“Our aim is to grow the use of electricity as energy vector”. This is how Francesco Starace, CEO of Enel, one of the world’s largest utilities and perhaps the biggest producer of renewable energy in the world, describes the strategic goal of his company. According to Starace, the utility of the future owns and manages a digitised grid that connects up decentralised green energy sources and is at the centre of a whole new system of energy products and services. But he is concerned that many utilities are still engaged in a futile effort to deny the future. “There are still a lot of us who think they should own large centralised fossil fuel plants.” Enel gives priority to flexibility: “we have decided to stop investing in projects that take more than two or three years to complete”. This interview was first published in World Energy Focus 2016, a magazine produced by Energy Post for the World Energy Congress in Istanbul.



If there is one major utility company in the world that has fully embraced the low-carbon energy transition, it has to be Enel. The Italian company was probably the first in the world to replace all its conventional meters in its home country with smart meters. Through its subsidiary Enel Green Power, which owns over 10 GW of renewable energy capacity in 17 countries, Enel is also one of the world’s largest (if not the largest) renewable energy producers. About half of the company’s generation capacity is now carbon-free, and this number will only go up, says Francesco Starace, who became head of Enel in May 2014 after six years as CEO of Enel Green Power: “We have stopped investing in large-scale centralised power generation.”

In the period 2016-2019, Enel will invest for growth some €17 billion of which almost 90% will go to renewables and grids. This is where the utility of the future is headed, says Starace: “The key for us is to own and manage a digitised grid, which will connect as many decentralised units as possible. Who owns the generating capacity is less important.”

“There are still a lot of us who think they should own large centralised fossil fuel plants with some transmission and distribution and without much technology”

In a country like Italy, there are already some 670,000 small renewable energy plants, he notes, and this trend will continue. “As network operator you don’t only need to move electricity from high-voltage to low-voltage lines, but also increasingly across low-voltage and medium-voltage lines, and sometimes even in counterflow.” This kind of very fragmented and intermittent generation can be handled by the grid, says Starace. But only if that grid is digitised. Digitisation will, moreover, enable the development of new products and services that will make the energy system much more flexible and efficient.

Megacities

“Over the next ten years grids are going to be extremely important,” says Starace. This is all the more so because of the worldwide trend towards urbanisation and “megacities”. Enel owns or operates grids in many cities in the world, also outside of its large domestic markets of Italy and Spain, e.g. in Bucharest (Romania), Santiago (Chili), Bogota (Colombia), Rio de Janeiro (Brazil), Buenos Aires (Argentina), Lima (Peru). “People are increasingly migrating from the countryside to these cities. We are committed to make them as livable as we can. As efficient and as modern as possible.”

Starace emphasises that the energy system cannot be modernised and adapted to the low-carbon energy transition if the grids are not digitised. “Digitised grids will enable a lot of features that are not there today. They will make electricity use much more efficient and will lead to many more new applications. Consumers will interact much more with their energy providers and become more conscious of their energy use.”

“Over the next ten years grids are going to be extremely important”

He views this trend as a great opportunity. Indeed, the Enel CEO is concerned that the world is moving only very slowly to digitisation. “In many countries there still is fear of digitisation. We still need to convince many regulators that this is not a cost, but an investment that pays out in 2-3 years. We really have to put this debate to rest, otherwise we won’t be able to grow.”

Europe and Japan are furthest ahead in digitisation, says Starace. In other parts of the world the trend is even slower. “We have to bring people up into 2016. We are carrying out pilots in many countries to show how it works and why it’s beneficial.”

Electric cars

Digitised grids are also key to enabling the transformation of the transport system. “It’s very clear today that electric cars can quickly become a viable alternative to the internal combustion engine,” says Starace. He believes that for the next twenty years the two systems will be moving together – then new cars will be all electric. “We want to push this development as much as possible, because for us it’s another use of clean electricity in a world of polluting inefficient fossil fuel use.”

Electric cars are not only welcome new consumers of electricity, they can also be an important source of storage and flexibility for utility companies, notes Starace. “For us electric cars are batteries on wheels. We can pay car owners for connecting their batteries to the grid when they are sitting in their office and not using their car. For us it means we will be better able to manage the grid.”

“We need to grow with others. So we need to completely open up our processes, our minds. That is strange for a utility.”

The growth of electric mobility will come at the expense of oil companies. Is Starace worried that they may try to move into the utility space? “Oil companies are eyeing the utility market, yes. For us it is a sign that we have value in our hands. But we are not particularly concerned about this. They tried it before, in the 1990s, and they all left again. The utility sector is a very special business, with relatively low margins. It’s not an easy environment.”

Core business

Then there are the Silicon Valley type of companies that are interested in the energy market. They are very different from the oil companies, Starace says. “They are not making the mistake of entering our core business. They look at the value they can add at the customer end. As utilities we have millions of customers. Thus, there is a lot of space for cooperation with these high-tech companies. I don’t see this as a threat, but as a tool for value creation.”

For innovative ideas, Enel looks outside the own company anyway. Starace has an outspoken vision on innovation. “There are several reasons why companies innovate. It can be because they are in a crisis. Or because it is built into their genes right from the start. Neither applies to us. We innovate because we want to grow. But how? Our industry tends to be risk-averse, because when you make a mistake in our business, this can have big consequences. But this is not an environment in which innovation thrives. That’s why we decided to look for innovation outside the company. We stopped sitting around and trying to do it ourselves.”

“The world changes so fast that five years from now, you find yourself wondering why you ever made this investment”

For growth to be sustainable, it needs to be inclusive, says Starace. “We need to grow with others. So we need to completely open up our processes, our minds. That is strange for a utility. We are now working with a great many start-ups. But we don’t want to own or manage them exclusively. We want their ideas, adopt them fast, so we can create new revenue streams and do our job more efficiently.”

Big mistake

In fact, Starace would like to see other utilities do the same. “We don’t want to keep innovative ideas to ourselves. Our main aim is to grow the use of electricity as an energy vector. Our competition is not with other utilities, but with fossil fuel based electricity.”

If the electricity market as a whole grows, Enel will grow with it, says Starace. “We are already very large. Growth for us is not a zero-sum game. We want people to use more electricity and less fossil fuels.” One of his main worries is that other utility companies are not moving in the same direction. “There are still a lot of us who think they should own large centralised fossil fuel plants with some transmission and distribution and without much technology. That’s a big mistake. It is futile to try to stop current technological trends. The opportunity is there, but if we as a sector don’t jump on it, we will not be able to grow our market.”

“We have €10.5 billion invested in growth and all of this investment will be completed around 2018”

Starace notes that Enel’s commitment to renewable energy and digitised grids is fundamentally changing the way the company operates. “We have always been a long-term industry. If you take a decision today, you see the result in five years. If you make an investment, you will start earning money on it five to ten years later. This was fine for a long time. But it’s not fine anymore today. The world changes so fast that five years from now, you find yourself wondering why you ever made this investment.”

For this reason Enel decided to stop investing in projects that take more than two or three years to be completed. “This is a big management challenge,” Starace points out. “You have to invest in many more smaller things. This means you need more smart people. But what you gain is huge flexibility. We have €10.5 billion invested in growth and all of this investment will be completed around 2018. This means we will have cash again from 2018 to invest. This freedom is a great value for the company.”

And as with innovation and digitisation, Starace would like to see other utilities take the same approach. “If we all do this, the sector as a whole will become more flexible.”