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Development of the business

Hera is the leading domestic operator in the waste management sector through the quantity of waste collected and treated.

Waste collection activity regulated by concession contracts has developed over the years through the inclusion of companies, and now covers all the areas from Modena to Pesaro-Urbino. Thanks to constant customer awareness and the support of local institutions, the Hera waste collection system is based on recycling the majority of waste material (over 50%: glass, paper, plastic and metals and biomass) and on optimising the energy content of the remaining part, through waste to energy treatments and biogas extraction.

This effective system has made a considerable contribution to the decrease in the amount of urban waste disposed of directly in landfills, thereby reducing soil pollution.

The activities of waste treatment and disposal have benefited, over time, from significant expansion and renovation of the plant structure. The multi-year plan for the modernisation of large plants was completed in 2011. Landfill capacity was also expanded and the bio-mass treatment plants, already part of the Group’s assets, were upgraded.

Today, the structure comprises 84 plants, capable of satisfying waste treatment and development requirements of all kinds. It is a part of the Group’s excellence on a national scale and has made a contribution to supporting the considerable expansion in the volume of activities over the ten-year period and also satisfying the complex requirements of disposal and drainage at production sites.

With the generation of approximately 0.7 TWh, the Group has become one of the main operators committed to the recovery of electricity from waste and is the only company in recent years that has managed to build and activate five new WTE plants in Italy. This operation has led to the installed capacity reaching approximately 100 megawatt, with 1 million metric tons/year.

In the light of the insufficient infrastructures in the waste treatment sector in Italy, which are typical and culminated in the waste emergency in Campania, Sicily, Calabria, Puglia and Lazio, invitations to tender were put out for the construction of new WTE plants in several Italian regions. At the end of 2011 Hera was awarded the contract to purchase a 40% stake in the construction and management of a WTE plant, producing 140 thousand metric tons a year, in the province of Florence, and was committed to increasing its market share in order to put the unique expertise it has gained in the market to good use.

In order to best rationalise the business in line with market logics, in 2010 the Hera Group set up the company Herambiente which became responsible for all waste disposal, treatment and recovery liberalised activities.

Growth in the Waste Management area, which supported the development of the Group’s results over the ten years, has caused EBITDA to almost quadruple. The development dynamics over the last two years have suffered as a result of the economic-financial crisis which adversely affected industrial and consumer businesses in Italy. In spite of the difficult market context,  waste management is a strategic activity for the Group where it is the key player thanks to its market position and expertise.

The Acegas Aps integration project will lead to a significant strengthening of Hera’s leadership position in Italy in waste collection/treatment and will create benefits in terms of a logistics structure for plants perfect for developing new markets (especially important at this time when demand is falling as a result of the macroeconomic crisis). Facilities will be expanded with two new WTE plants which will increase the annual disposal capacity to more than 1.3 million metric tons.

Since its establishment, Hera has also operated in the field of integrated water cycle management, from the distribution of drinking water to the collection and depuration of waste water, and has the exclusive right to these services in seven provinces in Emilia-Romagna and the north of Le Marche, based on long-term concessions expiring in 2022 on the average.

Following the mergers that took place, and the physiological development of activities and investments made, the Group has essentially doubled its number of customers, upgraded the treatment plants, expanded the distribution and sewerage networks by around 10 thousand linear km (to over 26,700 linear km) and increased the volume of activities by an average annual rate of 4%.

The water network, like all Group networks, is currently controlled by a single remote control system, created in 2007 and deemed to be one of the most advanced in Europe. Remote monitoring of networks has made it possible to optimise maintenance and supervision processes, guaranteeing greater efficiency and lower running costs. Thanks to these systems and the modernisation of the networks, recorded performance (in terms of average leaks per kilometre) has been amongst the best domestically.

The entire environmental control system, from the analysis of the water before distribution to the waste water collection and treatment systems, has recorded important progress and guaranteed a high quality of service and maximum safety for customers.

The aggregation project with Acegas Aps will make it possible to reach second place occupied in Italy and roll out existing economies of scale to make operations more efficient.

The Group almost entirely covers the reference territory in the gas sector as well. This includes distribution services and sales services, plus methane gas trading, as well as the management of district heating. Hera is currently among the leading “local” firms and the fourth nationally in terms of sales volumes. In spite of the liberalisation of the sales market, the Group has maintained and developed its original customer base, reaching 1.11 million users, in other words almost doubling it in ten years, thanks to successive mergers.

Sales have also more than doubled in this period, with volumes handled reaching more than 3.3 billion cubic metres. The distribution network, developed through direct investment and the acquisition of companies, has reached 14, 000 km.

The uncertain situation in the raw materials market has led the Group to pursue prudent and flexible procurement policies, taking the opportunities that arise from the slow process of opening up and developing raw material import capacities and the international and Italian wholesale markets. Hera has a multi-year gas importing capacity of almost 500 million cubic metres per year through the TAG gas pipeline. It has also gradually diversified internal sources, striving for maximum flexibility through annual agreements (multi-year contracts are currently present in 10% of total supplies). Lastly, there has been an organisational restructuring which has led to the establishment of a sales company (Hera Comm) and a trading company (Hera Trading), thanks to which Hera has launched its own activities with a direct presence in Baumgarten (Austria) and through other European hubs. This supply portfolio structure has protected Hera from the risks of purchasing “predetermined” materials many years ahead and, in recent years, has allowed it to derive benefit from the growing availability of methane gas in the country. Another means of safeguarding supplies, set against a background of maintaining a low risk profile, has seen Hera purchase a stake of more than 10% of the capital of Galsi, a special purpose vehicle for the construction of a gas pipeline with a capacity of 8 billion cubic metres, which will go directly from Algeria to Italy. The pre-contracted capacity comes to approximately 1 billion cubic metres per year, a quantity that allows Hera to focus on diversifying gas supplies with a third from North Africa, a third from Europe and a third from Italian operators.

Sales volumes relating to district heating have also almost doubled. As is known, this is a way of transforming energy into heat more efficiently and with less impact on the environment than independent housing heating systems.

The district heating network has been developed in urban areas in the territory near the large waste-to-energy and cogeneration plants built in the last ten years, thereby exploiting heat sources which would not otherwise be used. 

Economic results have constantly improved underpinned by growth factors   in investments, efficiency, mergers and acquisitions and, lastly, with the flexible upstream structure.

The integration project with Acegas Aps will make it possible to consolidate the third place occupied in Italy in gas distribution and expand the customer base of 260 thousand households to approximately 1.4 million, increasing the Group’s most important intangible asset and consolidating its seventh place in the domestic market.

The dual fuel commercial strategy has allowed the electricity market to develop at sustained growth rates, both through cross-selling activities to existing customers and through expansion into new markets. The strategy has protected customers in the gas sector, as shown previously, and placed Hera among the top eight domestic operators, with annual sales of approximately 10 TWh, with a tenfold increase in the customer base to almost 500 thousand (compared with 49 thousand at the beginning in 2002).

Commercial development in the electricity sector has been accompanied by a parallel cautious development in electricity generation for the sustainable management of customer demand. Over the years, Hera has been involved in the construction of three base-load new generation CCGT plants in Campania (an area with a poor infrastructure), with a capacity of 1,300 MW. These plants have been built through a joint venture with the purchase of minority stakes by foreign partners of international standing. The relatively small financial commitment has allowed access to cost price electricity, while the signing of special agreements (PPA), which include flexible supply conditions, guarantees a low risk profile. Since the establishment of the Group, it has held a stake in Tirreno Power, through the company Energia Italia, with a share of 5.5% of the capital.

In 2008, an 80 MW gas cogeneration plant was completed in Imola, which guarantees self-sufficiency for the territory if there is a national grid black out. Lastly, Hera’s generation facilities included the development of more than 100 MW of clean energy from waste-to-energy plants, a further 13 MW from biomass thermoelectric plants, as well as the recent development of small biogas and photovoltaic generation plants, which complete the diversified portfolio of the Group.

The production of electricity destined for Hera end users covers around 30% of demand; the remaining part is purchased on the market with a widely diversified portfolio of supplies.

Electricity distribution activities have recorded significant development since the establishment; the merger with the Modena multi-utility (Meta S.p.A.) in 2005 and the acquisition of the Enel electricity network in the province of Modena, have contributed to the expansion of the network. It has reached almost 10,000 kilometres which, thanks to the investments made, is fully equipped with electronic meters and managed remotely through a single, state-of-the-art remote control centre.

The boost to market and trading activities, together with the mergers and acquisitions in 2006 in the Modena area, has led to a more than sevenfold increase in EBITDA over ten years.

The integration project with Acegas Aps will allow the consolidation of the fifth place in the Italian market occupied for the sale of electricity (annual sales of approximately 11 TWh) and the customer base to be increased by more than 140 thousand, taking it to approximately 650 thousand.