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Italy's ERG pledges 2.1 billion euros to become pure green

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By Stephen Jewkes and Rita Plantera

MILAN (Reuters) -Italy’s ERG pledged on Friday to spend 2.1 billion euros ($2.5 billion) over the next five years to complete its transition to an entirely renewable company and drive earnings.

Already Italy’s biggest wind operator, which generates some 60% of earnings from wind power, ERG said it aimed to add 1.5 gigawatts (GW) of capacity by 2025, boosting its solar business and selling assets to become a purely green player.

The planned sale of hydroelectric and thermoelectric plants will also speed up the process to create a pure wind and solar player, ERGCEO Paolo Merli said.

In March, sources said ERG had kicked off the sale of hydroelectric and gas-fired assets worth more than 1 billion euros.

“We have selected the preferred bidders… and expect binding bids by end June,” Merli told analysts in a call on the group’s new plan to 2025.

The Genoa-based group, controlled by the Garrone family, used to be one of Italy’s leading oil refiners before shifting its focus to renewable energy.

The group, which aims to be fully carbon neutral by 2040, will expand into countries including Spain and Sweden, building on total installed capacity of 3.1 GW last year.

“We are working on several M&A deals… with a focus on Europe,” Merli said. “We are also scouting for opportunities in storage and hydrogen.”

Merli said acquisitions would be selective, adding tickets above 400-to-500 million euros ($485-$606 million) attracted too much competition and depressed returns.

To make earnings more visible and facilitate debt-raising, the group will make 80% of its business “quasi-regulated” by taking part in capacity auctions and selling production to corporate clients through power purchase agreements (PPA).

On Friday, it signed a big PPA with phone company Telecom Italia.

Core earnings will rise to 550 million euros in 2025 from 481 million euros last year, the company said, adding it planned to maintain a steady dividend of 0.75 euros per share.

Merli said the phasing out of incentives for green power generation would cost core earnings around 130 million euros but would be offset by income from new projects.

“The capacity increase is in line with our expectations but the 2025 core earnings target is a bit below,” said one Milan-based analyst.

At 1440 GMTERG shares were down 4.8% after falling as much as 9% in early trade.

($1 = 0.8258 euros)

(Reporting by Rita Plantera and Stephen Jewkes; editing by Barbara Lewis)

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