Like its spot on the Monopoly board, the electricity company has not typically been considered anything special: a property of mediocre value, often state-owned, that serves a necessary but not particularly creative role in the function of modern society.
No longer. In an era of increased electrification and decarbonization, electric utilities are playing a decisive role in shaping the clean economy of tomorrow. Enel, Europe’s largest utility and the second-largest power company in the world, is leading the charge when it comes to slashing carbon emissions, as its top ranking on the Corporate Knights Carbon Reduction 20 list suggests.
Established in 1962 as Italy’s National Electricity Board (Ente nazionale per l’energia elettrica) and privatized in 1992, Enel now operates in more than 30 countries, running the largest electrical distribution network in the world. It is the main power provider in several countries, including Italy, Spain and Chile. In the last decade, the utility has pursued what Salvatore Bernabei, the CEO of the company’s renewable subsidiary Enel Green Power, calls a “consistent plan of closure,” shuttering most of its coal plants and replacing them with a lot of wind and solar (and a little geothermal and natural gas), thereby reducing its total greenhouse gas emissions by more than 73 million tonnes – a larger reduction than any other company in the world. Kudos aside, Enel is still the fourth-largest producer of carbon emissions in Europe. But its reduction in the last decade is exceptional, as is its revenue growth over the same period – an increase of 38% to €115 billion in 2022 – which has moved it into turf otherwise occupied by the oil giants and allowed it to call itself, in a snub at those, a “renewable supermajor.”
Bernabei, an engineering manager by training, ascended Enel’s ranks in positions across Europe and South America before being named head of Enel Green Power in 2020. He attributes Enel’s successful decarbonization journey to a combination of enlightened leadership and economic common sense.
“It was very pragmatic and needed,” he says on a call from Enel’s headquarters in Rome, citing 2013 as a turning point when, for the first time, Enel bid on renewables – wind, solar and hydro – rather than coal at auctions for baseload power capacity in Chile. “The Chileans thought we were joking,” he says. It was no joke; renewables were finally cost-competitive with coal. “Coal just didn’t make economic sense anymore,” Bernabei says.
Affirming this view was Enel’s new CEO, Francesco Starace. A nuclear engineer who started his career developing oil-fired generation plants for global power giants, Starace announced bold plans when he took the helm at Enel in 2014. The utility would be leaving the business of large-scale centralized power generation: closing all its coal plants by 2027 and tripling its renewable energy capacity by 2030. Ninety percent of the €17 billion Enel planned to invest in growth between 2016 and 2019 would go toward renewables and grid modernization.
Enel’s new direction went over well in climate action circles. Greenpeace, which had been targeting Enel’s Italian coal plants for years – blockading them, spray-painting their chimneys – changed its tune entirely. In 2015, Giuseppe Onufrio, executive director of Greenpeace Italy, lauded the company’s new business model and projected that Enel was on track to become the “first truly green energy giant.”
Closing coal plants makes sense in an era of climate change, but that doesn’t make it easy. According to Bernabei, less than ten of the 50 coal plants that Enel was running in 2016 are still in operation. Some closures have involved major write-downs. But Bernabei says that persuading Enel’s shareholders – the Italian Ministry of Economy and Finance is the main one, at 24% – of the necessity of closures hasn’t been difficult, as the economic arguments are “obvious.” Far more challenging has been selling these closures to local communities that fear for their livelihoods, and systems operators and engineers who, as he puts it, “are much happier managing three coal plants than 3,000 photovoltaic installations.”
Nonetheless, Enel has remained steadfast in its closure schedule – and its commitment to address social impacts by retraining employees to work in the renewables sector. Bernabei says that typically, at the time of closure, half of the plant employees are reaching retirement age and the other half can be reskilled to work in renewables or industries associated with them, like electric mobility.
Enel is determined to demonstrate that the end of coal represents other beginnings. In September, the company completed closure of its last coal plant in Chile, Bocamina II, the first power company in the country to exit coal entirely. In the years leading up to its decommissioning, Enel signed contracts with local cement companies, agreeing to supply them with the plant’s gypsum and ash by-products, reducing both plant waste and the emissions generated in the procurement of those materials. The former coal plant site has been renaturalized and is home to an outdoor art gallery featuring wall murals by local artists.
Bernabei acknowledges that Enel’s retreat from coal has been facilitated by the fact that most of its operations are in countries where coal is being imported, not mined, and that the challenge is much greater in countries with major coal industries, like Germany. Regardless, he’s adamant that coal’s days are numbered: “Either you shout about it or you just do it,” he says.
But twice in recent years, Enel has opted to sell rather than decommission coal operations – at Reftinskaya in Russia in 2019 (Russia’s largest thermal power plant) and Novaky and Vojany in Slovakia in 2016 – eliminating their emissions from its own but not the global balance sheet. And as Russia strangles its supply of natural gas to Europe, Enel says it's keeping some coal plants running to “provide energy security in this emergency phase.”
Furthermore, critics point out that 30% of Enel’s total capacity is still derived from natural gas. At the Fusina power station in Italy, coal is being replaced by natural gas. And in light of Russia’s recent pipeline closures, Enel is considering reviving its Porto Empedocle LNG terminal project in Sicily though it reiterates that its overall strategy does not include LNG-related activities. The most recent report from the Intergovernmental Panel on Climate Change affirms the critical importance of reducing, not augmenting, fossil fuel installations, which, by definition, lock in emissions in the medium-term.
But with its plans to phase out natural gas by 2040, Enel is still ahead of most. Bernabei considers coal and gas necessary and legitimate backup options that, over time, will be rendered superfluous by a combination of market forces and improvements in storage technology.
A green lab for a gas-free future
Italy’s sun-kissed Mediterranean island of Sardinia serves as an example of just how quickly this can happen. Since the Italian government’s 2017 announcement of a nation-wide phase-out of coal by 2025, Enel had been planning to replace its coal plant on Sardinia with a gas-powered one. But on closer examination, it became clear that by linking Sardinia to the Italian mainland by cable – a process currently underway with the construction of a “Tyrrhenian Link” that will connect Sicily and Sardinia to the national grid – and boosting the island’s production of solar, wind and hydroelectric power, the gas phase could be skipped and the transition to renewables achieved right away. Bernabei says that by 2027, Sardinia will be powered by wind, sun and water alone.
It makes for excellent marketing – the popular tourist destination can now boast sustainability on top of its legendary Costa Smeralda – and thousands of new jobs in the electrification sector. It also makes for a better bottom line. Bernabei says that from the utility’s standpoint, renewables plus storage is now a cheaper solution on Sardinia than gas and that this argument will soon pertain in more contexts as technologies, particularly in gravitational and thermal storage, improve.
While Sardinia is exceptional in its abundance of wind and solar power, these are the energy sources that Enel is relying on most heavily in the decarbonization of its network. Hydro and nuclear power are, in Bernabei’s words, “not expedient,” both involving massive investment over long periods of time, unlike solar and wind, whose plants are smaller and can be built on more flexible business plans. Furthermore, Europe is running out of locations for new hydro installations.
Of Enel’s total power production, renewables now make up 49%, up from 24% a decade ago; over the same period, the portion derived from wind has risen significantly, from 3% to 17%. In 2021 alone, Enel built some 70 renewable power plants, mainly wind and solar, and most in Latin and North America, as well as battery energy storage systems in the United States. Enel expects its total portfolio to be more than 85% renewable by 2030 and at net-zero, for both direct and indirect emissions, by 2040.
That’s 10 years earlier than the goal Enel set for itself in 2015, when it signed on to the United Nations’ Sustainable Development Goals, but Starace, the company’s CEO, is confident that it’s achievable. Soft-spoken and known for his love of poetry, Starace points to the impact of COVID-19 as evidence of how quickly the world can change. During the pandemic, Enel saw industrial and commercial demand for electricity plummet, while domestic demand increased slightly; the result was a dramatic drop in conventional generation and a surge in renewables, proving, for Starace, that electric systems are flexible and ready to adapt. “We accomplished our 2030 goals in a few days,” he told business podcaster Charles Trevail in an interview last May. “We’re never ready to change,” he mused, “but changing continuously. COVID proved that point spectacularly.”
Enel’s courage in its own convictions has translated into investor confidence. In July 2021, the company launched the largest-ever issue of sustainability-linked bonds, an instrument whose cost financing is raised if the company fails to meet stated objectives. In this case, the $4-billion issue was linked to Enel’s ambition to reduce its direct greenhouse gas emissions to 80% of 2017 levels by 2030. It received $12 billion in orders. Overall, the company says that its decarbonization drive has reduced the cost of its debt, reduced its risk, and the portion of shares held by ESG investors has almost tripled, from 6% in 2014 to 15% of the company’s float in 2021. They’ve also expanded their base of sustainability-focused institutional shareholders from 134 to 252.
Overall, Starace believes that the journey to net-zero can be accomplished largely with existent technologies and that what’s missing – primarily better storage systems – is on the way. Having built Europe’s first fully digital grid, in Italy, with a smart-meter rollout that began in 2001, Enel continues to invest heavily in grid digitization: optimizing the dispatch and bidirectional flow of electricity as more distributed renewable energy is fed into the system. It recently launched Gridspertise, a company that shares Enel’s digital technologies and innovations with other grid operators, in a bid to promote grid modernization across the board.
Asked why it took the energy sector so long to get on board, Starace says that visionary thinking yields results only if the economics work; it took time for competitive technologies to break through.
Of course, there will be setbacks, like Russia’s throttling of natural gas exports to Europe, but there Starace sees silver linings. Finally, the folly of Europe’s dependence on Russia has become clear, and Europeans will be forced to learn some important lessons in energy conservation. “Gas was supposed to be a bridge,” he told Trevail in the May podcast, “and now the bridge is collapsing.”
For Starace, the future is looking good. While the first phase of the transition to renewables has been driven largely by regulators and the market, he believes the next phase will put customers in the driver’s seat. They will be the ones to choose the heat pump or the electric car. In doing so, they will go from being consumers to being producers of heat and electricity.
Dismissing industry dinosaurs who consider this democratization a threat, Starace is convinced that once consumers become producers, they’ll be more invested in electrification and want more of it. On the Monopoly boards of the low-carbon future, everyone will want to land on Electric Company.
