Acquisition of photovoltaic systems
On 16 February 2022, the Group finalised the acquisition from European Energy S/A, a Danish company active in the development and management of wind and photovoltaic plants, of 100% of Puglia Holding S.r.l., holder of five Special Purpose Vehicles (SPV) holding the authorisations for the construction and management of the photovoltaic parks of ASI Troia, in the localities of San Vincenzo and Montevergine (Province of Foggia) and the complex of Palo del Colle (Province of Bari).
The acquired plants were built between 2019 and early 2022 and have an installed capacity of 121.5 MW, making them the largest photovoltaic park built in Italy to date. The acquired business has an enterprise value of 166 million euro.
Together with the Puglia Holding transaction, Iren Energia entered into a commercial agreement relating to the European Energy plants under development for a total installed capacity of 437.5 MW in four sites located in Lazio, Sicily and Apulia. The agreement provides for the possibility of exercising rights to invest in such assets over a period of exclusivity and at various stages of development.
Financing to support investments for the development of district heating in Turin
Continuing the cooperation in the field of environmental sustainability started in 2020, on 25 March 2022, the Council of Europe Development Bank (CEB) and Iren S.p.A. signed a Public Finance Facility (PFF) loan for 80 million euro to support the investments for the development of the district heating network in the metropolitan area of Turin, provided for in the Business Plan.
The investments financed are aimed at saturating and extending district heating to new areas by connecting new users and improving the operational efficiency and flexibility of the network.
On 24 February 2022, the Russian President Vladimir Putin announced the beginning of a full-scale land, sea and air military operation targeting Ukrainian military assets and cities across the country. It was the consequence of the intensification of a state of crisis began by the end of 2021, when Russian troops moved to the Russia-Ukraine borders and diplomatic negotiations between Russia and NATO countries failed. This marked the beginning of hostilities between the two countries' armed forces.
As a result, several states and supranational organisations decried Russia’s doings and supported Ukrainian forces. In particular, the United Nations General Assembly and the European Council, based on international law, passed on a resolution condemning Russian military actions and demanding that Russia immediately cease its use of force in Ukraine. At the same time, the European Commission has implemented several emergency aid programmes, including financial support and interventions aimed at mitigating the humanitarian crisis caused by the conflict in Ukraine. There are ongoing negotiations between the parties involved whose goal is to identify the most appropriate diplomatic solutions on international peace, security, and stability.
The European Union and other countries (the United States, Great Britain, Australia, Japan and Switzerland among others) have tightened and extended the packages of sanctions on Russia which, although with different terms of effectiveness, aim at hitting Russian economy strategic and financial sectors and imposing targeted restrictions on the President and other figures constituting Russia's industrial, defensive and political base.
These sanctions have had a direct impact on the exchange rate of the Russian currency (the ruble has sharply depreciated against the euro and the US dollar), on local interest rates (increased to 20% by the Russian Central Bank) and on the share price of companies listed on the Moscow Stock Exchange (with a significant sign of decline recorded in March).
In this context, the Italian government is defining measures addressing the exceptional instability of the national natural gas system resulting from the conflict in Ukraine. These measures include actions to soar gas availability, the reduction of consumption and actions aimed at filling gas storage for the 2022-2023 thermal year.
Considering the actual energy sector scenario, Iren has activated a task force to carefully monitor the situation and evolution of the impact that the international crisis has on its businesses, even though the Group is not present in Russia and Ukraine. The focus is on the supply of raw materials and services, in terms of their economic and financial outcomes that could be eventually arising from the shortage of raw materials coming from areas involved in the conflict and, lastly, by the generalised increase in commodity prices considering that that the gas supplied by Russia covers 40% of national needs. In this context, the increase in commodity prices leads to greater quantitative exposure and greater risk in the event of late payments in both gas and electricity retail sectors.
The Group implements direct risk reduction actions by leveraging on:
- The purchase of gas from the main Italian operators, thus excluding the risk of application of non-supply contractual clauses as a result of geopolitical events
- Hedging policies, which ensure that margins are kept under control
- Measures to protect the group from cyber-attacks, in particular trading and dispatching platforms.
In a constantly evolving scenario, characterised by regulatory uncertainty in addition to high and volatile prices regardless of the Ukrainian crisis, the Iren Group continues to monitor macroeconomic and business variables to promptly have potential impacts best estimates on regulatory changes, suppliers, and contracts applicable to the Group.
Legislative measures to fight the increase in commodity prices
For the purpose of financing measures to contain the increase in energy prices, the Italian Government is introducing some extraordinary levies on companies in the energy sector including, in particular, those listed below:
From art. 37 of Legislative Decree no. 21 of 21 March 2022 ("Energy Decree"), which aims to tax the extra profits made by companies in the energy sector as a result of the increase in raw material costs. The Iren Group is currently assessing the possible impacts of this measure on its profitability, which are assumed to be limited according to initial estimates.
From art. 15-bis of Law no. 25 of 28 March 2022 (conversion of Legislative Decree no. 4 of 27 January 2022 - "Sostegni-ter Decree"), which provides for a contribution on extra profits on non-incentivised renewable energy production. The effect of these measures on the Group's profits for 2022 is estimated to be a reduction of around 15 million euro.
The Iren Group’s 2022 will be characterised by a solid acceleration in investments, they are expected to grow exponentially (+50%) compared to 2021, seizing multiple development opportunities that allow to anticipate part of what is planned in the Business Plan.
The Business Plan bases its rationale on three strategic pillars guiding investment choices: ecological transition, territoriality and quality of the services. Respectively, the objectives of the ecological transition are the progressive decarbonisation of all the activities and the strengthening of Group’s leadership in circular economy; when it comes to territoriality, Iren aims at expanding the scope of activities in its principal places of business and to be the reference partner for local stakeholders; finally, with quality of service, Iren’s goal is to improve network services performance as well as maximise customer satisfaction in all its businesses.
The Networks business unit’s 2022 will be characterised by a decrease in the rate of return on invested capital (WACC) leading to a reduction in tariff revenue which, in turn, is offset by the increase in recent years’ investments. The latter positively influences the returned invested capital. Among others, investments in the integrated water system favour the increase in purification capacity, the re-use of resources and reduce water losses thanks to a greater efficiency. In the electricity and gas distribution network, the goal is to increase the power supported by the first and make the second suitable for the distribution of hydrogen mixtures. Their final goal is to guarantee a better and better quality of the services.
With regard to the Environment business unit, the investments will be focused on the construction of waste treatment and disposal plants in addition to increasing the quality of the service by expanding door-to-door collection and punctual pricing. Such investments, together with the extensive coverage of the waste cycle (from collection to treatment and disposal), will boost recovered material volumes.
When it comes to the Energy and Market business units, throughout 2022 the Group will continue to implement a series of actions aimed at mitigating the impact of energy price volatility thanks to a hedging policy that will stabilise the margins of the entire energy supply chain. The generation park facility will benefit from new production line of Turbigo thermoelectric plant but also from the consolidation of the recently acquired photovoltaic plants and, finally, from the organic development of new renewable capacity, encouraged by the growth of our customer base.
Finally, the Smart Solutions business unit, which will be mainly focused on the energy efficiency of buildings, will be able to seize the opportunities offered by government’s incentives and to the development of electric mobility. Smart Solutions will act as the main interlocutor for public administrations to realise complex urban redevelopment projects.
Concerning the international geopolitical crisis that has arisen as a result of the Russia-Ukraine conflict, it is currently difficult and uncertain to assess the effects and consequences that could derive from its persistence. In this scenario, there are two main risks to be taken into account: commodity price volatility and the simultaneous inflationary effect. Iren monitors the evolution of the situation on a daily basis, defining possible risk scenarios for its activities and identifying mitigation actions.
In addition, to ease the impact of the increase in commodities prices, whose upward trend began in the fourth quarter of 2021, the government has already approved measures to thin the imbalance between the production and sale prices of both electricity and gas. According to initial estimates, such prices will have a limited impact on the Group's profitability.