Expanding customer base and 1 bn€ energy transition projects

Hera has a very straightforward plan to ride the long wave of demand for more efficient and sustainable energy consumption   

In the coming years, Hera will continue to play a proactive role in the energy transition process, not only through responsible management of operations, but also by encouraging more sustainable consumption by its customers. The way forward will consist of leveraging the solid reputation that the Group has built in providing energy and value-added services.

The new scenarios provide Hera with a great opportunity: to ride the demand for greater environmental and economic sustainability of energy consumption, in line with what policy makers and customers themselves are asking for, both in the business and retail segments.

Hera has developed a clear strategy to respond to this demand, seizing development opportunities in order to optimise their returns. The key is to remain focused on business customers in the territories of reference, increasingly integrating some activities that until now have been largely subcontracted, with the aim of having the greatest control over the progress of the work sites: a delivery of energy transition projects that reliably respects costs and deadlines is also essential with a view to ensuring sound margins for the Group and high levels of customer satisfaction.

An additional advantage of the expansion plan that Hera has in this business lies in the customer relationship model, which does not end with the execution of the energy requalification project but continues with a series of solutions linked to the original intervention, through maintenance or insurance services, thereby generating recurring revenues over time.

Not just that: Hera is a large group, with a strong presence in different businesses and customer segments. For this reason, it will be in the position to harness the firepower of Hera Servizi Energia, while creating strong synergies with the credibility that HeraComm enjoys among retail customers and with the ability to offer a wide range of integrated sustainability solutions to the customers of Hera Business Solution, leveraging a platform of no less than 800 salespeople.

From an insightful interview with Isabella Malagoli, CEO of HeraComm, and Giorgio Golinelli, CEO of Hera Servizi Energia, we better understand where Hera sees these opportunities and how it intends to grasp them.


Three significant drivers fuel demand

Hera’s strategic decision to focus with determination on the additional development of services that facilitate customers’ energy consumption in more cost-effective and sustainable forms stems first and foremost from the analysis of some fundamental demand drivers in the new scenario.

On the one hand, government incentives in Italy continue to support the redevelopment process of public and private buildings, condominiums and individual homes, through the provision of Ecobonus. Requests for new interventions continue at a sustained pace despite the reduction in the percentage of subsidies covered by the incentives and the lower bankability of tax credits compared to the beginning of 2022.

On the other hand, even though gas prices have come back from the peaks of August 2022, the still high level of energy bills pushes users to look for solutions to minimise consumption and contain costs.

Moreover, last March, the European Parliament approved the bill to revise the Energy Performance of Buildings Directive, which was part of the ‘Fit for 55 Package’. Considering that buildings are responsible for 36% of greenhouse gas emissions, there is a clear need to speed up renovations. According to the new European legislation, which will have to be transposed at the level of individual EU countries, residential buildings will therefore have to achieve, as a minimum, energy performance class E by 2030, and D by 2033. For non-residential and public buildings, the requirements are even more stringent: class E must be achieved by 2027, and class D by 2030.

On the business side, Hera offers concrete answers to the needs of different types of customers

The high energy costs experienced in 2022, together with an increasing awareness of the need to protect the health of the Planet, have led to the development of value-added solutions aimed at three types of customers

  1. apartment buildings, which benefit from the 70% Ecobonus, for which Hera is collecting orders until 2024, and which also have an increasingly felt need for earthquake-proofing, as well as energy requalification, particularly in the territories of reference for the Group;
  2. public administration buildings – such as schools, kindergartens or administrative offices – that can access funds allocated by the PNRR, the Italian Recovery Plan;
  3. large industrial customers, major consumers of electricity and gas, who are increasingly opting for the construction of customised trigeneration plants, with cogeneration systems that simultaneously generate electricity and heat integrated with photovoltaic systems.

Hera has submitted project bids for business and PA customers amounting to approximately 1 billion euro

The total number of contracts for which Hera has bid has quickly reached such an important threshold due to a number of consolidated strengths that the Group can leverage.

First and foremost, a recognised track record both in the management of construction sites, with more than 2,000 condominiums refurbished over the last two and a half years, and in the significant number of plants designed and built to respond with innovative solutions to the complex needs of energy-intensive industrial customers.

The development of the PA market also continues, thanks to integrated offers of works and services. This takes place through participation in tenders or through Public Private Partnerships that, by their very nature, make it possible to enrich the energy-saving offer with seismic improvement and radical interventions to reduce consumption with the NZEB transformation of buildings.

In addition to being quantitatively significant, demand is also highly visible, given that historically the conversion rate of projects submitted exceeds 75%.

The real challenge in this line of business is to carry out the construction work in a cost- and time-efficient manner

With a dynamic demand, Hera has the opportunity to select customers in a logic of maximising energy savings in order to optimally expand its market share. The aspect that makes the difference in terms of returns, as is typical in contract business, is instead the ability to ensure consistent project execution, respecting costs and deadlines so as not to incur penalties.

It is with this in mind that Hera Servizi Energia, or HSE, which manages customers, is structuring itself to strengthen its degree of vertical integration: through increasingly close partnerships with the suppliers found to be the most reliable on the basis of audits, as well as through the launch of training activities for new specialised manpower, HSE is laying the foundations to carry out interventions with work teams that it is certain will be available on time and on whose professionalism it can count.

Another aspect that Hera has clearly identified as essential to ensure the profitability of its orders is to remain focused in its operations exclusively on the reference territory.

Hera will benefit from the long wave of energy transition projects

A feature that allows Hera to distinguish itself from the offerings of other large operators in Italy is also that of being able to offer clients not only the implementation of the project that favours the reduction of energy consumption, but to accompany it with an ‘energy performance’ contract that can be extended beyond the ten-year horizon. In this way, the Group is managing to develop a line of recurring revenue that continues when the work site is in its completed phase. The increasingly sophisticated remote monitoring and maintenance tools available to Hera also ensure attractive margins for these services.

With the firepower of a large Group, specialised by tasks and customer segments, Hera is ready to activate cross-selling opportunities

This business, originally born in HSE, now leverages on the strong reputation enjoyed by HeraComm, the Hera Group’s sales company: it also operates in strong commercial synergy with Hera Business Solution, which offers integrated sustainability projects to Italian companies, including those for energy saving. Hera therefore operates through a centrally coordinated system, whereby each company generates new opportunities for the others, including Waste’s industrial clients.

On the basis of a single integrated platform, Hera has an accurate profiling of the individual user’s consumption and potential efficiency gains. This is how the Scope 3 emission reductions that the Group has set as its goal take shape.     

The Small Business & Retail segment also offers visible room for development for Hera

For private customers, Hera is not just an electricity or gas supplier. It has long since developed and successfully built up a relationship that makes it the partner of choice for identifying and implementing solutions that optimise energy consumption and promote decarbonisation.

Within this relationship of trust that has been established, even once the tax deductions provided by the Ecobonus for the replacement of boilers have been exhausted, Hera can offer new tools: from hybrid heat pump boilers to photovoltaic panels that can be installed on balconies, to apps to monitor and manage even the cost of consumption in an increasingly ‘smart’ way.

Thanks to targeted M&A activities, Hera has also already acquired the know-how to have an integrated range of devices and solutions, as in the case of the operation with which at the end of June it took over 60% of Fratelli Franchini, active in the business of technological systems and renewable energy production: with this operation, Hera has expanded its capacity in the design, installation and maintenance of systems, particularly photovoltaic, with an offer aimed not only at large industrial clients but also at energy communities.

Also in the retail segment, Hera has formulated a set of proposals that guarantee recurring revenues over time. Starting with the ‘Hera caldaia sicura’ contract – i.e,, ‘Hera safe boiler’ contract – for scheduled maintenance, to policies that insure families and small VAT accounts against possible breakdowns in electrical and gas installations.  

Although around 10% of retail customers have already subscribed to at least one value-added service with Hera, the scope for additional penetration remains attractive, also considering the continuous evolution of the commercial proposals and the ongoing increase in market share, which has grown by 5% since the beginning of the year, reaching 3.7 million customers.

HeraComm can count on a sales platform of 800 people who are able to identify, within Hera’s offer portfolio, which innovative solutions are available to the individual customers who would have the greatest need for them and to capture their new demand.

The plan to develop services for the energy transition therefore harnesses attractive synergies between Group companies in terms of costs and revenues, with clear benefits for all customer segments and attractive returns for Hera. With a low risk profile, the Group has thus created concrete ground to succeed profitably in a business with a trend of continuous growth.

Isabella Malagoli, Giorgio Golinelli
Isabella Malagoli, Giorgio Golinelli
26 July 2023
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