The rise of renewable energy strategies amongst major European utilities

Increasing regional and state-based climate policies, support mechanisms and renewable targets are instigating long-term renewable strategies amongst the major European utilities. By adding renewables to their generation portfolios at a record pace, these firms are also faced with having to develop equally aggressive and robust renewable retail strategies.

Report Highlights
Utilities and merchant generators are scaling their renewable portfolios at a record pace amid expectations of favorable government frameworks, persistent high carbon and hydrocarbon prices, and increasingly stringent emission regulations. Renewables will play a more dominant, more strategic part of the generation mix, driven by the supply side.

Large hydropower makes up the bulk of the total European renewable capacity. Yet, wind power generation is by far the most scalable option, with the major European utilities aiming to grow their asset base by several thousand megawatts or by as much as 41% annually. Enel and Iberdrola dominate the hydropower and wind power sectors respectively.

The rapid development of merchant generator renewable portfolios will increasingly shape utilities' green retail strategies: institutional investors and IPPs will continue to play a significant role in the supply of renewable power as they ramp up investment levels and installed capacity targets in the field of renewable power generation.
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DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
SOURCES 1
ANALYSIS 2
European policy has instigated unprecedented uptake of renewable power generation by the major European utilities 2
The Kyoto Protocol instigated EU policies aimed at curbing harmful emissions and promoting renewables 2
Born from the Kyoto Protocol, the EU Emissions Trading Scheme is a major pillar of EU climate policy 2
At present, at least 64 countries have a national target for renewable energy supply 4
The RES-E directive sparked the adaptation of legal frameworks in all EU countries 5
The EC also recently proposed a directive on the promotion of the use of energy from renewable sources 6
As a result, the renewable energy industry has experienced unprecedented levels of growth 7
Large European utilities have placed renewables at the heart of their corporate strategy 8
Large utilities have achieved efficiencies, scale and pace by consolidating their renewables operations 9
European utilities have grown their renewable portfolios at a record pace from a low initial installed base 10
The majority of renewable power generation assets are owned by firms for which renewables have evolved as a strategic imperative 11
Of all the European utilities, Iberdrola leads the way in its long-term commitment to wind power generation 11
Iberdrola has placed renewables at the heart of its corporate strategy 13
Despite strong fundamentals, Renovables has slid since its IPO, following fears over recession and possible regulatory changes 14
Renovables' recent declining share price was largely driven by global and local market pressures 15
Iberdrola's aggressive strategic investment plan will continue to deliver dominance in the global wind generation market 16
Energias de Portugal is the second largest wind asset owner amongst the large European utilities 17
Of all the European utilities, EDPR has the second largest wind capacity growth target relative to its existing capacity 18
Large hydropower accounts for the bulk of Enel's renewable power generation capabilities 19
Of all the European utilities, Enel has the most aggressive wind capacity growth target relative to its existing capacity 20
Enel's strategic renewables investment plan delivered a record increase in wind capacity in 2007 21
The rapid development of merchant generator renewable portfolios will increasingly shape utilities' green retail strategies 22
The mid-tier renewable asset owners have traditionally applied domestic strategies as a means of complying with regulatory requirements; a trend which is now rapidly changing 23
EDF was one of the first players to consolidate its portfolio of renewable power assets 23
Since the IPO, EDF EN has delivered strong growth in terms of both operational and financial performance 24
EDF EN has significantly outperformed the market, despite recent fears over recession and possible regulatory changes 25
EDF EN's dominant market position and efficient horizontally integrated model have kept the company ahead of the curve 26
Endesa is delivering against its strategy to further its global and sustainable energy model based on a larger mix of renewables 27
E.ON's aggressive investment strategy in renewable energy is likely to keep it ahead of its closest rival EDF EN 28
RWE is the latest of the large European utilities to pool its renewables activities separate from its core generation activity 29
RWE Innogy's investment plan is sufficient to more than triple its renewable installed capacity by 2012 30
The majority of smaller 'green' asset owners also exhibit strong growth objectives in the field of renewables, albeit from a much lower installed base 32
SSE's renewable strategy stretches beyond mere compliance with domestic regulatory requirements 32
ESB, ENBW and EVN have followed suit; only Nuon's long-term commitment to renewable energy is under question 33
Reconciling aggressive utility renewable strategies with weak consumer demand for 'green' energy presents a great opportunity 34
APPENDIX 35
Glossary 35
Ask the analyst 35
Datamonitor consulting 35
Disclaimer 35
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Figure 1: More than one third of the EU's power would have to come from renewable sources in order to meet the overall 20% target 4
Figure 2: No less than 60 countries (37 developed and transition countries and 23 developing countries) have some form of policy to promote renewable power generation 5
Figure 3: No less than 60 countries (37 developed and transition countries and 23 developing countries) have some form of policy to promote renewable power generation 5
Figure 4: Countries with an existing share of final energy supply that meets or exceeds the draft directive's 'interim trajectory' will benefit most 6
Figure 5: Global renewable electricity capacity reached 207GW in 2006 7
Figure 6: Large hydro in developing countries accounts for the bulk of the world's renewable power generation capacity 7
Figure 7: Shifting strategy drivers have impacted utilities, forcing them to evaluate their options in renewables 8
Figure 8: Large European renewable asset owners integrate horizontally along the value chain by initiating their renewable development activity separately from their core generation activity 9
Figure 9: Enel leads the way in terms of total installed capacity of renewable power generation. When large hydropower is excluded, Iberdrola boasts the largest renewable installed capacity. 10
Figure 10: In 2007, 17,414MW renewable capacity (9,710MW hydro) accounted for 41% of total capacity 11
Figure 11: In 2007, 29TWh renewable generation (16TWh hydro) accounted for 24% of total output 12
Figure 12: The renewables arm of Iberdrola, Iberdrola Renovables, is a profitable and diversified business with strong growth prospects 13
Figure 13: Markets recognize that the wind industry is largely at the mercy of government programs that drive artificially stimulated demand 14
Figure 14: Since its IPO, Renovables has underperformed its largely vertically integrated peer group, as well as the Spanish Ibex index 15
Figure 15: Iberdrola is currently on track to deliver its short- (2008) and medium- (2010) term strategic plan 16
Figure 16: In 2007, 9,078MW renewable capacity (6,048MW hydro) accounted for 58% of total capacity 17
Figure 17: In 2007, 29TWh renewable generation (16TWh hydro) accounted for 24% of total output 17
Figure 18: EDPR is allegedly on track to deliver on its 2008 yearly target of 36.5% (+1.4GW) wind capacity growth 18
Figure 19: In 2007, Enel had a renewable energy capacity of 30,468MW, accounting for just over 40% of its total electricity generation capacity 19
Figure 20: Enel's 2008-12 strategic investment plan calls for extremely aggressive increases (+41% CAGR) in wind power installations 20
Figure 21: Enel's planned growth in renewables over the 2007-11 period delivered a 61% increase in wind capacity in the past 12 months 21
Figure 22: Merchant generators contract the output from their considerable renewable portfolios direct to utilities and industry through PPAs 22
Figure 23: Installed capacity at EDF Energies Nouvelles (EDF EN) - EDF's 'green' energy business - almost doubled between 2005 and 2007 23
Figure 24: In 2007, the proceeds from the capital increase allowed EDF EN to accelerate its growth, thereby meeting or exceeding its objectives 24
Figure 25: In Q1 2008, investor sentiment towards EDF EN remained relatively strong, despite widespread bear market conditions 25
Figure 26: Since its IPO in Nov 2006, EDF EN has outperformed its largely vertically integrated peer group, as well as the French index 26
Figure 27: In 2007, Endesa increased its renewable energy capacity by 29% (358MW) and its generation output by 16.5% (388GWh) 27
Figure 28: As at May 2008, E.ON Climate & Renewables held 1,351MW of renewable installed capacity, mainly wind assets in the US 28
Figure 29: Renewables constitute a modest part of RWE's capacity mix and generation output, a trend which is likely to change by 2012 29
Figure 30: Innogy's aggressive renewable capacity growth target (of +41% CAGR) - which is second only to Enel in Europe - will be met by an average annual investment of €1 billion 30
Figure 31: Innogy plans to grow its renewable capacity to more than 10GW by 2020 31
Figure 32: SSE's recent acquisition will provide it with the scope to build on its UK-leading position in renewable energy, ahead of Centrica 32
Figure 33: EVN and Nuon's proportion of renewable capacity assets relative to total assets is very significant at 7% and 8%, respectively 33
Figure 34: The gap will be bridged by thinking of 'green' energy as a differentiator which is gaining acceptance as a more sound basis of competition than simply price or even service 34
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