Annual Report 2012 Annual Report 2012 Contents Report on operations Consolidated financial statements The Enel Green Power structure | 7 Consolidated Income Statement | 90 Corporate boards | 8 Statement of Consolidated Comprehensive Income | 91 Letter to the shareholders and other stakeholders | 10 Consolidated Balance Sheet | 92 Summary of results | 12 Statement of Changes in Consolidated Shareholders’ Equity | 93 Significant events in 2012 | 17 Consolidated Statement of Cash Flows | 94 The contribution of renewable energy to sustainability | 24 Notes to the financial statements | 95 Reference scenario | 28 > Enel Green Power and the financial markets | 28 Economic and energy conditions in 2012 | 30 Corporate governance > Economic developments | 30 > Developments in the main market indicators | 31 Corporate governance and ownership > International commodity prices | 32 structures report | 162 Electricity markets | 33 Overview of the Group’s performance and financial position | 52 Declaration of the Chief Executive Officer Performance and financial position by segment | 62 and the officer responsible for the preparation > Italy and Europe | 64 of corporate financial reports > Iberia and Latin America | 66 > North America | 68 Declaration of the Chief Executive Officer > Retail | 69 and the officer responsible for the preparation Main risks and uncertainties | 71 of corporate financial reports | 202 Outlook | 73 Innovation | 74 Human resources and organization | 77 Annexes Regulations governing non-EU subsidiaries | 83 Regulations governing subsidiaries subject to the Subsidiaries, associates and other significant equity investments management and coordination of other companies | 84 of the Enel Green Power Group at December 31, 2012 | 206 Related parties | 85 Reconciliation of shareholders’ equity and net income of Enel Green Power SpA and the corresponding consolidated Reports figures | 87 Report of the Independent Auditors | 224 3 Report on operations The Enel Green Power structure Corporate Enel Green Power Italy and Europe Iberia and Latin North America Retail America Enel Green Power Portoscuso Enel Green Power España Enel Green Power North Enel.si Enel Green Power Calabria Enel Brasil Participações America Enel Green Power Strambino Energía Alerce Solar Enel de Costa Rica Energia Eolica Enel Guatemala Enel Green Power Puglia Impulsora Nacional Maicor Wind de Electricidad 3SUN (1) Enel Panama Enel Green Power & Sharp Grupo EGI (1) Solar Energy Enel Green Power Colombia Taranto Solar Enel Green Power Perú Enel Green Power Romania Enel Green Power Bulgaria Enel Green Power Hellas Enel Green Power France New Countries Enel Green Power South Africa Enel Green Power Jeotermal Enerji Yatirimlari Aş (1) Joint ventures. 7 Corporate boards Board of Directors Chairman Chief Executive Directors Officer Luigi Ferraris Francesco Starace Luca Anderlini Carlo Angelici Andrea Brentan Giovanni Battista Lombardo Giovanni Pietro Malagnino Daniele Umberto Santosuosso Carlo Tamburi Luciana Tarozzi Board of Auditors Chairman Auditors Alternate auditors Franco Fontana Giuseppe Ascoli Giulio Monti Leonardo Perrone Pierpaolo Singer Independent auditors Reconta Ernst & Young SpA 8 Enel Green Power Annual Report 2012 Report on operations Powers Board of Directors The Board is vested with the broadest powers for the ordinary and extraordi- nary management of the Company, and specifically has the exclusive power to determine the strategic, organizational and internal control policies for the Company and the Enel Green Power Group. Chairman of the Board of Directors The Chairman is vested by law and the bylaws with the powers to govern the operation of the corporate bodies (Shareholders’ Meeting and Board of Directors) and to represent the Company and sign on its behalf. In addition, pursuant to a Board resolution of October 5, 2010 (as modified on December 19, 2012), the Chairman also verifies implementation of the resolutions of the Board of Directors. Chief Executive Officer The Chief Executive Officer is also vested by the bylaws with the powers to re- present the Company and, in addition, is vested by a Board resolution of Octo- ber 5, 2010 (as modified on December 19, 2012) with all powers for managing the Company, with the exception of those that are otherwise assigned by law, the bylaws or resolutions of the Board of Directors. 9 Letter to the shareholders and other stakeholders Initial aggregate data on the global renewable energy sector for 2012 continue to reveal a very high level of investment, around $270 billion. (1) It is estimated that the worldwide installed renewables capacity for the year rose by around 110 GW, up 8% compared with 2011. Wind and photovoltaic technologies made especially significant contributions to- wards this growth in 2012. In the wind sector, over 44 GW of additional capacity was installed, of which 16 GW in Asia, 14 GW in North America, 12 GW in Europe and 2 GW in the rest of the world. Total installed wind capacity now exceeds 280 GW. (2) Photovoltaic power also reached a new global record for installations, with over 30 GW in additional capac- ity (of which 17 GW in Europe, 10 GW in Asia and 3 GW in North America). As a result, cumulative installed photovoltaic capacity reached around 100 GW in 2012, an increase of 45% compared with 2011. (3) The expansion in generation from renewable resources, which has now been under way for over a decade globally, is thus one of the most interesting drivers of change in economic, technological and geo-strategic scenarios. In this environment, Enel Green Power in 2012 continued to pursue its announced strategy: consolidation in its European markets and the start of further geographical diversification into markets with an ideal combination of natural resource availability and a major need to develop sources of electricity, partly to meet the demand generated by high rates of population growth. Enel Green Power continued to expand rapidly in 2012. We increased our installed capacity by more than 900 MW, to a total of 8 GW (up 13% on 2011) in the 16 countries in which we currently operate. At the end of 2012, the net installed ca- pacity of Enel Green Power broke down into 4.3 GW (54%) of wind, 2.6 GW (33%) of hydroelectric capacity, 0.8 GW (10%) of geothermal, 0.2 GW (2%) of solar and 0.1 GW (1%) of other renewable technologies (biomass and cogeneration). Underscoring the substantial rise in installed capacity, on January 16, 2013, the net daily output of Enel Green Power exceeded 100 GWh for the first time, with a peak of 103 GWh. The symbolic value of this result is significant, repre- senting the scale that the Company has been able to achieve in the last three years thanks to the contribution of all its components. Total net electricity generation in 2012 amounted to 25.1 TWh, of which 9.8 TWh (39%) from hydro generation, 9.0 TWh (36%) from wind, 5.5 TWh (22%) from geothermal, 0.2 TWh (1%) from solar and 0.5 TWh (2%) represented by other renewable technologies (biomass and cogeneration). This expansion in generation capacity and electricity sales was accompanied by an 8% increase in total revenues: €2.7 billion, compared with €2.5 billion in 2011. The gross oper- ating margin (EBITDA) in 2012 came to €1.7 billion, up 6.3% over 2011. Thus, development continued along the paths that Enel Green Power set out at the time of our IPO in 2010: substantial technological and geographical diversification, selection of the soundest and most profitable projects, and minimiza- tion of country risk. In Enel Green Power’s growth strategy, the specific weight of emerging markets has expanded, particularly Mexico, Brazil, Chile and Guatemala, which are characterized by an abundance of natural resources and sig- nificant economic and demographic progress. Growth has also been achieved in the United States and Canada, thanks to the strong economic “resilience” and favorable market conditions in those countries. (1) Source: Bloomberg Energy Finance. (2) Sources: GEWC and EWEA. (3) Source: EPIA. 10 Enel Green Power Annual Report 2012 Report on operations With regard to Europe, the results achieved in 2012 confirm that Enel Green Power’s presence has been strengthened in countries such as Romania, where in just two years the Group’s installed capacity has risen to about 500 MW, and in our traditional markets, such as Italy and Spain, where a cycle of development has essentially been completed and where the Company continues to seek greater operational efficiency as a distinctive feature of the Group’s strategy. As examples of this strategy, let us briefly mention a few salient developments in 2012: at the end of June and in De- cember, two wind farms in Mexico, in the State of Oaxaca, entered service, with a total capacity of 144 MW, while in November, Enel Green Power won a public tender to develop 102 MW of wind power in Oaxaca; in Brazil, construction began in December on three wind farms in the State of Bahia for a total of 90 MW, while in Chile work began on de- veloping a 90 MW wind farm in Valle de Los Vientos, in the region of Antofagasta; in Guatemala, the new “run-of-the- river” hydroelectric plant (i.e. without a dam or reservoir) with a total capacity of 87 MW entered service in Palo Viejo, in the Quiché Department. In the United States, at the end of the 1st Half of 2012, the 150 MW Rocky Ridge wind farm, located in Kiowa and Washita counties in Oklahoma, entered service. In the meantime, work began on the construction of a new 25 MW geothermal plant in southern Utah; the 76 MW Castle Rock Ridge wind farm was connected to the grid in Alberta, Canada; and in Romania, wind plants in the regions of Banat and Dobrogea, for a total of about 230 MW, entered service between late August and December. In Italy, Spain and Greece, new photovoltaic plants (with about 60 MW of new capacity) and wind plants (more than 170 MW) began operating, while we continued to upgrade our historical geothermal plants in Tuscany by completely refurbishing the Rancia 2 plant in the province of Siena.