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The creation of sustainable value: the Snam business model

Description of capital

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Financial capital

The financial capital available to the Group represents the vital input for realising all the necessary investments for the correct operation of the natural gas infrastructures. The financial capacity of the Snam group is composed of its equity and debt capital, obtained on the financial markets and through own operating income, as well as the issuing of the specific Climate Action Bond to fund with a sustainable footprint.

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Infrastructural capital

The transport network and facilities for natural gas storage and regasification represent the vital infrastructure capital to enable Snam to provide its services to operators and users. Pipelines, storage and regasification facilities constitute the Regulatory Asset Based (RAB) necessary for the purpose of recognising the reference revenue for the regulated business, as calculated on the basis of the rules defined by the Italian Regulatory Authority for Energy, Networks and the Environment (ARERA). In addition to this, in future years Snam's infrastructure will be enriched by plants for the production and injection of biomethane, natural gas distribution plants for motor transport, as well as modernisation to accommodate the integrated mixture from hydrogen.

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Intellectual capital

Intellectual capital represents Snam's distinctive heritage and includes information systems, processes and internal procedures for the efficient management of business activities. It involves practices developed and consolidated over a period of time, based on corporate know-how and aimed at guaranteeing the security of the networks and infrastructures for employees, suppliers and users.

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Human capital

Snam's human capital is composed of the people that are part of the Group - employees and the extensive network of Italian and international suppliers - with their wealth of know-how and expertise. Snam supports the promotion of a business culture founded on several distinctive values: the promotion and development of people, the culture of security, maintaining and increasing the know-how necessary for continued technological updating and the modernisation of the Group's assets.

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Relational capital

The Group's relational capital is represented by the licence-to-operate that stakeholders acknowledge to Snam. The confident response of stakeholders in the ability of the Group to create value is the direct consequence of more than 75 years of history that connect Snam's activities to its stakeholders and to the companies in the areas that house the infrastructures. Also, taking into consideration the expansion of Snam's business in the non-regulated market, in coming years the contribution to increasing the Group's relational capital will become increasingly more important through participation in national and international working parties and ratified agreements and understandings with the objective of developing collaborations and partnerships with businesses operating in international and non-European energy markets.

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Natural capital

The area in which the infrastructures rise up, the air and biodiversity represent Snam's natural capital, along with the energy resources (natural gas, biomethane and hydrogen) necessary to allow Snam to provide its services to operators and users in the energy transition scenario.

Snam business model

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Snam business model (graphic)

The creation of value

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Financial capital

Creation of value and distribution of wealth

Snam is a solid and healthy company from a financial perspective that produces wealth for its stakeholders contributing to the economic growth of the social and environmental framework that it operates in. The investment programme, which includes a total of €6.5 billion for the upgrading and modernisation of the existing network and for the development of the new businesses related the production of biomethane, bio-LNG and hydrogen, and, energy transition in general, will have a positive impact on Snam's financial capital.

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Infrastructural capital

Development and reliability of corporate assets

Thanks to the continuous diversification and innovation of infrastructures, Snam ensures an increase in the value of its assets and constant security and reliability of natural gas procurement and the provision of its services. Snam constantly works towards the development of infrastructure capital; specifically, in future years the greatest focus will be on the completion of the new north-west connections of the pipeline network, the gas conversion projects, the TAP interconnection, upgrading the storage facilities and the replacement of 1000 km of network.

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Intellectual capital

Quality of service and increasing the confidence of stakeholders

Internal policies and procedures, the management systems implemented and the certifications obtained allow Snam to maintain a high quality in the provision of its services which translates into growing and steady confidence of its stakeholders with whom, over time, it has created productive and lasting relations and partnerships. Compliance with standards and the execution of activities in accordance with well-defined, structure methodologies, makes it possible to provide a higher quality service and achieve greater efficiency for processes and control throughout the entire creation of value chain leading to an increase in the quality of service, which constitutes one of the key points in obtaining the licence-to-operate.

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Human capital

Promoting and motivating people

Thanks to the development of courses for professional development and advancing technical, managerial and organisational skills, as well as the dissemination of a culture of health and safety in the workplace, Snam guarantees value for its people, leading to personal and professional growth. As a result of the satisfaction and recognition of the work of its employees, there is an improvement in the performance of the organisation and a general increase in motivation. Operating in this context, the Group's people contribute to the results, carrying out the activities assigned in a positive manner, increasing productivity, reaching the set targets and achieving the best results.

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Relational capital

Corporate reputation and relations with stakeholders

Maintaining a good corporate reputation, in line with the corporate vision, values and mission enables Snam to build productive and lasting relations with the main stakeholders and with the industry regulatory bodies. The constant presence in national and international tables, the extensive presence in the area and energy procurement security play a key role in consolidating relations with all stakeholders involved.

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Natural capital

Safeguarding the environment and developing the area

Safeguarding the environment is an integral part in the definition of corporate policies and investment decisions for all of Snam's activities, which is fully recognised in an approach that lets the environment and economic development coexist, without neglecting the protection and development of the area. Specifically, Snam demonstrates an increasing commitment to the fight against climate change and reducing energy consumption, in safeguarding nature and biodiversity, protecting the air, managing waste and optimising water resources, issues which, each in their own way, contribute to the creation of a more habitable area. The activities in the TEC project will allow Snam to enrich its own natural capital, implementing network monitoring actions and real-time measurement of regional development, the gas consumption and energy efficiency of the infrastructures, with the dual goal of optimising the operating costs and minimising the environmental impact of its activities. As confirmation of the attention that the company devotes to climate protection, the Strategic Plan contains a target to reduce Scope 1 and Scope 2 emissions by 40% by 2030.

Impacts of Snam's activities on the gas system and on the energy scenario

IMPACTS ON THE GAS SYSTEM

 

Market Facilitation
From October 2016, the balancing service operated in accordance with joint, harmonised European rules aimed at promoting market trading and liquidity (Network Balancing Code). Under the new system, users are the primary parties responsible for system equilibrium and they can balance their own trading positions (injections and withdrawals from the system) through an hourly reprogramming of their own requirements, and/or by executing gas transactions on both the organised and over-the-counter markets. Snam also performs the role of Default Transportation Supplier, namely supplies gas to Sales Companies and Final Customers for which the Balancing User responsible for the related withdrawals is not identifiable. The same service is also carried out for the sales companies and final customers at third-party transporters who explicitly requested it.

Impact of the Default Transport Service
The service in the 2018-2019 thermal year involved 112 parties amongst Final Customers and Sales Companies, for a total volume of approximately 323,000 MWh.

New transport capacity products
Already in 2018 new flexibility services were introduced, such as intra-day storage auctions that consist of offering additional supply capacity to the originally contracted amount, which is allocated to customer based on an auction during the gas day in progress. In 2019, allocations for storage capacities, similar to the transportation business, were incorporated in the European PRISMA platform. This helps customers book the transportation and storage capacity on a single platform and makes Snam’s storage capacity more visible on a European level. In 2019, new solutions to increase the flexibility of the services offered by Snam were being looked into to meet customers’ requirements.

Creation of a European Gas Market
Snam is one of the founders of PRISMA, the international project established in 2013 to promote the harmonisation of rules for accessing and providing services in implementation of the European Codes, by offering services through a single shared digital platform.
Approximately 41 European operators active in the transport and storage of gas from 17 countries participate in the development of PRISMA.

The numbers of the PRISMA platform
In 2019, the PRISMA platform increased the number of auctions for the sale of capacity products further, going from 6,5 million in 2018 to 9,1 million in 2019.
The registered number of shippers and users was, respectively 2,500 and 3,000.

Gas Access And Cost
The cost of transport, distribution and metering (meter reading) services, which allow the delivery of gas to end users, is one of the three main items of the gas bill.

Impact of transportation service on gas cost
The cost of the transportation service in 2019 was estimated at around 5,6% of the total expenses of domestic customer (family with individual heating and annual consumption of 1,400 Smc) compared with 19% of the total cost of infrastructure services.

New connections
In 2019, 123 connection contracts were signed for the construction of the new delivery/redelivery points (26 of which were for biomethane and 61 of CNG Service Areas) or the upgrading of existing points, with a total increase of around 40% compared with 2018.

IMPACTS ON THE ENERGY SCENARIO

 

Security of Supplies
In 2019, Italy recorded a rise in thermal production with cumulative increase of 6 TWh compared with the same period in 2018 (+4.5%). In the third quarter of 2019, net imports actually fell by more than 15% compared with the same period of the previous year, while electricity production from renewable sources (FER) increased which, however, from the start of 2019, fell by 1% due to the 10% decrease in production in the 2nd quarter. This reduction, of around 0.8 TWh, is due to the increase of around 3.3 TWh of generation from non-programmable sources and the decrease of around 4 TWh in hydroelectric production (source ENEA).

Diversification of sources
Thanks to the interconnection of Snam’s network, Italy is the current European country that can rely on the greatest number of supply sources. Besides domestic production, the Italian system can receive gas through four methane import pipelines (Algeria, Libya, Russia and Norway) and 3 regasification terminals. It is also planned in the future to add the importation of gas from the Caspian Sea by constructing the TAP methane pipeline. In the instance of Italy, if any of the supply sources should be absent, the remaining sources of supply are capable of satisfying more than 120% of the area’s total gas demand, calculated during a day of particularly high gas demand. The development of bidirectional capacity in the north of our country along the North-South corridor (reverse-flow) may also make Italian supply sources accessible to other European countries.

 

Storage capacity utilisation
In 2019 Snam took action to promote the replenishment of national storage facilities for the purpose of being able to manage seasonal peaks in demand. The replenishment level at the end of the injection campaign was 99% compared with a European average of 98% proof of Snam’s efficiency in energy procurement.

Contribution to Decarbonisation
Gas in its various forms guarantees lower carbon dioxide emissions, with a reduction of between 25% and 40% compared to other fossil fuels, as well as reduced nitrogen oxides and fine particle levels.

Gas in the national energy mix
The quarterly analysis of the Italian energy system in the first nine months of 2019 by ENEA highlighted an increase in primary energy sources, such as natural gas, oil and renewables of around 1,2 Mtep due to the rise in imports of electricity and solid fuels such as coal, biomass and waste intended for electricity generation. Specifically, there was a 1% fall in the consumption of oil and renewable energy sources in the first nine months of 2019 compared with the same period in 2018, while in the third quarter gas consumption rose by 7% compared with the 3rd quarter of 2018.
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