Government policies 'won’t turn the tide' | Transcript

Joe Coletti

Welcome to Powering Sustainable Ideas, a podcast series from RBC Capital Markets, where we speak with the leaders and companies powering the sustainable future.

In today’s episode, you’ll hear highlights from the keynote session at RBC’s Energy Transition Conference in London from this past June.

Our guest is Francesco Starace, whose 40-year career includes serving as CEO of Enel, where he led the company’s shift away from fossil-fuel generation while accelerating investment in renewable energy and digitalization. Today, he’s a partner at EQT and chair of the Science-Based Targets Initiative, which supports corporate decarbonization efforts.

Francesco joined Trevor Gardner, Head of Global Investment Banking Coverage at RBC Capital Markets, to discuss the forces driving energy transition today, and how he expects them to evolve in the years ahead. Now, let’s dive into their conversation.

Trevor Gardner

So maybe just an open-ended question to start, how would you characterize the state of energy transition today?

Francesco Starace

I can say I'm optimist because on this transition, because it's something that has been going on forever. The transition is intrinsic in the energy field since its inception, because technology drives it, and technology is evolving. The difference is that this time the transition is fast enough for us to realize it in almost real time, so we can appreciate the change year after year after year, rather decade after decade after decade, and we see this in an accelerated way, and the transition that I see is one driven by two forces that combine, one is the improvement in computing power, which enabled designers to simulate and refine their products fantastically and increasingly better, and the other force is the improvement in material science, and the combination of these two things explain deep down why certain things got competitive all of a sudden that were not competitive before, and why this change and that change, and that change, all of a sudden, becomes economically possible, easy to implement, less risky, and therefore is adopted by everybody. So, why I'm optimistic, because I see these forces at work now, not just in the energy field, but in other fields, in general, in the industry and the economy. In fact, everybody's always surprised by the speed at which this thing happens. It's a constant of this, it's not linear, and therefore it gives you a lot of uncertainty and keeps you on the edge, but at the end it improves performance and makes everything more efficient, less energy hungry, that's why I'm, I'm optimist.

Trevor Gardner   

For the course of my career, your career, I think the trend has been one way on globalization, and in many ways that remains, but at the same time, there's more focus on domestic security, resilience, etc. Maybe comment a little bit on how you see that overlay playing into the energy sector.

Francesco Starace

Well, I think it's true that from a geopolitical standpoint you cannot argue that there is a fragmentation going on, and there is more a transactional approach to geopolitics but on the other side, the forces that I just mentioned are global, I mean, technology works the same way everywhere, physics works the same way everywhere, computing power is spreading everywhere, and countries cannot do much, governments cannot do much to stop that. So, you have to look a little bit on that dimension and see that this is a big tide, and there are waves, ripples on top of it, and don't be confusing ripples with the tide. There is a geopolitical shift as a function of this transition that is happening, it will take time for people to really appreciate the depth of it, but let's say, since the 1973 oil shock, which was the first large use of geopolitical power on the energy field, or vice versa, using the energy for geopolitical ends, since then this has been going on several times, and the last one we've seen now with Iran, that has always had the end result of speeding the transition rather than slowing it down, so it's another reason why I'm optimistic, and we use the instrumental use of energy for geopolitical ends backfires all the time.

Trevor Gardner   

When you look at individual countries, different governments taking different approaches on energy and energy transition, whether you're an investor of capital, you're a company running energy systems, how do you kind of manage against that, where it seems like the political winds or the political overlay moves back and forth so quickly.

Francesco Starace

Sure. But I think if you invest in large industrial infrastructure in general and in energy in particular, you need to have a longer view than any government, elected or non-elected, can last. I mean, you cannot bet on this government to last 20 years, that never really happens. Right. And when it does, maybe that's not really a good place to be, but honestly, okay. So, you look at the trend from a secular standpoint, from a technology evolution standpoint, from a supply and demand, and then you look at another dimension, that is not what this peculiar government is really doing, but rather is there a legal and regulatory framework that they can understand and trust, so it's more an institutional story than a political story. Is the institution of this geographical location, states, area, whatever you want to call it, sound enough to last the time I'm thinking, policies of the governments can accelerate or slow down the trend, but the trend is a trend, and it's not driven by governments, it's driven by technology,

Trevor Gardner

You've built and operated assets, and now you sit in a place where you're investing capital at EQT. You have a range of funds, infrastructure, energy transition, huge investor all over the world. Take us a little bit inside that process, and how you guys are thinking about that.

Francesco Starace

The infra part of EQT is very much thematic, so we look at themes that last long and invest along these themes. We see this theme going longer, and we think it is characterized by a supply and demand gap that we need to fill, so there is an opportunity to invest there. Obviously, we select the spaces where we want to invest based on the second observation that is, is this space giving us enough comfort that the institutions are prone to legal clarity, fairness. This is the way in which we invest in, also, if you want, this is basically why LPs should entrust money to us on the long term, because at the end of the day, what private equity investments does is invest funds that are typically coming from pensions, and they require certainty, they require some kind of stability, they require a liquidity going forward. So, again, thematic investment plus institutional solidity and robustness, this is the winning combination.

Trevor Gardner

Is there a particular theme or two that you wanted to highlight?

Francesco Starace

Today, if you look at the infra world, there are the energy needs that are growing, in particular the electrification that is driving everything around the world, and the computing power that needs to be maintained and insured for AI, and later on, quantum computing evolution. So, how to harmonize two worlds that have a different antenna clock, the computing world, so AI, if you want, has a very short clock, so we're talking about things that improve in months and needs that surface in months or years. The energy field is used to think about decades, so how to combine these two, these two different speeds is really, really important. How to do that efficiently in a good way, and not making mistakes, because when you have these two different time zones, you can make mistakes. If you are in sync, then it really flies. We're working a lot on that, you know. We have a  big company working in the data center build up for most of the hyperscalers today, that is growing at an incredible pace, and all the energy companies that we have need to work together to just combine all the power we need for these guys, it's a big effort, but it's a super interesting space to be in.

Trevor Gardner

Scale is always important, but it feels like it's more important than ever. How do you combine the all the advantages of scale, but still being, you know, nimble, entrepreneurial, not losing the edge to drive the innovation that's needed.

Francesco Starace

This is something that I discovered when I joined EQT, because you know when you run a company, big or small, it doesn't matter, you think this company will be there forever, which, by the way, is not true, but you think it is.

Trevor Gardner

Feels that way.

Francesco Starace

Yeah, so when you go into a private equity firm, you have these funds that have a life, so all of a sudden this time frame imposes a discipline and some kind of dimension of timing that is super important to make sense of what's going on, so the fund structure of EQT tries to cope with that, so we have core funds that go on the longer term with less turbulent growth stories, so the company infrastructure teams that are already mature and stable, then you have value funds that take growth, part of the story, but it's more a linear growth. So, if you want a classical infra world view, the infrastructure world is a linear world, because we are used to extrapolate and take this curve and go. So, if you look at all the infrastructure around the world, it's mostly an extrapolation effort, and then you have the transition funds that look at what happens when the transition is hot, it's an exposure to an exponential growth that requires a different mindset, a different setup, a different speed, and also a combination of growth and infra characteristics that is quite unique, so equity makes a conscious effort to differentiate these tools, because they, you have to use them all in this moment, you have all of that to be combined in a good way. But at the end I think you know this dialectic between short term and long term is healthy, because it helps to keep people awake, because the worst mistakes, you know, I've seen a lot of mistakes in my life, plenty. Basically, the mistakes in infrastructure always result in one single way, which is a write off. If you try to combine short term and long term, your likelihood to make that kind of mistake is smaller, because you're trying to find out how fast can I amortize this investment, and is this long enough given the turbulence that I have around me, can I afford an investment that gets repaid in 30 years? So, there is a thinking that needs to be combined between long term and short term, which is painful, but it's a discipline you have to have.

Trevor Gardner 

Let's dive into one, one sector in particular, which is nuclear, and you've got a background here.

Francesco Starace

Because I'm a nuclear engineer. So, we are in a little bit of a void. The past is all the nuclear we built because of 1973. So, right after the shock of 1973 the world started building nuclear plants.

Trevor Gardner 

Which was your earlier point.

Francesco Starace

Yeah, this is exactly, so that was the reaction of the world at that time. So nuclear is the son of that shock in a way, technologically was there already, but marginally that it became a big thing, then, if you look at when power plants were built all across the 80s and mid-90s, because they were decided during the 70s, that's the cycle of nuclear, so that is there, and it's a great thing to have, and anyone that has a power plant should keep it running, of course, spend money on it, so that it runs safe, fine, but it's the past. Then, if you take that past and say I want to build a nuclear power plant of that kind, now you can, but it takes another 20 years. Then you have the future: small modular reactors, new reactor designs. And that is not obvious, they will fulfil the promise of becoming cheap, easy to build, and easy to manage, as we all think. I don't think it is unlikely. I think it's possible. Okay, but we don't have that clarity right now, so we are in between, like I say, between a past and a future. The mistake is taking the past and trying to push it in the future, because it's always a mistake. Yeah, good to try the future, but we have to understand that it's not yet completely mature as a technology, so it's between venture and infra spacing, insofar as an investment is concerned, which is fine. I should add that, because of the effort in that field, there will be side discoveries, spin-offs that will get into other fields, as always happens in the history of technology, that in themselves might be worth the effort anyway. The same for fusion. I mean, clearly I think we all understand fusion is not happening now. Okay, but through fusion we will discover materials and stuff that might be useful for other things later on.

Trevor Gardner

Where do wind solar renewables kind of fit in the mix today? And how do you see the next decade playing out?

Francesco Starace

In terms of generation of electricity, solar and wind today are by far the cheapest and fastest way of generating electricity. They became fast and cheap in a period between 2009 and 2012-13. Then, this is the time where they made this breakthrough. Not everyone saw that coming. This is a classic case in which, looking at it in the past, you say, where, where was the investment community at that time? Sleeping. No one really understood this happening in this order of magnitude, but it did happen anyway, because they became competitive in a brutal manner, and they became fast in a brutal manner. I mean, it was unthinkable to be the power plant in less than a year until solar plants did it, and so now we have this, and they are the present future of generation of electricity for the next 15, 20 years, then something else will come up, but we are already at zero marginal cost. So, once these plants are amortized, they basically generate cash, that's it. It's unbeatable. They don't come easy, because they require incredible adjustments downstream to networks and people start to realize that that is something that was maybe not fully understood at the beginning. So, the electricity demand changes and the capacity and the capability to be active on the demand side from an industrial and in general from an economic standpoint is really driving the transition this decade. It's no more a generation story, it's a demand story, and the change there requires storage also. So, storage is becoming so important because both ends of the value chain require storage, because of the volatility that increases on both ends of the spectrum. So, networks need help, and the help comes in the form of storage. This is the decade of storage, because of what happened decade ago,

Trevor Gardner

What are people missing? What have we not talked about?

Francesco Starace

The change of demand is much more important than we all think. Global demand of energy consumption is between 1.5 to 2.5 growing year on year, and every year the electricity demand, so the portion of that that is electrical, grows twice as fast. How will the energy system need to change if millions and millions of cars will be electric? If all the boilers will change to heat pumps, when all the industries will start to electrify their heat, that is unknown. No one has a clue. Okay, I'm sorry to scare you guys, but it's really super important. And the electricity systems we have today are not designed for that, they are designed for another world, the world that we all lived in, so far. So that change is critical, but it's so difficult to understand, because the supply world is an incredibly big, biggest complexity. If you, if you think, how many generators of electricity are there around the world, less than 10,000, of which 2000 are material, and out of these 2000, 200 actually make 80% of the story. It's a very small universe to observe to understand what's going on, but demand is millions of companies, so it's much more complex to understand.

Trevor Gardner

You made a really interesting comment when we were preparing for this, which was advancements in material science. Do you want to just unpack that a little bit?

Francesco Starace

Things with which things are made keep improving, they become lighter, better, easier to manufacture, easier to recycle, less expensive. Everything. Because scientists discover different materials that perform better. Why the automotive industry is changing? Because EVs are there. Why EVs are there? Because batteries are there, and batteries are material science applied 100%. So this is such a mind-boggling transformation. The agriculture is changed by that, all medical applications have changed everything. There's not one single thing, even fashion, is affected by that in a big way. So, I would say, why energy should not, actually, energy is where most of the change was driven by that all the time.

Trevor Gardner

You apologize for scaring us before, but I think that's a good reason for optimism. A final question. In your accomplished career, an important part has your role on SBTI. Do you want to talk a little bit about where that sits today, and where it might go, and the importance of it in the future?

Francesco Starace

Yeah, science-based target initiative companies want to decarbonize for three reasons, basically, some companies want to decarbonize because they think that this will make the company more competitive and less risky. Some companies decarbonize because they think their clients want a decarbonized product, and the third is companies want to decarbonize because other companies do, so it's more a competitive emulation story, and I'm not saying that one is better than the other. They're all good motivations. So they come to SBTI, saying because you look at our proposed method of decarbonizing and you tell us if it's going to work or not, based on science. So, if you want, SBTI is a service to these companies. It's not a judge, you're a bad company, you're a good company. It's just saying if you do this, it's magical thinking. You're not going to end the carbonizing, but it's your risk. I'm just telling you, it doesn't work. If you do that, it can work, but then you have to do whatever you need to do to get there. We have more than 11,000 companies now that have embarked into this journey, so it's a big, big number, and it's growing. It shows that there is an understanding of the advantages of doing that from an economic, from a risky, from a marketing standpoint, or just to be at par with everybody else. One more thing, it's true that policies of governments influence decisions of companies, and it's also true that many companies understand that governments come and go. So there is an adaptation game, but don't get that as a wrong signal. It's just that company need to live during hard times and easy times, and they have to adapt. We have seen during 25 growth of companies year on year that apply for the certification of SBTI, the lowest growth was 78% growth. So, everybody else was more than that, and the 78% growth year on year was in the U.S. So, people saw the U.S. left it, it's finished. No, it's 78% growth, so it's a lot.

Trevor Gardner

It's a lot.

Francesco Starace

Yeah, we were surprised too.

Trevor Gardner

Yeah.

Francesco Starace

But the rest of the world, there are parts of the world that have a 200% growth, 150%, so it's huge. Asia is today the hottest SBTI growth area, which also was quite surprising.

Trevor Gardner

Francesco, great perspectives, thanks for giving us a cold dose of reality but lots of reasons to be optimistic. Thank you.

Joe Coletti

Thanks for listening to Powering Sustainable Ideas, brought to you by RBC Capital Markets. Please remember to subscribe for more great content and to be alerted to future episodes. This podcast was recorded on June 25, 2026. If you would like to learn more or continue the conversation, please contact your RBC representative or visit rbccm.com/poweringsustainableideas. See you all next time.