15% OF EBITDA FROM PORTUGAL

Portugal 2019 | ENERGY | VIP INTERVIEW

TBY talks to João Manso Neto, CEO of EDP Renewables, on industrial clusters, the environmental consequences of using renewables, and the Portuguese economy.

Since 1996, EDP Renewables has grown extensively to become the world's fourth-largest wind energy producers. How does the company currently contribute to Portugal's energy mix through its installed capacity of wind farms?

We began in Portugal and Spain, which today are two important markets, and have been developing from the beginning. We represent around 24% of the Portuguese installed capacity. Renewables not only reduce our import bill in terms of energy, but also have an important impact on local communities. Traditionally, renewable energy is located in areas with low levels of development, and the wind industry has been able to distribute income to those areas. An important part of our portfolio was linked to an industrial cluster in Portugal. About 10 years ago, there was a competition wherein developers not only had to build wind farms but also bring together an industrial cluster. Today, there are more than 1,000 people linked to that. It is important because this electrical production not only supplies the domestic market but most of this production is exported. Our work in Portugal not only has a direct impact in terms of balance of payments and population, but also in terms of developing the industry itself.

EDP Renewables carefully plans wind farms throughout the construction, development, and operation of the project. How does this meticulous process enable your company to fully maximize the value of your assets?

This is not a short-term activity. This is something that we need a long-term view for. If we want to extract value, we have to go through the entire value chain, from the identification of the country and place to the kind of renewable energy available. We also have to obtain permits, which are extremely important. We cannot deny that renewables are important; however, they also have environment impacts as well. We have to mitigate these impacts, such as visual impact or noise. Subsequently, we focus on the optimization of the layout and construction, as well as operation and maintenance throughout the entire project. In the past, things were different, and we just had tariffs and the sale of energy was not an issue. We were just focused on production and generation. Today, we have to know how to sell in the markets. We have to be able to manage market risks and have a better forecast of the wind. This enables us to be better prepared throughout the entire value chain.

How do you determine the best sites for your photovoltaic projects and what kind of potential do you anticipate for the solar power market in Portugal?

In the past, we did not develop solar. Everyone wants not only clean energy, but also cheap energy. About five years ago, solar was significantly more expensive than wind. However, following recent trends, solar energy could also be important. Solar tends to be cheaper today. Solar power also has some of the advantages that wind power lacks, such as a lower impact in terms of sound and visual. Solar will become more important in the near future.

What is your company's commitment to world-class engineering and construction standards?

The plants that we build should be first-class plants. We do not build plants to have the maximum amount of MW; we build them to be efficient. Wherever there is sun or wind, we must be available in order to generate power. Having a high quality of construction and first-class management is extremely important. Construction is just the first phase. We also need excellent operation methods; otherwise, we do not extract value. Before, developers externalized everything. What we are doing now is increasingly internalizing activities to take care of what is going on in the core in terms of operation. We have increased the quality of our work as well as the yield.

What have been the key factors contributing to EDP Renewables' successful international expansion?

When we go abroad, we have to be able to prove that we can do it. Our core markets were Portugal and Spain, and we decided to go abroad exporting our experience throughout the entire value chain. We began with France, though the big jump was with the US. Today, the US represents about 50% of our total capacity, and it has been the most dynamic market. We are proud when we go abroad to act as a local company. We have centralized expertise, however, when we go out to the field, we act as locals; therefore, we are not seen as a foreign company. We have to act according to the rules and customs in each country. It is important that we do not have an obsession with centralization but with efficiency, respect, and understanding the local market. Today, Portugal represents no more than 15% of our EBITDA. Spain is still important, though the US is one of the most important areas in terms of growth.

What steps are you taking as CEO to ensure the company delivers robust revenue growth, profitability, and overall value for shareholders and investors?

We have a simple strategy: we grow where it makes the most sense in terms of the country and the company. For the country, it makes sense when it needs renewables to replace fossil fuels and when a country has excellent resources. It should be a profitable business model and based on long-term agreements. We want to grow, though in a way that makes sense. We need to have an excellent way of operating. The first issue is that we have strong discipline in terms of finances. We have to be comfortable with our level of debt and financing. Our financing is based on our ability to generate cash. In addition, we have a human resources policy that is focused on empowering people in the field.

Given the economic recovery underway in Portugal, what are your expectations for the economy in the coming years?

Portugal has made important efforts in recent years in terms of opening its economy. That will continue, and the power sector offers an important opportunity in terms of reducing the import bill and in terms of creating jobs. In addition, economic growth will continue to accelerate in line with the decentralization we are seeing in the power sector, and not only in renewables.