On Enel’s strategy: Our strategy can easily be summarized as follows: We create value in a sustainable way, because that is the only way to ensure the long-term life of the company and to progressively de-risk our earnings profile going forward.
We went through two phases of strategic thinking. The initial one, in 2014–15, focused on defining the main drivers along which we wanted to deploy our strategies and on identifying areas that we no longer wanted to focus on. For example, we stopped thinking about growth investments that take more than three years to go live and whose returns are exposed to the volatility of energy prices. At the same time, consensus from the communities that live and work around our infrastructure became a key element informing our way of doing business. If we don’t have this consensus, we avoid carrying out new investments, even if we have all of the permits for them.
In the second phase, we put renewables at the heart of Enel’s development strategy. We saw that we were spending about 60 percent of our capital to maintain assets that we had and 40 percent on adding new assets, revealing both inefficiency and a lack of ambition. Therefore, we set a goal of reversing the proportion, shifting investments toward new renewable capacity and thus creating more value for our shareholders. Eventually, we made a profound change to our internal organization. We decided to allocate the responsibility of retail activities and cash flow generation to regional units, because our customers’ habits change from one country to another, and so do languages, tax treatments, and regulation. At the same time, we created several centralized business lines in charge of driving growth, investing cash flows, and dealing with the technological aspect of our businesses: networks, thermal generation, and renewable generation. Then we identified about 250 people who, working at the intersection between these two dimensions of our organizational matrix (the regional units and the centralized business lines), had the intellectual flexibility to manage them and understand the trade-off between them.
On addressing market and technology disruption:: The transition that is shaping our sector is driven by two main trends. The first one is digitization, which is changing the way we build and manage our assets, and the way our customers relate to us. The second is the continuous evolution of material science, which allows the components in our plants to become lighter, cheaper, more durable, and more efficient. We’ve understood the magnitude of these changes for some time. Indeed, 10 years ago, we were among the first to believe that renewables were going to be the cheapest electricity source, and so we built our growth strategy around them. At that time, we understood that a massive renewables penetration poses challenges to traditional network operations, and so we started digitizing them. Eventually, drawing on our experience in smart grids, we decided to digitize our generation fleet and customer operations to enhance their flexibility and efficiency.
On value-chain positioning: Given the extent of the ongoing energy transition — of which we can guess the direction but not predict the exact outcome — we chose to keep an integrated position along the value chain to increase our resilience and value-creation opportunities. Moreover, we decided to be present in multiple geographies, where energy transformation is occurring at different paces. This allowed us to anticipate some trends in less advanced electricity systems and, coupled with commonly available IT platforms, gave us the chance to replicate good practices and innovations, scaling up their benefits quickly across countries.
On growing new businesses: The Enel organization, designed along the aforementioned business lines, has worked to streamline processes, increase efficiency, and manage investments for its traditional businesses. But there are many new opportunities that are difficult to develop within units devoted to legacy businesses. So we created a new business line called Enel X, and gave it a strategic mission to develop new B2C, B2B, and B2G services, including electric mobility, energy efficiency, demand response and storage, public lighting, distributed generation, and fiber optics. Aside from achieving proper momentum and accountability on these new activities, this reorganization allowed the traditional business lines to focus on their core activities, thus achieving additional efficiencies.
On competitive pressures: We feel the most important competition in our sector is not the one among utilities, but rather the one between electricity and fossil fuels. Indeed, our aim is to make electricity the preferred energy source for residential, commercial, and industrial applications, displacing the use of gas, coal, and oil. This will be possible thanks to renewables, which will increasingly provide cleaner and more affordable electricity to residential houses and businesses.
On competitive threats: Instead of threats, we see consistent factors of instability from regulatory, political, and financial standpoints, and an accelerating technological disruption. Regarding regulatory, political, and financial factors: Aside from maintaining cooperative relationships with our stakeholders, the only mitigating factor for such inherent volatility is the geographical diversification of our businesses. For example, we have eight distribution networks all over the world, and regulatory cycles last three to four years. So each year, we face just one or two regulatory updates, and that makes our economic results more predictable. With regard to the challenges caused by the technological innovations, we believe they could turn into new opportunities, provided we stay open to new ideas and share knowledge with customers, suppliers, and all of our stakeholders.