Strategic risks

This section provides disclosure on the following strategic risk:

Legislative and regulatory developments

The Group operates in regulated markets and changes in the operating rules of the various systems, as well as the prescriptions and obligations characterizing them, impact the operations and performance of the Parent.
Accordingly, Enel closely monitors legislative and regulatory developments, such as:

  • periodic revisions of regulation in the distribution segment;
  • the liberalization of electricity markets, with special attention being paid to the acceleration provided for in Italy and expected developments in South America;
  • developments in capacity payment mechanisms in the generation segment.

In order to manage the risks associated with these developments, Enel has intensified its relationships with local governance and regulatory bodies, adopting a transparent, collaborative and proactive approach in addressing and eliminating sources of instability in the legislative and regulatory framework.

Macroeconomic and geopolitical trends

The considerable internationalization of the Group – which has a presence in many regions, including South America, North America, Africa and Russia – requires Enel to consider economic and geopolitical trends at the global level in order to evaluate and appropriately measure systematic and idiosyncratic risks of a macroeconomic, financial, institutional, social or climatic nature and those specifically associated with the energy sector whose occurrence could have a significant adverse impact on both revenue flows and the value of corporate assets. Enel has adopted a quantitative country risk assessment model capable of promptly monitoring the riskiness of the countries in which it operates.

The country risk model is intended to measure the economic resilience of each country, defined as the balance of its position with respect to the rest of the world, the effectiveness of internal policies, the vulnerabilities of its banking and corporate system that might portend systemic crises and its attractiveness in terms of economic growth. This process also includes an assessment of the robustness of the country’s institutions and the political context and an in-depth analysis of social phenomena, measuring the level of well-being, inclusion and social progress. To complete the analysis, a quantification of extreme climate events as a cause of stress at the environmental and economic level is also performed and the effectiveness of the energy system and its positioning within the energy transition process is measured, as these are all essential factors for evaluating the sustainability of investments in the medium to long term.
In order to mitigate this risk, the model supports the capital allocation and investment evaluation processes. To further support the investment evaluation process, Enel has adopted a methodology called “Total Societal Impact” that, adopting an integrated approach based on advanced economic models, clearly and robustly expresses the direct, indirect and induced impacts of investment initiatives at the national, regional or local levels. By quantifying standard international metrics, Total Societal Impact covers a wide range of economic, social and environmental indicators that play a strategic role in correctly assessing the social and environmental contribution of Enel’s projects. In fact, considering some of the indicators that can be analyzed, such as the contribution to GDP, the increase in income of the weakest social groups, the calculation of carbon dioxide emissions avoided and the recovery of end-of-life materials from a circular economy perspective, it is clearly now essential to have a broad overview of the situation in order to evaluate a specific project in a specific country with a view to creating shared value for all.

In 2020, the world economy was severely impacted by the COVID-19 pandemic, which spread rapidly around the world, significantly undermining the outlook for economic growth in the short to medium term. The crisis caused world GDP to contract by an estimated 4% on an annual basis in 2020, which should be followed by a rebound of around 5% in 2021.
The risks threatening the outlook for 2021 are mainly associated with the continued spread of COVID-19, which could generate a third wave of the disease in many countries, forcing local governments to extend restrictions on mobility and services (especially in the entertainment, restaurant and tourist industries).

Recent data show that growth prospects for 2021 are more optimistic than the previous year, thanks to recent developments in the production and subsequent distribution of vaccines. These changes have prompted an upward revision of forecasts, pointing to a significant rebound in the growth rates of many countries for 2021. However, there are severe risks associated with potential logistical obstacles to the production and distribution of vaccines that could slow the vaccination process and, consequently, delaying the emergence of many countries from the economic and health crisis. In addition, new variants of the virus have been identified that have significantly increased the number of cases in some countries (for example, the United Kingdom) and generated greater uncertainty about the efficacy of the new vaccines.
The governments and central banks of the major countries (first and foremost, the Federal Reserve, the European Central Bank and the Bank of England) have adopted ultra-accommodative monetary policies (interest rates on refinancing operations close to zero and large volumes of securities purchases on the market, ensuring the availability of inexpensive liquidity) and fiscal policies (subsidies) to support the economic recovery and reduce the damage to the labor market. These actions have heavily burdened the budgets of governments and other institutions. The ability of institutions to continue to implement these expansionary policies in support of the economy in 2021 is exposed to substantial risks.

In July, the European Council reached an agreement on a recovery plan, the Next Generation EU program, which envisages €750 billion in funding (around 5.5% of EU27 GDP in 2019), divided between loans (€360 billion) and grants (almost €390 billion) to Member States. The actual implementation of this plan depends on the national governments, who must present projects eligible to receive funding, and the methods of selecting projects vary at the country level. In this regard, Enel can turn to Total Societal Impact, which is an effective tool for exploring the relevant aspects that meet the needs of the Green Deal when selecting investments.

Economic and socio-political risk factors in Latin America, one of the areas most severely affected by the pandemic, must be monitored carefully. In particular, the political uncertainty associated with presidential elections in Peru, the vote in a Chilean referendum at the end of 2020 for the creation of a new constitution by 2022, the Brazilian elections in the medium term and the presidential elections in Colombia in 2020 all contribute to fueling downward risks for the economic recovery, as they could push governments to implement populist (fiscally expansionary) measures that may not be welcomed by investors, accelerating capital outflows from their respective countries. On the latter point, Brazil, which implemented a very generous fiscal measures in 2020 (around 8% of GDP) in order to support families and stimulate domestic demand, now has debt equal to around 90% of GDP and a government deficit of around 14%, which undermine its resilience in the short-medium term. The possibility of a further extension of the family aid program (“Coronavoucher”) in 2021 and delays in the approval of structural reforms could further compromise  the economic stability and competitiveness of the country.

Finally, Argentina, which has been in a recession since 2017, is concerned about its fiscal instability and the uncertainties about ongoing debt restructuring negotiations with the International Monetary Fund.

Climate change

The identification and management of risks connected with climate change

Climate change and the energy transition will impact Group activities in a variety of ways.
In order to identify the main types of risk and opportunity and their impact on the business associated with them in a structured manner consistent with the TCFD, we have adopted a framework that explicitly represents the main relationships between scenario variables and types of risk and opportunity, specifying the strategic and operational approaches to managing them, comprising mitigation and adaptation measures.
There are two main macro-categories of risks/opportunities: those connected with developments in physical variables and those linked to the evolution of the transition scenarios. The framework described has been created with a view to ensuring overall consistency, making it possible to analyze and evaluate the impact of physical and transition phenomena within solid alternative scenarios, constructed using a quantitative and modeling approach combined with ongoing dialogue with both internal stakeholders and external authorities.
Physical risks are divided in turn between acute (i.e.
extreme events) and chronic, with the former linked to extremely intense meteorological conditions and the latter to more gradual but structural changes in climate conditions.

Extreme events expose the Group to the risk of prolonged unavailability of assets and infrastructure, the cost of restoring service, customer disruptions and so on. Chronic changes in climate conditions expose the Group to other risks or opportunities: for example, structural changes in temperature could cause changes in electricity demand and have an impact on output, while alterations in rainfall or wind conditions could impact the Groups business by increasing or decreasing potential electricity generation.

The energy transition towards a more sustainable model characterized by a gradual reduction of CO2 emissions has risks and opportunities connected both with changes in the regulatory and legal context and trends in technology development and competition, electrification and the consequent market developments.

Utilities role in the energy transition

Consistent with the climate and transition scenarios used by Enel to determine risks and opportunities, the main transition-related phenomena are beginning to emerge in relation to customer behavior, industrial strategies being adopted in all economic sectors and regulatory policies. By 2030, the transition trends will become visible in response to the evolution of the context: the Enel Group has decided to guide and facilitate the transition, preparing to seize all the opportunities that may arise. As discussed previously, our strategic choices, which are already strongly oriented towards the energy transition, with more than 90% of investments directed at improving a number of the Sustainable Development Goals, enable us to incorporate risk mitigation and opportunity maximization “by design”, adopting a positioning that takes account of the medium and long-term phenomena we have identified. The strategic choices are accompanied by the operating best practices adopted by the Group.

FRAMEWORK OF MAIN RISKS AND OPPORTUNITIES

Scenario

phenomena

Time
horizon
Risk &
opportunity
category
Description Impact Management
approach
Acute
physical
Starting with short
term (1-3 years)
Extreme
events
Risk: especially extreme weather/climate events. Extreme events can damage assets and interrupt operations. The Group adopts best practices to manage the restoration of service as quickly as possible. We also work to implement investments in resilience. With regard to risk assessment in insurance, the Group has a loss prevention program for property risk that also assesses the main exposures to natural events. Looking forward, the assessments will also include the potential impacts of long-term trends in the most significant climate variables.
Chronic
physical
Starting with long
term (2030-2050)
Market Risk/opportunity: increase or decrease in electricity demand; increase or decrease
in output.
Electricity demand is also affected by temperature, whose fluctuation can impact our business.

The Group’s geographical and technological diversification means that the impact of changes (positive and negative) in a single variable is mitigated at the global level. In order to ensure that operations always take account of weather and climate phenomena, the Group adopts a range of practices such as, for example, weather forecasting, real-time monitoring of plants and long-term climate scenarios.

Transition Starting with
medium term
(2022-2030)
Policy &
Regulation

Risk/opportunity:

policies on CO2 prices

and emissions, energy transition incentives, greater scope for investment in renewables and resilience regulation.

Policies concerning

the energy transition and resilience can impact the volume

of and returns on investments.

The Group is minimizing its exposure to risks through the progressive decarbonization of its generation fleet. The Group’s strategic actions, which are focused on investment in renewables, networks and customers, enable us to mitigate potential threats and exploit the opportunities connected with the energy transition. The Group is also actively contributing to the formation of public policies through its advocacy efforts. These activities are conducted within platforms for dialogue with stakeholders called “Energy Transition Roadmaps” that explore national decarbonization scenarios in the various countries in which Enel operates in environmental, economic and social terms.

Transition Starting with
medium term
(2022-2030)
Market

Risk/opportunity:

changes in the prices of

commodities and energy, evolution of energy mix, changes in retail consumption, changes in competitive environment.

Considering two

alternative transition

scenarios, the Group assesses the impact of trends in the proportion of renewable sources

in the energy mix, electrification and the penetration of EVs to estimate their potential impacts.

The Group is maximizing opportunities by adopting a strategy founded on the energy transition and the rapid expansion of renewable generation and the electrification of energy consumption.
Transition Starting with
medium term
(2022-2030)
Product &
Services

Opportunity: increase
in margins and greater
scope for investment as a consequence
of the transition in
terms of greater
penetration of new
electrical technologies
for residential

consumption and electric

transportation.

Trends in the

electrification of

transportation

and residential

consumption will

potentially have

an impact on our business.

The Group is maximizing opportunities thanks to its strong positioning in new businesses and “beyond commodity” services.
Starting with
medium term
(2022-2030)
Technology

Considering two

alternative transition

scenarios, the Group

assesses the potential opportunities to scale up current businesses in response to trends

in the electrification of transportation.

The Group is maximizing opportunities thanks to its strong positioning in global networks.

 

The framework illustrated above also highlights the relationships that link the physical and transition scenarios with the potential impact on the Groups 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 Strategic Plan presented to investors in 2020 can be performed; the medium term (until 2029), 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. These activities are performed on the foundation of an ongoing effort during the year to analyze, assess and manage the phenomena giving rise to the risks and opportunities identified. 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.

As part of the assessment of the effects of long-term climate change, we have identified chronic events relevant to each technology and began the analysis of the related impacts on potential output.

Scenario analysis has shown that chronic structural changes in the trends of physical variables will become significant beginning in 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.

Scenario phenomena Risk & opportunity category Time horizon(1) Description of impact GBL affected Scope Quantification - Type of impact   Quantification - range
                <100 €mn 100-300 €mn >300 €mn
Chronic physical Market Short term Risk/opportunity: Increase or decrease in electricity demand. Electricity demand is also affected by temperature, whose fluctuations can have an impact on our business. Although structural changes should not emerge in the short/medium-term, in order to assess the sensitivity of Group performance to potential temperature variations, we have performed an analysis of sensitivity to changes of +/- 1% in electricity demand for the Group as a whole.

Global Power Generation and Global Infrastructure and Networks

Group EBITDA/year +1%    
-1%    
Chronic physical Market Short term Risk/opportunity: Increase or decrease in renewables generation. Renewables generation is also affected by the availability of resources, whose fluctuations can have an impact on our business. Although structural changes should not emerge in the short/medium-term, in order to assess the sensitivity of Group performance to potential temperature variations, we have performed an analysis of sensitivity to changes of +/- 10% in potential electricity output by technology.

Global Power Generation

Group Potential hydroelectric output EBITDA/
year
+10%    
-10%    
Group Potential wind output EBITDA/
year
+10%    
-10%    
Group Potential solar output EBITDA/
year
+10%    
-10%    
   

Upside scenario current policies

Downside scenario current policies

(1) Time horizon : short (2020-2022); medium (up to 2030); long (2030-2050).

Acute physical changes creating risks and opportunities

With regard to acute physical phenomena (extreme events), the intensity 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.
Within climate change scenarios, the acute physical component plays a leading role in defining the risks to which the Group is exposed, both due to the broad geographical diversification of its asset portfolio and the primary importance of renewable resources in electricity generation.
Acute physical phenomena, in different cases such as wind storms, floods, heat waves, cold snaps, etc., are characterized by considerable intensity and a frequency of occurrence that, while not high in the short term, is clearly trending upwards in medium and long-term climate scenarios.
Therefore, the Group, for the reasons described above, is already managing the risk associated with extreme events in the short term. At the same time, the methodology is also being extended to longer time horizons (up to 2050) in accordance with the climate change scenarios that have been developed (RCP 8.5, 4.5 and 2.6).

Extreme event risk assessment methodology

In order to quantify the risk deriving from extreme events, the Group uses a consolidated catastrophic risk analysis approach, which is adopted in the insurance sector and in the IPCC reports.(1) Through its insurance business units and the captive insurance company Enel Insurance NV, the Group manages the various phases of assessing the risks connected with natural disasters: from assessment and quantification to the corresponding insurance coverage to minimize impacts.

The methodology is applicable to all extreme events that can be analyzed, such as wind storms, heat waves, tropical cyclones, flooding, etc. In all of these types of natural disaster, three independent factors can be identified, as briefly described below.

  • The event probability (hazard), i.e. the theoretical frequency of the event over a specific time frame: the recurrence interval. In other words, a catastrophic event that has, for example, a recurrence interval of 250 years has a probability of occurrence in any given year of 0.4%. This information, which is necessary for assessing the level of frequency of the event, is then associated with the geographical distribution of Group assets.
    For this purpose, the Group adopts the hazard map tool, which associates the estimated frequency associated with an extreme event, for the different types of natural disasters, with each geographical point of the global map. This information, organized in geo-referenced databases, can be obtained from global reinsurance companies, weather consulting firms or academic institutions.
  • Vulnerability, which indicates in percentage terms how much value would be lost upon the occurrence of a given catastrophic event. In more specific terms, reference can be made to the damage to material assets, the impact on the continuity of electricity generation and/or distribution or the provision of electrical services to end users.
    The Group, especially in the case of damage to its assets, conducts and promotes specific vulnerability analyses for each technology in its portfolio: solar, wind and hydroelectric generation plants, transmission and distribution grids, primary and secondary substations, etc. These analyses are naturally focused on the extreme events that most impact the different types of technologies. This produces a sort of matrix that associates the significantly impacted type of asset with the individual natural catastrophic events.
  • Exposure is the set of economic values present in the Group’s portfolio that could be materially impacted in the presence of catastrophic natural events. Again, the dimensions of the analyses are specific for the different production technologies, distribution assets and services to end users.

The three factors described above (hazard, vulnerability and exposure) constitute the fundamental elements of any assessment of the risk associated with extreme events. In this sense, the Group, with respect to climate change scenarios, differentiates its risk analyses in accordance with the specificities of the various associated time horizons. The following table summarizes the scheme adopted for the assessment of the impacts deriving from acute physical phenomena.

Time horizon Hazard Vulnerability Exposure
Short term (1-3 years) Hazard maps based on historical data and meteorological models Vulnerability, being linked to the type of extreme event, to the specifics of the type of damage and to the technical requirements of the technology in question, is essentially independent of time horizons Group values in the short term
Long term (to 2050 and/or 2100) Hazard maps and specific studies for the different RCP climate scenarios of the IPCC Group values in the long term

In the case of the vulnerability of assets within the portfolio, therefore, a priority table of the impacts of the main extreme events on the various technologies was defined in collaboration with the relevant Global Business Lines of the Group.

Risk management from extreme events in the short term

Over the short term (1-3 years) the Group, in addition to risk assessment and quantification, takes actions to reduce the impacts that the business may suffer following catastrophic extreme events. Two main types of action can be distinguished: obtaining effective insurance coverage and preventing losses that could be caused by extreme events.
The general characteristics of these actions are illustrated below and, naturally, in the case of damage prevention and mitigation activities, specific reference will be made to the Group’s Power Generation and Infrastructure and Networks Global Business Lines.

Insurance in the Enel Group

Each year, the Group develops global insurance programs for its businesses in the various countries in which it operates. The two main programs, in terms of coverage and volumes, are the following:

  • the Property Program for material damage to assets and the resulting business interruption. Accordingly, in addition to the costs of rebuilding assets (or parts thereof), the financial losses due to the stoppage of electricity generation and/or distribution are also covered, within the limits and conditions defined in the policies;
  • the Liability Program, which insures harm caused to third parties, including the impact that extreme events may have on the Group’s assets and business.

Based on effective risk assessment, it is possible to specify appropriate limits and insurance conditions within the policies, and this also applies in the case of extreme natural events linked to climate change. In fact, in the latter case, the impacts on the business can be significant but, as has happened in the past in various locations around the world, the Group has demonstrated a high degree of resilience, thanks to the ample insurance coverage limits, thanks in part to the Group’s solid reinsurance capabilities through the captive company Enel Insurance NV.
The presence of this effective insurance coverage does not make the actions that the Group takes in the preventive maintenance of its generation and distribution assets any less important. In fact, while on the one hand the effects of these activities are immediately reflected in the mitigation of the impacts of extreme events, on the other hand they are a necessary prerequisite for optimizing and minimizing the cost of the Group’s global insurance coverage programs for its risks, including the risk associated with natural catastrophic events.

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.

Generation

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;
  • periodic site-specific reassessments for hydro plants of flood scenarios using numerical simulations. The scenarios developed are managed with mitigation actions and interventions on civil works, dams and water inlets.

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 
 

Main policies:
No. 1106 Global Power Generation Maintenance

No. 1107 Global Power Generation O&M Operation

No. 1025 Dams and Hydraulic Infrastructure Safety

No. 1020 Global Power Generation Critical Event Management

  • weather forecasting both to monitor renewable resource availability and detect extreme events, with warning systems to ensure the protection of people and assets;
  • hydrological simulations, land surveys (including the use of drones), monitoring any vulnerabilities through digital GISs (Geographic Information Systems) and satellite measurements;
  • advanced monitoring of over 100,000 parameters (with over 160 million historical measurements) for dams and hydroelectric works;
  • 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;
  • adoption of specific guidelines for performing hydrological and hydraulic studies from the earliest development stages, aimed at assessing the risks inside plants and in the areas outside plants, with application in the design phase of drainage and mitigation systems in compliance with the principle of hydraulic invariance;
  • verification of potential climate trends for the main project parameters in order to take them into account in the sizing of systems for relevant projects (for example: assessments of the temperature of the coolant source in order to ensure greater flexibility in cooling in new CCGTs);
  • estimation of extreme wind speeds using updated databases containing the logs and historical trajectories of hurricanes and tropical storms, enabling the selection of the wind turbine technology best suited to the emerging conditions.

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 and Networks

In the Infrastructure and Networks Business Line, the Enel Group has adopted an approach in recent years called “4R” to cope with extreme climate events. A specific policy has been developed (No. 486: 4R Innovative Resilience Strategy for Power Distribution Networks) to define the measures to be taken both in preparation for an emergency within the network and for the prompt restoration of service once climate events have caused damage to assets and/or outages. The 4R strategy is divided into four phases.

  • Risk prevention: this includes actions that make it possible to reduce the probability of losing network components because of an event and/or to minimize its effects, i.e. interventions aimed both at increasing the robustness of the infrastructure and maintenance interventions. The former, in particular, are not directed so much at improving service quality as they are at reducing the risk of prolonged and extended interruptions in the event of rare and high-impact critical events, using a probabilistic approach.
  • Readiness: this includes all measures aimed at increasing the speed with which a potentially critical event can be identified, ensuring coordination with Civil Protection authorities and local institutions and preparing the necessary resources once a grid disruption has occurred.
  • Response: this represents the phase in which the operational capacity to cope with an emergency upon the occurrence of an extreme event is assessed. It is directly related to the ability to mobilize operational resources in the field and the capacity to remotely restore power supply through resilient backup systems.
  • Recovery: this is the last phase, in which the goal is to return the network to ordinary operating conditions as soon as possible in cases where an extreme weather event has caused service interruptions despite the increased resilience measures taken previously.

Following this approach, the Business Line has prepared various policies for specific actions to address the various aspects and risks associated with climate change. In particular:

Policy No. 1073: Guidelines for Readiness Response and Recovery actions during emergencies This policy covers the last three phases of the 4R approach, indicating guidelines and measures to improve preparation strategies, mitigate the impact of total blackouts and, finally, restore service to as many customers as possible in the shortest time possible.
Policy No. 387: Guideline for Network Resilience Enhancement Plan

This policy seeks to identify the most impactful extraordinary climate events on the network, to evaluate the current status of the KPIs of the network and to improve them based on proposed interventions in order to be able to evaluate the order of priority. In this manner, actions are selected that, when implemented, will minimize the impact on the network of particularly critical extreme events in a given area/region. The policy therefore covers the first two phases of the 4R approach, suggesting measures regarding risk prevention and readiness.

In Italy, this policy has already been implemented through the Resilience Plan that e-distribuzione has prepared each year since 2017, which represents an addendum to the Development Plan for investments over a 3-year time horizon to reduce the impact of extreme events in certain critical areas, namely heat waves, icing and windstorms (with the associated risk of falling trees). In 2017-2019, some €400 million were invested and a similar amount will be invested in the following three-year period (about €130 million/year), as specified in the addendum to the 2020-2022 Plan, affecting approximately 3 million customers and up to 4,000 km of medium voltage lines. For example, in the case of icing, a phenomenon linked to the breakage of the conductors of overhead lines in the event of accumulation of wet snow, 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 and the loss in terms of power not delivered. To address these risks, investments include the targeted replacement of uninsulated lines with insulated conductors, the creation of less vulnerable 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.

As in Italy, similar issues are being explored in other countries, both in Europe and South America, in order to prepare an ad-hoc investment planning process to enhance the resilience of networks to extreme events, taking due account of the distinctive characteristics of each territory.

Policy No. 439: Measures for Risk Prevention and Preparation in case of wildfires affecting the electrical installations An integrated approach is taken to the emergency management approach applied in the case of forest fires, both where they are caused by the grid itself and where they are of external origin, that could potentially threaten Enel plants. The document provides guidelines to be implemented in the various territories involved to identify areas/plants at risk, define specific prevention measures (e.g. evaluation of specific maintenance plans and any upgrades) and, in the event of a fire, manage the emergency optimally in order to limit its impact and restore service as soon as possible.
Support actions These include the implementation of systems for weather forecasting, monitoring the status of the network and evaluating the impact of critical climate phenomena on the network, the preparation of operational plans and the organization of specific exercises. Particularly important in this regard are advance agreements for the mobilization of extraordinary resources to respond to emergencies, comprising both internal personnel and contractors.

Moreover, with a view not only to assessing weather emergencies in the short/medium term, but also in consideration of the climate change we are witnessing, Infrastructure and Networks is collaborating with leading research institutes to analyze trends in most critical threats (Table 1) to the assets of the power distribution network in the various countries in which the Group operates, and to estimate their future impact on the network in the medium and long term. The following are some examples.

Heat waves

During 2020, heat waves in the countries in which Infrastructure and Networks operates were investigated further. This critical event is characterized by the persistence of high temperatures over a period of several days in correspondence with the absence of precipitation which, by hindering the dissipation of heat from underground cables, causes an anomalous increase in the risk of multiple failures on grids, especially in urban areas and in summer tourist locales. These analyses have provided initial results for Italy, given the especially extensive historical records of such events and the experience gained with the measures provided for in the Resilience Plan. In light of the climate scenarios developed to evaluate trends in heat waves in Italy and the historical correlation of the extreme event-costs, taking a particularly critical year as a reference (2017, selected both because of the intensity of heat waves that year and their extension across the entire country), an initial estimate was obtained for any costs associated with an increase in heat waves in 2030-2050. These estimates of the potential prospective annual extra cost were assessed in the three RCP scenarios (over the 2030-2050 horizon), finding that in the RCP 2.6 scenario they do not represent more than 3% of the annual value of the measures envisaged in the current 2020-2022 Resilience Plan described above and do not exceed 5% in the RCP 8.5 scenario.

Similar analyses are already planned in 2021 for the other countries in which Enel operates.

Wildfires

With regard to fire risk, despite the insignificance of events recorded to date along Enel networks, which did not generate a need for an impact analysis, the Business Line, consistent with Policy No. 439 noted above, is preparing an in-depth analysis of the scenarios for 2030 -2050 concerning the evolution of the phenomenon, with a view to possible improvements in the Policy itself.

PRIORITY EXTREME EVENTS INFRASTRUCTURE AND NETWORKS AND MAIN POLICIES/DEEP-DIVES

(1) L. Wilson, “Industrial Safety and Risk Management”, University of Alberta Press, Alberta 2003. T. Bernold. “Industrial Risk Management”, Elsevier Science Ltd, Amsterdam, 1990. H. Kumamoto and E.J. Henley, “Probabilistic Risk Assessment and Management for Engineers and Scientists”, IEEE Press, 1996. Nasim Uddin, Alfredo H.S. Ang (eds.), “Quantitative risk assessment (QRA) for natural hazards”, ASCE, Germany, 2012. UNISDR, “Global Assessment Report on Disaster Risk Reduction: Revealing Risk, Redefining Development”, UNISDR, Geneva, 2011. IPCC, “Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation - A Special Report of Working Groups I-II of the Intergovernmental Panel on Climate Change (IPCC)”, Cambridge University Press, Cambridge, 2012.