A strategic presence in the energy efficiency business

The energy efficiency business is experiencing an unprecedented expansion, given the incentive systems that the Italian government is providing, mostly in the private condominium market.

Hera has always been active in the market for private residential customers, large condominiums. Since the introduction of the 110% ecobonus, the Group has continued to position itself as a leading operator with consolidated experience in energy requalification work. At Hera, the commitment to the energy efficiency business – which also showed significant growth rates in the consolidated results for the first nine months of 2021 – represents a pillar in the pursuit of long-term strategic objectives, given that the Company has committed to a 37% reduction in greenhouse gas emissions between 2019 and 2030.

We deepen the topic through some questions that we ask to Mr. Giorgio Golinelli, CEO of the two subsidiaries operating in the energy efficiency sector, i.e., Hera Servizi Energia (HSE) and AcegasApsAmga Servizi Energetici (ASE).

In this field, how is Hera’s business model structured?
As for all Energy Service Companies – the so-called ESCos – the business is based on the achievement of energy savings for end-customers and the exploitation of an incentive system linked to the intervention.

To achieve a significant reduction in consumption, the operator needs to design and implement a capital-intensive intervention, which involves a cash outflow in the initial phase. Benefits from lower consumption and the use of the incentive – which varies according to the reference market – then follow.

‘‘Hera, through its two subsidiaries HSE and ASE, operates in three different markets: that of the Public Administration, where the incentive scheme is the thermal account; that of industrial customers, with a mechanism based on Energy Efficiency Certificates; and, finally, that of condominiums, which currently benefits from the tax credit recognized for works admitted to the 110% superbonus”.

The investment is typically combined with a multi-year energy service contract, according to the ESCo logic: essentially, Hera takes the risk of the energy efficiency initiative, freeing the end customer from any organisational and investment burden, with the implementation of a multi-year project, between eight and 15 years. Such a long-time horizon allows for high predictability of cash flows, with full recovery of the initial investment. In this business, credits can be of a commercial or fiscal nature, and therefore fully collectable. Especially in the market for energy requalification of apartment buildings, in the framework of the legislation introduced by the so-called “Decreto Rilancio” linked to the discount on the invoice and the transfer of credit, the investment has a very short payback time against interesting margins made on this type of value-added services. The energy savings generated by the efficiency measures support the investment and generate a saving of CO2. The amount of CO2 saved then at Group level contributes to the reporting of the Task Force on Climate-Related Financial Disclosures, or TCFD.

How large are the efficiencies you can achieve?
The energy saving target, of course, varies according to the type of intervention and depending on how long the client has already been working to reduce consumption. For example, for industrial clients and Public Administrations we can target an average of 15-20% savings, while for apartment buildings we achieve efficiency gains of over 40%. A further difference lies in the source of these savings: for industrial customers, efficiency is generated in the energy production phase, for example with cogeneration solutions, in terms of electrical, thermal, or photovoltaic energy, while for condominiums and Public Administrations, efficiency is achieved by reducing the customer’s energy requirements in terms of climate comfort, with a consequent reduction in emissions.

How does the National Recovery and Resilience Plan (PNRR) fit in with your development prospects?
Our Business Plan envisages significant growth in all three markets, even if with different dynamics, depending on the decision-making times of the various customers and the period of validity of the incentives, having its point of reference in the framework of the PNRR, or National Recovery and Resilience Plan of the Italian government. The impact in the short term, until 2023, is focused on the energy requalification of condominiums, with the 110% ecobonus. In the second phase, from 2024 onwards, we expect the impact on the public administration market to become substantial: tools such as tenders or public-private partnerships, typical of this area, will inevitably take longer to allow the opportunities contained in the PNRR to materialize. Basically, we are working to build on the benefits of the PNRR today, even before the Next Generation Europe funds are allocated.

How have energy efficiency services contributed to the 9-month 2021 financial results presented by Hera?
For sure, energy efficiency services played an important role in determining the Group’s good results in all the quarters of 2021 to date. All the three sectors in which we operate contributed to the overall growth, with industrial and Public Administration clients growing at higher rates compared to 2020; the real dimensional leap, however, is essentially attributable to the large condominiums segment, mostly due to the development of activities related to the “110% superbonus” and the pre-existing “renovation bonus”. Considering then the technical time required for the impact of these incentives to be visible in the economic-financial performance, we can say that we are now starting to see the results of the activities launched in summer 2020. The growth wave will continue into the coming years.

What has determined Hera’s success in this market?
We have always been present in all three markets, with a special focus on the market of large condominiums. Energy service solutions combined with building renovation were already part of our offer, even before the super incentives. The introduction of the new incentive tool, with the 110% rate and the invoice discount, brought demand to a level 10 times higher than the previous situation.

Being an already active operator was a decisive factor. Hera was able to respond quickly to such a strong increase in demand, mainly leveraging on the many years of experience previously gained in the condominium sector. We could count on a large and consolidated client base and, above all, on the speed of reaction and ability to adapt to the new legislation in all internal processes: operational, contractual, and fiscal. We were also able to carry out a considerable amount of work in a very short time, as we already had our supply chain available for planning and execution, selected on the basis of our standards, including sustainability.

“Long before the spotlight was shed on this market, Hera made energy efficiency a cornerstone of its Business Plan: we strongly believed in this development trajectory, we invested hard to structure the business and now we are reaping the benefits.”

Is size a critical factor for these activities?
Certainly, size is a decisive factor. We operate with different companies depending on the geographical area, because the market must be faced operationally; moreover, being close to the territory is essential for managing the commercial, the administrative and the construction phases. This work requires the management of complexities, ranging from the manufacturing component to the fiscal, financial, or legal part of the project: therefore, a large player is needed to express operational, commercial and design efficiencies. Size is also vital to support the need for further growth in the face of ever-increasing market potential. I would add that it is also important to reach the optimal size in all three markets, to transfer the best practices matured from one to the other and introduce innovations in the various commercial proposals, also to overcome those standstills that individual markets can cyclically go through.

What other opportunities do you see on the horizon in the medium to long term?

“We believe that energy saving will always remain a strategic axis in the path to improving environmental conditions and reducing CO2.”

In the short term, we are therefore oriented toward maximizing the condominium market within the “110% superbonus” logic, but we are also already working on what we call the “post PNRR” period. For the other markets we are now laying the planning foundations to catalyse the PNRR resources.

We believe that the regulatory framework will continue to be supportive in the future, encouraging systems that promote the reduction of CO2; at the same time, we want to be ready to exploit that demand that we will not be able to meet immediately in the short term, due to physical limitations.



Giorgio Golinelli
Giorgio Golinelli
10 November 2021

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