No. 4, 2011


Oil of Russia magazine talks to Vittorio Garrone, Deputy Chairman and Chairman

ERG Renew is a subsidiary of the ERG group, a leading Italian energy company. Today the performance of ERG Renew operating in Italy and France is based mainly on the wind power generation. ERG Renew plans to diversify its presence in the field of renewable energy by also focusing on photovoltaics technologies. Therefore ERG Renew is participating in a next generation solar power (the so-called organic photovoltaics) research and development project. In Eastern Europe, ERG Renew will implement green energy projects together with its partner, LUKOIL-Ekoenergo.

Q: Mr. Garrone, until the 1990s ERG was engaged purely in the oil business. What made the company alter its course and start vigorously developing electric power generation and why did it, more recently, decide to venture into the renewable energy sphere?

A: The ERG Group has always oriented its industrial choices towards developing and expanding its business in the long term, modifying and enhancing its mission according to the trends and opportunities offered by the market. By following this strategy, over the years our Group has transformed its industrial identity, which has changed from distinctly oil-related to become a multi-energy configuration. It is within this context that in 2000 we launched ISAB Energy, one of the world's most efficient plants and European leader, which produces electricity using as raw material the processing residues of the adjacent ISAB Refinery.

After that, we entered the renewables market; the decisive move to this effect came with the purchase in 2006 of Enertad, a company operating in this market, which has since changed its name to ERG Renew and to which all the Group's assets in the sector have been transferred. ERG's entry into electricity generation therefore comes within the direction that has been pursued and implemented, particularly during the last ten years, and which has today led to the creation of a diversified energy Group capable, also via a balanced management of its portfolio of operations, to reduce the dependency of its financial results on the frequently volatile external factors which mostly characterise the "oil" sector.

We believe in the long-term strategic role of renewable energy sources, which we now consider to be a pillar of our development strategy, and as industrial operators we have already achieved a significant position in the Italian market. The decision to target this business is furthermore confirmed at global level; in fact despite the financial crisis and the world governance problems, the development trend has clearly taken off also as a result of the growing attention to environmental sustainability. In particular Europe, by way of the "20-20-20" directive which among its objectives envisages the increased presence of renewables as part of the overall energy sources used by the individual EU countries, occupies a position of leadership for the sector's development, even if during the past few years we have seen a diversification in the growth trend: some of the more «mature» markets are slowing down while others, such as those of the Eastern states, are emerging. This is also thanks to the farsightedness of governments in the latter countries, which are adopting effective regulation systems in order to promote growth, and these are the markets towards which we are principally oriented.

Q: How large are ERG Renew's capacities today? Do you have short-range plans to build or acquire new facilities?

A: ERG Renew currently has an installed capacity of approximately 500 MW as regards wind power in Italy, where it ranks as one of the market's leading operators, and 64 MW in France. In the last business plan presented to the market, the company set a target of 428 MW in installed capacity by 2013, and this has already been achieved as a result of both extraordinary operations and the contribution of our organic growth plan.

As part of our expansion strategy, two major acquisitions were recently made in the Italian wind market for a total of high quality 224 MW, with a producibility well above the national average. At the same time we are working on our organic growth plan, with the start-up of two wind farms in Italy: Fossa del Lupo and Ginestra, with a total of over 130 MW, whose construction has been completed and which are gradually coming into commercial operation. We are also defining ERG Renew's growth plan and the related targets, which will be announced to the market, alongside the Group's plan, during the first few months of 2012.

Q: What scientific institutions working on the energy technologies does ERG Renew cooperate with?

A: Our ongoing relationships with scientific institutions such as universities mainly concern the research projects that we are currently pursuing, including the "Organic Photovoltaic Project" and the "Thermovoltaic Project", which we are developing in close association with leading research institutes. In particular, for the first project we are cooperating with the University of Rome "Tor Vergata", Faculty of Electronic Engineering, with the University of Ferrara, Institute of General Chemistry, and with the University of Turin, Institute of Organic Chemistry. The project aims to implement, by the end of 2012, a pilot line for organic photovoltaic panels on glass. The systems in question, which are based on state-of-the-art nanotechnology, imitate the process of natural photosynthesis and produce electricity using semitransparent glass panels, of different colours featuring a greater versatility of use, such as to permit installation even on vertical walls or in situations of diffused light, representing an architecturally integrable solution. Also participating in the project is Permasteelisa, an important company whose business is the construction of prestigious facades with high technological content, with consolidated experience in the sector of architectural applications.

As regards the second project, we are working with the Institute of Materials Science at the University of Milan-Bicocca, for the fine-tuning of innovative electricity generation systems which, owing to the utilisation of the latest nanotechnologies, make it possible to produce electricity directly from temperature differences using low-cost non-polluting materials. In this case, instead of producing energy from renewable sources, the direction taken is the saving and recovery of energy obtained from traditional sources. The potential applications are many: from the automotive sector, to heavy industry, to niche sectors such as aerospace.

Q: Do you expect further technological improvements of the effectiveness of wind turbines and photovoltaic panels in the foreseeable future?

A: The wind turbine market can be defined as a mature market, in fact the onshore wind turbines made available to the market by manufacturers, with nominal capacities of up to around 3 MW and rotor diameters of up to approximately 120 meters, all have a high level of reliability, safety and efficiency in terms of output. This is because the technologies used are now established and are the result of twenty years' design experience; certainly, each wind farm has its own features in terms of wind intensity and morphological characteristics and for this reason it is important to choose, from the wide range of wind turbines available, those which are most suited to the specific requirements. For the future the manufacturers are concentrating on perfecting the electronic and software components, as well as improving the aerodynamics. In particular, we expect the new generation machines to be able to exploit lower wind regimes for the same nominal capacity of the turbines, making it possible to increase the output potential of wind energy.

On the other hand, the area in which research is making most progress is photovoltaics, where the roads to be pursued are many, in order to improve the production efficiency of the panels, reduce their costs and enhance versatility as regards their utilisation. This includes triple junction systems, to fully exploit solar radiation, concentration systems designed to increase effectiveness, very high efficiency astronautically derived systems, and systems based on organic or hybrid molecules as opposed to silicon. As I already mentioned, we are working on the development of so-called organic photovoltaics, an easily industrialisable technology belonging to the latter category, with lower environmental impact, scarcely energivorous during the production phase of the systems and above all intended not for the construction of large power plants, as with traditional photovoltaics, but rather for architectural and urban integration.

Q: In May 2011, ERG Renew and LUKOIL-Ekoenergo signed an agreement for the creation of a 50-50 joint venture, LUKERG Renew. Could you tell us about the scheduled projects of LUKERG Renew?

A: On July 15, we signed the transaction closing, leading to the birth of LUKERG Renew, created with a view to operating in the renewables market. The company will initially focus its operations on Bulgaria and Romania, followed by Ukraine and Russia. We are currently already evaluating business opportunities, within the scope of a wider business plan to be presented by the end of the year, to be developed both organically and via acquisitions.

Q: What is your opinion on Eastern Europe's general opportunities for the development of green energy?

A: We believe that the Eastern European countries have high growth potential in the renewable energy sector, especially as regards onshore wind power, also because the countries forming part of the European Union are required to work towards production targets established at EU level. Bulgaria and Romania, for example, increased their total installed wind power capacity from around 200 MW in 2009 to approximately 650 MW in 2010 and by the end of 2011 a further increase of 500 MW is anticipated.

We are therefore confident that LUKERG Renew, in addition to operating in developing markets, will also be able to rely on the experience that we have acquired in Italy, particularly in the wind sector, where we are now the market's third largest operator, as well as on the extensive knowledge matured and on LUKOIL's consolidated industrial presence in the areas in question.

Q: Does LUKERG Renew consider possible projects in Russia?

A: Certainly, albeit during a second phase; as I already mentioned, for the moment we are focusing above all on Bulgaria and Romania.

Q: In your view, how important is the state policy and support of governments for the expansion of renewable energy? What do you see as major trends in green energy, which could predetermine its progress?

A: In the development of renewable energy, long-term energy policy decisions and clear incentive systems adopted by individual governments play a fundamental role. In fact, only in this way can there be a guaranteed return on investment, an essential aspect on which an industrial operator's decisions are based. Most Eastern European countries have already adopted incentive systems and for this reason many international operators are entering these markets, as in the case of Bulgaria and Romania.

As I mentioned previously, there is now a globally consolidated development trend in the renewables sector. In 2010, the growth rate was 24% with investments totalling around 50 billion euros; the highest increase concerned the solar and wind power sectors. The sector's expansion is undoubtedly linked to the growing attention to issues concerning environmental protection and sustainability, diversification of sources and security of energy supplies. Moreover, the position recently expressed at European level regarding a gradual abandonment of nuclear power certainly constitutes a further impetus for the development of alternative energy sources, also supported by technological improvement which will enable a reduction in the cost differential vis-a-vis traditional sources.           

  - Vladimir Akramovsky

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Oil of Russia, No. 4, 2011
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