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Milan, April 2016
Notes on energy andenvironmental marketsat 31 12 2015
Overview of Italy and bordering
countries
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
Summary – Year 2015 – Power and environmental markets
2
• In 2015 there was a +1.5% increase in Italian electricity demand: the rise, relevant in Q3 (+6.7%) thanks to the high Julytemperatures, halted in Q4 (-0.1%), casting doubt on future increases. In the first two months of 2016 the demanddecreased by -0.8%.
• Italian hydroelectric production decreased by –24.9%, due to the strong reduction in rainfalls. In Q4, hydro productiondecreased by -29.7% y-o-y.
• The higher demand and lower hydro production brought to a +8.3% thermoelectric production increase (7.5% in Q42015). Photovoltaic production increased as well (+13%), while wind production fell in the second part of the year (-3.3% in2015, -18.4 % in Q4).
• In 2015 PUN base load was at the same level as in 2014 (+0.2 €/MWh). In Q4 the decrease (-6 €/MWh) was due to thefall in fuel prices. Clean Spark Spreads and Clean Dark Spreads increased (Clean Peakload Spark Spread +3.1 €/MWhand Clean Dark Spread +2.8 €/MWh) due to the relatively high power prices compared to the low fuel prices.
• The correlation between PSV and PUN is steady (CCGTs are still marginal plants in the Italian market), while thecorrelation between PUN and Brent is low (and declining) due to fewer gas supplies linked to oil formulas.
• Temperatures in 2015 were significantly higher than the 10YR average. Precipitations were low compared both to 2014and to the 105Y average.
• EUA prices collapsed in December, after an increasing trend begun in 2014, once the positive sentiment connected toregulatory and political events was over.
DISCLAIMER - This document has been prepared by A2A for convenience purposes only and for the benefit of investors and analysts solely and is based on public information. However this document shall not giverise to any liability of A2A or any of its subsidiaries, directors, officers, employees or consultants as per the truthfulness, accuracy, completeness and updating of such information. This document does not constitutean 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.
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent. 3
Summary – Q3 2015 – Gas Markets
• Gas demand marked a +9.9% increase in Q4 2015 (year-on-year basis), connected with lower temperatures.
• Imports through Tarvisio in Q4 2015 were higher year-on-year after the low imports levels recorded in the same periodof 2014.
• After the oil price crash LNG long term contract prices (oil-linked) were affected. This brought to an increase in LNGimports into Italy, with a +31.1%.
• Short system prevailed in 2015 on the Italian Gas Balancing System, particularly in Q3-15 and Q4-15.
• PSV prices decreased (-1.1 €/MWh on a year-on-year basis), mainly due to the collapse in Q4-15. Spreads with theAustrian VTP and Peg Nord increased (year-on-year basis). The PSV-TTF spread was in line with 2014.
• The PSV-Brent correlation shows a historical decline (fewer gas supplies linked to oil formulas; different internationalfactors, as the Ukranian crisis affecting gas prices), but recovering in the second part of 2015.
• Growing correlation between coal and Brent oil.
Summary – Year 2015 – Gas markets
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
1. Power Market• Supply and Demand
• Spot markets
2. Gas Market• Supply and Demand
• Spot markets
3. Cross commodities
4. Environmental Markets: EUA
Contents
4
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
Source: Terna - Monthly Report on the Electricity System.
5
• In 2015 there was a 1.5% increase in electricity demand.
• Hydroelectric production decreased by -24.9%, due to a strong reduction in rainfalls compared to the very rainy 2014. Therainfalls were particularly low in November and December (historical minimum).
• Thermoelectric production increased by 8.3%, due to the above mentioned reduction in hydro production and to theextraordinary temperatures in July and August, which pushed up power demand. Also photovoltaic production continued toincrease (+13%).
• There was also an increase in the import-export balance (+6.1%) driven by new rules in market coupling.
Italian Electricity Supply– breakdown by sources
The drop in hydroelectric production led to an increase in thermal production
Q4 2015 Q4 2014Var. %
2015/20142015 2014
Var. %
2015/2014
8.755 12.445 -29,7% 44.751 59.575 -24,9%
47.694 44.366 7,5% 180.871 167.080 8,3%
1.498 1.416 5,8% 5.816 5.566 4,5%
2.991 3.664 -18,4% 14.589 15.089 -3,3%
3.531 3.224 9,5% 24.676 21.838 13,0%
64.469 65.115 -1,0% 270.703 269.148 0,6%
14.260 13.794 3,4% 50.846 46.747 8,8%
785 876 -10,4% 4.465 3.031 47,3%
13.475 12.918 4,3% 46.381 43.716 6,1%
544 529 2,8% 1.850 2.329 -20,6%
77.400 77.504 -0,1% 315.234 310.535 1,5%
Solar
Total net production
Import
Export
Foreign balance
Pump storage
Demand
GWh
Net Production
Hydroelectric
Thermal
Geothermal
Wind
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
Source: Terna - Monthly Report on the Electricity System
6
• Rise in thermal production (at the 2013 level) after along decline.
• Steady increase in new renewables during the lastyears: in 2015 the increase was due to the solarproduction, while the wind production was lower thanin 2014 due to meteorological conditions (especially inthe second half of the year).
• Hydro production at a very low level in 2015, wellbelow the 10-year average (50.4 TWh).
• +1.5% year-on-year increase (+1.3% seasonally adjusted)in the Italian power demand (315 TWh in 2015) after along decline, yet demand still lower than 2013.
• Q4 demand decreased year-on-year, despite theeconomic recovery.
• Strong increase in Q3 demand (higher than 2013 as well),boosted by the high July temperatures.
• First half demand decreased on a year-on-year basis.
Italian Electricity Supply and Demand – historical trends
+1.7% increase in demand (seasonally adjusted)
43 54 60 45
3236 37
39
207 183 167 181
43 42 44 46
-
50
100
150
200
250
300
350
2012 2013 2014 2015
TWh
Italian Power Production
Foreign Balance
Thermal
Solar+Wind
Hydro
328 318 311 315
80 79 78 77
0
50
100
150
200
250
300
350
2012 2013 2014 2015
TWh
Italian Power Demand
CAL
Q4
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
€/MWh PUN BL PUN PL PL - BL
2014 Q1 52,5 62,8 10,3
Q2 46,5 49,8 3,3
Q3 50,4 53,5 3,0
Q4 58,8 69,8 10,9
CAL14 52,1 59,0 6,9
2015 Q1 51,8 59,0 7,3
Q2 47,9 50,3 2,3
Q3 56,7 62,3 5,6
Q4 52,8 63,4 10,6
CAL15 52,3 58,8 6,5
CAL 2015 vs 2014 0,2 -0,2 -0,4
Source: Gestore Mercato Elettrico (GME)
7
• In Q4, the decrease in PUN prices was also due to the gas prices slump. The decrease was particularly strong in October,
while PUN prices were relatively high in November and December (also due to the lack of hydro production).
• PUN prices were basically stable in 2015 compared to 2014: high price levels in Q3 (due to the heat wave which boosted
demand for air conditioning) were balanced by lower prices in Q4.
Italian Electricity Spot PricesPUN prices decreased in Q4-15
30
50
70
90
110
130
Jan
Feb
Ma
r
Ap
r
Ma
y
Jun
Jul
Au
g
Sep
Oct
No
v
De
c
€/M
Wh
PUN Baseload
2012
2013
2014
2015
30
50
70
90
110
130
Jan
Feb
Ma
r
Ap
r
Ma
y
Jun
Jul
Au
g
Sep
Oct
No
v
De
c
€/M
Wh
PUN Peakload
2012
2013
2014
2015
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
Source: MPF (on GME data). The data are calculated as weighted averages for the six zones (North, South, CSouth, CNorth, Sardinia, Sicily)
8
• CCGTs were the main marginal technology, with a peak in July and August (at the expense of the coal marginality) due to thedemand increase.
• In Q4 the CCGTs contribution to the marginal price was at average levels in November and December; it was very low inOctober due to the strong market-coupling contribution.
• The technology which set the highest prices was hydro, with very high levels in November and December. It is followed byCCGTs.
Italian Electricity Spot Prices: marginal technology on MGP and relative prices
CCGTs as the main marginal technology, hydro set the highest marginal prices
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
• Decrease in the number of 0-price hours in 2015 compared to 2014. In the second half of 2015 no 0-price hour was
registered.
• The number of 0-price hours in Sicily is the highest, mainly due to peaks in wind production.
9
Italian Electricity Market: zonal hours at zero price
Decrease in 0-price hours
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
• Increase in CSS and CDS, year-on-year basis.
• In Q4, strong increase in CSS and CDS, due to the relatively high powerprices compared to the low fuel prices.
Italian Electricity Clean Spark and Dark Spreads (CSS and CDS)Improvement in CSS and CDS due to low fuel prices
Clean Spark Spread: PUN (BL/PL) – gas PSV cost (eff. 51%) – EUA cost – CV cost (up to 2014)- variable transport costsClean Dark Spread PUN BL –coal cost (API2 + spread MED + variable transport costs - eff. 35%) – EUA cost – CV cost (up to 2014)
GWh
clean baseload
spark spread -
51% efficiency
clean peakload
spark spread -
51% efficiency
clean dark
spread -
35% efficiency
2014 Q1 -8,6 1,7 13,1
Q2 -4,5 -1,3 8,7
Q3 -0,0 2,9 10,9
Q4 -3,1 7,8 18,1
CAL -4,0 2,8 12,7
2015 Q1 -4,4 2,9 14,5
Q2 -5,6 -3,2 10,5
Q3 4,0 9,6 19,9
Q4 3,5 14,1 17,0
CAL -0,6 5,9 15,5
2015 vs 2014 3,5 3,1 2,8
12
,8
1,2 2
,8
5,96,3
3,7
7,8
14
,1
0
5
10
15
20
25
30
2012 2013 2014 2015
€/M
Wh
Clean Peakload Spark Spread
CAL
Q4
25
,0
21
,2
12
,7 15
,5
16
,7
22
,9
18
,1
17
,0
0
5
10
15
20
25
30
2012 2013 2014 2015€
/MW
h
Clean Dark Spread
CAL
Q4
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
1. Power Market• Supply and Demand
• Spot markets
2. Gas Market• Supply and Demand
• Spot markets
3. Cross commodities
4. Environmental Markets: EUA
Contents
11
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
Italian Gas Supply - breakdown by sources
Increase in Russian flows and LNG import, decrease in domestic production
Source: Snam Rete Gas, PCS correction by Snam Rete Gas during 2016
12
• +8.9% in gas demand during 2015 (year-on-year basis)
• +31.1% in LNG imports in 2015 after the oil price collapse (year-on-year basis)
• Higher imports through Tarvisio in Q4 2015 after the low imports levels recorded in the same period of 2014
Q4 2015 Q4 2014 ∆% 2015/2014 2015 2014 ∆% 2015/2014
1.857 1.040 78,6% 7.244 6.774 6,9%
1.485 1.823 -18,5% 7.107 6.512 9,1%
7.403 5.254 40,9% 29.898 26.148 14,3%
2 0 - 17 0 -
3.529 3.956 -10,8% 10.634 11.432 -7,0%
14.276 12.074 18,2% 54.900 50.866 7,9%
1.446 1.307 10,6% 5.797 4.469 29,7%
28 12 - 54 22 -
8 2 - 39 2 -
1.482 1.320 12,2% 5.890 4.493 31,1%
15.758 13.394 17,6% 60.790 55.359 9,8%
1.594 1.749 -8,9% 6.418 6.917 -7,2%
2.303 2.731 -15,7% 310- 863- -64,1%
19.648 17.875 9,9% 66.906 61.413 8,9%
Total Pipeline
Delta Stock
Demand
Rovigo (Cavarziere)
Panigaglia
Livorno (OLT)
Total LNG
Total Import
Domestic Production
mcm
Import
Mazara del Vallo
Gela
Tarvisio
Gorizia
Passo Gries
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
• Year-on-year slight decline in industrial consumption
• Increased thermal consumption particularly due to exceptionally high temperatures in July/August (+30% yoy)
• Higher domestic consumption due to colder temperatures in Q1-15 vs. Q1-14
Italian Gas ConsumptionDecline in industrial consumption, increase in thermal use.
Source: Snam Rete Gas, PCS correction by Snam Rete Gas during 2016
Industry ThermalDistribution
Network
Other
networksTotal
2014 Q1 3.537 4.592 12.715 552 21.396
Q2 3.168 3.775 4.013 300 11.256
Q3 3.091 4.559 2.908 328 10.886
Q4 3.364 4.785 9.149 576 17.875
Year 13.161 17.710 28.785 1.756 61.413
2015 Q1 3.519 5.113 14.403 612 23.647
Q2 3.104 4.074 4.097 326 11.600
Q3 2.896 5.983 2.783 348 12.011
Q4 3.239 5.451 10.238 720 19.648
Year 12.758 20.622 31.521 2.006 66.906
403- 2.911 2.736 250 5.494
mcm
2015 vs 2014
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
• Gas price decline in 2015 vs. 2014 on the PSV, particularly due to the prices in Q4.
• Spreads with the Austrian VTP and Peg Nord increased (year-on-year basis). The PSV-TTF spread basically in line.
Italian Gas Spot Prices – PSV and main hubs spread
Yearly contraction in PSV prices
Source: ICE-Endex, CEGH, Powernext
PSV PSV-TTF PSV-VTPPSV-PEG
NORD
Q1 31,8 7,9 6,6 7,3
Q2 28,4 4,1 2,0 3,9
Q3 27,0 2,3 1,2 1,9
Q4 27,9 0,8 0,9 0,6
Year 28,8 3,8 2,7 3,4
Q1 27,1 1,0- 0,3 1,8-
Q2 28,4 1,2 0,9 0,5
Q3 27,7 1,8 0,8 1,2
Q4 28,5 1,7 1,1 1,2
Year 27,9 0,9 0,8 0,3
Q1 25,5 1,2 0,5 1,1
Q2 20,8 1,9 0,6 1,2
Q3 20,5 2,4 0,8 1,7
Q4 25,7 3,6 1,7 3,2
Year 23,1 2,3 0,9 1,8
Q1 24,1 2,8 1,7 2,2
Q2 22,5 1,5 1,0 1,4
Q3 22,0 2,2 1,2 2,2
Q4 19,4 2,4 1,4 2,1
Year 22,0 2,2 1,3 2,0
1,1- 0,1- 0,5 0,2
€/MWh
2015 vs. 2014
2012
2013
2014
2015
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
• In 2015 (compared to previous years) persistingconvergence between Asian LNG prices andEuropean gas hub prices after the oil price crashin 2014
• Substantial convergence among European gashub prices
Global Gas Outlook – near month
Convergence in prices
Source: Argus, Thomson Reuters
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent. 16
• Short system prevailed in 2015, particularly in Q3-15 and Q4-15.
Italian Gas Balancing SystemShort system in Q3 and Q4
Source: Gestore Mercato Elettrico (GME)
Long
System
Short
SystemTotal
2014 Q1 484 206 277-
Q2 449 149 300-
Q3 159 371 212
Q4 356 492 136
Year 1.091 726 365-
2015 Q1 382 405 23
Q2 234 283 49
Q3 180 416 236
Q4 321 441 121
Year 796 1.104 308
296- 377 673
mcm
2015 vs. 2014
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent. 17
• Lower Heating Degree Days vs. Median Degree Days during Q4 2015
• Higher Heating Degree Days on a year-on-year basis in 2015
Italian Heating Degree Days – Q4 2015
Source: Bloomberg – Heating Degree Day calculation method: HDD = Y – AVG, Y = 18 ºC, HDD = Mean, if HDD<0 then HDD=0.
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
1. Power Market• Supply and Demand
• Spot markets
2. Gas Market• Supply and Demand
• Spot markets
3. Cross commodities
4. Environmental Markets: EUA
Contents
18
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent. 19
Correlation among commoditiesHistorically declining Brent oil effect on the Italian energy market
• Steady correlation between PSV and PUN(CCGTs still marginal plants in the Italian market)
• Low correlation between PUN and Brent oil(fewer gas supplies linked to oil formulas)
• Historical decline in the PSV-Brent correlation(fewer gas supplies linked to oil formulas; differentinternational factors, as the Ukranian crisisaffecting gas prices), but recovering in the secondpart of 2015
• Growing correlation between coal and Brentoil
Source: GME, Thomson Reuters, Bloomberg
PSV-PUNPSV-
BRENTPSV-COAL
PUN-
BRENTPUN-COAL
BRENT-
COAL
MAX 86% 82% 81% 72% 87% 85%
MIN 52% 0% -2% 22% 19% 0%
AVG. 12-
1572% 42% 50% 40% 57% 44%
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
Italian temperatures, precipitations and windHigh temperatures in Q3-15, low precipitations in 2015
Source: Bloomberg. Temperatures are the average temperature (usually of the high and low) that was observed between 7am and 7pm local. Precipitations include rainfall and theliquid equivalent of snow and sleet (measurement: Integer in 100th millimeters). Wind Speed is the average sustained winds which does not include wind gust
20
• Temperatures in 2015 significantly higher than the 10YR average. High temperatures in Q3 2015 compared both to Q32014 and the 10Y average. Earth’s 2015 surface temperatures were the warmest since modern record keeping beganin 1880, according to independent analyses by NASA and the National Oceanic and Atmospheric Administration (NOAA).
• Very low levels of precipitations in 2015 compared both to 2014 and to the 10Y average.
• Wind significantly lower than the 10YR average in Q4 2015.
Temperature Precipitations WindTemp. 15 vs.
14
Prec. 15 vs.
14
Wind 15 vs.
14
Temp. 15 vs.
10-YR Avg.
Prec. 15 vs.
10-YR Avg.
Wind 15 vs.
10-YR Avg.
Q1 10-YR Average 7,6 186,8 6,6
Q2 10-YR Average 17,2 165,5 6,2
Q3 10-YR Average 22,7 136,5 5,8
Q4 10-YR Average 11,6 221,9 6,0
10-YR Average 14,8 177,7 6,2
Q1 2014 9,4 204,2 6,6
Q2 2014 17,1 157,5 6,2
Q3 2014 21,9 158,5 5,9
Q4 2014 13,2 181,7 5,9
2014 15,4 175,5 6,2
Q1 2015 8,0 162,8 7,1 -14% -20% 8% 6% -13% 7%
Q2 2015 17,5 107,4 6,2 3% -32% -1% 2% -35% 0%
Q3 2015 23,9 110,1 5,7 9% -31% -4% 5% -19% -2%
Q4 2015 12,2 119,3 5,0 -7% -34% -15% 5% -46% -17%
2015 15,4 124,9 6,0 0% -29% -3% 4% -30% -2%
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
1. Power Market• Supply and Demand
• Spot markets
2. Gas Market• Supply and Demand
• Spot markets
3. Cross commodities
4. Environmental Markets: EUA
Contents
21
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent. 22
During 2015 EUA prices kept their increasing trend due to the positive sentiment connected to the Market Stability Reserve Adoption
(it will operate from 2019) and to the expectations related to the COP 21 (at the beginning of December).
In December 2015, once the sentiment connected to regulatory and political events was over, prices began to collapse until the
beginning of February, when they stabilized at around 5 €/ton. The fall is due to:
• slump in oil prices until mid January 2016,
• weak demand, due to the energy efficiency, to the increase in renewables production, to coal to gas switching in some countries(mainly UK) and to the mild weather. The market is oversupplied (see the cumulative position on the right graph).
EUA MarketCollapse in EUA prices since the end of 2015
Reuters. The figure shows year-by-year Emissions-to-Cap estimate. The individual years are shown (left axis) as well as the cumulative numbers (right axis). The annual balance equals to thedifference between cap and emissions, where cap includes credits and emissions include power and heat sector, industry and aviation.