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MAIN REGULATORY ISSUES FOR INVESTORS
Ester Benigni – A2A Regulatory and Market Affairs Manager
October 2016
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
AGENDA
• A2A Regulatory Affairs
• Regulatory topics
Capacity Market
Abolition of the regulated tariffs in the power sales
2
Regulatory and Market Affairs
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
DIVERSIFIED AND INTEGRATED BUSINESS PORTFOLIO
(1) Declared EBITDA equal to 1,044 €M, excluding costs of redundancy schemes (-1 €M), non recurring items (26 €M) and EBITDA from “Other Services & Corporate” (-21 €M)
Sources: A2A Strategic Plan 2015 Results & Business Plan Update; Company Annual Reports
2015Ordinary
EBITDA 1.023€M(1) ENERGY EFFICIENCY &
SERVICES
356 €M
WASTE
Collection andstreet sweeping
Treatment
205 €M 20%
INFRASTRUCTURE
Integrated Water Cycle
Electricity networks
Gas networks
34%
GENERATION &TRADING
Fuel sourcing
Powergeneration
Wholesale &Trading
340 €M 33%
NETWORKS & HEAT
Disposal
Heat / Electricityproduction
EPCG(Montenegro)
Power generation
Electricity networks
53 €M 5%
ENERGY RETAIL
90 €M 9%
Electricity / Gas salesfree market
regulated market
Generation &Trading
∼2 GW hydro installedcapacity in Italy
Energy Retail
Market leader for
- quality
- customer satisfaction
Waste
N.1 for electricityproduced by WTEplants
RegulatedInfrastructure
Stable cashgenerating business
EPCG
∼0.7 GW hydroinstalled capacity(76% of total)
Energy Efficiency &New Services
Technologicalleadership in LED andindustrial energyefficiency
Top strengths
Heating Distribution
Heat Generation,recovery and sales
Energy EfficiencyServices
Public Lighting andsmart city services
Regulatory and Market Affairs
3
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
A2A REGULATORY AFFAIRS
• The new organisation of A2A Regulatory Affairs, set up in January 2015, reports to the CEO directly.
• Regulators have been increasing and enlarging their range of action – now impacting all A2A businesses, fromnatural monopolies to free market.
• A2A is now facing a substantial group of regulatory stakeholders. In addition to the most relevant - i.e. theEnergy Authority (AEEGSI), also the Antitrust, the AGCOM, the Ministry of Economic Development and other, upto the European Commission.
• Regulatory Affairs has to be:
Close to the Regulators
Close to the Company top management
Close to the Business Units
• Processes and Monitoring instruments:
Regulatory Scenario → Budget and Business Plan
Regulatory Review → Ebitda @ Risk
Stakeholder Management → structured plan
A2A Regulatory Affairs is no longer limited to monitoring and interpreting rules but also engages with manyinstitutional bodies to put forward A2A stakes thus becoming a critical success factor for the company.
4
Regulatory and Market Affairs
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.5
REGULATORY HOT TOPICS
51
Regulatory and Market Affairs
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.6
Currently in Italy
Since 2003, CRM has been set up to provide for capacity adequacy versus real time safety guaranteed by ancillaryservices market.
• Eligible plants: programmable > 10 MW and active on the ancillary services market.
• Overall amount collected through the bills: around € 180 mln, set by Regulator ex ante.
• Transitory status.
Currently in Europe
Current mechanisms: capacity payments (SP, PT, GR and IR), strategic reserve (GE), capacity market (UK and F).
The way forward
Many EU countries are planning to introduce or revise their CRMs.
• April 2015: the EC launched a sector inquiry on state aid, to ensure that CRMs guarantee an adequate safety ofthe electric system without affecting competition. A2A has been included in the inquiry.
• April 2016: the EC opened a consultation process on the interim report focused on the sector inquiry. CRMs aredeemed necessary: intermittent renewable sources coupled with demand reduction have added instability tothe system causing problems of safety management for both TSOs and DSOs (i.e. conventional sources now actas a back up, no more as a backbone).
BU Generation & TradingTHE EVOLUTION FROM CAPACITY PAYMENT TO CAPACITYMARKET (CRM)
Regulatory and Market Affairs
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
CRM regulatory framework (AEEGSI - resolution n. 98/11, July 2011):
- The spot markets are not able to give signals for investments and disposals → “boom and bust” risk. Need to create acentralised system for managing the CRM, which provides long-term price signals and hedging;
- Adequacy targets are set on a zonal basis considering a multi-year demand curve defined by the TSO (i.e. Terna);
- Capacity procurement through auctions organised by Terna, voluntary participation (€/MW);
- Strike price (€/MWh) set on the peak technology (implying cap to revenues on Day-Ahead and Ancillary Services Markets);
- Eligibility requirements: new and existing programmable plants, not incentivised;
- Possible participation of foreign capacity, distributed generation and demand.
7
This mechanism is expected to be fully operating as of 2018
Reliability option (1-way Contract for Difference)
Terna Operators
Yearly “premium” (€/MW)
• Obligation to offer the contractualized volumes on Day-Ahead and AncillaryServices Markets
• Payment of the differences between market price and strike price.
In progress: the EC is evaluating the compliance of the Italian mechanism with EU state aid rules:
- Pre-notification of the mechanism was submitted by the Italian Government to DG Competition in August 2015;
- Thereafter, many requests for clarification were sent by the EC to the Ministry of Economic Development, AEEGSI and Terna.
Regulatory and Market Affairs
BU Generation & TradingTHE ITALIAN CRM FRAMEWORK
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.8
Free market operators
Protected market operators (former DSO):Marketing and sales services (specificcomponent)Single Buyer (Acquirente Unico):supply (energy component)
Safeguard market operators(selected by auction)
FreeMarket
Protected Market(domestic clients and
LV small clients)
Safeguard Market(HV, MV and LV big
clients)
Role of the Single Buyer in theProtected Market
Public entity responsible for theelectricity supply to the clientsin the Protected Market
Active on the wholesalemarkets (spot and forward).The purchased electricity isresold to the final client bysale companies on the basis ofregulated price, quarterlyupdated by the Authority (theso-called «tutela di prezzo»)
In 2015 the Single Buyermarket share was equal to22% (∼ 56 TWh of the totalsupplied electricity volumes)
Figures: AEEGSI 2015
BU Energy RetailCURRENT STRUCTURE OF POWER SALES TO FINAL CLIENTS
Volumes(253 TWh)
Point of Delivery(POD)
(37 mln)
Regulatory and Market Affairs
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent. 9
2016
2017 1st July 20182016
1st July 2018Competition Bill: end of the protected market in the power andgas sectors as of 1 July 2018• Objective: increasing competition in the retail market through
more informed and proactive customers.• Mechanism: the migration of regulated tariff customers to the
«free market» will depend on the final text of the CompetitionBill: competitive auctions based on local areas ?
AEEGSI Resolution n. 369/2016/R/eel: gradual transition towardsthe abolition of the regulated-tariff service in 2018.
Creation of a new “semi-regulated” set of offers.
In 2017 the consumers should either directly migrate to the “freemarket” or opt for a “semi-regulated” offer (the so-called“Protection ALIKE“ – Tutela Simile).
Its main characteristics are:
- voluntary participation by customers and sellers through acentralised platform managed by the Single Buyer;
- customers choose the sellers through the platform on the basisof the discount offered on the marketing component (€/client);
- AEEGSI sets a cap equal to 500,000 units of served customersfor each seller;
- energy component in line with the conditions of the reformedprotected market;
- the contract will last for only 1 year.
BU Energy RetailABOLITION OF THE REGULATED TARIFFS IN THE POWERSALES
Regulatory and Market Affairs
FreeMarket
Safeguard/Supplier oflast resort(suppliersselected byauction)
FreeMarket
Safeguard
ProtectedMarket
FreeMarketUniversal
Service
Safeguard
ProtectionALIKE Free Market
(standard offer)
FreeMarket
Safeguard
ProtectedMarket
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.10
ANNEX
Regulatory and Market Affairs
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.11
Issues
Ministry ofEconomic
Development,others
1. Wholesale Market
SectorAuthorities*
GSE **,Market Operator
(GME),TSO (Terna)
Technicalentities
(ENEA, RSE, …)
* AEEGSI, Antitrust, Water Local Authority, etc
** The State-owned company which promotes and supports renewable energy sources in Italy.
2. Energy Efficiency
3. Incentives for renewables
5. Tariffs
6. Retail Market
7. Incentives for quality
8. Unbundling
EuropeanRegulation
4. ETS
Electricity and Gas Networks, Retail and Antitrust Market and Environment
Main external stakeholders
Integrated Water Cycle and District Heating
EXTERNAL STAKEHOLDERS MANAGEMENTRegulatory and Market Affairs
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.12
2015-2020EBITDA evolution by BU
2015 Consolidated Results
Strategic Plan update
Key financial figuresand upsides
Regulatory and Market Affairs
2016-2020 STRATEGIC PLAN: EBITDA EVOLUTION
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.13
Capex Plan
2015 Consolidated Results
Strategic Plan update
Key financial figuresand upsides
Regulatory and Market Affairs
2016-2020 STRATEGIC PLAN: CAPEX EVOLUTION
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.14
UK CRM: results of the first two auctions
• Capacity auction for 2018/2019 (carried out in December 2014):awarded capacity = 49.3 GW; clearing price = 19.40 £/KW/year
• Capacity auction for 2019/2020 (carried out in December 2015:awarded capacity = 46.4 GW; clearing price = 18 £/KW/year
Regulatory and Market Affairs
BU Generation & TradingCRM: UK vs ITALY
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.15
This document has been prepared by A2A solely for investors and analysts. This document does not constitute an offer or invitation to purchase or subscribe any shares or other securities and neither it nor any part of it shall
form the basis of or be relied upon in connection with any contract or commitment whatsoever. Some information contained herein and other material discussed at the meetings may include forward-looking information based
on A2A’s current beliefs and expectations. These statements are based on current plans, estimates, projections, and projects and therefore you should not place undue reliance on them. Forward-looking statements involve
inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited
to changes in global economic business, changes in the price of certain commodities including electricity, gas and coal, the competitive market and regulatory factors. Moreover, forward-looking statements are current only at
the date on which they are made.
A2A Investor Relations Team
Mail: [email protected]
Phone: +39 02 7720 3974
http://www.a2a.eu/en/investor/
CONTACTS AND IR PRODUCTS
a2a
2016
InvestorGuidebook
InvestorDatabook(excel file)
Concise and thorough insight in the A2A Group in the form of a longpresentation divided into three main parts: Our World, Our Resultsand Our Responsibilities. The selected contents are all publiclyavailable information, which you may find spread across a largenumber of Company documents
• Historical economic, financial and operational company data asof 2008 – on annual and quarterly basis
• Economic, financial and operational data useful for building A2Aearnings model – 2015 FY reported and 2016-20 BP forecast
• Tables of the Investor Guidebook mainly relevant to aquantitative analysis
Periodic update service for investors and
analysts on the significant steps of A2A
Business Plan – such as relevant
investments, new projects, achievements,
contracts, agreements. If you wish to
subscribe to the service, please visit A2A
website at the following link
http://www.a2a.eu/en/investor/overview/
newsletter/
Brief and synthetic document that shows the highlights and thestrengths of A2A business model
Moreover A2A publishes the following documents in the Investor Library Section on A2A website:• Overview of the Italian Energy Market (yearly basis)• Notes on energy and environmental markets (quarterly basis)Both documents are prepared by the Market Analysis, Modeling and Pricing Unit of A2A
Newsletter
Publications
The publications are available at the following link: http://www.a2a.eu/en/investor/guidebook/
a2a
2016
CompanyProfile