Announcer:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're inside the ICE House. Our podcast from Intercontinental Exchange on markets, leadership and vision and global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week we feature stories of those who hatch plans, create jobs and harness the engine of capitalism. Right here, right now at the NYSE and at ICE's exchanges and clearing houses around the world. And now welcome inside the ICE House, here's your host, Josh King of Intercontinental Exchange.
Josh King:
Last week's episode was with Chandler Van Voorhis, the co-founder and managing partner of Green Trees, whom we talked about his career and ICE's plans to host two carbon credit auctions for Green Trees' reforestation and carbon removal efforts. Chandler was at the exchange for the Climate and Capital conference, which brought together as ICE's president of Sustainable Finance and Chief Regulatory Officer Elizabeth King said, thought leaders across the industry to share the ways investors, businesses, and financial markets are measuring and managing climate related risks and discovering opportunities.
The event was one of 500 events that combined make up NYC's Climate Week. The gathering in this city purposefully and importantly coincided with the annual meeting of the United Nations General Assembly, along with the Clinton Global Initiative, which returned Manhattan after six year hiatus, and which I also attended. UNGA as it's affectionately called by the traffic reporters who forecast gridlock throughout Midtown as the motorcades of world leaders move through city streets was an event on a normal scale that we haven't seen in several years as the principles descended on the Big Apple to talk climate, politics and finance.
Here at the NYSE, our NYC institute also played host to visits and policy addresses by the president of the Philippines and the Prime Minister of Japan. And to wrap all of that up, this whirlwind of activity, I can't think of a better guest to talk about the confluence of decarbonization, intergovernmental cooperation and the markets than our guests today, ENEL Group CEO Francesco Starace. In addition to leading an aggressive net zero strategy as the head at ENEL, Francesco has served on a number of United Nations and affiliate organization boards with the aim of moving the globe toward a greener, renewable and increasingly equitable economy. Our conversation with CEO Francesco Starace on the path to decarbonization, the economic argument for sustainability by utilities and how ENEL is leading the way. It's all coming up right after this.
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Josh King:
Our guest today, Francesco Starace, is the CEO of ENEL Group, which includes ENEL Chile, NYC took a symbol, ENIC. He joined ENEL group in 2000, holding several senior executive positions, including the CEO of ENEL Green Power from 2008 until he was named to his current position in 2014. Francesco has provided his expertise on energy and sustainability to several intergovernmental boards including the United Nations sustainable energy for all, the UN's global compact, Euro Electric and the Global Commission to end energy poverty. Welcome, Francesco, inside the ICE House.
Francesco Starace:
Thank you, Josh. It's a pleasure to be here with you.
Josh King:
You've been a frequent guest here at the corner of Wall and Broad during your tenure at ENEL that goes back now 22 years. What are your memories of your first trip to New York City?
Francesco Starace:
My first trip to the US and my first trip to New York City was at the beginning of the eighties, so my memories are of a city that was considered dangerous.
Josh King:
Yeah.
Francesco Starace:
I used to live in Schenectady in the upper New York state and every weekend me and my wife would go and come here and our neighbors would say, Don't go, don't go there. They're going to kill you. They're going to mob you. So just don't go to New York City, please. We love the city. It was fantastic already. And we saw the transformation, several waves of transformation of the city. And this is now the first time I come back after the COVID, so it's three years. So the city is back to life, obviously there's lots of people around. It's very interesting. It's different than it was before. So I still don't understand in what, but I feel some difference that maybe will come to my mind after I have some time to think about it, but it's somehow back to life and I'm happy about it.
Josh King:
Schenectady, what brought you there?
Francesco Starace:
I was working in General Electric
Josh King:
Yeah, GE. How long were you at GE?
Francesco Starace:
Until '86. Then GE sold the company I was working for to ABB and so I kept working with a different company.
Josh King:
I studied my ABB case study at Harvard Business School many years ago.
Francesco Starace:
Yeah, the metrics organization and all that stuff, yeah. And ABB was a big company, and so I kept coming back to the US for many, many, many, many years in different parts of the U.S. But New York is of course the first city I can say I knew. So it's always nice to be back here.
Josh King:
Great to have you here, especially this time of year. I mean New York City Climate Week has a number of tracks for participants to follow, including Built Environment which focuses on the role of cities which use one third of the world's electricity. You are the co-chair of the World Economic Forums Net Zero Carbon Cities Systemic Efficiency Initiative. What do most people not understand about the role of cities like New York in sustainability? And what are you working on with the WEF?
Francesco Starace:
What happens in cities is that, first of all, there are big cities in many parts of the world, okay? You have large cities like New York, you have huge metropolitan monsters like Tokyo, San Paolo, places of more than 20, 30 million people. Why that happens is why people are moving into cities. That's a big question and it happened in Europe over the last centuries. It happened in the U.S. Now that trend is more or less stabilized, but most of the emerging world is still going on. So you see population getting into large metropolitan areas. Why that happens is because people think their life will improve, the expectation is that in cities they have a better chance of happening, combinations are more likely to be there, opportunities are more easy to grab.
So what happens is that cities become huge energy intensive consuming centers and the way in which energy is used in city defines the way in which energy is used in the world more and more. So what happens in the cities has an impact on what happens elsewhere in larger and larger parts of the world. I should add one more thing, that if you look the way in which people think when they live in cities, it's much more alike across the cities themselves. So you can make a case that one inhabitant of Bogota and a Nigerian living in Legos have much more things in common and ways of thinking and the way in which they look at life than an average Colombian and an average Nigerian. But sometimes a joke saying cities are a state on their own, the city state. So it's super important to see what can be done to make cities more easy to live in, but also less energy intensive and more friendly to the environment. And that's what this effort is, Net Zero Carbon Cities.
Josh King:
What impact do you think energy habits of the end consumer for ENEL and all utilities have on a country's ability to reduce their carbon footprint compared to industry or transportation? I was in Italy a few years ago and availed myself of the train system and so many other facilities that show a modernized Italy. But in some ways I wonder what does my impact mean versus the impact of either the fleet of vessels that are crossing the world with LNG in their bellies or the trucks that are plying the highways?
Francesco Starace:
It's a big question because if you look at how many are we, we're more than eight billions, so we really matter a lot in energy consumption. Actually energy consumption is about us and I think there are things that you can try and explain to people and they're not that difficult to understand. So I don't think anybody really subscribes to throwing away stuff or wasting things. But at the end of the day, if you want to change or improve the way in which energy is used, you only can succeed if this happens to have three ingredients, basically. The new way of dealing with energy has to be easy. In the new way of dealing with energy, it has to be convenient, it has to be less expensive and it has to be safe. So if you have that combination of ingredients, then I think people would slowly or fast enough, it depends, gradually shift to a different way of using energy. If any of these three things is lacking, it doesn't work. So you cannot force this change. It has to be embraced by people.
Josh King:
You studied nuclear engineering at the Polytechnic University in Milan at a time when Italy was seeking to hedge against the oil shocks of the 1970s, but ultimately the power source was not heavily implemented. What's your current outlook on nuclear as a power source and does it have a role in the future of sustainable energy, you think?
Francesco Starace:
I think it has had a role, which by the way was actually accelerated after the first oil shock. I mean it all started with the '73 oil shock. It has had a role in that moment because it was the only technology available to reuse the use of oil, which by the way was used excessively. This technology has self engineered itself out of the world. So it became an impossible forced in endeavor to really design and build a nuclear power plant within budget and within constraints of time. So the experience today is that this is not a viable solution. There are better solutions. They were not there at that time. Okay? So it's not a criticism, it's just that that's what we had.
Now obviously those plants that exist, they should be run safely and not just shut down for the sake of it. So I think it's a good combination to have some plants that can still keep running so that we don't have to worry about that. But I can say building a new plant now is an economic suicide and I'm saying that because our company is a shareholder of company in Slovakia that has just completed a power plant of this kind. And we are commissioning the first reactor and this is an effort that lasted 14 years. So let's say only six years late and it costed twice the scheduled budget. So for the track record of nuclear energy is fantastic, but you don't want to do that anymore. So I think this technology is out. There are other technologies, yes. They are not yet mature for commercial applications. So I think you're looking at a new wave of potential technologies that might be less complex and more palatable probably in the forties.
Josh King:
In the 2040s.
Francesco Starace:
Yeah. So we get there first and then, yeah.
Josh King:
So here we are in the 2020s and political and conflict risk in a country like Slovakia is relatively low, but nuclear has always been a major topic in the current war in Ukraine, not as a weapon but rather as a risk to the continent from a potential accident at one of the many power plants that are in the war zone. I want to hear the international atomic energy agencies, director general, Rafael Grossi, talk about this just for a minute.
Rafael Grossi:
A nuclear power plant can never be a pun of war. It's fate must not be decided by military means. The consequences of such action are far too grave. The IEA is at Zaporizhzhia nuclear power plant and can facilitate the zone's implementation. There is no time to waste.
Josh King:
So Francesco, do you think all power plant should have a global agency presence and be considered neutral ground?
Francesco Starace:
Absolutely. It's a super dangerous situation. The one is Zaporizhzhia and I think you can make a case that any nuclear power plant in a worse situation or worse in a terrorist situation is a big, big risk. Yes, he's absolutely right.
Josh King:
The environmental impact of a nuclear accident and the rising cost of fuel have been major energy stories relating to the war, but you've spoken a couple times about the less obvious impact on global sustainability planning. How does the war in Ukraine impact decarbonization, not just today but in years to come moving into 2030s, 2040s?
Francesco Starace:
I think the net impact will be obviously a huge acceleration of a trend that was already on the way. Although now it's a strange situation because you see people saying run more coal because we have to spare gas. Yes, of course, but this is just a transit that will last maybe this winter. So this is a blip. It's not really a change. The net is that we all understand now much more clearly that depending on gas to produce electricity or heating our homes is a very stupid choice. There are better ways to use this precious substance that is industrial processes, chemical applications, not burning when you can do the same thing without this kind of problems. So I think this is a huge, let's say, colossal demonstration of this problem we have.
And maybe three, four, five years from now, we will look back and say, where is it that all this acceleration comes from? It was now, it's now. So this is the moment in which this understanding becomes quite clear to everyone. And it's also obvious that it takes time and money, but it's something we need to do. And by the way, it's within reach. We don't need any new invention or new technology, we just have to double down on the efforts that were going on before. It will happen. I'm completely confident of that.
Josh King:
2021, 2022 has seen one of the first rises in coal usage in years. You are calling it a blip, something that we may not see again six months from now. But is ENEL relying more on coal, and how has the company phased out that type of power plant that you began your career working on?
Francesco Starace:
We shut down already a lot of coal. We have four plants left. They will run for example this winter more than expected because governments are saying, Look, even if economically, it doesn't make much sense, we are going to indemnify you, but random because we want to spare gas. We are not sure we'll make it until the spring time. So that's not a decision, it's just a reaction to reality. Now I think if you look a little longer, the plan we had that we should close all the coal plants we have between now 2027, there's no way that this changes. I mean this is fact.
Josh King:
I mentioned in the introduction that you were formerly the CEO of ENEL Green Power. And I'm curious, when did you first become involved with renewables and how did your experience with that group prepare you for your current role running the overall company?
Francesco Starace:
Yeah, that started in 2009 and renewables been around already. I mean, if you want, you can say you can make a case that electricity was initially started with renewables. It was hydropower plants. Schenectady is there because of the Hudson River.
Josh King:
Right.
Francesco Starace:
So it's all started with hydropower plants. But in 2009, '10, I had this feeling that what was considered almost a toy or a very small niche, luxury niche as a photo [inaudible 00:18:35] energy production or solar and wind, we would become fiercely competitive large. So that was I think one of a few original thoughts I ever had and I thought this is going to happen because looking closely at what drives technology, these things had exactly the two ingredients that today move most things. One, digital because digital is moving them a lot; second, advance in science or material. So anything with which things are made of improves, improves, improves. And that improvement explains why these technologies became so competitive.
So this theoretical thinking of mine, we applied and we said we are going to do this, move into countries, into places where there is no incentivization, there is no subsidy for renewables, but then abundance of intensity resource such that these things will beat thermal generation. And it took five years to start seeing that. And what today is obvious to everyone, it was not obvious. I mean, the investors didn't understand that at the beginning. I had a tough time to explain that and they were patient enough to stick with us for a while, but now it's common sense. Everyone knows that these technologies are cheaper, more competitive, easier to use, but it took a while let's say.
Josh King:
ENEL is one of the world's largest private electricity network operators. But for the audience who may not be familiar, can you break down and provide a snapshot of the companies that make up ENEL group and where you operate?
Francesco Starace:
We are a utility, we produce electricity, distribute it and provide service, sell it if you want to customers. That's very simple. And it's one thing, electricity, so it's one product. It's always the same. By the way, it has no color, you cannot touch it, it's dangerous if you touch it, no smell. Electricity is super difficult to describe. We are present in about 30 countries. We serve roughly 74 million customers. And when I say customer, I mean a family. Well, I don't know how many people in that family, but a family is one customer and or a business, industries, whatever. We have today the largest renewable energy portfolio of the world in terms of privately owned companies. And we are the one that grows faster every year, so enlarge, enlarge, enlarge.
But we also have the largest combination of distribution networks around the world, so the wires that go in homes and factories providing electricity there. This network is covering a lot of countries and embracing a lot of different regulatory frameworks. There is incredible variety that regulators have discovered over the years to do same thing. It's like how many ways you have to do the same thing, provide energy to people? And we flexibly adopt all of them across the world. So our people are doing that since many, many years. And what unites our people is very simple, it's the spirit of service. Our business is to provide energy so that progress can happen. And so we put it in the purpose of the company, we empower sustainable progress. That's what we do because energy's all of that.
Josh King:
Bringing light to people through the spirit of service. There are eight million customers in New York City, some multiple of that in the metropolitan area. Many of them serve by Con Ed, one of the longest listed companies here in the New York Stock Exchange. As you think about looking at the 300 million potential customers in the United States, what growth opportunities do you see for ENEL? And how are you able to leverage your company's expertise in sustainable technologies to help achieve Net Zero goals?
Francesco Starace:
That's a very interesting question because in the US we have the business model of being a pure play, so it's a contradiction with our strategy. But in the US we started becoming large in terms of renewable energy. In installations, we will cross the 10,000 megawatt threshold this year and we are fast growing too. We have a pipeline of development that exceeds 70,000 megawatts just now. So I think why don't we have an integrated presence in the US? Because we don't have a regulated utility in our hands. We never bought one, we don't think we should at this point. Our role here is much more useful in providing renewable energy to utilities than needed. One of them being, for example, Con Edison rather than taking over these utilities that are generally well managed. I mean we wouldn't change much. So I'm saying here our role is that, so huge growth in renewables.
And there is another role which we have which is cover demand response, storage of energy and all the services that come around that. And so for example, we have a huge presence in the electricity chargers for cars. We made an acquisition of a company in the U.S. that has had big success. So we are in the number two in the US in these privately owned chargers. So I think in the U.S., the business that we are having is this. And in the next few months we will also announce the construction of a plant to build to produce PV panels in the U.S., which is to our surprise, a void that needs to be filled. The U.S. lacks production facilities of PV panels and the same in Europe. In Europe, we're building the plant now. It's a 3000 megawatt a year plant and we will copy paste the same and do another plant here to reassure some of the production that today is totally imported from Asia, basically.
Josh King:
I drive from New York City to Schenectady now. I do not find many recharging stations. What can the United States learn from Europe on that score and in other scores about becoming more conscious and capable in terms of renewables?
Francesco Starace:
Not much. There's not much you learn from Europe at this stage, on this front. There is a little bit of learning, but not much. I think the U.S. has a great chance now with the IRA, the Inflation Reduction Act that was just enacted. It's a chicken-egg situation. Why are there not enough chargers? Because not enough electric cars to make the business viable. But when will enough electric cars appear if they aren't chargers? And so who's moving first? Obviously chargers move first. They need to move first because the risk of a charger is X, the risk of a car not being sold is much more. So it's the duty of this industry to move first. And maybe some utilities in the U.S. haven't got the message exactly. And by the way, we should say the U.S. is very diversified, so it depends where you live.
For example, if you were in California you would probably have a different experience in this sense. So I think it's a question of time and money and I think these two things typically combine well in this moment. So I'm sure that there will be a pickup of chargers across the system. I have to add one more thing. I drive electric cars. Of course the habit is different, so you typically don't charge on the way. If you own electric car, you charge at home or you charge when you arrive where you arrive. So no one has a gas pump at home. Right? We don't want to have one.
So normal habit of an internal combustion engine car is you have to fill in while you're driving. With an electric car, it's the other way round. So sometimes I wonder whether there will ever be that many on the way as we think there would be. I think this is a little bit an open question. For the time being, it's better to put them ... I mean, put them down so that the psychological problem of buying a car, an electric car is not there and you just focus on the convenience of driving one, which is great-
Josh King:
And as the network builds out, the range of these cars will increase as well.
Francesco Starace:
The range will increase as well. You're right. And in fact the experience we're having now in Europe is that many of the first chargers we put already five years ago need to be replaced with better ones and more powerful ones, because cars changed in the meantime. And this technology is going to do that another two or three times before it reaches a steady state. And that's something also we have to acknowledge, get used to and just carry on.
Josh King:
After the break, ENEL group CEO Francesco Starace and I will discuss ENEL's vision for 2030 and the future of energy production. That's all coming up right after this.
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Josh King:
Welcome back. Before the break, I was talking with ENEL Group CEO of France, Francesco Starace, about his career and where things were standing currently in the electrification market. You described, Francesco, in the 2010s as the period of renewable energy discovery to support a new era of electrification. What are the major discoveries leading the charge and do you have a preferred method?
Francesco Starace:
Well, I think that you can try to take a decade and give it a name, there's many ways of doing that. And for us in the energy sector, I think it's clearly 2010. 2020 is indicating which renewables became the backbone of power generation. They are the present future of power generation for a long time from now and from now on. Their curve is not yet finished and then they still have a long way to go to improve, but where we are today is already enough to say that's it. That's the generation we have.
Now, what's next in 2020, 2030 is what is the consequence of this, first of all, when you progressively decarbonize an energy system? So when you kick out progressively thermal generation out of the picture, two things happen. Number one is the wholesale price of energy tends to go down and stay down, so it tends to go down and stabilize low. So when that is ... which by the way, from a consumer standpoint, it's great news. Not only it's low, but it's going to be low for a long time. So when that is, all of a sudden you have electricity available for users that were normally not there a time ago.
So one example is the cars, but apart from the cars, another example is heating, the heat pumps. Heat pumps today are competitive with gas heaters most of the time in most places, but they would be increasingly competitive because electricity will keep going down. So that means that some important users of energy will shift out of fossil fuels into electricity and that we call electrification. And we have the feeling that this trend has already begun. It will become apparent like for the renewables a little bit later during the day, during the years. And so this decade we said maybe it's the decade of electrification.
The thing is there are things in common and things that are different between the two trends. In common is that this is again a technology driven change, profoundly unstoppable, but it's technology driven. But the difference is that while the change in renewables was basically driven by some companies and many investors and let's say a discreet group of people, okay, which said, Okay, look, we're going to invest in this and shut down that. Customers were unaware if you want, unless those that want to read about these things. But basically the large customer base was simply having electricity coming at them no matter what.
The electrification needs customers willingness to embrace the change because I'm not going to force you in your home to have a heat pump. You're going to say, look, thank you very much, I'm not doing it. Or if doing that change is economically interesting to you, easy and safe, you're going to do it sooner or later because your neighbor shows that it's useful and your calculation shows that it makes sense. Your boiler broke down and before changing, maybe you say there is an alternative that is better.
So the change here is that this decade requires a proactive and more active customer attention to energy consumption. I made the example of a private citizen, but what's going on is in industry. And industry looks at money, at the fact that you don't need to refurbish a complete factory, but just change a few things and safety. You don't want to have problems in your production facilities, but if you have these three ingredients, this shift is happening. Can we do it alone? No, we have to do it with customers. What's our role in this is provide customers the tools that will make this happen in an easier way.
Josh King:
What does it take to get government and the construction industry and local cities to say as we put in new housing stock, new apartment buildings, new dwellings for people to live in, we're going to apply the best and newest and most sustainable technology to these?
Francesco Starace:
I think on the public sector is a problem of demonstrate clearly the economic convenience, but also the improvement on citizens' life. So I should say voters life because at the end this is what matters. So it can only happen after some kind of proof. I give you an example. We had two electric buses circle around Santiago in Chile for a year so that the experience was observed by the Chilean municipal authorities that saw this thing as an interesting improvement, so that they issued a tender saying the next visitation, the next tender for buses will be having at least a 10% of electric buses as part of the tender. And then this happened, and then of course this was such a big success that now it's basically electric buses everywhere. So it takes time.
You cannot just go there and have people embrace your ideas just for that. You have to demonstrate that this is somehow improving things. And it cannot be that in order to have that change, you have to tier off an entire city and rebuild it from scratch. That's impossible. So it has to be easy and there are many examples of that. So with public structures, that's a very important point. For construction companies, it's easy. You issue a tender with the specs and if they like it, fine. If they don't like it, they don't participate, but they really like it. So mostly construction companies are ready to embrace this novelty. They don't have a problem with that.
I think the regulators are perhaps the more complicated persons to deal with, not because they're ... There's nothing wrong with them, but if you are a regulator, you are doomed to live in the past a little bit because you can only regulate what already exists. You cannot regulate something that doesn't happen, so you have to have it there. They have to understand it and then they regulate. So there is a mix of patience and proactivity that you need to put there so that this really picks up. It's all in that.
Josh King:
I want to hear from one of your colleagues, Salvatore Bernabei, the current head of ENEL Green Power, talking about the company's mission.
Salvatore Bernabei:
... energy, sustainable energy, something that goes beyond the concept of green energy because it includes the concept of circular economy, but also it considers the fact that in order to have a really sustainable energy, we have to involve more people. So inclusiveness of people, of local stakeholders is key, also, the younger generation. Sustainable energy means also taking care of the biodiversity. In order to mention also the concept of the Just Transition, we are living in this era of the energy transition and we want to tell strongly that this transition should be just. Being able to do this transition in a fair way means also being able to produce sustainable energy.
Josh King:
When I was at the Clinton Global Initiative this week, I heard a lot about the Just Transition. How do you think about it?
Francesco Starace:
Well, it's the only way you can do this. If you look back, we had a lot of transitions in the history of mankind. I mean they were all triggered by some kind of innovation that was thrown into the system and triggered change. So what happened to people that were building carriages when cars happened? What about them? Did anybody worry about them? No, they were wiped out. So most of these transitions that happened in the past created pockets of inequality due to the fact that those that understood it prospered. Those that didn't know about it, more or less, lived, those that opposed lost. And this could be the case again.
This is a transition that is inevitable, okay. This happens anyway because the forces that drive it are so deep in the technology world that they cannot be. What happens is that it can happen in a turbulent manner as many other transition happened before. Look, the digital transition was the same. It was pretty turbulent, okay? Or it can happen in a more say, orderly way. So what we're trying to say with the Just Transition is for one time, let's learn from what happened before and try to minimize the inevitable turbulence. There will be some, but let's manage it the best we can, which means boil down to [inaudible 00:39:34].
Tell the people that, for example, work in the gas stations, guys, you're going to be around for a while because cars are still there, but not for long. And when we had to shut down our thermal generating plants, we told our people, people, this plant's only going to be around for a while. Now, you have a job but you have to train, change your skills, maybe move a little bit south, northeast, west, but relocate somewhere. But there is a chance and there is by the way, quite an interesting prospect in front of us. How about it? I can tell you, first of all, people on the floor know this before managers always, always.
You are four men in a power plant, this power plant is never called in operations. After a few months you start to say what's going on? Why we never are up? And then someone comes at the end, maybe three years after saying, guys it's time to close and you're saying it took you three years to understand this. So people know this, deep down they know. What they don't know is what is next. So your duty as a manager is to tell them what is coming next for them, provided they engage. Okay? So, that's about the Just Transition. It's about showing people that it's not the end of the world, but there is another life after this job and there is maybe a better job, but that needs a little bit of adaptation and training and whatever. So the net job creation is there, but that doesn't mean that the same people get there.
So what about Just Transition is maximize the number of people that participate in this.
Josh King:
Over the course of our 300 some odd episodes, we've always enjoyed our conversations with CEOs of energy companies. I think one of the first ones that we talked to was National Grid. I think during COVID, I sat down with southern companies CEO Tom Fanning. We talked about maintaining the stock portfolio of energy resources including everything under his roof, including nuclear, wind, solar, gas, that could be adjusted to respond to market forces. Should the types of energy being leveraged be affected by economic and other factors or decided by their sustainable metrics alone?
Francesco Starace:
There's not a conflict between these two things obviously. I've been in this industry 40 years now, so I've seen already these changes happen, like you mentioned. So a portfolio is always a nice thing to have, but the portfolio's not frozen. It has keep changing. So I'm saying there's nothing magic about renewables per se, but there is something peculiar about them that was not there before. It's the first time ever that we have this. What is it about it? It's that once you install a renewable energy plant and you inject it into the system, because the marginal cost of generating energy is zero, this plant cannot be displaced by another plant because at best that other plant will always be zero.
So these portfolios of mixed generation with nuclear renewables, gas, coal will inevitably evolve over the years, phasing out gas and coal because zero margin a cost of energy will do that to them. And nuclear will phase out for another reason that once you get above 50, 60 years, it's too expensive to keep running and fixing that stuff.
So the dynamic view is that it will always be a portfolio, but this portfolio will have a trend, an inevitable trend towards a strange world in which the margin cost of electricity will be zero, which is new. That's never been the case except for the beginning of this era, which was when it was only hydroelectric. So we're going back 100 years to a moment where in your bill you could have energy zero, but you could have to pay for the capital that it still needs to be repaid, but it's a different story. So it's a kind of science fiction view, but not that impossible, I tell you. So yeah, a portfolio's great, but think about the fact that this portfolio keeps moving, and if you try to stop the portfolio from moving, that's a mistake.
Josh King:
The portfolio keeps moving. So let's actually turn, looking forward a little bit because there's one aspect that we haven't talked in our conversation so far, Francesca. I read an interview that you did last year when you spoke about six green hydrogen pilot projects in different geographies. Can you provide an update on that work and if you found certain regions better or worse suited for it?
Francesco Starace:
No, it's not any general problem. I think the six pilot projects are all progressing. Actually, we added also a test facility. So we invest in a test facility where people that have ideas and can have new technology to produce hydrogen with electrolysis can go and test. Which for us is a big thing because there is a glut of innovation that cannot be tested because it's not such a thing as a testing facility for a hydrogen power plant except in some places. So the power plants are there because what we want to make sure we understand is what is the likelihood of this technology to really become economically viable? So everything is there. So there is a moment in which, yeah, we think from a technology standpoint it can happen. Okay? Materials are improving for the same reasons we said before. This can really move okay, but it hasn't yet gotten there. So it's not enough to have a view, you have to touch it with your hand. And the six projects are aimed at touching it with the hands. From a location standpoint, there is no difference whatsoever. So it doesn't matter where you are in the world. Why are we scattered around? It's just because opportunities were like that, they were scattered around. We didn't do that because we want to see if in Chile it works better than the U.S., it's just physics. It works everywhere the same way.
Josh King:
In 2019, three years ago, ENEL issued a sustainability linked bond as part of its goal to provide financial instruments that support affordable and clean energy as part of the company's vision of stakeholder capitalism. And on this program a couple weeks ago we talked to people like KKR's Pete Stavros about implementing policies to support that concept. But how does ENEL define stakeholder capitalism and how do the bonds work?
Francesco Starace:
Very important question. The first one is a question of time. So the stakeholder capitalism is a very complex way of saying how long do you want the company to be around? And I'm not judging, I don't think there is a good or bad way. You can have a company and say, look, I'm happy to have a three years cycle. After three years, I close the company. There's nothing wrong with that. Okay? But then maybe in that case how sustainable your company is not really the key point for you. You just want this three years to go by and maximize your profit in the three years. It's not a judgment, it's a point, and some companies have that view. Other companies think we want to be around for a long time.
So can you be around for a long time without thinking about what is the impact of what you do? Because if you think that you can be around for a long time without reflecting on that, then it's a mistake. It's a big risk you're running that all of a sudden people don't like, don't understand or oppose what you do because you're not really caring about ... and when I say people, I mean stakeholders. Okay? So it all starts with how long do you want to be around? And if the answer is a long time, then who am I dealing with for a long time? And if you're mapping those stakeholders you're dealing with for a long time saying, what am I doing for them over all this time? And then that triggers a lot of sustainability reflections if you want. So I'm always saying it's not the magic word, it's all about time and how long you want to be around.
Josh King:
And Francesco, you want to be around for a long time and your vision for the company is, as you said in 2021, we will simply stop producing CO2. And you've committed 45 billion euros over the next two years to keep ENEL on track for an 80% reduction in your carbon footprint, eight years from now, 2030. What will the money be used for?
Francesco Starace:
Basically this is an effort of facing out thermal generation, which is carbon intensive and phasing in renewable energy so that the lights are kept on and that's the money it takes to do that. I should say, I did not answer your first question, why did we go to the SDG link bond market, and why did we actually invent it? Because it didn't exist before we started. And again, it's a question of reflecting on one strange thing that triggered all this. That is at that point we only had green bonds as a way of ... but the thing is the market was pricing green bonds at the premium, vis a vis normal bonds. So if you had the appetite for a green bond, you would have to pay the bond market a little higher interest rate, which for us was a little bit the contrary of what we would have to do.
I mean if you look at this the way we looked at, we said there's no reason. It should be the other round. So we said let's not focus on the power plant for which we get the bond, which has to be a green power plant. Let's look at the company itself. And we went to the bond market saying, Guys, do you agree that if we get ... for example, to take your point, if we get to decarbonize of X by your epsilon, do you agree that we would be a less risky company? And the answer was yes, clearly yes. Yeah, we'll be less exposed to variation of commodity prices, less risky, clear. So don't you agree that if we are less risky we should pay a lower premium, a lower interest rate? And obviously the answer was yeah, theoretically we agree, but what happens if we don't get to where you promise to go?
And we said in that case we will raise back the interest, so that was the huge innovation. so it was not that [inaudible 00:52:20] if you want, but there's always simple things come at the end. So that triggered the SDG first link bond, which we did in the U.S. Then we did another in Europe and then everything followed. Now this is a huge market, but it all has to do with the risk perception in time. So we couple the evolution of things in time. So it's again the time dimension that plays when you look at the company over the years.
Josh King:
Talking about the markets overall, Francesco, we spoke to Mark Carney after COP 26 about what needs to be accomplished by 2050 to have a chance of slowing climate change. And here is part of what President Carney said.
Mark Carney:
Well, part of the way you have maximum impact is you make sure if there's a dollar or public money going in, it helps to catalyze multiple dollars of private money. What we know as well from last week at Glasgow is there are trillions of private money. It's interesting the focus on the 100 billion, well, we showed up with more than a 100 trillion, a thousand times more than that. And it just underscores, look, the public sector's got to play a role, but the private sector's going to decide whether or not we get to where we need to go.
Josh King:
The public sector committed to do its part, Francesco, but the private sector has to play a role. Do you have a target date for eliminating ENEL's own scope one, two and three emissions?
Francesco Starace:
Yeah. We have set those dates after our careful evaluation and moved them back. I mean we had originally 2050, the full decarbonized target. We put it back to 2040 last November, so 10 years earlier. That means that by 2040 we will have no power generation using fossil fuels, no gas contracts with customers, so no customers getting gas. And also that means basically scope one zero, scope two zero. What will be left is the scope three emissions in the hands of our suppliers, contractors, which already are higher than our scope one, so that's something we discovered last year. Our scope three is higher than our scope one, which was a big surprise to us because we have quite a hefty scope one.
So that started a big effort to help our suppliers decarbonize themselves in many, many different ways with a lot of innovation and a lot of circular economy solutions. That's why by 2040 we said probably by 2040 we're going to be zero with some netting from the suppliers side, not from our side, from the supplier side,
Josh King:
As we wrap up our conversation, we've mostly been discussing Europe and the United States where ENEL's major operations are. But I want to turn our attention as we close to the developing world, particularly Africa. You've served as the president of the Sustainability For All, a non-profit that works closely with the United Nations to achieve the sustainable development goal seven that we talked about earlier. What is the state of sustainable energy in Africa? And is it possible perhaps to skip right to clean sustainable energy on the continent or will there need to be similar transitioning process that we've seen across Asia?
Francesco Starace:
In order to answer that question, I have to tell you also that we have a very large part of our business in Latin America, which is doing exactly that. So Latin America is by and large jumping a phase and going full speed to renewables, of course, because they have such a huge resources. I mean, all countries have a lot of renewable energy potential and therefore what we observe, and we are by far the largest operator across Latin America in all ways. What we observe is that what can happen in Latin America, there's no reason why it shouldn't happen in Africa too because from that standpoint, Africa also has an incredible endowment of renewable energy potential and has if you want also the demographics and the demand growth that Latin Americans is experiencing.
Well, I'm not trying to oversimplify two different parts of the world, but our experience is that with a little bit of policy driving, it's the question of policy really, Latin America did it. I think Africa could do it. What lacks Africa is today the policy focus and that's I think one of the main efforts of sustainable energy for all. Bring the African governments to see what benefits they would have embracing policies that will shift to renewables jumping a phase all the times as possible. Again, this is over simplifying. Africa is a huge continent full of different countries and not all have the same mix of energy resources. So they might be different stories, but by and large the potential is there.
Sustainable For All is about bringing energy to people that don't have it in a clean way. So not any kind of energy, but mostly the most sustainable one. And also work on efficient use of energy because typically this is a strange thing. When energy is not clearly focused by regulators, it's wasted. There is an incredible number that is the amount of fossil fuel subsidies that are still around in the world. And you would surprise to see that Africa is heavily spending on fossil fuel subsidies, that it's kind of, wow, they have all this money to waste. So there is a lot of things that can be happening there if you look at policy making in the real way.
Josh King:
Final question, Francesco. In July 2022, you became a member of Global Leadership Council and as we wrap up, how does that organization bring together everything that we've been discussing today?
Francesco Starace:
It's an effort to try to channel all the forces and have some impact, basically, it's about impact. So can we really corral all the good will that exist, all the good ideas that exist, all the money that you've heard from Mark Carney is there from a public sector and leverage the private sector? And I think the answer is yes. There are a lot of potential opportunities that will make this happen. So the reason why the council was established is to try to do it in a more efficient way. Let's put it this way. So my job is to try to help in this direction.
Josh King:
Well, we are glad that you are listed here and that anything that we can do at the New York Stock Exchange to help your company achieve those goals, we're signing up.
Francesco Starace:
It's great. I think the New York Stock Exchange has always been our dear friend. Every time we had a company listed here, it worked very well and the last time was a big success too. So yeah, why not? Let's keep the finger crossed.
Josh King:
And for now, thanks for joining us inside the ICE House and have a great rest of your visit to New York City.
Francesco Starace:
Thanks.
Josh King:
That's our conversation for this week. Our guest was Francesco Starace, the CEO of ENEL Group, which includes NL Chile, which has its sticker symbol, N-Y-S-C-E-N-I-C. And if you like what you heard, please rate us on iTunes so other folks know where to find us. And if you've got a comment or a question you'd like one of our experts to tackle on a future show, email us at [email protected], or tweet at us at ICE House podcast. Our show is produced by Pete Ash with production assistants and engineering from Ian Wolff. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
Announcer:
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties express or implied as to the accuracy or completeness of the information, and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offered to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.
