Framework of main risks and opportunities

The framework illustrated above also highlights the relationships that link the physical and transition scenarios with the potential impact on the Group’s business. These effects can be assessed from the perspective of three time horizons: the short term (1-3 years), in which sensitivity analyses based on the StrategicPlan presented to investors in 2019 can be performed; the medium term (until 2030), in which it is possible to assess the effects of the energy transition; and the long term (2030-2050), in which chronic structural changes in the climate should begin to emerge. The main sources of risk and opportunity identified, the best practices for the operational management of weather and climate phenomena, and the qualitative and quantitative impact assessments performed to date are discussed below. As declared by the TCFD, the process of disclosing information on the risks and opportunities connected with climate change will be gradual and incremental from year to year.

Chronic and acute physical phenomena: repercussions on our business, risks and opportunities

Taking the IPCC scenarios as our reference point, developments in the following physical variables and the associated operational and industrial impacts connected with potential risks and opportunities are assessed.


Chronic physical changes creating risks and opportunities

The climate scenarios developed with the ICTP do not provide definitive indications of structural changes before 2030, but changes could begin to emerge between 2030 and 2050.
The main impacts of chronic physical changes would be reflected in the following variables:

Variables impacted by chronic physical changes
  • Electricity demand: variation in the average temperature level with a potential increase or reduction in electricity demand.
  • Thermal generation: variation in the level and average temperatures of the oceans and rivers, with effects on thermal generation.
  • Hydroelectric generation: variation in the average level of rainfall and snowfall and temperatures with a potential increase or reduction in hydro generation.
  • Solar generation: variation in the average level of solar radiation, temperature and rainfall with a potential increase or reduction in solar generation.
  • Wind generation: variation in the average wind level with a potential increase or reduction in wind generation. The Group will work to estimate the relationships between changes in physical variables and the change in the potential output of individual plants in the different categories of generation technology.

Scenario analysis has shown that chronic structural changes in the trends of physical variables will begin to occur after 2030. However, in order to obtain an indicative estimate of the potential impacts, it is possible to test sensitivity of the Business Plan to the factors potentially influenced by the physical scenario,  regardless of any direct relationship with climate variables. Of course, such stress testing has an extremely low probability of occurrence based on historical events and geographical diversification. The variables examined are: electricity demand (+/-1% per year), whose variations can potentially impact the generation and retail businesses. It was stress tested for all countries in which the Group operates. The output potential of renewable plants was also stressed (+/-10% over a single year). Variations in this variable can potentially impact the generation business. It was stressed separately at the individual technology level around the globe. The data reported show the effect on a single year for a single generation technology and include both the volume and price effects.

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Acute physical changes that represent sources of risk and opportunity

With regard to acute physical phenomena (extreme events), the incidence and frequency of extreme physical phenomena can cause significant and unexpected physical damage to assets and generate negative externalities associated with the interruption of service.
To assess the scale of the risks of extreme climate events, the scenario results will be examined in terms of the frequency and intensity of the key phenomena, together with technical information on generation assets, taking account of the differing levels of resilience, and identifying metrics to measure potential losses and any externalities caused by the interruption of business operations.

The intensification of the effects of climate change means it is essential to adopt adaptive behaviors: each catastrophic event represents a lesson learned for Enel, from which we draw inspiration to strengthen design techniques and preventive measures to ensure the resilience of the asset portfolio.
From this perspective, the method and the information extracted from the ex post analysis of events play a crucial role in determining the processes and practices to be deployed in mitigating such events in the future.

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With regard to generation, over time the Group has implemented targeted measures at specific sites and established ad hoc management activities and processes. Measures implemented for specific sites in recent years include:

  • improving cooling water management systems for certain plants in order to counter the problems caused by the decline in water levels on rivers, such as the Po in Italy;
  • installing fogging systems to improve the flow of inlet air and offset the reduction in power output caused by the increase in ambient temperature in CCGTs;
  • installing drainage pumps, raising embankments, periodic cleaning of canals and interventions to consolidate land adjacent to plants to prevent landslides in order to mitigate flood risks.

The Group adopts a series of best practices to manage the impact of weather events on power generation, such as:

Group practices for managing weather events in generation operations
  • Weather forecasting both to monitor renewable resource availability and detect extreme events, with warning systems to ensure the protection of people and assets.
  • Insurance policies to cover damage to assets and the negative externalities caused, for example, by lost electricity production.
  • Real-time remote monitoring of generation plants.
  • Safe rooms in areas exposed to tornadoes and hurricanes, such as the wind farms in Oklahoma in the United States.

In addition, in order to ensure rapid response to adverse events, the Group has adopted specific emergency management procedures with protocols for real-time communication and management of all activities to restore operations rapidly and standard checklists for damage assessment and the safe return to service for all plants as rapidly as possible.

Infrastructure & Networks

The Enel Group’s Infrastructure and Networks Global Business Line has adopted a more complex and innovative approach to respond to such extreme events denominated “4R”, in addition to the measures already envisaged to upgrade and improve the electricity distribution grid. This new approach has been structured over the past few years in a body of documentation that governs the measures to be taken in preparation for a grid emergency once the damage has been caused.
More specifically, the 4R strategy comprises:

4R - Risk preventionAn initial “risk prevention” phase, which includes all actions to reduce the probability of losing grid components due to an event and/or to minimize its effects. This is pursued both through measures to enhance the robustness of grid  infrastructure in extreme weather events and maintenance measures. Measures to reinforce the grid have been implemented not only to improve service quality in general, but also to reduce the risk of prolonged or widespread outages in the event of a malfunction, using a probabilistic approach. This approach has mainly been used to reduce the risk of outages at critical installations (primary substations) or for particular grid configurations (where no alternative power supply routes are available).
In Italy, to prevent service interruptions due to the breakage of overhead power lines as a result of snowfall, the risk of such interruptions has been assessed on the basis of the probability of losing segments of the grid and then calculating the relative  impact in terms of customers without power nd the loss in terms of power not delivered. To address these risks, investments include the targeted replacement of uninsulated lines with insulated conductors, increasing the number of  alternative routes to restore power and the use of remote control systems to isolate the section of the grid affected by the fault as quickly as possible.
Again in Italy, the measures to increase resilience are contained in the three-year investment plan of e-distribuzione and are designed to limit the risk of service interruptions caused by the main critical factors that may impact e-distribuzione’s medium-voltage grid. The measures for the 2017-2021 period involve some 4 million customers and over 7,000 km of medium-voltage lines.
4R - ReadinessA subsequent “readiness” phase that includes all measures to improve the timeliness with which potentially risky events are identified, ensuring coordination with the Civil Protection Department and local officials, as well as to prepare intervention measures once a fault has occurred. Examples of measures include systems for forecasting meteorological events and their impact on the grid, the provisioning of adequate equipment to build temporary plant or emergency grid structures, the preparation of operational plans and the organization of exercises. One of the most important measures is certainly the definition of agreements for the mobilization of designated extraordinary resources to respond to an emergency. These include both internal resources and the resources of contracting companies operating in other areas of a country and/or in other countries.
4R - ResponseThe third phase is the “response” phase, meaning the operational response capacity for a specific extreme event, which is directly correlated with the ability to mobilize operational resources in the field and with the availability of grid backup and redundancies.
4R - RecoveryThe final phase is the “recovery” phase, which seeks to restore an acceptable and safe level of service in the shortest possible time.

Response and recovery are complementary. The philosophy that guides interventions in these two phases is that exceptional resources must be used to deal with exceptional events, and that all the available resources prepared in the readiness phase must therefore be mobilized. The assessment of the damage caused to the grid is the first activity to be performed. Enel promptly activates a task force of specialized technicians and deploys special equipment (helicopters and generators) to restore service, and mobilizes personnel from other areas/countries. Great attention is paid in these phases to communication with all the players involved and the determination of the most effective strategy to manage the repair of power lines and the restoration of service to customers.
In this regard, the Enel Group in Italy is a permanent guest of the Operations Committee of the National Civil Protection Department and has signed protocols with both the National Civil Protection Department and Regional Civil Protection Departments in order to facilitate communication in emergency situations, joint training and any other initiative that makes collaboration with the civil protection system more effective and rapid.

Transition phenomena: repercussions on our business, risks and opportunities

With regard to the risks and opportunities associated with transition variables, we use the different reference scenarios in combination with the various elements that make up the risk identification process (e.g. competitive context, long-term vision of the industry, materiality analysis, etc.) to identify the drivers of potential risks and opportunities. Priority is given to the most material phenomena. The main risks and opportunities identified within this framework are described below.

Policy & Regulation

Limits on emissions and carbon pricing

The enactment of laws and regulations that introduce more stringent emission limits by government action (non-market driven) and market-based mechanisms, such as a carbon tax in non-ETS (Emissions Trading System) sectors or an expansion of the ETS in other sectors.

  • Opportunities: command & control regulations and market-based mechanisms strengthening CO2 price signals to foster investment in carbon-free technologies.
  • Risks: lack of a coordinated approach among the various actors and policy-makers involved and limited effectiveness of the policy instruments deployed, with an impact on the speed of the trend towards electrification and decarbonization in the various sectors, compared with a   decisive group strategy focused on the energy transition.
Incentives for the energy transition

Development incentives and opportunities with a view to the energy transition, consequently guiding the energy system towards the use of low-emission energy resources as the mainstream approach in the energy mixes of countries, greater electrification of energy consumption, energy efficiency, flexibility of the electrical system and upgrading of infrastructure, with a positive impact on the return on investment and new business opportunities.

  • Opportunities: additional volumes and greater margins due to additional investment in the electricity industry, in line with the electrification strategy, decarbonization and the upgrading of enabling infrastructure.
  • Risks: obstacles to achieving energy transition targets due to  regulatory systems that do no effectively support the energy transition (delays in permitting, no upgrading of the electricity grid, etc.).
Resilience regulation

To improve standards or introduce ad hoc mechanisms to incentivize investments in resilience in the context of the evolution of climate change.

  • Opportunities: benefits from investments that reduce service quality and continuity risks for the community.
  • Risks: in the case of especially severe extreme events with a greater-than-expected impact, there is a risk that recovery could be slower than planned, with an associated reputational risk.).
Financial measures for the energy transition

Incentives for the energy transition through appropriate policy measures and financial instruments, which should be capable of supporting an investment framework and a long-term, credible and stable positioning of policy-makers. Introduction of rules and/or public and private financial instruments (e.g. funds, mechanisms, taxonomies, benchmarks) aimed at integrating sustainability into financial markets and public finance instruments.

  • Opportunities: the creation of new markets and sustainable finance products consistent with the investment framework, activating greater public resources for decarbonization and access to financial resources in line with energy transition objectives and the related impact on costs and on finance charges; introduction of subsidized support tools (funds and calls) for the transition.
  • Risks: actions and instruments are not sufficient to provide incentives consistent with an overall positioning tailored to the energy transition, uncertainty or slowdown in the introduction of new instruments and rules due to the  deterioration in the public finances or differences in application in the geographic areas in which the Group operates.


Market dynamicsMarket dynamics, such as those connected with the variability of commodity prices, the increase in electricity consumption due to the energy transition and the penetration of renewables, have an impact on business drivers, with effects on  margins and on production and sales volumes.
  • Opportunities: positive effects associated with the growth in electricity demand and the greater room for renewables and all sources of flexibility.
  • Risks: less room in the market for residual thermal generation technologies in the short term. However, as the penetration of renewables in the electricity mix increases, the system could require greater flexibility, including regulated gas-fired generation.


Penetration of new technologiesGradual penetration of new technologies such as storage and demand response; digital lever to transform operating models and “platform” business models.
  • Opportunities: investments in developing technology solutions.

Product and Services

Electrification of residential energy consumptionWith the gradual electrification of end uses, the penetration of products with lower costs and a smaller impact in terms of residential emissions will expand (for example, the use of heat pumps for heating and cooling).
  • Opportunities: increase in electricity consumption.
  • Risks: additional competition in this market segment.
Electric mobility and electrification of industrial energy consumptionUse of more efficient and effective modes of transportation from the point of view of climate change, with a special focus on the development of electric mobility and charging infrastructure; electrification of large-scale industrial energy users.
  • Opportunities: positive effects of the increase in electricity demand and greater margins connected with the penetration of electric transportation.

The Group has already taken strategic actions to mitigate potential risks and exploit the opportunities offered by the energy transition. Thanks to our industrial and financial strategy incorporating ESG factors, an integrated approach shaped by sustainability and innovation makes it possible to create long-termshared-value.
A strategy focused on complete decarbonization and the energy transition makes the Group resilient to the risks associated with the introduction of more ambitious policies for emission reductions and maximizes opportunities for the development of renewable generation, infrastructure and enabling technologies.Unlike  chronic climate impacts, developments in the transition scenario could have impacts in the short and medium term (by 2030) as well.
As with climate variables, we can test the current Business Plan (2020-2022) for its sensitivity to the factors potentially influenced by the transition scenario, with particular regard to the price of CO2 (ETS). Examining the main transition variables, the price of CO2 appears to be an especially reliable driver of regulatory measures that could accelerate the transition process.

To assess the impact of possible changes in this driver, the effects of a potential change of +/-10% in the CO2 price for Italyand Spain are determined. This price change would modify the equilibrium price of both wholesale markets, with repercussions on the margins of Global Power Generation for both thermal and renewable plants.

To quantify the risks and opportunities engendered by the energy transition in the medium term, two scenarios have been considered for Italy and Spain:

Current policies scenarioBased on the current energy transition policies of Italy and Spain (PNIEC), which are presumably consistent with an intermediate climate scenario between RCP 8.5 and RCP 2.6. The “current policies” scenario considered for the two countries, while among the less ambitious scenarios of RCP 2.6, represents a plausible outlook in that it derives from policies that have already been approved and which will probably not be disregarded. At a global level, however, if the world’s leading countries do not adopt effective decarbonization policies, instead pursuing policies that produce no change or actually worsen conditions, the “current policies” approach could still lead to a climate scenario in line with SPC 8.5.
“Accelerated policies scenarioBased on potential rapid transition policies aimed at achieving CO2 reduction targets that are presumably consistent with the RCP 2.6 scenario. This scenario also incorporates an increase in energy efficiency and a drive to electrify end-user energy consumption.

Considering these transition scenarios and models of the energy system, we determined their impact on the variables that most greatly affect our business, such as electricity demand, the system energy mix and the increase in electricity consumption due to the electrification of final consumption. The transitioneffects over the medium term can produce new opportunities, thanks to the growth of renewables, and potential risks linked to the loss of profitability for thermal plants. Based on assumptions about future regulatory developments and market trends, we can forecast developments in output in the Group’s electricity markets (for now, Italy and Spain only) and unit margins. These considerations offer a basis for determining the Group’s possible strategic positioning in terms of resource allocation (for example, maintaining or increasing our market share in renewables or accelerating the phase-out of obsolete technologies). By 2030, the dynamics of the energy transition may produce significant opportunities in the retail electricity market. The progressive electrification of final consumption, especially in transportation and the residential sector, will lead to a significant increase in electricity consumption.
Considering the transition scenarios developed by the Group for Italy and Spain, the increase in electricity consumption in the domestic segment could produce an increase of more than €300 million in EBITDA by 2030 compared with 2022. Considering a more optimistic transition scenario, i.e. one with a higher electrification rate for transportation and heating/cooling, the effectscould be even greater, leaving unchanged the assumptions for margins and market share set out in the Plan.

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