for procuring electricity in the italian market. page 2 agenda italian energy industry outlook risks...

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Procuring electricity in the Italian market

Agenda

Italian Energy industry outlook

Risks and opportunities in the Italian Market

EnergyQuote solution

Example of Italian Tenders

The Return on Investment: a business case

Italian Energy industry outlook

Industry highlights

Regulatory & Market environment– Eligibility for all commercial & industrial customers since July

2004 – Regulated Network Access– Supply separated from Distribution– Very complex and dynamic regulatory framework

Generation and transmission context– Fossil fuels-dependent Generation mix– Very limited competition in the generation market (Enel 50%

market share)– Dependence on cheaper imported energy from neighbouring

countries (14-17% of energy needs)– 1 Transmission Company, 170 Local Distribution companies

Taxes and levies– Very high energy taxes contribute to make the cost of energy

for end users disproportionately high

Potential suppliers– 35+ Domestic Suppliers– 9 International supply companies– Industrial Switch rate is 8%

Italian Power Generation - 2002

nuclear0%

coal0%

oil14%

gas10%

other conventional thermal40%

hydro17%

other unspecif ied0%

links16%

renew able3%

nuclear

coal

oil

gas

other conventional thermal

hydro

renewable

other unspecified

links

Electricity bill breakdown

0 1 2 3 4 5 6 7 8 9

Italy

Average

€c/kWh

Production Balancing / capacity Transportation Retail margin Tax excl. VAT

Indicative cost breakdown in major user prices (24 GWh, 6,000 hours per year)

Risks and Opportunitiesin the Italian market

Product choice

5+ pricing options: which one is the best according to market trend?

Fixed price

Ct indexed price

IPEX indexed price

Discount on the regulated tariff

Fossil fuel basket indexed

14.00

15.00

16.00

17.00

18.00

19.00

20.00

21.00

22.00

23.00

24.00

25.00

26.00

27.00

28.00

02/0

9/2

001

02/1

0/2

001

02/1

1/2

001

02/1

2/2

001

02/0

1/2

002

02/0

2/2

002

02/0

3/2

002

02/0

4/2

002

02/0

5/2

002

02/0

6/2

002

02/0

7/2

002

02/0

8/2

002

02/0

9/2

002

£/K

Wh

Tranding down: Variable

£19

£21

£23

£25

£27

£29

£31

£33

£35

£37

£39

£41

£43

£45

£47

£49

19/0

1/2

004

09/0

2/2

004

01/0

3/2

004

22/0

3/2

004

12/0

4/2

004

03/0

5/2

004

24/0

5/2

004

14/0

6/2

004

05/0

7/2

004

26/0

7/2

004

16/0

8/2

004

06/0

9/2

004

27/0

9/2

004

18/1

0/2

004

Date

£ / M

Wh

Trending up: Fixed

0

200

400

600

800

1000

1200

1400

0

10000

20000

30000

40000

50000

60000

How metered data quality affects price?

Consumption (kWh) Maximum demand (kWh)

Consumption Data Quality

Between 20% and 30% of metered data is significantly in error and requires independent verification.

Market competition

Over 35 suppliers active in the market: which one is the most competitive?

ACEA Electrabel Eneco Trade

ACAM Spa ENEL Trade

AEM Energia Energ.it S.p.A.

AE-EW Energia s.p.a.

AEB Energia e Territorio s.p.a.

AGAC Energia ENI Power

AGSM Energia s.r.l. E.ON Italia

AlpEnergie ERG

AMPS ERGON ENERGIA

ATEL Energetic Source SpA

C.V.A. Trading Espansione Energia

Dynameeting EstEnergy

Dalmine Energie HERACOMM

EDF Energia Italia s.r.l. META Energy s.r.l.

Edison Energia s.p.a. MPE - MP Energy

EGL Italia Net

Egea SIET - AEM Torino

Electra Italia Trafigura Italia

Interpretation of tariffs

4+ tariff structures: which one to choose & how to compare them?

F1 band –peak

F2 band – high usage

F3 band – medium usage

F4 band - offpeak

Seasonal Time of Day

offpeak – 8pm to 8am /weekends and holidayspeak – 8am to 8pm

0:00 1:00 2:00 3:00 4:00 5:00 6:00 7:00 8:00 9:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 23:00 0:00

0:00 1:00 2:00 3:00 4:00 5:00 6:00 7:00 8:00 9:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 23:00 0:00

offpeak – 8pm to 8amweekendspeak – 8am to 8pm

0:00 1:00 2:00 3:00 4:00 5:00 6:00 7:00 8:00 9:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 23:00 0:00

2 Rate - peak / offpeak (holidays excluded)

2 Rate - peak / offpeak (holidays included)

0:00 1:00 2:00 3:00 4:00 5:00 6:00 7:00 8:00 9:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 23:00 0:00

Flat rate

Unique daily price

EnergyQuote solution

Our approach

Market Intelligence and Strategic Consultancy– Research to assess the market trend– Support on the definition of a risk management policy– Selection of the most appropriate products in the market

Data management– Accurate and complete site data to ensure suppliers quote their lowest prices.– Information stored on web-based data-warehouse for facilitating data

management

E-Tender– Ability to monitor every supplier in the market– Ability to rapidly compare all tariff structures and quotations – Real time feedback to suppliers for favouring new quotations– The ability to complete a tender in 1 day

How to take advantage of the market opportunities?

0

10000

20000

30000

40000

50000

60000

Examples of Italian Tenders

Customer’s Home Page

Italian Tender - Overall ranking


Offer size ranged from 865 GWh on 12 sites, down to 134 GWh on 4 sites.

By tendering each site individually, we allowed smaller “out-sider” suppliers

to compete against the few large playersable to provide the entire lot.


The incumbent supplier for the previous two years, EGL Italia, was substantially outcompeted

by another supplier.

The Multi-Supplier option (optimum combinationof supply) proved to be the cheapest way

to allocate the contract.

Italian Tender – site list

Italian Tender – site list

As the Multi-Supplier option showed,any one supplier proved to be the most competitive for all the sites.

Italian Tender – site tender ranking


The competitive environment created by the e-auction

pushed some suppliers to bideven 3 times in 1 day


The e-auction induces players to squeeze their margins as

much as possible:

the best supplier bid 3 times, and had to reduce its second offer by more than €90k

- just on one site - in order to beat competitors.

Italian Tender – tariff breakdown


Some suppliers bid 4 times, one even 5 times in 1 day.

The winner secured the businessby reducing its initial

offer by almost €122k - on just one site.

Italian E-Tender - 2003

The Return on Investment:A business case

Comparing all the possible supply options: single supplier or multi-supplier combination

Our actions for minimising the risk-related costs

Energy Purchasing Risks

Risk variance:% min–max Higher cost (€)

Total potential risk

0,5 – 1,5% € 25k – 75k

1 - 3% € 50k – 150k

1,5 – 5% € 75k – 250k

1 - 6% € 50k – 300k

0 - 2% € 0 – 100k

€ 5 million expenditure € 15 million expenditure

Verification of consumption data:reduces the risk premium due to inaccurate data

Day-long E-Tender

Involvement of all the active suppliers

Possibility to bid multiple times up to tender deadline

Real-time comparison of different tariff schemes

0 - 1% € 0 – 50k

4 – 18,5% € 200k–925k

0,5 – 1,5% € 75k – 225k

1 - 3% € 150k – 450k

1,5 – 5% € 225k – 750k

1 - 6% € 150k – 900k

0 - 2% € 0 – 300k

0 - 1% € 0 – 150k

4 – 18,5% €600k–2.775k

Risk variance:% min–max Higher cost (€)

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for procuring electricity in the italian market. page 2 agenda italian energy industry outlook risks...

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