European energy firm ERG may be selling off its hydro generation assets, but revenues raised from the sale will develop existing and new wind and solar projects across Europe – including Scotland, reveals Anthony Harrington
In a move that takes it a big step closer to its goal of being a leading wind and solar pure players, the renewable energy producer ERG is selling its hydro generation assets to Italy’s largest utility player, Enel.
Under the terms of the deal, Enel will pay more than a billion euros for the assets, and ERG CEO Paolo Merli says that ERG expects to complete the sale by the end of 2021 or early 2022.
The deal includes 19 hydro plants, seven micro-hydro plants, seven large dams and four reservoirs in Umbria, Marche and Lazio.
The figure of 19 hydro plants includes four that are projects under development.
The combined capacity of all the plants amounts to 527MW with an average annual production of around 1.5TWh, enough to cover the consumption of more than 550,000 Italian households. In all, 114 ERG staff members who currently operate the plants will transfer to Enel.
The deal is a win-win for both companies.
ERG’s latest five-year business plan, announced in May this year, commits the company to spend 2.1 billion euros in the period from now to 2025, on adding renewable wind and solar power generation assets to its portfolio.
ERG CEO Paolo Merli
For its part, Enel has said it plans to invest heavily in green energy over the next ten years with the aim of being carbon free by 2050.
ERG is already one of Europe’s leading onshore wind power players and the sale frees the company to speed up the process of transforming itself into a pure wind and solar power player.
ERG is also looking to dispose of its remaining combined cycle gas turbine (CCGT) assets and expects to sign an agreement for the disposal of these assets shortly.
This disposal will allow ERG to accelerate the process of growth of its wind and solar portfolio, through a right mix of buy and make, to improve geographical diversification with a better balance of its generating assets between Italy and abroad.
The ERG Management has made it clear that the cash-in deriving from the sale to Enel will be used to develop existing wind and solar projects and also to pursue new opportunities across Europe, including here in Scotland, with organic growth through greenfield and repowering.
This point was emphasised by comments from Paolo Merli to the effect that there would be no material extraordinary dividend pay-outs to ERG shareholders as a result of the one-billion-euro sale of assets to Enel.
The reinvestment process will be pivotal for ERG to secure the continuation of positive results that the company has consistently delivered.
In this process, ERG will be able to rely on an exemplary history of delivering on its business plan targets and the fact that it has already gone through an even more complex transition when the company shifted from oil to renewables. ERG CEO Paolo Merli said the group aimed to also complete the sale of the thermoelectric assets in coming months.
He said: “Asset rotation, one of the pillars of our 2021-2025 strategic plan, will allow us to accelerate the
process of growth and geographical diversification with a better balance of our businesses between Italy and abroad.”
The ERG Management has pointed out that asset rotation – in other words, the selling of one category of production assets in order to provide the means to invest in another – was always seen as a major pillar of its 2021 to 2025 Business Plan.
The strategy is now well under way and will help the company both to accelerate its growth and to achieve geographic diversification across Europe – including Scotland – as far as its renewables portfolio of assets is concerned.
ERG is particularly interested in developing wind and solar assets with quasi-regulated revenues – meaning with limited exposure to the volatility of wholesale market prices, through government-backed revenue stabilisation mechanisms or corporate power purchase agreements (CPPA).
Extending its investment into markets with stable regulatory frameworks, such as the UK, provides a desirable degree of risk reduction for the company, and the disposal of the hydro-assets is enabling ERG to extend its footprint in those markets to the benefit of consumers and the company’s stakeholders.
ERG acclaimed as a shining light in renewables sector
IN all of ERG’s projects the Environmental Social and Governance (ESG) dimension is taken very seriously and being fully integrated in its strategy.
ERG is therefore proud of the fact that it has won further international recognition for its ESG record.
In particular, the company has been rewarded with two recent ESG awards. In early August ERG saw a ratings upgrade by ISS ESG, from a B+ to an A- rating, a significant step up.
This places the Group at the top of the world ranking in the “Electric Utilities” sector, which is a tremendous accolade.
The second award was from Science Based Target initiative (SBTi) which recently gave its seal of approval to ERG’s emission reduction targets, as set out in the company’s 2021 to 2025 Business Plan, announced in May 2020.
ISS ESG is an international ESG Rating Company. It specialises in supporting investors and companies who aim at building long-term sustainable growth. Its ERG “A-” Corporate Rating, places the Group at the top of a list of 125 internationally recognised electricity generation companies.
Solar power investment has helped ERG gain new ratings upgrades
The ISS ratings upgrade was based on the ERG Group’s excellent performance in the environmental, social, and governance areas, thanks to the big efforts made by ERG in enhancing its best-in-class governance model and in launching its first ESG plan based on 13 measurable targets.
SBTi assesses the scientific criteria necessary to lead companies toward their greenhouse gas emission reduction targets as part of the fight to limit damaging climate change. It is a collaboration between the Carbon Disclosure Project (CDP), World Resources Institute (WRI), the World Wide Fund for Nature (WWF), and the United Nations Global Compact (UNGC).
The emissions reduction targets approved by SBTi are consistent with the decarbonization process required to keep Global Warming to below 2°C.
For its part, ERG has committed to a number of goals. These include reducing scope 1 and 2 emissions – emissions that companies have direct control over, as opposed to scope 3 emissions which occur in a company’s supply chain – by 45.4% by 2025, compared to its emissions in 2020, which is now the company’s base year against which to measure emissions decreases. The company has also committed to increasing its annual sourcing of renewable electricity from 94% in 2020 to 96% by 2025.
These prestigious awards underscore ERG’s commitment to fighting climate change and helping the world to achieve the UN Sustainable Development Goals (SDGs). This is in line with ERG’s 2021-25 Business Plan, presented in May 2021, which puts ESG at the heart of ERG’s strategy.