S+B: By efficiency, you mean energy efficiency?
CONTI: Yes, and also operational excellence. Getting more return out of less money is, naturally, important. Thanks to a general increase in system efficiency and a 30 percent reduction in the fixed costs of generation and transport, we were able to keep our prices low this year. But other forms of innovation include diversification of the energy mix, as well as new infrastructures for energy production and transmission and for the import and export of raw materials. Today, for instance, Italian power generation depends on imported natural gas, most of which comes from Russia and Algeria. Having only one type of fuel and only two sources of supply increases our risks.
Thus, Enel is investing €7.4 billion [US$11.5 billion] in new renewable sources worldwide as well as in new technologies. We’re carrying out advanced research projects studying carbon capture and storage, the use of hydrogen in power generation, innovative solar thermodynamic technologies, and concentrated photovoltaic systems. We are also committed to developing nuclear power; we are exploiting several existing technologies and are participating in research on new nuclear technologies. And we are investing in fundamental infrastructure for transportation and logistics: pipelines, liquid natural gas facilities, and regasifiers.
S+B: Haven’t power companies always had to innovate?
CONTI: Yes, but not with the same level of pressure and uncertainty. Investing in innovative projects means that you have to think ahead. You have to reserve as much as you can of your budget to promote innovation, knowing that for any given project, the prospects are uncertain. Research programs demand major financial resources and bear significant investment risks, both in their timing and in the amount of capital at risk.
S+B: And what is the fourth part of the equation?
CONTI: Energy partnerships among exporting and importing countries. As electric power companies like Enel try to meet growing demand, we need to cooperate with those who have access to the raw materials. And we should not be scared of having them take a portion of our market, because we’re not deterred from going into their markets. This is part of globalization; it’s similar to what happened in the crude oil business in the second part of the 20th century.
S+B: Why are partnerships with energy producers important?
CONTI: To avoid the security of supply being jeopardized by shortages and price increases. The European Union, for example, is strongly dependent on imported fuel. The import share of natural gas is expected to rise from 40 percent to 70 percent by 2030. This imported gas supply essentially comes from a few exporting countries; Russia and Algeria together account for more than 70 percent of the imports. Thus it is of paramount importance to establish effective partnerships with companies like Gazprom. Indeed, Enel signed a supply agreement with Gazprom last year, and then entered the gas upstream sector, becoming the first foreign power generator and supplier vertically integrated in Russia. We launched a similar cooperation agreement with Egas, the Egyptian Natural Gas Holding Company, and we’re working to develop further agreements with other upstream companies.
Of course, if Europeans really want to cope with the scarcity of access to oil and gas, then it should not fall to any one company — or country — to negotiate. It would be more appropriate to have a coordinated European Union effort, rather than 27 bilateral agreements. And from there it would be natural to see energy companies consolidate and develop global markets.
S+B: So you’re proposing that electric power generation companies follow the model of the oil companies of the past: consolidating, becoming global, and no longer seeing themselves as local utilities.