Terna 2017>2021 Enabling Energy Transition
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Terna presented its investment plan to enable Italy's energy transition over the period 2017-2021. Key points include: - Total capex of €4 billion to support renewable energy integration and grid reinforcements, 30% higher than the previous plan. - RAB expected to grow 2% annually to €15.6 billion by 2021 to accommodate new investments. - Revenue guidance of €2.25 billion for 2017, up 7% over 2016. EBITDA guidance of €1.58 billion for 2017, up 3% over 2016. - EPS CAGR target of 3% through 2021 with increased visibility from the regulatory framework. - Continued focus on the regulated business while selectively
Terna 2017>2021 Enabling Energy Transition
- 2. Investor Relations 2 Macro Trend COP22 Marrakech Climate Change Conference - November 2016 Implementation of Paris Agreement underway Multilateral cooperation on climate change continues United Nations 17 Goals to Transform Our World Mobilize efforts to achieve Sustainable Development Agenda by 2030 Closing the loop EU action plan for Circular Economy “Closing the loop" of product lifecycles through greater recycling and re-use. Bring benefits for both environment and economy
- 3. Investor Relations 3 Guidelines and Targets of Energy Transition Reduction of GHGs emissions 2020 EU 20-20-20 2030 The energy bridge Consumption covered by RES2 Energy Efficiency (vs BAU scenario) Interconnection vs. installed capacity - 20% - 40% ≥20% 27% + 20% +30%3 ≥ 10% 4 ≥ 15% 5 - 13% 1 ≥17% ≥ 10% 4 1. Target for Italy related to Effort Sharing Decision 2. Share of renewable energy in percentage of gross final energy consumption (transport + electricity + heating & cooling) + 20% TARGETS Decarbonisation Market Efficiency Security of Supply European Guidelines …to ensure that Europe has secure, affordable and climate-friendly energy 3. Proposal EC Winter Energy Package (target previously set at 27%) 4. “Barcelona criterion” from the European Council of 2002, in Barcelona 5. Single Member State target under study by EC
- 4. Investor Relations 4 Our contribution to the Energy Transition Transmission Technologies Electric Power System Operation Grid & Markets Development Smart Grids (i.e. Smart Islands) Business Improvement Differentiating through a shared innovation process CLUSTERS PARTNERSHIPS Start Up & SMEs Academy & research centers Energy sector & Infrastructures Supply chain Tools to turn ideas into new strategic initiatives Open Innovation A more sustainable approach to environmental themes adopting stringent standards Environment Human capital Attract, develop and retain talents demonstration cases – interconnection - interdisciplinarity
- 5. Investor Relations 5 The Energy Transition is Accelerating NEW TRENDS TO INCREASE CAPEX REQUIREMENTS * Renewable Energy Sources System Needs ES ntegration dequacy eliability Non-programmable RES* growth Thermal decommissioning Technology evolution / Energy Saving Sector Trends At the lowest cost for the System with high quality standards R A R I Challenges Decarbonisation Market Efficiency Security of Supply
- 6. Investor Relations 6 RES GROWTH (GW) PV +17.6GW WIND + 4.3GW R IRES growing & Thermal decreasing THERMAL DECOMMISSIONING (GW) NOTE: Terna estimatesfor Italian Electricity Market Further growth driven by competitive tenders with long term contracts (2017 target +1.4GW ) 6 28 29 32 35 44 38 57 74 76 77 78 76 72 67 62 56 50 Further potential decommissioning driven by efficiency UP TO TODAY TOMORROW UP TO TODAY TOMORROW
- 7. Investor Relations 7 81% 61% 45% 34% 0 5 10 15 20 25 30 35 1 3 5 7 9 11 13 15 17 19 21 23 Demand Residual load Renewables Understanding RES Integration SYSTEM BALANCING NEEDS 2016 Increased complexity of ramp up management GW Peak inversion management Need to integrate RES production 2 1. RES production / total demand (RES = Wind, PV, Hydro, Geothermal and Biomass) 2. Residual load = Demand minus renewable production Hours 1 1 2 1 2 R I DEMAND COVERED BY RENEWABLES1 2016 data Hourly Daily Monthly June April 25 April 25 At 2.00PM Demand covered by RES in some hours 80% MAX Yearly
- 8. Investor Relations 8 Need for RES integration and new grid reinforcements on the backbone for South-North energy flow CAPACITY MIX IN THE 6 MARKET ZONES* REShuffling Energy Map Not homogeneous renewables distribution within the Country (concentrated in the South) GW * 2016 estimates R I 2005 ENERGY FLOWS Demand zones 2016 30 22 62 3.1 0.7 4.8 4.4 2.8 9.7 8.2 1.0 11.9 8.5 16.429.6 NORTH Center South Center North SOUTH SICILY SARD Hydro Thermal Wind/PV 26%Wind/PV 16% Wind/PV 36% Wind/PV 39% 3.3 1.2 3.6 Wind/PV 41% Wind/PV 26% 1.7 0.4 2.0 Wind/PV 41% TOTAL Critical Clusters
- 9. Investor Relations 9 Avoiding Adequacy and Reliability Issues In the Plan: Italy-France, Italy-Montenegro, SACOI3 (Sardinia- Corsica- Italy) and Italy-Austria Under Study: Italy-Switzerland, Italy-Tunisia and Italy-Slovenia A Interconnections and Private Interconnectors Internal Reinforcements Transmission capacity increase on a zonal and local basis Digital Grid solutions Demand response, just-in-time metering and storage solutions to increase security of supply Capacity market Selected counterparties to receive a premium (€/MW-year) for their capacity obligations Terna will run the Capacity Market auctions (first expected by YE2017) TransmissionOperatorSystemOperator R Replacements Mitigation of risks of service interruption and increase eco-sustainability Supporting maintenance through digitalization
- 10. Investor Relations 10 Development Replacement A Stronger Grid for Energy Transition Defense RATIONALE Renewables Integration Congestions’ resolution - zonal - local Reliability Digitalisation Cross-Country Interconnections Benefits for the System to drive Capex Plan TYPE Defense and quality of service REGULATION Investments with high system benefit Terna new capex plan already compliant with the new CBA 2.0 methodology Transition from input to output-based and Totex
- 11. Investor Relations 11 Reconfirming Mission and Strategy – Executing the Plan 1 2 3 4 Domestic Regulated business New Regulation Domestic Non Regulated business International Maximising shareholders’ remuneration New capex needs to enable energy transition Potential new source of outperformance Energy Solution Provider Low risk potential upside Growth in Domestic Regulated to facilitate Energy Transition and leverage on core expertise to seize opportunities in Non Regulated & International Priority List
- 12. Investor Relations 12 Energy Transition Ongoing... DISPATCHING SERVICES NEW MARKET DESIGN R&D FOR SMART GRIDS STORAGE SPECIAL EQUIPMENT / R&D CROSS BORDER INTERCONNECTIONS RUN CAPACITY AUCTIONS DEMAND RESPONSE GRID EXPANSION
- 13. Investor Relations 13 Enabling Energy Transition Flexible Toolkit DISPATCHING SERVICES NEW MARKET DESIGN R&D FOR SMART GRIDS STORAGE SPECIAL EQUIPMENT / R&D CROSS BORDER INTERCONNECTIONS RUN CAPACITY AUCTIONS DEMAND RESPONSE GRID EXPANSION
- 14. Investor Relations 14 REGULATED Capex Driven DOMESTIC INTERNATIONAL Capex ~4.0€bn in 5 years RAB1 CAGR 2015-2021 ~2% up to ~15.6€bn 2017-2021 Confirming Safe Organic Growth TLC EPC O&M INTER CONNECTORS Up to ~250€mn max equity allocation NON – REG Capital Light 1. Calendar RAB including WIP 2. Domestic Non-Reg excluding Tamini EBITDA CAGR ~2% EBITDA ~3502 €mn cumulated in 5 years EPS CAGR ~3% Yearly average Capex ~+30% vs Old Plan Yearly average EBITDA ~+40% vs Old Plan With Longer Visibility
- 15. Investor Relations 15 Average annual investing ~+30% vs Old Plan 2.6 4.0 0.7 0.7 1.4 Capex Plan 2016-2019 2016 2017-2019 Acceleration 2020+2021 New Capex Plan 2017- 2021 Regulated Capex Plan 2017-2021 New Plan 2017-2021 Old plan 2016-2019 €bn CAPEX PLAN EVOLUTION1 1. Net of EU financing 2. o/w ∼10% eligible for incentives, based on current regulation 2 Previous plan period Development 48% Replacements & Maintenance 29% Defense 11% RHV Grid integration and other 12% Acceleration of Projects
- 16. Investor Relations 16 2015 2016 2017 2021 RAB excluding Work-In-Progress (WIP) WIP Calendar RAB Evolution 1. Excluding ∼0.2€bn of Monita Interconnector (no impact on Equity RAB) 13.8 14.5 14.6 1 15.6 ∼ 6% Investment activity to support long-term RAB growth Total RAB at 15.6€bn in 2021 (inflation at 0.7% on average) RAB incentivized stable at ~40% A Solid +2% RAB CAGR within the plan period ∼ 2% €bn WIP that will be remunerated after projects’ completion% Further growth from Long Term National Development Plan (5.3bn capex) FROM 2022
- 17. Investor Relations 17 Accommodating the Transition - Regulation Allowed Return (WACC) confirmed up to 2021 with potential upside on interim review (end 2018) New Incentives based on outputs for the system (i.e. capacity, quality of service) Totex Regime: potential outperformance vs outputs, targets and baseline (Opex+Capex) A new regulation for an evolving system Jan. 2020 Dec. 2023 INTRODUCTION OF TOTEX FORESEEN BY THE REGULATOR STARTING FROM 2020 today Electricity Transmission Regulatory Period INCREASED FOCUS ON OUTPUT- BASED INCENTIVES FROM 2017
- 18. Investor Relations 18 ACTIVITIES Energy Solutions Provider VALUE PROPOSITION TLC EPC O&M Services Industrial approach, leveraging on existing know-how Innovation, R&D and digitalization Integrated solutions Non Regulated Activities and International Private Interconnectors International Industrial users to finance up to 2000MW cross border capacity with no impact on RAB and Net Debt for Terna Buy back into the RAB after exemption period Limited capital allocation focused on Transmission CapitalLight EBITDA ~350€mn cumulated in 5 years Average ~60% Margin Exploiting our core capabilities and expanding regulated activities to generate incremental growth Old Plan ~50%
- 19. Investor Relations 19 Key Assumptions – Regulated Business Regulatory 2017 Total Grid Fee* @ 1.91€bn RAB growth driven by: - Capex (4€bn) - Inflation at 0.7% on average WACC at 5.3% also after 2019 interim review Blended return at 6.3% (incentivized RAB at 40%) Totex and Output-based: potential upsides not included Inflation on allowed Opex at 0.5% on average D&A Extension to 45yrs in useful life of HV lines Cost of Debt Average 2017-2021 at 1.5% * In accordance with AEEGSI resolutions 779/2016 and 815/2016
- 20. Investor Relations 20 Key Assumptions - Non Regulated & International DOMESTIC NON REGULATED KEY ASSUMPTIONS TLC EPC O&M Interconnectors: + 850MW cross border capacity RHV Grid new opportunities CapitalLight HV lines/substations PV initiatives Long Term contracts for housing services New opportunities from Broadband Italian initiatives INTERNATIONAL KEY ASSUMPTIONS 2 BOOT concessions for >500km Capex at ~180€mn P&L contribution starting from 2019 CapitalAllocation Brazil Uruguay BOT concession for >200km Capex at ~70€mn P&L contribution starting from 2020 (on PBT)
- 21. Investor Relations 21 Group Targets – P&L BOTTOM LINE EPS CAGR ∼3% with increased visibility * including IFRIC 12 Growth at Low Risk ∼98% ∼94% ∼2% ∼6% ∼91%* ∼86%* ∼9% ∼14% REVENUES EBITDA ∼ 2.3€bn ∼1.7€bn 2016 2021 2016 2021 CAGR ∼2% CAGR ∼2% ∆ Regulated ∆ Non Regulated & International ∆ Regulated ∆ Non Regulated & International Regulated Non Regulated & International
- 22. Investor Relations 22 Capital Allocation Dividends Debt Service Free Cash Flow Delta Net Financial Position Group Targets – Cash Flow CUMULATED 2017-2021ANNUAL EVOLUTION 2017 2018 2019 2020 Operating Cash Flow Capex Free Cash Flow Financial Charges DividendsTO SERVE International Capital Allocation 2021 6€bn 4€bn 2€bn
- 23. Investor Relations 23 2017 2018 2019 2020 2021 Group Targets – Net Debt NET DEBT KEY FIGURES Net Debt YE 2016 at 8€bn Cost of Debt at 1.5% over the Plan Net Debt / RAB <60% over the Plan Rating ratios stable during the Period 84% 16% Fixed Variable GROSS DEBT MIX 2016 YE 13.8% 14.0% FFO/NET DEBT Threshold ∼11%
- 24. Investor Relations 24 FY 2016 FY 2017 Last Guidance Guidance ~ 2.1€bn ~ 2.25€bn Preliminary1 Revenues 2.1€bn ~ 1.53€bn ~ 1.58€bn EBITDA 1.54€bn ~ 0.9€bn ~ 0.9€bn Capex2 0.9€bn ~ 29€cents ~ 34€cents EPS 1. Unaudited figures 2. Total Group Capex Preliminary 2016 and Guidance 2017
- 25. Investor Relations 25 20.0 20.6 23.9 2015 2016 2017 2018 2019 2020 2021 Consistent and Sustainable For an extended period NOTE: Yearly dividend to be subject to BoD’s proposal and to the approval by Annual General Meeting € cents Reconfirming Dividend Policy OLD COMMITMENT NEW COMMITMENT
- 26. Investor Relations 26 Terna has a major role in the Energy Transition 1 2 3 4 A very predictable business Focused on Outperformances Committed on dividend growth for an extended period Able to seize low risk opportunities in Non Regulated and International (regulated) A low risk growing investment profile Visibility of RAB and earnings Debt management Potential upsides from new reg. period Capex needs supportive for LT growth Focused on domestic regulated whilst remaining:
- 28. Investor Relations 28 Transmission Dispatching + 0.11€bn 1.73€bn 1.91€bn * AEEGSI Resolutions and Terna’s preliminary estimates Transmission Dispatching + 1.84€bn 20172016 == 0.11€bn 1.8€bn Resolution 658/2015 Resolution 654/2015 Resolution 779/2016 Resolution 815/2016 48% 19% 33% RAB remuneration Allowed Opex Allowed D&A RAB for Tariff ~ 14.4€bn 2017 Total Grid Fee update*
- 29. Investor Relations 29 Main Projects Chiaramonte Gulfi-Ciminna Paternò-Pantano- Priolo Avellino Rinforzi Nord Calabria Reinforcement North Calabria Montecorvino-Avellino- Benevento II Colunga-Calenzano SACOI 3 Deliceto-Bisaccia Foggia-Gissi Removal of Center- South/Center North restrictions Main Public Projects Main Private Projects Italy-Austria Italy-France Italy-Montenegro Under Study Italy-Switzerland Italy-Slovenia Italy-Tunisia
- 30. Investor Relations 30 New Cost Benefits Analysis INVESTMENTS SELECTION FOR SYSTEM BENEFITS MAXIMISATION New Cost Benefit Analysis (CBA 2.01) aligned with ENTSO-E criteria and methodology To be applied to projects >15€mn 2 Introduction of environmental and social KPIs Terna new capex plan already compliant with the new CBA 2.0 methodology 1. AEEGSI resolution 627/2016 2. 25€mn for 2017 National Development Plan projects Main KPIs Quality of service and security CBA 2.0CBA 1.0 Grid resilience and flexibility Environmental and social KPI Dispatching market benefits Day-ahead market benefits Renewables integration
- 31. Investor Relations 31 2017 2018 2019 2020 2021 Summary Targets Financial KPIs 2017 2018 2019 2020 2021 8.8% 8.6% RCF/NET DEBT GROSS INTEREST COVERAGE 12.2 9.5 Financial structure will remain solid within the plan Main Financial KPIs on a sustainable level, well below the main rating agency thresholds Threshold 7% 0.9 0.9 1.2 0.1 1.4 2017 2018 2019 2020 2021 MATURITIES €bn 1 RATING 1. Of which 0.77 reimbursed in February 2017 2. Government Related Entity Rating Delta Terna1 Sovereign Terna1 Sovereign S&P BBB BBB- +1 notch Stable Stable Moody's Baa1 Baa2 +1 notch Negative Negative Fitch BBB+ BBB+ Stable Negative M/L Term Outlook 2 2
- 32. Investor Relations 32 2017 National Development Plan Challenges Decarbonisation Market Efficiency Security of Supply Renewables Integration Benefits for the Electricity System (Categories) Quality of Service Inter- connections Bottlenecks Resolution Connections to NG 7.8€bn NDP 2017 26% 23%25% 21% 6% 2.5€bn in 2017-2021 5.3€bn post 2021 ITA-FRA ITA-MNE ITA-AUS mainly SACOI3 + other local and zonal congestions Existing and new plants
- 33. Investor Relations 33 2017-2021 Replacement and Defense Capex Plan Challenges Decarbonisation Market Efficiency Resiliency Environm. Impact Benefits for the Electricity System Digitalisation (Quality of O&M processes) Quality of Service 0.8€bn Replacement Plan 16%75% 9% Challenges Decarbonisation Market Efficiency Security of Supply Energy Management Thematic Areas Protection & Control of the System Frequency Control Digitalisation (System restoration) Asset Monitoring and Other 0.4€bn Defense Plan 8% 12%52% 10% 18%
- 34. Investor Relations 34 THIS DOCUMENT HAS BEEN PREPARED BY TERNA S.P.A. (THE “COMPANY”) FOR THE SOLE PURPOSE DESCRIBED HEREIN. IN NO CASE MAY IT BE INTERPRETED AS AN OFFER OR INVITATION TO SELL OR PURCHASE ANY SECURITY ISSUED BY THE COMPANY OR ITS SUBSIDIARIES. THE CONTENT OF THIS DOCUMENT HAS A MERELY INFORMATIVE AND PROVISIONAL NATURE AND THE STATEMENTS CONTAINED HEREIN HAVE NOT BEEN INDEPENDENTLY VERIFIED. NEITHER THE COMPANY NOR ANY OF ITS REPRESENTATIVES SHALL ACCEPT ANY LIABILITY WHATSOEVER (WHETHER IN NEGLIGENCE OR OTHERWISE) ARISING IN ANY WAY FROM THE USE OF THIS DOCUMENT OR ITS CONTENTS OR OTHERWISE ARISING IN CONNECTION WITH THIS DOCUMENT OR ANY MATERIAL DISCUSSED DURING THE PRESENTATION. THIS DOCUMENT MAY NOT BE REPRODUCED OR REDISTRIBUTED, IN WHOLE OR IN PART, TO ANY OTHER PERSON. THE INFORMATION CONTAINED HEREIN AND OTHER MATERIAL DISCUSSED AT THE CONFERENCE CALL MAY INCLUDE FORWARD-LOOKING STATEMENTS THAT ARE NOT HISTORICAL FACTS, INCLUDING STATEMENTS ABOUT THE COMPANY’S BELIEFS AND EXPECTATIONS. THESE STATEMENTS ARE BASED ON CURRENT PLANS, ESTIMATES, PROJECTIONS AND PROJECTS, AND CANNOT BE INTERPRETED AS A PROMISE OR GUARANTEE OF WHATSOEVER NATURE. HOWEVER, FORWARD-LOOKING STATEMENTS INVOLVE INHERENT RISKS AND UNCERTAINTIES AND ARE CURRENT ONLY AT THE DATE THEY ARE MADE. WE CAUTION YOU THAT A NUMBER OF FACTORS COULD CAUSE THE COMPANY’S ACTUAL RESULTS AND PROVISIONS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN ANY FORWARD-LOOKING STATEMENT. SUCH FACTORS INCLUDE, BUT ARE NOT LIMITED TO: TRENDS IN COMPANY’S BUSINESS, ITS ABILITY TO IMPLEMENT COST-CUTTING PLANS, CHANGES IN THE REGULATORY ENVIRONMENT, DIFFERENT INTERPRETATION OF THE LAW AND REGULATION, ITS ABILITY TO SUCCESSFULLY DIVERSIFY AND THE EXPECTED LEVEL OF FUTURE CAPITAL EXPENDITURES. THEREFORE, YOU SHOULD NOT PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. TERNA DOES NOT UNDERTAKE ANY OBLIGATION TO UPDATE FORWARD-LOOKING STATEMENTS TO REFLECT ANY CHANGES IN TERNA’S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGES IN EVENTS. EXECUTIVE IN CHARGE OF THE PREPARATION OF ACCOUNTING DOCUMENTS “TIZIANO CECCARANI” DECLARES, PURSUANT TO PARAGRAPH 2 OF ARTICLE 154-BIS OF THE CONSOLIDATED LAW ON FINANCE, THAT THE ACCOUNTING INFORMATION CONTAINED IN THIS PRESENTATION, FOR WHAT CONCERNS THE ACTUAL FIGURES, CORRESPONDS TO THE DOCUMENT RESULTS, BOOKS AND ACCOUNTING RECORDS. THE SORGENTE-RIZZICONI PROJECT INTERCONNECTION IS CO-FINANCED BY THE EUROPEAN UNION’S EUROPEAN ENERGY PROGRAMME FOR RECOVERY PROGRAMME. THE SOLE RESPONSIBILITY OF THIS PUBLICATION LIES WITH THE AUTHOR. THE EUROPEAN UNION IS NO RESPONSIBLE FOR ANY USE THAT MAY BE MADE OF THE INFORMATION CONTAINED THEREIN. Disclaimer
- 35. Investor Relations 35 investor.relations@terna.it I +39 06 8313 9041 I www.terna.it