Why Enel's geographic shift is significant

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Ilaria Valtimora
December 1, 2017
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Why Enel's geographic shift is significant

Emerging markets or developed countries?

Many investors face this dilemma while seeking to find the right balance in their portfolios, and Enel is no exception.

Italian utility Enel’s strategic plan for 2018-2020 published last month, shows a shift in geographic focus from Latin America to North and Central America. And potential for growth in wind is among the reasons behind this move. Why is this significant?

Three years ago, in its strategic plan for 2015-2019, Enel set out plans to invest 60% of its anticipated €6bn capital expenditure in emerging markets. It aimed to add 7.1GW of renewables capacity over five years in countries including Brazil, Chile and Mexico.

The strategy has been working. Enel owns a portfolio of 14GW of renewables in Latin America, including hydro, geothermal, wind and solar. Brazil and Chile are Enel’s two biggest wind markets in the region, with 842MW and 563MW installed capacity respectively. Its growth in Latin America in the recent years is why its new strategic plan is worthy of further analysis.

In the three years going from 2018 to 2020, Enel plans to invest up to €8.3bn to add 7.8GW of new renewables capacity globally. It is looking to do this by investing 40% more in Central and North America compared to its previous strategic plan; and cut by 26% investment in South America. But why?

In our view, one reason has to do with the risk of investing in Latin American countries.

Brazil is still struggling to recover from the deep recession that hit three years ago, and political turmoil over the last year has not helped. Brazil is also ranked 125th out of 190 countries in the World Bank’s latest Ease of Doing Business rankings.

Yes, Enel got into wind in Brazil a couple of years ago when the economic situation was worse than it is now, but the big difference is that rival markets look more attractive. Countries including Mexico and the US are both offering attractive propositions.

Last month, the Enel sold an 80% stake in a 1.7GW renewables portfolio in Mexico, including eight wind and solar projects, for $1.35bn. The deal enabled the company to participate to last month’s Mexico renewables auction, in which it won the rights to build 593MW of new wind capacity at new record-low prices.

Mexico is attractive for investors, and its government’s supportive wind policies are starting to bear fruit – though how firms can develop wind projects at $17.70/MWh is raising some questions.

The US has also become a key market for Enel, with 3.5GW installed wind capacity. Its recent deals in the US include the acquisition of the 320MW Rattlesnake Creek wind farm last month from its long-term US partner Tradewind Energy, which also includes a power purchase agreement with Facebook.

Wind capacity in the US has been growing at a sustained pace over the last couple of years, with new wind installations increasing by 27% this year compared to 2016. Enel wants to get a bigger piece of that and so shifting its focus makes sense.

And there is another reason why we think Enel wants to reduce its exposure to Latin America: competition. When it first went big on the market three years ago, it looked like a bold move. Since then, more players have moved into the market. This has increased competition and means Enel has to fight harder to win projects.

Returns on projects in South America can still be appealing but,as the region's economic and political risk remains high, it makes sense for the firm to invest over a wider geographical area.

No country is without risk, of course. Concerns about tax reform in the US is an example of that. But playing in a wider set of markets should help insulate Enel from problems that affect any one.

After all, there is another concern that regularly affects investors – a desire to not be over-exposed.

Emerging markets or developed countries?

Many investors face this dilemma while seeking to find the right balance in their portfolios, and Enel is no exception.

Italian utility Enel’s strategic plan for 2018-2020 published last month, shows a shift in geographic focus from Latin America to North and Central America. And potential for growth in wind is among the reasons behind this move. Why is this significant?

Three years ago, in its strategic plan for 2015-2019, Enel set out plans to invest 60% of its anticipated €6bn capital expenditure in emerging markets. It aimed to add 7.1GW of renewables capacity over five years in countries including Brazil, Chile and Mexico.

The strategy has been working. Enel owns a portfolio of 14GW of renewables in Latin America, including hydro, geothermal, wind and solar. Brazil and Chile are Enel’s two biggest wind markets in the region, with 842MW and 563MW installed capacity respectively. Its growth in Latin America in the recent years is why its new strategic plan is worthy of further analysis.

In the three years going from 2018 to 2020, Enel plans to invest up to €8.3bn to add 7.8GW of new renewables capacity globally. It is looking to do this by investing 40% more in Central and North America compared to its previous strategic plan; and cut by 26% investment in South America. But why?

In our view, one reason has to do with the risk of investing in Latin American countries.

Brazil is still struggling to recover from the deep recession that hit three years ago, and political turmoil over the last year has not helped. Brazil is also ranked 125th out of 190 countries in the World Bank’s latest Ease of Doing Business rankings.

Yes, Enel got into wind in Brazil a couple of years ago when the economic situation was worse than it is now, but the big difference is that rival markets look more attractive. Countries including Mexico and the US are both offering attractive propositions.

Last month, the Enel sold an 80% stake in a 1.7GW renewables portfolio in Mexico, including eight wind and solar projects, for $1.35bn. The deal enabled the company to participate to last month’s Mexico renewables auction, in which it won the rights to build 593MW of new wind capacity at new record-low prices.

Mexico is attractive for investors, and its government’s supportive wind policies are starting to bear fruit – though how firms can develop wind projects at $17.70/MWh is raising some questions.

The US has also become a key market for Enel, with 3.5GW installed wind capacity. Its recent deals in the US include the acquisition of the 320MW Rattlesnake Creek wind farm last month from its long-term US partner Tradewind Energy, which also includes a power purchase agreement with Facebook.

Wind capacity in the US has been growing at a sustained pace over the last couple of years, with new wind installations increasing by 27% this year compared to 2016. Enel wants to get a bigger piece of that and so shifting its focus makes sense.

And there is another reason why we think Enel wants to reduce its exposure to Latin America: competition. When it first went big on the market three years ago, it looked like a bold move. Since then, more players have moved into the market. This has increased competition and means Enel has to fight harder to win projects.

Returns on projects in South America can still be appealing but,as the region's economic and political risk remains high, it makes sense for the firm to invest over a wider geographical area.

No country is without risk, of course. Concerns about tax reform in the US is an example of that. But playing in a wider set of markets should help insulate Enel from problems that affect any one.

After all, there is another concern that regularly affects investors – a desire to not be over-exposed.

Emerging markets or developed countries?

Many investors face this dilemma while seeking to find the right balance in their portfolios, and Enel is no exception.

Italian utility Enel’s strategic plan for 2018-2020 published last month, shows a shift in geographic focus from Latin America to North and Central America. And potential for growth in wind is among the reasons behind this move. Why is this significant?

Three years ago, in its strategic plan for 2015-2019, Enel set out plans to invest 60% of its anticipated €6bn capital expenditure in emerging markets. It aimed to add 7.1GW of renewables capacity over five years in countries including Brazil, Chile and Mexico.

The strategy has been working. Enel owns a portfolio of 14GW of renewables in Latin America, including hydro, geothermal, wind and solar. Brazil and Chile are Enel’s two biggest wind markets in the region, with 842MW and 563MW installed capacity respectively. Its growth in Latin America in the recent years is why its new strategic plan is worthy of further analysis.

In the three years going from 2018 to 2020, Enel plans to invest up to €8.3bn to add 7.8GW of new renewables capacity globally. It is looking to do this by investing 40% more in Central and North America compared to its previous strategic plan; and cut by 26% investment in South America. But why?

In our view, one reason has to do with the risk of investing in Latin American countries.

Brazil is still struggling to recover from the deep recession that hit three years ago, and political turmoil over the last year has not helped. Brazil is also ranked 125th out of 190 countries in the World Bank’s latest Ease of Doing Business rankings.

Yes, Enel got into wind in Brazil a couple of years ago when the economic situation was worse than it is now, but the big difference is that rival markets look more attractive. Countries including Mexico and the US are both offering attractive propositions.

Last month, the Enel sold an 80% stake in a 1.7GW renewables portfolio in Mexico, including eight wind and solar projects, for $1.35bn. The deal enabled the company to participate to last month’s Mexico renewables auction, in which it won the rights to build 593MW of new wind capacity at new record-low prices.

Mexico is attractive for investors, and its government’s supportive wind policies are starting to bear fruit – though how firms can develop wind projects at $17.70/MWh is raising some questions.

The US has also become a key market for Enel, with 3.5GW installed wind capacity. Its recent deals in the US include the acquisition of the 320MW Rattlesnake Creek wind farm last month from its long-term US partner Tradewind Energy, which also includes a power purchase agreement with Facebook.

Wind capacity in the US has been growing at a sustained pace over the last couple of years, with new wind installations increasing by 27% this year compared to 2016. Enel wants to get a bigger piece of that and so shifting its focus makes sense.

And there is another reason why we think Enel wants to reduce its exposure to Latin America: competition. When it first went big on the market three years ago, it looked like a bold move. Since then, more players have moved into the market. This has increased competition and means Enel has to fight harder to win projects.

Returns on projects in South America can still be appealing but,as the region's economic and political risk remains high, it makes sense for the firm to invest over a wider geographical area.

No country is without risk, of course. Concerns about tax reform in the US is an example of that. But playing in a wider set of markets should help insulate Enel from problems that affect any one.

After all, there is another concern that regularly affects investors – a desire to not be over-exposed.

Emerging markets or developed countries?

Many investors face this dilemma while seeking to find the right balance in their portfolios, and Enel is no exception.

Italian utility Enel’s strategic plan for 2018-2020 published last month, shows a shift in geographic focus from Latin America to North and Central America. And potential for growth in wind is among the reasons behind this move. Why is this significant?

Three years ago, in its strategic plan for 2015-2019, Enel set out plans to invest 60% of its anticipated €6bn capital expenditure in emerging markets. It aimed to add 7.1GW of renewables capacity over five years in countries including Brazil, Chile and Mexico.

The strategy has been working. Enel owns a portfolio of 14GW of renewables in Latin America, including hydro, geothermal, wind and solar. Brazil and Chile are Enel’s two biggest wind markets in the region, with 842MW and 563MW installed capacity respectively. Its growth in Latin America in the recent years is why its new strategic plan is worthy of further analysis.

In the three years going from 2018 to 2020, Enel plans to invest up to €8.3bn to add 7.8GW of new renewables capacity globally. It is looking to do this by investing 40% more in Central and North America compared to its previous strategic plan; and cut by 26% investment in South America. But why?

In our view, one reason has to do with the risk of investing in Latin American countries.

Brazil is still struggling to recover from the deep recession that hit three years ago, and political turmoil over the last year has not helped. Brazil is also ranked 125th out of 190 countries in the World Bank’s latest Ease of Doing Business rankings.

Yes, Enel got into wind in Brazil a couple of years ago when the economic situation was worse than it is now, but the big difference is that rival markets look more attractive. Countries including Mexico and the US are both offering attractive propositions.

Last month, the Enel sold an 80% stake in a 1.7GW renewables portfolio in Mexico, including eight wind and solar projects, for $1.35bn. The deal enabled the company to participate to last month’s Mexico renewables auction, in which it won the rights to build 593MW of new wind capacity at new record-low prices.

Mexico is attractive for investors, and its government’s supportive wind policies are starting to bear fruit – though how firms can develop wind projects at $17.70/MWh is raising some questions.

The US has also become a key market for Enel, with 3.5GW installed wind capacity. Its recent deals in the US include the acquisition of the 320MW Rattlesnake Creek wind farm last month from its long-term US partner Tradewind Energy, which also includes a power purchase agreement with Facebook.

Wind capacity in the US has been growing at a sustained pace over the last couple of years, with new wind installations increasing by 27% this year compared to 2016. Enel wants to get a bigger piece of that and so shifting its focus makes sense.

And there is another reason why we think Enel wants to reduce its exposure to Latin America: competition. When it first went big on the market three years ago, it looked like a bold move. Since then, more players have moved into the market. This has increased competition and means Enel has to fight harder to win projects.

Returns on projects in South America can still be appealing but,as the region's economic and political risk remains high, it makes sense for the firm to invest over a wider geographical area.

No country is without risk, of course. Concerns about tax reform in the US is an example of that. But playing in a wider set of markets should help insulate Enel from problems that affect any one.

After all, there is another concern that regularly affects investors – a desire to not be over-exposed.

Emerging markets or developed countries?

Many investors face this dilemma while seeking to find the right balance in their portfolios, and Enel is no exception.

Italian utility Enel’s strategic plan for 2018-2020 published last month, shows a shift in geographic focus from Latin America to North and Central America. And potential for growth in wind is among the reasons behind this move. Why is this significant?

Three years ago, in its strategic plan for 2015-2019, Enel set out plans to invest 60% of its anticipated €6bn capital expenditure in emerging markets. It aimed to add 7.1GW of renewables capacity over five years in countries including Brazil, Chile and Mexico.

The strategy has been working. Enel owns a portfolio of 14GW of renewables in Latin America, including hydro, geothermal, wind and solar. Brazil and Chile are Enel’s two biggest wind markets in the region, with 842MW and 563MW installed capacity respectively. Its growth in Latin America in the recent years is why its new strategic plan is worthy of further analysis.

In the three years going from 2018 to 2020, Enel plans to invest up to €8.3bn to add 7.8GW of new renewables capacity globally. It is looking to do this by investing 40% more in Central and North America compared to its previous strategic plan; and cut by 26% investment in South America. But why?

In our view, one reason has to do with the risk of investing in Latin American countries.

Brazil is still struggling to recover from the deep recession that hit three years ago, and political turmoil over the last year has not helped. Brazil is also ranked 125th out of 190 countries in the World Bank’s latest Ease of Doing Business rankings.

Yes, Enel got into wind in Brazil a couple of years ago when the economic situation was worse than it is now, but the big difference is that rival markets look more attractive. Countries including Mexico and the US are both offering attractive propositions.

Last month, the Enel sold an 80% stake in a 1.7GW renewables portfolio in Mexico, including eight wind and solar projects, for $1.35bn. The deal enabled the company to participate to last month’s Mexico renewables auction, in which it won the rights to build 593MW of new wind capacity at new record-low prices.

Mexico is attractive for investors, and its government’s supportive wind policies are starting to bear fruit – though how firms can develop wind projects at $17.70/MWh is raising some questions.

The US has also become a key market for Enel, with 3.5GW installed wind capacity. Its recent deals in the US include the acquisition of the 320MW Rattlesnake Creek wind farm last month from its long-term US partner Tradewind Energy, which also includes a power purchase agreement with Facebook.

Wind capacity in the US has been growing at a sustained pace over the last couple of years, with new wind installations increasing by 27% this year compared to 2016. Enel wants to get a bigger piece of that and so shifting its focus makes sense.

And there is another reason why we think Enel wants to reduce its exposure to Latin America: competition. When it first went big on the market three years ago, it looked like a bold move. Since then, more players have moved into the market. This has increased competition and means Enel has to fight harder to win projects.

Returns on projects in South America can still be appealing but,as the region's economic and political risk remains high, it makes sense for the firm to invest over a wider geographical area.

No country is without risk, of course. Concerns about tax reform in the US is an example of that. But playing in a wider set of markets should help insulate Enel from problems that affect any one.

After all, there is another concern that regularly affects investors – a desire to not be over-exposed.

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Not a member yet?

Become a member of the 6,500-strong A Word About Wind community today, and gain access to our premium content, exclusive lead generation and investment opportunities.