a2a main regulatory issues · €m(1) energy efficiency & services 356 ... industrial energy...

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

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Regulatory and Market Affairs


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


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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.

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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



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)



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.

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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.


BU Generation & TradingTHE ITALIAN CRM FRAMEWORK


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)


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


FreeMarket

Safeguard/Supplier oflast resort(suppliersselected byauction)

FreeMarket

Safeguard

ProtectedMarket

FreeMarketUniversal

Service

Safeguard

ProtectionALIKE Free Market

(standard offer)

FreeMarket

Safeguard

ProtectedMarket


ANNEX



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


2015-2020EBITDA evolution by BU

2015 Consolidated Results

Strategic Plan update

Key financial figuresand upsides


2016-2020 STRATEGIC PLAN: EBITDA EVOLUTION


Capex Plan

2015 Consolidated Results

Strategic Plan update

Key financial figuresand upsides


2016-2020 STRATEGIC PLAN: CAPEX EVOLUTION


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


BU Generation & TradingCRM: UK vs ITALY


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

http://www.a2a.eu/en/investor/overview/newsletter/

http://www.a2a.eu/en/investor/overview/newsletter/

http://www.a2a.eu/en/investor/guidebook/

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