"We are ahead of the pack and we will try to stay ahead"

Interview: Fulvio Conti, CEO Enel and President Eurelectric

"We are ahead of the pack and we will try to stay ahead"

By Karel Beckman

'I want to make this the best company in our sector in the world.' Fulvio Conti, CEO of Enel and newly elected President of Eurelectric, has a clear vision of where he wants to go with Europe's most internationalised "utility" company. His ambition is to create the world's leading utility multinational on the model of the multinational oil companies: through vertical integration, geographical and technological diversification, innovation and transparency. 'I think we are ahead of the pack', he says in an interview with EER, 'and we'll try to continue to be ahead.' But he sounds a warning note about the internal European energy market. 'The European energy sector is becoming uninvestable.'

Fulvio Conti: 'The European energy sector is becoming uninvestable.'

Probably no European “utility” company has been more adept at seizing the opportunities offered by the liberalisation of the energy market than Enel. In a few short years, the Italian company has grown into the most international electricity and gas supplier in Europe, perhaps the world. Enel’s transformation from a domestic state-owned monopolist into a largely privatised, ambitious commercial player has been to a large extent the work of its CEO Fulvio Conti (1947), who joined the company in 1999 as Chief Financial Officer and succeeded Paolo Scaroni (now CEO of Eni) as CEO in 2005.

Under Conti, in 2007, Enel pulled off its greatest acquisition so far, when it bought 68% of Spanish energy company Endesa for €28 billion. In June 2009 Enel further increased its stake into the Spanish company to 92.06%. Through Endesa, Enel acquired a strong presence in Latin America. At the same time it expanded into Central and Eastern Europe and Russia and is expanding globally in renewable energy through its subsidiary Enel Green Power, which acquired a separate stock exchange listing last year. Enel is now present in 40 countries across the world, realises 70% of its electricity production outside of Italy and boasts 34,000 MW of renewable energy power capacity, almost a third of its total production capacity of 97,000 MW.

Conti, who brought decades of international management experience to Enel – he started his career at Mobil Oil and later worked for the American food multinational Campbell, Italian industrial conglomerate Montedison, Ferrovie dello Stato (the Italian Railways), and Telecom Italia – is a man with a mission. ‘We have a slogan on the wall in our headquarters in Rome’, he says. ‘It says: Let's go forward, the future will catch up later. It means we want to be innovators and create a better future for everybody’.

In June, the purposeful Italian was elected President of Eurelectric, the association for the European electricity industry, a job he has taken on with characteristic commitment. ‘The European Commission should develop a consistent and convincing vision that encompasses the whole energy system’, he says. ‘Only then will it be able to break through national policies and impose its ideas on the Member States.’ As spokesman of Eurelectric, Conti sees it as his task to help the Commission achieve such a vision – in which, according to him, electricity should take centre stage as ‘the cleanest and most efficient energy vector’.

EER’s chief editor Karel Beckman spoke with Fulvio Conti in Brussels about his plans for Enel – and for Eurelectric.

You worked for oil multinational Mobil and the international food company Campbell. If you had to choose one of the two as a model for Enel, which one would you choose?

Definitely Mobil – but with a different ending! We want to stay independent! (Mobil was acquired by Exxon after Conti left the company; editor.) But our business structure does have similarities with Mobil’s, yes. We are vertically integrated from kilocalories to kilowatthours. We have a diversified mix of technologies and geographies in which we operate. We have a balance of regulatory-based and free-

market assets. And we have a drive towards innovation. To turn R&D projects into market-solutions, for instance in smart metering and renewables. So we are integrated like an oil major of the past, but with a bit more flexibility and a balanced structure in terms of geographies and technologies. That’s why I think we are a company on our own in the end. Unique in the spectrum of energy companies these days. I see many of my peers trying to follow into our footprints and I appreciate their efforts. But we moved earlier and we are ahead of the pack and we will try to continue to be ahead. Our market leadership is beyond doubt in Southern Europe, in Latin America. We are an important player in Central and Eastern Europe. And we are setting the example for a new business model in Russia.

So did you learn this during your time at Mobil?

I have 23 years of experience working for multinational companies. I have learned the importance of diversification of risks. The energy business is highly capital-intensive, with long lead times, so you have to have a vision for the long term. You need good quality analytical skills and information to judge the future and anticipate risks. Once you take the decision to make an investment it can take 10 years from idea to completion and then you have a plant that will stay on for 40 or 50 years. So you had better believe in what you say and make sure all the risks – political, technical, economical, environmental – have been properly evaluated. This is the methodology I learned in Mobil. I also learned transparency. To have an open dialogue with all the people, whether they speak Spanish, English, Russian, whatever. You need the ability to open the dialogue with people, offer and receive feedbacks in such a way that the whole team will create value for the company. That is also something I took with me from my Mobil days and that I try to apply at Enel.

Isn't there a risk that you are growing too quickly? Three years ago you were present in 21 countries and ten years ago presumably only in one country. Now it's 40. How do you manage this?

Well, there are 40 countries if we take into account those where we operate physical assets and where we trade. For example, in China we have a trading office that is active in technologies and procurement. The same in Japan. But there’s a system to what we do. We have priorities. Above all, we seek to expand into the whole value chain. For example, we are active in Morocco, Egypt and Algeria in gas production. We can build on that if we want to expand further in those

countries. In Indonesia we are investing in a coal mine and we are expanding into coal shipping, so that we can control not only the sourcing of coal, but also the cost of the whole process – and thereby the overall generating costs. With our coal, our gas, our freight and our plants, the margins of selling kilowatthours will be completely in our control. In renewables, we go where the natural resources offer the best returns, e.g. in Brazil or Mexico for solar and wind power. Subsidies will come and go. Our investments are for the long term. We need to be able to get a return on our investments without subsidies. With our renewable power portfolio, only 22% of our revenues came from subsidies last year. But we are moving through difficult times, with slower growth. This is where our diversified geographical mix is helping us now. But it does not mean we have to expand into more geographical areas. We are happy with Latin America and we are happy to pursue organic growth. We have a good platform from which to do that now.

Does that mean you are not looking to expand into any more countries?

Yes, I think we have good quality countries. There is lots of things we can still deliver in those countries. We can afford to be focusing on developing these markets. In Latin America there are the three D’s I am looking for: demography, democracy, development.

Is democracy an important consideration for you?

'We go by the old principle, when in Rome do as the Romans do.'

Yes, because it gives you stability. Even though you get a different government every four years, you have more or less the same politics. That does not mean that we avoid places where they have different types of democracy. We go by the old principle, when in Rome do as the Romans do. We try to be good citizens everywhere. We try to respond to the demand for high quality services and goods and energy is one of the most important elements in any society. We also try to be as compassionate as a visionary entrepeneur could be by helping local populations to develop, for example by providing support for the poor or special energy services. It helps to build up Enel as a brand citizens know they can trust. It’s like you expect a brand like Coca-Cola to have the same quality everywhere.

Do you want Enel to become a brand name like Coca-Cola?

Coca-Cola took 140 years to be what they are now. I cannot look that far ahead. I want to make this the best company in our sector in the world. Just a few days ago we were chosen by the Carbon Disclosure Project in the UK as one of the top-29 companies in the world in terms of sustainability. Enel was the only utility company and the only Italian company, aside from Fiat, to receive the top grade from the Carbon Disclosure Project. That tells me something. Last month, we were also confirmed in the Dow Jones Sustainability Index for the 8th year in a row. And we are one of the 50 companies that are part of the Global Compact Lead initiative of the United Nations, a platform for global leadership in sustainability. So we are increasing awareness in the world of our values, policies, deliverables. We have a commitment to create a better society and a better world for the future. There is a slogan in our

building in Rome that says Let’s go forward, the future will catch up later. This means we want to innovate and create a better future for everbyody. That is one of the reasons why we are the first company in Europe to have developed and deployed smart meters. Here in Brussels we are recognised as leaders in smart systems and smart grids. That is also why we are investing in a revolutionary development in concentrating solar power, called the Archimede project, that will provide solar power at night. And there are many other innovations we are pursuing.

Are you satisfied with the development of Enel’s business in Russia? How is this progressing?

The Russian market is of a great significance for Enel. We demonstrate it by our investments and continuous commitments. Since Enel’s first entry on the Russian market Enel has invested €3.7 bn and plans to invest an additional €2 bn till 2015. It is an energy market which is progressing forward: the level of liberalization that has been achieved so far already represents a solid milestone that allows us to plan our activities in a mid-term perspective. But it needs to progress further on the taken path in order to secure new momentum for all investors. Enel, being among the biggest international investors in the Russian energy sector, is seeking favorable signals from a regulatory perspective that would allow us and also the other investors to continue with investment plans to which we have committed ourselves.

Do you think it is likely or desirable that the Italian state will sell its remaining 31% share in Enel?

This is not either a concern or a wish for us. We work within the company to steer all shareholders to higher value and good dividends, and the State acts as any other shareholder by voting in the Shareholders Meetings as it seems appropiate.

How do you see the energy mix going forward? What will be the role of renewables in the total mix?

There are different types of renewable energy. Hydropower is different from wind and solar power. There is still a lot of potential to develop hydropower in Latin America and the Far East. With wind and sun you need baseload backup, as everyone knows. The cheapest options for this are nuclear power and coal. At the end of the day you will have to have some combination of intermittent power and baseload capacity with coal, nuclear or gas.

The target of the EU is to see the electricity sector almost completely decarbonised by 2050. Is that achievable?

2050 is a good time span, assuming that technology will continue to improve. Today we at Enel deliver 48% of our power carbon-free. We need technological development to do away with the other 52%. This could be through renewables, but also carbon capture and storage. There will be countries that will still depend on coal and gas, so we cannot rule out CCS. We are working on CCS, it’s there, but you have to prove you can do it economically. We have 40 years for the whole development towards carbon-free electricity generation. We undertook that commitment and I am sticking to it.

Are you satisfied with the development of the internal energy market in the EU? The European Commission has promised the market should be ready by 2014. Is that realistic?

As was said by Philip Lowe today, 2014 is the date when the Internal Energy Market directive – the Third Package – has to be enforced in all EU countries. It is not the date when we have to have a perfect single market. (Philip Lowe, Director-General for Energy at the European Commission, and Fulvio Conti both spoke at a conference on 29 September in Brussels on the Completion of the EU Internal Energy Market; editor.) That was very wise to say so. Not all governments and politicians of the Member States are yet ready to make it happen. There are still too many local policies interfering with the market and contradicting the policies of other countries. But there is a problem in the Commission as well. We are faced with many different directives on energy – a climate directive, an energy efficiency directive, an

internal market directive, a security of supply directive, an infrastructure directive – that still need to be aligned with each other. For example, the energy efficiency directive says we must save electricity use by 1.5% per year. But in my view electricity is the most efficient energy vector. For example, I support the shift from fossil-fuel based transport to electric mobility. But that cannot be done if we have to reduce electricity consumption. So Europe is telling me this is not possible. Is this correct or is it wrong? I think it is wrong. And there are many other discrepancies. I think the Commission has to speak with one voice about energy as a whole, they have to develop an integrated vision, and not focus on separate elements such as electricity. I think electricity should be favoured because it is the cleanest, most efficient, most powerful energy carrier.

In this regard, what will be your priorities as President of Eurelectric?

To promote this concept of electricity being the favourite energy carrier. To ensure security of supply. To support innovation and investability in the energy sector and help create the right conditions for companies to attract capital and continue to invest.

Mr. Teyssen (CEO of Eon) said today (at the Internal Energy Market Conference in Brussels on 29 September) that the European energy sector has become 'uninvestable'. He quoted a report from Citi bank. Do you agree with this assessment?

'We are faced with many different directives on energy that still need to be aligned with each other.'

I think he is right, yes. We have been seeing many different interventions by the State – new taxes, new regulations – and changing every quarter. In a capital-intensive sector like this with long horizons and payback times you need stable regulations. If you keep on changing them, people will not invest or will limit their investments. This goes back to what I said about developing an integrated vision within the Commission. It sometimes seems to me that  there is more competition among European Commissioners on energy issues than there is competition among European power companies! Everybody is putting forward their own idea about the market and they don’t fit together. This creates uncertainty and lack of vision. The Commission will not be able to impose their ideas on member state governments if they lack vision.

So can we expect you as President of Eurelectric to help the Commission to develop this vision?

I am only one of many within the association. But I can say what I said at my inaugural speech at the Eurelectric annual conference in June, which is that a vision has to integrate four priorities: it has to address the security of supply issue, complement this with the CO2 reduction pathways, assess and support the role of renewables and efficiency improvements on our business and markets, and promote the strategic role of innovation for the long term.