q3 2015 notes on energy and environmental markets · 2017. 2. 10. · • gas flows from mazara del...

Milan, November 2015

Notes on energy andenvironmental marketsat 30 09 2015

Overview of Italy and bordering

countries

This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.

Summary – Q3 2015 – Power and environmental markets

2

• In the first nine months of 2015 there was a +1.9% increase in Italian electricity demand: the rise was relevant in Q3(+6.7%), boosted by the high July temperatures. Demand increase is partly due to the economic recovery as well.

• Italian hydroelectric production decreased by –23%, due to the strong reduction in rainfalls compared to last year.

• The higher demand and lower hydro production brought to a +8.5% thermoelectric production increase in 9 month (17%in Q3 2015). Photovoltaic production increased as well (+9.5% for the first 9 months of the year).

• In the first 9 months PUN baseload increased by +2.4 €/MWh (PUN peakload by +1.9 €/MWh) year-on-year. In the firsthalf of the year the slight increase was due to colder temperatures and low rainfalls. The price boost was outstanding in Q3(especially on Peakload: + 8.8 €/MWh), due to the increase in demand. Clean Spark Spreads and Clean Dark Spreadsincreased too (Clean Peakload Spark Spread +2 €/MWh and Clean Dark Spread +4.1 €/MWh in 9 months).

• The correlation between PSV and PUN is steady (CCGTs are still marginal plants in the Italian market), while thecorrelation between PUN and Brent oil is low (and declining) due to fewer gas supplies linked to oil formulas.

• Temperatures in Q3 2015 were high compared both to Q3 2014 and to the 15Y average. Precipitations were low in thefirst 9 months of the year compared both to 2014 and to the 15Y average.

• EUA prices remain in an increasing path.

DISCLAIMER - This document has been prepared by A2A for convenience purposes only and for the benefit of investors and analysts solely and is based on public information. However this document shall not giverise to any liability of A2A or any of its subsidiaries, directors, officers, employees or consultants as per the truthfulness, accuracy, completeness and updating of such information. This document does not constitutean offer or invitation to purchase or subscribe any shares or other securities and neither it nor any part of it shall form the basis of or be relied upon in connection with any contract or commitment whatsoever.

This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent. 3

Summary – Q3 2015 – Gas Markets

• Gas demand marked a +10.1% in Q3 2015 (year-on-year basis), connected with a thermal consumption increase due toexceptionally high temperatures in July/August (+30% yoy in Q3 2015). Globally gas demand increased by +8.5% in thefirst 9 months of 2015, on a year-on-year basis.

• Gas flows from Mazara del Vallo were higher in Q3 2015 (+30.4% year-on-year basis) with lower long-term prices afterthe 2014 oil price crash.

• After the oil price crash LNG long term contract prices (oil-linked) were affected. This brought to an increase in LNGimports into Italy, with a +38.9% in the first 9 months of 2015 on a year-on-year basis.

• Gas flows throught Gela scored a +19.9% in the first 9 months of 2015 after the strong reduction in flows occurred during2014 (Lybian civil revolts).

• Short system prevailed on the Italian Gas Balancing System in Q3 2015, with high thermal consumption due to theaforementioned high temperatures.

• PSV price increased slightly in the first 9 months of the year (+0.6 €/MWh on a year-on-year basis), mainly due to higherprices in Q3 2015. Spreads with the other main hubs increased as well (PSV-TTF spread +0.3 €/MWh in the first 9 monthsof the year, year-on-year basis).

• Progressive decline in PSV-Brent price correlation (fewer gas supplies are linked to oil formulas, geopolitical risksaffecting gas prices such as the Ukrainian crisis in 2014).

Summary – Q3 2015 – Gas markets


1. Power Market• Supply and Demand

• Spot markets

2. Gas Market• Supply and Demand

• Spot markets

3. Cross commodities

4. Environmental Markets: White Certificates, EUA

Contents

4


Source: Terna - Monthly Report on the Electricity System.

5

• In the first nine months of 2015 there was a +1.9% increase in electricity demand.

• Hydroelectric production decreased by -23%, due to a strong reduction in rainfalls compared to last year.

• Thermoelectric production increased by +8.5% in 9 month and +17% in Q3, due to the above mentioned reduction inhydro production and to the extraordinary temperatures in July and August, which pushed up power demand. Alsophotovoltaic production continued to increase (+9.5%).

• There was also an increase in the import-export balance in the 9M (+6.8%) driven by new rules in market coupling.

Q3 2015 Q3 2014Var. %

2015/20149M 2015 9M 2014

Var. %

2015/2014

12.320 16.103 -23,5% 36.257 47.130 -23,1%

49.086 41.997 16,9% 133.115 122.714 8,5%

1.444 1.416 2,0% 4.330 4.150 4,3%

2.694 3.198 -15,8% 11.715 11.425 2,5%

8.199 7.235 13,3% 20.382 18.614 9,5%

73.743 69.949 5,4% 205.799 204.033 0,9%

11.182 9.753 14,7% 36.572 32.953 11,0%

1.222 1.209 1,1% 3.673 2.155 70,4%

9.960 8.544 16,6% 32.899 30.798 6,8%

362 354 2,3% 1.306 1.800 -27,4%

83.342 78.139 6,7% 237.392 233.031 1,9%

Solar

Total net production

Import

Export

Foreign balance

Pump storage

Demand

GWh

Net Production

Hydroelectric

Thermal

Geothermal

Wind

Italian Electricity Supply– breakdown by sources

Strong increase in thermal production and drop in hydroelectric production


Source: Terna - Monthly Report on the Electricity System

6

• Increase in thermal production in 2015 (nearly at thelevel reached in 2013) after a long decline.

• Steady increase in renewables during the last years.

• Hydro production at a normal/low level in 2015, aftertwo years with high rainfalls.

32 42 47 36

2529 30

32

160 135 123 133

30 30 31 33

-

50

100

150

200

250

300

2012 2013 2014 2015

TWh

Italian Power Production (9M)

Foreign Balance

Thermal

Solar+Wind

Hydro

248239 233 237

85 81 78 83

0

50

100

150

200

250

300

2012 2013 2014 2015

TWh

Italian Power Demand

9M

Q3

• +1.9% increase (+1.7% seasonally adjusted) in Italianpower demand year-on-year (237 TWh in the first 9months 2015) after a long decline, but demand still lowerthan in 2013.

• Strong increase in Q3 demand (higher than 2013 as well),boosted by the high July temperature. Part of the increaseis also due to the economic recovery.

• First half demand decreased year-on-year.

Italian Electricity Supply and Demand – historical trends

1.7% increase in demand (seasonally adjusted)


Source: Gestore Mercato Elettrico (GME)

7

• Increase in PUN prices during the first 9 months of 2015 year-on-year. In the first half of the year the slight increase was due to

colder temperatures and low rainfalls. The outstanding price rise in Q3 (especially on PL) was mainly due to the heat wave

which boosted demand for air conditioning.

Italian Electricity Spot PricesPUN prices increase in Q3

30

50

70

90

110

130

Jan

Feb

Mar

Ap

r

May Jun

Jul

Au

g

Sep

Oct

No

v

Dec

€/M

Wh

PUN Baseload

2012

2013

2014

2015

30

50

70

90

110

130

Jan

Feb

Mar

Ap

r

May Jun

Jul

Au

g

Sep

Oct

No

v

De

c

€/M

Wh

PUN Peakload

2012

2013

2014

2015

€/MWh PUN BL PUN PL PL - BL

2014 Q1 52,5 62,8 10,3

Q2 46,5 49,8 3,3

Q3 50,4 53,5 3,0

9 months 49,8 55,3 5,5

2015 Q1 51,8 59,0 7,3

Q2 47,9 50,3 2,3

Q3 56,7 62,3 5,6

9 months 52,1 57,2 5,1

9 months 2015 vs 2014 2,4 1,9 -0,4



8

• The number of hours where CCGTs set themarginal price on MGP reduced in the first halfof 2015 and increased in Q3 2015, due to theincrease in demand: CCGTs represented themarginal technology in 53% of the hours.

• The contribution of non-hydroelectricrenewables increased at around 3.5% of thehours.

• The coal share stands at 17%.

• Marginal technologies in low price hours (<10

€/MWh) are mainly hydro and renewables.

Coal and CCGTs had a role as well in C-

North, C-South, South and Sardinia areas

(probably because of strategies on MGP and

on MSD).

Italian Electricity Spot Prices: marginal technology on MGPIncrease in CCGTs share to satisfy the demand in Q3


• The number of 0-price hours decreased in 2015 compared to 2014.

• The number of 0-price hours in Sicily was still high (29 hours), mainly concentrated during a peak in eolic production.

• In Q3 no 0-price hour was registered, mainly due to high price levels linked with exceptional temperatures.

N.B. Market Coupling implementation may require the introduction of negative prices on the Italian market, as in other

countries.

9

Italian Electricity Market: zonal hours at zero price

Decrease in 0-price hours

-25

15

55

95

135

Sicily South Sardinia C South C North North PUN

Number of hours at 0 price

9 months 2013 9 months 2014 9 months 2015


• Increase in CSS and CDS in the first 9 months, year-on-year basis.

• In Q3, particularly strong increase in CSS (especially on PL) and CDS, dueto the rise in power prices boosted by the heat wave.

• CDS also benefited from very low coal prices due to the internationaloversupply.

Italian Electricity Clean Spark and Dark Spreads (CSS and CDS)Improvement in CSS and CDS

27

.3

21

.2

11

.3 15

.3

30

.4

25

.7

11

.2

20

.2

0

5

10

15

20

25

30

35

2012 2013 2014 2015

€/M

Wh

Clean Dark Spread

9M

Q3

15

.1

0.4 1.2 3

.2

18

.4

3.0

9.7

0

5

10

15

20

25

30

2012 2013 2014 2015

€/M

Wh

Clean Peakload Spark Spread

9M

Q3

Clean Spark Spread: PUN (BL/PL) – gas PSV cost (eff. 51; eff. 53% can be found in backup slides) – EUA cost – CV cost (up to 2014)- variable transport costsClean Dark Spread PUN BL –coal cost (API2 + spread MED + variable transport costs - eff. 35%) – EUA cost – CV cost (up to 2014)

€/MWh

clean baseload

spark spread -

51% efficiency

clean peakload

spark spread -

51% efficiency

clean dark

spread -

35% efficiency

2014 Q1 -8,5 1,7 13,6

Q2 -4,5 -1,2 9,0

Q3 0,0 3,0 11,2

9 months -4,3 1,2 11,3

2015 Q1 -4,3 3,0 14,8

Q2 -5,5 -3,1 10,8

Q3 4,1 9,7 20,2

9 months -1,9 3,2 15,3

9 months 2015 vs 2014 2,4 2,0 4,1


•The «5th Conto Energia» ceased toapply on 6 07 2013 upon reaching theaccumulated annual cost of 6.7 billion€.

• At the end of 2014, the FVcapacity was 18,609 MW , compared to18,420 MW at the end of 2013 (+189MW)

Source: GSE – AEEG data ; Terna

EnergyComponent at44% of the bill

total cost(19.1 c€/kWh)

In recent years the impact of the electricity component of the price to the end-customer has dropped from 60% to 44%. Conversely, theimpact of the system charges has significantly increased (from 9% to 25%), mainly due to the increase in the A3 component.

This cumulativecost may not

exceed 5.8 billion €per year.

10,0 10,9 10,9 11,0 10,4 10,0 10,2 10,0 9,8 9,4 9,3 9,5 8,6 8,3 8,1 8,4

2,62,6 2,6 2,6 2,8 2,8 2,8 2,8 2,8 3,0 3,0 3,0 3,3 3,3 3,3 3,3

2,43,1 3,2 3,3 3,4 3,6 3,6 3,7 4,0 4,1 4,1 4,3 4,4 4,4 4,6 4,8

2,42,5 2,6 2,6 2,6 2,5 2,6 2,5 2,6 2,5 2,5 2,6 2,5 2,5 2,5 2,5

0,0

5,0

10,0

15,0

20,0

25,0

2012-I 2012-II 2012-III 2012-IV 2013-I 2013-II 2013-III 2013-IV 2014-I 2014-II 2014-III 2014-IV 2015-I 2015-II 2015-III 2015-IV

c€/K

Wh

Regulated Market: energy tariff breakdown

energy costs network costs system charges taxes

Cost of financing for renewables and assimilated sources



• Spot markets


• Spot markets



Contents

12


Italian Gas Supply - breakdown by sources

Increase in Russian flows and LNG import, decrease in domestic production

Source: Snam Rete Gas

13

• +10.1% in gas demand during Q3 2015 (year-on-year basis)

• +38.9% in LNG imports after the oil price crash in 2014 (year-on-year basis)

• Higher imports through Gela after the outages occurred in 2014

Q3 2015 Q3 2014Var. %

2015/20149M 2015 9M 2014

Var. %

2015/2014

1.759 1.349 30,4% 5.387 5.734 -6,1%

1.814 1.851 -2,0% 5.622 4.689 19,9%

8.034 4.839 66,0% 22.495 20.893 7,7%

14 - 15 -

2.516 3.724 -32,4% 7.106 7.475 -4,9%

14.137 11.763 20,2% 40.625 38.791 4,7%

1.351 858 57,5% 4.351 3.162 37,6%

3 4 -25,0% 26 11 136,4%

- 30

1.354 862 57,1% 4.407 3.173 38,9%

15.491 12.625 22,7% 45.032 41.964 7,3%

1.593 1.732 -8,0% 4.817 5.168 -6,8%

5.095- 3.472- 46,7% 2.613- 3.594- -27,3%

11.989 10.885 10,1% 47.236 43.538 8,5%Demand

Panigaglia

Livorno (OLT)

Total LNG

Total Import

Domestic Production

Delta Stock

mcm

Import

Mazara del Vallo

Gela

Tarvisio

Gorizia

Passo Gries

Total Pipeline

Rovigo (Cavarziere)


• Year-on-year slight decline in industrial consumption

• Increased thermal consumption particularly due to exceptionally high temperatures in July/August (+30% yoy)

• Higher domestic consumption due to colder temperatures in Q1-15 vs. Q1-14

Italian Gas ConsumptionDecline in industrial consumption, increase in thermal use

Source: Snam Rete Gas

Industry ThermalDistribution

Network

Other

networksTotal

2014 Q1 3.537 4.592 12.715 552 21.396

Q2 3.168 3.775 4.013 300 11.256

Q3 3.091 4.559 2.908 328 10.885

9 months 9.796 12.926 19.636 1.180 43.538

2015 Q1 3.519 5.113 14.403 612 23.647

Q2 3.104 4.074 4.097 326 11.600

Q3 2.938 5.936 2.862 252 11.989

9 months 9.561 15.123 21.362 1.190 47.236

236- 2.197 1.726 10 3.698

mcm

9M-2015 vs 9M-2014


• Gas price increase in 9M-2015 vs. 9M-2014 on the PSV

• Spreads with TTF, Austrian VTP and Peg Nord increased as well (year-on-year basis) during the first 9 months of the year

PSV PSV-TTF PSV-VTPPSV-PEG

NORD

2012 Q1 31,8 7,9 6,6 7,3

Q2 28,4 4,1 2,0 3,9

Q3 27,0 2,3 1,2 1,9

9 months 29,1 4,8 3,3 4,3

2013 Q1 27,1 1,0- 0,3 1,8-

Q2 28,4 1,2 0,9 0,5

Q3 27,7 1,8 0,8 1,2

9 months 27,7 0,6 0,7 0,1-

2014 Q1 25,5 1,2 0,5 1,1

Q2 20,8 1,9 0,6 1,2

Q3 20,5 2,4 0,8 1,7

9 months 22,3 1,8 0,6 1,3

2015 Q1 24,1 2,8 1,7 2,2

Q2 22,5 1,5 1,0 1,4

Q3 22,0 2,2 1,2 2,2

9 months 22,9 2,1 1,3 1,9

0,6 0,3 0,7 0,6

€/MWh

9M 2015 vs. 9M 2014

Italian Gas Spot Prices – PSV and main hubs spread

Increase in gas prices

Source: ICE-Endex, CEGH, Powernext


• Persisting convergence between AsianLNG prices and European gas hub pricesafter the oil price crash in 2014

• Substantial convergence among Europeangas hub prices

Global Gas Outlook – near month

Convergence in prices

Source: Argus, Thomson Reuters


Long

System

Short

SystemTotal

2014 Q1 484 206 277-

Q2 449 149 300-

Q3 159 371 212

9 months 1.091 726 365-

2015 Q1 382 405 23

Q2 234 283 49

Q3 180 416 236

9 months 796 1.104 308

296- 377 673

mcm

9 months 2015 vs 2014

• Short system prevailed in Q3-15 with high consumption due to exceptionally high temperatures in July/August

Italian Gas Balancing SystemShort system in Q3



Normal

Degree Days

Heating

Degree

Days

14/15

∆

Heating

Degree

Days

13/14

∆ yoy

(14/15 -

13/14)

Oct 89 51 -38 49 2

Nov 248 162 -85 215 -53

Dic 381 328 -52 356 -27

Jan 421 367 -54 333 33

Feb 336 329 -7 254 75

Mar 268 242 -27 207 34

Apr 138 123 -15 97 26

May 22 14 -8 34 -19

• Higher Heating Degree Days vs. Normal Degree Days during Winter 14/15

• Colder temperatures compared to Jan/Apr 2014

Italian Heating Degree Days – Winter 14-15

Source: Epson Meteo, Snam Rete Gas, a2a



• Spot markets


• Spot markets



Contents

19


Correlation among commoditiesDeclining effects from Brent oil on the Italian energy market

• Steady correlation between PSV and PUN(CCGTs still marginal plants in the Italian market)

• Low (and declining) correlation between PUNand Brent oil (fewer gas supplies linked to oilformulas)

• Historical decline in the PSV-Brent correlation(fewer gas supplies linked to oil formulas; differentinternational factors, as the Ukranian crisisaffecting gas prices)

• Growing correlation between coal and Brentoil

PSV-PUNPSV-

BRENTPSV-COAL

PUN-BRENT

PUN-COALBRENT-COAL

MAX 86% 82% 81% 72% 87% 85%

MIN 52% 0% -2% 22% 19% 0%

AVG.12-15

71% 42% 48% 41% 57% 42%0

10

20

30

40

30

80

130

180

Jan-12 Jan-13 Jan-14 Jan-15

Commodities price trends

PUN BASE LOAD€/MWh

BRENT DTD€/bbl

COAL (API 2)€/tonn

PSV (right axis)€/MWh

0%

20%

40%

60%

80%

100%

Jan-12 Jan-13 Jan-14 Jan-15

Cross-commodity Correlation (36 months)

PSV/PUN PSV/BRENT PSV/COAL PUN/BRENT PUN/COAL BRENT/COAL

Source: GME, Thomson Reuters, Bloomberg


Italian temperatures, precipitations and windHigh temperatures in Q3-15, low precipitations in 9M 2015

Source: Bloomberg. Temperatures are the average temperature (usually of the high and low) that was observed between 7am and 7pm local. Precipitations include rainfall and theliquid equivalent of snow and sleet (measurement: Integer in 100th millimeters). Wind Speed is the average sustained winds which does not include wind gust;

21

• High temperatures in Q3 2015 compared both to Q3 2014 and the 15Y average. Temperatures in the first 9 months of theyear higher than the historical 15Y average.

• Low levels of precipitations in the first 9 months of 2015 compared both to 9M 2014 and to the 15Y average.

• Wind in line with historical averages for the first 9 months of the year.

Temperature Precipitations WindTemp. 15

vs. 14Prec. 15 vs.

14Wind 15 vs.

14

Temp. 15vs. 15YR

Avg.

Prec. 15 vs.15YR Avg.

Wind 15vs. 15YR

Avg.

Q1 15 YR Average 7,5 184,8 6,7

Q2 15 YR Average 17,3 161,7 6,2

Q3 15 YR Average 22,8 136,1 5,8

9M 15 YR Average 15,9 160,9 6,2

Q1 2014 9,4 204,2 6,6

Q2 2014 17,1 157,5 6,2

Q3 2014 21,9 158,5 5,9

9M 2014 16,1 173,4 6,2

Q1 2015 8,0 175,6 7,1 -14% -14% 8% 6% -5% 7%

Q2 2015 17,5 124,2 6,2 3% -21% -1% 1% -23% 0%

Q3 2015 23,9 131,8 5,7 9% -17% -4% 5% -3% -2%

9M 2015 16,5 143,9 6,3 2% -17% 1% 4% -11% 2%



• Spot markets

• Forward markets


• Spot markets

• Forward markets



Contents

22


• With European 2030 emission targets decided and the Market Stability Reserve (MSR) to come into action in 2019, there is a

growing feeling in the EU ETS that the main regulatory parameters are known well beyond the current trading period.

• Meanwhile, political institutions were busy with several decisions such as the EU’s negotiating position for Paris.

• Chinese President Xi Jinping recently announced that China will start a nationwide emission trading scheme in 2017. It could

cover up to 3-4 gigatonnes of greenhouse gas emissions from power generation, steel, cement and other types of heavy industry.

If so, it will become the world’s biggest carbon market in terms of covered emissions, well ahead of the EU ETS at 1.8 gigatonnes.

Average Price 9M 2015:

7.49 €/Ton

EUA MarketSteady increase in EUA prices since March

6.46 €/ton

8.63 €/ton


• On May 31th the 2014 compliance period ended and the Italian distributors proceeded to comply with their efficiency targets

• With the ‘Determina 30 Giugno 2014’ AEEG fixed the tariff contribution of 2014 compliance (105.83 €/Tee) and the forecast

tariff contribution of 2015 (108.13 €/Tee)

• On 1st of June 2015 the new compliance year started

• On 31st of July the Ministry for Economic Development launched a public consultation (ended on 30th of September) to

collect comments and suggestions to be included in the new guidelines that will regulate the mechanism in the years after

2016. These new guidelines could change significantly the structure of the market and its future prices.

95

97,5

100

102,5

105

107,5

110

€/T

ee

TEE prices (€/TEE) – GME market sessions from January 2015 to September 2015

TEE I TEE II TEE III Average

Weighted Average Price:

103,9 €/TEE

* Updated on 30th September 2015

AEEG Tariff Contribution on

each compliance year

GME Market -

Compliance Yearly

average price

€/Toe €/Toe

2008 100 77,10

2009 88.92 87.19

2010 92.22 97.34

2011 93.68 103.22

2012 86.98 104.21

2013 110.27 112.27

2014 105.83 105.03

2015 (*) 104,56 103,93

Environmental MarketsWhite Certificates (or TEE)

Source: GME

q3 2015 notes on energy and environmental markets · 2017. 2. 10. · • gas flows from mazara del...

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