62 Business The EconomistNovember 28th 2020
B
ack in the1980s a young Francesco Starace was working in the
Saudi desert on a wasteful fossil-fuel project. His task was to
build an oil-fired power plant. It was highly inefficient. Even
though the country sits on a sea of the stuff, the fuel needed to be
transported by lorry hundreds of kilometres across the desert from
Jeddah. And to begin with there were no customers; its aim was to
provide a way to persuade nomadic tribes to settle down in air-
conditioned homes. Mr Starace loved the job. Only years later did it
strike him how “crazy” it was. He tells the story to illustrate that the
significance of sustainability did not dawn on him quickly.
Today the 65-year-old is boss of Rome-based Enel, Europe’s
largest utility. Its market value has more than doubled to €85bn
($101bn) since he took over in 2014, making it as big as an oil giant.
Concerns about climate change are now all the rage among the
world’s business elite. But few companies match Italy’s biggest
firm in putting its money where its mouth is. On November 24th
Mr Starace unveiled plans to invest €160bn by 2030 to virtually tri-
ple its renewable-energy capacity to 120 gigawatts and transform
its grids in Europe and Latin America to prepare for an all-electric
future. The announcement came weeks after a similarly striking
pledge by Iberdrola, Spain’s second-biggest company, to invest
€75bn in renewables and grids by 2025. In America NextEra, a pio-
neering utility which briefly eclipsed ExxonMobil in value of late,
has also promised to fork out a fortune on wind and solar.
The triumvirate’s spending plans are still dwarfed by the vast
sums oil companies pour into fossil fuels every year. But they
make three things clear. First, renewables have moved from niche
to the big time. Second, utilities, formerly the dowdiest part of the
energy universe, are now where the action is. Third, the oil indus-
try has a lot to learn if it wants to invade their patch.
Sitting in his book-lined study on the eve of the announce-
ment, the bespectacled Mr Starace does not fit with the caricature
of a gruff utility boss. He wears a black crew-neck sweater. He reads
poetry. He drives a Tesla. When he set about selling off Enel’s lega-
cy coal-fired power stations in 2015 he wanted them turned into
museums and art galleries. He talks about energy with a soft-
spoken enthusiasm more usually found among tech evangelists.
When discussing the money that America, Britain and the Euro-pean Union are promising to invest in clean energy over the next
few years, he purrs: “They finally got it.”
The pandemic, Mr Starace says, has given the world a glimpse of
a renewables future. For years it was a matter of hot debate how
much intermittent wind and solar power an electricity system
could absorb without crashing. Lockdowns, he thinks, have helped
settle the argument. They crushed demand, driving out conven-
tional sources of power generation in favour of cheaper renew-
ables, yet systems withstood the shock “beautifully”. Though gas
and coal will bounce back, he believes governments will be reas-
sured that renewables do not pose the dangers that their critics
claim. Enel is taking advantage of the political tailwinds. By 2023 it
plans to invest €16.8bn in onshore wind and solar, promising to
raise core earnings, or ebitda, by 13%. It still operates coal-fired
power plants in Italy but vows to close them down by 2027, three
years ahead of schedule. In a dig at the oil industry, it has taken to
calling itself a “renewable supermajor”.
Renewables catch everyone’s attention. But Enel also proposes
big investments in networks and distribution—the pylons that
make up a grid, as well as the poles and wires feeding electricity to
customers—which it operates in eight countries. To reinforce and
digitise them for a future of clean energy, electric vehicles and
mass electrification, Enel plans €16.2bn of investments in the next
three years. It is also open to making acquisitions. Its total spend-
ing will be financed by a slight increase in net debt, green bonds
and government clean-energy programmes.
The €20bn in annual ebitdaEnel is likely to generate as a result
marks a “mind-blowing” turnaround, says Sam Arie of ubs, a bank.
When Mr Starace took over, Enel was debt-ridden and had recently
cut the dividend. Yet now it promises a guaranteed payout for the
next three years, even as many pandemic-hit companies can
scarcely look beyond January. Utility analysts, a nerdy bunch, rel-
ish the boldness. “You have made our job a lot more interesting,”
one from Goldman Sachs, a bank, told Mr Starace.
Oil companies, which once peered down their noses at utilities,
now eye them with envy. They have a lot to learn. For all their ef-
forts to repaint themselves green, their ambitions remain a pale
shade of it. Enel’s promised renewables investments in 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 chiefly because of their relationships both with reg-
ulators and customers. “The only thing they have in common with
us is the word ‘energy’,” he quips. And, as Meike Becker of Bern-
stein, a broker, puts it, oil giants tend to lack utilities’ financial dis-
cipline. They talk a good game. Utilities, in contrast, like to under-
promise and over-deliver.
Dangers lie ahead. Increased competition means Enel is lower-
ing its predicted returns beyond 2023. Its desire to move into India,
a minefield of an energy market, may lead it astray. And its zeal to
expand could lead to costly bidding wars for networks, such as the
one it won in 2018 against Iberdrola in Brazil’s São Paulo state.Generation change
Mr Starace, recently given a third term as boss, appears as unflap-
pable as ever. He has strong lieutenants who could take over when
he retires. He is a model of southern-European business acumen.
And he has a smooth Italian charm. “I’d love him to be the grand-
father of my kids,” coos one investment adviser. Not many utility
bosses can claim that as an endorsement. 7Schumpeter The climate centurion
Who says utilities are cold-hearted and dull?