Management report

Regulatory framework

The most significant regulatory changes that characterised the energy industry in 2013 were:

General

National Energy Strategy (Strategia Energetica Nazionale – SEN) The National Energy Strategy (SEN) was approved by inter-ministerial decree (MSE-MATT)
The SEN, approved with Ministerial Decree of 8 March 2013, indicates the national energy guidelines and the related targets to 2020, specifically providing: 
  • promoting energy efficiency (with the target of a 24% reduction in primary energy consumption);
  • transforming Italy into the Southern European Hub of the gas market (with an expected decrease of EUR 7-8 per MWh in the price of natural gas);
  • increasing electricity generation from renewable sources to approximately 120-130 TWh per year;
  • developing infrastructures and market instruments aimed at aligning Italian electricity prices to the European average; restructuring refining and the fuel distribution network;
  • developing the national production of hydrocarbons;
  • generally streamlining the institutional governance of the energy system (expanding the State's exclusive competence in these matters).
Publication, in view of the European Council meeting of 20-21 March 2014, of the Communication from the Commission on climate/energy strategy for 2030.

On 22 January 2014, following the public consultation started with the publication of the Green Paper of 27 March 2013, the European Commission published a series of documents that detail its general proposal for climate and energy policy through 2030. The Commission's
"package" consists of the following documents:
  • the actual Communication on the 2030 Framework (hereafter the "Communication");
  • the Impact Assessment of the Communication;
  • a legislative proposal for the establishment of a strategic reserve of emission allowances within the Emission Trading Scheme (ETS) System.
This first package is also accompanied by:
  • the Study on drivers of energy prices and costs in Europe, prepared by the Directorate- General for Energy (DG Energy) of the Commission;
  • the Study on the macroeconomic impacts of the evolution of the energy market.
The Communication is not a proposed Directive or a document that binds the member States.
On the contrary, it is a general planning document, whose main purpose is to orient discussions about climate policy after 2020, which Heads of State and Government will initiate on the occasion of the European Council meeting in Brussels on 20 and 21 March 2014.
The main contents of the Communication are:
  1. Binding reduction of the emission of greenhouse gases: 40% compared to the emission level in 1990; 
     
    • Increase in the annual linear emission reduction factor in the industries included in the
      ETS system from the current 1.74% to 2.2%. To be implemented in any case after 2020;
    • The emissions of industries not included in the ETS shall instead be reduced by 30% compared to the 2005 level;
       
  2. Reform of the ETS: establish a market stability reserve from the start of the next trading period, in 2021. The reserve scheme is included among the systems for the dynamic management of demand and it should, at least in its intentions, enhance the ability of the ETS to respond to systemic shocks on the demand or supply side.
  3. New "community" target at 27% for the share of Renewable Energies relative to gross energy consumption in 2030. The target remains binding only at Union-wide level and not for individual member States;
  4. No decision is predicted with regard to a possible target for energy efficiency. This issue will be given a central role on the occasion of the revision of the directive covering the matter, expected to be concluded by the end of the year. National energy plans shall contain
    "adequate" initiatives to promote efficiency.
Final approval of Back Loading
On 16 December, the Council of the European Union gave its final approval to the bill previously passed by the European Parliament, aimed at clarifying that the Commission, following certain checks of a procedural, rather than substantial, nature, to proceed with the temporary removal of 900 million CO2 allowances. The withdrawn allowances will then be reintroduced before the end of the 3rd trading period (2020). In the meeting of 8 January 2014, the Climate Change Committee of the Council established that 400 million allowances will be withdrawn for 2014; this amount may decrease to 300 million if they are withdrawn by June. 330 million allowances will then be withdrawn for 2015 and 200 million for 2016. The reintroduction calendar calls for 300 million allowances for 2019 and 600 million for 2020.

Italian Law no. 98 of 9 August 2013, converting Law Decree no. 69 of 21 June 2013 bearing "Urgent provisions for restarting the economy" (Decreto del Fare, the "To-Do Decree").
In the electricity-energy sector, the following main measures were introduced:
  • the revision of the method for setting CIP 6 rates, which today are pegged to gas market prices. In 2013, the weight of the wholesale spot market price of natural gas is set gradually to increase in the indexation formula applied to determine the value of the avoided cost
    of fuel (CEC) component, which will reach 100% from 2014 onwards;
  • on the IRES surtax front ("Robin Tax") for producers of energy from renewable sources, the Decree prescribes that the enforcement thresholds shall be lowered to EUR 3 million for revenues and EUR 300 thousand for taxable income.
For the Oil sector, the intention is to promote the rationalisation of the fuel distribution network to promote the use of methane.
The environmental provisions pertain specifically to updates to the definition of "byproduct" and to the use of excavation soils and rocks for small constructions sites and for works not subject to VIA (Environmental Impact Assessment) or AIA (Integrated Environmental Authorisation). The law also defines the conditions under which pumped groundwater are considered similar to industrial waste water and therefore regulated by Part III of Italian Legislative Decree no. 152/06 (Water Discharges), allowing for their treatment at existing industrial facilities.

 

Renewable energy sources

Imbalance costs of non programmable renewable sources.
The TAR of Lombardy repealed resolutions 281/2012 and 493/2012 whereby the Authority had introduced the imbalance payments for plants powered by non programmable renewable sources (FERNP).
The Authority appealed before the State Council against the decision of the Regional Administrative Court of Lombardy, with petition for suspension, which was rejected on 11 September 2013. Notwithstanding these court decisions, the Authority intervened with its Resolution 462/2013, establishing, de facto, the reintroduction of the imbalance payments for FERNP producers at the actual imbalance portion that exceeds 20% of the programme starting from the productions of October 2013.

Administrative Decree no. 215 of 12 June 2013 - Region of Sicily.
The Region of Sicily, with its Administrative Decree no. 215 of 12 June 2013, established on its territory the Regional Register of Renewable Energy Sources, wherein all plants for the generation of energy from renewable sources, present in the region, must register no later than 31 December 2013, or be subject to the voiding of the authorisation.

Approval by the Plenary Session of the Romanian Parliament of the new Law reforming the renewable energies incentive system
In December 2013, the Law reforming the renewable energies incentive/regulation system, approved by the plenary session of the Romanian Parliament, was sent to the President of the Republic of Romania for promulgation. With regard to wind power, inter alia, the emphasis is as follows:
  • the retention of a Green Certificate (CV) from 1 January 2014 through 31 December 2016 for wind farms that started operations before 1 January 2014. The "green certificates" thus retained will then be released from 1 January 2018 and in any case no later than 31
    December 2020. Consequently, wind power producers already in operation may market 1 Green Certificate for each MWh generated (instead of 2) until the end of 2016. From 2018 onwards, in addition to the incentive provided for the output of the current year, the
    previously retained "green certificates" will progressively be made available. Currently, the enforcement procedures are uncertain;
  • wind farms that became operational after 1 January 2014 will instead only be subjected to the reduction in the number of CVs, as prescribed by the Governmental Decision that endorsed the decision of the regulator, ANRE. As a result of said decision, the wind farms
    in question will have access to 1.5 CV for each MWh;
  • lastly, for each year from 2014 onwards ANRE will calculate the mandatory amount of CVs to be acquired on the basis of an analysis of overall demand and of the estimated output from renewable sources.
However, in January 2014 the Romanian President did not ratify the bill approved by the Parliament, thus returning it to the Chambers, arguing that the European Commission had not been notified of the amendments to the incentive system made by the law and consequently there was a potential violation of EU principles.

Approval by the Plenary Session of the Bulgarian Parliament of an amendment reforming the renewable energies incentive system.
In September 2012, a charge for accessing transmission and distribution networks was introduced by the local Regulatory Authority for renewable source producers in operation since March 2010. The outcome of the appeal by Operators and industry Association against
the related resolution, which defined said charge temporarily to 10% of the feed-in tariff for wind power producers, was favourable. It is foreseeable that in upcoming months the definitive value will be defined; it will in any case have to be based on a detailed analysis of the real cost of operation of the networks. At the end of 2013, the Bulgarian Parliament approved, within the scope of the 2014 Budget Law, an amendment to the renewable energies incentives law, whereby from January 2014 onwards a fee amounting to 20% of revenues was imposed on sun- and wind-powered generating plants. Subsequently, however, the Bulgarian President submitted to the Constitutional Court the matter of the constitutionality of the measures to regulate incentives adopted by the Parliament, and requested a verification as to whether the principles of free market competitions were violated.

The European Commission announced the start of an inquiry on the compatibility of the German EEG-surcharge with EU law
On 17 December 2013, the EU Commission – Directorate General for Competition announced the official start of an investigation on the compatibility with EU rules on competition and state aid of the partial exemption of energy-intensive companies from financing the cost of renewable energies in Germany (the so-called "EEG-surcharge").

The Directorate-General for Competition of the European Commission has launched a public consultation on the guidelines for State Aid in the energy and environmental fields for 2014-2020.
The public Consultation pertains to the latest draft of the document published on the website of the Commission. The draft is ambitious and it intends actively to support convergence in the design of renewable energy incentive systems among the various member States of the European Union. The guidelines address, inter alia, also the definition of the criteria that would make the introduction of capacity remuneration systems admissible from the viewpoint of competition rights.

 

Termoelectric

Ministerial Decree of 24 April 2013 published in the Italian Official Journal of 18 May 2013, determining the adjustment value of the avoided cost of fuel (CEC) component for the year 2012 and the related 2013 advance, on which the CIP 6 rate depends.

AEEG Resolution 553/2013 whereby the Authority set the value of the avoided cost of fuel (CEC) for the year 2008 for the electricity withdrawn by the National Grid Operator (GSE) pursuant to the CIP 6/92 Instruction.

Ministerial Decree of 30 September 2013 published in the Italian Official Gazette of 29 November 2013, bearing the "Amendment to Annex 2 of the Decree of 23 June 2011, and extension of the terms for participating in the request for early termination of CIP 6/92 agreements for plants fuelled with process fuels or residues or energy recoveries", extending to 30 September 2014 the deadline for filing requests for the early termination of CIP 6 agreements and updating the parameters for calculating the cost-efficiency of the system for the early termination of the agreements.

Italian Legislative Decree no. 30 of 13 March 2013, implementing Directive 2009/29/EC regulating the CO2 emission allowance trading scheme of the Community ("Emission trading Directive") for the 2013-2010 time interval. The Decree incorporates the amendments introduced by the aforesaid EC directive, providing for the allocation of allowances by auction.
For thermoelectric plants, the allocation shall be, with a few exceptions, by full auctioning, whereas for plants in sectors other than thermoelectric, gradual transition to "full auctioning" is provided. The Decree also defines the procedures for managing auctions, which shall take place with harmonised rules set at EC level, providing for a significant portion of the proceeds deriving from the auctions to be allocated to the Ministry of the Environment for mitigation policies and to facilitate adaptation to climate change (e.g., the reduction of greenhouse gas emissions, the development of renewable sources and of energy efficiency, incentives for the environmentally safe capture and geological storage of CO2).

AEEG Resolution 621/2013, whereby the Authority recognises the costs, for CIP 6 producers, deriving from the obligation to purchase "green certificates" for the year 2012 (referred to productions from non renewable sources of the year 2011).

AEEG Resolution 216/2013, AEEG Resolution 217/2013, whereby the Authority recognises the costs, for CIP 6 producers, deriving from the obligation to purchase "green certificates" respectively for the year 2011 and 2010.

AEEG Resolutions 196/2013 and 293/2013, whereby the Authority implemented the second stage of the reform of the economic conditions for the performance of the natural gas protection service starting from 1 October 2013. Additional procedures implementing the second stage of the reform were defined by the Authority with its Resolution no. 293/2013.

AEEG Resolution 262/2013, whereby the Authority defined the criteria for determining the price to remunerate capacity for the period between 1 January 2012 and 31 December 2013. Decree by the President of the Council of Ministers of 23 July 2013 published in the Italian Official Journal no. 231 of 2 October bearing "Extension, in accordance with
Article 1, Paragraph 394, of Law no. 228 of 24 December 2012, of the term per Article 3- bis, Paragraph 1, of Law Decree no. 16 of 2 March 2012"
which extends to 31 December 2013 the application of the calculation method established by AEEG Resolution 16/98 with regard to the reduced excise tax for fuels used in cogeneration plants.

AEEG Resolution 481/2013 eAEEG Resolution 307/2013 whereby the Authority recognises to CIP6 producers the costs deriving from participation in the Emission Trading System (ETS) for the year 2012 and the recognition procedures for the third stage of the ETS 2013-2015.

 

Refining & Marketing 

Italian Legislative Decree no. 249/2012 published in the Italian Official Journal no. 22 of 26 January 2013, bearing the endorsement of EU Directive 2009/119/EC on the member States' obligation to maintain a minimum level of stocks of oil and/or petroleum products.

Ministerial Decree of 24 April 2013 published on the Italian Official Gazette no. 161 of 11 July 2013 defining the methods for funding the Italian Central Storage Body (OCSIT).

Italian Ministerial Decree of 6 June 2013 prescribing the level of mandatory stocks for 2013
The MSE decree that indicates the mandatory stocks of petroleum products for the year 2013, effective from 1 July 2013, was published on Italian Official Journal no. 146 of 24 June.

Decree of the Ministry of Economic Development of 17 January 2013 on the obligation to disclose retail fuel prices and on the procedures for publicising prices in service stations The Decrees prescribe: i) the obligation to notify the MSE of retail fuel prices according to set periodicities; ii) the procedures for indicating the retail prices applied in service stations (signs).

 

Impacts on the Group

With reference to the above, no further impacts on the businesses of the Group were noted for 2013, beyond those detailed in the comments on individual events or, below, in the chapters dedicated to the businesses.

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

ir@erg.it


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