Breaking up energy businesses ‘too risky’ says Enel

Chief executive reiterates commitment to integrated business model

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The fashion for breaking up utilities is the “wrong call”, according to Enel, Europe’s largest power company by market capitalisation, which has reiterated its commitment to an integrated business model.

Francesco Starace, Enel chief executive, said it was “too risky” to place bets on particular parts of the energy value chain while the disruptive shift from fossil fuels to renewable power was still unfolding.

His comments followed this month’s €43bn asset swap between German utilities Eon and RWE under which the former will focus on operating energy networks and supplying retail customers, while the latter will specialise in electricity generation.

Mr Starace said Italy-based Enel would not be tempted to follow the German example.

“We believe time will tell, honestly, which part of the value chain prevails over which, or whether they both are necessary,” he told the Financial Times. “We’d rather not bet and [instead] continue to optimise across the value chain because . . . the market has not yet made up its mind.”

Further deals were likely over the next 18 months, Mr Starace said, as utilities reshape their portfolios while antitrust scrutiny might force the disposal of some assets.

This could create opportunities for Enel to make bolt-on acquisitions of up to €5bn in value but Mr Starace insisted he was not chasing larger-scale deals.

All of Europe’s big utilities are facing difficult strategic choices as traditional business models are challenged by the falling cost of renewable wind and solar power, accompanied by political pressure to shift away from fossil fuels.

We think the evolution of technologies across the value chain is such that, no matter what the market says, it can change its mind later on. So we think this is too close to call and actually it is a wrong call right now, too risky

Francesco Starace
The break-up of Germany’s biggest utilities into more narrowly focused companies provides one potential model for the industry, while Enel’s decision to keep faith with a vertically integrated approach, spanning generation, transmission and supply of electricity, provides another.

“We think the evolution of technologies across the value chain is such that, no matter what the market says, it can change its mind later on,” said Mr Starace, referring to the debate over which businesses utilities should focus on. “So we think this is too close to call and actually it is a wrong call right now, too risky.”

Mr Starace said the benefits of Enel’s diversified model were evident in better than expected full-year results announced last week. Ordinary net income was €3.7bn, up 14.4 per cent from 2016.

Enel added 3 gigawatts of renewable power generating capacity around the world last year, equivalent to about three nuclear reactors. Almost half of the group’s 84GW of installed capacity now comes from non-fossil fuel sources.

Enel, which is 23.6 per cent owned by the Italian government, operates in 37 countries in Europe, the Americas, Asia and Africa.

Analysts at Bernstein described Enel’s full-year results as a “confident performance” with progress on track towards its growth targets for the coming years.

Source: ft.com