Our ability to adapt and grow through this difficult period is no accident. It is testament to the strength of the business that has been built over many years, transforming EDP from a Portuguese utility company into a global leader in the Energy Transition.
Miguel Stilwell d'Andrade
Chairman of the Executive Board of Directors
Dear Shareholder,
There is no question that 2020 has been an extraordinary year for the world and we have all had to adapt to living our lives very differently. Thus, I would like to begin by thanking EDP’s stakeholders, starting with our teams and suppliers, who have risen to meet the challenges posed by the pandemic and continued to deliver on EDP’s promises. Also, a word to our customers and partners for their trust in EDP and to our shareholders for their continued support. Our ability to adapt and grow through this difficult period is no accident. It is testament to the strength of the business that has been built over many years, transforming EDP from a Portuguese utility company into a global leader in the Energy Transition.
A Green Recovery
While the pandemic brought much of the world to a halt, it also accelerated some of the changes that were already underway. Commitments from countries, sectors and companies to net zero continued at pace over the course of 2020. From the European Union, to China, Japan and Canada, more countries signed up to net zero pledges, committing to decarbonising their economies in the coming decades. 2021 was set in motion with the United States re-joining the Paris Climate Agreement – it promises to be a decisive year on climate, culminating in governments, organizations and civil society coming together at COP26 in November. Action on emissions reduction has also been tied to the recovery of the global economy as it emerges from COVID. The EU, with a commitment to climate neutrality by 2050, has launched the European Green Deal Investment Plan (EGDIP). This will see the mobilization of € 1 trillion to finance the transition to a low carbon economy between 2021-30. On a global basis, if we want to limit the temperature increase to 1.5ºC, we will collectively need to be adding more than 500 GW of renewables per year between now and 2030. That presents a considerable opportunity for EDP. The expertise, operational capabilities, and competitive cost base that we have developed in more than a decade of leadership in renewables means we are well placed to play a leading role in helping the different countries where we are present meet their climate goals.
As the world has raised the bar on Climate Change, so too has EDP.
An ambitious strategic plan
Our 2021-25 strategic plan is underpinned by three axes: Accelerated and Sustainable Growth; a Future-Proof Organization, powered by increased investment in innovation and digital transformation; and ESG Excellence and Attractive Returns.
Accelerated and Sustainable Growth
Our bold and ambitious plan further reinforces our position as a leader in the energy transition, with an unprecedented investment of € 24 billion. We will accelerate our renewables growth, namely in Europe and North America, seeking to double our installed capacity in wind and solar in the next 5 years, adding 4 GW per year. We will continue to grow and create value in our low-risk networks portfolio in Portugal, Spain and Brazil – a critical enabler of the energy transition – investing more than € 3 billion to maximize value through grid modernization and operational excellence in distribution, and superior execution of projects in transmission in Brazil. Finally, we will be investing € 0.9 billion in Client Solutions, with a clear focus on efficiency and end-to-end digital transformation, coupled with ambitious targets in exciting new growth avenues, namely, our commitment to growing our decentralized solar contracted capacity tenfold by 2025.
A future-proof organization
In 2020, we were recognized as Top Employer and as a Family Responsible Company (EFR). We were also privileged to be included for the first time in Bloomberg's Gender-Equality Index, acknowledging our investment in our people and our inclusive culture. We will continue to foster a global and flexible organization, supported by agile and resilient teams.
We will make significant investments in innovation and the digital transformation of the business, totaling € 2 billion.
Our ability to adapt to a sector in profound transformation will be strengthened by our commitment to keep empowering and connecting our team around the world, while promoting talent and diversity.
ESG Excellence and Attractive Returns
We have increased our efforts to reduce emissions and decarbonise our portfolio and now expect to be totally coal-free by 2025 and all green by 2030, anticipating our carbon neutral targets by 20 years. This superior green positioning will enable EDP to continue to lead the energy transition and create superior value for our shareholders.
The decarbonisation of our portfolio is well underway. In 2020, EDP announced the closure of most of its coal-fired power plants in Iberia and in September we joined the Powering Past Coal Alliance, the first global alliance to accelerate the end of coal power generation. We are also part of the Race to Zero, a global coalition set up by UN Global Compact, the Science Based Targets initiative, and We Mean Business, to support a zero-carbon recovery that prevents future threats, creates decent jobs, and unlocks inclusive, sustainable growth. Lastly, it goes without saying that sustainable development has been one of the main axes of our strategy. Through EDP’s investments and a thorough social responsibility approach, we have continued to contribute to 9 out of the 17 Sustainable Development Goals of the United Nations Agenda for 2030.
We have also demonstrated a clear commitment to the 10 principles of the United Nations Global Compact, in line with best practices in areas such as human rights, labor and the environment.
A strong track record in execution
Our 2019-22 Strategic Update outlined a set of divestment projects aimed at deleveraging, de-risking and value crystallization, with the overarching goal of enabling growth in renewables and increasing our alignment with the energy transition. The plan included an ambitious deal framework for the execution of over € 2 billion of disposals to promote the reshuffling and optimization of the Iberian portfolio. The successful implementation of the sale of six hydro power plants, in Portugal, and a portfolio of 2 CCGTs and B2C clients, in Spain, allowed EDP to also pursue growth in Iberian grids. EDP acquired Viesgo, in combination with a rights issue of € 1billion at EDP level, more than doubling our presence in electricity distribution in Spain, reinforcing our low risk profile, as well as increasing our renewables portfolio with 0.5 GW capacity in Iberia. Our balance sheet was further supported by the continuation of our asset rotation program, which allows EDP to recycle capital and improve project returns by developing and then selling down interests in projects. In 2020, we sold an 80% stake in a 563 MW wind and solar portfolio in the United States and a majority interest in a 242 MW operating onshore wind portfolio in Spain.
Despite the challenges presented by the pandemic, EDP’s recurring net profit increased by 6%, to € 901 million, supported by our global presence, the growth in renewable energy generation and a low-risk profile. On top of this, the hard work of our teams enabled us to achieve most of the 2022 targets in 2020, leading to a 43% increase in EDP’s share price performance, 30 percentage points above our European peers. This effort was done while maintaining high levels of employee engagement and I am proud to say that in 2020 EDP was recognized as a best-in-class company for people & organizational practices worldwide.
A year of innovation and expansion
We recognize that to remain at the forefront of the sector, we must continue to evaluate and test new energy generation alternatives, investing in potential clean technologies. We believe in the long-term potential of hydrogen in the decarbonisation of power and recently created a new business unit, H2BU, to reinforce the integration of green hydrogen in our portfolio. In this context, we joined the Choose Renewable Hydrogen initiative last May, which seeks to promote and defend Europe’s commitment to green hydrogen, generated from renewable powered electrolysis rather than fossil fuels.
In parallel, EDP launched a new unit to lead and promote storage projects, which aims to reach 1 GW capacity by 2026.
In 2020 the company delivered the first power to the Portuguese grid from WindFloat Atlantic. WindFloat Atlantic hosts the world’s largest floating wind project, with three 8.4 MW turbines – enough to power 60,000 homes. The project opens the way for the cost-effective deployment of floating wind farms located in deep water at scale, demonstrating how our culture of continuous innovation supports our growth targets.
We have continued to expand around the world through 2020, whether directly or via our new joint venture for offshore wind between EDPR and Engie, Ocean Winds. Formed in March, Ocean Winds incorporated the marine wind pipelines of both companies with 1.5 GW under construction and a further 5 GW under development. Benefitting from the experience and resource of both parent companies, Ocean Winds is targeting between 5 to 7 GW in operation or under construction plus 5 to 10 GW at an advanced stage of development by 2025.
Through our supply business we also took some important steps to promote the adoption of electric mobility at both national and European levels. Besides providing more and better charging options to its customers, EDP is now the exclusive energy partner of the “Electric Vehicle Users Association” in Portugal. The company has also joined Charge Up Europe in efforts to foster the development of the European charging network. Both initiatives are part of our efforts to enable the energy transition to which we, as a company, are deeply committed.
A team for the future
In January this year, our shareholders elected a new Executive Board. As we start this new cycle, I would like to extend my thanks to all the members of the previous Executive Board, their contribution has been fundamental to EDP’s growth and positioning. This renewed Board, which presents a wealth of diverse experience and expertise, will most certainly continue to build on their legacy. We are committed to deliver on our 2021-2025 strategy, securing EDP’s growth and ensuring value creation for all our stakeholders.
A special word of thanks to the General and Supervisory Board and their collaboration throughout a very demanding year for EDP. The institutional respect and governance mechanisms enabled the company to pursue its purpose and deliver on our commitments. In this context, I would also like to reinforce the fundamental role assumed by our shareholders and the confidence they placed in EDP, namely in the capital increase that took place in August 2020.
As a company, we are taking steps to protect the future of humanity and believe we not only have a responsibility to demonstrate real action ourselves, but more importantly an opportunity to set the bar for industry to meet.
I want to conclude by thanking EDP’s team, namely the 12,180 employees who are working tirelessly to realize our bold and aspirational ambitions. In a year where our communities have been tested and stretched, they have shown profound dedication, professionalism and resilience. I have been privileged to play a role in EDP’s evolution over the past 20 years and I am honored to be leading this team in this next cycle.
