BMI View: Enel Green Power's decision to focus on renewables growth in emerging markets chimes with our long-held views on the global renewable energy market. By targeting emerging markets, the company can diversify away from its subdued domestic Italian market and the regulatory uncertainty plaguing the wider European renewables industry. We believe key areas of growth for Enel Green Power going forward will be Latin America, and selected countries in the Middle East and Africa (MEA), including South Africa, Saudi Arabia and Kenya.
Italian company Enel's renewable energy subsidiary, Enel Green Power, has announced its new '2014-2018 business plan', which will focus on renewable energy industries in emerging markets. The company plans to channel 73% of its investment into emerging markets, and is targeting EUR6.1bn of investment globally by end-2018. Enel Green Power hopes to increase capacity to 13.4 gigawatts (GW) by 2018, from 8.9GW in 2013. Of this capacity, roughly 0.7GW will be installed in North America, 1GW in Europe and 2.9GW across emerging markets.
This decision by Enel aligns with many of our long-held views concerning the global renewables industry. We believe that diversifying away from its domestic market, as well as the saturated and increasingly uncertain European and North American markets, is a strategic move for the company and will provide greater growth opportunities.
Troubled domestic market
Enel Green Power remains heavily exposed to Italy, despite gradual efforts to shift its exposure away from the domestic market. We have long held a rather bearish view on the Italian renewables sector. Subdued power demand, a clouded economic picture and regulatory uncertainty regarding the country's Feed-in Tariff (FiT) programme has prompted a dip in investor confidence. As such, we are forecasting non-hydropower renewable generation in Italy to grow by 4.0% in 2014, which is significantly lower than the five-year historical average. Long-term growth prospects are also limited, and we expect non-hydropower generation to grow at an average rate of 2.6% per annum between 2014 and 2023. This is significantly lower than the ten-year historical average of 15.5%.
Italy's unattractive environment for renewables developers is encapsulated in our Renewables Risk Reward Ratings (RRRs), which consider and evaluate a wide range of factors that affect the investment climate in the sector in different ways. Italy is positioned towards the bottom end of the ratings table.
|Limited Growth In Italy|
|Italy Total Net Generation And Consumption (TWh) and GDP Growth (%y-o-y), 2013-2020 and Western Europe Renewables Ratings (Scores our of 100)|
Policy slippage In Europe
Enel Green Power's announcement that just 1GW of capacity will be installed across Europe through to 2018 also chimes with our views on the wider European renewables industry. The operating environment for utilities in Europe has become increasingly difficult of late, with the renewables sector being a particularly pertinent case in point.
Concerns over the region's competitiveness and the problems associated with integrating various technologies into the conventional power network is throwing renewable energy policies into question. This was recently evidenced in the proposed EU 2030 climate and energy targets (announced in late-January 2014), and in particular the renewable energy component of the framework. We believe this has been watered down and this, yet again, highlights the ongoing 'policy slippage' we have been witnessing in the EU over the last six months ( see ' EU 2030 Energy And Climate Package: Playing It Safe', January 24 2014). The announcement will no doubt continue to leave renewable energy developers, including Enel Green Power, questioning the region's commitment to renewable technology. This reinforces our view that renewable energy is unlikely to be a panacea for the European power sector.
Seeking growth in emerging markets
Renewable energy markets, particularly in Latin America and the Middle East and Africa (MEA) region are becoming increasingly attractive investment destinations for renewable energy developers. Robust projected power demand, energy agendas which focus on non-hydropower renewables diversification in order to boost energy security and investment into improving electrification rates are all factors helping support the expansion of renewable energy in emerging markets (see 'South Africa, Kenya and Ethiopia Lead Renewables Expansion', March 7 2014).
|Total Non-Hydro Renewables Capacity By Region (MW) and Growth, 2013 and 2023|
Using our renewables forecasts we can highlight particular regions that we believe will experience the strongest growth over the coming decade. Although Western Europe and North America are clearly the largest markets for renewables, in terms of installed capacity, we expect emerging markets to present greater growth opportunities for companies such as Enel. Countries that we believe will stand out as renewable energy hubs are Saudi Arabia, South Africa, Kenya and Chile - and we expect Enel Green Power to ramp up its exposure to these markets. In fact, Enel Green Power Chile, an Enel Group company dedicated to building renewable energy projects in Chile, is currently developing a 50MW geothermal plant in the Antofagasta province ( see 'Geothermal Prospects Warming Up', March 31 2014).