ERG's five-year strategy aims to energise the green shoots of recovery

Merli, formerly ERG’s Chief Financial Officer and General Manager, succeeds Luca Bettonte who completes a nine-year term as CEO. 

“Our new five-year plan is very much in the spirit of sustainability. We have set ourselves a challenging target of adding 1.5GW of new renewable generation capacity across Europe. Over 60% of this new capacity is already guaranteed through projects already under construction or at an advanced stage of development,” Merli comments.

Thanks to the new plan, ERG is forecasting EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) of around ¤550 million by the end of 2025. 

It expects to achieve this despite the fact that the incentives for renewable power generation that the Group has been benefitting from, will be gradually expiring through the lifetime of the five-year plan. 

Merli points out that the new plan demonstrates just how ERG is accelerating its growth and evolution towards a pure renewables player in Wind and Solar.

ERG’s new CEO, Paolo Luigi Merli, is the firm's former Chief Financial Officer 

ERG’s Scottish projects include Creag Riabhach in Sutherland, where the company has consent to increase the wind farm’s output to 92MW from 79MW. It is also expanding the 48MW Sandy Knowe wind farm in Dumfries and Galloway to 90MW.

ERG has begun 2021 well, with a strong first quarter thanks to a good performance from the Group’s hydroelectric power division in Italy. 

“We had heavy rains in Central Italy through the quarter, which boosted our hydroelectric production. 

“This more than offset the fact that high-pressure zones over Italy through much of the first quarter had a calming effect on winds and negatively impacted our wind power generation,” he explains. 

Of itself, this was a powerful demonstration of just how important it is for a sustainable power company to have a good mix of generation capacity, Merli noted. 

“We were pleased with the first-quarter results in terms of power produced and it was good to see that the bottom line too, improved significantly,” he comments.

“Wind is a great technology to have in our portfolio. By diversifying our portfolio across Europe we find we can balance overall production. When Italy, for example, was becalmed, we had great wind generation across our French and German assets. So geographic diversification really works well for wind generation,” Merli notes. 

At the end of 2020, ERG issued a green bond and restructured some of its financing, which had a positive impact on lowering the Group’s financing costs, which also helped improve overall profitability. 

Merli points out that ERG has also changed its depreciation policies to recognise the significantly longer life span of some of its generating assets. 

Depreciating power generation assets over a longer life span requires a lower depreciation charge, which, again, helps overall profitability. “We have invested some ¤12 million into an upgrade programme involving some of our oldest wind farms in Italy. This includes both giving them new, state-of-the-art turbine blades and renewing and replacing some of the turbine parts,” he comments.

The first of these upgrade projects involved the company’s 20 turbine wind farm in the Avigliano park, in Italy. 

This was an innovative and challenging project and involved the replacement of the original blades, produced by the manufacturer over twenty years ago, with new blades, creating a 49-metre rotor. The blades feature new carbon fibre technologies and a much-improved aerodynamic shape. 

The project meant updating and replacing the turbines control system and levers, in effect producing a new turbine that required its own patent and trademark. 

The project transformed an ageing wind farm into a modern farm with a much higher generation capability.

“We are always looking to deploy innovation and new technological breakthroughs to increase our capacity, where these make sense. For example, we are keeping a close eye on the development of battery storage capabilities. 

Battery storage integrates perfectly with wind and solar generation since the power generated from these natural sources can be intermittent,” Merli says. 

He points out that ERG is also very interested in Green Hydrogen. The Group is not aiming to become a producer of green hydrogen itself, but Merli sees some interesting possibilities in partnering with a green hydrogen production company, using ERG’s green energy to power the electrolysis of seawater. 

The resulting hydrogen is almost entirely carbon-free and offers a clean alternative to natural gas. Green hydrogen production is still in its infancy but Merli says ERG sees it as offering very exciting future possibilities. 

At its annual general meeting to present its financial results to shareholders, ERG renewed its BoD and took the opportunity to strengthen its sustainability drive by setting up a board sustainability committee to oversee delivery on ESG targets across all its divisions. 

“We also enlarged the power of our existing internal sustainability committee to ensure that we are in line with best practice, both at the management and at the board level,” Merli says. ERG’s focus on sustainability is being noted by markets around the world. 

“We are getting some great recognition for our sustainability efforts,” Merli says. He points out that in April the company entered the S&P Global Clean Energy Index. 

Merli comments: “This was a tremendous recognition for our sustainability policy and for the way we are executing on that policy. 

“It puts ERG among the 84 companies in the world that are recognised by the S&P Index as embodying best practice in clean energy generation. We are also very proud to have been given an A- rating by the Carbon Disclosure Project. 

“This global recognition is a great boost for our staff and is very important for our stakeholders as it shows our commitment towards the Sustainable Development Goals set out by the United Nations, in particular those with regard to Climate Action and Clean Energy”  

In May ERG received confirmation from Fitch, the renowned ratings agency, for its Investment Grade rating of BBB-. “This was a very important achievement for us. A solid investment structure is vital for a company like ours that is set on achieving sustainable growth.” concludes Merli. 

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New contract sees ERG supply energy to keep the cloud high on power

IN May 2021 the green power producer ERG signed a huge, 10-year green power purchasing agreement with the fixed line, mobile and cloud infrastructure company TIM, the leading ICT (Information and Communications Technology) group in Italy and Brazil. 

This is the most extensive long-term power provision contract ever signed between two companies in Italy for the supply of electricity produced from renewable sources. 

Under the agreement, TIM will purchase the supply of 3.4 Terawatt-hours (TWh) of green energy through the period from 2022 to 2031, from ERG. 

It covers the supply of energy from wind farms in ERG’s portfolio, and will be delivered partly as baseload power and partly as pay-as-produced. 

ERG’s rebladed windfarms in Lacedonia Monteverde and Avigliano will both support the contract, beginning in 2023, and supply could be supplemented by other rebladed and upgraded ERG wind farms as those reblading and repowering projects are completed. 

ERG will be selling green energy to TIM at a price based on a collar structure, with a floor that can guarantee minimum acceptable returns on ERG’s invested capital – but leaving significant space of upside at cap. 

TIM benefits from having some 20% of its energy consumption coming from demonstrably renewable sources. 

This is very important to TIM since it enables the company to strengthen its commitment to reducing its carbon footprint.

TIM, the Italian market leader, develops fixed, mobile and cloud infrastructures and data centres and offers services and products for communications and entertainment. 

It is at the forefront of digital technologies. 
TIM Brasil is one of the main players in the South American communications market.

ERG CEO Paolo Luigi Merli points out that the transaction represents an important contribution to the development of the clean energy sector. It is in line with the CO2 emissions reduction and decarbonisation targets set by the European Union. 

“We are very satisfied with the agreement, which is in fact a partnership, in line with one of the 
main guidelines of our new Industrial Plan. 

“This envisages an evolution towards an infrastructural model that will reduce the volatility of revenues,” Merli comments. 

“This agreement, in addition to stabilising the sale price of a part of our portfolio of generation from renewable sources, enhances our innovative reblading projects, which are at the cutting-edge both in technological terms and, now, also as regards the sale of energy,” he notes. 

• This article was brought to you in association with ERG as part of The Herald's Climate For Change campaign