National Monopoly to Successful Multinational: the case of Enel

Massimo Bergami, Pier Luigi Celli, Giuseppe Soda

• Publisher: Palgrave Macmillan
• Year: 2012
• Print ISBN: 9781137033895
• eBook ISBN: 9781137033901
• Topic: Business
• Subtopic: Business General
• Index: Business

Using the Enel case, this volume unpacks the effective implementation of an ambidextrous perspective on adaptation and change, providing some key lessons for managers and scholars. It begins by exploring Enel's recent history, before mapping the steps of a remarkable transition from public monopolist to a successful transnational group.

Part I

The Evolution of Enel

Enel has a long history marked by periods of development and moments of intense transformation. Everything began with nationalization and the founding of a large public utility for energy at national level in Italy. Later the public body became a joint-stock company and thus focused on a new approach to organization and governance. Then, with deregulation, the company was forced to face the pressures of a competitive market and this eventually led to diversification and a cultural transformation that prompted changes in top management and the arrival of fresh expertise. Lastly, Enel made the move to again focus on its core business and internationalization, which represented its new paths for growth.

The aim of this part of the book is to give an account of these fundamental stages in Enel’s history by providing the salient facts without making any subjective interpretations or inferences. This, in short, is the story of a company, a sector and a country and so needs to be told directly from the very beginning.

1

From Enel’s Origins to the Regulatory Shake-up (1962–1996)

Giuseppe Soda and Alessandra Carlone

1.1 Origins and development

The first ten years of Enel’s existence were inextricably tied to the history of industry and social development in Italy. On 27 November 1962, under the IV Fanfani government, parliament approved the measure to nationalize the country’s power system. The decision came after a long debate that had involved parliament, the press, public opinion and the industrial community.

Italy had begun the march to transform what was largely a rural country into one of the world’s major industrial powers. The aim of nationalization was to optimize utilization of resources and develop a power generation capacity sufficient to meet a growing long-term demand. After a few days the measure adopted became Law 1643 and on 6 December the Ente Nazionale per l’Energia Elettrica (known as Enel) was founded with the mission to produce, import and export, transport, transform, distribute and sell electricity in Italy.

Nationalization had been the subject of previous proposals dating as far back as the early 1900s. Over the years the basic aim of these proposals had been to quash the privately-managed monopoly in a sector considered strategic for the country’s economic development and to place it under State control to guarantee, at least in theory, a reduction in the cost of electricity.¹ But while the project had been debated widely on numerous occasions it had never managed to achieve a large enough consensus to counter the interests of industrialists in the electricity field, who over the years had become one of the centres of economic and political power in the country.²

The Fifties and Sixties were the years of the economic miracle and saw Italy in the middle of a boom that just a few years before had been unthinkable.

Up to that time power generation and supply had been managed by small and medium-sized companies located all over the country that were in some way linked to and controlled by a handful of larger companies. Enel’s first task was to absorb the existing companies and implement a common operational, technical and administrative organization. Initially the foundations for the new structure were based on those of existing major power companies, namely, SIP in Piedmont, Edison Volta in Lombardy, SADE in Veneto, SELT-Valdarno in Tuscany, SRE in Lazio, SME in Campania, SGES in Sicily and Carbosarda in Sardinia.

In 1963 the first action taken to exploit synergies and recompose the fragmentation among companies that had become part of Enel was to create a national dispatch centre. This centre’s task was to manage power generation plants, the transmission network and interconnections with other countries. In short, it was the nerve centre of the entire Italian power system.

Enel got off the ground by assimilating a considerable body of plant, equipment and technical know-how from the various nationalized companies, but in particular, thermoelectric plant from Edison Volta and hydroelectric works, again from Edison Volta and also from Sade. It was, to use a term fashionable today in managerial literature, an extremely important cultural imprinting that was to have a long-term effect on engineering culture. Furthermore, as the new legislation also gave Enel ownership of ex-electric power companies’ investments, it found itself in control of three major research centres, that is, Centro Informazioni Studi Esperienze (CISE), Istituto Sperimentale Modelli e Strutture (ISMES) and Centro Elettrotecnico Sperimentale Italiano (CESI).

In addition to technical aspects, a political issue also made headway as regards strict public control over Enel’s operations. The primary aim was to forestall industrial ventures outside the scope of Enel’s public service function. But there was also a need to ensure very high standards of efficiency in terms of cost reduction for energy production, transmission and availability in line with user requirements as regards quantity and quality. In essence, national policy was to make providing a public service the focal point of the new body’s activity to the detriment of more aggressive commercial policies. While such a stance could have caused distortions over the long term, the short and medium-term goal was to guarantee widespread distribution of electricity throughout Italy to boost consolidation of the country’s thermo-electromechanical industry.

In fact, a huge effort was made during the early years to electrify the entire country and so eliminate territorial differences concerning availability and utilization of energy sources, a legacy of the pre-war period. It is interesting to note that as early as 1965 Enel resorted to the bond market to obtain the first two loans to finance expansion of its plants.

From the technical standpoint, the continual sustained demand for electricity meant that there was an increasing need for thermoelectric production and, in fact, 1966 was the first year that hydroelectric power production covered less than 50 per cent of overall power generated.

1.2 The seventies and the oil crisis

In 1971 Italy’s power consumption per inhabitant reached the level of advanced countries, although the gap between northern and southern Italy continued to be considerable. Despite this difference, in 1971 residents in homes lacking electricity had dropped to 656,000 from 1,210,000 in 1965, meaning that electrification had risen from 97.7 per cent to 98.8 per cent during the period. These were the years when Enel rationalized and expanded its high tension transmission network to 360 kV.

The new network meant management of the various existing production centres and connections with consumption centres could be coordinated, plus it provided the link between the centre-north and centre-south of the country and with the islands. At the end of the Sixties the islands of Elba, Ischia and Sardinia were linked to the mainland by means of submarine cable. Sardinia was a somewhat different case as it had a pithead power station in Porto Vesme that had an annual production capacity of 3 billion kWh. To exploit this capacity a cable system was installed that could transport 200,000 kW in both directions so that any excess power generated in Sardinia could be dispatched to the mainland. A Mediobanca survey conducted between 1968 and 1972 showed that, in terms of turnover, Enel was the second largest company in Italy after Fiat, and this occurred only ten years after it had been founded.

In response to the first oil crisis sparked off by the Arab-Israeli Yom Kippur war, plus the high cost of managing traditional plants and need for increased reliability, efficiency and flexibility in the production system, Enel opted for diversification of energy sources and a greater focus on energy saving. In fact, starting in 1973 it redefined its strategies and planned construction of new nuclear power plants and hydroelectric pumping stations, in addition to increasing exploitation of Italy’s geothermal sources.

On 20 December 1973 parliament approved an agenda item that ‘considering the serious crisis that has hit the country in the energy sector’ the government is committed ‘to develop a incisive policy of research into and realization of alternative sources to oil, with a particular emphasis on nuclear sources’. The National Energy Plan (PEN) presented in July 1975 by the Minister for Industry included hydrocarbons, alternative energy sources and the nuclear fuel cycle. As far as Enel was concerned, the plan called for it to issue ‘simultaneous tenders for the award of eight light, pressurized and boiling water-type electronuclear power stations’ and to define ‘a plan for additional orders in line with indications in the PEN, to be approved by the Interdepartmental Committee for Economic Planning (CIPE) by 1977’. Taking into account nuclear units already ordered by Enel, the PEN called for an increase in nuclear power stations amounting to an overall power of 20,000 MW by 1985.

In 1976 the Italian parliament passed the country’s first law covering an energy saving policy – Law 373 of 30 April established regulations for limiting energy consumption for heating purposes in buildings. To promote this Enel prepared a leaflet entitled For a better and more economic use of energy, printed 21 million copies and sent it to all domestic users.

At the end of the seventies Italy was experiencing an extremely difficult economic situation, with an inflation rate of 20 per cent and the effects of a sharp drop in demand in the international car market that had hit the country’s largest company, Fiat. However, Enel continued to invest and its Porto Tolle power station came on stream with what was the highest installed capacity in Europe at that time.

But another oil crisis was also looming. In 1979, after a few years of relative stability, the crude oil price shot up and by December prices had more than doubled from the previous year. This new crisis had been sparked off by the revolution in Iran, and then the war between Iraq and Iran (September 1980) primed a further increase in the price of crude, which reached an average of 36 dollars per barrel, almost twice the average level in 1979 and about triple that of 1978.

In addition to normal operations, certain catastrophic events highlighted Enel’s ability to handle emergencies, so the country saw it as being both an efficient and reactive company. An example of this was seen during the tragic events following the earthquake in Campania and Basilicata on 23 November 1980. Among municipalities hit by the earthquake, 95 no longer had any electricity. Enel organized a force of more than 1200 technicians and other staff who in very little time hooked up over 1300 emergency links for tent villages, mobile home centres and field hospitals.

1.3 The eighties and the nuclear shock

From the eighties there was growing concern for the environment and the impact energy production had on the delicate balance of nature. Enel’s answer was to launch a series of measures to reduce pollution and redefine its production system. In 1982 the quota of Italy’s energy produced from hydrocarbons was 54 per cent compared to a mere 14 per cent in West Germany, 13 per cent in the UK and 11 per cent in France. Growing interest in environmental issues was met by a series of institutional actions, among which was cooperation between Enel and associations for safeguarding nature. Part of this effort was an agreement signed with the WWF to create and manage the Vulci nature reserve located around an artificial hydroelectric basin on the River Fiora, between Lazio and Tuscany.

What today would be defined as ‘renewable’ energy projects got under way. The Eolie Project began in 1982, the aim of which was to make this group of islands self-sufficient for energy and potable water using resources available locally. Resources like geothermal energy on the island of Vulcano that could be used to generate electricity and power a desalination plant. Electricity and water could then be conveyed by submarine aqueducts and electroducts to the neighbouring islands of Lipari and Salina. But also an initial wind turbine for producing electricity was installed on Salina while conversion to photovoltaic power got under way on the island of Alicudi.

Then in 1984 Enel went ahead with its programme to test and intensify use of renewable sources, in this case exploitation of residual hydroelectric resources by means of latest generation power and pumping plants. Water utilized during the day was recycled by these plants at night, a feature that earned them the nickname of ‘power piggy banks’. Great efforts were made to boost geothermal power capacity and testing also began in the wind farm sector as a continuation of the Wind for Electricity (Vele) project that had been launched in 1979. The project involved installation of 40 anemometric towers in Sardinia to record wind direction and speed, whereas 10 wind turbines, developed in conjunction with Fiat, were installed in the Alta Nurra area. Lastly, there was a focus on photovoltaic power stations to be used in the network or to supply power to isolated users, as in the case of the Vulcano and Adrano projects in Sicily. Thanks to the EU-financed Valoren programme, Enel managed to implement about 150 pilot photovoltaic plants in total in southern Italy providing power for users in the touristic, agricultural and craft fields.

The effect of these projects on the power generation mix started to develop in 1985 when Enel recorded an almost 20 per cent reduction in dependence on oil compared to the seventies. During that same year Enel nearly managed to break even: its financial statements s...

Table of contents

• Cover
• Title
• Introduction
• Part I  The Evolution of Enel
• Part II  When Management Makes the Difference
• Part III  The Best Energy Company in the World
• Bibliography
• Index