Enel Considers Bid for Brazil’s Eletropaulo Amid Strategic Shift

  • Move is part of shift away from fossil-fuel generation
  • Enel won contract to sell solar power cheaper than gas

Enel SpA is considering a bid to acquire AES Corp.’s Sao Paulo utility unit AES Eletropaulo, as Italy’s biggest utility continues its shift away from traditional fossil-fuel power plants to focus on renewable energy and distribution.

Enel is seeking to expand in Brazil, especially in power distribution, Chief Executive Officer Francesco Starace said in an interview Tuesday at Bloomberg’s headquarters in New York.

The move is part of Starace’s efforts to transform Enel after becoming CEO in 2014. He’s closing coal plants and said the Rome-based company won’t build any more large power projects that take at least five years to build. Instead, he’s looking at renewable energy and distribution companies in Brazil. Enel lost lost a bid last week to acquire another AES unit after the Brazilian utility CPFL Energia SA agreed to pay $464 million for AES Sul, which operated in Rio Grande do Sul state.

“The valuations are really finally getting to the right level,” Starace said. “We participated in the Rio Grande do Sul transaction. We didn’t win this one. Now there is Eletropaulo coming, there’s a lot of distribution coming. We’ll be trying again.”

Distribution Deals

Eletropaulo is Brazil’s biggest power distributor, delivering about 10 percent of the nation’s electricity, according to its website. It has rights to provide power in 24 municipalities in the Sao Paulo metropolitan region.

It’s also drowning in debt, and S&P Global Ratings lowered its corporate credit rating last month in anticipation of an electricity surplus on the spot market. Power consumption in Eletropaulo’s area may decline by about 5 percent in 2016, according to S&P.

“We’re looking at distribution companies,” Starace said. “That’s what we like to have.”

Starace has pledged to get rid of 13 gigawatts of coal-fired generation companywide, 23 power plants, and said Tuesday that Enel is most of the way there, eliminating 10.5 gigawatts of coal capacity. Most of those plants are converted to another type of generation, rather than being shuttered, he said.

“We want to have 23 rebirths,” he said. “Not 23 funerals.”

Solar Contracts

The company is moving aggressively into renewable energy, and has pledged to sell solar power at some of the cheapest rates on record.

Enel won contracts to build solar farms in Mexico and Peru this year at rates that rival natural gas and coal, feeding concerns that state-run energy auctions are prompting developers to submit bids so low that the projects won’t be completed, or won’t be profitable.

Starace said that won’t be a problem for Enel.

“They’re going to be built, and they’re going to be built profitably, for sure,” he said. “I know this seems strange because the prices were really cheap.”

Enel agreed in March to sell solar power in Mexico for $35.50 a megawatt-hour, less than the global average low of $47 for natural gas and close to the $34 average for coal, according to Bloomberg New Energy Finance. In February in Peru, it won an auction to provide solar at $48 a megawatt-hour, the third-lowest on record.

Cheapest Solar

The cheapest solar power came in May, with a bid of $29.90 a megawatt-hour by Masdar Abu Dhabi Future Energy Co. and Abdul Latif Jameel of Saudi Arabia, for a photovoltaic project in the United Arab Emirates.

Large solar farms come with economies of scale that smaller plants can’t match, Starace said. Enel’s global presence and relationships with local suppliers help reduce costs further.

“Because we typically buy globally and buy a lot, we extract from suppliers extremely interesting pricing,” he said. “This is not the end. Solar technology still has a long way to go in terms of cost-cutting and efficiency.

Starace expects all of Enel’s electricity to come from carbon-free sources by 2050.

“You’ll have a system that’s 100 percent renewables -- and some back-up that is not used but it’s there,” Starace said.

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