Energy Management

As a producer of electricity, our portfolio of production sources is diversified in terms of the technologies we use and the geographical presence of our facilities. This diversification gives us a major role in Italy's path towards a greater use of renewable energy sources and in the heart of the nation's electricity grid.

With our production we actively contribute to the balance of Italy's energy system – not only are we producers, but we also contribute to the network services, thus becoming system operators.

While electricity is important for any kind of activity of our society, it is a resource that cannot be stored. Therefore, the amount of electricity fed into the system must always match the demand.

The operator of the Italian national grid, Terna, is responsible for keeping this balance, by interfacing with cooperating electricity producers that can adjust the production of their "programmable" power sources.
  • GROUP SALES
    The ERG Group's electric power sales, made in Italy through ERG Power Generation S.p.A.'s Energy Management, refer to the electric power generated by its wind, thermoelectric, hydroelectric and solar plants, as well as purchases on organised markets and through physical bilateral agreements.

    During 2019, total sales of electricity amounted to 15.1 TWh (13.6 TWh in 2018), in the presence of an overall output from the Group plants of approximately 8.0 TWh (7.5 TWh in 2018), of which roughly 1.8 TWh abroad and 6.1 TWh in Italy.

    The latter figure corresponds to approximately 1.9% of electric power demand in Italy (1.9% in 2018). The breakdown of sale volumes and electric power output, by type of source, is shown in the following table10:

     
    SOURCES OF ELECTRIC POWER (GWh) 2019 2018
    Wind - Wind power generation Italy 2,161 2,012
    Wind - Wind power generation Abroad 1,839 1,452
    Solar - Photovoltaic power generation 226 130
    CCGT - thermoelectric power generation 2,504 2,151
    Hydro - hydroelectric power generation 1,229 1,740
    ERG Power Generation - purchases 7,161 6,143
    Total 15,121 13,627
     
    SALES OF ELECTRIC POWER (GWh) 2019 2018
    Electricity sold to captive customers 527 550
    Electricity sold wholesale (Italy) 12,754 11,625
    Electricity sold abroad 1,839 1,452
    Total 15,121 13,627


    Wholesale sales of energy include sales on the IPEX electricity stock exchange, both on the "day before market" (MGP) and on the "intraday market" (MI), as well as the "dispatching services market" (MSD), in addition to sales to the main operators of the sector on the "over the counter" (OTC) platform.

    The latter are carried out by Energy Management with a view to developing the forward contracting activities and also hedging output, in line with Group risk policies. In 2019, steam sales11 amounted to 875 thousand tonnes, an increase compared to the 737 thousand tonnes in 2018.

    10 Electric power sources refer to the output of the Group's plants and to the purchases made on wholesale markets; uses include sales made through physical bilateral agreements and on the spot and forward markets.
    11 Steam supplied to end users net of the quantities of steam withdrawn by the users and pipeline losses.


     

Managing Our Energy 

Our Energy Management department makes us possible to be a leading operator in the liberalised electricity market, with the main objective of maximising the Group's contribution margin.

Our Energy Management office handles about 15 TWh* of electricity and can count on a broad, diversified, and balanced portfolio, that includes four different production sources: thermoelectric, hydroelectric, solar and wind power together with a diversified sale portfolio of wholesale customers. This unified and integrated management also helps us to perform a better control of risk.
*referred to 2019
Energy Management is the department assigned to ensure the economic sustainability of the generation portfolio.

In detail, Energy Management is responsible for daily maximisation of the contribution margin through the sale of electricity, optimisation of the procurement and production activities and hedging of the generation portfolio risk.

To reach said objectives and make integrated portfolio management more efficient, the function was structured into 3 main areas that work in close synergy to guarantee the analysis, planning, execution and control activities.
  • Front Office
    he Front Office area is assigned the Execution phase, implemented through the operational Trading and Bidding functions that operate on the forward and spot electricity markets, with the support of the Short-Term Analysis area.

    In particular, the Bidding function operates on all spot platforms to optimise the programmes of the Production and Consumption Units with regard to end customers with ERG contracts, applying the integrated supply strategy of the generation portfolio drawn up by the Short-Term function.

    Instead, the Trading function operates on the platforms of the forward market with the main objective of reducing generation risk on the contribution margin through transactions involving power and gas products.
  • Middle Office
    The Middle Office function is the "analytical" core of the Energy Management area and is responsible for the main planning activities.

    In particular, it is in charge of carrying out dynamic planning of the generation portfolio, optimising on the plant downtimes and target levels of the hydroelectric reservoirs, as well as drawing up the Multi-Year Production Plans and the mediumterm scenarios.

    The Middle Office's activities are therefore predominantly aimed at supporting the operating functions by drawing up price forecasts (Power, Gas and other Commodities) and market analyses to support the commercial transactions carried out by the Front Office.
  • Back Office
    The Back Office function performs the fundamental role of Control of the transactions carried out by the Front Office, through contract management, metering, settlement and liquidation of the contracts stipulated.

    Its main activity is ensuring the proper execution of contracts stipulated, respect of the regulatory provisions linked to the trades made and the preparation of adequate reports on the business activities.

Management of Environmental Certificates

Management of Environmental Certificates
The culture of environmental responsibility is becoming increasingly widespread in the international community and drives the development of sustainability plans at a global level. It is a priority that affects all levels of society, from individual citizens to entire communities, from businesses to institutions.

With 80 years of history behind us, here at ERG we have adopted a positive approach to the challenges posed by sustainability and were one the first operators to place its importance at the very heart of our business, with a portfolio of different renewable production sources and technologies. As part of this positive feedback cycle, we are committed to pursuing a process to certify our plants and have oriented ourselves towards the growing Guarantees of Origin (GO) market.

A Guarantee of Origin is a voluntary certification that confirms the renewable origin of the energy source used by the certified plant. Specifically, the GO is an electronic certification that provides the end client with a guarantee of the renewable source of a certain amount of energy produced by an IGO-certified plant by the Italian Energy Services Operator (GSE), as provided for by European Directive 2009/28/EC. In particular, for each MWh of renewable electricity entered into the grid by the certified plants, the GSE issues a Guarantee of Origin certificate to the producers of that electricity, who can in turn transfer this to their clients.

In 2019 the ERG Group completed the IGO certification procedure for all of its renewable energy plants in Italy, from the hydroelectric plants to the solar and wind plants.

After this procedure, we recorded a 67% increase in the production of Guarantees of Origin (GOs), from 1.97 TWh in 2018 to 3.3 TWh in 2019, with an estimated maximum production capacity of approximately 3.7 TWh.

We use GO production in three ways:

• some of the GOs are used by ERG to be "cancelled", in order to guarantee to its end clients that the energy consumed is produced by renewable sources;

• some are exported to the European market;

• the remaining GOs are sold along with the electricity to other operators with whom ERG has long-term contracts.

As regards the European market, Guarantees of Origin are being produced and requested on an increasing basis, as shown by data produced by the AIB (Association of Issuing Bodies), the body responsible for coordinating the various producing countries at European level. The thermoelectric plant at Priolo, as a high efficiency cogeneration power plant, enjoys the benefits of Energy Efficiency Certificates (TEE) or "white certificates". In fact, thanks to its technical characteristics the plant is able to obtain the simultaneous production of electricity and steam whilst generating high efficiency and significant energy savings.

Consequently, it is able to accrue approximately 100,000 TEEs per year for ten years from the entry into operation of each module. In particular, in 2019 the plant has accrued 114,000 TEEs. Linked to the production in a specific year, the Energy Efficiency Certificates are assigned by the GSE in the subsequent year, when they are available for sale to customers through bilateral negotiation or sold in market sessions organized by the Energy Markets Operator (Gestore dei mercati energetici - GME).

In order to guarantee compliance of the ERG Power plant with the European Union's Emissions Trading Directive, which implements worldwide emission reduction targets, we purchase on the market CO2 certificates corresponding to the emissions generated by the CCGT plant (as the plant does not have any free CO2 allowances). These quantities are certified by an independent third party, as required by the Emission Trading regulations.