enel is reducing its expected returns beyond 2023. Its desire to expand into India, a minefield of an energy market, could lead it astray. And his zeal to expand could lead to costly bidding wars for the networks, like the one he won in 2018 against Iberdrola in the Brazilian state of São Paulo.
Generational change
Mr Starace, who recently secured a third term as boss, appears more unfazed than ever. He has powerful lieutenants who could take over when he retires. He is a model of southern European business acumen. And it has a gentle Italian charm. “I would love him to be my children’s grandfather,” coos an investment advisor. Few utility bosses can claim that as an endorsement. ■
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Correction (November 27, 2020): The original version of this article misrepresented Enel’s plans for coal-fired power plants. This has been updated.
This article appeared in the Business section of the print edition under the title « The climate centurion »
