Industry Trend Analysis - Enel X: Telecoms And Energy Services Starting To Converge - FEB 2018

BMI View: Enel X's focus on the rollout of both a fiber-optic broadban d network and smart energy services will give the company a significant competitive advantage as the digitalisation of electricity supply alters the traditional electricity utility business model. Enel will have a network and the connectivity needed to get its apps and services directly in front of households and businesses , w hile the acqui sition of companies such as EnerNOC , Demand Energy and eMotorWerks will give it the suite of applic ations that will appeal to end-users.

Italian energy giant Enel's move to establish a new 'e-solutions' division called Enel X is important because it underlines that the business models of both electric utilities and telecoms companies are converging, as increased digitisation supports the 'smart' management of electricity supply and consumption. We expect this trend to accelerate and highlight that Enel X's strategy of investing in plug-in electric vehicle charging infrastructure, smart grids and technology to support smart home appliances will leave the company well-placed to capitalise as the electricity sector undergoes radical structural change ( see 'Market Disruption: Big Firms Fight Back Through Services', January 26). We also emphasise that Enel X's plans to invest in the roll out of fiber-optic networks are particularly notable and differentiate it from other European utilities.

To this end, we believe Enel X's plans to invest EUR5.1bn in building new fiber-optic networks in Italy and other selected markets (allowing it to rival Telecom Italia) will give it a major competitive advantage as it challenges other European utilities in the growing energy services space. This is because digitisation of the energy sector, which will allow for the remote control of power usage and thus better management of peaks and troughs in intermittent renewable energy output, is contingent on having access to networks and internet connectivity. Reliable and widespread networks are required to support deployment of sensors and IoT, machine-to-machine (M2M) communication and the smart home appliances and applications that will underpin the decentralised, smart energy system of the future. The rollout of this infrastructure needs to occur more quickly if Europe is to utilise many of the benefits associated with IoT and the fourth industrial revolution ( see ' Internet Of Things: Slow Burner But Game Changer', April 27).

Investors Buying Into Enel's Services Strategy
Enel Share Price And Bloomberg European Utilities Index (Normalized As Of December 13 2016)
Source: BMI, Bloomberg

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