EDP to double renewables growth, scale back asset sell-downs

EDP - Energias de Portugal SA will double the pace of its renewable energy installations during the next five years, spending €19 billion to build 20 GW of new wind and solar plants while shifting its focus more heavily to the U.S. market.

The utility said in a strategic update on Feb. 25 that it will target €24 billion in total capital expenditure over the period, allocating the vast majority to renewable energy production. Already one of the largest wind developers in the world, EDP said it will double its annual renewables installations to 4 GW on average and install 80% of new capacity in the U.S. and Europe.

The company also announced it will become carbon neutral in 2030, building on a previous target to close the last of its coal plants by 2025. Miguel Stilwell de Andrade, who took over as permanent CEO of EDP in January, said the company's growth will tap into "a massive secular push" to rise up to the challenge of climate change.

"We want to go all green by 2030," Stilwell de Andrade said during a presentation of the strategy. EDP will strengthen its wind and solar teams, raising the head count from 1,700 to 3,000, to be able to ramp up its green build-out. "We want to make sure we have the DNA to take this company forward," the CEO said.

EDP's beefed-up targets come on the heels of even larger investment plans from peers including Iberdrola SA and Enel SpA, who have come to paint themselves as renewable energy "supermajors" based on their sizable wind and solar portfolios.

As part of the new strategy, EDP said it will scale back the amount of wind and solar capacity it sells to other investors once the plants are completed. The company plans to rotate around one-third of its new gross additions going forward, compared to 50% historically, Stilwell de Andrade said. The company will still sell majority stakes, typically 100% and 80% of individual project capacity in Europe and the U.S., respectively.

The sales will comprise up to 1.5 GW per year, for a total cash gain of €8 billion over the period. The company is also planning €1 billion in disposals, all in Brazil.

EDP's annual capital expenditure, including financial investments, will gradually grow from €3.7 billion in 2020 to €4.6 billion by 2025, with 80% going to renewables, 15% to EDP's transmission and distribution networks in Spain, Portugal and Brazil, and 5% to its retail segment.

The company acquired Spanish utility Viesgo Infraestructuras Energeticas SL in 2020, but will decrease its overall exposure to Iberia over the period of the plan. Its regulated asset base will grow from €4.5 billion to €6.1 billion, mostly driven by Viesgo.

EDPR 'a core part of the business'

EDP is already one of the largest wind players through its listed subsidiary EDP Renováveis SA. Stilwell de Andrade said EDPR will issue between €1.5 billion and €2 billion of new shares to institutional investors to help fund its faster expansion, but emphasized that EDP will hold on to at least 70% of EDPR.

"EDPR is a core part of the business," he said. "EDP is converging, in a way, to becoming much more renewables [focused]."

More than half of the company's new renewables plants will still be wind, but EDP plans to also install 9.4 GW of utility-scale and decentralized solar parks, as well as some offshore wind. The company sees the potential to add as much as 400 MW of standalone battery storage projects by 2025, mostly in the U.S., and could also add about 250 MW of hydrogen electrolyzers across its markets by then, CFO Rui Teixeira said.

Most of the renewables growth will be in the U.S. and Europe, with 8.8 GW and 6.7 GW of new capacity, respectively. Onshore wind parks comprise almost 60% of EDP's current portfolio, with its hydropower assets in Iberia and Brazil making up most of the rest.

In wind, "we really see ourselves as someone who has a competitive edge vis-à-vis the rest of the market," Stilwell de Andrade said.

EDP expects its net income to grow 8% per year, from €800 million in 2020 to €1.2 billion in 2025. EBITDA from its renewables business is expected to increase from €2.2 billion to €2.9 billion, meaning it will make up 60% of the group's earnings.