2012

Report and Financial
Statements
2012

Report and Financial
Statements
Growth
For GSE financial growth can not be
separated from the growth
of a global responsibility in the issues
of energy sustainab...
Volumes
In this respect, GSE is one of the leading
Italian companies: the volume of electricity
managed in 2012 is in line with th...
Objectives
With regard to the issues
of renewable sources, GSE’s objectives
are perfectly in line with the objectives
of the whole co...
8

Report and Financial Statements 2012

Index
Corporate Boards of GSE S.p.A.
Powers of the Corporate Boards of GSE S.p.A....
Index

Financial Statements 2012
Financial Statements index

Report on Operations
Summary of results
Financial results of ...
10

Report and Financial Statements 2012

Corporate Boards of GSE S.p.A.
Board of Directors
Chairman and Chief Executive O...
Corporate Boards of GSE S.p.A. | Powers of the Corporate Boards of GSE S.p.A.

Powers of the Corporate Boards of GSE S.p.A...
12

Report and Financial Statements 2012

Management of GSE S.p.A.
Operating Division
Mr. Gerardo Montanino

Sales Managem...
Management of GSE S.p.A. | Assembly

Assembly
The Shareholders’ Meeting of GSE S.p.A., convened with notice on June 26, 20...
2012

Consolidated
Financial Statements
GSE Group
16

Consolidated Financial Statements 2012

Consolidated Financial Statements index
Report on Operations

19

Structure of...
Index

Consolidated Financial Statements

87

Consolidate Balance Sheet Assets

88

Consolidated Balance Sheet Liabilities...
18

Consolidated Financial Statements 2012
GSE Group Report on Operations

Report
on Operations
GSE Group

19
20

Consolidated Financial Statements 2012

Structure of the GSE Group
Gestore dei Servizi Energetici - GSE S.p.A
Gestore ...
GSE Group Report on Operations

21

MINISTRY OF ECONOMY AND FINANCE

100%
100%

100%

100%

SUMMARY OF RESULTS - GSE GROUP...
Consolidated Financial Statements 2012

22

Significant events of 2012
The GSE Group companies have confirmed, in 2012, th...
24

Consolidated Financial Statements 2012

Activities during the year 2012
Gestore dei Servizi Energetici
Renewable sourc...
GSE Group Report on Operations

Mission and role of Gestore dei Servizi Energetici
GSE plays a key role in the promotion o...
26

Consolidated Financial Statements 2012

Incentive, sale and certification of energy
GSE promotes the production of ene...
GSE Group Report on Operations

27

Qualification systems
Photovoltaic - Energy Account
The Energy Account is the mechanis...
28

Consolidated Financial Statements 2012

The following graphs show the trend in the number of photovoltaic systems and ...
GSE Group Report on Operations

29

POWER OF PLANTS IN OPERATION (MW)
Power (MW)

Figures at 12.31.2012, prepared in Febru...
30

Consolidated Financial Statements 2012

Plants powered by renewable energy systems
The classification of a plant power...
GSE Group Report on Operations

QUALIFIED PLANTS AT DECEMBER 31, 2012 BY ENERGY SOURCE
8%

Hydroelectric energy
Biogas ene...
32

Consolidated Financial Statements 2012

Incentive mechanisms, sale and certification of energy
There were multiple inc...
GSE Group Report on Operations

Energy Account

MW

Subsidized
energy
GWh

Euro million

3,964
1,647
114

25
74
64

28
95
...
34

Consolidated Financial Statements 2012

for the current year or the following year. In this regard it should be noted ...
GSE Group Report on Operations

During 2012, in application of the provisions of MD July 6, 2012, GSE withdrew CVs, issued...
36

Consolidated Financial Statements 2012

Energy purchases pursuant to article 3
of Legislative Decree 79/99 by type of ...
38

Consolidated Financial Statements 2012

Energy Withdrawal
Dedicated Withdrawal
The Dedicated Withdrawal regime, regula...
GSE Group Report on Operations

Net Metering
Net Metering is a service provided by GSE that allows the “producer/consumer”...
40

Consolidated Financial Statements 2012

Forecasting and monitoring energy
Forecast for the placing of energy
The predi...
GSE Group Report on Operations

The GO may be subject to negotiation both in Italy, with the same procedures as the titles...
42

Consolidated Financial Statements 2012

System verification
In 2012 the verification of the plants in order to ascerta...
GSE Group Report on Operations

Checks on plants qualified IAFR
In order to verify the requirements needed for the recogni...
44

Consolidated Financial Statements 2012

GSE finally implemented various campaigns and events with the aim of supportin...
GSE Group Report on Operations

International activities
GSE, in an increasingly European and international energy context...
46

Consolidated Financial Statements 2012

Research, statistics and support to Public Administration
Studies
In recent ye...
GSE Group Report on Operations

Tariff coverage and A3 component
Management mechanisms for the promotion of renewable ener...
48

Consolidated Financial Statements 2012

Transitional physical measures
Starting from the storage year 2012-2013, the i...
50

Consolidated Financial Statements 2012

Acquirente Unico
Acquirente Unico S.p.A. is now entrusted with the role of ens...
GSE Group Report on Operations

Energy obtained through physical bilateral contracts
The energy supplied through physical ...
52

Consolidated Financial Statements 2012

Differential and risk management contracts
The company caters the MGP includin...
2012 GSE annual Report and Financial Statements
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2012 GSE annual Report and Financial Statements

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The GSE Group companies have confirmed, in 2012, the capacity to act as reference stakeholders in the
energy sector, managing and developing new activities thanks to the skills and effectiveness demonstrated
over the past year.

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2012 GSE annual Report and Financial Statements

  1. 1. 2012 Report and Financial Statements
  2. 2. 2012 Report and Financial Statements
  3. 3. Growth
  4. 4. For GSE financial growth can not be separated from the growth of a global responsibility in the issues of energy sustainability.
  5. 5. Volumes
  6. 6. In this respect, GSE is one of the leading Italian companies: the volume of electricity managed in 2012 is in line with the business volumes we have been assigned.
  7. 7. Objectives
  8. 8. With regard to the issues of renewable sources, GSE’s objectives are perfectly in line with the objectives of the whole country.
  9. 9. 8 Report and Financial Statements 2012 Index Corporate Boards of GSE S.p.A. Powers of the Corporate Boards of GSE S.p.A. Management of GSE S.p.A. Assembly Consolidated Financial Statements 2012 10 11 12 13 15 Consolidated Financial Statements index 16 Report on Operations 19 Structure of the GSE Group Significant events of 2012 Activities during the year 2012 Investments Research and development Human resources, organization and industrial relations Control system Risks and uncertainty Related parties Information pursuant to the Civil Code Group economic and financial results Significant events after the closure of the fiscal year Outlook Consolidated Financial Statements Consolidated Balance Sheet Assets Consolidated Balance Sheet Liabilities Consolidated Income Statement 20 22 24 61 62 63 68 70 72 73 74 80 81 87 88 89 90 Notes to the Consolidated Financial Statements 93 Structure and content of the Financial Statements Evaluation criteria Balance Sheet - Assets Shareholders’ Equity and Liabilities Commitments and contingencies off the Balance Sheet Income Statement 94 95 100 108 116 120 Certification of the Consolidated Financial Statements pursuant to Article 26 of the bylaws 129 Independent Auditors’ Report 139 Statutory Auditors’ Report 143
  10. 10. Index Financial Statements 2012 Financial Statements index Report on Operations Summary of results Financial results of GSE S.p.A. Investments Relations with subsidiaries Annual Financial Statements Balance Sheet Assets Balance Sheet Liabilities Income Statement Notes to the Financial Statements Structure and content of the Financial Statements Evaluation criteria Balance Sheet - Assets Shareholders’ Equity and Liabilities Commitments and contingencies off the Balance Sheet Income Statement 149 150 153 154 154 161 162 165 166 167 168 171 173 174 178 186 194 198 Certification of the Financial Statements pursuant to Article 26 of the bylaws 209 Independent Auditors’ Report 213 Statutory Auditors’ Report 217 Glossary 226 9
  11. 11. 10 Report and Financial Statements 2012 Corporate Boards of GSE S.p.A. Board of Directors Chairman and Chief Executive Officer Dr. Nando Pasquali Directors Dr. Rosaria Fausta Romano Dr. Domenico Iannotta Board of Auditors Chairman Dr. Francesco Massicci Statutory Auditors Dr. Diego Confalonieri Dr. Silvano Montaldo Court of Auditors Executive Magistrate Dr. Alberto Avoli Independent Auditors Deloitte & Touche S.p.A.
  12. 12. Corporate Boards of GSE S.p.A. | Powers of the Corporate Boards of GSE S.p.A. Powers of the Corporate Boards of GSE S.p.A. Board of Directors The GSE S.p.A. Shareholders’ Meeting, in its Resolution on July 13, 2012, elected the new Board of Directors of the company, which, in accordance with the provisions of Decree Law 95/12 converted by Law 135/12, is made up of three members, two of whom are government employees and holders of the participation of the powers of direction and supervision. The Board of Directors will remain in office until approval of the 2014 financial statements and is composed of Dr. Nando Pasquali, Chairman and Chief Executive Officer, by the Director Dr. Domenico Iannotta, Director of the Ministry of Economy and Finance, and the Director Dr. Rosaria Fausta Romano, Director of the Ministry of Economic Development. The management is only the responsibility of the Directors, who perform the tasks necessary to implement the firm. Chairman and Chief Executive Officer Dr. Pasquali, as Chairman of the Board of Directors, by bylaws, has the corporate signature and the legal representation of the company, which can also be given in court and with the power to sub-delegate; he presides over the Assembly, convenes and chairs the Board of Directors and ensures that adequate information on the matters on the agenda is provided to all Directors and Statutory Auditors; he also verifies the implementation of resolutions of the Board. In his capacity as Chief Executive Officer, he is also vested with all the powers of management of the Directors of the firm, except for those assigned by law, the bylaws or to the Board of Directors. He ensures that the organizational and accounting structure is appropriate to the nature and size of the firm and reports to the Board of Directors and the Statutory Auditors, at least once every three months, the overall performance of the business and its prospects, as well as on the most significant operations, due to their size or nature, carried out by the company and its subsidiaries. 11
  13. 13. 12 Report and Financial Statements 2012 Management of GSE S.p.A. Operating Division Mr. Gerardo Montanino Sales Management and Regulatory Activities Dr. Luca Barberis Energy Management Dr. Gennaro Niglio Engineering Mr. Luca Di Carlo Management Studies, Statistics and Specialist Services Mr. Costantino Lato General Management and Coordination Division Dr. Vinicio Vigilante Administration, Finance and Control Dr. Giorgio Anserini Human Resources and General Services Dr. Vinicio Vigilante Management Information Systems Mr. Erasmo Bitetti Audit Management Mr. Antonio Tomassi
  14. 14. Management of GSE S.p.A. | Assembly Assembly The Shareholders’ Meeting of GSE S.p.A., convened with notice on June 26, 2013, • examined the financial statements and consolidated financial statements as at December 31, 2012, as well as the Report on Operations; • seen the Board of Auditors’ reports; • seen the Independent Auditors’ reports; resolved to • approve the financial statements for the year ended on December 31, 2012; • allocate the profit for the year amounting to 19,229,614 euro as follows: • 7,229,614 euro to reserves; • 12,000,000 euro as a dividend to the Ministry of Economy and Finance as the only shareholder. The Shareholders’ Meeting was also presented the consolidated financial statements as at December 31, 2012. Rome, June 26, 2013 13
  15. 15. 2012 Consolidated Financial Statements GSE Group
  16. 16. 16 Consolidated Financial Statements 2012 Consolidated Financial Statements index Report on Operations 19 Structure of the GSE Group 20 Significant events of 2012 22 Activities during the year 2012 Gestore dei Servizi Energetici Acquirente Unico Gestore dei Mercati Energetici Ricerca sul Sistema Energetico 24 24 50 56 60 Investments Renewables and Gas Storage Energy markets Enhanced market and safeguard Research in the field of energy Property and pertaining equipment IT infrastructure 61 61 61 62 62 62 62 Research and development 62 Human resources, organization and industrial relations GSE AU GME RSE Sustainability 63 63 64 65 65 66 Control system Board of Directors Executive Magistrate of the Court of Auditors Auditors Statutory Audit Supervisory Board, Management and Organizational Model ex Legislative Decree 231/01 Audit Management Manager responsible for preparing the corporate accounting documents 68 68 68 68 68 68 69 69 Risks and uncertainty Regulatory risk Liquidity risk Counterparty risk Price risk Information risk Litigation risk 70 70 70 71 72 72 72 Related parties 72 Information pursuant to the Civil Code 73 Group economic and financial results Pass-through items Marginal items 74 75 75 Significant events after the closure of the fiscal year GSE AU GME RSE 80 80 80 81 81 Outlook GSE AU GME RSE 81 81 84 84 84
  17. 17. Index Consolidated Financial Statements 87 Consolidate Balance Sheet Assets 88 Consolidated Balance Sheet Liabilities 89 Consolidated Income Statement 90 Notes to the Consolidated Financial Statements 93 Structure and content of the Financial Statements Scope of consolidation Criteria and procedures for consolidation 94 94 94 Evaluation criteria Intangible assets Tangible assets Financial assets Receivables and payables Cash and cash equivalents Prepayments and accrued income Provisions for risks and charges Pension premium for severance indemnities Memorandum accounts Capital grants Revenues and costs Hedging financial instruments Income taxes for the fiscal year 95 95 95 95 96 96 96 96 96 96 97 97 97 97 Balance Sheet - Assets Unpaid receivables from shareholders Fixed assets Current assets 100 100 100 103 Shareholders’ Equity and Liabilities Shareholders’ Equity Provisions for liabilities and charges Provision for severance indemnities Debts Accrued expenses and deferred income Guarantess and other accounts 108 108 109 112 112 114 114 Commitments and contingencies off the Balance Sheet Disputes Costs and revenues related to handling energy 116 116 118 Income Statement Value of production Production costs Financial income and expenses Extraordinary income and expenses Income taxes, current, deferred and deferred tax assets 120 120 121 124 125 125 Certification of the Consolidated Financial Statements pursuant to Article 26 of the bylaws 129 Independent Auditors’ Report 139 Statutory Auditors’ Report 143 17
  18. 18. 18 Consolidated Financial Statements 2012
  19. 19. GSE Group Report on Operations Report on Operations GSE Group 19
  20. 20. 20 Consolidated Financial Statements 2012 Structure of the GSE Group Gestore dei Servizi Energetici - GSE S.p.A Gestore dei Servizi Energetici - GSE S.p.A. (“GSE”) is a company wholly owned by the Ministry of Economy and Finance (“MEF”) to which numerous assignments of a public nature in the energy sector are assigned. The main activity is the promotion of electricity produced from renewable sources, including through the provision of incentives. Since 2011, they also manage the measures aimed at encouraging greater competition in the natural gas market. GSE carries out its tasks in accordance with the strategic and operational guidelines defined by the Ministry of Economic Development (“MED”). The rights shall be exercised by agreement between the Ministry of Economy and Finance and the Ministry of Economic Development. GSE has the full participation of the three subsidiaries Acquirente Unico S.p.A., Gestore dei Mercati Energetici S.p.A. and Ricerca sul Sistema Energetico S.p.A. Acquirente Unico S.p.A. Acquirente Unico S.p.A. (“AU”) caters to companies that perform the enhanced protection service for the benefit of residential customers who have chosen not to withdraw from the existing supply contract. The company also manages the help desk for the consumer (“ATM for the Energy Consumer”) and selects, through competition proceedings, suppliers of electricity (“Service Protection”) and of natural gas (“Supplier of Last Resort”). It is established at AU, finally, that the integrated information system (“Integrated information system” or “SIS”) for the management of information flows relating to the markets for electricity and gas. Gestore dei Mercati Energetici S.p.A. Gestore dei Mercati Energetici S.p.A. (“GME”) is responsible for the organization and financial management of the electricity market, the markets for the environment and the natural gas markets, according to the criteria of neutrality, transparency and objectivity, as well as the management of the platform for the registration of contracts for the sale of electricity concluded outside the market. Ricerca sul Sistema Energetico - RSE S.p.A. Ricerca sul Sistema Energetico - RSE S.p.A. (“RSE”) develops research activities in the energy sector, with particular reference to national projects of public interest, which are financed by the Fund for System Research.
  21. 21. GSE Group Report on Operations 21 MINISTRY OF ECONOMY AND FINANCE 100% 100% 100% 100% SUMMARY OF RESULTS - GSE GROUP 2010 2011 2012 25,823.8 34.0 25.0 18.7 30,437.6 24.5 6.9 9.2 35,086.9 28.8 10.8 17.0 Balance Sheet (in millions of euro) Net fixed assets Net working capital Sundry provisions Shareholders’ Equity Net financial debt (cash) 100.4 (276.4) (61.5) 161.3 (398.8) 109.4 113.8 (63.0) 158.4 1.8 113.4 174.9 (55.0) 163.5 69.8 Operating Data Investments (in millions of euro) Average number of staff Headcount at December 31 ROE 12.9 811 904 11.6% 18.8 979 1,076 5.8% 15.4 1,122 1,186 10.4% Income Statement (in millions of euro) Value of production EBITDA Operating profit Group net profit
  22. 22. Consolidated Financial Statements 2012 22 Significant events of 2012 The GSE Group companies have confirmed, in 2012, the capacity to act as reference stakeholders in the energy sector, managing and developing new activities thanks to the skills and effectiveness demonstrated over the past years. In 2012, in fact, the completion of the regulatory mosaic dashed in part by Legislative Decree 28/11 has expanded the powers of the GSE Group assigning relevant tasks in the field of promotion of renewable heat (MD December 28, 2012, the so-called “Thermal Account”), efficiency energy (MD December 28, 2012, “Energy Efficiency Certificates”) and biofuels (Decree Law 83 of 2012). At the same time during the year they have gradually consolidated other activities, such as the storage of gas and the virtual auction management for CO2 by the European Directive on Emissions Trading. Finally, and especially in light of the new ministerial decrees, which have significantly changed the incentive mechanisms of photovoltaic (MD July 5, 2012, the so-called “Fifth Energy Account”) and other renewable power sources (MD July 6, 2012), the company confirmed its role as a primary operator in Italian energy. The strong growth in volume of the activities of Gestore dei Servizi Energetici - GSE S.p.A. noted in recent years, with particular reference to the period 2010-2011, was established in 2012. For example, the number of photovoltaic systems managed has increased from about 326 thousand in 2011 to over 476 thousand in 2012. It has gone from about 37 thousand conventions in 2011 managed for the retreat dedicated to over 57 thousand in 2012. Moreover, the scheme of the metering involved the management of more than 370 thousand business relations with many operators. Activity Indicator Photovoltaic Metering Dedicated Withdrawal All-inclusive rate CIP6 Green Certificates Qualification systems Photovoltaic system checks Contact Center N. Plant FTV N. Contracts managed N. Contracts managed N. Contracts managed N. Conventions managed TWh CV issued in previous year N. IAFR plants N. Checks N. Contacts 2010 2011 2012 155,918 135,000 9,275 638 187 20 632 917 480,000 326,927 224,376 37,580 1,128 136 24 792 2,314 1,127,755 476,904 373,470 57,780 1,728 104 25 957 1,546 1,081,524 N.B. The figures are provisional and relate to the information available at the date of preparation of the financial statements. The number of customers in the protected market operated by Acquirente Unico S.p.A., at the end of 2012, is about 27.3 million, of which 22.8 million are households and 4.5 million are other customers. During 2012, the utilities present in the protected market, mainly due to the steps taken towards the free market, decreased by about 1.2 million. The year 2012 was also the year of consolidation of the branch office for the consumer, which has proved to be a point of reference for electricity and gas consumers, and tools that can further assist in resolving disputes quickly and easily with retailers. Legislative Decree 249/12 finally attributed to the company, starting in 2013, the function of Italian Central Stockholding (“OCSIT”), a new body for the storage of oil stock security in our country. In 2012, Gestore dei Mercati Energetici S.p.A. has continued its efforts to ensure the organization and management of the electricity market in accordance with the principles of neutrality, transparency, objectivity and competition between operators. Given the particular financial crisis facing the country and the impact that this downturn is causing on the European banking systems, during the year urgent changes have been made to the consolidated market in the electricity sector on the regulation of the gas market that have determined, in effect starting January 26, 2012, the lowering of the minimum rating required by banks for sureties given by the operators for participation in the markets. Finally, with regard to Ricerca sul Sistema Energetico S.p.A., the activities carried out in the year concerned, consistent with the corporate mission, the System Research and funded research on both a European and national level. The year 2012 was characterized by the new three-year plan for research on the electrical system approved by the MiSE by the Decree of November 9, 2012. The company, despite its uncertainty about the definition of new research topics, has pursued its primary objectives in advanced research in the field of electroenergy and the environment, deepening and developing the projected activities undertaken in previous years.
  23. 23. 24 Consolidated Financial Statements 2012 Activities during the year 2012 Gestore dei Servizi Energetici Renewable sources in the European and Italian context The description of the progress made by our country in the field of renewable energy, including through the activities conducted by GSE, can not be separated from an overall picture of the international scene and especially from the description of the community. The European Union in recent years has stepped up its efforts to promote an energy policy more sensitive to environmental issues, showing readiness to assume a leading role in the global fight against climate change. The European Commission has pointed out on several occasions that the development of renewable energy can be a viable opportunity for employment. Moreover, the trend in the prices of fossil fuels and the gas industry has consolidated the idea that investing in energy efficiency and renewable energy can be a winning strategy for economic growth. The climate and energy package, which was approved in March 2007 by the European Council, introduced, with a unique numerical occurrence which earned itself the nickname “20-20-20”, three objectives to be achieved within the EU by 2020: 20% of renewables in final energy consumption, 20% reduction in emissions of greenhouse gases, and 20% energy savings. Directive 2009/28/EC has established a new framework for the promotion of renewable energy sources, providing for the raising to 20% of the global share of renewable energy in gross final consumption. However, the real change in strategy operated by the Directive consisted of addressing the energy issue in a global vision, that no longer merely provides targets for the electricity sector alone, or the transport sector, but embraces wider issues such as heating or cooling. The overall objective identified by the Community provisions declines in specific targets for each country. For Italy, the share of renewable energy in total final energy consumption is fixed at 17%. Legislative Decree 28/11, which transposes the EU Directive, defined the tools, incentive mechanisms and the institutional, financial and legal framework necessary to achieve the objectives set for 2020. The percentage of renewable energy in gross final consumption in Italy has reached the value of 11.5%, well above the trajectory identified in the National Action Plan for achieving the 2020 target. The road taken by the European Union, with the climate and energy package and the EU Energy Roadmap 2050, recently approved, outlines a real strategy for the de-carbonization of the entire European economy, a strategy that goes far beyond the targets for 2020. The implementation of these strategies requires an essential contribution for a consistent reduction in polluting emissions, not only in the energy sector, but also in other relevant sectors of the economy, such as transport, construction and agriculture. Through the Energy Roadmap, the Union has set itself the challenging goal of establishing a zero emissions energy policy, providing a target of 80% reduction of CO2 emissions by mid-century. To achieve this, an important role in the energy mix will remain with renewable energy sources, along with increased energy efficiency and the adoption of techniques for the capture and storage of CO2. The evolution of the European energy sector and Italian, therefore, must necessarily plan to modernize infrastructure with the implementation of smart grids, energy storage systems and of cross-border interconnections, especially in the Mediterranean; looking at the question of energy with a global vision, GSE is a candidate, without doubt, to be a point of reference for the future development of the Italian context.
  24. 24. GSE Group Report on Operations Mission and role of Gestore dei Servizi Energetici GSE plays a key role in the promotion of renewable energy sources within the legislative and policy framework defined at the European and national level, contributing significantly to the implementation of the energy policy of the country. It is being addressed more and more to a diversification of sources of supply. The company is, in fact, not only the implementing body of the incentive mechanisms of renewable energy sources in the electricity sector, but also of those defined for the production of thermal energy and energy efficiency, in the light of the new tasks assigned by recent ministerial decrees. GSE is responsible, ultimately, for the management of incentive mechanisms in the natural gas market with the aim of supporting a higher level of competitiveness. ACTIVITY QUALIFICATION SYSTEMS Incentive and promotion of renewable energy • Photovoltaic • IAFR • CAR INCENTIVE MECHANISMS, SALES AND CERTIFICATION • • • • • Energy Account Green Certificates White Certificates CAR Withdrawal and Sale of Energy Energy Certification VERIFICATION SYSTEMS • • • • • Photovoltaic IAFR CAR GOP 71/09 Other PROMOTION, INFORMATION AND DIFFUSION OF RENEWABLE ENERGY Gas Energy efficiency VIRTUAL STORAGE GAS ENERGY EFFICIENCY Incentives and promotion of renewable energy The incentives for the production of electricity from renewable sources in Italy is characterized by the presence of several systems that include mechanisms from both the market and administered regime. In this context, the company is mainly engaged in the performance of four activities: • qualification systems; • incentive, sale and certification of energy; • system verification; • promotion, information and diffusion of renewable energy. Qualification systems GSE is responsible, as the implementing body, for ascertaining the requirements of photovoltaic systems governed by the law for access to the incentives provided by the Energy Account. The company also has the task of qualifying production plants powered by renewable sources (“IAFR”) that are allowed access, under certain conditions, to the incentive mechanisms of green certificates (“Green Certificates” or “CV” ) or the feed-in tariff (“feed-in tariff” or “TO”). It should be noted that the number of IAFR qualifications, as of 2013, should gradually decrease as a result of the new incentive mechanism introduced by MD July 6, 2012 and the related access mode. Finally, in this context, the company checked out requirements for the recognition of the operation of the plants in high efficiency cogeneration (“High Efficiency Cogeneration” or “CAR”). 25
  25. 25. 26 Consolidated Financial Statements 2012 Incentive, sale and certification of energy GSE promotes the production of energy from renewable sources by providing incentives provided for photovoltaic systems as part of the Energy Account, the release of Green Certificates and specific certifications of electricity production. It also deals with withdrawal and placing on the market of energy produced from renewable sources that feed both types of systems that access the same fee for this service, such as CIP6/92 measure (“Measure Interministerial Committee 6/92” or “CIP6”) and the feed-in tariff, both plants asking for the withdrawal of the energy fed into the grid come within the simplified arrangements for access to the market, such as the dedicated withdrawal (“Withdrawal Dedicated” or “RID”) and the exchange on place (“Net Metering” or “SSP”). System verification GSE carries out monitoring through document review and/or inspection, the plants promoted, in order to verify the existence of the requirements provided by law for access to the incentive mechanisms. Promotion, information and diffusion of renewable energy GSE holds regular information and training activities to promote correct and conscious use of electricity through different tools and methods such as the promotion of information campaigns and events, the publication of specialized guides, the management of the current portal and a specific contact center. The studies and statistics carried out in the international arena are included as well. Virtual Storage gas GSE holds an institutional role in the natural gas market through the management of the virtual storage mechanism with the goal of fostering greater market competition. In this context, it is also responsible for the competitive procedures for the sale to the market of services as well as the benefits corresponding to the storage capacity financed. Energy efficiency GSE, as of 2013, will be responsible for the management of the new support schemes for the production of thermal energy from renewable sources and energy efficiency, as well as disciplined by the two MD December 28, 2012. The measures and actions to increase energy efficiency and renewable thermal energy production sources will be encouraged by some contributions out of the natural gas tariffs and through the release of the Energy Efficiency Certificates (“White Certificates” or “TEE”).
  26. 26. GSE Group Report on Operations 27 Qualification systems Photovoltaic - Energy Account The Energy Account is the mechanism that stimulates income, for a period of twenty years, by the electricity produced by photovoltaic plants connected to the grid. The incentive system is currently regulated by MD July 5, 2012 (the “Fifth Energy Account”) issued to give continuity to the mechanism started with MD July 28, 2005 (“First Energy Account”) and subsequently modified by MD February 19, 2007 (“Second Energy Account”), MD 6 August 2010 (“Third Energy Account”) and MD May 5, 2011 (“Fourth Energy Account”). The methods of incentives provided by MD July 5, 2012 were launched on August 27, 2012, following the achievement of an indicative cost cumulative annual shortfall of 6 billion euro. The new incentive mechanism, unlike the previous ones, pays with a feed-in tariff for the share of net energy fed into the grid with a premium rate and the share of net energy consumed on site. The methods of access to the incentive mechanism, determined according to the type and effective rated output of the plant, may be subject to prior registration to specific records kept by GSE or for direct access, by sending a specific request to the company. GSE is responsible for ensuring the requirements of the plants and evaluating that the documentation received is in line with the normative provisions. The subjects that require the tariffs are required to pay a contribution to the ESO for the cost of inquiries, 3 euro for each kW of rated power, for systems up to 20 kW, and 2 euro for every kW of power exceeding 20 kW. Starting on January 1, 2013 the Decree also states that, in order to cover operating expenses, audit and control in GSE, the responsible parties are required to pay the company a fee of 0.05 euro/cent for every kWh of energy sales. The Fifth Energy Account will be applied until the date of achievement of the indicative annual cumulative cost of the incentives, the value of 6.7 billion euro. In 2012 more than 145 thousand plants came into operation with a total capacity of 3,438 MW. Photovoltaic systems entered service by December 31, 2012 amounted to 476,904, with an installed capacity of 16,350 MW. In regard to the results of the ranking of the first register of the Fifth Energy Account, 3,620 plants were admitted with a capacity of 967 MW at a cost equal to the indicative annual cumulative total of 90 million euro. The following is a breakdown for the Energy Account of reference of the number of plants that came into operation and their power. NUMBER OF PLANTS IN OPERATION 6% POWER OF PLANTS IN OPERATION (MW) 1% 3% 1% 42% 43% 45% 9% 8% First Energy Account Second Energy Account Third Energy Account Fourth Energy Account Fifth Energy Account TOTAL PLANTS IN OPERATION 476,904 42% First Energy Account Second Energy Account Third Energy Account Fourth Energy Account Fifth Energy Account POWER OF PLANTS IN OPERATION 16,350 MW
  27. 27. 28 Consolidated Financial Statements 2012 The following graphs show the trend in the number of photovoltaic systems and their power ratings, which entered service in 2006-2012. NUMBER OF PLANTS IN OPERATION Number of plants in operation Figures at 12.31.2012, prepared in February 2013. 175,456 145,720 84,618 39,363 24,072 1,402 6,273 2006 2007 2008 2009 2010 2011 2012 CUMULATIVE NUMBER OF PLANTS IN OPERATION Cumulative number of plants in operation Figures at 12.31.2012, prepared in February 2013. 476,904 331,184 155,728 71,110 1,402 7,675 2006 2007 31,747 2008 2009 2010 2011 2012
  28. 28. GSE Group Report on Operations 29 POWER OF PLANTS IN OPERATION (MW) Power (MW) Figures at 12.31.2012, prepared in February 2013. 9,454 3,438 2,321 9 70 338 2006 2007 2008 720 2009 2010 2011 2012 CUMULATIVE POWER OF PLANTS IN OPERATION (MW) Cumulative power (MW) Figures at 12.31.2012, prepared in February 2013. 16,350 12,912 3,458 1,137 9 79 417 2006 2007 2008 2009 2010 2011 2012
  29. 29. 30 Consolidated Financial Statements 2012 Plants powered by renewable energy systems The classification of a plant powered by renewable sources (IAFR), issued by GSE, is a technical recognition required for admission to the incentive mechanism of green certificates or the feed-in tariff. The qualification activities of the plants has been steadily growing over time. Since the start of the activity, they have received about 7,750 applications, of which only 1,246 were in 2012. The IAFR qualifications issued during the same year totaled 957, compared to the 792 issued in 2011. The plant owners are required to recognize, according to MD December 18, 2008, a contribution to cover the costs of investigation incurred by GSE, the amount of which varies between 150 euro and 1,350 euro, depending on the average annual rated capacity of the plant. The following graph shows the annual cumulative numerical progression of the qualified IAFR plants. CUMULATIVE NUMBER OF QUALIFIED PLANTS Qualified plants 5,322 4,621 3,854 3,222 2,652 2,097 1,331 109 2001 276 2002 470 2003 676 2004 933 2005 2006 2007 2008 2009 2010 2011 2012 At December 31, 2012, the number of qualified plants amounted to 5,322, of which 4,587 were in operation, with an installed capacity of 21,647 MW, and 735 in project, corresponding to a theoretical capacity of 3,035 MW. The following graph represents the breakdown of energy sources for the qualified IAFR plants on December 31, 2012.
  30. 30. GSE Group Report on Operations QUALIFIED PLANTS AT DECEMBER 31, 2012 BY ENERGY SOURCE 8% Hydroelectric energy Biogas energy Wind power energy Bioliquid energy Other energy sources 11% 36% 21% TOTAL QUALIFIED PLANTS IN OPERATION 5,322 24% High Efficiency Cogeneration Cogeneration is the combined production, in a single process, of electricity and heat. GSE is the entity in charge of recognizing annually and following the verification of the technical requirements established by law, that a cogeneration plant has worked in High Efficiency Cogeneration1. This production is exempt from the obligation to purchase green certificates and access to the support system, regulated by MD September 5, 2011, which involves the release of White Certificates. Producers who wish to avail themselves of such benefits must submit an annual application for CAR recognition to GSE. In 2012, 713 requests were received by GSE for CAR recognition, 106 more than the previous year, amounting to an installed capacity of about 16,000 MW, broken down according to electricity generation capacity in the graph below. DISTRIBUTION SYSTEMS BY INSTALLED POWER Plants with power over 1 MW Plants with power between 50 kW and 1 MW Plants with power less than 50 kW 12% 28% 60% TOTAL PLANTS 713 Of the 713 applications received, 200 have also requested the release of White Certificates in accordance with MD September 5, 2011. During 2012, about 190 requests for access to the support system for generation in the years 2008, 2009 and 2010 were also received. Such requests for release were evaluated in 2012. With regard to the qualification of cogeneration plants combined with district heating, out of a total of about 183 requests received by GSE and analyzed over the period 2008-2012, 103 were accepted for a total power of 2,500 MW. Note 1 Legislative Decree 20/07 introduced the new concept of CAR, including new criteria for the recognition, in effect as from January 1, 2011. Since that date, in fact, the assessment of operation in cogeneration is performed on the basis of primary energy savings (“PES”), which replaces the energy saving index (“IRE”) and the thermal limit (“LT”), as established by Authority Resolution 42/02. 31
  31. 31. 32 Consolidated Financial Statements 2012 Incentive mechanisms, sale and certification of energy There were multiple incentive mechanisms and withdrawals of electricity managed by GSE in 2012 and they can be briefly represented as shown in the following table. Type Incentive mechanism Photovoltaic Photovoltaic Energy Account Incentive period Incentive Energy enhancement Free market and consumption 20 years Rates on the Energy Account attributed to the energy produced or placed Fixed Rate Feed-in1 Solar plants Thermodynamic Thermodynamic Energy Account 25 years Rates on the Energy Dedicated Account attributed Withdrawal2 to the energy produced exclusively Metering2 for the solar Consumption and free market Of any size Green Certificates 8/12/15 years Plants Sale/Withdrawal CV attributed to the energy encouraged Dedicated Withdrawal3 Metering4 Feed-in rate 15 years Feed-in tariffs for the withdrawal of entered energy Renewable energy systems and/or equivalent CIP6/92 8 years (INC) 20 years (CEC/IEC) Withdrawal price CIP6 High Efficiency Cogeneration plants White Certificates Yearly (on demand) Delivery/Pick Certificates White or Exemption obligation CV Small size5 Dedicated Withdrawal Metering 1) Plant accessing the Fifth Energy Account with power not exceeding 1 MW. 2) They can not access the Net Metering and the Dedicated Withdrawal facilities accessing the Fifth Energy Account. 3) Power plants less than 10 MVA or of any power in the case of non-programmable renewable sources. 4) Power plants up to 200 kW. 5) Power plants not exceeding 1 MW (200 kW for wind turbines). Incentive mechanisms Energy Account Following the positive evaluation of the documentation submitted for the incentive request, GSE tells the Responsible Party the incentive rate recognized, which is followed by, as a necessary condition for the grant of incentives, the signing of an agreement. Only after the signing of the agreement, in fact, all the activities associated with sending and verification of measures of electricity start, as well as the enhancement of the amounts to be paid to the Responsible Party. Given the ever-changing regulatory environment, the year 2012 was characterized by the simultaneous operation of five different incentive regimes: First, Second, Third, Fourth, and Fifth Energy Account. Since the incentive mechanism of the Energy Account, the activity of GSE has grown exponentially. At the end of 2012, the agreements resulted to about 476 thousand, with a capacity of 16,341 MW, equivalent to 18,061 GWh of energy and incentive fees of 6,036 million euro. The following table shows the overall data (conventions managed, subsidized energy and fees paid) relating to the management of the five Energy Accounts.
  32. 32. GSE Group Report on Operations Energy Account MW Subsidized energy GWh Euro million 3,964 1,647 114 25 74 64 28 95 84 14 48 43 1≤P≤3 3 < P ≤ 20 P > 20 72,513 108,304 23,105 198 858 5,758 227 983 7,400 100 416 2,790 Third Energy Account 1≤P≤3 3 < P ≤ 20 20 < P ≤ 200 200 < P ≤ 1,000 P > 1,000 12,348 22,381 2,866 902 170 34 177 231 620 519 40 205 271 808 732 16 75 95 259 224 Fourth Energy Account 1≤P≤3 3 < P ≤ 20 20 < P ≤ 200 200 < P ≤ 1,000 P > 1,000 57,508 116,763 20,821 4,793 379 162 931 1,682 3,121 1,458 134 753 1,349 2,972 1,854 45 233 407 808 447 Fifth Energy Account 1≤P≤3 3 < P ≤ 20 20 < P ≤ 200 200 < P ≤ 1,000 P > 1,000 9,806 16,273 683 222 20 28 105 51 170 75 4 14 9 68 31 1 2 1 9 1 475,581 16,341 18,061 6,036 Second Energy Account Total Conventions managed Number Power MW First Energy Account Power Class 1 ≤ P ≤ 20 20 < P ≤ 50 50 < P ≤ 1,000 33 Incentives With the aim to facilitate the financing of investments in the photovoltaic sector, GSE has provided the ability to transfer the warranty claim arising from tariffs paid on the basis of the Energy Account. At December 31, 2012, operators that made use of this instrument are about 23,800, more than double compared to 2011 (about 8,500). This value, in parallel with the increase of the plants and affiliated with the forced entry into the Fifth Energy Account, it is constantly growing; in fact, in the first quarter of 2013, there were 2,574 additional sales. Solar thermodynamic The MiSE, in consultation with the Ministry for the Environment, Land and Sea (“MATT”), through MD April 11, 2008, introduced the promotion of solar thermodynamic plants in Italy, or power plants where the heat used for the thermodynamic cycle is produced using solar energy as a source of heat at high temperatures. The tariffs provided exclusively remunerate the electricity due to solar power, produced by a plant or a hybrid, for a period of 25 years. GSE is the implementing entity, identified by Ministerial Decree, qualifying facilities, providing incentives and performing verification activities, even if at December 31, 2012 no plant went into operation and no incentive request was received by the company. Green Certificates Green Certificates are securities allocated in proportion to the energy produced by plants powered by renewable sources other than the photovoltaic and cogeneration plants combined with district heating. The incentive mechanism, introduced by Legislative Decree 79/99 is based on the obligation for manufacturers and importers of energy, to enter each year in the national electricity system a volume of “green” energy equal to a share of non renewable energy produced or imported in the previous year. You can fulfill this obligation by feeding renewable electricity into the grid or buying Green Certificates issued by GSE from other producers; each certificate attests conventionally to the production of 1 MWh of renewable energy. The issue of the CV is generally carried out in the final balance on an annual basis, in using the net production of electricity made by the plants in the previous year. For qualified plants already in operation, the issue of the CV can also be done prior to following the submission of a surety, on the basis of expected production
  33. 33. 34 Consolidated Financial Statements 2012 for the current year or the following year. In this regard it should be noted that MD July 6, 2012 revised the terms of issue of the CVs for the productions over the years 2013 to 2015, providing that it takes place on a quarterly basis based on the output of the previous quarter and the measures are transmitted monthly by network operators. The Decree regulates the ways in which plants will go into operation, as of 2016, by the mechanism of CV to the new incentive mechanisms introduced by the same. As of December 31, 2012, concerning the 2011 production, and on the basis of requests to final output sent by the producers qualified, about 25 million CVs (24 million in 2011) were issued. The following graph shows the breakdown by source of these CVs. CVs ISSUED ON COSTS INCURRED IN 2012 IN RELATION TO THE ENERGY PRODUCED IN 2011 Breakdown by energy source 6% Wind power energy Hydroelectric energy Biomass energy District heating energy Other energy sources 7% 21% 38% TOTAL CVs ISSUED ON COSTS INCURRED 24,533,800 28% Additionally, at December 31, 2012, with reference to the 2012 production and on the basis of requests for early release or monthly budget, about 17 million CVs (12 million in 2011) were issued, relating to the energy produced from renewable sources in 2012. The following graph shows the breakdown by source of these CVs. CVs ISSUED PRIOR TO 2012 (INCLUDING MONTHLY PHASING) Breakdown by energy source Wind power energy Biomass energy Hydroelectric energy Geothermal energy Waste energy 1% 1% 16% 51% 31% TOTAL CVs ISSUED PRIOR 16,910,735 Legislative Decree 28/11 expects that GSE annually retreats CVs issued for production from 2011 to 2015, possibly in excess of those needed to fulfill a quota obligation. The withdrawal price of these certificates is equal to 78% of the price resulting from the difference between 180 euro/MWh and the price of electricity sales in the previous year, defined by the Authority. GSE also issued the certificates to holders of cogeneration plants combined with district heating in the same period.
  34. 34. GSE Group Report on Operations During 2012, in application of the provisions of MD July 6, 2012, GSE withdrew CVs, issued for generation from renewable sources of year 2011, at a price of 82.12 euro/MWh for a total value of 1,422 million euro. The withdrawal price for green certificates issued for production in 2011 relative to cogeneration plants combined with district heating was, however, equal to 84.34 euro/MWh. White Certificates for co-generation MD September 5, 2011 defined the terms and conditions of access of cogeneration units recognized CAR to the new support system based on the economic system of the White Certificates. GSE determines, depending on the energy savings achieved during the year, the number of White Certificates entitled to the units recognized CAR. The certificates issued annually by GSE remain at disposal of the manufacturer and they can be traded on the appropriate markets or, upon request of the producers themselves, by GSE at a price equal to that existing at the date of entry into operation of the unit. In application of the provisions of the Decree, the company requests from the manufacturer, by way of reimbursement of the costs of investigation, the recognition of a 1% fee of the value of the White Certificates withdrawn. At the end of 2012, the White Certificates had not yet been issued or withdrawn in respect to the requests for access to the support received and evaluated. Energy purchase Transactions involving the purchase of energy carried by GSE are linked to the withdrawal of electricity produced and fed into the grid by two categories of plants: • systems that access incentive mechanisms that provide for compensation in administered prices of energy fed into the grid through its purchase by GSE; the capacity is under CIP6 or admitted to feed-in rates; • plants that, through the services of Dedicated Withdrawal and Net Metering, require the intermediation of GSE for placing energy produced and fed into the grid on the market. Energy remuneration administered prices Energy incentive CIP6/92 The Interministerial Committee Measure 6/92 introduced an incentive mechanism of energy produced from renewable and assimilated2, consisting of a form of energy fee for this service through an incentive rate whose value is periodically updated. Currently, unless specific regulatory provisions, it is no longer possible to access this incentive mechanism replaced in 2000 by the Green Certificate system. This incentive mechanism, however, continues to have effect in respect of those facilities that have signed the agreement during the term of the measure. In 2012, GSE withdrew CIP6 a volume of energy equal to 22.4 TWh, approximately 4.3 TWh less than in 2011 (26.7 TWh in 2011) from the producers. At the end of 2012, 104 agreements resulted active (136 at the end of 2011) with a total capacity of 3 GW. During the year the active power agreement was equal to 3.6 GW. The reduction was due to the natural expiration of contracts. We also note that, in early 2012 and with effect from January 1, 2013, the anticipated resolution was carried out in the early termination of two agreements for a total capacity of 0.4 GW. The energy purchased in 2012 comes to 81.7% by plants from similar sources and 18.3% from plants using renewable sources. The table that follows is a comparison of the energy purchased by type of plant in the year 2012 compared to the year 2011. Note 2 They are considered plants fueled by similar sources referred to in articles 20 and 22 of Law 9 of January 9, 1991: those in cogeneration mode; those using waste heat, exhaust fumes and other forms of energy recoverable in processes and systems, and those who use processing waste and/or processes and those that use fossil fuels produced only from minor isolated fields. 35
  35. 35. 36 Consolidated Financial Statements 2012 Energy purchases pursuant to article 3 of Legislative Decree 79/99 by type of plant TWh 2011 2012 Change Fueled plants or process recycles or recovered energy Plants fueled by fossil fuels or hydrocarbons Similar sources 15.0 6.9 21.9 12.5 5.8 18.3 (2.5) (1.1) (3.6) 82.1% 81.7% 4.8 4.8 4.1 4.1 17.9% 18.3% 26.7 22.4 Percentage Biomass power plants, biogas and waste Renewables Percentage Total (0.7) (0.7) (4.3) The average price of energy withdrawal was equal, in 2012, to 129.9 euro/MWh for a total cost of 2,914 million euro; such development includes the effect of the adjustment of the avoided cost of fuel (“COF”), following the publication of the Decrees MiSE November 20, 2012 and April 24, 2013. Feed-in rate The feed-in tariff system is an alternative mechanism to the Green Certificate, which can be accessed by qualified IAFR plants with power not exceeding 1 MW (200 kW for wind power), entered into service after December 31, 2007. The mechanism consists of fixed rates of withdrawal of electricity fed into the grid, differentiated according to the renewable source, whose value includes both the incentive component and the value of the energy produced. The fare is valid for a period of 15 years for all plants that began operating before December 31, 2012. In order to protect investments nearing completion, MD July 6, 2012 expected, for plants entering into operation by April 30, 20133 the possibility to choose between access to that mechanism and the new incentive scheme introduced by the Decree. At the end of 2012, 1,728 plants resulted (1,128 in 2011) for a total capacity of 957 MW (603 MW in 2011). The energy withdrawn in 2012 amounted to 4.1 TWh (2.5 TWh in 2011) for a total amount of 1,056 million euro (632 million euro in 2011). The table that follows details the agreement divided by type of power plant. Power source Number of plants Power MW Energy TWh 613 566 188 54 307 455 287 112 40 63 2.6 0.9 0.3 0.2 0.1 1,728 957 4.1 Biogas Hydraulics Biomass Landfill gas Other power sources Total Note 3 For plants fueled by waste, expiry date of commissioning is June 30, 2013.
  36. 36. 38 Consolidated Financial Statements 2012 Energy Withdrawal Dedicated Withdrawal The Dedicated Withdrawal regime, regulated by Resolution 280/07, is a simplified mode available to manufacturers for the sale of electricity fed into the grid, alternative to bilateral contracts or direct sales on the market. In summary, the scheme consists in the supply of electricity fed into the grid to GSE, which shall reward it by paying the producer a certain price per kWh withdrawn. In particular, the electricity fed into the grid and retreated is valued at the average price of the time zone and, for nominal power plants up to 1 MW, at a guaranteed minimum price. All power plants less than 10 MVA are admitted to this scheme. To these the plants powered by renewable sources of any non-programmable power as well as installations using renewable sources of programmable power even greater than 10 MVA provided that the ownership of power producers are added. It should be noted that plants that access to the new incentive mechanisms provided by MD July 5 and 6, 2012 no longer have access to the Dedicated Withdrawal regime. To cover the costs incurred by GSE for the provision of services, it is expected to load the manufacturer a fee equal to 0.5% of the equivalent electricity withdrawn up to a maximum of 3,500 euro per year per plant. Please note that, starting in 2013, Resolutions 493/2012/R/efr and 281/2012/R/efr of the Authority introduced some changes to the remuneration paid to GSE. At the end of 2012, 57,780 conventions were managed for 19,364 MW of power contracted. The electricity withdrawn in 2012 amounted to approximately 26 TWh (19 TWh in 2011) for a determined amount equal to 2,006 million euro (1,565 million euro in 2011) and a fee to cover the administrative costs of GSE equal to 7 million euro. The table and graph below provide a breakdown of the collected energy for plant typology. Power source Number of plants Power MW Energy retreated TWh Solar Wind power Hydraulics Residual gases from sewage treatment landfill Fossil fuels Biogas Biomass and pure vegetable oils Waste Other sources 54,153 480 1,751 186 299 538 198 19 156 12,115 4,573 1,269 217 444 408 184 60 94 13.4 7.4 3.2 0.6 0.4 0.4 0.3 0.1 - Total 57,780 19,364 25.8 ENERGY WITHDRAWN IN TWH BY ENERGY SOURCE Year 2012 Solar energy Wind power energy Hydroelectric energy Energy from residual and landfill gas Fossil fuel energy Other energy sources 2% 2% 3% 12% 52% 29% TOTAL ENERGY WITHDRAWN 26 TWh
  37. 37. GSE Group Report on Operations Net Metering Net Metering is a service provided by GSE that allows the “producer/consumer”, who has the title or the availability of a plant, the offset between the value associated with the electricity produced and fed into the grid and the value associated with the electricity withdrawn and consumed in a period different from the one in which production takes place. The provision of such a complex service from GSE is achieved through the recognition of the Net Metering of a contribution related to the volume of energy input and taken in the calendar year and their respective market values. Plants powered by renewable sources of power up to 20 kW or up to 200 kW can access this service, if entered into operation after 2007, as well as those of High Efficiency Cogeneration of power up to 200 kW. Please note that Net Metering is a mechanism that is not compatible with the regimes of Dedicated Withdrawal and the feed-in tariff, and that the plants that have access to the new incentive mechanisms provided by MD July 5 and 6, 2012 no longer have access to that scheme. The producer who joins the service of Net Metering is required to contribute to the administrative costs incurred by GSE paying an annual fee determined as a function of the power plant. With Resolution 570/2012/R/efr, the Authority has finally introduced some changes to the technical and economic conditions of the service, in effect as of the 2013 adjustment. These modifications have resulted in a simplification and standardization of the methods for calculating the contribution itself, avoiding the involvement of the company’s sales. For the year 2012 approximately 373 thousand conventions were subscribed, for a nominal power of 3.5 GW related almost totally to photovoltaic systems that take advantage of the Energy Account. In reference to the same year, contributions were paid at an amount equal to 220 million euro (119 million euro in 2011), against which they were paid a subsidy to cover the administrative costs of 9 million euro. Wind Energy Production Failure The lack of wind generation (“Wind Energy Production Failure” or “MPE”) is the amount of electricity produced by a wind turbine not due to the implementation of the orders of reduction or elimination of the production issued by Terna. GSE, in accordance with Resolution ARG/elt 5/10, has the task of determining the amount of electricity producible from wind power plants affiliated to the subsequent enhancement of lost production. The amounts recognized for producers to compensate the Wind Energy Production Failure shall be charged to the A3 component. In 2012 the Wind Energy Production Failure, for 129 production units with active agreement with the GSE, was approximately 140 GWh. Part of this energy not produced refers to units operating in the free market in economic terms and therefore regulated directly by Terna. The value of lost production for the 90 units for which GSE was a member of dispatching in 2012 is 105 GWh, whose economic value, sold to Terna, was 9.3 million euro. The contribution for the failure to produce wind power granted to operators holding unit of production on the dispatching contract instead of GSE was approximately 9.3 million euro. Energy sales Retail market GSE sells on the electricity market energy withdrawn by the producers, through participation in the dayahead market (“Day-Ahead Market” or “MGP”) and the intra-day market (“Intraday Market” or “MI” is divided into two sessions, “MI1” and “MI2”), both included in the spot market (“Spot market” or “MP”). GSE is not participating in the market for ancillary services (“Ancillary Services Market” or “MSD”). Specifically, the company participates in the daily market by placing both the energy withdrawn from the manufacturers as part of the CIP6 incentives or feed-in tariff, and that retreated from the producers allowed to use the Dedicated Withdrawal or Net Metering. In 2012, the total energy placed on the national electricity market amounted to 51.2 TWh (39.2 TWh in 2011) for an amount of 3,861 million euro (2,898 million euro in 2011), of which 3,850 million euro was for energy sold on the MGP amounting to 51 TWh, and 11 million euro for energy sold on MI, for 0.2 TWh. The energy purchased on the MI was 0.3 TWh for a total of 25.8 million euro (26 million euro in 2011). The difference between the energy purchased by GSE and the one placed on the MGP and MI is valued as part of the imbalance. The energy imbalance is equal to the difference between the actual production fed into the grid and the electricity offered by GSE in the markets. Expense/revenue imbalance attributed to the units that are part of GSE’s dispatching contract has effects on the A3 tariff component, except for the RID programmable unit to which the burden is reversed. In 2012, the hourly imbalance positions, enhanced by Terna, generated a net positive balance of 247 million euro and 3 million euro for units folded RID programmable for GSE. It is shown, finally, that, following the application of Resolution 281/2012/R/efr and the resulting increase in sales on the MGP of the relevant RID units, the amounts of imbalances relating to these units had an average monthly reduction in the second half of 2012 amounting to approximately 85% compared to the first. 39
  38. 38. 40 Consolidated Financial Statements 2012 Forecasting and monitoring energy Forecast for the placing of energy The prediction of energy input to the unit to non-programmable renewable sources is performed by GSE to support both the development of the tenders on the markets for the unit dispatching contracts, and Terna in the process of optimization of the acquisition of resources for the dispatching, for non-relevant units which are not part of the contract for GSE dispatching. In 2012 projections were provided to approximately 2,998 hydroelectric plants approximately 2.9 GW of installed capacity, to 625 wind turbines approximately 3.9 GW of installed capacity, to more than 477,000 photovoltaic plants a total installed capacity of approximately 15.8 GW and to 1,557 biogas installations and/or landfill gas an installed capacity of 1.2 GW. Overall, the scope of prediction at the end of 2012 came to about 482,500 plants of approximately 23.8 GW of installed capacity. The consideration for the correct prediction (“CCP”), introduced by Resolution ARG/elt 5/10, which paid for the work carried out in 2012 to minimize the imbalance costs on non-programmable plants, was calculated by Terna and is equal, for the CIP6 unit, to approximately 15 thousand euro. Finally, please note that as a result of changes introduced by Resolution 281/2012/R/efr on imbalances, as of July 2012, the GSE formula offered a sale for units affiliated RID based on their own forecasts. The average monthly payment for the units affiliated RID as a result of these changes increased from 16 thousand euro in the first half of 2012 to 42 thousand euro in the second. Satellite monitoring The Authority, by Resolution ARG/elt 4/10, in order to improve the reliability of the forecast input of electricity from plants using renewable non-programmable and non-significant sources, has entrusted GSE with the task of identifying, directly by the plants, the production data and source. These data, detected through the metering satellite system, are made available to forecasting systems in order to improve reliability. Improved forecast accuracy allows, in fact, to carry out a more effective market activity, minimizing the difference between what is offered and what is actually injected into the network, as well as support the functions involved in the procurement and dispatchment more accurately. As of the second half of 2012, GSE, as required by Resolutions 280/07 and 281/12, has used its outlook for the formulation of offers to sell energy markets for significant production units falling within its dispatching contract. As of December 31, 2012 about 2,411 installations, of which about 2,023 photovoltaic systems, 361 run-ofriver hydroelectric plants, 23 wind farms and 4 biogas plants were carried out. Management measures of electricity During 2012, the processes of incentives and withdrawal of energy led to an exponential growth of managed data and energy items determined by GSE. In particular, the company has handled approximately 14 million data relating to the measures of electricity plants with an agreement with GSE and more than 900 million data transmitted by network operators and businesses for sale, for the determination of more than 7 million energy items. Certification of energy GSE plays a leading role in carrying out activities related to the issuance of securities that certify the origin of renewable sources used for the production of electricity, in order to ensure transparency in the market of selling the energy and protect the consumer. Guarantee of Origin The Guarantee of Origin (“GO”), introduced by Legislative Decree 387/03, is a certification of the production of electricity from renewable sources, issued by GSE at the request of the manufacturer, subject to qualification system (“IRGO”), which is intended to demonstrate the origin of “green” energy produced. MD July 6, 2012 updated procedures for the release of the GO in accordance with the provisions of Legislative Decree 28/11 which provides that the license is an “electronic document to be used exclusively to show clients that a given quantity of energy was produced from renewable sources”. The Decree has in fact eliminated from 2012 the exemption from the entry of renewable electricity for the holders of the GO issued abroad and associated with imported electricity. Therefore, starting from 2013, certification of origin of the titles will be made exclusively by GO that will replace the CO-FER titles.
  39. 39. GSE Group Report on Operations The GO may be subject to negotiation both in Italy, with the same procedures as the titles of CO-FER, and at the international level. In regards to the latter, in the light of the provisions of Directive 2009/28/EC, GSE will, during 2013, ensure the Italian operators the opportunity to exchange titles through the connection platform of national registers of certified members, operated by Association of Issuing Bodies (“AIB”). In 2012, for electricity generated in 2011, Guarantees of Origin for a total of 3.5 TWh were issued. Fuel mix disclosure and CO-FER certificates MiSE Decree of July 31, 2009 has placed the obligation to provide information to end users on the composition of the energy mix used for the production of electricity sold and the environmental impact thereof, in the hands of businesses that operate in the sector of sale of electricity required to provide customers with information on the composition of the final mix energy mix used for the production of electricity sold and the environmental impact of it. These data should be included in the billing documents, internet sites and promotional material provided to the client. GSE has a key role in the process of defining the operational procedures for the release of the statement certifying the renewable origin of the sources used and the regulatory requirements for producers and sales companies. In particular, the company, at the request of the producers, releases to plants powered by renewable energy sources ICO-FER qualification, preparatory to the request for the issuance of certificates of origin (“CO-FER”) assigned in equal numbers to the energy fed into the grid. The CO-FER are subject to negotiation between producers, traders and sales companies, the latter cancels the CO-FER to show final clients the share of renewable energy in its present mix of supply. Resolution ARG/elt 104/11 provides that the CO-FER (GO from 2013) can be freely traded on the platforms organized by GME or awarded through competitive procedures organized by GSE. Such procedures shall concern CO-FER held by GSE, namely those relating to installations using renewable energy sources under the Net Metering, Dedicated Withdrawal and CIP6 as well as installations that access to the system of Green Certificates and the feed-in rate that have not submitted an application for ICO-FER designation by September 30 of each year. In 2012, the fees relating to the issuance and cancellation of CO-FER securities relative to the year 2011 amounted to 574 thousand euro and 503 thousand euro. GSE, moreover, in 2012 organized three annual auctions for which have been recognized by GME payments of 7 thousand euro. In reference to disclosure, the producers for the year 2011 have notified GSE that the data for the initial energy mix were 10,978 and production plants appear to be surveyed at a total of 16,360; sales companies which, for the same year of competence, have complied with the disclosure obligations have been 148. For the year 2012 manufacturers and sales companies are expected to communicate their data by March 31, 2013. Verification activities on green offer With Resolution ARG/elt 104/11, the Authority stated that contracts for the sale of renewable energy are supported by a number of CO-FER (GO as of 2013) equal to the amount of electricity sold as such. GSE receives the information relating to offers of renewable energy from sales companies and verifies the congruity with CO-FER (GO as of 2013) owned and canceled by the companies themselves, for the same year of expertise. Renewable Energy Certificate System The Renewable Energy Certificate System (“RECS”) is a voluntary system of certification of electricity produced from renewable sources recognized as part of the standard system certification EECS – European Energy Certificate System and managed by the Association of Issuing Bodies. GSE, as a member of AIB, issues RECS certificates, marketable securities separately from below, with a minimum size of 1 MWh, which are valid until the request for annulment, or until such time as the holder uses them on the market. In light of the provisions of Directive 2009/28/EC for the promotion of renewable energy sources, it suggests a natural and gradual transition from the RECS system to that of Guarantees of Origin. For these reasons, the certification activities at the national level have registered a sharp decline in terms of emissions from approximately 13 million certificates in 2011 to about 750 thousand in 2012. In regard to cancellations, however, there was no special difference compared to previous years. There was, finally, a decrease also in regard to the matter of participation of operators in the Italian market rising from 57 in 2011 to 44 in 2012. 41
  40. 40. 42 Consolidated Financial Statements 2012 System verification In 2012 the verification of the plants in order to ascertain, through on-site survey and documentary evidence, the actual existence of the requirements for the granting of incentive tariffs or other benefits provided by law continued. Checks on photovoltaic plants In 2012, 1,546 inspections were carried out (2,314 in 2011) for a total capacity of about 884 MW. About 35% of these audits focused on photovoltaic systems affiliated with the Second Energy Account, 3% of facilities affiliated with the Third Energy Account, 44% of installations fell under the Fourth and 5% of the plants under the Fifth Energy Account. The remaining 13% of the audits performed was carried out by means of document checks, in most cases concerning measures of electricity generated and/or fed into the grid communicated by the products. The following table shows the number of inspections carried out in the years 2011 and 2012. Number of checks 2011 2012 Tests on 1 kW power plants 1 kW ≤ P ≤ 20 kW Tests on power plants 20 kW <P ≤ 50 kW Tests on power plants P> 50 kW Total plants subject to verification 733 246 1,335 2,314 413 120 1,013 1,546 Power in MW of plants subject to verification 1,032 884 The reduction in the number of inspections carried out in 2012 compared to those in 2011 is attributable both to the non-use of some extraordinary ways of performing the same, which has been used in past years, such as custody to third parties of the control activities and involvement of massive internal resources of the company, and to the continuation, in the first half of 2012, of the intense verification activities, which started in 2011, the photovoltaic system that required the benefits of Law 129/10. For the results of this activity, the majority of testing was successful. In cases where the checks on plants showed differences regarding, for example, the category of architectural integration, the negative control has resulted in the reduction of the incentive fee recognized. In severe cases, where problems are observed in accordance with law, the revocation of the right was notified to the recognition of incentives and, where appropriate, the recovery of amounts unduly received by the responsible parties. Please note that, in the summary of its activities, it was found that 3% of the plants tested found the conditions for the application of the provisions of articles 23 and 42 of Legislative Decree 28/11. Checks and inspections on CIP6 and co-generation plant GSE, in accordance with Resolution GOP 71/09 of the Authority, is responsible for the verification of the production facilities of electricity supplied from renewable sources, similar to renewable sources and cogeneration plants, previously carried out by the Electricity Equalization Fund in the Electricity Sector. In 2012, GSE completed 35 tests with a survey, of which 17 were of CIP6 plants, 16 of sections of cogeneration plants and 2 of cogeneration plants at the same time benefitting from the benefits arising from the operation CIP6/92. The total power of the plants verified amounted to 1,793 MW. The Authority, in Resolution 509/2012/E/com, renewed activity in availment for the period from January 1, 2013 to December 31, 2015.
  41. 41. GSE Group Report on Operations Checks on plants qualified IAFR In order to verify the requirements needed for the recognition of IAFR, GSE performs control activities through audits and inspections on plants producing electricity in operation or under construction, during the preliminary investigation of qualification or already qualified. During 2012, a total of 97 tests were performed (46 in 2011) on the plant powered by renewables for a total capacity of 2,215 MW. Checks on cogeneration plants combined with district heating GSE verifies the existence of the requirements provided by law and necessary to achieve and/or maintain the qualification for issuing Green Certificates for district heating (“CV-TLR”). Between 2008 and 2012 47 facilities have been controlled, including 2 in 2012 for an electric power of about 31 MW. The limited number of checks carried out is due to the important efforts in verification activities on photovoltaic systems. Checks on renewable energy systems with RECS recognition Control activities on renewable energy plants that have applied for approval of RECS certificates, in 2012, involved 10 plants (5 in 2011) with a capacity of about 401 MW. Among them, 6 had achieved the RECS and also the IAFR so that, for such systems, the control activities were carried out jointly. Checks on wind power plants that are required of the wind energy production remuneration In 2012, GSE carried out the inspection of 12 wind farms (26 in 2011) for which the remuneration of the production failure was requested for a total capacity of 287 MW. All the systems audited have also achieved IAFR, and for such plants joint audits have been carried out. Checks on renewable energy systems with ICO-FER recognition GSE in 2012 also initiated verification activities on the plants that have applied for ICO-FER approval (issuance and management of certificates of origin). The facilities audited were 16 for a total power of 863 MW. Promotion, studies and diffusion of renewable energy Communication and promotion of renewable energy Communication activities Directive 2009/28/EC identified in information a key instrument for the achievement of the objectives contained in the 2020 climate and energy package. Legislative Decree 28/11, in transposition of this Directive, has awarded GSE, in consistency and continuity with the corporate mission, the task of creating a portal dedicated to renewable energy and energy efficiency. In this context, the information section “Renew, Towards 2020” has been developed within the company website, which provides an account of the legal acts in the field of renewable energy sources, energy efficiency, climate, energy and gas markets. Through the portal you can also access the Italian System for Monitoring of Renewable Energy (“SIMERI”) that allows you to see the status of achievement of the national target for 2020. GSE is also engaged in the dissemination mechanisms and rules of incentivizing access. In this vein, in 2012, in the light of MD July 6, 2012, the document “Rules of application for the approval of tariffs” was published, which describes the procedures, criteria and rules for the submission, evaluation and management of the documentation to be sent to GSE. In 2012 the “Guide on photovoltaic systems integrated with innovative features” was also updated, which describes the procedures and criteria for the recognition of the architectural integration of systems made with special modules and components designed for use in the photovoltaic building. 43
  42. 42. 44 Consolidated Financial Statements 2012 GSE finally implemented various campaigns and events with the aim of supporting worthwhile initiatives for the development of renewable energy and energy efficiency. Among the various activities, the company has promoted the Annual Energy Law Conference, a meeting between operators and experts in the energy sector. Contact center GSE, with the aim of providing a simple and customized access company, has activated a contact center service that, by offering support and assistance through several channels of contact, plays a role of interface with customers and the industry. The company has entered into a process of gradual evolution of the model of the functioning of contact center obtaining the certification of all services provided in accordance with UNI 11200 and EN 15838. It did, in fact, adopt an organizational model in accordance with the provisions of this legislation, through the formalization of procedures and operating instructions to regulate the services, the roles and responsibilities of personnel involved in the process. The conformity of the organizational model, also obtained by adapting the workforce and infrastructure, has allowed us to make a decisive contribution to the quality of the services provided, in order to optimally manage the relationship and response time expectations of our stakeholders. In this regard, the model provides for the measurement of the quality of service provided through performance indicators for different categories such as operators, customers, processes and quality of the answers provided. The high average trend of annual contacts has been stable compared to 2011 data. NUMBER OF CONTACTS Average number of contacts - Year 2012 140,000 120,000 100,000 80,000 60,000 40,000 20,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
  43. 43. GSE Group Report on Operations International activities GSE, in an increasingly European and international energy context, has strengthened its involvement in projects of international character. The main activities in this area can be summarized as follows: • membership of international organizations, such as: • Association of Issuing Bodies (“AIB”), which promotes the international exchange of securities certification of electricity. In this body GSE is a member of both the General Meeting and of the Board; • International Energy Agency (“IEA”), whose purpose is to promote the strengthening of energy security and the diversification of sources of supply; • Observatoire Méditerraneén de l’Energie (“OME”), which promotes interregional cooperation within the Mediterranean Basin; • participation in projects and international initiatives. In this context, the company participates in the PV Parity project for the promotion of photovoltaic output in the pursuit of grid parity, and to projects such as EPED/RE-DISS (Reliable Disclosure System), CA/RES (Concerted Action on Renewable Energy Sources Directive), with the objective to provide support in the implementation of Directive 2009/28/EC. Finally, GSE is part of the International Partnership for Energy Efficiency Cooperation (“IPEEC”) for the promotion of energy efficiency in developing countries to provide development and support in the monitoring of MiSE Energy Community Treaty. Since December 2011, GSE has been actively involved, as a founding member, in the work program RES4MED (Renewable Energy Solutions for the Mediterranean), which works to promote dialogue with institutions and to develop solutions to promote energy investments of the main operators in the Mediterranean. European System for the Exchange of Emission Allowances (ETS) The European Union Emissions Trading Scheme (“EU ETS”) is a scheme for trading greenhouse gas emissions in order to reduce CO2 emissions in energy-intensive sectors. The system, which involves about 13,000 thermoelectric power plants and industrial plants in Europe, is the main instrument through which the European Union intends to achieve its targets for reducing CO2 emissions in 2020. Specifically, systems with high volumes of emissions require a permit to emit a maximum quantity of CO2, certified emission rights (“shares”). Ownership of the shares, initially of the Member States, shall be forwarded to the European operators through public auctions or by free allocation. The shares can be bought and sold by market participants in order to comply with its obligations offset the emissions of greenhouse gases and to cover its requirements for emissions. GSE is auctioneer of the rate of emission allowances in the Italian environment, and in that capacity it’s counterpart, for Italy, of the centralized platform at the European level where exchange takes place. In 2012, 11,324,000 shares corresponding to the Italian percentage were placed on the platform through the auction system. Auctioning the specified amount generated a total amount of 76.5 million euro in 2012. Such payments, with GSE as depositary, will be fully paid in a special bank account opened at the Treasury State, to be subsequently allocated to the relevant items of expenditure of the State budget for specific actions to combat and adapt to climate change. “Corrente” project GSE, with the patronage of the MiSE as well as with other sectoral and institutional partners, has carried out the “Corrente” project, with the goal to enhance, promote and internationalize the Italian chain of renewables and energy. It is a portal that serves as a channel of information and aggregation tool, on a voluntary basis and free of all operators belonging to the alternative energy sector who wish to develop and strengthen its technological and commercial competitiveness, benefiting from various services and initiatives. Created in 2010, Corrente has increased the number of participating companies significantly, which in December 2012 reached 1,720 units, an increase of 15% compared to 2011. In addition, through this portal, cooperation between SMEs and research centers by creating opportunities for work network was favored. Through the collaboration of more than 20 national and international bodies, in fact, the project has contributed to the growth of the Italian renewable energy in Italy and in the world, producing more than 25 initiatives dedicated, more than 1,000 bilateral sectoral meetings, systems of international missions and national events in the sector. 45
  44. 44. 46 Consolidated Financial Statements 2012 Research, statistics and support to Public Administration Studies In recent years, GSE has devoted a growing commitment to the deepening of studies and analyses related to renewable energy and energy efficiency, carried out both in support of the MiSE for outreach purposes, as well as for what is provided for by Legislative Decree 28/11 and reiterated more recently by MD July 6, 2012. During 2012, studies and thematic observatories launched in previous years were developed, with particular reference to the following aspects: • scenarios of development of renewable sources and evolution of incentive costs; • investment costs and energy production from renewable sources; • incentive policies for renewable energy at the international level; • assessment of economic, industrial, occupational and environmental consequences of the development of renewable energy and energy efficiency; • national and regional authorization procedures. In 2013, moreover, particular emphasis will be put on the preparation of the first report on renewable energy in Italy, as for MD July 6, 2012, and the preparation for submission to the European Commission, the second Progress Report of Italy on the state of implementation of the policies adopted and the results achieved towards the target of 17% of energy from renewable sources by 2020, established in accordance with Directive 2009/28/EC. Statistics GSE participates with Terna to the recognition of the “Annual Statistics production and electricity consumption”. In this context, the company provides data on photovoltaic systems and power plants fueled by other sources, renewable or otherwise, of power not exceeding 200 kW. During the year 2012, GSE published the “Statistical Report 2011 - Plants using renewable sources” and the “Statistical Report 2011 - Solar PV,” and has participated in the elaboration of the “Statistical Report EU 27 - Electric Power” 2010. GSE plays, finally, a leading role in the monitoring of statistics of national and regional targets for the use of renewable sources. All data are processed and managed within the Italian System for Monitoring of Renewable Energy. The monitoring is currently undertaken at a national level, and will be extended to the regional level. Support to Public Administration During 2012, GSE continued its efforts of support and advisory services to public bodies and representative bodies of national importance, on the issues of energy efficiency and renewable energy sources. This support action takes place both through specialist power engineering, defined by memoranda of understanding and agreements, and through information campaigns/programs designed to develop a culture of energy compatible with environmental requirements and specific knowledge of the incentive mechanisms. During the year, the specialized services related to the following aspects: • public support to central government and constitutional bodies in the preparation of public notice regarding the production of electricity and heat from renewable sources and energy efficiency; • support to other Public Administrations for the analysis of energy consumption in buildings owned aimed at limiting consumption; • specialist technical support to the MiSE in the context of the inter-regional operational program “Renewable Energy and Energy Efficiency” 2007-2013; • information/training to the local Public Administrations through the provision of training courses in the field of development of renewable energy, cogeneration and energy efficiency to the Regions and Autonomous Provinces. Monitoring data Resolution ARG/elt 115/08 and its subsequent amendments have defined procedures and criteria for the performance by GSE, as well as GME and Terna, of the activities associated with the monitoring function of the electricity market and the market for dispatching service. To this end, according to criteria established by the Authority, GSE has developed a computerized database in 2012 and have continued activities to ensure their development.
  45. 45. GSE Group Report on Operations Tariff coverage and A3 component Management mechanisms for the promotion of renewable energy sources generates costs, resulting primarily in encouraging and purchasing electricity and Green Certificates, and revenues, resulting largely from the sale of the same on the market. The budget deficit resulting from the difference between the costs incurred by GSE for the encouragement and promotion of renewable sources and the related revenues is covered by the revenue from the tariff A3 component, pursuant to Legislative Decree 79/99 and the “Consolidated text of the Authority for the provision of electricity transmission, distribution and metering services” for the regulatory period 2012-2015. Specifically, the budget deficit is generated mainly by the costs incurred for: • the recognition of incentive rates of photovoltaic systems and associated charges; • the withdrawal of the Green Certificates; • the purchase of electricity from producers: • CIP6 (including costs related to imbalances); • incentives through the feed-in tariff; • dedicated agreement for the withdrawal; • agreement for the Net Metering; net of revenues resulting primarily from: • the sale of electricity: • CIP6, feed-in tariff, Dedicated Withdrawal and Net Metering on the electricity market; • the sale of Green Certificates of ownership of GSE. For the year 2012, the deficit to be covered through the statement of comprehensive A3 component amounts to 9,767 million euro (7,204 million euro in 2011). Since 2007, moreover, a portion of A3 was designed by the Authority to cover the operating costs of GSE. For the year 2012, in accordance with Resolution 171/2013/R/eel, that consideration was 37.6 million euro (33 million euro in 2011). The A3 tariff component, finally, is intended to cover direct costs for external resources arising from the performance of some tasks that are assigned to the responsibility of GSE pursuant to the Authority as required by specific resolutions such as those related to the use of third parties authorized to carry out audits on photovoltaic systems, monitoring satellite and contact center. Virtual Storage gas Legislative Decree 130 of August 13, 2010 was attributed to a primary role in the GSE storage gas services. The Decree has introduced specific measures to stimulate the establishment in Italy of a further 4 billion cubic meters of storage capacity to consumers and industrial thermoelectric producers. The objective is to increase the competitiveness in the market of natural gas through the access of industrial customers to storage services, transmitting the benefits of this opening to final consumers. The construction of new infrastructure or upgrading existing ones have been entrusted to the main market player, Eni S.p.A., which will increase its market share to the threshold of 55% provided that the new storage capacity is made available by March 31, 2015. The industrial investors in possession of certain requirements of gas consumption and selected by Stogit S.p.A. with special competition proceedings have lodged a request for participation in the GSE storage mechanism that provides a virtual preview of benefits equivalent to those that subjects investors would have if the storage capacity corresponding to the assigned quotas were immediately operational. GSE delivers industrial investors in favor of the 34 members of the transitional financial and physical measures. Transitional financial measures For the storage years 2010-2011 and 2011-2012, GSE has disbursed amounts equal to the price difference in the price of natural gas during the winter and in the summer of the same year, applied to the amount of storage capacity allocated and has not yet come into operation. For the storage year 2010-2011 44 million euro were paid, for the storage year 2011-2012 23 million euro were paid through 6 monthly installments were paid. 47
  46. 46. 48 Consolidated Financial Statements 2012 Transitional physical measures Starting from the storage year 2012-2013, the industrial investors can deliver the gas in the summer and collect the following winter, in the face of a fee set by the Authority and granted with respect to storage fees. In this way, you can then access the gas purchasing it during periods of increased availability and lower price (summer) and then use it in the winter season when the price is higher. For the provision of transitional measures to physical industrial investors, GSE, on an annual basis and on the basis of the requests of the same subjects, makes use of virtual storage, or other persons authorized to operate on the European gas markets and to withdraw gas in summer to return it during the winter. The peculiarity of the role played by GSE is the ability to aggregate the demands of industrial investors and members to organize competitive procedures for the selection of virtual storage and virtual storage provision services to those applicants at more competitive prices, with a resulting advantage over the system charges. Downstream from the selection of virtual stackers and the conclusion of the annual contract with the same, GSE provides each year to match them with the respective subject investors. With reference to the storage year 2012-2013, the total quantity to be supplied, as required by industrial investors, amounted to about 6.1 million MWh. 8 virtual stackers were selected for the purposes of providing the service and were expected to net expense in the amount of 23.5 million euro, net of proceeds from the industrial investors. Assignment of services and services to the market From the storage year 2012-2013 and on an annual basis, GSE manages and ensures the transfer market services and benefits relating to the storage capacity already come into operation through a special procedure market. For the 2012-2013 storage year, with reference to the auctions organized by GSE in March 2012, the capacity offered for sale by industrial investors was approximately 6.1 million GJ in the face of a request to purchase about 18 million GJ. The allocated capacity was approximately 3.6 million GJ and the valuation price of the same amounted to 0.56 euro/GJ. Obligation to offer for sale to the market From the storage year 2012-2013 and on an annual basis, GSE verifies compliance with the obligation to offer the sale of gas to the market leader in the industrial investors through access, during the winter, to the trading platform for the exchange of natural gas (“P-GAS”) and/or the Day-Ahead Market for Gas (“MGPGAS”), both managed by GME. This will provide a greater liquidity in the market. In order to ensure optimal management of the supply of services referred to above, in accordance with local regulations, GSE has entered into three agreements with the parties concerned. In particular: • GSE – Stogit: the Convention governs the relationship between GSE and Stogit about disclosure obligations relating to transitional measures and procedures for the sale of services and benefits to the market; • GSE – GME: the Convention governs the relationship between GSE and GME with reference to the management of information flows between the parties, functional to allow GSE to verify that those investors comply with the obligation to offer the P-GAS and/or the MGP-GAS quantities made available by the virtual stacker combined; • GSE – Snam Rete Gas: the Convention governs the relationship between GSE and Snam Rete Gas for the exchange of information flows related to transactions recorded at the Virtual Trading Point (“PSV”) and carried out by operators in the framework of transitional physical measures. Tariff coverage and CVOS component The expenses incurred by GSE for the provision of virtual gas storage services are charged to the “Account storage charges” through the tariff component CVOS. Resolution ARG/com 87/11 and the subsequent 130/11 have set to October 1, 2011 the date of activation of the consideration CVOS and its exploitation is supplied to the bill. GSE, in accordance with Resolution ARG/gas 29/11, must provide the CCSE, by October 31 of each year, the amount of the expenses incurred for the provision of transitional measures. For transitional financial measures, the Electricity Equalization Fund, on the basis of the statement, acknowledged GSE with an amount of 66.5 million euro of which 44 million euro for the storage year 2010-2011 and 22.5 million euro for the storage year 2011-2012.
  47. 47. 50 Consolidated Financial Statements 2012 Acquirente Unico Acquirente Unico S.p.A. is now entrusted with the role of ensuring the supply of electricity to households and small businesses, in terms of affordability, continuity, security and efficiency of the service. The company buys electricity at more favorable conditions in the market and gives the operators the enhanced protection service for domestic customers and small consumers who do not buy on the open market. The company also organizes the ATM for the consumer of energy, which provides information, assistance and protection to final clients of electricity and gas and has a responsibility to carry out public procedures for the identification of subjects supplier of last resort in the natural gas market. Law 129/10 set up, also, at the AU Integrated Information System for the management of information flows relating to the markets for electricity and gas. Legislative Decree 249/12 finally attributed to AU, from 2013, the functions of Central Italian Stockholding. Supply of electricity Acquirente Unico S.p.A. meets the demand of the enhanced protection market through a program of energy supply to meet the requirements of economy and transparency, compatible with the trend of the markets. In order to minimize the costs and risks of supply for customers in the most protected market, AU has acted, even in 2012, as a diversification of the types of procurement and hedging volatility risk for purchases on the electricity market. The table below shows the breakdown of purchases of electricity for the enhanced protection service 2012. Type of supply 2011 2012 Change TWh % TWh % TWh % 18.7 5.1 5.3 7.7 36.8 22.4% 6.1% 6.4% 9.2% 44.1% 1.5 3.2 33.8 38.5 1.9% 4.1% 43.3% 49.3% (17.2) (1.9) (5.3) 26.1 1.7 (92%) (37%) (100%) 339% 5% 1.8 0.2 2.0 2.2% 0.2% 2.4% 2.8 3.4 6.2 3.6% 4.4% 8.0% 1.0 3.2 4.2 56% 1,600% 210% Total (A.1 + A.2) 38.8 46.5% 44.7 57.3% 5.9 15% B) Purchases on MGP B.1) Purchases unhedged price risk* B.2) Purchases with price hedging Total purchases on MGP (B.1 + B.2) 45.9 2.1 48.0 55.0% 2.5% 57.5% 33,6 6.2 39.8 43.0% 7.9% 50.9% (12.3) 4.1 (8.2) (27%) 197% (17%) C) Imbalances (0.3) (0.4%) (0.2) (0.3%) 0.1 (33%) D) Adjustments Terna* (1.0) (1.2%) - - 1.0 (100%) Total purchases of energy (A.1+B+C+D) 83.5 100% 78.1 100% (5.4) (6%) A) Forward purchases Physical contracts: national annual import multi-year import MTE A.1) Total physical contracts Financial contracts: virtual production capacity VPP contracts two-way contracts for differences A.2) Total financial contracts * That differs from the value shown in the table of the Annual Report 2011 for information received after.
  48. 48. GSE Group Report on Operations Energy obtained through physical bilateral contracts The energy supplied through physical bilateral contracts in 2012 amounted to 38.5 TWh and is divided into national contracts (1.5 TWh), annual imports (3.2 TWh) and purchases on the Forward Electricity Market (33.8 TWh). National physical bilateral contracts AU has held 47 auctions in order to select the counterparties for the national physical bilateral contracts necessary to carry out the covers of 2012. All auctions were carried out online through a portal to ensure greater competition among suppliers and transparency in the selection of contractors. The energy underlying all physical bilateral contracts entered into for 2012 amounted to 1.5 TWh. Annual import The MiSE Decree of November 11, 2011 established the terms and conditions for the import of electricity for the year 2012. On the basis of the provisions contained in Resolution ARG/elt 162/11, AU took part in auctions managed by Cross Border Services Company (“CASC”), finalized to the allocation of rights of use of transport capacity for the borders of the EU and to Switzerland. Also following the acquisition of such rights on the borders of France and Switzerland, the company selected counterparties for the supply of imported energy through its portals. Through these procedures, AU in 2012 imported a total of 3.2 TWh. Electricity market forward In the course of 2012, the recourse to the energy market substantially and consistently increased, that is the market organized by GME for the trading of futures contracts for electricity. Through daily trading, products have been purchased monthly, quarterly and annually for a total of 33.8 TWh (30.5 TWh of baseload and 3.3 TWh of peakload). Energy obtained through the system of offers (electricity market) AU operates daily on the electricity market, giving its bids on the Day-Ahead Market. The supply on the MGP is evaluated on the Single National Price (“SNP”) and corresponds to the share of physical needs not covered by contracts. In 2012 the supply through open market purchases amounted to 39.8 TWh, of which 6.2 TWh hedged against price through differentiated contracts. Imbalances Pursuant to Authority Resolution 111/06, in 2012 the time offsets between final and binding program (market purchases and physical contracts) to cover the energy needs of the protected market amounted to 0.2 TWh, equivalent to 0.3% of total supplies. 51
  49. 49. 52 Consolidated Financial Statements 2012 Differential and risk management contracts The company caters the MGP including through the conclusion of contracts of hedging price risk with the aim of stabilizing the price of electricity purchased. In 2012, AU has made use of financial instruments to hedge the price risk, such as contracts for difference with counterparties operating in the electricity sector and contracts for the sale of virtual production capacity (“VPP”), respectively equal to 3.4 TWh and 2.8 TWh. Differential contracts with electrical contractors working in the field In 2012, AU has entered into contracts for differences, either at a fixed price or at an indexed price. The counterparties have been selected by the bidding mechanism, which has fostered competition among the participants. During the year, 13 auctions for the identification of suppliers of differential products were held. The type of differential contracts which the company makes use of the “two-way”. If the difference between the market price and the price strike (multiplied by the quantities specified in the contract) is positive, the counterparty agrees to match it to AU, otherwise the burden falls on AU. Contract for sale of virtual capacity (VPP) AU took part in the proceedings held by both Enel Produzione S.p.A. and by E.ON Produzione S.p.A. for the sale of virtual production capacity, by virtue of Resolution ARG/elt 115/09, winning in 2012, respectively, 192 MW and 115 MW of capacity with fixed-price contracts. Also in the VPP auction carried out in 2009 by Enel Produzione S.p.A., covering the period 2010-2014, AU was awarded an additional 13 MW of virtual production capacity. This contract provides for a price indexed to the performance of brent and the exchange rate. Costs of procurement of energy In 2012, the cost of energy supply, including the effect of hedges, amounted to 7 million euro, of which approximately 6.2 million euro was for the purchase of electricity and the remaining 0.8 million euro for the cost of dispatching and other services. Sale of electricity to the service operators of enhanced protection The number of customers in the enhanced protection at the end of 2012 is approximately 27.3 million, of which 22.8 million households and 4.5 million customers for other uses. The reduction in the number of users is essentially due to the effect of terminations, new connections, passages to the free market and is within the protected market. With regard to the companies providing the enhanced protection service, in 2012 their number was reduced from 125 to 123, following the sale of the asset or the incorporation of existing businesses. The Authority, with Resolution ARG/elt 208/10, approved amendments to the contract of sale between AU and merchants of the enhanced protection service, essentially in regard to guarantees that the operators must provide to the company. In particular, in addition to the release of the surety, it is expected that the possibility of establishing a deposit will be required for an amount equal to the amount of the guarantee itself. The sale price of electricity for companies serving the enhanced protection service is determined by the criteria established by Resolution 156/07 and is equal to the sum of three components: • the weighted average unit costs from Acquirente Unico S.p.A. in the hours included in a given time period (F1, F2, F3), to the respective amounts of electricity; • the unit cost incurred by AU, as a dispatching user for the enhanced protection service, in the hours included in these bands; • the unitary recognized to AU for the activity of purchase and sale of electricity for the enhanced protection market.

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