THE FUTURE OF ENERGY. Francesco Starace graduated at the Polytechnic University in Milan with a degree in Nuclear Engineering. He has been Chief Executive Officer and General Manager of Enel S.p.A. since May 2014. Enel is a multinational company in the energy sector with roughly 54 GW of installed renewable capacity, making it the largest private renewable player globally, and with around 75 million end users worldwide, making it the world’s leading private electricity network operator by number of end users.
You can listen to the podcast of this interview here.
Francesco Starace, why did you study nuclear energy as a young man?
When I was 18 I wanted to be a lawyer, but when I saw the exams I would have to take over 4 years of study I spent a weekend looking at all the university courses available in the city of Milan from A to Z, just looking at the titles of the exams and what kind of appeal they had. I chose to study nuclear engineering. Italy was in the middle of a large nuclear programme right after the oil shocks of 1973/74, but I did choose that because I like physics, not because I wanted to work in the engineering field.
Italy still doesn’t have any nuclear energy. What do you think about that?
In retrospect, all in all, the negative result of the 1987 referendum was not the wrong choice, but it probably would have been wiser to carry on with whatever plants they had and just stop the programme for future plants. But after the tragedies of Chernobyl and Fukushima this technology engineered itself out of the world. Costs are going crazy. Time delays are amazing. It’s no longer the economic way of generating energy that was proposed at the beginning.
When Italy decided to get out of nuclear energy in the 80s what was next?
The decision at Enel was coal and oil, so Enel was running power plants on coal and diesel and oil. That was not super clean. Then oil was phased out, and gas came in during the beginning of the 2000s, when I came here. It’s a question of phasing technologies in and out as they become obsolete or displaced by better ones. In the last decade renewables demonstrated that what was a dream was actually going to happen, and that they would be competitive.
How much energy in Italy now depends on gas?
In 2021, Italy had an internal production of 250 terawatt hours, out of which roughly 120 terawatt hours was dependent on gas. That’s just for electricity. Then you have gas to heat homes and industrial processes. Italy is one of the most gas dependent countries in the world. Industry in Italy depends on gas. In the electricity sector, gas could be wiped out by renewables in less than 10 years, or an even shorter time if you wanted.
How dependent is Europe on Russian gas?
Europe is exposed to gas in a large way, the markets are connected. France is suffering from the same crisis as Germany. Prices are also high there, and they have problems with their nuclear plants right now. Europe is too dependent on gas, and has almost completely exhausted its gas resources. Italy is super dependent on gas. 40% of the gas that Italy imports comes from Russia, and look at where the other gas is coming from: Algeria, Libya, and Azerbaijan. We should get off gas as much as we can and as fast as we can.
Has Europe developed a plan to change its energy infrastructure?
Yes, the European Commission has a very clear view to fully decarbonize the energy systems of Europe by 2050. This basically means electrify most of the activities and decarbonize electricity. That plan is fully shared at the European level and funded with private money because it is a good investment with returns.
Which are the main renewable energies?
Hydropower was the first form of electricity in Europe and the US. The industrial development of most of Europe was driven by differential heights in water that provided a way of producing energy. The UK, which started burning coal, was an exception.
“In the last decade renewables demonstrated that what was a dream was actually going to happen, and that they would be competitive.“
Francesco Starace, can renewable energies ensure our electricity supply?
There is not really a limit to how much renewable energy you can put into the system, and during the last decade this became obvious. Before this it was not fully understood. Around 15 years ago the German network operators published a study that said that when we have 5% of renewables the network will become so unstable that it will be difficult to manage. Now they are at 35% and 40%; and in recent weeks even more than 80%. There is no real physical limitation, but you need to digitize the network, which was not possible 10 or 20 years ago, and to put more batteries and storage into the system in order to manage and balance flows. Today renewable energy is competitive. It is absolutely advisable to push as much renewables as you can, and get out as much as you can from this dependence on gas.
How much energy does Enel produce compared with competitors in Europe and the United States?
In terms of renewable capacity, five or six years ago we found out that worldwide we were the largest player in renewable energy on a privately owned basis. That’s still true today as we are also the fastest growing. In 2021, we put more capacity online than anybody else, as we did in the last four years.
Do we change to renewable energy to clean the planet and to fight climate warming?
We change because it’s cheaper, less expensive and more predictable. Generation based on renewables has a very clear view of the cost of energy in the next 20 or 30 years. It’s basically fixed. This is a major shift in our mind-set because since the 60s we are used to living in a world where our oil dependent economy has gone through an incredible variation of volatility driven by oil prices. We are embedded into this volatility, and this gas crisis shows exactly that we should worry about it. It’s terrible to plan your economy on something that is out of your control and completely unpredictable.
Is the world ready to change all its transport and heating systems in this revolution?
It is a transition. The world is never really ready for change but keeps changing. It is happening, actually without us even noticing fully. As electricity becomes more and more decarbonised, it becomes cheaper and less volatile, so you start wondering why you don’t use electricity for other uses that before would not be conceivable. Today the major one is transportation, cars and trucks, but you will see heating and cooling, heat pumps driven by electricity are much better than boilers. You will see industrial processes becoming more and more electrified. That renewable transformation will drive electricity into areas where it was not before, and that will entail profound transformation in the electricity system. What does it mean for an electricity network to have millions of cars charging batteries? What does it mean for an electricity network to have millions of heat pumps? How does it need to be adapted? What kind of changes do we need to put into the system so that this can happen safely and reliably? That’s our job.
Do you agree that green hydrogen will be a major new source of clean energy as people say?
Green hydrogen is produced by electrolysis, so today it is an expensive material compared to the grey hydrogen that is produced by gas or coal. But green hydrogen has no CO2, so it’s not impacting the climate. Can green hydrogen become as competitive to displace grey hydrogen? There are two factors. One is that it has to come with renewable energy that should cost below 40 euros per megawatt hour, and we are already there. The second is that the cost of the electrolysers should be reduced by a factor of six – a big reduction, but many other industries, including batteries, have done that. Today the efforts are in that front. Once the innovations needed for green hydrogen to be more economic than grey hydrogen happen, and because it has no CO2 footprint, obviously green hydrogen will displace grey hydrogen.
Is Enel investing in green hydrogen?
We have six pilot projects – two in Italy, two in Spain, one in Chile and one in the US – to test all technologies and to see whether there is hope. If a technology has real potential, the first three, four or five years must show something. If not, maybe it’s not the way to go.
Are you also active in India and will it be important in the future?
In India we completed a very large wind farm last year and we are completing a very large solar plant this year. India is a federation of very large states, and you have to respect the dimensions and the ambitions of the federation of India. A billion and three hundred million people with demographic and economic growth and the advantage of speaking English in a legal system that is much closer to Europe than we think. There is a huge need for investment in technology. India will become a major renewable energy player in the next 10 years. The current government took that decision top down, and they have the capabilities. The limiting factor to the growth of renewables is not money or the availability of potential projects or resources, it is people. You cannot easily find and put to work in an orderly fashion the right amount of people to feed the growth, but India has that, so India will be a player in the renewable energy space at the same level as China.
Is it difficult to work with the different cultures and politics of all these countries?
This is a job with only one product: electricity. We don’t have 300 brands, which is helpful to start with. Let’s look at what unites us: technology. A wind turbine spins the same way everywhere. A solar panel reflects light and absorbs light the same way in the US or in India. So, we organised our company along technology lines: generation, networks, trading and advanced energy services (electric cars, demand response, batteries etc.). Then, let’s look at where the differences are: ultimately, we work for customers that consume energy and pay the bills, and the ways energy markets and systems work differ a lot between countries. Hence, the main task of our people in charge of different regions is managing customers and stakeholders, and their main focus is cash flow because the bills are paid locally. In turn, deploying the money for growth is the main concern of the people heading the technology lines I was referring to before. So, grow your business and maintain your business – we kept it super clear and very simple: one raises cash, the other uses the money right. What I do is make sure everything works.
“The limiting factor to the growth of renewables is not money or the availability of potential projects or resources, it is people.“
Francesco Starace, how is Europe’s standing in the world of energy in relation to China, America or Russia?
In the electricity revolution, Europe is far ahead of other areas, including the US and China, because we have invested in this combination of digital and electricity before others. If you look at the electricity systems around the world, the European one is the most advanced, the most solid, the highest performing, and the one that is best prepared for the future.
I was president of Eurelectric, the utilities association of all the European electricity players, where we all share the point of view that the energy field is going to be electrified and we have a common goal to make this simple, safe and convenient. Europe got it first and better than anybody else. Of course, there are things that are not perfect and there are lots of differences, but if you were to come from another planet without knowing anything about the history of Europe, just by looking at its energy mix you would say that Europeans are very wise from that point of view as they have a very good and diversified energy mix.
Why is Europe ahead of the United States?
The electricity system in the US is not unified; it’s a mix of different local systems, loosely interconnected. Most policy at the regulated level is dealt with in the States. California and Texas are in a completely different world. They both use the dollar as their currency, but they’re not interconnected electrically. The regulatory system of the U.S. was hinged upon individual state level. Now they’re changing, of course, but it will take some time.
Visionary people like Elon Musk are investing a lot of time, money, and hope into space. Some people say that most clean energy in the future will come from space. What do you think about that?
We have been selected to supply the energy systems to the lunar base that is been designed now, but that doesn’t mean that the energy should come from space. It’s just that if you are on the moon, you need energy on the moon too. Energy is already coming from space, from the sun. All we need to do is use it here.
Looking back, did you ever really think that renewable electricity would become so important?
One of the few original thoughts I ever had was in the early 2010s, when I thought that renewables would become competitive. At that time it was impossible, and seemed crazy. But the implications of it becoming competitive, and therefore electricity becoming so pervasive, came later.
How much renewable energy is now present in the global footprint of Enel?
This year it will be almost 55% energy produced by renewable sources and the rest by thermal sources. Every year, we expect a 5% increase.
How much did the value of your company increase?
We have doubled our market cap since my appointment as CEO in 2014, because the company is clearly and without a doubt in sync with the way things are going.
Has it reached the peak or will it grow bigger and bigger?
Today we have around 54,000 megawatts of installed renewable capacity, and our plan is to treble that by 2030. We are already large and will become larger.
How big is Enel in the overall renewable energy space and how big will you be?
Today, we account for 2% of the world renewable energy space, and our position as the largest private company in that space gives you an idea of how fragmented this is. By doing this trebling, in 2030 we will remain at 2% because the renewable energy space is one of the few businesses in an expansive environment.
ITALY “Ignazio Silone” San Giacomo hydroelectric plant
“Sustainability is what is needed in order for the proper evolution of society“
Francesco Starace, do you worry about the competition?
In any market you really need to worry about competition when your market starts to shrink, but not if the market keeps expanding, as it is. The reason this space is so fragmented that everyone is sucked in, it is just too much for anyone to cover. The demand is growing so quickly that it is difficult to keep up. The limitation, as I told you when discussing India, is not the money that you can raise or the number of opportunities that you have, but it is how many people you can put to work, keep motivated, train and make sure that they stick with you. Because competition is neither for projects nor for money, it’s for people.
Will artificial intelligence (AI) substitute human activity?
No. The deep digital transformation has an impact, but the impact is a net positive. You can free resources up to do something else. For example, when we shut down coal plants, gas plants and thermal plants, the people that worked there get to work on renewable energy plants.
Yes, but what proportion of them? Do you need as many people?
No, we need more. We’re hiring more people because the growth is so fast. The net result so far is that we have a hiring problem, because it’s not easy to find trained people in this market. Everybody wants the same professionals. As I said, there is a big competition.
How many engineers do you have now and how many will you need?
We made a calculation that during the phase of growth to 2030 we need about 5,000 additional trained engineers. Now we have over 2,300 in the renewable energy space. Globally Enel has roughly 70,000 people. Most of them are technicians, so engineers anyway! We are pushing for women to study engineering, because the problem is technicians are mostly male. We need engineers everywhere, in the very short term. On the European recovery package, just on the networks that we need to revamp and prepare for this electrification phase we need another 5,500 people. They’re not there, so we created 10 training centres in various parts of Italy to train these people in the next two years.
How does inflation influence your decisions?
In inflationary times it is important to have freedom of movement and not lock up your money, because if you lock your money into stuff that becomes less and less valuable going forward you are really trapped. You need to have as much freedom of capital allocation as you can.
Where should we invest?
In companies that don’t freeze their capital for a long time. That’s why Enel is better off, because if you look at the cycle of our investment, there is nothing that we invest in that gets to work in more than three years. You need to get your money working as fast as possible. In 2015 we decided to never again make the mistake to invest in things that take more than three years to be finished. That means no nuclear plants – they take 15, 19 years. No huge hydro power plants – 10 years at least. No huge coal plants. Now we have a two-year cycle, so every dollar invested today starts generating cash in two years. We have an incredible freedom to allocate capital. With inflation this is super important because things change over time and in inflationary times the freedom to use your money wisely is very important.
You studied Greek and Latin and wanted to be a lawyer, but today deal with AI technology and changes of energy systems. Humanities are highly neglected in the universities nowadays in terms of investment. Are the humanities relevant in a big business?
Humanities have different attributes in different parts of the world. If you mean attention to ethics and to what is important to have an orderly society or to maintain values that are critical to us today because of centuries of evolution in the past – and not dump everything on the ground just because some digital algorithms tell you to – there is a big gap that needs to be filled. The implications of AI are more worrisome at the ethical level than at the practical level. The decisions that you make based on recommendations coming at you from algorithms or AI will become more and more questionable from an ethical standpoint. That’s the frontier.
Should business keep investing into humanities?
Yes, the sustainability word is used mostly with an environmental flavour, but the truth is that for us sustainability is what is needed in order for the proper evolution of society. We cannot be happy in a society that is disrupted. It’s impossible! We supply energy to society and a company like ours only prospers if society prospers. Sustainability is exactly that – to make sure that progress is not getting into loops of self-destructive patterns. It has an ethical dimension. That’s the way in which we interpret sustainability, not just environmental issues. That’s why for us, it is so important to work in a sustainable manner, because it is a protection towards that risk.
Thank you very much for this long interview.
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