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Electricity area

Regulatory framework


The Development Law, aiming at increasing competition in the "Sardinia" market area, provided for a procedure of virtual sale of production capacity.

In order to implement the legislative decree, the Ministry for Economic Development set out a five-year term and the extension of the program (25% of local needs).

Following these trends, last August the AEEG issued the Resolution Arg/elt 115/09, which defines the selling entities,  the instruments to be adopted in the procedure, criteria for the definition of auctions to sell the capacity and conditions for participating in the auction.

The outcomes of the procedure were that Enel’s baseload production of 220 MW in 2010 and 23 MW in 2010-2014 will be assigned through a tender procedure. E.On also had all its virtual industrial capacity of electricity assigned by tender: in particular, for 2010, 12 operators were assigned all the 27 available bands totalling 135 MW while the 3 bands put up for auction for 2010-2014 and totalling 15 MW were assigned to two operators.


The main legislative interventions regarded the electricity sector during 2009-2010 and had a remarkable impact on the regulation of infrastructures.

In particular, the Development Law introduced some rules aiming at simplifying the authorization procedures while providing for, amongst other things, one single authorization to build electroducts.

As regards the expansion of connections abroad, TERNA was conferred the task to program and build new infrastructures (interconnectors) in order to achieve an increase of 2000 MW in interconnection capacity. These actions shall be carried out also through financing by private entities (end users with high energy needs), selected before the examination procedures that will be implemented by the Grid Operator.

The procedure provides that private entities (only industrial users of energy) that are awarded the right to fully use the lines in departure from the principle of third party access, hall enjoy the benefits that derive from  the deployment of the new infrastructures, even if their realization is delayed, through a virtual interconnector mechanism.

To this end, it is envisaged that operators who are shippers will assume the obligation to take delivery of energy in the country of origin and redeliver it to the user client in Italy. This shippers are in turn selected on the various borders, through a tender procedure based on the energy supply prices; for 2010 the outcomes of the procedure show that all the interconnector capacity was allocated between Germany and France (in particular 1,966 MW were allocated to Germany and 34 MW to France).

The law decree also known as Salva-Alcoa has provided for an increase in the interconnection share that can be assigned (a further 500 MW) which refers only to the Austrian border and the possibility of placing the shares that were not assigned in the previous tender procedure on auction again.

Conversely, as for the internal network development and in order to overcome the stalemate in a number of planned investments, the Anti-crisis Law allocated, for single and particularly urgent interventions, extraordinary assets and powers to complete the authorization phase (commissarial administrations). It should be noted that commissaries will act only in cases in which the competent Administrations have not fulfilled the legal terms for the issue of authorizations and the effective implementation of interventions.

EMISSION TRADING SYSTEM: refunds expected for emission trading system (ETS) shares that were not allocated.

With resolution no. 9/10 the Ministry for the Environment completed the assignment of the reserve dedicated to “new entrants” plants for the 2008-2012 period: given the disproportionate nature of the share needs of the new plants and the capacity of the reserve, the COGEN Imola plant did not receive all the shares it was entitled to.

Law decree no. 72 of 20 May 2010 introduced a refund mechanism for shares that were not assigned, shares that the managers of plants that are considered as new entrants must purchase on the market. By 31 March of each year, the Authority must define the credits due to those who are entitled to them based on the need as determined by the Committee for implementation and management of Directive 2003/87/EC. The measure introduced provides that the refund of the sums corresponding to the aforementioned credits will fall within the limits set by the revenue from the auctions for attribution against consideration of the shares for the 2013-2020 period.

Based on the completed assignment it is estimated that the COGEN Imola plant will have a credit balance amounting to 249,716 shares that will be subject to the refund mechanism for 2010. For the remaining periods the credit amounts to 249,716 shares.

As provided by the Legislator, the Authority has issued Resolution ARG/elt 117/10 with which it defined the criteria for determination of the value to be placed on each unassigned share that has been issued: this value is established based on the annual averages of the daily EUA share prices in the various European markets, in proportion to the overall volumes exchanged each year on these markets. The final amount of the credit due is equal to the value established by the authority multiplied by the number of unassigned shares each new plant is entitled to that the Committee has announced.

In application of this criterion, through Resolution ARG/elt 194/10 the Authority extended to COGEN Imola for 2009 a credit of Euro 1,022 thousand for 74,538 shares which it owns.

THE REFORM OF THE ELECTRICITY MARKET  (the “Anti-Crisis” law decree).

At the end of November 2008, the government issued Law Decree no. 185 of 29 November 2008 (on “Urgent measures in support of families, labour, employment and enterprises and rearrangement of the national strategic framework as an anti-crisis measure”). This decree provides for a series of innovations affecting the operation of the electricity market among other things.

The main elements of the reform are the following:

  • creation of an Inter-Day Market of energy, with continuous trading, integrated with the Dispatching Service Market (MSD) and replacement of the current adjustment market;
  • reform of the MSD operational processes, based on transparency and economic efficiency criteria in selecting resources and to be implemented based on criteria of economic merit order. Moreover, the reduction in costs borne by the Grid Operator would be also through negotiation of future services rendered.  Finally, it was set out that, in special situations of grid congestions or danger for the safety of the system, possible interventions of the Authority is provided for. The latter will have the faculty of pinpointing some plants for the supply of key dispatching services;
  • re-examination of the mechanism of price formulation of energy on the Day-Ahead Market (MGP) to be defined based on the criteria of economic merit order (this review is to be made before amendments regarding the Inter-Day Market and its integration with MSD;
  • publication by the GME of offers submitted on the MGP within 7 days and data on  unavailability of grids and plants on a monthly basis, except for cases regulated by the Authorities;
  • promotion of the widening of physical and financial forward markets for energy, through the development of new products, even long-term products;
  • provision that, within 24 months, the MSE, upon proposal of Terna, may divide the National Transmission Network into no more than three macro-zones;
  • provision that the MSE, after hearing the Authority, may intervene with temporary measures to promote competition in the areas where abnormal market behaviour

Pursuant to Law 2/2009, on 29 April 2009, the Ministry for Economic Development issued an implementation decree which indicates the guidelines for the reform of the electricity market legislation, while setting out the implementation terms of interventions of the competent bodies. The ministerial decree set out, but is not limited to:

  • the replacement of the adjustment market with an inter-day market, articulated in two or more sessions, starting from November 2009, as well as its integration with the dispatching service market, starting from 2011;
  • a new organization of the dispatching service market based on the type of services offered, starting from January 2010;
  • the evolution of forward electricity markets (MTE), with a wider range of listed products, starting from January 2010.

The same provision postpones the evaluation of the possible change of training rules on MGP to April 2012, after completion of the reform process and subsequent analysis on its efficacy.

Today, the reform of the market saw the introduction of the inter-day market (the first session was held last 31 October, with flow day on 1 November) in place of the adjustment market. This market, which allows operators to make amendments to programs defined in MGP through further purchase or sale offers, is carried out in two separate sessions.

Simultaneously, as regards the reform of MSD, Terna approved some amendments to the Grid Code in force since 1 January 2010. Amongst the main novelties that have an impact on the rules for dispatching, the following is to be highlighted:

  • possible submission of a special offer for switching off;
  • possible submission of a different price for the ancillary reserve with respect to price for other services;
  • possible submission of different offers for each hour of the day;
  • change in restraints for the permanence of service provision;
  • possible modification, in subsequent sessions, of offers already submitted (only for lower prices).

Starting from 1 January 2011, the provisions for integration between the inter-day market and the MSD will be applied through a review of the Grid Code that provides for:

  • introduction of some sessions of the Inter-Day market that take place on the delivery day;
  • setting up the MSD into sub-phases that take place after each session of the inter-day market; 
  • some changes which are not directly connected to the reform such as, for example, the review of the minimum hours of permanence in service and introduction of the explicit remuneration for the access service.

At this point, a review of the price formation criteria is required for completion of the reform outlined by the Legislator; the proposal on which the Ministry of Economic Development is working consists in moving from a Marginal Price System to a Pay as Bid system, though this is still in the probable stage.


Various amendments to laws were introduced in 2010 that resulted in a framework of new rules regarding renewable energy sources.

The main new items are contained in the draft of the legislative degree for enactment of Directive 2009/28 EC which aims to promote energy produced from alternative sources. Currently the draft is being discussed by the competent Parliamentary Committees and the opinion of the Unified Conference is required for its final approval.

In regard to the mechanisms for renewable sources incentive system, the main new item introduced by the draft of the decree involves the gradual movement from the Green Certificate system to a tariff mechanism with auctions for assignment.

For plants that will begin operation by 31 December 2012, the current incentive system will remain in force, with attribution, depending on the size of the plant, of GCs or all inclusive tariffs at the current levels/multiplication factors. After 2012, there will be a general passage to a tariff based system of the feed-in type with a differentiation of the support mechanisms based on the power of the plant:

  • for plants with nominal capacity that is no higher than 5 MW and for plants of any sized powered by biogas, sustainable bioliquids and biomasses, the incentive level is set by law through application of a constant tariff for the entire entitlement period equal to the conventional average useful life of the specific types of plants (this begins from the date the plant begins operations);
  • for plants with nominal capacities above 5 MW, the Ministry of Development established the power to be installed for each source or type of plant and the incentive is recognized through a system of discount bidding managed by the Energy Market Authority (GSE). The level of the incentive is based on the outcome of the auctions: in essence the producers compete for assignment of a tariff premium on the projects under development.

In regard to management during the transition period from the old to the new incentive system, the decree provides that the Green Certificate mechanism will remain in place until 2015 for plants deployed by 31 December 2012 through this instrument. In regard to the Green Certificates mechanism, up to 2012 the mandatory share for the thermoelectric producer is the one set by the Financial Act of 2008 which established a regime in which the annual share increase will be of 0.75 percent (the obligation therefore increases from 6.8% in 2011 to 7.55% in 2012), to be reabsorbed on a line by line basis from 2012 onwards and be phased out by 2015.

The operation of the transition mechanism provides for annual withdrawal of unsold certificates that were issued for production from renewable sources from 2011 to 2015 by the GSE. The withdrawal price is equal to 70% of the price applied by the GSE for the sale of its own green certificates.

Significant events


During 2010 the optimisation activity for the Teverola and Sparanise plants and their usage on the Dispatching Service Market was particularly satisfactory. The possibility of selling forward in 2009 all the production expected in 2010 made possible, within a market situation with lower exchange prices, for a longer number of hours than production costs, the application in 2010 of systematic optimisation interventions (closing of plants and purchasing of the required electricity on the exchange).

This type of exercise proved satisfactory on the Dispatching Service Market as well.


2010 was the first year of the commercial operation of the COGEN Imola plant, which is operated by Hera Trading under a tolling regime.

The inability to sell forward the electricity production expected for 2010 in relation to the possible risks of outages, given that this is a plant in its first year of operation, the low flexibility in regard to the restrictions connected to the cogenerative nature associated with urban district heating and the impossibility of trading it on the Dispatching Service Market for the same reasons, produced an economic result in line with the difficult conditions on the market.


During September and October, the Sources Portfolio was set up for Hera Comm’s trading activity, using the electricity produced from the plants in Teverola, Sparanise, COGEN Imola, part of the electricity produced by Tirreno Power, all purchased on the over the counter (OTC) platform during the year. A bilateral contract signed with ENI Gas & Power was also used. The 2010 long-term contract with ALPIQ was also renegotiated at the end of the year.


In December, Hera Trading participated in auctions organised by transmission network operators (Terna, RTE, APG, Swissgrid, etc.) for assignment of the trans-border physical transmission rights for electricity on the border with France, Switzerland and Austria, which has been assigned 15 MW annually for import and 5 MW annually for export on the Italian-French border and 5 MW annually for import and 10 MW annually for export on the Italian-Austrian border.


In collaboration of the holding company’s business development department, the contract terms regulating the techno-commercial operation of the thermoelectric plant in TAMARETE were negotiated with the partners. This plant in Ortona is currently under construction.


During 2010 as well, operating management of commodity and/or currency risk, was implemented in a “hedging” capacity, aimed at establishing the margins provided by the budget of the commercial transactions effected in both the Gas and Electricity Areas by Hera Trading and Hera Comm.

From the organisational viewpoint, the activity is centralised in one sole function (risk management), allocated in the Gas Division, in relation to the coverage requirements for fuel and exchange, for carrying out both the coverage activities of that area and those of the Energy Division.

This approach, based on the creation of a concentrated fuel concentration portfolio on the one hand and a concentration/electricity trading portfolio on the other, without generating a duplication of competences, enables the unitary management of homogeneous risks of the two companies and, based on macrohedging instead of using specific hedging formulas, has made it possible to attain certain advantages, such as:

  • Achievement of greater levels of hedging;
  • Elimination of constraints on the minimum volumes which can be hedged;
  • Optimisation of costs for lesser recourse to the market, by netting the positions of single contracts and the positions generated by the Gas and Electricity Areas;
  • Increased flexibility in evaluating procurement contracts with non-standard index-linked formulas;
  • Increased flexibility in structuring the products and services, with the possibility of proposing/quoting index-linked formulas different to those present in the acquisition portfolios;
  • Increased visibility of the over-the-counter (OTC) commodities prices.


The activity carried out in the Concentrated Risk Portfolio, based on derivative financial instruments – even if carried out for hedging purposes only – does not meet the requirements of IAS 39 for application of hedge accounting. Consequently, the result attained and the anticipated value of the derivatives in the portfolio are included in the operating result of the Gas Area.

The credit risk represents Hera Trading’s exposure to potential losses from failure to fulfil the obligations assumed by the counterparties, particularly in relation with the growing commercial activity involving the sale of gas and electricity.

Starting from January 2010, the Credit Control and Management Policy became effective in order to control this risk as well which, in combination with the economic crisis, has assumed great significance.

This Policy was defined by Hera Spa’s Risk Control Department and was approved by the Energy Risks Committee on 1 December 2009.

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