Utilities Scenario 
Through the Cottarelli Plan, in 2014 the Government showed that there is a clear, substantial surplus of operators in the local public services, entailing major efficiency / rationalization margins as well as growth opportunities for the largest and most efficient operators in the industry.
Irrespective of some perimeter variances, a recent study by Utilitatis confirms the size of the industry (about 1,100 providers) as well as the current rationalization margin. Surveyed companies generate a global turnover of about € 50 billion and employ more than 200,000 direct and indirect resources. In view of the consolidation expected from the gas bids and from channelling water cycle and urban sanitation into provincial ambits, the streamlining is estimated to involve about 800 operators. Assuming an eventual alignment of current underperformers to best practices, a 1.5 billion € overall benefit is estimated.
This excessive fragmentation opens significant room for changes leading to company grouping in all public utility sectors, with benefits coming from the economies of scale, efficiency and improved service quality gained .
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The scenario outlined by Snam in its forecasts for gas supply and demand from 2018 to 2035 is based on an assumption of GDP growth expected to reach 0.9% over 2018-2035. In this context, gas demand in Italy will likely decrease by an average of roughly 0.3% per year in between 2018 and 2035, due to energy efficiency investments in the residential sector and to the development of renewable energy that will reduce the use of thermal power plants.
In the gas distribution sector, concessions have expired across the country and tenders are currently being held, called by the Authority ARERA, for reassigning local monopoly concessions. The newly defined areas concerned by the concessions are larger than the previous ones, with the aim of increasing the average size of operators. The process involved in the tenders is thus expected to lead to a reduction in the number of operators, because the most efficient company, that wins the tender, is expected to acquire all activities from the losing companies. This process will thus offer opportunities for growth for the most efficient and largest operators.
From a linear expansion of recent trends in electric intensity, which take into account the impact on the past of recently introduced measures in energy efficiency, Terna has developed two scenarios for future changes in demand:
- “Basic scenario”, which begins with an estimated 0.5% growth in GDP and takes into account the effect of a full implementation of energy efficiency policies, leading electric intensity to be increased by 0.5% in the 2017-2040 period;
- “Development scenario”, which corresponds to a high estimated growth in GDP (+1.3%) and takes into consideration both a different degree of application of energy efficiency policies and a gradual spread of e-mobility, leading electric intensity to be reduced by 2.5% in the 2017-2040 period.
In the period from 2017 to 2040, the development scenario foresees trends in energy demand to reach an average annual increase of +1.1%, corresponding to 412.7 billion kWh (TWh) in 2040.
The basic scenario, obtained through estimates of a more modest electricity demand, expects an average annual growth of +0.5%, with electricity demand coming to 361 billion kWh in 2040.
On 1 January 2022, a complete liberalisation of the electricity sales sector is expected to begin. The market currently consists in 36 million customers, of which 20 million still have protected types of contracts, regulated by ARERA. Doing away with these contracts will require higher competition (currently blocked) and no operator will be able to begin with a dominant market position (above 50%), according to the Antitrust rules. This scenario represents an opportunity for growth for smaller operators, who will be able to compete in acquiring “formerly protected” customers, who will no longer be able to be served by the current incumbent player.
In the environment industry, Italy is still burdened with severe infrastructure shortages against European benchmarks, and the way to recovery is still very uncertain. The downward trend in the use of landfills for municipal waste disposal is ongoing Europe-wide; in the EU-28, the value equals 23.7%. Landfills are instead the main method of disposal in Italy: 25.7% of municipal waste disposed of in 2017 was landfilled, whereas 20.9% was channelled into waste-to-energy.
To reduce the gap that has Italy ranking behind the rest of Europe, the government adopted a number of key measures, aimed at an optimal use of the existing infrastructure system. Article. 35 of L. Decree no. 133/2014, which was converted - through amendments to Law 164/2014 - into the so-called "Unlock Italy" decree, aims to achieve an adequate, integrated system of solid waste management nationwide, as well as to meet all of the waste collection and recycling targets.
It also aims to ensure national security in terms of self-sufficiency and, as a result, to overcome and to prevent further infringement procedures ensuing from failure to implement European industry standards. C urbing waste landfilling is another key target. In this scenario, the use of waste-to-energy as an alternative to landfill disposal ensues from several sanctions imposed to the Italian State by the European Court of Justice. The latest –December 2014 - amounted to 42.8 million euros for every 6 months of non-compliance and was due to a protracted failure to comply with the European directive on authorization, for 198 landfills in the Italian territory.
The critical situation described above has led to a strong rise in prices for waste treatment all across Europe, while in Italy prices have risen by 47% in the last 5 years, with an uninterrupted progression.
As regards urban waste collection and street sweeping services, the Authority ARERA has recently approved the first “national” tariff system, recognising a return on invested capital that is closer to the ones for other services regulated by ARERA. This will level out the differences between the nation’s various localities, and increase the visibility of regulation over the medium term.
The Italian water industry has inherited a very disjointed industrial scenario from the past, with large industrial companies coexisting with small and medium businesses, which are often in economic disruption and therefore unable to meet the necessary investment needs.
Furthermore, the failed coverage of the costs incurred over the years has generated low investment levels. For this reason, the rates in some areas of the country - whose values are among the lowest in Europe - indicate that service quality and stability are relatively poor (e.g. large network losses and low degree of purification).
Comparing the investment expense of other more compliant European countries, if we aim to improve service quality and boost the sector development, a national average investment totalling at least € 5 billion a year is estimated, equalling € 80 per inhabitant.
Transferring tariff accountability into AEEGSI in 2013 was a key turning point towards restoring credibility and perspective in the industry. The results achieved in the first six years are positive.
Concessions for this service in the Emilia-Romagna region are all close to expiry. In this region, tenders have taken place in Ravenna and Cesena (awarded to Hera) and Modena. The others are expected to begin within the next 4 years.
The Authority, ARERA, has approved a revision of tariffs for the Water service, confirming stability in the system, introducing a few changes whose effects are expected to be positive and giving higher visibility to return over the medium term.
may call for a revision of current models, broadly understood (Business models, consumer models, ...)
Technological advances
The evolution of technology will have an increasingly rapid effect on utilities as well, both directly, with the technical solution adopted by companies throughout the sector, and through changes in customers' habits and expectations.
Hera has an Innovation Department since 2014, constantly committed not only to Research and Development but also to bringing into the various business areas the use of the most sophisticated technologies selected from the world's best providers. The Business plan to 2025 envisages investments in innovation and technology of around 1 billion euro, 25% of the total.
Climante and resource scarcity
A growing awareness of the issues created by resource management models used in the previous millennium poses new challenges for utilities, who manage resources that are both scarce and essential for everyday life.
To better enable the development of circular business models, Hera has a long track record of positive results and investments to implement processes and infrastructure and intends to further strengthen its leadership. The Business plan to 2025 envisages investing a further 450 million euro for circular economy transition, 400 million euro for sustainable water resource management and 235 million euro for energy transition and renewable energy.
Demographic growth
The demographic explosion seen in some areas of the planet will lead to problems involving infrastructures and their ability to serve a large part of the population, providing opportunities, for development to those who prove able to rise to such challenges.
Thanks to the launch of sustainable market offers involving energy from renewable sources and CO2-free green gas, Hera is supporting the development of two important infrastructure projects for energy production in areas with strong demographic pressures. More information here: Hydro Alkumro and Solar Charanka (documents available in Italian only).
Evolving economic balances
The world’s economies now find themselves in a delicate phase of transition, and the balances yet to be created will impact the direction of new flows of capital, from flourishing economies to the most promising ones.
At this stage of transition towards economic models increasingly focused on environmental, social and governance (ESG) dimensions, capital flows will also play a fundamental role as facilitators of the process, rewarding the companies and initiatives that are best able to transfer the created value to all stakeholders. Hera has set itself ambitious targets to create shared value that will grow +70% by 2025, to reach 780 million euro.
Rapid urbanisation
The world’s population is becoming increasingly concentrated in urbanised areas, which show a rising need for services tailored to these trends and able to optimise management of the use of infrastructures and information.
The Hera Group's reference territories are also undergoing profound changes that require resilient, state-of-the-art infrastructures to support the transformation of our cities towards evolved smart city models. The Business plan to 2025 envisages investments of around 280 million euro in smart infrastructure.
involved in the changing models and their new necessities
Customer/Consumers
- Higher attention given to energy efficiency and each product's carbon footprint
- A call for smart, innovative, digitals solutions for one's own daily requirements
- Accustomed to levels of service with increasing qualitative standards
- Promotion of innovative investments in service management
- Regulations supporting a paradigm shift in terms of service sustainability and the use of resources
Companies (Utilities)
- Definition of new business model able to bring together customers' requirements, requests coming for the institutions involved, and industrial needs
- Preparation for a higher degree of competition in each business area
is a universal standard
For Hera, technological and digital transformation along the lines of “Industry 4.0” is an opportunity to reinforce its own sustainable economic model, within a strategy that includes developing cloud, mobile, analytics and big data technologies.
Our goal is to plan new intelligent and “transformative” solutions, not only in the area of energy networks and infrastructures, but also in light of future challenges. This includes introducing new sales support tools, increasing the speed of procedure implementation and becoming able to swiftly adjust approaches to business, thanks to processes that are perfectly integrated among themselves.
Internal digitalization
- Digital workplace
- Community data analytics
- Smart working
- HEUREKA+ and Digi e Lode
- Cybersecurity
Customer digitalization
- Online services
- Applications for tablets and smartphones e-billing
- Whatsapp channel
Business intelligence
- Data management ad AI
- Fiber optic broadband network
- Technological implementations
- Process digitalization
The ongoing innovation and development plan will allow us to have a positive impact on the local areas and communities served, introducing new potential services linked to a circular economy, environmental sustainability and safety.
Given that digital transformation is a process that calls for continuous technological innovation and the enhancement of information system performance, Hera is committed to staying in line with these megatrends. It will thus complete a technological renovation of the entire infrastructure and continue to facilitate the introduction of technologies able to transform the energy model into a more efficient, safe, sustainable and flexible system.
A process that began some years ago
Innovation is one of the Group's five strategic levers (agility, efficiency, growth, innovation, excellence). The model we use is based on widespread innovation: each department is responsible for its own individual innovation initiatives, from the review of processes to the identification of new services, from instruments for improving efficiency to the launch of new operating models.
The main innovation areas within the Hera Group, also in line with its business plan, can be summarised as follows:
- circular economy, aimed at environmental sustainability, the optimisation of materials, and maximising the recovery of waste and scrap;
- customer experience, aimed at understanding the needs and wishes, whether expressed and not, of consumers in order to shape actions to improve their satisfaction level;
- digitalisation and data analytics (Utilities 4.0), with activities linked to implementing new technologies, mainly IT, for the digitalisation, automation, and flexibility of processes, and the enhancement and efficient use of data;
- smart cities, to introduce technologies that can improve living conditions in cities, and the services supplied to the general public.
In the area of innovation, BP to 2025 has allocated 950 M€ for projects intended to enhance innovative technologies involving the development of smart cities, circular economy, Utility 4.0 and customer experience.
Learn more: Innovators by nature
OUTLOOK 2024
In 2024, the Hera Group is committed both to its usual focus on efficiently managing the services provided and to searching for opportunities for growth through external lines, as well as to the continuing actions towards increasing shared value, in line with European policies and the objectives on the UN’s 2030 Agenda.
Industrial growth, through a balanced management of commercial development, the circular economy, not only as a statement of social commitment but also as a strategic driver of sustainable growth, and risk management, across the board and proactive, both in corporate strategy and integrated into the corporate culture, are the commitments that the Hera Group has made to achieve its new objectives, also turning to digitalisation and innovation as levers to support resilience.
In 2024, Hera will pursue the strategic lines addressed by the business plan, presented at the beginning of the year, managing the various dynamics that will arise in the various business areas:
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Networks: resilient results are expected in line with the regulated nature of the activities and thanks to planned investments and efficiencies as well as the development of "smart solutions" and innovative projects in synergy with the other assets in our portfolio
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Environment: growth is expected thanks to both our leadership position, based on a single, large, modern, sustainable and diversified plant base which represents a solid "platform" and to the commercial development, driven by demand which requires more and more advanced solutions in terms of sustainability, circularity and waste valorisation that can become a resource
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Energy: the business will continue to benefit from the development of value-added services offer, commercial expansion and cross-selling activities.
In economic-financial terms, the forecast of an increase in shareholder remuneration, consistent with the targets set by the recent business plan, and the maintenance of financial solidity are confirmed.
The debt structure towards which the Hera Group is oriented responds to its business needs, not only in terms of the duration of loans, but also in terms of interest rate exposure. The Group’s financial strategy, in turn, is aimed at maximising its return profile while maintaining a prudent risk strategy.
Since the beginning of the year, the Hera Group has obtained good performances in all business areas, as is demonstrated by the operating data for volumes sold and disposed of.
The trend in the first nine months for the four business areas is presented below:
Outlook Gas 2024
The results as of 30 September 2024 showed a downward trend compared to the same period in 2023, due to changes in the legislation related to the 110% super-bonus incentive linked to energy-saving measures, which reduced the number of beneficiaries, mild weather in the early months of the year, and the reduction of average energy commodity prices by about 23% compared to the previous year.
The Group continued to perform well in last resort markets and in supplies to public administrations, thanks to the tenders awarded to Hera Comm Spa in the Last resort gas service supplier (for customers providing public services or without a supplier) for the period from 1 October 2023 - 30 September 2025; in the Default gas distribution service (for customers in arrears), for the period from 1 October 2023 - 30 September 2025; and in the Consip GAS15bis tender for supplying natural gas to public administrations in 2022-23.
Total volumes of gas sold grew, mainly due to increased trading activities. Volumes sold to end customers dropped, a reduction mainly seen in last resort markets and in traditional markets. This trend was mainly affected by the higher average of weather temperatures in 2024 and the drop in the customer base, but also by the behaviour shown by customers regarding energy efficiency.
For the rest of the year, the Group expects substantial stability in the customer base, with forecasts of volumes sold which may depend on the temperatures seen during the upcoming months.
Outlook Electricity 2024
The results at September 2024 showed growth compared to the previous year, both in volumes sold to end customers, due to commercial development especially in the free market, and in Ebitda, due to the reduction in modulation costs resulting from the drop in PUN prices (-21% on average).
As of 1 July 2024 the Group acquired almost 1 million customers, after being awarded 7 lots in the tender for the Gradual protection service (GPS) for household customers in 37 Italian provinces, strengthening its presence in several of the country’s regions and consolidating its position as the third largest operator nationwide. Good performance was also achieved thanks to lots awarded to Hera Comm Spa in the Consip EE21 tender for supplying electricity to public administrations in 2024; the Gradual protection service tender for supplying electricity to SMEs for the period from 1 July 2021 to 30 June 2024; the Safeguarded service tender for the years 2023 and 2024; the Gradual protection service for supplying electricity to micro-businesses for the period from 1 April 2023 to 31 March 2027.
In September 2024, the Group’s electricity sales customers recorded an increase by +56.2%, compared to the same period in 2023, thanks to the positive contribution deriving from both the strengthened commercial action implemented and the lots awarded in the Gradual protection service tender. This effect largely offset the drop in the Protected market and in the Safeguarded market.
Customer approval and loyalty due to the value-added services offered by the Group was confirmed also in this quarter.
The volumes of electricity sold increased compared to the same period of the previous year. This trend was caused by an increase in free market volumes mainly driven by the contribution of the commercial reinforcement, along with the positive effects of the first three months of the new gradual protection service (which started in July 2024) and the Consip tenders. These effects were partially offset by a drop in volumes in the Safeguarded service and the Protected service.
Thanks to further commercial development activities on free market customers, the expansion of the customer base and the new Gradual protection service, the Group expects a positive trend also in the coming quarter.
Outlook Water 2024
In the first 9 months of 2024 the integrated water cycle area showed an increase in results compared to the previous year.
From a regulatory point of view, note that 2024 was the first year in which the tariff method defined by the Authority for the fourth regulatory period (MTI-4), 2024-2029, was applied. The MTI-4 will have a 6-year duration, with a WACC increase to 6.13% in 2024, from 4.8% of the MTI-3. Among the new elements, it envisages an update of the component covering the cost of electricity, which has been subject to significant fluctuations in recent years. Each operator is granted a revenue (VRG) determined on the basis of operating and capital costs, according to the investments made, with a view to increasing cost efficiency, as well as measures aimed at promoting and enhancing interventions for sustainability and resilience.
The number of water customers increased compared to September 2023, confirming the moderate trend of internal growth seen in the areas served by the Group.
Thanks to the investments planned in the new Business plan to 2027, this business area will become even more efficient and resilient in the coming years. The Group will in fact work on many fronts to reduce water consumption, decrease linear network losses and increase the reuse of wastewater.
Further growth in results for the current year is expected due to the tariff updates decided by the national authority to take into account higher interest rates and the tariff increase.
Outlook Waste 2024
The results at September 2024 showed further growth in Waste sector compared to the previous year. The Group thus continued along its path of growth in this business area, through the diversification of its offer, the wide nature of its customer portfolio and its responsiveness in providing services despite a complex macroeconomic context with repercussions in the markets covered as well.
Herambiente Spa’s leadership was consolidated, particularly in the Industrial market, with the acquisition, finalised in the third quarter of 2024, of 70% of the company TRS Ecology Srl, expanding the Group’s scope of action, reinforcing the growth prospects of an established local company near Piacenza and launching the Caorso platform renovation project, with a view to additional environmental protection and growth in material recovery.
Protecting environmental resources remained, in the first nine months of 2024 as well, a priority objective, as did the maximisation of their reuse. This is demonstrated by the special attention dedicated to growth in sorted waste collection, which, thanks to the strong commitment that the Group has shown in all areas managed, increased by more than two percentage points compared to the 2023 figures.
Market volumes were up by 11.4% compared to the same period in 2023, due to the consolidation of existing business relationships, development of the customer portfolio in the industry market, and changes in the scope of operations due to recent acquisitions.
Thanks to the further strengthening of the plant base and the consolidation of existing business relationships, which include actions to develop the customer portfolio, the Group expects good growth prospects in the Waste area during the last months of 2024.
The recent company acquisitions, the growing demand for sustainable waste treatment services and the further development of projects in the served areas will also contribute to the good performance which will allow to expand the Global Waste Management service.
