Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Italian energy company ENI is considering spinning off its
combined retail power and renewable energy activities through a
public listing next year or selling a minority stake in them to
capitalize on buoyant market conditions, it said 30 April in its
quarterly earnings.
The announcement comes less than a year after ENI said the
company's operations would be split into two units, one focused on
oil and natural gas, and another on renewables and power.
If the spinoff occurs, ENI will take a similar path to energy
service firm Aker Solutions, which created an energy
transition-focused spinoff last year, and then this spring
announced it was creating a hydrogen pure-play spinoff company. In
another indication of the interest in renewables, in February 2021,
Spanish oil company Repsol said it too was considering a spinoff of
its renewables business.
"Reorganizing businesses into growth and value units is a common
strategy for industries in transition, and that's what ENI and
others are doing here," said Peter Gardett, IHS Markit research and
analysis executive director. "I'd expect to see more companies
choose this route of spinning off cleantech-led units, or be more
deliberate about their plans to navigate the energy transition
intact, as part of giving their investors clear choices."
ENI
ENI said in its earnings call last week that
the division that could be spun off -- known as Gas e Luce, Power
& Renewables -- generated a combined adjusted operating profit
of €176 million ($212 million) in the first quarter of 2021, up 17%
year on year, and Q1 adjusted earnings before interest, taxes,
depreciation, and amortization of €260 million ($312 million).
ENI is evaluating "multiple options to extrapolate the maximum
value from this new entity during the course of 2022, subject to
market conditions," it said in a statement. "Options under
consideration include a stock exchange listing through an initial
public offering, or the sale or exchange of a minority stake in the
new entity."
The ENI unit accounted for Q1 retail gas sales of 3.52 billion
cubic meters and for retail power sales to end-consumers of 3.65
TWh. Renewable facilities produced 117 GWh of energy in the
quarter, three times as much as the same period a year ago, it
said.
The company's installed renewable energy generation capacity
amounted to 307 MW as of 30 March, including additions of 56 MW
this year. Capacity under construction or at an advanced stage of
development will add over 600 MW, mainly relating to the UK Dogger
Bank A and B offshore wind project, in which ENI's share equates to
480 MW, and to new onshore wind and solar capacity in
Kazakhstan.
In addition, the group plans to grow its installed renewable
generation capacity to at least 5 GW by 2025, as part of its aim to
reach carbon neutrality by 2050.
Renewables are hot
The interest investors have in renewables is driving the
decision by ENI and others. As IHS Markit noted in a global energy
outlook published in April, 90% of expected new global energy
capacity through 2050 will be solar and wind power. "Further
decarbonization of heating, transport, and industrial sectors --
driven by economy-wide net-zero carbon targets set by both national
governments and corporations -- offer a significant upside
potential to the growth of renewables," IHS Markit said.
"It has become increasingly clear that these businesses
represent value creation opportunities in a world transitioning to
green solutions at accelerated speed and have more potential as
stand-alone companies than as an integrated part of an oil service
business," said Chairman Øyvind Eriksen in announcing the plan last
July. "Renewables and green technologies have entirely different
value chains, customers, investor bases, and sources of funding.
Capitalizing and separating the offshore wind and CCUS business
areas from Aker Solutions presents a unique opportunity for growth
and value creation."
Then in March 2021, the company followed up with another
spinoff: Aker Clean Hydrogen (ACH). It said it hopes to raise about
$350 million in a private placement and list shares publicly as
well.
ACH has 1.3 GW of renewable power under development to support
production of green hydrogen, and will use the proceeds from the
placement to reach a target of 5 GW of power by 2030, it said.
Repsol will not likely make a decision on a spinoff until 2022,
but in February it confirmed news reports that it had hired
JPMorgan to advise it on a strategy for renewable power
operations.
The company said in November 2020 it will invest $5.5 billion from 2021
through 2025 to expand its renewable generation capacity to 5.2 GW.
This would represent an increase of nearly 50% compared with its
current renewables capacity (including hydropower) of 11 GW.
By 2025, Repsol said it intends to have 400 MW of renewable
power dedicated to producing green hydrogen in Spain, and may
possibly triple that output by 2030.
However, not every energy company is seeking the quick strike in
renewables. Patrick Pouyanne, CEO of France-based major TOTAL, told
investment analysts in February he believes the company is stronger
as an integrated unit.
"And let's be clear, if we transform TOTAL into TOTALEnergies,
it's not suddenly to spin off the 'Energies,' and to come back
again, [as] TOTAL," he said. "So, I think we want to be — we
know that we need to be patient. We know what we need to deliver.
Even if today, all these renewable companies are more [valued] on
their potential of growth rather than the cash flow they
deliver."
Later, he added: "It's a question for me of integration of the
oil value chain, and we keep that in the model and don't need to
divest to make more in the renewables."
TOTAL's decision doesn't surprise IHS Markit's Gardett. "Some
investors will be more comfortable with the risk and the matching
opportunity profile of a cleantech-led business, and others will
want the transparency and relative stability of a legacy energy
business with strong cash flow and a long operating history," he
said.
Reporting by Inge Erhard, OPIS, with contributions by Chris
Elsner, IHS Markit associate director, Executive Briefings Energy
Suite.