Enel CDM experience in China

Massimiliano Varrucciu Strategic Planning and Market Analysis -

Power Business Area Generation and Energy Management Division

Enel S.p.A.

Beijing, November 30 th , 2006

Agenda



Enel Group: mission, overview, highlights



Enel in the world today



Enel Carbon Strategy



Key operational and financial data

1

Overview of Enel

(1)

 One of the largest European utilities and a leading Italian group  Italy’s leading electricity generator, with a 44% market share  Italy’s leading distributor and retailer of electricity, with approximately 30mn customers  Italy’s fastest growing gas retailer, #2 player, with almost 2mn customers  Leadership in renewables generation (16.7 GW2), worldwide leader in geothermal  Attractive dividend flow  “Strong A” credit rating (1) Figures as of December 31,2004 (2) Including almost 13 GW large hydro 2

Enel in the Italian Energy Sector

GENERATION 42,047 MW 53% of total gross installed capacity and 44% of net electricity production in Italy

• 26,837 MW Thermal • 14,318 MW Hydroelectric • 642 MW Geothermal • 250 MW Wind and other renewable

Engineering and construction, information technology, facility management and others DISTRIBUTION 78% of the total electricity distributed in Italy GAS Import, distribution and supply of 5.2 bcm to nearly 2,0 million italian customers SUPPLY nearly 29,6 million customers. 23,1 million residential customers 90% of Italian residential market

Data as of December 31 st 2004

3

International growth: summary results

Installed GW

(2)

Rao UES EdF Tepco ENEL

.

50 64 122 156 2000 2001 2002 2003 2004 2005 ENA [USA]

 245 MW

Viesgo [SP]

 2.366 MW  above 600.000 customers

Maritsa East III



[BG]

840 MW

ELA [Am. Latina]

 144 MW

Union Fenosa Renewables [SP]

 381 MW 

Banat & Dobrogea [RO]

1.400.000 customer

Slovenské Elektràrne



[SK]

6.881 MW 

NWTPP [RU]

450 MW CCGT Management Contract .

MOU EdF [FR]

11.196

T.F/LS + Sithe [USA]

 60 MW of Hydro

RWE Endesa 45 42

4.119

4.216

2.861

389

2000 2001 2002 2003 2004 Over 11,000 MW abroad with Slovenske Elektrarne 2005 MW cumulative

(1) 4 (1) (2) Data are referred to 100% of controlled MW; internal growth is contained in the total of the histograms Source: McKinsey&Company (2004 data)

International assets

Enel North America

 410 MW Hydro, wind and other renewable in US and Canada

Enel Latin America

 More than 200 MW hydro, geo and wind in central America and Chile  El Salvador [Geo]: 12,5% (growing) participation in LAGEO >100 MW geothermal   

Spain

Viesgo: 2.366 MW coal, oil, hydro, over 600.000 customers 80% of Enel Uniòn Fenosa Renovables 445 MW Escatron CCGY realization started 800MW PT ES  

France

5% Powernext MoU to develop EPR and to acquire SNET SE FI NO UK FR NL BE CH DK DE IT LT EE LV BY PL CK SK AT SI HR BA HU YU RO AL (1) GR BG UA MO TR RU     

Russia

Operation NWTPP, CCGT S. Petersburg 450 MW

Slovakia

Closing 66% of Slovenské Elektrárne 6.881 MW

Romania

51% distribution company Banat & Dobrogea 1,4 mn customers, 7.7 TWh distributed

Bulgaria

60% di Maritsa East III 840 MW lignite power plant

A significant focus on Central-Eastern Europe

5

Key operational data

Installed Capacity - GW Total capacity

Domestic

of which Thermal Hydro Other Renewables

International 42.0

3.8

45.8

64% 34% 2%

Production - TWh Total production

Domestic

of which: Thermal Hydro Other Renewables

International 112.1

13.6

125.7

73% 22% 5%

Electricity Distribution & Sales

Electricity distributed (TWh) 251 Electricity sold (TWh) 148.2

Customers (millions) 29

Distribution Network (mln Km) 1.1

Gas Distribution & Sales

Gas sold (bcm) 5.1

Customers (mln) 2.14

* At December 31, 2004 183 MW of this capacity was undergoing refurbishing and environmental upgrades.

6

Highlights of the year 2005

•

Results

•

Revenues at Euro 34.059 bn

•

EBITDA at Euro 7.745 bn

•

Net ordinary income 2 at 2.86 bn

•

Group Net income at Euro 3.895 bn Net debt at Euro 12.312 bn 2005/2004

•

+9.8%

•

+10.6% 1

•

-1.4%

•

+48%

•

-49.8%

EXCELLENT PERFORMANCE IN ALL BUSINESS AREAS

(1) (2) 2004 EBITDA net of Euro 1068mn for past stranded costs Net Income less non recurring items 7

Italian NAP

More efficient energy system (reduced energy and carbon intensity vs. EU average) Ambitious reduction target (-6.5% vs. 1990 level)

High abatement costs Flexible mechanisms needed to meet the target (JI e CDM)

Peculiar fuel mix (no nuclear and minor coal penetration )  Around 223.1 Mton CO 2 per year allocated to trading sectors within 2005 2007 (of witch 131.1 Mton to power sector).

 Grandfathering approach (base years 2000-2003) applied to all sectors with the exception of the power sector where a benchmarking based on technology has been introduced.

8

Enel investment plan: focus on CO

2

issue

Voluntary agreement signed by Enel and the Environment Ministry in 2000

Enel commits itself to reducing its specific emission to 510 g CO 2 /KWh by 2006 [ - 20% with respect to 1990]

Average CO 2 specific emission per technology

gCO 2 /kWh

740 770

Enel conversion plan

360 636 Enel specific emission trend

gCO 2 /kWh

519 <500 Target (510) <500 Oil Plant CCGT Plant New Coal Plant 1990 2003 2006 2008

• • Overall conversion plan to achieve emission reduction (target surpassed) and fuel diversification (using the most efficient technologies) Enel’s global emission to be reduced from 69 (00-03 average) to less than 60 M tons 9

Reduction targets imposed by the Kyoto Protocol

 Industrialized Countries will have to reduce GHG emissions of about 5% compared to the 1990 levels  European Union Member States will have to reduce GHG emissions of 8% compared to the 1990 levels  Italy, Spain and Slovakia have agreed, respectively, on the following targets: -6,5%, +15%, -8% compared to the 1990 levels

Slovakia

6.881 MW installed of which 1.842 thermal Need to manage emissions in an integrated way to have a complete visibility and exploit all the possible synergies

Spain

2.642 MW installed of which 1.592 thermal

Italy

41.846 MW installed of which 26.719 thermal 10

Enel actions and geographical areas

Italy Europe Developing Countries 1 Dispatching choices (e.g. fuel switching) Increase plants efficiency (e.g. retrofit) Industrial Plans 2 JI/CDM project development 3 4 CO 2 Investment Funds Bilateral actions (China) 5 Trading Rest of the World Trading Need to coordinate and manage all the actions in an integrated way 11

Actions

• Despite Italy being behind in the NAP approval process, Enel is already acting in order to be compliant with the reduction target that it will be assigned

Actions Opportunities

Participation in CO 2 investment funds Bilateral actions Development of JI/CDM projects   Risk diversification Externalisation of CERs / ERUs acquisition activities  Generation of economies of scale (e.g. China)  Valorisation of available skills (e.g. Geothermal energy) Domestic opportunities  Development of “double dividend” initiatives (e.g. biomass co-firing in coal plants) 12

Projects approved by NDRC 1/2

Updated October 24th*

CER volumes per Buyer (%)

World Bank Natsource ENEL Mts/Nippon Steel/Natsource CCCCF JMD Endesa IBRD; Japan Carbon Finance;ICECAP Noble IXIS/CAMCO Energy System International Carbon Resource Management Ltd. Carbon Asset Management Sweden Kommunalkredit EcoSecurities CAMCO Altro 3,69% 3,42% 3,18% 2,45% 1,36% 1,21% 0,80% 0,48% 0,35% 0,23% 5,45% 6,68% 6,61% 11,54% 12,92% 16,53%

Projects number=135

  Number of approved projects costantly increasing Enel is is the third buyer for number of CER generated by approved projects 23,10% * Fonte: Sito di NDRC; http://cdm.ccchina.gov.cn/english 13

Projects approved by NDRC 2/2

Updated October 24th*

Approved projects per Buyer

Energy System International ENEL Endesa Carbon Resource Management Ltd. Carbon Asset Management Sweden Kommunalkredit World Bank CCCCF Natsource IXIS/CAMCO EcoSecurities CAMCO Mts/Nippon Steel/Natsource JMD IBRD; Japan Carbon Finance;ICECAP Noble Altro 1 1 1 1 2 2 2 3 4 4 6 6 12 14 15 17  Enel is the second buyer for number of approved projects

Projects number=135

44 * Fonte: Sito di NDRC; http://cdm.ccchina.gov.cn/english 14

Market structure

Enel, to overcome entries barriers (language, relationship) of a market like China, chose to build strong relationship with reliable and efficient CDM consultants. The CDM consultant is, in our approach, the focal point of the market.

Plant Owner DNA CDM consultant Executive board Operation al entity CER’s buyer ENEL acts only as CER’s buyer its relationship with the plant owner (CER owner) passes through the CDM consultant.

The CDM consultant, due to its central position in the process, can cover different roles and guide the result of the negotiations. In the process CDM consultant act as:  broker between purchasing and selling parties positions;  CER owner influencer;  interface between the “CDM market”.

CER’s owner and the 15

Overall process

Project Entity PIN … days Negotiation Negotiation ….days

ENEL …. days ERPA PDD Signature of ERPA between ENEL and PE Acceptance stakeholders meetings result …. days Letter of approval CDM Experts PIN preparation DNA DOE PDD preparation PDD acceptance Stakeholders meetings PDD pre validation PDD Validation 16

Proposed example of working plan - ERPA

Open issues Main Activities 1 November 2 3 4 1 December 2 3 4 1 January 2 3 4 1 February 2 3 4 1 March 2 3 4 Trade-off between robusteness and simplicity Level of guarantees Trade-off between number of lots and verification costs Trade-off between number of lots and verification costs Opportunity to decouple ERPA’s negotiations from approval process Compare already approved monitoring plans with possible alternatives Trade-off between number of lots and verification costs; opportunity to replicate framework agreement with different DOEs Flexibility on modalities to transfer CERs Level of guarantees Translation, applicable law and language Standard of a reasonable and prudent operator Volume risk Force majeure vs. Parties responsibilities Non-default termination conditions Pricing structure

A Conditions precedent

1 Definitions; Interpretation; Headings; Schedules 2 Conditions precedent 3 Purchase and sale during 1st commitment period 4 Purchase and sale following comm. periods 5 CDM approval process 6 Monitoring plan 7 Verification and certification 8 Certified emission reduction 9 Representation and warranties 10 Miscellaneous provisions 11 Project operation and management 12 Expected minimum generate it 13 Events of default 14 Termination 15 Price and payment; Signature

B Negotiation C Signature

1 2 April 3 4 1 2 May 3 4 17