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Disclaimer
Green Network has included in this document information and methodologies based on our experience and research.
Materials in this document are copyright to Green Network and may not be copied or otherwise distributed to any third party without the written consent of an Officer of Green Network.
This document is not complete without an accompanying oral discussion and presentation by Green Network.
4
Several game changers shaping the energy marketand offering untapped business opportunities
In an evolving market,integration along the value chain is not a source of competitive advantage anymore
Generation
Trading
Downstream
Overcapacity and RES role: towards a new paradigm?
• Structural overcapacity: CCGTs installations and RES "gold-rush" with lower demand
• Gas-fired generation "paradox": CCGTs' role in production undermined by "must-run" RES
• Market reform: in '16, expected MSD revision and Capacity Market mechanisms
• The rise of the "prosumers"*: market revolution starts at the end of value chain
Profits shifting from traditional trading to new services
• Decreasing commodity market volatility: limited risks but also capped upsides
• Increasing market integration: interconnection capacity, RES balancing and DG
• Shifting market opportunities: growing demand for innovative services, e.g. VPP and DSM
Untapped opportunities "from commodity to service"
• Decreasing value of commodity retail: decreasing profitability and increasing competition
• Enter "New Downstream" and digital: from "commodity" to "service"
*Prosumer: Producer-Consumer
5
Generation: market stress due to overcapacityand RES role – towards a new paradigm?
Today Game changers
Structuralovercapacity
and RES"gold-rush"
Gas-firedgeneration"paradox"
• Lower power demand (~-10TWh vs. pre-crisis) and generation overcapacity(~+40GW combined in the last 10 years)
• Lack of coordination and alignment in RES development, building the case for consolidation
• RES share increasing ancillary services needs
• CCGTs' role in production undermined by "must-run" RES
Increasingmarket
integration
• Increasing interconnection capacity
• Shift towards a distributed model
• Need for modulation of "non-programmable" production
Shiftingmarket
paradigm
Smart-grids, energystorage& DSM
• Towards a model based on long-term price signals and stronger planning and coordination
• Development of smartnetworks
• Storage cost reduction
• Implementation of tools and systems to manage demand
6
Increasing
incidence of
RES…
RES capacity from 3% in '05 to 22% in '14…
Installed Capacity IT (GW)
…with production from 3% to 13%
Production IT (TWh)
Incentives led to
"investing without scale":
top 15 PV players
account for only ~9% of the market
…with
extremely
fragmented
installed
capacity
EXAMPLE PV
…generating
opportunities
for
consolidation
Industrial and financial efficiencies achievable
Rush for installations (due to incentives) from financial players,with limited focus on industrial efficiency and investment funding
Many players interested in monetizing assets
Regulatory framework evolution and power price reductionreduced plant profitability, generating strong "secondary" market
Generation: lack of coordination in RESdevelopment, setting the grounds for consolidation
Source: analysis on data from Terna (2006-15), GSE (2016), AIDA (2016), Aquila Capital (2016), Santander (2016), Companies' websites, annual reports and press releases
7
Trading: profits shifting from traditional tradingto the development of new services
Today Game changers
New opportunities
for energymanagers
Generationoptimization
…but the opening of the services marketin Europe unveils new opportunities
• Decreasing volatility, also due to increasing coordination and integration and improved market liquidity and frequency of update of energy markets
• Less discontinuities and asymmetries to leverage in trading activities
Decreasing profitability oftraditional trading activities…
8
Today Game changers
Decreasing commodityprofitability
Ongoingmarket
liberalization
• Increasing costs due to churn rate and cost-to-acquire, cost-to-serve and bad debt
• Regulated tariffs not yet sustainable for the majority of operators
• Ongoing market liberalization process, causing increasing competition and forcing key players to reassess their strategies
Fullmarketopening
Digitalizationand New
Downstream
• Complete market openingof domestic segment expected in 2018, with structural change of competitive dynamics
• Digitalization and tech trends shaping consumer behavior models: from consumers to prosumers
• Key players driving the market towards New Downstream: "from commodity to service"
Downstream: decreasing profitability of sales, shifting paradigm "from commodity to service"
9
Retail Bad Debt cost (€/customer, 2014)
Bad Debt Cost
Retail CtS 2014 (€/customer, 2014)
Cost-to-Serve
Downstream: profitability affected by few key factors,with huge variations across players and segments
Churn rates Acquisition costs
Gas
Pow
er
Freemarket
Regulated market
Example residential churn rates (2012-14, %) Example acquisition costs (2015, € per gross acquisition)
Italianretail
energymarket
Note: data based on AEEGSI "cliente tipo"; Source: internal analysis on AEEGSI (2014), The World Bank (2015), industry knowledge
10
Downstream: market opening for residential by '18, although transition is still under discussion
Market opening expected for residential customers in 2018: while the transition process is under discussion, key players need to assess their prospects and strategic responses
Options for market liberalization
Mkts
Sta
keh
old
ers
Du
rati
on
As-Is Direct Switch
Voluntary switch Automatic switch
"Tutela"-LikeOption 0 Option 1 Option 2
2A 2B
• As-is "Tutela" services
• Operators procure through AU
• AU manages procurement of "Maggior Tutela" and "Ultima Istanza"
• Switch to "Ultima Istanza" service
• "Tutela"-like service on a voluntary basis
• Switch to "Ultima Istanza" service
• Operators procure through AU
• AU manages the procurement of only "Ultima Istanza"
• "Ultima Istanza" service: current "Maggior Tutela" operator
• "Tutela"-like service: selected free mkt retailers
• AU manages procurement of only "Ultima Istanza"
• Operator instituted by AEEGSI to supervise the market
• Not expected contract expiration
• Until the client findsa service provider in the free mkt
• In "Ultima Istanza" until the client finds another provider
• In "Tutela"-like service for 1 year from the date of the adjudication of the service
• "Ultima Istanza" service
• "Tutela"-like service managed through bids
Solution sponsored by AEEGSI
Source: analysis on AEEGSI data
11
Top 4: 50% MS
Altri Tot
PowerSales to
End-User
(2015, TWh)
GasSales to
End-User
(2015, Bcm)
Enel Servizio Elettrico
Enel Energia
…
Downstream: first 4 players representing ~50%market share, in an increasingly fragmented market
Source: analysis on AEEGSI data (2016) and players' websites, annual reports and press releases
Top 4: 50% MS
12
Downstream: the rise of New Downstream, from a commodity-based to a service-based model
… and tomorrowToday…
Retailer of power & gas
New customers
Equipment retailer
Energy systems management
Provider of TLC services & content
"Smart" system provider
….
Limited customervalue
Limited differentiation
Energy efficiency
Digital trend
…
Commodity ServicesCustomer needs
One business for each retailer One retailer for all businesses
Commodity
Equipment
TLC services & content
Energy systems management
….
"Smart" Systems
13
Several key trends in the UK energy market,with business opportunities mainly in Downstream
Liberalized market with a strong regulatory commitment on transparency and competition
Investment needs and Capacity Market
• Substantial investments in capacity to meet future demand and replace aging plants
• Reduction in RES support, due to conservative Government agenda and economic pressure
• Towards new incentives based on Capacity Market and Contract for Difference
Profits shifting from traditional trading to new services
• Market revision to increase liquidity and regulatory grip over commodities with MiFID/EMIR
• Increasing opportunities in innovative services, e.g. VPP, demand side management
Market opening to new innovative players
• Liberalized market, but still strong positioning of Big 6 players (~87% market share)
• Innovation-based newcomers supported by regulatory incentives and transparency tools
• Further regulatory actions in place (e.g. no caps on # tariffs, settlement system reform)
Generation
Trading
Downstream
14
Increasing new entrants presence in UK downstream mkt, favored by regulatory and mkt conditions
Regulatory incentives Competitive arena
Competition & Markets Authority investigation on Energy Market in March 2016 put in place a few action to allow an efficient competition:
• Simplified tariffs (part of the Retail Market Review reform)
• Reform the settlement system for gas and electricity
• Remedies to address constraints for prepayment customers
Ofgem accredited price comparison websites:
• Ensuring awareness and transparency of tariffs
• Allowing new suppliers to enter and compete in the energy market
Competition tools
Source: internal analysis on data from OFGEM (2015)
16
2014
2013
2012
2011
2007
2006
2005
2004
2003 Group Establishment by the two founders Piero Saulli and Sabrina Corbo, with the launch of power sale activities
Beginning of power import activities from foreign countries
Green Network starts activities in the power stock exchange
Launch of the first projects of energy efficiency
Establishment of gas sale activities
Start of project development for renewables generation
Incorporation of Green Network Trading UK (now renamed in Green Network UK) and international trading development
Launch of Retail and SME market activities in Italy and start promotions on GN brand
Focus on development of Retail and SME markets
Since 2003, Green Network has grown to become one of the most trusted energy companies in Italy
17
Green Network today is a primary independent player in the Italian energy market
To consolidate Green Network position as a primary independent player in the energy market, by creating added value for its customers
through consolidated methodologiesMission
Trading
G&P Sales
RES Generation
Holding
Other Businesses
Green Network Holding
Rinnov. S.r.l.
Green Network Energy
SolergysRena
Energia
SolCapGREEN
Green Hydro 1
Green Hydro 2
Green Wind 1
GreenWind 2
83%
100%
100% 55%
49% 51%
51%
51% 51% 51% 87%
74% 55%
ATAEnergia
SpectrumTech S.r.l.
Company structure Leading offices
London officeLeading office for trading and sales activities
Rome officeLeading office for all activities but trading
1 2
100%
Genera Green Energy.
100% 80%
18
A simple organization structure based on young skilled people with an average age of 33 years
avgage33
Human resourcesOrganization Structure
S. CorboExecutive Vice
President
P. SaulliPresident & CEO
G. MartiniSales, Strategy
and Development
G. BarberisCFO
General Managers
19
Green Network today is lead by a management with deep know-how of energy markets
• Founder of Green Network S.p.A.
• More than 10 year of legal advisory for energy sector players
• Specialization in international business and corporate law
Piero SaulliCEO & Chairman
Sabrina CorboVP
Giovanni BarberisCFO
Giuseppe MartiniCOO
• Founder of Green Network S.p.A.
• Former top manager at Enel S.p.A., where he held various role in definition and development of Italian electricity market
• Former top manager at Enel S.p.A., where he held various role both in technical development and sales department
• Last years at Enel S.p.A. he worked for consolidation of services to large customers
• Since 2016 CFO at Green Network
• Former CFO at d'Amico Compagnia di Navigazione
• Former CFO at ACEA and previously at Hera
• Former CEO at Arena
• Former CFO at CremoniniGroup
• Former CFO at Simint(Giorgio Armani Group)
20
Commercial development lead growth EBITDA of Green Network Spa over last years
EBITDA (M€)
NFP (M€)
EBIT (M€)
EBITDA increased reaching
~24M€ in 2015 driven by an
improvement of profitability
margin (EBITDA %)
21
A recognized good financial state is certified by the Cerved rating obtained
In October 2015 Cerved
Rating Agency assigned
Green Network a rating B1.1
(equivalent to BBB/BBB+ S&P or
Fitch, Baa1/Baa2
Moody's)ody’s)
Note: (1) Credit Lines Breakdown does not include credit lines for RES
22
To create the most added value for its customers, GN has developed activities across the entire energy value chain
AssetManagement
Power & Gas Sales
Supply &IndustrialTrading
Trading
Renewables
1 5
4
3
2
GreenNetwork
~13 TWh Power
~216 Mcm Gas
~13 TWh
Traded Power~120k Power Clients
~55k Gas Clients
~243 MW under
management (43
Plants)
~20 MW RES
gen. capacity (of which 85% PV)
Figures at 31-12-2015
23
Supply & Industrial Trading: power source diversi-fication and dispatching to optimize cust. economics
1
Supply & Industrial Trading Volumes Trading
• Power sourcing diversification: focus on capturing electrical production in excess from mid-small suppliers (PV and cogeneration power stations)
• Strategy of supply from renewables sources by independent suppliers:
- In 2016 contracts for 1 TWh
- Target 2018 of 2 TWh per year
• Electrical power dispatching due to strong know-how gained in managing high-consumption customers: sources/uses portfolio optimization
Po
wer S
up
ply
• Minimization of price and volume sales' risks through hedging and derivatives contracts
• Client portfolio optimization and risk management
Gas
Su
pp
ly
• Diversification of supply guaranteed through:
- Agreement of supply of gas with a major import operator in Italy
- EFET contracts with energy markets wholesalersIn
du
str
ial
Trad
ing
Po
wer (
TW
h)
Gas (
Mcm
)
24
Trading: Buying and selling, Derivatives and Risk Management within a limited risk profile
2
• Proprietary Trading, established in 2012,operates in main European power trading exchange platforms and OTC
• Currently operating in Italy, Switzerland, UK, France, Austria, and Germany
• Main activities:
- Simply Buying & Selling standard products
- Derivatives contracts on power market
- Risk management
Traded Volumes (TWh) Activity Description
25
Po
wer
Gas
Volume breakdown (2015)
End-user 7.7 TWh
Wholesale
Total
3.6 TWh
11.2 TWh
End-user 183 MScm
Power & Gas Sales: served all customer clusters, with 11 TWh power and 183 MScm gas sales in 2015
3
Clients evolution* (2015)
Domestic (# clients)
Small Bsn (# clients)
Med/Large Bsn (# clients)
Note: (*) Client evolution doesn't include High-Consumption and Wholesaler cluster; Fonte: Management
26
SECOND BEST CUSTOMER SERVICE
in Jan-15 for Altroconsumo
BEST ENERGY OFFER in Feb-15
with "I love Green Network" for
TGCOM24
• TGCOM24 monthly publishes “Il blog del consumatore” (The consumer blog)
identifying best energy offers available on the market
• Green Network Power&Gas was
ranked in first place for energy price thanks to
the offer "I love Green Network"
• In an investigation of
consumer periodical Altroconsumo Jan-2015,
among the top national companies to power supplycustomer service, Green Network Power & Gas is
ranked second for quality
• Main evaluated parameters were info on costs and bills, call center waiting time, …
3Power & Gas Sales: GN has been awarded of several price from consumer studies
27
Website Social MediaTV & Press
Offers, Education, Branding…~68k Like
Offers, Education, Branding…~3,6k Tweet, ~11k Followers
• Gigi Proietti testimonial since 2013, with various TV spots
• Press Campaign trough Newspapers (e.g. Corrieredella Sera, Il Sole24ore) and Periodicals (e.g. Panorama, L'Espresso)
Institutional communication~1,6k Followers
Offers, Education, Branding…>60 Videos loaded
• Detailed description of retail offers both for
- Commodities (e.g. Super "Convenienza")
- Energy efficiency (e.g. "Negawattora")
3Power & Gas Sales: Green Network has invested and continues to invest in all communication channels
Under development New TV spot in London with Gigi Proietti
28
Asset Management: know-how and experience to support IPPs to access the energy market
4
Dispatching and Energy Management for Indipendent Power Producers (IPP)
Activities
Regulatorycheck-up
Plant portfoliomanagement
Environmental certificatesmanagement
• Check-up of key contracts with market operators to analyze alignment to best practices and identify opportunities and improvement areas
• Management of key operations: wind and PV production forecasting, imbalances optimization, energy sales in the wholesale and retail markets
• Intermediation services for Energy Efficiency Titles ("TEE"), Green Certificates and emission permits, in order to guarantee compliance at the most efficient cost
Portfolio under management
Solar
Wind
Hydro
Biomass ~108 MW
Total : ~243 MW (43 Plants and 0,9TWh/y)
Other(Biogas…)
~55 MW
~19 MW
~35 MW
~25 MW
29
Geographical footprint
Solar
Wind
Hydro
Other(Biogas/Biomass)
16.8 MW
1.0 MW
0.4 MW
2.0 MW
20.2 MW RES capacity in Italy and Romania
(with 23.7 GWh production in 2015)
RES portfolio
Renewables: a portfolio of ~20MW installed capacity in Italy and Romania, with focus on solar energy
5
Solar # MW
Solcap Green 4 3,2
Rena Energia 1 0,1
US Boreale 1 0,5
Sòlergys 3 3,4
Spectrum Tech 1 8,6
Green Network 1 1,0
Total 11 16,8
Wind # MW
Green Wind 1 1,0
Total 1 1,0
Hydro # MW
Green Hydro 1 1 0,4
Total 1 0,4
Other # MW
ATA Energia 1 1,0
Rena Energia 1 1,0
Total 2 2,0
31
New Strategic and Industrial Plan will be based on strong key pillars…
Improve customer loyalty
New channels strategy leveraging on strategic
partnerships
Exploit operational excellence and cost discipline
Strengthen profitability
Control and mitigate risks in trading activities
Widen the offer developing digital technologies
32
Trading
Power & Gas
Sales
Asset
Mgmt
Renewables
New
Energy
Service
Control risk for trading activities (maximum daily VAR)
Clustering risk and multi-commodity competencies in London trading desk
Increase acquisition quality selecting the right acquisition channels (e.g. partnership) and selective M&A for opportunistic purposes
Turnaround on "Customer Journey" improving customer care operations (e.g. loyalty program, insourcing of value-added activities)
Evolve customer's offer leveraging on new Digital technologies
Entry strategy in UK Energy Market leveraging on favorable regulatory environment and digitalization (web-literate cust., full-online suppliers, …)
Exploit opportunities of price advantage vs. Big Six, Italian brand and Digital customer experience
"Controlled"
growth
Increase energy management activities to:
o Support IPP in creating value
o Support Supply BU in Buying RES Energy
o Create a strong customer based to develop Advance Energy Service
Commercial
growth
Manage
Exploit new opportunities related to new regulatory framework on innovative services
(VPP, Demand Response) in UK and ItalyDevelop
Continue to manage owned plants
Supply &
Industrial
Trading
Optimize following downstream change in Portfolio mix
Control risk and guarantees to minimize Group exposureCentralize
and control
risk
With a clear Strategic Guideline for each business line to lead Green Network growth…
33
OUTLOOK
Positive outlook with consistent growth throughout a3-year period
Revenue EBITDA
MAIN KPIs
Trading
Power & GasSales
AssetMgmt
Renewables
New EnergyService
Supply &Industrial Trading
850k+ Customers
Stable
500+ MW
Stable
TBDin relation to Regulatoryevolution
Growth
Growth
Growth
Controlledand Stable
VAR
~20 MW
OUTLOOK 3Y
Billion Euro Million Euro
Green Network Group
34
2015 Actual vs 2016 Budget
Compared to 2015Actual, 2016E shows a double digit increase of EBITDA (+36%)
Revenue (B€) EBITDA (M€)Customer Portfolio optimization in Power and Gas Sales
Focus on Customer with higher Profitability (e.g. SME)
Reducing high-consumption customer with key Issues (es. ILVA) and impact mainly on revenues
Increase of Domestic Customer Base (~80k Gas & Power consumer more)
Expected double digit increase EBITDA % by
the end of 2016
MAIN KEY DRIVERS
IMPACT• Reduction of Unitary
Price • Reduction of High
consumption customer(e.g. ILVA)
Regulated Tariff revision (increase PCV and QVD)
A
B
Growth
Selected
Green Network Group
35
4M 2016 Budget vs 4M 2016 Actual
… and results of first 4 months of 2016 are aligned with expectations
Revenue (B€) EBITDA (M€)
4 months 2016 aligned with expectations
MAIN KEY DRIVERS
Performance aligned in Gas & Power Sales
Slight underperform of Trading portfolio
A
C
Outperform revenues and margin in power Supply activities
B
Aligned
Aligned
Green Network Group
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