overview of the italian energy market - amazon web services

Milan, December 2014

Overview of the

Italian Energy Market

(Updated to 2013)

This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent. 2

1. Main features of the Italian energy market

Market size

Offer and demand; market players

Market infrastructure

2. The wholesale market

3. The retail market

4. Market prices and margins

Agenda

1

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.

The European energy market sizes

3

Italian market is no.4 in the European electricity market ranking, and no.3 in gas market ranking.

The Italian electricity demand in 2012 stands at the same level of 2004.

The Italian gas demand in 2012 is below the level of 2003.

Source: Eurelectric early statistics 2012; Eurogas statistical report 2013. EU27, including Norway and Turkey

909

855

793

492

426

363

179

177

145107 96 86

55 53 50 47 39 38 34 31 30 15 14 13 8 7 0 00

100

200

300

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800

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1000

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TWh European gas demand -2012551

490

358

328

271

242

143 142130

115

85 8069 63 59 58 54 52

40 33 33 33 2713 11 8 8 7 5 2

0

100

200

300

400

500

600

Ge

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TWh European electricity demand - 2012


The historical trend of Italian electricity demand

4

Source: AU website; Terna website, REF

Electricity demand in 2013 amounts to 318 TWh.

Electricity demand is still downward in 2013, mainly due to the economic crisis.

In 2014 is decreasing further.

280

290

300

310

320

330

340

350

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

TWh

CAGR

1.55%

CAGR

-1.27%

+2.1% +1.9% +3.2% +1.5% +1.6% +2.1% +0.7% -0.1% -5.7% +3.2% +1.3% -1.9% -3.0% -2.9%


Final consumption by sector and GDP

Source: GME’s 2013 annual report.

5

Services consumption grew between 2008 and 2012 (+6 TWh).

Drop in industrial sector: -26 TWh in 6 years (-17.5%).

From 2008 to 2013 industrial consumption decreased much more than electricity

demand (-1.27%) and GDP (-1.9%).

6 6 6 6 6 6

151 131 138 140 131 125

9495 96 98 101 100

6869 70 70 69 66

-0.1%

-0.6%

0.2% 0.0%-0.2% -0.2%

-45%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

0

50

100

150

200

250

300

350

400

2008 2009 2010 2011 2012 2013

TWh

Agriculture Industry Services Households % change GDP


The electricity demand

6

Source: GSE website; AU website

REGULATED MARKET

AU (Acquirente Unico – Single Buyer): state owned body responsible for the electricity supply to the regulated

market.

AU sources electricity from the wholesale forward market (mainly by auctions) and from the spot power exchange.

Volumes managed by AU in 2013: approx. 70 TWh.

*

* Sales to wholesalers and resellers not included.

0%

5%

10%

15%

20%

25%

30%

35%

40%

Liberalized market - retailers' market share*


Gas consumption in Italy

Source: Snam rete gas.

7

Gas consumption in 2013 (67 bmc) is below the level of 2003, due to the drop of

thermoelectric demand and, secondarily, to the decrease in industrial consumption.

0

10

20

30

40

50

60

70

80

90

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

bcm

Hystorical gas consumption

Industrial Household Thermo Other

-32.14%Thermoelectricconsumption

20082013

-19.2%Industrial

consumption

20082013


The mix of electricity production

8

Source:; AEEG annual report 2012; Terna preliminary data.

The relative importance of thermoelectric generation (gas, oil and coal) decreased from

overall 83% in 2007 to 62% in 2013.

Huge decrease of CCGT production volumes: in 2013 the national load factor has been

about 1,800 hours.

40% 43%49% 50% 55% 54% 50% 51% 48% 43% 38%

13%15%

14% 14%14% 13%

14% 13% 15%16%

16%

28% 22%18% 17%

14% 12%11% 10% 9%

9%8%

15% 16% 14% 14% 12% 15%18% 18% 16%

15%18%

4% 4% 5% 4% 5% 5% 7% 9% 12% 17% 20%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2003 2004 2005 2006 2007 2008 2009 2010 2001 2012 2013

Natural Gas Coal Oil & other Hydro Renewable

288 TWhNational

productionin 2013


Major companies’ contribution to the electricity grossproduction

9

Source: AEEG annual report 2012; Preliminary data from Terna

(*) TirrenoPower: Sorgenia (39%), GdFSuez (50%), Hera (5.5%), Iren (5.5%)

* **

The national incumbent is still the main player. Many medium-sized players have emerged after

liberalization.

Consolidation process is now expected due to economic crisis.

0%

5%

10%

15%

20%

25%

30%

35%

40%

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Eni

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A2A

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Tir

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er*

Edip

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er

Sorg

enia

Sara

s

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ers

Year 2013


62 65 68 72 76 77 78 80 81 79

21 2121

2122 22 22 22 22 22

22

34

5 710

2025 28

200

220

240

260

280

300

320

340

360

40

60

80

100

120

140

160

180

200

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Ele

ctr

icit

yco

nsu

mp

tio

n[T

Wh

]

Inst

all

ed

ge

ne

art

ion

ca

pa

cit

y[G

W]

Installed generation capacity [GW] vs. Electricity consumption [TWh]

Thermo Hydro Other renewable Electricity consumption [right scale]

10

The generation capacity increases while the electricityconsumption is slowing

Starting from 2005 huge investments in the thermoelectric sector have been on stream to increase the capacity after a

critical period.

Additional renewable capacity, subsidized by the tariffs, has been developed from 2009.

The electricity consumption dropped in late 2008 and the recover is lingering.

The balance between generation capacity and consumption load is normally cyclical and should reverse in the next few

years.

The peak reserve margin in 2013 ranged from 33.5% (winter period) to 45.9% (summer period).

Under-capacity Over-capacity

Source: Terna


Solar20%

Wind14%

Geothermic5%Biomass

13%

Hydro48%

2013

6

14

15

22

53

0

20

40

60

80

100

120

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

TWh

Geothermic Biomass Wind Solar Hydro

11

Italian renewable electricity gross production mix

Hydroelectric production accounts for nearly half of total renewable sources.

Huge increase in solar and wind production, due to the EU 20-20-20 Targets and thanks to a

generous incentive scheme.

Source: GSE; AEEGSI. 2013 interim data.

110

TWh


Distributed generation in 2012

Distributed Generation (DG) is the total amount of power plants connected to the distribution

system.

In 2012 the energy gross production of DG amounted to 57 TWh, about 19% of national

production, through more than 480,000 plants.

69% of the energy comes from renewable sources, especially from solar power plants.

Source: AEEGSI

Solar31%

Wind7%

Hydro19%

Biomass,biogas12%

Non Renwable31%

Volumes breakdown by source

Technology n° plants Gross Capacity Volumes

# MW TWh

Hydro 2,628 3,754 11

Wind 841 2,283 4

Solar 478,277 15,682 18

Thermo 3,166 8,655 25

Total 484,912 30,374 57


Renewable power installations

Huge increase in new renewable installations from 2009 due to high public incentives.

About 10 b€ of incentives in 2012 (collected through the tariffs) were allocated to renewables,

whereof more than 6 b€ for solar energy.

New installed “green” capacity has more than doubled between 2000 and 2011. A slower growth

rate is expected over the next years due to the reduction of incentives.

(*) Provisional dataSource: GSE website; Terna

• RENEWABLE INSTALLED CAPACITY IN 2012: 47 GW

• TOTAL CAPACITY IN 2012: 128 GW

18.20

7.97 8.56

16.35 18.42

3.80

0

10

20

30

40

50

60

2008 2009 2010 2011 2012 2013*

GW

Installed capacity by Source

Hydro Wind Solar Geothermic Biomass


Electricity interconnection capacities

14

FR

SW AU

SL630

GR

Main imports come from Switzerland and France.

Import reductions by Terna to maintain the system security.

Flows from Slovenia and Greece hard to optimize due to the local illiquid markets.

New Montenegro-Italy and France-Italy interconnections are expected to be commissioned

in 2017 and 2019 respectively.

Since 2005 the interconnection capacities have

been allocated to the market participants through

explicit auctions.

The use of capacities (import-export flows)

strongly depends on the price spreads between

the adjacent markets.

In 2011 market coupling has been launched on

the Italian-Slovenian border. In 2015 it is expected

to be established with the rest of northern

borders.

Source: AEEG annual report 2012

43TWhImport

volumes in2013

Interconnection capacities [MW]

MNE

-10

0

10

20

30

40

50

60

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Net Italian import: break down by countries - [TWh]

France Switzerland Austria Slovenia Greece


Gas interconnection capacities

15

Interconnection capacities [bcm/year]

NetherlandsNorway

Algeria

Interconnection capacities are allocated

to the market participants through

explicit auctions and through long-term

contracts

The gas in the pipelines is normally in-

flowed (except Gorizia)

New LNG Terminal in Livorno started to

operate in September 2013

Source: AEEG annual report 2012; SNAM website

Lybia

Russia

LNGLNG

Gries pass Gorizia

Mazara del Vallo

Gela

Panigaglia

Rovigo

Tarvisio

Storage

16

Livorno

0%

20%

40%

60%

80%

100%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Gas imports breakdown

Gries pass Tarvisio Gorizia Gela

Mazara del Vallo Panigaglia (LNG) Rovigo (LNG) Other

TAP

Lecce

62bcmImport

volumes in2013


Italian electricity chain

16

RETAIL MARKET

~ 37 Mil. customers

SALES

~ 20 main sales companies

WHOLESALE/TRADING

~ 40 active traders

DISTRIBUTION

138 local distributors

TRANSMISSION

1 main TSO (Terna) + 11 minors

65,000 km tr. lines

GENERATION

~ 12 main producers

Players along the value chain:

Institutional bodies:

MSE

AEEGSI

Terna

GME

GSE

AU

Ministry of Economic Development: defines the political and strategic guidelines for the management and

security of the national electric system.

Regulatory Authority for Electricity Gas and Water: sets the regulated tariffs; promotes and controls the

competitiveness and efficiency of the energy sector. Independent of the government.

Transmission System Operator: owner of the national transmission grid through a concession and

responsible for the security and for the optimal dispatching. Listed company.

Market operator: organizes the day ahead market and MTE.

Responsible for the promotion and coordination of renewable sources.

Single Buyer: responsible for the electricity supply to the regulated market.

Regulated business

Liberalized business


Terna’s energy demand forecast 2013-2023

250

300

350

400

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

TWh

Demand Forecast

Baseline scenario Development scenario

In the ‘’Baseline Scenario’’, a decrease of the electric intensity of

0.5%/year is assumed, due to the compliance with the energy

efficiency goals. Demand foreseen in 2023: 338.5 TWh (+0.3%

average YoY).

In the ‘’Development Scenario’’’, an increase of the electric

intensity of 0.3%/year is assumed . Demand foreseen in 2023: 370

TWh ( +1.1% average YoY).

In the Baseline Scenario, the

industry’s contribution to

consumption growth is negative.

Positive the growth of services (+1.5%

year).

In the Development Scenario, an

increase of the share of consumption

in the service is foreseen at the

expense of the industrial sector.

Source: Terna, November 2013.

6 6 6

131 121 124

101 108 119

70 6971

0

50

100

150

200

250

300

350

400

2012 2018 2023

Baseline Scenario

TWh

Residential

Terziary

Industry

Agricolture

6 6 6

131 127 135

101 113134

70 71

75

0

50

100

150

200

250

300

350

400

2012 2018 2023

Development ScenarioTW

h




Spot market (IPEX, MSD)

Forward/futures market



Agenda

2


IPEX: Italian Power Exchange

MGPday ahead

MIIntraday

(4 sessions)

DAY AHEAD MARKET

Purchasing and sale ofelectricity on an hourly basis

Players: producers, traders,consumers

System Marginal Price(zonal market for theproducers)

Bilateral contracts areallowed

Counterparty: GME

DISPATCHING SERVICES MARKETS (ancillary services)INTRADAY MARKET

Purchasing and sale ofelectricity in order to adjustthe MGP’s program

Players: producers, traders,consumers

Discretionary

System Marginal Price

Counterparty: GME

DISPATCHING

Purchasing and sale ofpower by TSO forcongestion resolution andreserve

Players: relevantproducers

Pay as Bid

Counterparty: TERNA

h.9.15 h.14.40h.12.30 h.07.30 h.10.00

D-1 D

MGP

MI1

MI3

MSD1

MI2

h.16.40 h.21.00

MSD2

MI4

h.11.45 h.14.05

MSD3

h.21.00

MB

Bidding RUN

MSDdispatching service (3 sessions)

MBbalancing

BALANCING

Purchasing and sale ofpower by TSO for real-time balance

Players: relevantproducers

Pay as Bid

Counterparty: TERNA


The day ahead market

6 geographical zones

North

Center-North

Center-South

South

Sicily

Sardinia

6 virtual zones

France

Switzerland

Austria

Slovenia

Corsica

Greece

Limited production poles

NORTH

CENTER-NORTH

CENTER-SOUTH

SOUTH

SICILY

SARDINIA

FRANCE

SWITZERLAND

AUSTRIA

SLOVENIA

CORSICA

GREECE

Hourly clearing price for each market zone

Reference price for producers and importersZONAL PRICES

PUN

Unique National Price: average of the zonal prices weighted on the zones’ volumes

Reference price for consumers

Transport capacity limits exist among

the market zones and are cleared

through the market algorithm (see

next slide)

MGP

day ahead

MI

intraday

MSD

dispatching services

MB

balancing


Renewable capacity installed

shaves peak prices

21

The day ahead market algorithm

MWh

€/MWh

CumulativeOFFER

CumulativeDEMAND

P

Q

NORTH

CENTER-NORTH

CENTER-SOUTH

SOUTH

SICILY

SARDINIA

for each zoneThe algorithm runs the first

time at national level. If the

capacity limits among the zones

are not breached, the outcome

is an equal price for all the

zones.

If any capacity limit breach

occurs, the market is split into

one or more zones. The

algorithm is repeated at zone

level and the resulting prices

are different among the zones.

The electricity imported and the

electricity produced from renewable

sources are bid at zero (price takers).

The electricity price is calculated through a demand-offer equilibrium algorithm:

MGP

day ahead

MI

intraday

MSD

dispatching services

MB

balancing


The Ancillary Services Market (MSD)

Terna (TSO) procures through the Ancillary Service Market (MSD) the resources necessary to guarantee the balance of

the power system and to release the intra-zonal congestions, that characterize Italian electricity market, which is a very

complex physical market.

The MSD is cleared through a pay as bid algorithm. Terna is the central counterparty which accepts bids/offers from

market participants related to different reserve and balancing services.

The market is divided into:

• «ex-ante MSD»: consists of 3 sub-sessions, where Terna trades energy and balancing services in order to releasecongestions and to create reserve margins (secondary and tertiary reserve);

• «Balancing Market» (MB): consists of 5 sub-sessions, where Terna trades real-time balancing services to restoresecondary/tertiary reserve and to maintain the balance of the grid.

Each player admitted to the market must provide bids and offers for each of the following services:

• Secondary Reserve;• Terziary Reserve;• Start-up;• Shut-down;• Change of plant configuration.

1314

12 11

15 15

56

9

-12 -12-15

-12 -13

-7-5

-4-5

-20

-15

-10

-5

0

5

10

15

20

2005 2006 2007 2008 2009 2010 2011 2012 2013

TWh

MSD ex ante volumes

Ascending DescendingSource: GME

After the last update of the dispatching rules in 2011

volumes in MSD drastically dropped, due to the

introduction of new market sessions and the creation of

a more cost reflective offer structure. Thereafter the

balancing needs increased because of the diffusion of

intermitting renewable sources.


Centralized power exchange

Trading of standard futures products (baseload, peakload)

Financial transactions with unique counterparty

Credit risk managed by margin calls system (clearing house)

Medium liquidity

23

The wholesale futures and forward markets

Bilateral forward market currently supported by 8 brokers

Trading of standard products: baseload, peakload, off-peak

Physical and financial transactions under bilateral master

agreements (i.e. EFET, ISDA)

Credit risk managed by collaterals (PCG, Bank Guarantee)

High liquidity available, from day-ahead until 2 years-ahead

Bilateral andbrokered market

IDEX, EEX

MTE

Futures/

Forward market

Centralized power exchange managed by the GME

Trading of futures products with physical delivery (standard:

baseload and peakload)

Unique counterparty. Automatic scheduling

Credit risk managed by bank guarantee and/or cash deposit

Low liquidity


40

125

300

500480

550

0

100

200

300

400

500

600

2008 2009 2010 2011 2012 2013

TWh

Wholesale traded volumes

24

The futures/forward market segmentation

Wholesale futures/forward market size is steadily around 500 TWh since 2011.

One of the most liquid power market in Europe

OTC physical forward market is the main wholesale channel.

Source: A2A internal analysis

1.7xItalian

market size


Expected evolution of the market regulation

Until 2017, the temporary regime provides for an equal remuneration (CAP) for all and asupplementary one (S) linked to actual revenues. In 2013 the total remuneration for themechanism was equal to 155 M €. With the resolution 320/2014, AEEG introduced an auctionmechanism to remunerate the flexible capacity for the period 2015-2017.

Terna will secure through central auctions the system adequacy and flexibility. The organizationof the capacity market is expected at the end of 2015. The auctions will be open to participantswith new or existing programmable and not subsided capacity; in exchange of a fixed amount ofmoney (which will be the auctioned item), market participants shall ensure capacity plantavailability and shall return the difference, if positive, between a reference price (MGP or MSD)and the strike price linked to an open cycle gas turbine overall cost.

The imbalances regime has been reviewed in November 2014. The Authority defined the newmechanism of imbalance settlement, with different thresholds for different kind of renewables,and a fee within the threshold in order to avoid cost socialization. If producers do not accept thismechanism they will pay the same cost of the non relevant but programmable units.

Starting from 2015 Italy should gradually join the European Price Coupling, which simultaneouslydetermines volumes and prices in all relevant zone, using a single algorithm based on themarginal pricing that meets the requirement of efficient allocations of the cross border capacity.Some important differences in the market structure have to be removed: gate closure at 9.15

instead of 12.00, two months settlement instead of two weeks, negative prices.

Capacitymarket

Imbalances

of intermittingrenewables

Marketcoupling

Capacitypayment





Distribution service

Switches to liberalized market

Electricity prices for retail customers


Agenda

3


3,9%3,3%

1,4%0,9% 0,7% 0,6%

3,2%

0%

2%

4%

6%

8%

10%

12%

Enel A2A Acea AEMTorino

Hera Set AGSM Others

Distribution market shares (volume)

27

Distribution service

138distributors

The incumbent is still predominant.

Besides A2A and Acea, competition is spread

across many small players.

Source: AEEG annual report 2013

Most of the distributors are pretty small, with

only local distribution network and small size

customers.

Number ofdistributors

>100.000

>>1.000

6

4

86%

100%


76%67%

60% 57% 52% 50% 45%37%

30% 27% 25% 26%

24%33%

40% 43% 48% 50% 55%63%

70% 73% 75% 74%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Market segmentation by tariff

Regulated Liberalized

28

The captive customers progressively switch to unregulated tariffs

Market liberalization started in 1999 involving only big industrial customers, then progressively extended to

the smaller industrials.

From 2007 the market liberalization process has been completed involving the residential customers.

In the last years households and SMEs have been the main switchers.

Source: AU website

Liberalization forhouseholds

Liberalizationfor SMEs

1999: start ofliberalization

23% 22% 20%

77% 79% 80%

2013 2014 2015


Who’s switching to the liberalized market

Most of thecustomersreluctant toswitch to theliberalizedmarket arehouseholds

Most of thecustomersswitching tothe liberalizedmarket arenon-household

Source: AEEG annual report 2013; A2A internal analysis

Few suppliers are prepared to

serve households due to high

acquisition and commercial costs.

49

%

91

%

80

%

78

% 90

%

10

0%

78

% 90

%

97

%

10

0%

10

0%

79

%

0%

20%

40%

60%

80%

100%

Customer base - 2013

Others Household

Household9%

Others91%

Household67%

Others

33%


The cost of renewables financed by the domestic bill

30

Over the past two years, the weight of the energy component within the regulated tariff has dropped from 60% to 53%

and, conversely, the system charges significantly increased (moving from 9% to 19%), mainly due to the increase of the

incentives to renewable sources.

Source: GSE – AEEG data- (*) Solar Energy Report 2014 of Politecnico di Milano

The V incentive scheme ceased toapply on 6/07/2013, when thecumulative annual cost of incentiveof € 6.7 billion has been reached.

In 2013 more than 305 MW of PVcame into operation withoutincentives (grid parity); while in 2014an additional 1 MW is expected.

The cumulative costcan not exceed 5.8billion €/year.

9,4 9,5 9,5 9,4 10,0 10,9 10,9 11,0 10,4 10,0 10,2 10,0 9,8 9,4 9,3

2,5 2,5 2,5 2,5 2,62,6 2,6 2,6 2,8 2,8 2,8 2,8 2,8 3,0 3,0

1,5 1,9 2,2 2,3 2,43,1 3,2 3,3 3,4 3,6 3,6 3,7 4,0 4,1 4,12,2 2,3 2,3 2,3

2,42,5 2,6 2,6 2,6 2,5 2,6 2,5 2,6 2,5 2,5

0

5

10

15

20

25

2011-I 2011-II 2011-III 2011-IV 2012-I 2012-II 2012-III 2012-IV 2013-I 2013-II 2013-III 2013-IV 2014-I 2014-II 2014-III

c€/kWh

Regulated market: electricity tariff's breakdown

energy costs network cost system cost (inlc. RES incentives) taxes






Agenda

4


66

3944

5143

38

69

4347 49 47

43

87

64 6472 75

63

0

20

40

60

80

100

2008 2009 2010 2011 2012 2013

€/MWh

Baseload prices

Germany France Italy

32

Italian prices are the highest in Europe

Italian prices higher than European prices.

Heavy decrease of prices from 2008 due to

the financial world crisis and to local

generation overcapacity.

Increase of price from 2011 due to higher

oil costs, despite the enduring overcapacity

conditions and the significant increase of

renewables.

CCGT is still the main marginal

technology.

New renewable sources (besides hydro)

are emerging.

CCGT variable costsare the main referenceprice especially duringthe peak hours

Source: AEEG; A2A internal analysis

* Technology which set the price for a single hour

Coal6%

Nat. Gas62%

Idro10%

Oil6%

RES2%

Other2%

Import12%

Marginal Technology*


-40

-30

-20

-10

0

10

20

30

40

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24€/MWh

PUN hourly shape

2009 2013

33

Spot price hourly shape

Typical peak hours shifted from

morning hours to h.19-21, because of

the strong impact of PV production

occurring in the central hours, along

with steep reduction during the

evening hours not matched by load

decrease. Therefore CCGTS are able to

set System Marginal Price in evening

hours with high margins to recover

their fixed costs.

Ratio between peak and baseload

hours has decreased over the last 4

years.

This is due to overcapacity and low

demand scenario, together with

remarkable solar generation increase.

Source: A2A internal analysis

0,9

1,0

1,1

1,2

1,3

1,4

Peak/Base ratio

1.30 1.29

1.19

1.14 1.13 1.12


The Italian spot gas market

Fonte: dati GME e analisi interna.

34

The Italian Gas Balancing Market (PB-GAS) is a daily spot gas market where the market participants can offer their

storage resources to the balancing operator (Snam Rete Gas) in order to solve the contingent imbalances of the

system.

In 2013, 41 TWh were traded at an average price of 27.86 €/MWh, aligned with PSV (Italian virtual exchange point),

with a correlation of 89%.

In 2013, the spread between PBGas and TTF drop from 3.65 to 0.83 €/MWh gas.

20

22

24

26

28

30

32

34

1 2 3 4 5 6 7 8 9 10 11 12

€/MWh

PB-GAS

2012 2013

€/MWh PSV (PB-GAS) TTF

PBGAS-TTF

spread

2012 Q1 31.0 23.7 7.3

Q2 28.3 24.2 4.1

Q3 27.2 24.6 2.6

Q4 27.6 27.0 0.6

Y2012 28.5 24.9 3.6

2013 Q1 26.8 28.2 -1.4

Q2 28.5 27.2 1.3

Q3 27.8 25.9 1.9

Q4 28.3 26.8 1.5

Y2013 27.9 27.0 0.8

Y2013 vs. Y2012 -0.7 2.1 -2.8


The Italian forward electricity market

35

Source: internal analysis

On the forward electricity market, the Calendar 2014 quotation drops from 75 €/MWh level of beginning of 2012

to 69 €/MWh at the end of the year, and then to 62 €/MWh at the end of 2013. This was due to a progressively

huge decrease in the electricity spot prices. The 2014 price is now equal to 52.5 €/MWh.

The decrease in energy consumption, the increase in the renewable installed capacity, the high hydraulicity

levels are the main causes of this slump in the electricity prices.

50

55

60

65

70

75

80

1/1/12 1/4/12 1/7/12 1/10/12 1/1/13 1/4/13 1/7/13 1/10/13

€/MWh

2014

Baseload Peakload


The Italian forward gas market

36

Source: internal analysis; GME Annual Report

On the forward market, in 2013 PSV and TTF remained highly correlated.

In the first months of 2013 the spread between PSV and TTF fell below 0.5 €/MWh due to a particular gas shortage

in Northern Europe. It then recovered to a stable level of 1.5 €/MWh, that represents the transport cost from TTF

hub to PSV hub.

0

1

2

3

4

5

20

22

24

26

28

30

1/1/13 1/3/13 1/5/13 1/7/13 1/9/13 1/11/13

PSV

/TTF

spre

ad[€

/MW

h]

PSV

,TT

F[€

/MW

h]

2014

PSV TTF Spread


ETS at The beginning of the Phase III

The huge excess of credits at European level and the lack of regulation caused an important collapse in the EUA

price from 2008 to 2013. In April 2013 EUA dropped to the minimum level of 2.73 €/ton.

The approval of Backloading and the Market Stability Reserve gave some support to the price that reached a

relative maximum level 7.2 €/t in March 2013.

0

2

4

6

8

10

12

1/1/12 1/4/12 1/7/12 1/10/12 1/1/13 1/4/13 1/7/13 1/10/13 1/1/14 1/4/14 1/7/14

€/t

EUA 2014


Clean Spark Spread

38

The Clean Spark Spread (CSS) measured using baseload and peakload electricity prices is an indicator of CCGT

profitability. The CSS are calculated as the difference between i) the power spot price and ii) the PB-Gas price

and the environmental costs related to CCGT production (i.e. CO2 and Green Certificates).

The profit has hugely decreased in the last 2-3 years, becoming negative on baseload in Q2 2013 (- 7.6

€/MWh), due to the important presence of renewable sources coupled with low demand level.

(*) In the 2012due to free allocations, the CO2 cost is set as revenues..Source: A2A internal analysis

-20

-10

0

10

20

30

1 2 3 4 5 6 7 8 9 10 11 12

€/MWh

Clean Spark spread - Peakload

2012

2013

-20

-10

0

10

20

30

1 2 3 4 5 6 7 8 9 10 11 12

€/MWh

Clean Spark spread - Baseload

2012

2013

€/MWh

Clean Spark

Spread

Baseload

Clean Spark

Spread

Peakload

2012 Q1 3.1 20.0

Q2 1.8 8.0

Q3 12.2 17.0

Q4 -5.2 5.6

Y2012 3.0 12.6

2013 Q1 1.2 5.0

Q2 -7.6 -5.8

Q3 1.2 -0.3

Q4 -1.7 4.2

Y2013 -1.7 0.8

Y2013 vs. Y2012 -4.7 -11.8

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