for Procuring electricity in the Italian market
Page 2 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
Page 3 Italian Energy industry outlook
Page 4 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%
Page 5 Italian Power Generation
Page 6 Electricity bill breakdown Indicative cost breakdown in major user prices (24 GWh, 6,000 hours per year)
Page 7 Risks and Opportunities in the Italian market
Page 8 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 Tranding down: Variable Trending up: Fixed
Page 9 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.
Page 10 Market competition Over 35 suppliers active in the market: which one is the most competitive? ACEA ElectrabelEneco Trade ACAM SpaENEL Trade AEM EnergiaEnerg.it S.p.A. AE-EWEnergia s.p.a. AEBEnergia e Territorio s.p.a. AGAC EnergiaENI Power AGSM Energia s.r.l.E.ON Italia AlpEnergieERG AMPSERGON ENERGIA ATELEnergetic Source SpA C.V.A. TradingEspansione Energia DynameetingEstEnergy Dalmine EnergieHERACOMM EDF Energia Italia s.r.l.META Energy s.r.l. Edison Energia s.p.a.MPE - MP Energy EGL ItaliaNet EgeaSIET - AEM Torino Electra ItaliaTrafigura Italia
Page 11 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 holidays peak – 8am to 8pm offpeak – 8pm to 8am weekends peak – 8am to 8pm 2 Rate - peak / offpeak (holidays excluded) 2 Rate - peak / offpeak (holidays included) Flat rate Unique daily price
Page 12 EnergyQuote solution
Page 13 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?
Page 14 Examples of Italian Tenders
Page 15 Customer’s Home Page
Page 16 Italian Tender - Overall ranking
Page 17 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 players able to provide the entire lot.
Page 18 Italian Tender - Overall ranking The incumbent supplier for the previous two years, EGL Italia, was substantially outcompeted by another supplier. The Multi-Supplier option (optimum combination of supply) proved to be the cheapest way to allocate the contract.
Page 19 Italian Tender – site list
Page 20 Italian Tender – site list As the Multi-Supplier option showed, any one supplier proved to be the most competitive for all the sites.
Page 21 Italian Tender – site tender ranking
Page 22 Italian Tender – site tender ranking The competitive environment created by the e-auction pushed some suppliers to bid even 3 times in 1 day
Page 23 Italian Tender – site tender ranking 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.
Page 24 Italian Tender – tariff breakdown
Page 25 Italian Tender – site tender ranking
Page 26 Italian Tender – site tender ranking Some suppliers bid 4 times, one even 5 times in 1 day. The winner secured the business by reducing its initial offer by almost €122k - on just one site.
Page 27 Italian E-Tender
Page 28 The Return on Investment: A business case
Page 29 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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