Management report


Reference market

  Year 2013 Year 2012
Italian electicity market (GWh) (1)    
Demand  317.144 325.259
Pumping consumption 2.389 2.627
Import/Export 42.153 43.088
Internal generation (2) 277.380 284.798
of which:    


182.528 204.796

    Renewable energy sources

94.852 80.002
Sales price (Eur/MWh)    
PUN (3) 63,0 75,5

(1)     source: Terna S.p.A. monthly report on the electrical system. Estimated data, subject to correction
(2)     output net of consumption for auxiliary services
(3)     Single National Price. Source: GME S.p.A.

The demand for electricity10 of the domestic electrical system in 2013 was estimated by Terna, on the basis of the provisional data for the year, i.e. 317.1 TWh, a decline (-3.4%) compared to the values recorded in 2012. This decline occurred in the more general context of the economic recession currently ongoing in the Country, with a contraction in consumption that started in the last quarter of 2011 and persisted both in 2012 and throughout 2013. With regard to Sicily, the reference market for the ERG Group, the contraction in demand compared to 2012 was 2.4%, declining from 21.6 TWh to 21.1 TWh.
In the same period, the net internal generation of electricity amounted to 277.4 TWh, down by 3.6% from the previous year, whilst the net balance of exchanges abroad recorded net imports for 42.2 TWh, slightly down from 2012. 66% of (net) domestic production was assured by thermoelectric plants and the remaining 34% by renewable sources; these data, if compared with those of the previous year, show a significant contraction in generation from thermoelectric sources (-12.0%) due not only to the decline in energy demand, but also to the greater contribution, during the period, of renewable sources (+18%), in particular hydroelectric (+21%) thanks to the heavy rainfall of the first half of 2013, but also wind (+12%) and photovoltaic (+19%).
The average value of the PUN (Single National Price) in 2013 was 63.0 EUR/MWh, down by 17% compared with the value of the previous year (i.e. 75.5 EUR/MWh). Said decline mostly reflects the severe decrease in the cost of natural gas against a backdrop of very weak demand.

(10)  Including grid losses and net of electricity used for pumping.

Period performance hightlights

(Eur million) Year 2013 Year 2012
Revenues form third parties 1,424 1,.435
Intra-segment revenues 218 216
Revenues form ordinary operations  1,642 1,651
EBITDA at replacement cost (1) 358 328
Ammortisation, deprecation and write-downs(1) (80) (76)
EBIT at replacement cost(1) 278 253
Capital expenditures on tangible  and intangible fixed asset 26 35

 (1)  the data shown here do not include the non-recurring items indicated in the section "Alternative performance indicators," to which reference should be
made for further details La ripartizione del margine operativo lordo a valori correnti tra le diverse attività del business Power & Gas è la seguente:


  Year 2013 Year  2012
EBITDA at replacement cost    
ISAB Energy / ISAB Energy Services 254 241
ERG Power & Gas business unit / ERG Power Plants  104 87
TOTAL 358 328

Sales of electric power1

    Year 2013 Year 2012
Sals (GWh)
Total Sales   8,229 7,852
ISAB Energy   4,142 4,077
ERG business unit Power & Gas   4,087 3,775

of which to ISAB S.r.l.

  179 215
Generation (GWh)
Total Generation   6,805 6,997

of which ISAB Energy S.r.l.




of which ERG Power S.r.l.




Sales prices  (Eur/MWh)
CIP 6   118,7 122,7
 EE Price Sicily   92,0 95,3

(1)  for the Power & Gas business unit, electricity sales differ from the quantities generated because they also include volumes moved on MSD and re-sales on wholesale markets and on forward markets; on the other hand, sales of electricity generated from wind power purchased from the subsidiaries of the renewable energies business are excluded

ISAB Energy

The results of ISAB Energy are partly subject to changes in market conditions, due to the index linking of prices contained in the electric power sale and raw material purchase contract.
The selling price of electricity generated by ISAB Energy is regulated by Inter-ministerial Price Committee Order no. 6 dated 29 April 1992 (so-called CIP 6/92).
ISAB Energy has been party to a twenty-year running agreement with the Italian National Grid Operator (GSE) since 2000, whereby the sale price includes the valuation of the "avoided cost component of fuel" (CEC) which in turn reflects the changes in natural gas prices. The feedstock, the main raw material used to generate electricity, is acquired from ISAB S.r.l. under a multi-year "take or pay" contract and is also tied to the valuation of the avoided cost of fuel.
During 2013, electricity generation totalled 4,142 GWh, up (+2%) compared with 4,077 GWh in 2012, thanks to the good overall performance of the plant, which recorded a utilisation factor of 90%, higher than in the previous year (88%).
The EBITDA at replacement cost was EUR 254 million, higher than in the previous year (EUR 241 million), mainly thanks to the greater output, which more than offset the decline in the unit price for the sale of electricity.
The estimated value of the 2013 CEC balance amounts to 86.9 EUR/MWh, in contraction compared to the estimated value in the same period of 2012, i.e. 91.8 EUR/MWh; the total value of CIP 6 electricity sale (including the CEC and the other tariff components) amounted to 118.7 EUR/MWh, in decline compared to 122.7 EUR/MWh in 2012.
For the purposes of this report, for the definition of this value, the official regulatory reference was considered, i.e. the Italian Ministerial Decree of 20 November 2012 which regulates the applicability of Article 30, Paragraph 15 of Italian Law no. 99 of 2009 ("Development Act") to the Selected Initiatives, with respect to the procedures for determining the value of the CEC "also taking into account the evolution of conversion efficiency". Consequently, for the ISAB Energy plant, the specific consumption value indicated in the Italian Ministerial Decree of 20 November 2012 was adopted, applying the exemptions defined therein: for the ISAB Energy
plant, the specific consumption value in this case is equal to 0.215 m3/kWh, corresponding to a reference yield of 48.5% taking into account the communication, sent by the National Grid Operator to Isab Energy on 9 May 2013, about the granting of the request for recognition of possession of the requirements for the application of the exemptions per the Italian Ministerial Decree of 20 November 2012.
For the calculation of the different components of the CEC, the methodology indications of the Ministerial Decree of 31 January 2014 published on the Italian Official Gazette General Series no. 40 of 18 February 2014, implementing the proposals of AEEG Opinion no. 503/2013 which in turn incorporates the provisions of Italian Law Decree no. 69/2013 of 21 June 2013 ("To-Do Decree") and of the related conversion law of 9 August 2013.
For the gas component of the CEC, the methodological indications prescribe for 2013 a growing indexation to the wholesale price of natural gas on short-term markets in view of a progressive reduction of the reference, currently prescribed by the Development Act, to the basket of petroleum products providing a proportion of 80% in the first quarter, 70% in the second quarter and 60% in the remaining quarters.
Additionally, within the scope of the process for the redefinition of the 2008 CEC balance, caused by the dispute relating to Resolutions no. 154/08 and no. ARG/elt 50/09, AEEG initiated, with resolution 31/2013/R/EEL, a proceeding that ended favourably with Resolution no. 553/2013/R/eel which set the value of the 2008 CEC for Isab Energy to 77.0 EUR/MWh. The redefinition of the CEC had a positive effect on the Group's 2013 results amounting to approximately EUR 7 million, of which EUR 4 million relate to ISAB Energy and EUR 3 million to Coastal Refining as an adjustment to the feedstock sale value; taking into account the nonrecurring nature of this item, the effect is not included in the EBITDA at current values.

Lastly, the net financial position as at 31 December 2013 of ISAB Energy, consolidated line by line, is positive by approximately EUR 31 million, versus the negative debt of EUR 54 million of 31 December 2012. The significant improvement is due to the cash generated during the period, to the collection of the CEC balance and to working capital dynamics.
Lastly, as described in greater detail in the section "Significant events during the year", on 30 December 2013, ERG entered into two significant agreements with GDF SUEZ and, at the same time, with ISAB (a subsidiary of the LUKOIL Group), whereby in 2014, subject to the fulfilment of certain conditions precedent, ERG will acquire the 49% equity investment in GDF SUEZ in ISAB Energy, the CIP 6/92 agreement will be terminated early and the ISAB Energy plant will be sold to ISAB.

ERG business unit Power & Gas and ERG Power 

During 2013, ERG Power's net electricity generation amounted to 2,663 GWh, in decline from the previous year (2,920 GWh). The reduction was mostly due to a greater modulation of the plant, consistent with the reduction of the price of energy on the market; moreover, participation in the Dispatching Services Market accentuated the aforementioned modulation of the plant to balance the grid throughout 2013.
Approximately 7% of ERG Power's generated electricity was used to cover the consumption of the North Refinery of ISAB S.r.l.
The net supply11 of steam by ERG Power plants to the Priolo industrial site in 2013 was approximately 1,577 thousand tonnes, (1,628 thousand tonnes in the same period of 2012), of which approximately 1,042 thousand tonnes were destined to the North Refinery of ISAB S.r.l. The EBITDA of 2013 was EUR 104 million, up markedly from the value of 2012 (EUR 87 million).
The achievement of highly satisfactory results, even in the presence of a market environment in Italy that remains globally unfavourable for combined cycle gas-fuelled plants, reflects average values of the price of energy in Sicily that are still favourable overall, as well as the effectiveness of the energy management policy with significant use of the dispatching services market and the adoption of risk mitigation instruments. These instruments contemplate, inter alia, the multiyear forward sale of electricity to IREN Mercato, the use of instruments for hedging the price risk and the sale of steam and electricity, through multi-year agreements, to the customers of the petrochemical site in Priolo Gargallo. Of note is the contract for the supply of utilities to the Versalis plants in Priolo, which was recently renewed and which entails the sale of electricity and steam until 2020.
Lastly, in relation to certain gas supply agreements, negotiations are underway for the redefinition of the supply price for 2013 ("price review"), from which positive effects are expected, although prudentially they were not included in the 2013 results.

(11)  i.e. the supply of steam to the industrial site of Priolo Gargallo excluding pipeline losses, net of steam withdrawal from customers.


ERG S.p.A. - Genova

Paolo Merli

Head of Corporate Finance & Investor Relations

0039 010 2401376

ERG S.p.A. - Genova

Matteo Bagnara

Investor Relations

0039 010 2401423

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